Insurance Contract: Rules of Interpretation

Courts frame Common law rules to facilitate interpreting the words used in contracts, including insurance contracts.

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Literal rule is the most used way of interpretation and has precedence over others. It states that the courts should interpret words and phrases in their ordinary sense and stick to customary grammar and punctuation rules while interpreting.

The interpretation of words is vital when settling a claim. From time to time, the courts have created rules to clarify the words. There are several rules to assist in interpreting statutes, including the Interpretation Act, the literal rule, the golden rule and the mischief rule.

Courts frame Common law rules to facilitate interpreting the words used in contracts, including insurance contracts. Literal rule is the most used way of interpretation and has precedence over others. It states that the courts should interpret words and phrases in their ordinary sense and stick to customary grammar and punctuation rules while interpreting.

Some subsidiary principles govern the literal rule, like 'Noscitur a sociis rule', a general principle specifying that context should determine the meaning of the words. Similarly, the 'Ejusdem generis rule' states that the meaning of any general term depends upon any specific words that precede it.

Therefore, policy drafting is complex and must be carefully executed. We often encounter disputes about the meaning of the words as they can have different interpretations.

Ambiguity: the contra proferentem rule