Policy Wording: Be Explicit or Else!

DBRS Morningstar released a commentary titled ‘Imprecise Policy Wording Could Lead to Costly Insurance Claims Litigation and Regulatory Intervention,’ which discusses the importance of having clear, unambiguous insurance policy wording to protect both policyholders and insurers.

The strength of policy wording continues to be tested in courts globally.

To date, U.S. state and federal court rulings on coronavirus-related business interruption (BI) claims have been overwhelmingly in favour of insurers, but outcomes have been less favourable for insurers in other jurisdictions.

The commentary highlights the following: BI losses from the coronavirus pandemic could have been catastrophic had insurance contract policy wording not been clear enough to prevent massive payouts in some jurisdictions; insurers have benefitted from their experience dealing with claims made as a result of the severe acute respiratory syndrome (SARS) outbreak in the early 2000s.