The Butterfly Effect in Interpreting Insurance Policies

21 Pages Posted: 3 Sep 2019 Last revised: 5 Dec 2019

See all articles by Christopher C. French

Christopher C. French

The Pennsylvania State University (University Park) – Penn State Law

Date Written: August 29, 2019

Abstract

When a court interprets a standard form contract, the court’s interpretation of the language does not just impact the parties in the case. It also impacts all of the entities who are using, or will be using, the contractual language at issue. It also impacts how other courts will interpret the same language even if the courts are in different jurisdictions. Because the drafters of standardized contract language often understand the far reaching impact of courts’ interpretations of standardized contract language, they are influenced by courts’ interpretations of the language when drafting or redrafting standardized contracts in response to courts’ interpretations of the language. Courts’ interpretations of standardized contract language also impact the behavior of repeat users of such language in seeking or avoiding judicial interpretation of the contract language. These ripple effects of courts’ interpretations of standardized contract language are commonly referred to as the “butterfly effect.” As the first type of standardized contract to be described as a contract of adhesion one hundred years ago, insurance policies are an area where the butterfly effect commonly manifests. This article examines the butterfly effect in interpreting insurance policies.

Keywords: insurance, butterfly effect, standardized contract, contract of adhesion, ANI, Lorenz, ISO, American Nuclear Insurers, pollution exclusion, environmental contamination, ensuing loss, data loss, cyber risk

Suggested Citation

French, Christopher C., The Butterfly Effect in Interpreting Insurance Policies (August 29, 2019). 82 Law & Contemp. Probs. 47 (2019); Penn State Law Research Paper No. 12-2019. Available at SSRN: https://ssrn.com/abstract=3444910

Christopher C. French (Contact Author)

The Pennsylvania State University (University Park) – Penn State Law ( email )

Lewis Katz Building
University Park, PA 16802
United States

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