Opinion ID: 2066521
Heading Depth: 1
Heading Rank: 5

Heading: Does the doctrine of reasonable expectations apply?

Text: In her brief in support of her motion for summary judgment in the district court, Debra asserted that the doctrine of reasonable expectations applied to prevent the uninsured motorist coverage endorsement language from being enforced. Debra reasserts that theory here to uphold the district court's judgment in her favor. Although the district court did not specifically mention the doctrine of reasonable expectations in its ruling, the court did say it is doubtful whether a lay person would understand the reference to `financial responsibility law of Iowa' as that phrase is used in the UM coverage endorsement. With respect to the doctrine of reasonable expectations, we have said: the objectively reasonable expectations of applicants and intended beneficiaries regarding insurance policies will be honored even though painstaking study of the policy provisions would have negated those expectations. Clark-Peterson Co. v. Independent Ins. Assocs., Ltd., 492 N.W.2d 675, 677 (Iowa 1992). The doctrine is carefully circumscribed and does not contemplate the expansion of coverage on a general equitable basis. Id. It can only be invoked when an exclusion (1) is bizarre or oppressive, (2) eviscerates terms explicitly agreed to, or (3) eliminates the dominant purpose of the transaction. Id. (citation omitted). A preliminary criterion must be satisfied before we apply the doctrine. The policy must either be such that an ordinary layperson would misunderstand its coverage, or there must be circumstances attributable to the insurer which would foster coverage expectations. Id. Johnson v. Farm Bureau Mut Ins. Co., 533 N.W.2d 203, 206 (Iowa 1995). Debra has presented no evidence of overt actions or representations by IMT which would foster expectations concerning UM coverage. Instead, Debra seems to contend that the reference to the financial responsibility law of Iowa is too vague for an ordinary layperson to find in the Iowa Code and thus an ordinary layperson would not understand that the uninsured motorist limits are reduced to the amounts specified in Iowa Code sections 321A.1(10) and 321A.21(2)(b) when there is no liability coverage for an insured. In support of this contention, Debra's husband and an insured, Paul Krause, filed an affidavit stating that he read the policy upon receipt, but that nothing therein led him to believe that he was limited to a maximum of $20,000 UM coverage when a family member was injured while riding in a vehicle insured under the policy. While a layperson may have some difficulty matching the phrase financial responsibility law of Iowa with the statutorily-required amounts of liability coverage listed in sections 321A.1(10) and 321A.21(2)(b) by consulting the index to the Iowa Code, we are not convinced that the UM endorsement language is bizarre or oppressive, eviscerates terms explicitly agreed to, or eliminates the dominant purpose of the transaction. The endorsement language simply puts into words the UM coverage available to Debra under the policy in view of the family member exclusion, that is, the minimum limits of coverage of $20,000 per person and $40,000 per accident. It thus cannot validly be said that the UM endorsement eviscerates terms explicitly agreed to by the parties or eliminates the dominant purpose of the transaction. Additionally, Debra does not suggest that there is some minimum uninsured motorist coverage required by law other than the amounts listed in section 321A.1(10). Furthermore, an insurer would have good reason for not identifying the statutory citation or the amount of statutorily required coverage. Both the statutory citation and required amount may change on occasion due to legislative action. Thus, assuming that IMT writes policies in a number of states, it is understandable that IMT would refer to the required amount of coverage as it did. We stated long ago that we would not extend application of the principle of reasonable expectations to cases where an ordinary [layperson] would not misunderstand [] coverage from a reading of the policy unless there are other circumstances attributable to the insurer which cause such expectations. Rodman v. State Farm Mut. Auto. Ins. Co., 208 N.W.2d 903, 908 (Iowa 1973). There, we rejected an insured's argument that a family member exclusion violated his reasonable expectations of coverage based on the insured's claim that, had he read the policy, he would not have understood it. Id. at 906-907. The same result reached in Rodman applies here. Because the language of the UM endorsement is not ambiguous, Debra and Paul would have no valid reasonable expectation of $100,000 UM coverage when the family member exclusion is triggered. We thus conclude as a matter of law that Debra has failed to show that the reasonable expectations doctrine is applicable. As a result, the doctrine cannot be used to invalidate the uninsured motorist coverage endorsement which reduces the amount of uninsured motorist coverage from $100,000 to $20,000. Accordingly, the district court should have enforced the policy as written and should have ruled that Debra was only entitled to $20,000 UM coverage. See Essex Ins. Co. v. Fieldhouse, Inc., 506 N.W.2d 772, 776 (Iowa 1993) (unambiguous exclusions must be given effect).