holding that the doctrine of reason *646 able expectations applies when “the [insurer] has reason to believe that the [insured] would not have accepted the agreement if he had known that the agreement contained the particular term” (quoting Restatement (Second) of Contracts § 211 cmt. f (1981) (emphasis added))
How later courts described this case
- holding that the doctrine of reason *646 able expectations applies when “the [insurer] has reason to believe that the [insured] would not have accepted the agreement if he had known that the agreement contained the particular term” (quoting Restatement (Second) of Contracts § 211 cmt. f (1981) (emphasis added))
- recognizing rule that allows insured to raise estoppel to establish coverage contrary to the limitations in the boiler-plate terms of an insurance policy when the insurer’s agent represented the coverage as greater than that actually included in the printed policy
- recognizing that 22 while the parol evidence rule precludes parties from varying the terms of an insurance 23 policy by introducing evidence contrary to the writing, the rule is not “strictly applied” to 24 enforce a bargain that was never made
- holding that the doctrine of reason able expectations applies when “the [insurer] has reason to believe that the [insured] would not have accepted the agreement if he had known that the agreement contained the particular term” (quoting Restatement (Second
Written by the judges who cited it.
The opinion
HOLOHAN, Chief Justice,
dissenting.
With the stated purpose of reviewing the clarity and consistency of a large body of Arizona law dealing with insurance coverage, the court by this decision proceeds to overrule the major part of past precedent on the subject. Having overruled the past precedent, the court then proceeds to adopt virtually every minority position taken by any court or text writer in the United States. The decision makes the contents of a written insurance policy irrelevant in the determination of the nature and extent of coverage. In place of the insurance policy the nature and extent of coverage will now be decided by a swearing contest between the insured and the insurance company’s agents. I cannot agree with the position taken by the court and, therefore, dissent. I believe that the decision of the Court of Appeals in this case should have been approved.
The court’s decision is based on the fact, at least as found by the majority, that people do not read their insurance policies, and, if they do, they don’t understand them anyway. Apparently the group encompassed within the court’s protection includes not only the ordinary citizen but also the successful sophisticated businessman such as the plaintiff in this case. There is no limitation on those who qualify for the benign protection of this court from what is perceived as the obfuscation created by insurance companies. Under today’s decision, any person who reads his insurance policy would be a fool since it is far better to plead ignorance of the contents of the policy and claim coverage to the broadest possible extent. The matter will then be resolved by trial based on the most convincing story. The written agreement or policy is to be ignored.
Although the insurance industry is the subject of this court’s current efforts to clarify and reform previous precedent, many other business organizations should feel uncomfortable about their future. I have no doubt that experience will show that few people have read their mortgages, deeds of trust, or even the escrow instructions used in various real estate transactions. Under the same rationale advanced by the court in its decision today, the various financing documents used in real estate transactions may be subject to oral modification because they have not been read, or, if read, not understood by ordinary citizens.
The mischief created by today’s decision will be far-reaching. Currently the only industry affected is the insurance industry. It can be said without any exaggeration that no insurance company now operating in Arizona can be assured that the written policies currently in effect have the limitations contained in the policy. The extent of the risk which these companies thought they had undertaken is now incapable of calculation. The extent of the risk is limited only by the impressions or imagination of policyholders about the extent of their coverage.
Every insurance company in this state must review its current method of operation because today’s decision will significantly affect current policies and future policies written in this state. Of course, a company may elect to cease doing business in this state because of our “enlightened” insurance law, but, hopefully, a more cautious approach may be deemed prudent until such time as appropriate legislation can be sought to establish the insurance policy as a document with some binding effect. In the interim it appears that every insurance agent will be required to do a complete review of the policy with the insured and establish some form of record to support the conclusion that the insured was *402 advised and understood the nature, extent and limitations of the policy which was purchased. The sale of insurance in Arizona may take on much the same formality as the taking of a plea of guilty in a criminal case. See Rule 17, Rules of Criminal Procedure. The agent, like the judge in a criminal case, will have to advise the insured of his rights and the consequences of taking the policy presented. Hopefully, it will not be necessary for a verbatim record to be made of the negotiations. See Rule 17.1(d), Rules of Criminal Procedure.
Under today’s decision it appears that we have come full circle in the development of the law on contracts. Oral contracts were largely the method used in early times. To avoid the disputes which arose out of misunderstandings in oral agreements, the written contract became preferred. In modern commercial practice the written contract is not only preferred, it is essential. It is designed to eliminate disputes, and it is intended to establish some certitude in setting out the agreement of the parties. These concepts may be basic, but they are largely ignored in today’s decision because an insured is not allowed to help write the contract. A debtor doesn’t write the mortgage or deed of trust or most any other type of financing document, but until now the signing of the document bound the borrower to the terms of the agreement.
Whatever evil the majority is attempting to eliminate, the remedy advanced is like decapitation to cure dandruff — a cure that is far worse than the disease.