What Happens If the Words Within An Insurance Policy Are Confusing to a Layperson?

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 Insurance documents are often extensive consisting of dozens of pages that also contain significant legalese that may be difficult for the ordinary person to understand. Additionally, insurance policies are typically known as a contract of adhesion where there is little, if any, opportunity to negotiate the specific words within the contract.

The Law

To protect the insurance buyer, who is often unsophisticated in legal language and insurance terms, the courts have developed special rules of interpretation for insurance policies.  One such rule is 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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