American society is commonly viewed as litigious. A significant share of the disputes resolved by the American judicial process has involved disputes between insureds and their insurers. At the source of these disputes is the interpretation and application of the insurance contract, which is dependent solely upon the meaning to be attributed to the contract wording. As expressed by Justice Oliver Wendell Holmes, a “word is not crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used”1. Thus, inherent in every contract is the potential for varying interpretations and construction of its wording.

Within the last decade, in the face of continued challenges in the courts, insurers have found it increasingly difficult to draft policy wording which offers certainty and stability. Stability and certainty are the key to rating viability in the insurance market. While insurers knowingly accept risks, the insurance contract attempts to draw carefully the boundaries of the assumed risk so that premiums are commensurate with the insurer’s known undertaking. Yet, as John H. Bretherick, president of the Continental Group of New York recently noted, judicial interpretations broadening policy coverage have “resulted in insurers being held liable for some aspects of the uninsurable”2. Equitable considerations involved in the construction of personal lines insurance have been invoked in the commercial context along with such a doctrine as “reasonable expectation of the insured”, resulting in an inconsistent application and interpretation of law and standard contract wording.

Policy holders and risk management consultants have been encouraged by these legal trends and have actively advocated “creative interpretation” of policy language as a technique to reduce policy holders’ losses3. The response of the insurance industry has been a shrinkage in capacity and redoubled efforts at redrafting and restricting coverages. Insureds are now confronting the dilemma of more tightly drawn and limited contracts with little room for interpretation and little more than a Pyrrhic victory gained from past judicial grants of broad coverage for obsolete wording.

The doctrinal seeds of judicial “redrafting” and regulation of insurance contracts are not of recent design4. In 1959 a New York court, in addressing a dispute concerning a