Practice Profile: Disability Insurance

In this Part Two of our four-part Practice Profile, we look at the language of an insurance contract. Insurance contracts are open to interpretation. When the language of an insurance contract or policy is ambiguous, the courts rely on the general rules of contract construction to come to a conclusion on how to interpret the ambiguous term. Courts have held that contractual interpretations should be preferred that are consistent with the reasonable expectations of the parties, so long as such an interpretation can be supported by the text of the policy. Further, the courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was entered into.

Finally, when the rules of contract construction fail to resolve the ambiguity in contractual interpretation, courts will construe the policy contra proferentem. Contra proferentem means where a term is ambiguous, the term is interpreted against whomever drafted the term. In other words, in the insurance context, the contract will be interpreted against the insurer. This effectively means that coverage provisions will be interpreted broadly in favour of the insured and exclusion provisions will be interpreted narrowly against the insurer.