Insurers use definitions to specify the meaning of certain terms. Typically, insurers define a term or phrase to limit its scope. The goal is to prevent policyholders (and courts) from interpreting insurance terms more widely.
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For example, the standard ISO liability policy includes two types of vehicles, auto and mobile equipment. The policy of liability covers claims arising from accidents resulting in the operation of mobile equipment, such as forklifts and backhoes, to exclude claims arising from accidents involving the operation of autos. The policies define rules that distinguish auto and mobile equipment from vehicles that are covered.
An insurer can define a policy in order to eliminate the dispute of the meaning of a word or phrase. For example, prior to 1998, the standard ISO liability policy did not define advertising. Several disagreements arose between insurance companies and policyholders about the types of activities eligible for coverage under the advertisement injury. To resolve the problem, ISO has added a definition of the term to the policy.
Some definitions are designed to clarify the exclusion of the policy. For example, ISO occupational property policy does not include loss or damage due to volcanic eruptions. Exclusion is an exception to losses from volcanic action as many policyholders are not familiar with volcanic action, it is defined in exclusion.
The term does not appear in the asset definition section
Another example of the term defined in the exclusion is electronic data. This term is defined in the ISO liability policy, but does not appear in the policy definitions. Rather, its meaning is explained in the electronic data exclusion under physical damage and property damage liability.
Exclusion in definitions
As mentioned earlier, insurance companies include a definition limiting the meaning of words or phrases. Thus, definitions may include exclusions. The term employee defined in the ISO general liability policy is an example. The definition does not explain all types of individuals who may qualify as employees. Rather, it simply states that the employee has one The lessee includes the worker, but does not include a temporary worker. Basically, the definition acts as an exclusion for suits against temporary workers.
Another definition that includes an exclusion is the defined term sinkhole collapse. This period is defined as a loss due to ISO commercial property.
Insurers and insurance do not always interpret the policy method in the same way disputes may occur due to different interpretations. When a policyholder disagrees with an insurer’s interpretation of a word or phrase, it may argue that the language is ambiguous. Generally, policy terms are considered ambiguous if it has two or more reasonable interpretations.
The policyholder’s building has been damaged. The policy does not include loss or damage due to collapse, but does not define collapse. Policyholders and insurers disagree on whether the collapse exclusion applies to losses.The policyholder argues that a building has not collapsed.
Because insurance companies have the power to formulate policy language, courts have generally interpreted prudential terms (against the insurer) in favor of the policyholder. That is, if a policyholder and an insurance company disagree with the meaning of a term, and there are two or more reasonable interpretations in that period, a court will probably choose the meaning that benefits the insurers.
Undefined Terms In the scenario described above, insurers and policyholders disagreed about the meaning of an undefined term (collapse). When a term is not defined in policy, how do the courts decide what the term means?
First, a court may consider previous rulings on the meaning of the term. Former court decisions (called antecedents) often serve as guidelines for future decisions. If any previous decisions do not exist or prior decisions do not apply, a term may approach a standard dictionary to determine the meaning of the word. It may also consider how the policyholder would interpret the term. Courts believe that a general insurance buyer may interpret insurance terminology differently from an insurer
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Is the definition of policy really important? Silverstein Properties and its property insurance companies learned the hard way to answer this question.