Opinion ID: 1821713
Heading Depth: 1
Heading Rank: 2

Heading: application of the policy definition of burglary.

Text: The definition of burglary in this policy is one used generally in burglary insurance. Courts have construed it in different ways. [1] It has been held ambiguous and construed in favor of coverage in the absence of visible marks of forceable entry or exit. United States Fidelity & Guaranty Co. v. Woodward, 118 Ga.App. 591, 164 S.E.2d 878 (1968). We reject this analysis because we view the definition in the policy as clear and precise. It is not ambiguous. In determining the intent of the parties to the insurance contract, courts have looked to the purpose of the visible-marks-of-forcible-entry requirement. These purposes are two: to protect insurance companies from fraud by way of inside jobs and to encourage insureds to reasonably secure the premises. See 5 Appleman § 3176 at 517. As long as the theft involved clearly neither an inside job nor the result of a lack of secured premises, some courts have simply held that the definition does not apply. Limberis v. Aetna Casualty & Surety Co., 263 A.2d 83 (Me.1970); Kretschmer's House of Appliances, Inc. v. United States Fidelity & Guaranty Co., 410 S.W.2d 617 (Ky.1966). In the instant case, there is no dispute as to whether Atwater is attempting to defraud Western or whether the Soil Center was properly secured. The trial court found that the premises were secured before the robbery and that the law enforcement investigators had determined that it was not an inside job. To enforce the burglary definition literally against the creamery will in no way effectuate either purpose behind the restrictive definition. We are uncomfortable, however, with this analysis given the right of an insurer to limit the risk against which it will indemnify insureds. At least three state courts have held that the definition merely provides for one form of evidence which may be used to prove a burglary and that, consequently, other evidence of a burglary will suffice to provide coverage. Ferguson v. Phoenix Assurance Co. of New York, 189 Kan. 459, 370 P.2d 379 (1962); National Surety Co. v. Silberberg Bros., 176 S.W. 97 (Tex.Civ. App.1915); Rosenthal v. American Bonding Co. of Baltimore, 124 N.Y.S. 905 (N.Y. Sup.Ct.1910). The Nebraska Supreme Court recently rejected this argument in Cochran v. MFA Mutual Insurance Co., 201 Neb. 631, 271 N.W.2d 331 (1978). The Cochran court held that the definition is not a rule of evidence but is a limit on liability, is unambiguous and is applied literally to the facts of the case at hand. We, too, reject this view of the definition as merely a form of evidence. The policy attempts to comprehensively define burglaries that are covered by it. In essence, this approach ignores the policy definition altogether and substitutes the court's or the statute's definition of burglary. This we decline to do, either via the conformity clause or by calling the policy definition merely one form of evidence of a burglary. Some courts and commentators have recognized that the burglary definition at issue in this case constitutes a rather hidden exclusion from coverage. Exclusions in insurance contracts are read narrowly against the insurer. Running through the many court opinions refusing to literally enforce this burglary definition is the concept that the definition is surprisingly restrictive, that no one purchasing something called burglary insurance would expect coverage to exclude skilled burglaries that leave no visible marks of forcible entry or exit. Professor Robert E. Keeton, in analyzing these and other insurance cases where the results often do not follow from the rules stated, found there to be two general principles underlying many decisions. These principles are the reasonable expectations of the insured and the unconscionability of the clause itself or as applied to the facts of a specific case. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv.L.Rev. 961 (1970). Keeton's article and subsequent book, Basic Text on Insurance Law, (1971), have had significant impact on the construction of insurance contracts. The doctrine of protecting the reasonable expectations of the insured is closely related to the doctrine of contracts of adhesion. Where there is unequal bargaining power between the parties so that one party controls all of the terms and offers the contract on a take-it-or-leave-it basis, the contract will be strictly construed against the party who drafted it. Most courts recognize the great disparity in bargaining power between insurance companies and those who seek insurance. Further, they recognize that, in the majority of cases, a lay person lacks the necessary skills to read and understand insurance policies, which are typically long, set out in very small type and written from a legalistic or insurance expert's perspective. Finally, courts recognize that people purchase insurance relying on others, the agent or company, to provide a policy that meets their needs. The result of the lack of insurance expertise on the part of insureds and the recognized marketing techniques of insurance companies is 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. Keeton, 83 Harv.L.Rev. at 967. The traditional approach to construction of insurance contracts is to require some kind of ambiguity in the policy before applying the doctrine of reasonable expectations. Several courts, however, have adopted Keeton's view that ambiguity ought not be a condition precedent to the application of the reasonable-expectations doctrine. As of 1980, approximately ten states had adopted the newer rule of reasonable expectations regardless of ambiguity. Davenport Peters Co. v. Royal Globe Insurance Co., 490 F.Supp. 286, 291 (D.Mass. 1980). Other states, such as Missouri and North Dakota, have joined the ten since then. [2] Most courts recognize that insureds seldom see the policy until the premium is paid, and even if they try to read it, they do not comprehend it. Few courts require insureds to have minutely examined the policy before relying on the terms they expect it to have and for which they have paid. The burglary definition is a classic example of a policy provision that should be, and has been, interpreted according to the reasonable expectations of the insured. C & J Fertilizer, Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169 (Iowa 1975). C & J Fertilizer involved a burglary definition almost exactly like the one in the instant case as well as a burglary very similar to the Atwater burglary. The court applied the reasonable-expectations-regardless-of-ambiguity doctrine, noting that [t]he most plaintiff might have reasonably anticipated was a policy requirement of visual evidence (abundant here) indicating the burglary was an `outside' not an `inside' job. The exclusion in issue, masking as a definition, makes insurer's obligation to pay turn on the skill of the burglar, not on the event the parties bargained for: a bona fide third party burglary resulting in loss of plaintiff's chemicals and equipment Id. at 177. The burglary in C & J Fertilizer left no visible marks on the exterior of the building, but an interior door was damaged. In the instant case, the facts are very similar except that there was no damage to the interior doors; their padlocks were simply gone. In C & J Fertilizer, the police concluded that an outside burglary had occurred. The same is true here. Atwater had a burglary policy with Western for more than 30 years. The creamery relied on Charles Strehlow to procure for it insurance suitable for its needs. There is some factual dispute as to whether Strehlow ever told Poe about the exclusion, as Strehlow called it. Even if he had said that there was a visible-marks-of-forcible-entry requirement, Poe could reasonably have thought that it meant that there must be clear evidence of a burglary. There are, of course, fidelity bonds which cover employee theft. The creamery had such a policy covering director and manager theft. The fidelity company, however, does not undertake to insure against the risk of third-party burglaries. A business that requests and purchases burglary insurance reasonably is seeking coverage for loss from third-party burglaries whether a break-in is accomplished by an inept burglar or by a highly skilled burglar. Two other burglaries had occurred at the Soil Center, for which Atwater had received insurance proceeds under the policy. Poe and the board of the creamery could reasonably have expected the burglary policy to cover this burglary where the police, as well as the trial court, found that it was an outside job. The reasonable-expectations doctrine gives the court a standard by which to construe insurance contracts without having to rely on arbitrary rules which do not reflect real-life situations and without having to bend and stretch those rules to do justice in individual cases. As Professor Keeton points out, ambiguity in the language of the contract is not irrelevant under this standard but becomes a factor in determining the reasonable expectations of the insured, along with such factors as whether the insured was told of important, but obscure, conditions or exclusions and whether the particular provision in the contract at issue is an item known by the public generally. The doctrine does not automatically remove from the insured a responsibility to read the policy. It does, however, recognize that in certain instances, such as where major exclusions are hidden in the definitions section, the insured should be held only to reasonable knowledge of the literal terms and conditions. The insured may show what actual expectations he or she had, but the factfinder should determine whether those expectations were reasonable under the circumstances. We have used the reasonable-expectations-of-the-insured analysis to provide coverage where the actual language interpreted as the insurance company intended would have proscribed coverage. Canadian Universal Insurance Co. v. Fire Watch, Inc., 258 N.W.2d 570 (Minn.1977). Western correctly points out that the issue there concerned a special endorsement issued subsequent to the policy which reduced coverage without notice to the insured. While the issue is somewhat different in the instant case, it is not so different that the general concept is made inapplicable. In our view, the reasonable-expectations doctrine does not automatically mandate either pro-insurer or pro-insured results. It does place a burden on insurance companies to communicate coverage and exclusions of policies accurately and clearly. It does require that expectations of coverage by the insured be reasonable under the circumstances. Neither of those requirements seems overly burdensome. Properly used, the doctrine will result in coverage in some cases and in no coverage in others. We hold that where the technical definition of burglary in a burglary insurance policy is, in effect, an exclusion from coverage, it will not be interpreted so as to defeat the reasonable expectations of the purchaser of the policy. Under the facts and circumstances of this case, Atwater reasonably expected that its burglary insurance policy with Western would cover the burglary that occurred. Our holding requires reversal as to policy coverage.