While insurance contracts are a distinct sub-species of general contracts and subject to some insurance doctrine-specific interpretative canons, contract law generally assumes that reasonable consumers reasonably understand the contracts that they sign. Despite the uncomfortable fact that too many (most?) consumers don't even bother reading standard form contract language before signing, whether those consumers who do read contracts before signing accurately understand them endures as a separate research question.
In a recent paper, Read But Not Understood? An Empirical Analysis of Consumer Comprehension in Homeowners Insurance, Daniel Schwarcz (Minn.) et al. report results from an experiment assessing whether "providing excerpts from the dominant standard form homeowners insurance policy improves consumer understanding of coverage." Their main finding, on balance, tends to upend a pivotal contract interpretation assumption: "providing [homeowners insurance] policy language only moderately improved consumer understanding in some scenarios, while affirmatively decreasing accuracy in others." As the authors note, their findings "carry significant legal and regulatory implications."
As the experimental results derive from surveys (N=2,440) and lever a large on-line survey platform (Dynata), important external validity questions linger. Methodological questions and limitations notwithstanding, the paper's core results succeed in drawing attention to core insurance contract assumptions. An excerpted abstract follows.
"Through a series of survey-based experiments, we compare consumers’ general beliefs about homeowners insurance with their beliefs when provided with key policy excerpts. Our main finding is that providing policy language only moderately improved consumer understanding in some scenarios, while affirmatively decreasing accuracy in others. Respondents often struggled with partial reading or misinterpretation of policy provisions, especially when broad coverage grants were later restricted by specific exclusions—a common structural feature of insurance policies."
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