When Reading the Insurance Policy Is Not Enough - Why Some Insurance Policy Limitations and Exclusions May Not Be Enforceable

Sep 14, 2026

Uploaded by Margaret

Insurance coverage disputes often turn on whether exclusions and limitations can be enforced when insureds did not meaningfully notice or understand the policy language. The article explains how, while many jurisdictions and Michigan generally bind policyholders to conspicuous, plain, and clear contract terms, California law is more protective. California courts recognize the gap between reading and understanding and may refuse to enforce exclusions not brought to the insured’s attention. It also discusses practical standards for conspicuousness and clear communication, including examples involving lowered policy limits.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages4

Reading Time10 min

AccessFree to download

Duty to read the policy

Conspicuous, plain, and clear, or else

[www.plaintiffmagazine.com](www.plaintiffmagazine.com) AUGUST 2015 When reading the insurance policy is not enough Why some insurance policy limitations and exclusions may not be enforceable BY DAVID LILIENSTEIN AND JESSICA CHO “You’d have to be a Philadelphia lawyer to understand that policy,” an older gentleman from Michigan once remarked to me. He had called to complain about an accidental disability policy he owned. Turns out that buried deep in his policy was language excluding every kind of disability but dismemberment, paralysis, or blindness. Much to his surprise, his disability policy was actually a dismemberment policy. OK, a dismemberment, paralysis or blindness policy. This wasn’tjust a “bait and switch”tactic. It was worse: the insurer’s choice of language was designed to mislead insureds into believing they had coverage they did not have. We informed Mr. Michigan that generally speaking, policyholders are charged with reading and understanding their policy, whether they have a PhD ora GED. Questions? Call the company for clarification, because, we explained, if a policy limitation or exclusion is in the contract, it is enforceable. At least that’s largely the case in Michigan, and in manyjurisdictions around the country. Fortunately, California law is much more forgiving for policyholders in this area, and is much more realistic about the realities of insurers and how they draft their policies. Here, courts recognize that there can be a big difference between reading a policy and understanding its terms and conditions. Courts further recognize that insurers do not go out of their way to use policy language that is understandable to the average person of average intelligence. As a result, California courts will not enforce policy limitations and exclusions that are not brought to the attention of insureds. This article provides some insights into when insurance limitations and exclusions regarding coverage should and should not be enforceable. Duty to read the policy The general rule for insurance policies is that a party is bound by contract provisions that are conspicuous, plain, and clear. (Fields v. Blue Shield of California (4th Dist. 1985) 163 Cal.App.3d 570, 578-79.) Consequently, the insured who testifies he or she did not read their policy is unlikely to prevail. But what does it really mean to “read” a policy. Many consumers – not to mention attorneys – have a limited knowledge of insurance terms, and insurers don’t always provide the necessary definitions. Accordingly, it is commonly accepted that very few policyholders fully understand the provisions of their policies, how those provisions work in concert with each other, and the consequences of those interactions. (Haynes v. Farmers Insurance Exchange (2004) 32 Cal.4th 1198. And then there are health insurance policies, for which the summary alone can be upwards of 100 pages. The difficulties in understanding such insurance policies have been documented in several studies that explored consumers’ reactions to health-plan information. (G. Loewenstein, et al. Consumers’ misunderstanding of health insurance, 32 Journal of Health Economics 850-862 (2013) .) These studies confirmed that consumers are generally confused by many key insurance terms and are unable to combine and understand a variety of cost sharing concepts. Even when consumers report that they understood a term (such as co-insurance), exercises with simple hypotheticals revealed that consumers did not actually understand how to use the concept. As a result, people often believe their health carrier’s denial is legitimate simply because they don’t fully understand the coverage at issue. Conspicuous, plain, and clear, or else One of the worst things an insurer can do, outside of an outright claim denial, is to lower the policy limits without properly notifying its insured. This happened in an automobile insurance policy in a case that went all the way up to the Ca

FAQs

How does conspicuousness affect whether an insurer can rely on exclusions or lowered limits?

Insurers cannot rely on unclear or poorly presented language to escape their duty to provide coverage. Courts look for clear, conspicuous placement and effective notice, not fine-print tactics that mislead insureds.

Sep 14, 2026

Uploaded by Margaret