Ambiguity & Confusion in Insurance Policies

Researchers say only about 30% of American homeowners know what their insurance policies cover.[1] For some, dense legal language is to blame. 

All homeowners are encouraged to read their insurance policies carefully, so they understand what is (and is not) covered. But in some cases, reading the policies causes more confusion rather than clearing it up. 

Sometimes, this dense language is unintentional. Lawyers just speak in terms average people may not understand. But sometimes, the insurance plan’s design is intentional, made to encourage you to sign something that won’t benefit you. 

Why Are Home Insurance Policies So Confusing?

Your homeowners insurance policy is a legal document that protects your most important asset — your home. However poor writing can impair your ability to understand what you’ve purchased. 

Researchers say legal documents contain “startlingly high proportions of difficult-to-process features.”[2] Your insurance policy may include the following examples of poor writing:

• Jargon 
• Embedded clauses
• Passive voice structures 
• Unusual capitalization 
• Confusing terms & definitions

Lawyers know how to read these types of documents. Everything they write is full of them. But they can be very hard for average people to understand. 

Researchers give this example of a difficult section within a legal document:[2] “In the event that any payment or benefit by the Company (all such payments and benefits, including the payments and benefits under Section 3(a) hereof, being hereinafter referred to as the ‘Total Payments’), would be subject to excise tax, then the cash severance payments shall be reduced.”

Given that half of Americans between 16 and 74 read below the sixth-grade level, most consumers just couldn’t parse documents like this.[3] 

“Making legal language more straightforward would help people understand their rights and obligations better, and therefore be less susceptible to being unnecessarily punished or not being able to benefit from their entitled rights,” says Eric Martinez, a law school graduate and licensed attorney who participated in the research.[4] 

Legal Protections Against Insurance Ambiguity 

It’s best to understand your policy before you sign. But if the details are muddled by dense language, you could go to court and win. 

Examples of Vague Language Cases

In general, cases stemming from vague language are winnable. If you can prove that the terms were unclear somehow, the company could be forced to pay your claim. The following examples prove this point:

• Philadelphia: In 1996, a judge ruled that a homeowner was entitled to payment for damage due to a suicide on the premises.[5] The policy had an “explosion peril” provision that wasn’t clearly defined. 
• Oregon: In 2012, a judge ruled that a homeowner was entitled to damages after a neighbor’s home fell down a hill and hit theirs.[6] The insurance company had claimed the damage was due to a natural event (“collapse”). But the policy included a concurrent clause with vague language, allowing for a successful court case. 
• New York: In 2012, courts ruled in a case of a homeowner who was living on the property at least five days per week, often staying late and eating meals there, to fix up the home for sale.[7] Vague language concerning residency meant the insurance company tried to deny the claim. The two parties had to go to court to resolve the fight.

Disputes Over Language & Timelines

Fights between homeowners and insurance companies are common, and they don’t always end happily. In Denver, for example, a homeowner endured a fire. The insurance company authorized a rebuild with compensatory living expenses. But the policy said the work had to be completed within a set timeframe, which was impossible to meet. 

“While they would never admit it, they want to delay the process so that they do not have to pay beyond the 12- to 24-month temporary living expenses,” the homeowner told reporters.[8] “They also can deny your claim if you do not complete your rebuild within the policy limits. My limit is 24 months and building a home was taking three years before the fire.”

In New Jersey, a couple had property insured for more than $500,000. But when their home was deemed a loss, the company sent a compensatory check for just $295,000.

“How can you have one calculator when trying to get premiums and have a completely different calculator close to a $200,000 difference when a claim comes in? How is that even legal? That’s my question. How do you do this to a family?” the homeowner told reporters.[9] 

Vague language inside contracts could trigger hidden clauses in the aftermath of a tragedy. Sometimes, those clauses could force you to give up your property altogether. 

Tips for Interpreting Confusing Home Insurance Policies 

You don’t have to go to law school to understand your home insurance policy. But you must take your time and get help with the parts you don’t understand.

The following tips may help:[10]

• Read everything before you sign, including the fine print. Once you sign, you’re agreeing to everything in the document, even if you don’t agree with it. 
• Never sign a contract with blank parts, even if you trust your agent. Your contract should be complete before you sign it. If there are blanks, ask them to be filled in before you sign.
• Seek legal advice if there are parts of the policy you don’t understand. 
• Ensure your policy covers everything you want. Ask questions to confirm that you’re getting the protection you need. 
• Take your time while reviewing the document. 
• Know you can change your mind about the policy. You’re not required to agree to the terms. 
• Get a signed copy of the document and keep it in a safe place. 

Frequently Asked Questions About Ambiguity & Confusion in Insurance Policies

We’ve compiled some of the most frequently asked questions about confusing insurance policies. 

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Reviewed by Steve Glass

Steve Glass is a retired insurance professional with over 34 years of experience in the property and casualty insurance industry. Over the course of his career, Steve led teams that handled property and casualty claims, auto medical claims, auto bodily injury claims, catastrophe claims and insurance subrogation recovery efforts. He also has experience as an Insurance Subrogation Arbitrator.