Also known as: reasonable expectation of insured · reasonable expectations doctrine · doctrine of reasonable expectations · reasonable expectations
Written by attorneys · grounded in primary & secondary sources — see below
A doctrine under which courts honor the objectively reasonable expectations of insureds and intended beneficiaries regarding the terms of an insurance contract even when a literal reading of the policy provisions would produce a contrary result. The doctrine applies with particular force to contracts of adhesion where the insured lacks meaningful opportunity to negotiate terms. It prevents insurers from enforcing coverage limitations that would defeat the coverage the insured reasonably believed had been purchased.
Rina Rahman purchased a commercial liability policy through an insurance agent who knew she expected coverage for product-related claims arising from her fertilizer business. When a claim arose, the insurer denied coverage based on a buried exclusion. The court enforced the policy according to the agent's knowledge of Rahman's expectations rather than the literal wording.
Roland Rhodes bought property insurance expecting protection against loss of economic use. A temporary city moratorium halted all development on his land for two years. When Rhodes claimed under the policy, the insurer resisted on the ground that no physical damage occurred. The court examined Rhodes's reasonable expectations along with the moratorium's duration and purpose to decide coverage.
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The doctrine applies when the policy is a contract of adhesion and the insured's expectations are objectively reasonable. Courts will not enforce literal terms that defeat the coverage the insured reasonably believed was purchased.
No. The doctrine operates even when painstaking study of the policy would negate the expectations. It protects reasonable expectations induced by the insurer's marketing and the nature of the coverage sold.
The doctrine reinforces the implied duty of good faith by preventing insurers from using technical language to frustrate the coverage the insured reasonably expected. Bad-faith denial of claims that defeat those expectations exposes the insurer to liability.
…provide a sufficient basis upon which to decide this case. In discerning those principles, our guide is — as it must be — the reasonable expectations of Keene when it purchased the policies. See, e.g., Steven v. Fidelity & Cas. Co. , 58 Cal.2d 862, 869-70, 377 P.2d 284, 288-89, 27 Cal.Rptr. 172, 176-77 (1962); Allen v. Metropolitan…