Interpretation of Insurance Contract Terms. The insured brought ...

[burton19126]

Interpretation of Insurance Contract Terms. The insured brought an action to recover losses in excess of 100,000 sustained because of employee theft. The thefts occurred during the terms of two different policies but were not discovered until the second policy had replaced the first. Each policy limited recovery to 50,000 for employee dishonesty and provided that for a loss which occurs partly during the Effective Period of this endorsement and partly during the period of other policies, the total liability of the Company shall not exceed in the aggregate the amount of this endorsement. The insured maintained that he was entitled to recover 50,000 on each policy. What should the court decide? Discuss fully.

Question 2

A company that has more than 25,000 worth of business with the federal government and does not establish a drug-free awareness program and make an effort to make it work would be in violation of:
 a. the Drug Prohibition Act
  b. the Drug Control in the Workplace Act c. the Drug-Free Workplace Act
  d. the Zero Tolerance Act
  e. the Drug Prevention in the Workplace Act

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Answer to Question 1

Interpretation of insurance contract terms
The insured's recovery was limited to 50,000. Although the court found that the provisions of the policy were complex, they were not seen as ambiguous in relation to the limits on liability. Courts are now using the doctrine of honoring reasonable expectations in resolving insurance disputes. The doctrine applies to expectations that are objectively reasonable even though a painstaking study of the policy provisions would have negated those expectations. In this case, the court found nothing in the policy that would create a reasonable expectation of higher limits of coverage.

Answer to Question 2

c