There was once a very nerdy and 22-year-old law student in the library who wrote about the doctrine of reasonable expectations. Yesterday on my Tuesday at 2 With Chip live stream, I gave our participants an explanation of why interpretation of insurance contracts is so important to the insurance claims community. I also noted an essay I wrote almost 39 years ago – long before all the experiences I have had with judges and academics about how insurance contracts should be interpreted.
The 22-year-old wrote a paper, Fraudulent claims and the innocent spouse: A call for reasonable expectations 1 which had the following conclusion:
The fraudulent insurance loss is a problem that is very concerned about insurers and the general public. New technologies that detect fraudulent claims are increasingly being developed by government agencies and the insurance community to stop this epidemic. Unfortunately, the spread of detection and prosecution of fraudulent insureds has not only resulted in innocent spouses who did nothing to deceive the insurer. A traditional analysis that strictly interprets the technical language of policy or develops tests that use inappropriate principles to convey coverage does not adequately confront the innocent spouse's expectations of insurance coverage. Through legal recognition of the doctrine of reasonable expectations, insurers will be forced to provide spouses with information about their insurance policies. In return, spouses, especially the separated or divorced, could consciously protect their financial interests from the faults of others.
Seventeen years later, different and more experienced lawyers wrote that the insurance product was deficient and that the insurance consumer's reasonable expectations of coverage would be maintained:
Employees and managers in the insurance industry are indoctrinated with the philosophy that insurance is good and that policyholders and policyholders . According to the insurance industry, almost 50% of policyholders are actual or potential crooks. A new article, written by the president of the Insurance Information Institute, shows that the perpetrators of insurance fraud are … "mostly the people we live and work with ̵1; our neighbors …" In addition, the "rampant" corruption of otherwise honest, "to seemingly law-abiding people "something that they in the insurance industry" have known for some time. " The insurance company claims that adjusters see themselves as underpaid, overworked vigilantes who protect an unappreciated American public from a bunch of thieves, captivating robbers intent on looting and looting.
To manage the insurance system, one must accept the fact that insurance companies' adjusters believe what they say they believe. They may be wrong, but they think they are right and must be dealt with on that basis. It goes without saying that there are crooked policyholders and crooked claims and there are crooked lawyers, but there are also crooked insurance companies.
Does the insurance industry sell matches to arsonists? Fifty percent of the people who go to church do not steal from the collection plate and 50% of the people who go to the market do not carpent in stores. The fault may not be with the premium-paying policyholders. The fault may be with the insurance product. Any other product that turned its customers into antisocial cheats and thieves would be condemned and banned from the market.
Most of the problem is with the insurance product and not with the customer. But instead of taking responsibility for a defective product, many insurance companies have decided to blame the frequent victims of insurance fraud – their policyholders. John G. DiLiberto, president and chief executive officer of the National Insurance Crime Bureau, warned insurance companies that they were "in the middle of a congressional shootout." This says that the people who pay the premiums and who are the recipients of insurance are evil.
Previously, insurance was treated as a contract. Today, they are treated more and more as products. When Professor Keeton wrote his famous articles, there were few remedies for opportunistic breach of contract. Today, contract law and insurance law are in development. Policyholders seeking insurance coverage are not limited to the literal terms – often hidden or unclear – in their insurance policies.
The doctrine of reasonable expectations protects policyholders from shortcomings in contractual measures and the temptations of opportunistic breach. By going beyond the written language of insurance, the doctrine seeks to fulfill an policyholder's objectively reasonable expectations of insurance coverage. This approach is supported by the unique nature of the insurance product and insurance business.
It can not be ignored that insurance companies are in the best position to meet a policyholder's reasonable expectations of insurance coverage. Striving for clarity in the policy language, openness in sales negotiations and fair claims settlement reduces the risk of the insurance company failing to meet its policyholders' reasonable expectations. Information about potential gaps in insurance coverage should be provided at the point of sale rather than after a claim is made. Policyholders who are really aware of the extent of their insurance coverage from the beginning are less likely to feel abused and abandoned by their insurance company when a claim is denied. Similarly, the willingness of insurance companies to share this type of information should continue at speeds higher than slow, stop and turn. By training their agents and employees to respect the duty of good faith and fair trade, insurance companies ultimately save money for the policyholder and themselves. Such behavior creates good will and trust. It's simply good business. 2
After all these years, I still hear the same thing from the insurance company's executives in the legislature's halls and their lawyers in the courtroom: 'Our clients are tearing us apart. "I never hear that their underpayment of claims is a problem and a much worse scam that deserves a closer look as insurance fraud.
But in the end, should the innocent customer – the non-fraudulent – be treated that person? What rules for interpreting insurance contracts should apply?
I still think that a customer who is free from fraud after all these years should have his reasonable expectations taken into account and benefits paid. To me, it just seems like a good idea to do so.
Thought for the day
I grew up with J. Edgar Hoover. He was the G-Man, a hero to all, and the Federal Bureau of Investigation was the large, dreaded organization. He was ahead of his time as far as he built up forensic evidence and fingerprints. But he also took down many innocent people.
1 Merlin, W. F., Jr. (1981). Fraudulent Claims and the Innocent Spouse: A Call to Reasonable Expectations . [Unpublished doctoral dissertation]. University of Florida School of Law.
2 Eugene R. Anderson and James J. Fournier. Why courts apply policyholders' objectively reasonable expectations to insurance coverage . 5 Connections L.J. 335 (1998-1999).