Contra Proferentem: Everything You Need to Know
Contra proferentem typically comes into play when a contract is challenged in court. In general contra proferentem is a last resort.3 min read
What Is Contra Proferentem?
Contra proferentem, meaning “against the offeror,” is a rule of contract law that requires any ambiguous clause to be interpreted with the meaning that is most in favor of the party that did not draft or request the clause. This doctrine can also be called the Ambiguity Doctrine. Contra proferentem typically comes into play when a contract is challenged in court. In general contra proferentem is a last resort, used only when other language interpretation does not reveal the parties’ intent.
A court, in reviewing a contract, will determine if a clause could have more than one meaning. If that is the case, the clause is ambiguous, and the court must determine which party wanted that clause included in the contract. The court must then interpret the ambiguous clause in favor of the other party.
However, if both parties were involved in the wording or inclusion of the ambiguous clause in the contract, then the contra proferentem doctrine cannot be applied. Contracts can be the complex result of long negotiations. Each party is likely looking out for its own best interest and trying to include their proposed language in the final document. After changing the contract language more than once over the course of negotiations in order to accommodate what each party wants, some ambiguous or unclear terms are likely to result. This may lead the parties to interpret the contract differently from one another. But the contra proferentem rule is designed to prevent parties from intentionally introducing ambiguous or vague language into the contract in order to get their way later down the line. This would be unfair to the other contracting party rather than just a natural result of negotiations.
Determining if Contra Proferentem Applies
Courts should use these steps in determining whether the contra proferentem doctrine applies to a clause in a contract.
- First, a court should read plain meaning of the contract language and determine whether the clause has two possible meanings and is therefore ambiguous enough to cause uncertainty.
- If the court finds the clause to be ambiguous, the court should then determine what the intent of both parties was for this clause at the time of contract formation.
- If evidence shows an agreed upon intent that is not ambiguous then the contract will be enforced according to what that evidence provides.
- If the evidence does not solve the ambiguity, then the court should apply contra proferentem, determine which party drafted or requested the clause, and interpret the clause with the meaning that is most in favor of the party that did not offer the language.
In most insurance contracts, the contra proferentem rule leads to reading the clause against the insurer if it is vague and in favor of finding coverage for the insured. This interpretation doctrine recognizes that there is often an imbalance in bargaining power between an insurer and a policyholder. The insurance company has more resources and is more aware of possible ambiguities, especially when dealing with boilerplate contracts.
However, sometimes the doctrine of contra proferentem does not apply in insurance cases.
Example Contra Proferentem Case
In a coverage dispute between two insurance companies in Economy Premier Assurance Co. v. Western National Mutual Ins. Co., the Minnesota Court of Appeals interpreted the policies and the two categories of vehicles in the “other insurance” provision in Minnesota’s insurance policies. One category received primary liability coverage. The language in that category was “rental vehicles” or “temporarily loaned vehicles.” The other category only received the additional coverage needed on top of insurance provided by a different insurance policy. The language in that category was “temporary substitute.”
Economy argued that there was an ambiguity that must be resolved by contra proferentem to determine which company was required to cover the insured individual. The ambiguity was in determining whether the policies covered the truck that was loaned to the insured temporarily while the truck was being serviced “temporary loaned vehicles” or whether the truck was a “temporary substitute.”
The court did not determine whether the provisions were ambiguous at all but rather found that applying the contra proferentem doctrine, in this case, would stray from the doctrine’s rationale. The doctrine of contra proferentem protects insured from big bad insurance companies, but when the dispute is between two insurers, especially one of whom was not involved in contract formation of the policy at issue, the rationale dissipates.
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