The JSH Reporter JSH Reporter - Fall 2017 | Page 32
REASONABLE EXPECTATIONS ARTICLE
032
BEWARE THE INSURED’S
“REASONABLE EXPECTATIONS”
AUTHOR: John Lierman
EMAIL: [email protected]
Arizona has the dubious distinction of being home to lawsuits
in which a plaintiff can sue his insurance company for breach
of contract and bad faith when the insurance company has
issued exactly the policy requested by the plaintiff (or his agent),
and even when the insurance company does exactly what the
policy said it would do. That is because Arizona, along with most
states, has a doctrine that, under certain circumstances, allows
the insured to re-write even a perfectly clear policy after an
apparently uninsured loss occurs. That doctrine is the “doctrine
of reasonable expectations.” The doctrine of reasonable
expectations permits a court to find that the insured has the
insurance coverage he “reasonably expects”—even if the policy
plainly and unambiguously says something quite different. The
doctrine is thus a powerful weapon in the hands of a plaintiff
suing for bad faith.
The doctrine of reasonable expectations arose in the early 1970s.
Thirty-eight states have adopted it in some form. As originally
conceived, it amounted to little more than a fancy way of saying
that an insurance company cannot promise one thing and then
deliver another. And in many states the doctrine is little more
than a re-expression of the requirement that ambiguity in an
insurance contract be construed against the insurer. In those
states, therefore, the doctrine is only employed after the court
has found ambiguity in the policy. But Arizona’s formulation
holds the dubious distinction of being perhaps the most
aggressive form of the doctrine in the United States, and permits
reformation even of a completely unambiguous policy. As a
federal judge has blandly observed, Arizona’s formulation of
the reasonable expectations doctrine is expansive.” Gregorio v.
GEICO Gen. Ins. Co., 815 F. Supp. 2d 1097, 1105 (D. Ariz. 2011).
In legalese, the doctrine operates to overrule the integration
BIO: jshfirm.com/JohnDLierman
clause in an insurance contract. The integration clause is
that portion of a contract that states that the written contract
supersedes any negotiations or previous agreements. In the
insurance context, the integration clause is the policy provision
that declares that the insured has no rights to insurance beyond
those provided in the policy.
But the doctrine of reasonable expectations nullifies that
provision, by providing that if a buyer and a seller of insurance
reach an understanding about what coverage the buyer wants,
and the seller assures the buyer that he will get what he asked
for, that assurance becomes the binding contract, even if the
paper policy that follows says something different. Consequently,
even if the policy is completely clear, a court can set it aside to
give the insured coverage the policy does not provide, if that
coverage is what the insured reasonably believed he was getting.
The Arizona Supreme Court adopted the doctrine in 1984,
stating that it relieves an insured from “certain clauses of an
agreement which he did not negotiate, probably did not read,
and probably would not have understood had he read them.”
Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140
Ariz. 383, 394 (1984). Or at least that was the idea. The most
memorable words in the opinion came from the Chief Justice in
dissent: “The decision makes the contents of a written insurance
policy irrelevant in the determination of the nature and extent of
coverage.” Id., at 401 (Holohan, C.J., dissenting). As subsequent
events proved, Justice Holohan was, unfortunately, mostly
correct. The plaintiff bar seized the opportunity to hold insurers
accountable for insurance that buyers of insurance “reasonably
expected,” regardless of what their policies said.
...ARIZONA’S FORMULATION HOLDS THE DUBIOUS
DISTINCTION OF BEING PERHAPS THE MOST AGGRESSIVE
FORM OF THE DOCTRINE IN THE UNITED STATES, AND
PERMITS REFORMATION EVEN OF A COMPLETELY
UNAMBIGUOUS POLICY