Construction of Insurance Policies

An elderly English couple came home from vacation to find their home ravaged; curtains ripped, pictures smashed and flower pots broken. They thought a burglar must have been there. This was certainly a shock and the damage seemed to be about £5000, but they had insurance. They were wrong. The intruder turned out to be a squirrel and their insurers refused to pay on the ground that the policy excluded damage by “vermin”, and squirrels were covered under that term. The disgruntled policyholders turned to the press and only after an intense media debate and a stream of letters from people recounting similar disputes with insurance companies and local authorities regarding whether squirrels were deemed vermin, did the insurance company grudgingly pay.

Drafter’s Tip

The wise drafter will take into account the general rules for the construction of insurance policies:

Insurance policies are to be construed according to the principles applicable to commercial contacts in general. Regarding the meaning of words in a policy, the overriding consideration is whether the word or phrase has previously been construed by a court in the same context.