JSH Reporter JSH Reporter - Fall 2017 - Page 33

REASONABLE EXPECTATIONS ARTICLE 033 So three years later, the Supreme Court clarified the doctrine by identifying four situations in which it could be applied: 1. Where the contract terms, though not ambiguous, cannot be understood by the “reasonably intelligent consumer,” then the court will interpret them in light of the objective, reasonable expectations of the average insured; 2. Where the insured did not receive full and adequate notice of the term in question, and the provision is either unusual or unexpected, or one that emasculates apparent coverage; 3. Where some activity which can be reasonably attributed to the insurer would create an objective impression of coverage in the mind of a reasonable insured; 4. Where some activity reasonably attributable to the insurer has induced a particular insured reasonably to believe that he has coverage, although such coverage is expressly and unambiguously denied by the policy. Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 266, 272-73 (1987). At first, it might seem promising that the Court identified only four situations in which insurance policies could be re-written by a judge, but the four situations are so elastic and ill-defined that they open the door to virtually unlimited possibilities for an insured to nullify policy language, and replace it with what “the average insured” would expect to be in a policy—whatever that might be. Close examination of the four situations shows how sweeping they really are. The first permits a court to “interpret” language which is “not ambiguous”—and therefore would not seem to require interpretation in the first place. The second requires “full and adequate notice” of policy terms be given to the insured, without explaining what that might be, beyond the obvious implication that merely putting the notice in the policy is inadequate. The third situation invites unlimited speculation about unspecified ways in which an insurer or its agent might conceivably “create an objective impression” of coverage in someone’s mind. The fourth is broadest of all, because this time the inquiry is totally subjective, and focused on the personal beliefs of the particular insured in question. Faced with all of this, Justice Holohan again dissented, though this time economically, with just two words: “I dissent.” Id., at 275 (Holohan, J., dissenting). The Gordinier decision posed no notable obstacle to reasonable expectations litigation by plaintiffs. Happily, the court of appeals has since handed down rulings that serve to limit the havoc that unrestrained application of the doctrine might otherwise wreak. The main limits on the doctrine stand on one of its original premises: the doctrine of reasonable expectations is limited to contract terms where “one party has reason to believe that the other would not have assented to the contract if it had known of that term.” Darner, 140 Ariz. at 391-92 (emphasis added). That means that it is not simply a matter of what the insured believes about his coverage. The court must inquire into whether the insurer had reason to believe that the insured would not have bought the policy. It also means “a Darner issue is not raised simply by putting the insured on the stand and asking him, ‘Did you reasonably expect that you would be covered?’” Shade v. U.S. Fid. & Guar. Co., 166 Ariz. 206, 208 (App. 1990) (rejecting reasonable expectations argument where insured never read his 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. policy and testified that he believed he had coverage through discussions with the agent). Another requirement which should limit application of the doctrine is that “[a]pplicability of the doctrine requires . . . the expectations to be realized must be those that have been induced by the making of a promise.” State Farm Fire & Cas. Co. v. Powers By & Through Fleming, 163 Ariz. 213, 216 (App. 1989). The requirement of a promise, alongside the Darner inquiry into what the insurance company had reason to believe, makes the doctrine less of a guessing game about what was going on inside the mind of the consumer, and places a greater emphasis on external, observable events—by asking what actually happened when the insurance was acquired, and what promises the insurer or its agent actually made. Plaintiffs who want to challenge the unambiguous terms of their policies have to produce evidence that they were promised something else, and cannot simply allege that they “reasonably believed” they were covered. That still deprives insurance companies of the protection of a final, fully integrated agreement—i.e., the policy—but at least actual evidence of a deception or mistake attributable to the insurer should be required before that fully integrated agreement can be thrown out. Another set of rulings should provide further limitations. The doctrine only applies to “certain standardized clauses of agreements which had not been negotiated, providing they were clauses which, because of the nature of the enterprise, customers will not be expected to read and over which they have no real power of negotiation.” Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 266, 272 (1987) (emphases added and punctuation omitted) (repeatedly stressing that the doctrine may only be