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Interpretation of Insurance Policies
On January 4, 2005, in CA 4688/02 Cohen V. Migdal Insurance Company et.al. the supreme court (Israel`s highest instance) clarified rules of interpretation of insurance policies. It is frequently argued by policyholders that in case of any ambiguity, insurance policies should always be interpreted against the drafter (the insurer) and in favour of the insured. In the Cohen decision, the Supreme Court explained that there are three stages in interpreting a policy, as follows: First - based on the subjective intention of the parties to the specific policy. In order to ascertain such subjective intention the Court will look at external circumstances such as communications exchanged between the parties. Second – if the subjective intention of the parties can not be ascertained, then the court will look at the objective intention of the parties, i.e., the intention of reasonable and honest parties with respect to the policy in question. Such objective intention can be ascertained, for example, from common practice among other insurers in the relevant type of insurance. Third – only if the court can not ascertain the subjective or objective intention of the parties will the court interpret ambiguities in the policy against the drafter and in favour of the assured.

In the Cohen case, the Supreme Court held that the objective intention of the parties could be ascertained by reference to customary policies in the relevant class of business and interpreted the policy in favor of the insurer and not the insured.

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