The Expectations Principle as a Regulative Ideal

For over three decades now, the courts of some states have followed the doctrine permitting them to honor the "reasonable expectations" of the insured as to coverage, notwithstanding clear policy language to the contrary. Most courts, however, have either expressly rejected this doctrine or quietly ignored it. In contrast to a number of the contributors to this Symposium on the expectations principle, I do not believe that this split among jurisdictions is part of a "battle for the soul of contract law" or indicative of a deep jurisprudential division between consumer-oriented and insurer-oriented states. Indeed, some of the states that have adopted the expectations doctrine are insurer-oriented in other respects, and some of the states that have not adopted the doctrine are consumer-oriented in other respects.

Rather, in my view this difference among the states reflects the normal and longstanding tension within insurance law between insurers' need for predictability of obligation and policyholders' comparative lack of information about the scope of the coverage that they need and have actually purchased. This is a healthy and inevitable tension that is incompletely resolved, and probably will remain incompletely resolved, in the law of both the minority of jurisdictions that honor the reasonable expectations of the insured and the majority of jurisdictions that do not. Thus, even in the same state, some but not all ambiguous policy provisions are interpreted in favor of coverage; claims of waiver and estoppel are available to policyholders, but are subject to substantial restrictions; and there are other rights at variance with policy provisions, but these rights are limited.

The rule that reasonable expectations are to be honored notwithstanding clear and contrary policy language is a minor "doctrine" that fits comfortably within this complex body of insurance law rules that shade sometimes toward policyholders and sometimes toward insurers. In contrast, I contend that the expectations "principle" that lies behind the doctrine is of major significance. That principle, in fact, animates much of insurance law that lies far beyond the limited scope of the expectations doctrine. This seeming contradiction actually makes good sense, for the reasons I shall indicate below.