Texas Bar Journal • October 2026

The Current State of Contra Proferentem Under Texas Law

Changes in the insurance industry—and the perceived power balance in insurance transactions—may shape the rule’s future applications.

Written by William J. Zurborg and Marisa O’Sullivan

Verba fortius accipiuntur contra proferentem” (The words of the instrument shall be taken most strongly against the party employing them).

The rule of contra proferentem—construing a contract against the drafter—has been a staple of common law since before the U.S. existed, with ancient roots in Roman law.1 The rule has woven itself through the centuries into becoming an integral part of insurance policy interpretation in Texas. But despite its long history, recent developments in the insurance industry have prompted a reimagining of the application of the rule to fit perceived modern realities. This article provides a brief overview of the rule of contra proferentem as it relates to insurance, the current state of the rule under Texas law, and potential developments that may shape its future application.

BRIEF HISTORY OF THE RULE OF CONTRA PROFERENTEM
The rationale for contra proferentem has varied throughout its long history, but some scholars have concluded it should “make men sufficiently careful” not to prejudice their own interest by the too extensive meaning of their words.2 Its application, however, was generally meant to be one of last resort, only to be employed when all other rules of exposition fail.3

American courts did not widely apply the rule of contra proferentem to insurance contracts until the 19th century, where two distinct developments increased insurers’ power in the marketplace:4 (1) life insurance programs in which insurers unilaterally dictated the policy terms and (2) fire insurance, which typically contained stringent warranties that allowed insurers to easily deny coverage. Concerns regarding inequalities in bargaining power between insurers and insureds led the U.S. Supreme Court to apply the rule of contra proferentem on a strict liability basis, and other courts followed suit. Although the rationale for strict liability contra proferentem was not clearly articulated by the court, during the early 20th century, the prevailing rationale for the rule was that the insurance contracts were contracts of adhesion.5 Today, jurisdictions vary in their application of the rule, with some applying it on a strict liability basis and others applying it as a rule of last resort.

TEXAS’ RULE OF CONTRA PROFERENTEM
Similarly, Texas courts have traditionally employed the rule based on the special relationship between insurers and insureds arising from their unequal bargaining power.6 However, in Texas, contra proferentem is only used as a rule of last resort when a contract remains ambiguous even after applying all other rules of construction.7 To implicate the rule, a Texas court must first determine whether an ambiguity exists by reading the text of the policy and determining whether there are two or more reasonable interpretations.8 Only then is the policy language construed against a drafter which, for centuries, has been the insurer. But the question in today’s market has become: Does that unequal bargaining power still exist? And how should the rule be applied in a modern commercial insurance environment?

THE EVOLVING PROFILE OF THE INSURED AND BROKER
The insurance industry has changed significantly in recent decades, and the roles and expectations of insurers, insureds, and brokers have changed with it. The U.S. corporate landscape has become more consolidated in the past 20 years through an increase in mergers and acquisitions.9 For insureds, this consolidation has led to larger insureds with sophisticated risk management departments, with some even running their own captive insurance programs.10 Relatedly, there has been an increase in broker consolidation, giving brokers larger distribution networks and stronger leverage in negotiating policy terms.11 These changes in the perceived power balance in insurance transactions have led some to question the role of contra proferentem in today’s insurance litigation.12

THE SOPHISTICATED-INSURED EXCEPTION
In recent decades, insurers have begun pushing back against the application of the doctrine on the grounds that such inequalities do not exist between insurers and so-called “sophisticated” insureds.13 Under this theory, the rule of contra proferentem should not apply when the insured is a large, sophisticated entity capable of negotiating the policy on a level playing field.14

The sophisticated-insured exception has gained traction, and many states have adopted it in some capacity. Similarly, there has been an insurer-backed push to exempt policies from the rule of contra proferentem when the forms were jointly drafted by insurers and industry groups—such as financial institution bonds—or the state itself.15

No Texas court has ever applied the sophisticated-insured exception.16 Rather, the Supreme Court of Texas declined to answer a certified question on whether Texas recognizes such an exception because it held the policy at issue was not ambiguous.17 Despite the lack of Texas caselaw on the issue, federal courts applying Texas law have made Erie guesses that Texas courts would apply a limited version of the sophisticated-insured exception where the facts warrant.18 The U.S. Court of Appeals for the 5th Circuit has recognized three different applications of the exception:

(1) the narrow exception, which applies only when the insured actually negotiated the particular provision at issue; (2) the middle ground, which applies when the insured (or broker) actually negotiates, drafts, or proposes portions of the policy; and (3) the broad exception, which applies any time the insured is a sophisticated business entity.19 The 5th Circuit, along with other federal courts applying Texas law, posited that Texas would only use either the narrow or middle ground exception.20

While Texas federal courts have refrained from applying the broadest possible sophisticated-insured exception, commercial policyholders involved in insurance coverage disputes (particularly in federal court) should prepare for the possibility that the exception may apply in some form. From a litigation strategy perspective, application of the doctrine has the potential to create a fact issue, which could hinder parties’ ability to resolve cases on summary judgment. To properly evaluate the posture of its claims, insureds should consider:

(1) the involvement of their own risk department or that of their broker in negotiating specific terms and (2) whether those terms are at issue in the coverage litigation. Best practice: insureds should preserve underwriting file materials, broker correspondence, and any redline comments exchanged during the placement of the policy. Understanding the burdens applicable to insurer and insureds pre-summary judgment or even pre-suit is prudent to forming the strategy most favorable to your client.

CONCLUSION
Despite the growing sophistication of commercial insureds,21 Texas has held firm in its reliance on the traditional rule of contra proferentem. However, it is not beyond reason that Texas courts could limit the rule of contra proferentem in circumstances where the insured is a “sophisticated” insured, or where the policy was drafted by a broker. Because the Supreme Court of Texas has neither adopted nor rejected the sophisticated-insured exception, parties should be prepared to litigate the issue.

Notes

  1. See David Horton, Flipping the Script: Contra Proferentem and Standard Form Contracts, 80 U. Colo. L. Rev. 431, 438 (2009).

  2. See Farshad Ghodoosi & Tal Kastner, Against the Drafter: An Empirical and Theoretical Analysis of the Doctrine of Contra Proferentem, 94 Fordham L. Rev. 1455, 1469 (2026).

  3. Id.

  4. Supranote 1 at 440-41.

  5. Supranote 1 at 444-45.

  6. RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113, 118-19 (Tex. 2015); see also Evergreen Nat’l Indem. Co. v. Tan It All, Inc., 111 S.W.3d 669, 677 (Tex. App.—Austin 2003, no pet.).

  7. RSUI,466 S.W.3d at 119.

  8. Id.

  9. See Peter Brennan and Chris Hudgins, Market-leading US companies consolidate power in era of ‘superstar’ firms, S&P Global (Jan. 17, 2023), https://www.spglobal.com/market-intelligence/en/news-insights/articles/2023/1/market-leading-us-companies-consolidate-power-in-era-of-superstar-firms-73773141.

  10. See Joe DeSantis et al., 2026 Global Insurance Outlook, Deloitte (Oct. 9, 2025); Discussion with Deloitte subject matter experts Guru Johal and Manmeet Bawa (“large corporations are increasingly self-insuring through captives”), https://www.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-outlooks/insurance-industry-outlook.html.

  11. Id.; see also Kenneth Ching, Recent Insurance Mergers & Acquisitions, Asking Insurance (May 3, 2026), https://www.askinginsurance.com/insurance-mergers-acquisitions/.

  12. See Jeffrey W. Stempel, Reassessing the “Sophisticated Insured” Policyholder Defense In Insurance Coverage Litigation,  Drake L. Rev. 807, 832 (1993).

  13. Id.

  14. See Eagle Leasing Corp. v. Hartford Fire Ins. Co., 540 F.2d 1257, 1261 (5th Cir. 1976) (interpreting Missouri law).

  15. See Michele L. Fenice and Adam P. Friedman, The Rule of Contra Proferentem andWhy It Should Not Apply to the Interpretation of Fidelity Bonds, 21 Fid. L. J. 233, 248-53 (2015).

  16. UnderwritersatLloyd’sLondonv.Perraud,623 F. App’x 628, 632 (5th Cir. 2015) (Smith, J.).

  17. See In re Deepwater Horizon, 470 S.W.3d 452, 468-69 (Tex. 2015).

  18. See Vought Aircraft Indus., Inc. v. Falvey Cargo Underwriting, Ltd., 729 F. Supp. 2d 814, 824-26 (N.D. Tex. 2010) (Fitzwater, J.); see also Certain Underwriters at Lloyd’s of London v. Stanford, No. 3:09-CV-2206-N, 2013 WL 12360529, at *2 (N.D. Tex. May 13, 2013) (Godbey, J.); seealsoPerraud,623 Fed. App’x at 632.

  19. Perraud,623 Fed. App’x at 630-31.

  20. Id. (offering no opinion on whether Texas would actually apply exception, but assuming arguendo that if it did, Texas would apply either middle or narrow); seealsoVought, 729 F. Supp. 2d at 824-25 (applying middle ground); seealsoStanford, 2013 WL 12360529, at *2 (applying narrow approach but recognizing even narrower application only to language proposed by insured).

  21. Captive Insurance Companies, NAIC (January 5, 2026), https://content.naic.org/insurance-topics/captive-insurance-companies; Highlighting the growing sophistication of insureds—today approximately 90% of Fortune 500 companies have captive insurance subsidiaries.

WILLIAM J. ZURBORGWILLIAM J. ZURBORG is an associate of Carrington, Coleman, Sloman & Blumenthal in Dallas. He specializes in insurance coverage disputes. Zurborg has a B.A. from the University of Arkansas and a J.D. from William & Mary Law School.

Marisa O'SullivanMARISA O’SULLIVAN is a partner in Carrington, Coleman, Sloman & Blumenthal, chair of the Insurance Recovery Practice Group, and member of the firm’s Executive Committee. She has represented commercial insureds in coverage disputes her entire career.