When policies are open to interpretation

If a term or clause in a contract is ambiguous, the party not involved in the drafting of the contract – in other words, the policyholder – is given the benefit of the doubt, writes

WHILE it is admirable that insurers are making their policy documents easier for you to read by drafting them in plain English rather than mind- boggling legalese, there is the danger that simpler, less precise wording can result in clauses being open to more than one interpretation.

In such instances, an adjudicator in the matter may invoke the contra proferentum rule against the drafter of the policy (the insurer).

Under this rule, if a term or clause in a contract is ambiguous, the party not involved in the drafting of the contract – in other words, the policyholder – is given the benefit of the doubt.

A good example is in a case study in The Ombudsman’s Briefcase, April 2017, the latest newsletter from Deanne Wood, the Ombudsman for Short-Term Insurance.

While on a holiday trip, Mr X parked his vehicle and trailer in a parking area at a coffee shop, where he met members of his family. When he came out of the shop, the trailer, with contents to the value of R200 000 had been stolen.

Relying on a limit of R20 000 in the policy for “loss of contents from a vehicle”, the insurer, Western National Insurance Company, offered to pay out a maximum of R20 000 for the contents.

Mr X challenged the insurer’s decision and complained to the ombudsman.

Under a section on all-risks cover for contents, the policy read: “Compensation under this cover is specifically excluded per the following: … Loss of contents from a vehicle (including caravans and trailers) in excess of R20 000.”

The issue was whether the clause limiting liability in respect of goods stolen from a vehicle was applicable in circumstances where the goods were stolen in conjunction with the vehicle.

Mr X argued that, as a layman, he found the wording of the exclusion unclear. He said that “a loss from a vehicle” has a different meaning from “a loss of a vehicle with its contents.”

He believed the exclusion did not apply to the loss “of a vehicle with its contents” and understood it to mean that it would apply only where a loss occurred from the trailer. He said the fact that the contents were later removed was irrelevant, because the initial loss happened with the theft of the trailer, and that such loss was not excluded or dealt with in the policy document.

The insurer, in its response to the ombudsman, stated that, to enhance legibility, the policy had been written in plain English. It referred to the Oxford English Dictionary, which defined the word “from” as a preposition indicating the point in space at which a journey, motion, or action starts. It argued that the loss had indeed occurred “from” a trailer and that the exclusion applied.

The ombudsman raised the point that the word “from” does not only indicate the point in space at which an action starts, but also means separation or removal, such as in the sentence “the party was ousted from power after 16 years”. In the ombudsman’s view there was no separation of the stolen contents from the trailer; the contents were stolen together with the trailer and therefore the exclusion relied on by the insurer did not apply.

As Mr X had cover under the all-risks section of the policy up to 25 percent of the sum insured for contents, Mr X’s claim was payable under this section of the policy.

The ombudsman said that because the word “from” was open to more than one interpretation, she was entitled to invoke the proferentum rule.

She held that the insurer was therefore not entitled to apply the exclusion and recommended that it pay the claim in full, which it agreed to do. contra