DEFINITION of ‘Contra Proferentem Rule’
A rule in contract law which states that any clause considered to be ambiguous should be interpreted against the interests of the party that requested that the clause be included. Contra proferentem rules guide the legal interpretation of contracts, and is typically applied when a contract is challenged in court. In the case of most insurance contracts, the contra proferentem rule would direct the court to rule against the insurer if a clause within the contract is vague.
BREAKING DOWN ‘Contra Proferentem Rule’
Contracts can be complex documents created after long periods of protracted negotiations. Each party in the contract is ostensibly looking out for its own best interests, and will want the contract language to be to each party’s favour. This can create scenarios in which the contract language is ambiguous or unclear, leading one party to interpret the contract in a different way from the other party.
The contra proferentem rule is designed as a sort of punishment for a party that introduces intentionally vague language into a contract. The underlying idea is that the party is being vague in order to provide it with the most latitude, and that this is unfair to the other party.
Courts use a multi-step process in determining whether the contra proferentem rule applies in the review of a contract. The first step is to review the contract language to determine whether a clause is ambiguous enough to cause uncertainty. If the clause is determined to be ambiguous, the court will then attempt to determine the intent of the parties when they entered into the contract. If evidence indicates that the intent was not to be ambiguous then the contract is applied according to what the evidence suggests. If evidence does not dispel the ambiguous nature of the contract language then contra proferentem is applied, and the party that did not include the language is ruled in favour of.