Only when the insurer fails to pay benefits which are owed under the contract has the company committed a breach of contract. Where there is no dispute over the relevant facts, interpretation of the insurance contract is an issue of law for the court to decide. Policy interpretation rules. As with any other contract, the goal is to effectuate the parties' mutual, reasonable intent as expressed in the policy.
Courts therefore apply special interpretation rules.
The California Supreme Court has prescribed a three-step test for construing insurance policies. Beware of relying on policy interpretation cases decided prior to the Supreme Court s 1990 AIU decision. AIU significantly changed the approach courts must employ when construing insurance policies. If the policy language is clear and explicit, it governs. Do not interpret the words as an attorney or insurance expert would.