The Supreme Court recently rendered a decision on the interpretation of the “occurrence of an insured event during the insurance period” clause in the terms and conditions of long-term care insurance. In this decision, the Supreme Court applied various rules of standard form contract interpretation to lay out a detailed theory of interpretation. As the insurer's liability to pay insurance benefits arises only if the insured event specified in the insurance contract occurs during the insurance period, the determination of whether the insurer’s liability has arisen must be preceded by the interpretation of the “occurrence of an insured event during the insurance period” clause in the insurance terms and conditions that constitute part of the insurance contract. If one finds the grounds for which insurance terms and conditions are binding on the contracting parties in the parties’ mutual agreement, the general principles of legal acts, i.e., contracts, interpretation are applicable to the interpretation of insurance terms and conditions. Additionally, the various rules of standard form contract interpretation specifically provided for in the Act on the Regulation of Terms and Conditions are also applicable. In the case addressed by this article, the Supreme Court’s interpretation of the disputed clause in the long-term care insurance terms and conditions differed from that of the lower and appellate courts. The Supreme Court, adhering to principles of contract interpretation, focused on the wording of the clause in question while also considering the context, including the purpose and intent of long-term care insurance, trade practices and other relevant factors. The Supreme Court further applied the principle of objective interpretation, rooted in the principle of good faith as stipulated in the Act on the Regulation of Terms and Conditions. Consequently, the Supreme Court interpreted the clause stating insurance benefits are payable “if the insured is recognized as eligible for long-term care insurance benefits during the insurance period” to mean that insurance benefits are payable “if the insured receives a long-term care rating from the assessment committee during the insurance period,” in accordance with the wording of the clause. Furthermore, the Supreme Court determined that this interpretation did not violate the principle of good faith beyond the limits of private autonomy, thus ruling out the complete nullification or partial nullification, i.e., validity-preserving interpretative reduction, of the clause. Based on this interpretation, the Supreme Court ruled that if the insured was assessed with a long-term care rating after the insurance period terminated due to the insured’s death, the insured event could not be considered to have occurred during the insurance period, even if it was confirmed that the insured was in a state requiring long-term care during the insurance period, and therefore, the insurer's liability to pay insurance benefits did not arise. This court decision is significant as it is the first to establish a specific interpretation theory for the “occurrence of an insured event during the insurance period” clause in long-term care insurance policies. Given that many long-term care insurance products currently on the market have clauses with similar structures and content, the standards and interpretation methods from this decision are expected to apply to future disputes relating to the insurer's liability to pay insurance benefits under such contracts. Moreover, the court decision is meaningful in that it clearly delineates the limits of validity-preserving interpretative reduction or modifying interpretation.
Read full abstract
Nov 8, 2024
Piers Kelly 
Just Published
Open Access