The 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