Coverage Outside the Policy Due to Insured’s ‘Reasonable Expectations’

Dave Young

By Dave Young

As an adjuster, I don’t talk to judges but I do “measure and document” the valuation of insurance claims. I was recently asked by an insured’s counsel to do just such a thing in a claim that demanded coverage be applied outside of the policy.

We see demands from insureds all the time to “reform” the policy and sometimes we see insurers rolling over as well; although, I have never pursued such a claim outside of the insured attaining counsel.

Sometimes insurers pay “reasonable expectation” claims that literally amaze me. After the Chediski Rodeo fire, I talked with many individuals who were under-insured and two asked me if I could get their policies “reformed.” Of these two, both were insured by State Farm. I declined, referring them to attorneys who might help them if their agent had “failed to place the proper coverage.” Both declined and pursued their claims on their own. One was paid. The other was not. It amused me that the one that was paid was a destroyed second home of a famous football player.

Why some insurers do this is beyond me but these insurers must to take care of the famous or politically connected. You may recall that State Farm paid money to Paula Jones that laid her claim against Bill Clinton to rest. State Farm paid that claim under Bill Clinton’s Umbrella Policy despite State Farm’s own practice of denying claims where “a law may have been broken.”

Let’s face it, reasonable expectations can differ from individual-to-individual depending on that person’s sense of entitlement. However, some non-politically or famous insureds do have a causal base to pursue such “reasonable expectations” claims based upon many factors which include the agents’ responsibility to place proper coverage (See Southwest Autobody v. Binson), notices to the insured in policy renewal billings, advertising brochures and other reasons which may create reasonable expectations.

The reasonable expectations doctrine applied in Arizona includes the theory that when insurance terms cannot be understood by the reasonably intelligent consumer, the court will interpret those terms in a manner that allows the benefit of those terms to inure to the consumer even when there is no coverage. (Hanks v. American Family Mutual, Gordinier v. Aetna Casualty).

I believe that the doctrine of reasonable expectations will gain momentum. For years, we have been involved in claims that involve “matching” issues only to see insurers hang onto their wallets. However, things are changing and these claims are getting paid, even though I know that realistically, insurers cannot take the hit for all economic losses that an insured might encounter. As a consequence of this, insurers are responding with pointed language in their policies that no matching losses will be considered. We’ll see where this issue goes from here. But … in the meantime, counsel for an insured should not hesitate to make such a claim if it makes sense knowing that counsel for insurers won’t roll over easy, unless they are making payments to Bill Clinton or football stars.


David E. Young is an Arizona insurance adjuster. He is licensed as an independent adjuster in Arizona as well as Utah, California, Texas, Oklahoma, New Mexico, Colorado, Nevada, Oregon, Idaho and Maryland. He is a principal with Brown-O’Haver Public Adjusters and the owner of the Adjusters Insurance School. He is a nationally recognized expert in the appraisal of insurance claims having authored that chapter in the Insurance Settlement Handbook. He is the president of the Rocky Mountain Association of Public Insurance Adjusters and serves on the board of directors of the National Association of Public Insurance Adjusters. For more information, please visit www.brown-ohaver.com.