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When insurance deepens poverty instead of preventing it

Brief urges more equitable approach to resolving claim disputes

August 27, 2014:  In the wake of Hurricane Katrina, many homeowners went to their insurer assuming that the wind damage to their homes would be covered. Imagine their anger and fear when the insurance company used an ambiguous provision in its property insurance policies to claim that the damage was not covered. With a loss that large, how does a family begin to rebuild?

The experience of Hurricane Katrina homeowners is just one example of how people with low and moderate incomes are hurt when insurance companies rely on ambiguous terms to avoid paying claims. On August 27, the Public Justice Center filed an amicus brief in People’s Insurance Counsel Division v. State Farm, Inc., arguing that ambiguous terms in an insurance contract should automatically be interpreted against the insurer who drafted them in order to level the playing field for consumers. Filed jointly with Civil Justice, Inc., and the National Consumer Law Center, the brief asserted that Maryland’s current practice of requiring all parties to provide evidence to support their interpretation disadvantages individuals because the insurer is the drafter of the contract and has the money to litigate aggressively. The consumer, however, has no say in developing the contract terms and often cannot afford to pay an attorney to fight the insurer. Furthermore, coverage denials can spell financial ruin for families, such as when a breadwinner is denied assistance with repair costs following a car accident and can no longer get to work or when a sick parent’s medical bills pile up as an illness worsens. We hope that the Maryland Court of Appeals will abandon this inequitable approach and join the 44 states that already interpret ambiguous terms in insurance contracts against the drafter. And thanks to Monisha Cherayil, staff attorney at the PJC, who stepped up and volunteered to author this brief during an unusual hiatus between Murnaghan Fellows.

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