The Reasonable Expectations Doctrine Provides Judges With a Tool for Insurance Contract Interpretation
United Policyholders filed an Amicus Curiae brief with the South Carolina Supreme Court regarding the Reasonable Expectations Doctrine. One of the significant points I made in the brief was that the doctrine of honoring an insured's reasonable expectations of coverage is merely another tool for insurance contract interpretation. While the insurance industry argues that this is an outrageous method of legal analysis, it has been long recognized by most courts -- although many courts do not classify it as a method of insurance contract interpretation.
There are a few points I would like readers to remember about insurance and how it plays into our modern lives:
The insurance industry may be the most influential industry in America, if not the world. Insurance is the foundation of our economy and a necessity of day-to-day life. It is required to obtain a drivers license, own a car, purchase a home, own a business, and even to receive medical care. While most people think about insurance only at the time of purchase, when accidents happen or disaster strikes, insurance is the only thing that stands between an individual, family, or business and financial ruin.
Insurance is a product that transfers risk and gives people access to resources they would otherwise be unable to afford. Simply stated, insurance is a method of hedging a bet; for the price of the premium, the insurer assumes the financial risk of a potential loss. The insurer pools the premiums of similarly situated insureds, so it has the funds to pay when covered losses occur. In most cases, individuals and businesses would not be able to afford the loss insured against, so insurance is essential to keep an affluent society afloat. When the risk of loss is assumed by a third party, banks lend money, products are manufactured and purchased, and individual wealth tends to increase. In response, individuals and businesses achieve more affluence and purchase more insurance to protect from unaffordable loss. As society’s affluence increases, insurance becomes a necessity, not a luxury.[S]ociety suffers any time an individual or a business is unable to continue to be a contributing member due to the financial impact of a property loss or a lawsuit. By indemnifying an individual (restoring him or her to the same financial position as before the loss), insurance enables the individual to continue as a worker, a consumer, and a taxpayer. [citations omitted and emphasis added]
I highlighted one sentence which makes me think of those suffering the effects of Hurricane Sandy in New Jersey and New York. Many will never be able to rebuild their homes and businesses. We all lose when that happens.
Yours truly acted as counsel for United Policyholders. I encourage my colleagues to support and participate in United Policyholders’ Advocacy and Action programs. Insurance common law benefits every potential policyholder, and it is justly developed when judges are provided thorough discussions of legal controversies before them.
Dear Chip:
Nice Brief.
Of course the insurance industry argues/believes that the
Reasonable Expectations Doctrine is an "....outrageous method of legal analysis..." because instead of "legally analyzing something to death," this doctrine utilizes one thing: COMMON SENSE. Further, it seeks to rely upon the reasonable expectation (and common sense) of the INSURED....not the INSURER.
It's no secret that the insurance industry is big on profits and short on common sense.
SHIRLEY HEFLIN
(Tampa, FL)
Shirley,
I don't know about the common sense. Insurance companies make a lot of money. It would seem common sense that they can make more if they take premiums and pay as little as possible.
So, it makes common sense from their view to fight the reasonable expectations of coverage.
Chip:
I guess I was ambiguous in my initial comment ....and you know which way ambiguity is construed!
Yes, I realize that the ins industry fights the reasonable expectation of coverage (they didn't need to come up w/a doctrine name for that though).
Finally, yes, it makes common CENTS for the ins co's to take premiums and not pay claims...that's one of the reasons they make alot of money.
SHIRLEY HEFLIN
(Tampa, FL)