Policy Construction Supporting Coverage

An insurance policy may contain provisions that state when coverage will be forfeited or which perils are excluded from coverage. Such provisions may be valid and enforceable, if unambiguous.

Forfeiture provisions

An insurer may provide that coverage under the policy will be forfeited upon the insured's failure to pay premiums. However, forfeitures are not favored. Thus, such a provision will be enforced only if its plain and ordinary meaning is unambiguous. If it is to be enforced, the insurer must have strictly complied with policy provisions and applicable statutes as to providing notice of forfeiture. There is no automatic forfeiture of insurance for nonpayment of premiums, and the insurer must take reasonable steps to cancel. On the other hand, if the provision is ambiguous and susceptible to more than one meaning, it will be construed against the insurer under the doctrine of "contra proferentem." Thus, it will be liberally construed in favor of the insured to avoid a forfeiture or to find a waiver of the forfeiture.

Exclusions

An insurance policy generally lists the covered perils and then provides exclusions from coverage. The insurer must use clear and unambiguous language when limiting coverage. In addition, the exclusion must be conspicuous and plainly set forth in the policy. An exclusion by implication is ineffective. In determining whether the exclusion is ambiguous, a court must read it in conjunction with the insuring provisions but independent of inapplicable exclusions. If the exclusion is ambiguous, it will be held ineffective so that coverage applies.

If the exclusion is unambiguous, it will be enforced. However, the terms of the exclusion will be strictly and narrowly construed. Some courts purposefully construe exclusions more strictly than coverage clauses in order to find coverage.