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Principles of Insurance Law and Regulation

RLLI Section 4

1. The Reporters write: "Thus, the risk of unavoidable ambiguity in insurance policy terms is, through the application of the contra proferentem rule, ultimately spread over all policyholders rather than borne by any individual insured." Do you agree that it is spread in a reasonable fashion? Are there any costs to a rule under which ambiguities tend to result in coverage rather than a rule in which ambiguities would be interpreted to minimize adverse selection and moral hazard?

2. Does the Restatement accept or reject the sophisticated policyholder exception to the contra proferentem doctrine? Do you agree or disagree with the choice?

3. The ease with which an insurer could have eliminated an ambiguity is a factor in determining the meaning of an ambiguous term. Does Bayes Law have anything to say about this?

4. An insured asks that a provision from an insurance policy issued by Insurer B be used in a contract with Insurer A rather than the usual provision used by Insurer A. Insurer A agrees. Should an ambiguity in the B-clause now still be interpreted against Insurer A? What does the Restatement say? What authority did the Restaters have for their views?

5. How much understanding of insurance economics (moral hazard, adverse selection, correlated risk) does the reasonable policyholder have under the Restatement? Are there any problems with assuming they have little such understanding?