The Law of Custom and Usage Evidence in Insurance and Reinsurance Contracts

Reinsurance and insurance contracts would be thousands of pages long if they explicitly defined every possible term, however mundane, or if they anticipated every possible contingency, however remote. Fortunately, (or perhaps unfortunately) for the drafters of these contracts, the U.S. legal system typically employs a more streamlined model. That is, parties commit to an agreement with the understanding that courts and other adjudicatory bodies may play a role in filling in contractual "gaps" and giving meaning to indefinite or indeterminate contractual terms. <i>Cf. Phelps Dodge Corp. v. Schumacher Elec. Corp.</i>, 2005 U.S. App. LEXIS 14318 (7th Cir. 2005). Although there are a number of methods by which a court can interpret a contract, the importation of custom and usage evidence plays a special role in illuminating insurance and reinsurance contracts. This article explores whether and when courts will admit such evidence, and it divides into three sections: First, the article explains the rules that courts will employ when they determine whether and when to admit custom and usage evidence; second, it considers the effect of integration clauses on the possible importation of custom and usage evidence; and, third, it provides several practical suggestions for a party seeking to import custom and usage evidence.

39 minute readDecember 01, 2005 at 03:06 PM

By

John M. Nonna

Marc L. Abrams