Rules of Contract Interpretation


A Video Explaining the Interpretation of Insurance Contracts

See the full video at  and at

The following rules govern the construction of contracts of insurance:

If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed at the time of making it, that the promisee understood it. [California Civil Code § 1649] (which provides an excellent definition of the basic rule of interpretation followed in most states).

“If a written contract is so worded that it can be given a definite or certain legal meaning, then it is not ambiguous.”

However, if “the language of a policy or contract is subject to two or more reasonable interpretations, it is ambiguous.” Simply stated, all contracts are interpreted equally except insurance contracts, which are interpreted to favor the insured in the event of an ambiguity.

An insurer may not rely on an ambiguous interpretation of a policy provision that, if construed as the insurer contends, would deprive the insured of coverage.

When the language of an insurance contract is reasonably susceptible to two constructions, it should be construed in favor of the insured.

It is not necessary to show that the construction against the insurer is more logical than that against the insured; it is sufficient to show that the construction in favor of the insured is equally reasonable with that which favors the insurer.

© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

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He is available at and Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at; articles at,  the podcast Zalma On Insurance at;  Follow Mr. Zalma on Twitter at; Go to Barry Zalma videos at ; Go to Barry Zalma on YouTube-; Go to the Insurance Claims Library –  The last two issues of ZIFL are available at  podcast now available at


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