The Louisiana principles of interpretation of insurance policies are generally summarized as follows:
1) An insurance policy is a contract between the parties and is the law between the parties.
2) An insurance policy is construed using the general rules of interpretation of contracts set forth in the Louisiana Civil Code.
See La. C.C. art. 2045: Interpretation of a contract is the determination of the common intent of the parties.
3) Jurisprudential responsibility is to determine the parties’ common intent as reflected by words in the policy to determine the extent of coverage. An insurance policy should not be interpreted in an unreasonable or a strained manner so as to enlarge or to restrict its provision beyond what is reasonably contemplated by its terms or so as to achieve an absurd conclusion.
4) Absent a conflict with statutory provisions or public policy, insurers are entitled to limit their liability and to impose and to enforce reasonable conditions upon the policy obligations they contractually assume.
5) If policy wording is clear and unambiguously expresses the parties’ intent, the insurance contract must be enforced as written.
See La. C.C. art. 2046: When the words of a contract are clear, no further interpretation may be made to determine the parties’ intent.
Ambiguity in an insurance policy must be resolved by construing the policy as a whole; one policy provision is not to be construed separately at the expense of disregarding other policy provisions.
6) The courts should construe the policy to fulfill the reasonable expectations of the parties in light of the customs and usages of the industry.
See La. C.C. art. 2047: Words of a contract must be given their generally prevailing meaning. Words of art and technical terms must be given their technical meaning when the contract involves a technical matter.
7) If, after applying the general rules of construction, an ambiguity remains, the ambiguous contractual provision is to be construed against the drafter, or in the insurance context, in favor of the insured.
See La. C.C. art. 2056: In case of doubt that cannot be otherwise resolved, a provision in a contract must be interpreted against the party who furnished its text. A contract executed in a standard form of one party must be interpreted in case of doubt in favor of the other party.
Rule of strict construction requires that an ambiguous policy provision be construed against the insurer who issued the policy and in favor of coverage to the insured.
See LIGA v. Interstate Fire and Cas. Co., 630 So.2d 759 (La.1994) & McKenzie & Johnson, 15 Louisiana Civil Law Treatise, Insurance Law and Practice (West).
FAQs
Basic Principles of Insurance
In the insurance world there are six basic principles that must be met, ie insurable interest, Utmost good faith, proximate cause, indemnity, subrogation and contribution.
What are the 7 principles of insurance pdf? ›
In insurance, there are 7 basic principles that should be upheld, ie Insurable interest, Utmost good faith, proximate cause, indemnity, subrogation, contribution and loss of minimization.
How to interpret an insurance policy? ›
How to read your insurance coverage
- Read the overview on your declarations page. ...
- Learn insurance terminology. ...
- Train your eagle eye and read the fine print. ...
- Ask yourself questions. ...
- See what's covered (your insuring agreement) ...
- See what's not covered (your exclusions)
The application provides the insurance company with necessary information regarding the insured's age, address, health history and other factors. This information is important so that the insurance company can properly determine if the applicant meets their underwriting rules and can determine the proper premium.
Who is the principal in insurance? ›
A Principal in insurance usually represents a company (i.e. a insured) that has purchased the insurance of their own property at a lower price than they would have paid to an agent. One of the main advantages of purchasing insurance from a principal is the possibility of early cancellation.
What is an example of the principle of subrogation? ›
For instance, if your vehicle incurs damages because of a third party's fault, the insurer can recover the amount paid out in claims from the third party's insurance. This prevents the insurer from bearing the entire financial burden of expenses that arose due to someone else's fault.
What is insurance interpretation? ›
A contract executed in a standard form of one party must be interpreted in case of doubt in favor of the other party. Rule of strict construction requires that an ambiguous policy provision be construed against the insurer who issued the policy and in favor of coverage to the insured.
How do you answer insurance questions? ›
Think deeply about the exact question the agent asked, and only provide that specific information. Never admit to fault. Never admit to even being partially at fault. Never admit that you are uninjured.
What is the simplest way to explain insurance? ›
Insurance is a way to manage your risk. When you buy insurance, you purchase protection against unexpected financial losses. The insurance company pays you or someone you choose if something bad happens to you.
Why do insurance companies ask so many questions? ›
Details about your health, lifestyle, and other factors give insurers the insight they need to make accurate decisions and provide you with the best rates possible. If the insurer can verify you're healthy, that's going to help you secure the best premiums (or life insurance quotes) on your policy.
Statements in an insurance application called representations are believed to be true to the best of the applicant's knowledge. They aren't guaranteed to be absolute truths or warranties. The insurer can terminate the contract or deny a claim if a representation is proven false.
What is the most important reason for insurance? ›
Insurance is a financial safety net, helping you and your loved ones recover after something bad happens — such as a fire, theft, lawsuit or car accident. When you purchase insurance, you'll receive an insurance policy, which is a legal contract between you and your insurance provider.
What is the principle of causa proxima in insurance? ›
The Principle of Causa Proxima
When an insured event occurs, it is essential to ascertain the cause or series of events that led to the loss. The Principle of Causa Proxima helps insurers assess the circ*mstances surrounding the incident and identify the most immediate or proximate cause.
What is the principle of insurance that states a person should be made whole no better no worse? ›
Fundamental to the concept of insurance is the principle of indemnity, the idea that a policyholder should be made whole after a loss.
What is the principle of Utmost good faith? ›
The principle of utmost good faith states that the insurer and insured both must be transparent and disclose all the essential information required before signing up for an insurance policy. It states that both the parties must disclose all the material facts before subscribing to the policy.
What is insurance in simple words? ›
Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils. There are many types of insurance policies. Life, health, homeowners, and auto are among the most common forms of insurance.
