The courts will normally interpret a policy in favor of the insured when the meaning is not clear. This is because an insurance policy is a _______.

• A. Warranty Contract
• B. Aleatory Contract
• C. Contract of Adhesion
• D. Unilateral Contract

Answer: (C)

Insurance policies are contracts of adhesion. They are drafted by the insurer and offered on a take-it-or-leave-it basis, with standardized language that the insured often cannot negotiate. When policy language is unclear or ambiguous, courts resolve that ambiguity in favor of the insured to protect the reasonable expectations of someone who did not shape the terms. This is the idea behind interpreting unclear language against the drafter.

While insurance is indeed an aleatory transaction (the payout depends on an uncertain event), that characteristic doesn’t explain why ambiguous terms are interpreted in the insured’s favor. And although the contract is formed through the insured’s acceptance (often a unilateral action by paying a premium), the decisive reason for the interpretive rule is that the policy is an adhesion contract drafted by the insurer.