New Cases, Old Lesson.
Happy New Year!
New cases illustrate the differences in applying the "Reasonable Expectations Doctrine". This important doctrine is not applied in all jurisdictions, and there is a split among the courts which apply it. In a decision so new that it is not yet accessible (to me, anyway) and is not listed on the District Court's public web site, the Federal Court in the District of Arizona explained one view of this important doctrine: "Under Arizona law, even unambiguous policy language will not be enforced against the insured if the insured had a reasonable expectation of coverage." Madsen v. Fortis Benefits Ins. Co., 2006 WL 3771803 *8 (D. Ariz. Case No. CV 04-1959-PHX-JAT, Opinion Filed December 21, 2006)(subscription required to access Westlaw version). [Emphasis added.]
Before passing on to other recent cases involving a Reasonable Expectations Doctrine, several other rulings under Arizona law were made in this important new decision. The Madsen case involved claims involving alleged First Party Bad Faith and Coverage. The Plaintiff in that case, Ms. Jacqueline Madsen, "claims she was an additional insured under a nonrenewable Short Term Medical Policy" issued by Fortis. (Id. at *1.) The Federal Judge reiterated Arizona law (id. at *9), and entered Summary Judgment for the First Party Insurance Company in that case because of the Court's ruling that the Arizona Reasonable Expectations Doctrine required a jury determination of fact which, in the Federal Judge's view, clearly supported a determination that the Defendant acted reasonably and not in Bad Faith. Further, something more was required to support Ms. Madsen's claim for Punitive Damages than even a showing of First Party Bad Faith. "The something more that must be shown is evidence that Fortis was aware of and consciously disregarded a substantial and unjustified risk that significant harm would occur." (Id. at *10.) "Accordingly," said the Federal Judge, the ruling that the Plaintiff's First Party Bad Faith Claim in that case "fails as a matter of law" means that Summary Judgment is also granted in favor of Fortis in that case "on the punitive damages claim."
In other jurisdictions that recognize a Reasonable Expectations of the Policyholder Doctrine, the doctrine is a rule of Insurance Contract Interpretation that applies only when there is an ambiguity. The Supreme Court of Kentucky reviewed this doctrine in a famous Third Party or Liability Insurance Case involving a claim to Coverage under "a commercial automobile liability insurance policy, for example, in Brown v. Indiana Insurance Co., 184 S.W.3d 528, 531 (Supreme Court of Kentucky Case No. 2004-SC-0065-DG, et al., Opinion Filed December 22, 2005)(subscription required to access via Westlaw, Supreme Court of Kentucky public web site too difficult to access in time for this post). The Doctrine of Reasonable Expectations, held the Supreme Court of Kentucky in that case, is a "principle [that] pertains to alleged ambiguities within the policy." The Supreme Court held that there is no ambiguity in the Worker's Compensation Exclusions in the Commercial Auto Liability Insurance Policy before it in that case. "Accordingly, the opinion of the Court of Appeals [reversing the Trial Court with directions to enter Judgment in favor of the Insurance Company] is affirmed." Id. at 540. Recently, an alternative way of expressing the Reasonable Expectations Doctrine was addressed by a Federal Judge in another Liability Insurance Case in Download Travelers_Indem. Co. v. Bowling Green Professional Assoc's, PLC (W.D. Ky. Case No. 1.05CV171, Opinion Filed July 21, 2006).pdf. This case is also reported at 440 F. Supp. 2d 652. As applied in that case to "a Professional Liability Insurance for Specified Medical Professions Policy" (Slipsheet Opinion at 10), the Reasonable Expectations Doctrine will be defeated only where the Insurance Policy at issue unequivocally, conspicuously, plainly, and clearly manifests an Exclusion. (Slipsheet at 12.) In that Federal Case, "[t]he Court finds that there is no ambiguity in the ... Policy." As a result, "the Court finds that [the Liability Insurance Company] owes no duty to defend or indemnify" its Policyholder in an underlying liability case and enters Summary Judgment in favor of the Liability Insurance Company which issued the Policy. (Slipsheet Opinion at 13.)
The clear lesson of these new decisions is an old lesson of caution: Care must be taken to understand the Insurance Law of the place where the Insurance Policy is at issue and will be interpreted.
REMINDER: THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP. ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.
