Judges should stop with the fiction that policyholders have a duty to read their insurance policies before a loss. They do not read all the insurance contracts they purchase, and nobody does. Even if they read their policies, most people would not understand the policy and certainly not contemplate every circumstance which could arise in advance of how the policy would be deciphered for those hypothetical circumstances of loss and disaster.

Distinguished contracts law professor Charles Knapp, warned in his article, Is There A Duty To Read, that lawyers and judges should not blindly write that there is a duty to read an insurance contract:

This is not only technically incorrect, but it also encourages judges (and others as well) to moralize or be condescending to persons who do not read everything they sign. Nobody does that, and in fact nobody is expected to. In standardized form contracting, it is not only not encouraged, it is essentially discouraged. Contract recitations that say, ‘I have read all of this contract’ are patently false, and are known to be false—to the party who presents a written contract for signature as well as to the party who signs it. All those words really convey to the signer is this: ‘Although we know you haven’t read much or any of this contract, and probably wouldn’t understand its importance if you had, we expect to hold you to it.’

Like a merger clause, it is essentially a message not to the other party, but to a future court.

If twenty-first century judges want to make better sense of this area of law, they could start by understanding and admitting that:

Nobody reads everything she signs;

Nobody is able to read everything she signs;

Nobody wants her to read everything she signs.

What drafters do want is to be able to treat her as if she had read everything. They do not care if in fact she has not—and, indeed, in many cases would prefer that she did not.

So do not call it a ‘duty.’ This just adds insult to injury.

Insurance commentator Bill Wilson has a similar view and remarked in, Duty and Opportunity To Read an Insurance Policy:

“What do the courts say about an insured’s responsibility to read the policy? As part of a decade-long project on insurance agents’ errors and omissions (E&O) loss control, I researched and monitored case law dealing with an insured’s duty to read insurance policies. Over that period, the case law ran about 50/50 as to whether insureds were responsible to read. In many cases that held that the insured was not responsible, the logic of the court was that, even if they read it, they were unlikely to understand it. Rather than print pages of case law on this subject, I’d simply direct you to the often-cited West Virginia Supreme Court “Broadnax” case that discusses this issue and links to other cases (e.g., Kelly v. Painter) that link to other cases addressing an insured’s obligation to read the insurance contract.”

The idea for this post—and for me reading Professor Knapp’s law review article—came from attorney and legal commentator Louie Castoria. He wrote in, Is there a duty to read insurance contracts?:

The fiction that policyholders routinely read their policies serves as a reminder that an insurance contract is a two-way street, on which each of the contracting parties is taking some risks.

On the day an application for insurance is signed, neither the insurer nor the applicant knows whether or when a claim under the policy will arise, what specific coverage afforded by the policy will apply to it, if any, or its severity. Even a policyholder who reads the entire policy on the day it arrives would not likely remember all the potentially applicable terms when, eight months later, one of the insured risks becomes a reality.

Insurance is a financial product that provides some protection against some specified risks of loss, subject to limits, exclusions, and conditions. That’s not as marketable a description as ‘peace of mind,’ but it is more accurate. In mass-marketed and highly regulated consumer insurance, there are many similarities among competing products, in the same way that the locations of steering wheels, gas and brake pedals, and rearview mirrors on cars are standardized. But no one would mistake a Prius for a Ferrari. The differences between two insurance policies aren’t as easy to spot.

The point of this is to remind us that nobody reads and understands their insurance contracts. Further, we should be careful when representing policyholders to argue that they do not have such a duty and use the above to help explain why.

Thought For The Day

On Wall Street, the industry in which I grew up, a culture in which ‘my word is my bond’ shifted over the past few decades toward one where the big print can say ‘Free’ while the small print gives the real costs.
—Sally Krawcheck

  • Bruce Holmes

    Have you ever read the back page of your car rental agreement? :-0

    • wmerlin

      Bruce,

      I did not know there was something on the back page.

      Thanks and always appreciate your thoughts.

  • Kurt Smith Paradigm Claims

    Not to mention the insured doesn’t even get a copy of the policy until they purchase it. We want to sell you this coverage but you can’t see what it actually is until you pay us. Then most people don’t read it and if they do it may clearly say there is coverage and the claims department will simply “interpret” it differently and say there is not coverage.

    • wmerlin

      Kurt,

      You make an excellent point. Policyholders typically are not purchasing their product knowing what they bought. Even if they old object, most policies have earned premium agreements making immediate cancellation awfully expensive if they find repugnant provisions.

  • John Gardner

    Could we say this about any contract? or just insurance contracts? asking for a friend…
    Does this mean that entering into a contract but not reading the contract has no bearing on the terms of the contract? You just won’t know the terms until there is a problem.

  • Stephen Harmon

    The problem I see if I get to read the policy before I purchased it. I have USAA an battled with them on my RV being totaled.

    I’m purchasing a new home here in NC . I’m going to ask if I can review the policy before I purchase. I sent in a Request for a quote an asked to get a copy of the policy before I purchase .

    I’ll letter you know how that goes.

    • wmerlin

      Stephen,

      Most of my family has USAA because we were all military. I escaped, sorta.

      Not being able to get a copy before the purchase makes this a very different than normal transaction. Would be purchase a house without seeing it?