Opinion ID: 1846455
Heading Depth: 2
Heading Rank: 3

Heading: Whether an Insured's Reasonable Expectations Can Overcome Unambiguous Language

Text: We now turn to the argument made by Abston Petroleum and the Schills that Eddie Abston reasonably expected that any claims involving his gasoline-distribution business would be covered by the Federated Mutual policy, despite his testimony that he never read the pollution-exclusion clause before Federated Mutual denied coverage for the Schills' claims. This Court limited the doctrine of reasonable expectations as applied to an insurance policy in Slade, supra. We there stated: The rule (or doctrine) of reasonable expectations of the parties is based on Aetna Casualty & Surety Co. v. Chapman, 240 Ala. 599, 200 So. 425 (1941). . . . . . . . `In giving effect to [the rule that the insured is entitled to the protection which he may reasonably expect from the terms of the policy he purchases], it is equally important that the contract made by the parties shall prevail, and no new contract be interpolated by construction. `Provisions clearly disclosing their real intent are not to be given a strained construction to raise doubts where none reasonably exist. No citation of authority need be made in support of these well settled principles.' [ Chapman, 240 Ala. at 602, 200 So. at 426-27.] In Lambert v. Liberty Mutual Insurance Co., 331 So.2d 260, 263 (Ala.1976), a `stacking' case arising in regard to the statutorily mandated offer of uninsured-motorist coverage, this Court referred to Chapman and then stated: `As Professor Keeton analyzes it, the principle of reasonable expectations insures that [t]he objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations. R. Keeton, Basic Text on Insurance Law § 6.3(a), at 351 (1971).' (Emphasis in original.) Then the Court observed that its application of the rule of reasonable expectations in the context of stacking uninsured-motorist coverages allowed an insured to enjoy increased coverage because `where an expectation . . . is in conflict with a limiting clause in the policy, the resulting ambiguity must be resolved in favor of the insured due to the nature of insurance contracts.' Id. at 263. However, the Court found that Lambert was not within the zone of persons entitled to have a reasonable expectation of stacked coverages, because he was an employee of the purchaser of the policy. Id. at 263-65. The Court also held that Lambert was not a person required by statute to be covered under uninsured-motorist provisions and that the plain terms of the policy limited the amount of coverage provided for him; this, the Court held, was a separate basis for affirming the summary judgment for the insurer. Id. Given the Court's finding that Lambert was not within the zone of persons entitled to a reasonable expectation of stacked coverages and its finding of a separate basis for affirming, we must conclude that, to the extent Lambert is inconsistent with Chapman's requirement that, for the rule of reasonable expectations to apply, there be, as a predicate, doubts as to the real intent of the policy, the statements in Lambert are dicta. Moreover, we are not here presented with separate provisions of an insurance policy each of which is unambiguous when read without reference to the other but, when read together, create a conflict giving rise to an ambiguity. Compare West American Ins. Co. v. Biggs, 348 So.2d 258 (Ala.Civ.App.1977). The State Farm policy at issue here clearly limits its coverage by citing the policyholder to a specific ensuing section of the policy that contains several exclusions from coverage. At least one court has found that such a reference gives the insured reasonable notice of the exclusion. See Kane v. Royal Ins. Co., 768 P.2d 678, 684 (Colo.1989). Other courts have limited the use of the doctrine of reasonable expectations to situations in which an insurance policy is ambiguous. See, e.g., Rodriguez v. General Acc. Ins. Co., 808 S.W.2d 379, 381 (Mo.1991); Riffe v. Home Finders Assocs., Inc., 205 W.Va. 216, 517 S.E.2d 313 (1999). Furthermore, expectations that contradict a clear exclusion are not `objectively reasonable.' Wellcome v. Home Ins. Co., 257 Mont. 354, 359, 849 P.2d 190, 194 (1993). Such a limit on the doctrine of reasonable expectations is necessary. Otherwise, this Court would be faced with the strong temptation to substitute its notion of equity for the unambiguous terms of a contract and the doctrine could be used to invalidate every policy exclusion. See Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 97, 804 P.2d 822, 826-27 (Ct.App. 1990), review denied, 168 Ariz. 144, 811 P.2d 1081 (Ariz.1991) (`If . . . all that was required to defeat the operation of a policy exclusion under the reasonable expectation doctrine was a provision attempting to qualify or limit the scope of policy coverage, then every policy exclusion would be invalid as contrary to the insured's reasonable expectation of coverage.'). Accordingly, we conclude that the Slades' expectations of coverage do not require us to construe their policy so as to find coverage. Their expectations were limited by the unambiguous terms of their policy and therefore their expectations of coverage could not be `objectively reasonable.' See Wellcome, supra. Slade, 747 So.2d at 311-12. We therefore hold that the argument that Eddie Abston reasonably expected that any claims involving his gasoline-distribution business would be covered by the Federated Mutual policy does not provide a basis for finding coverage for the Schills' losses. Eddie Abston's expectations were limited by the unambiguous terms of the pollution-exclusion clause; therefore, his expectations of coverage could not be objectively reasonable.