The Insurance Policy as Social Instrument and Social Institution
Abstract
Insurance policies are classified as a species of contract. Although this characterization is correct, it is unduly narrow if used as the exclusive lens for assessing insurance policies, which are not merely contracts but also are designed to perform particular risk management, deterrence, and compensation functions important to economic and social ordering. Recognizing this has significant implications regarding the manner in which insurance policies are construed in coverage disputes and suggests that policy construction can be improved by not only performing traditional contract analysis of disputed policies but also by appreciating the particular function of the insurance policy in question as part of the insurance product’s larger role as a social and economic instrument or institution. This insight is in some tension with the predominately text-centered approach to insurance policy construction and suggests that much of the contract-based resolution of insurance policy disputes is based on an unduly crabbed view of contract law as well as an impoverished view of the degree to which the insurance policy is not only a contract and not only a product or a type of private legislation but also part of a web of socioeconomic organization that attempts to manage risk in prudent ways. Appreciating the social instrument status of insurance vindicates some judicial decisions while exposing the shortcomings of others.