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ScottyMacEsq
ScottyMacEsq, Attorney
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Experience:  Licensed Texas General Practice Attorney
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In an insurance contract where a term is undefined I understand

Resolved Question:

In an insurance contract where a term is undefined I understand that ambiguities are to be interpreted in favor of the party that had no input into the wording of the contract.
1. Is that correct?
2. What is the legal term for this type of contract? I seem to remember the term Contract of Adhesion.
What say you?
Thanks.
Submitted: 1 year ago.
Category: Legal
Expert:  ScottyMacEsq replied 1 year ago.

ScottyMacEsq :

Thank you for using JustAnswer. I am researching your issue and will respond shortly.

ScottyMacEsq :

1. Is that correct?- Sort of. This is a "canon" of contractual interpretation, meaning that it's a "general rule" that ambiguities in a contract are interpreted against the drafter, even if the non-drafting party has some say in the contract.

ScottyMacEsq :

2. What is the legal term for this type of contract? I seem to remember the term Contract of Adhesion. - A contract of adhesion is a type of contract where you don't have any say in the contract, that is correct. It's not one that you just accept, but rather one that the other side does not negotiate on. A good example would be a cell phone contract, or the terms and conditions of a site. If you don't agree to the terms and conditions of a site or, for instance, Apple's terms and services for their software, you don't get to continue to that site or don't get to use the software.

ScottyMacEsq :

You have no say whatsoever in the content of those contracts.

ScottyMacEsq :

Those are "adhesion contracts".

ScottyMacEsq :

But a term does not have to be in an adhesion contract to be subject to that canon of construction that ambiguities are interpreted against the drafter.

Customer:

Does an Insurance policy qualify as an adhesion contract? That's what I am working with.

ScottyMacEsq :

Any contract is subject to that canon of construction.

ScottyMacEsq :

Most likely.

ScottyMacEsq :

But again, these are two different concepts.

ScottyMacEsq :

It doesn't matter if a contract is an adhesion contract, if there is an ambiguous term.

ScottyMacEsq :

If the term is ambiguous, in any type of contract, adhesion or not, then it will be interpreted against the drafter .

ScottyMacEsq :

It doesn't matter if the non drafting party had some say or the ability to negotiate, etc... but did not.

ScottyMacEsq :

Ambiguities will be interpreted against the drafter.

ScottyMacEsq :

An adhesion contract is merely descriptive of the type of contract that it is (that there's no "wiggle room" for the other party to the contract). It does not affect substantive interpretation of that contract.

Customer:

Here's the deal:


An email was sent to my bank asking for $10,000 to be trabsferred to an account.


The teller did her due diligence and authorized the transfer. She had the authority to do so.


The insurance policy excludes "unauthorized instructions." That is the undefined term. Your opinion please.

ScottyMacEsq :

an undefined term is not necessarily ambiguous. An ambiguous phrase is one that could go multiple ways, or is self contradictory. An ambiguous clause could be one that conflicts with another clause. That's what's meant by ambiguous. Rather, an undefined phrase will take on a legal meaning if the intent is legal, or a common definition in most consumer contracts.

ScottyMacEsq :

This is another canon of construction known as the "plain meaning" rule.

ScottyMacEsq :

that is, if words and phrases are not defined in the contract itself, then they will take on the ordinary meaning of the word and/or phrase.

ScottyMacEsq :

So "unauthorized instructions" would most likely, if this were put before a judge, interpreted to mean instructions that were not authorized. Now if there is an ambiguity as to whom would have to have the authority, that is something where the can of construction could be interpreted against the drafter of the policy.

ScottyMacEsq :

But all of this would be interpreted in the context of the phrasing, other exceptions, etc... to try to resolve the ambiguity. Only if it could not be resolved in context would the canon interpreting it against the drafter be used.

Customer:

The teller clearly was authorized to transfer the money. The problem is that she was tricked into doing it. But the fact remains that she was authorized and that seems to negate the insurance company denial of the claim. What say you?

ScottyMacEsq :

I understand that. Like I said before, there might be a question (depending on the entirety of the contract) as to whom the "unauthorized" refers. If it means the teller, then obviously this exclusion would not apply. But that would have to be interpreted in light of the larger contract itself. If it could not be resolved, then the ambiguity would be interpreted against the drafter.

ScottyMacEsq :

I really wish I could give you a better idea, but judges look at the entire contract, ways that this phrase has been interpreted before in the jurisdiction, intent of the parties, and even then the conclusion could vary between jurisdictions, even judge to judge.

ScottyMacEsq :

There are way too many variables to give you a specific answer regarding your specific contractual clause. But my answer to your original question posted is absolutely correct and is the law as applied in truly ambiguous situations.

Customer:

"Unauythorized refers to the insured, The Bank, and employees are insureds if acting within the scope of their authority which is exactly the case here. Does that distill it down to its simplest form?

ScottyMacEsq :

Unauthorized is defined as "not endowed with authority". If an employee is acting within a scope of authority, I don't see how that could be unauthorized. So if this were to refer to the employee's actions (and not the actions of the sender of the email) that certainly seems like something that would be ambiguous, as it would be contradictory.

Customer:

Thanks Scotty. I think I know where to go with this now. How do I print this exchange?

ScottyMacEsq :

After you rate this answer, it will switch to a Q&A format (you may need to refresh the page after rating) at which point you'll be able to print this information.

ScottyMacEsq :

My pleasure.If you have any other questions, please let me know. If not, and you have not yet, please rate my answer AND press the "submit" button, if applicable. Please note that I don't get any credit for my answer unless and until you rate it a 3, 4, 5 (good or better). Thank you, XXXXX XXXXX good luck to you!

Customer:

Thanks. You just earned an "Excellent."

ScottyMacEsq :

You're welcome, and again, good luck to you!

ScottyMacEsq, Attorney
Category: Legal
Satisfied Customers: 12103
Experience: Licensed Texas General Practice Attorney
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