A majority of courts consider the contra proferentem doctrine to be a pillar of insurance law. The doctrine requires ambiguous terms in an insurance policy to be construed against the insurer and in favor of coverage for the insured. A prominent rationale behind the doctrine is that insurance policies are usually standard-form contracts drafted entirely by insurers.
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The 'Sophisticated Insured' Defense
In certain cases, insurers have asserted two reasons for setting aside the contra proferentem doctrine: 1) the insured is a large, 'sophisticated' corporate entity which should not benefit from ambiguity in the policy when it had the bargaining power and/or expertise to modify the language; and 2) the insured actually participated in negotiating or drafting the policy and, therefore, should not benefit from ambiguity, when it is just as responsible as the insurer for any ambiguity that exists.
Insurers have invoked this 'sophisticated insured' defense frequently in the third-party insurance context, with mixed results. Compare, e.g., Eagle Leasing Corp. v. Hartford Fire Insurance Co., 540 F.2d 1257, 1261 (5th Cir. 1976), with CPS Chemical Co., Inc. v. Continental Insurance Co., 536 A.2d 311, 318 (N.J. Super. Ct. App. Div. 1988). The defense has been less common in the first-party context, although there is no particular reason to believe that courts would treat the sophisticated insured defense differently in this context. The first-party cases discussed below show that insurers have invoked the sophisticated insured defense in first-party cases not only to persuade the court to set aside the contra proferentem doctrine, but also to convince the court to construe notice and suit-limitation provisions strictly against the insured.
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