Is An Insurance Policy Interpreted Based Upon Language Understood By Laypeople or By Legally Trained People?

An Insurance Policy Can Be Difficult to Read. Also, Buyers of An Insurance Policy Are Usually Without An Opportunity to Negotiate the Specific Words Used Within. Accordingly, the Law Provides That An Ordinary Person Meaning Is Used When Interpreting the Words Within An Insurance Policy Document.

Understanding the Ordinary Person Meaning Requirement When Interpreting Special Terms Within An Insurance Policy

Insurance Claim Document An insurance policy often contains many pages consisting of legal language that may be quite unfamiliar to the average layperson. Accordingly, the average layperson, referred to in law as an ordinary person, may find an insurance policy difficult to interpret and understand.  Furthermore, insurance is usually bought with little, if any, opportunity to negotiate the precise wording.

The Law

Insurance buyers are often unsophisticated in the terms and legal language of insurance policies. To protect insurance buyers, courts developed special rules for the interpretation of insurance policies including the ordinary person meaning for interpreting special words and terms that may have a certain meaning to laypeople and yet another meaning in law.

The rule of interpretation based upon the ordinary person meaning was stated by the Supreme Court within the case of Co-operators Life Insurance Co. v. Gibbens, [2009] 3 SCR 605 wherein it was stated:

[20]  The courts have developed a number of general interpretative principles that reflect a concern that customers not suffer from the imbalance of power that often exists between insurers and the insured but, on the other hand, that customers obtain no greater coverage than they are prepared to pay for.  The exercise of interpretation should avoid “an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted”:  Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, per Estey J., at p. 901.

[21]  In Mutual of Omaha Insurance Co. v. Stats, 1978 CanLII 38 (SCC), [1978] 2 S.C.R. 1153, Spence J. stated that the word “accident” is “an ordinary word to be interpreted in the ordinary language of the people” (p. 1164).  Such terms should be construed “as they would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law”:  National Bank of Greece  (Canada) v. Katsikonouris, 1990 CanLII 92 (SCC), [1990] 2 S.C.R. 1029, at p. 1043.  This approach was affirmed by McLachlin C.J. in Martin, at para. 19.

"... terms should be construed “as they would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law”."
~ Supreme Court of Canada

Summary Comment

The terms within an insurance policy can be confusing to the ordinary person without the special knowledge of insurance experts or lawyers, paralegals, among other professionals with legal training.  To protect the ordinary person as an insurance broker, the law imposes special rules of interpretation for insurance policies by requiring that any special terms be interpreted using the meaning that would, generally, be understood by an ordinary person.

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