No. 25539 -- Paul Mitchell, as executor of the Estate of Mary Mitchell v. Anthony George
AND Naomi S. Mitchell and Geraldine O'Dell v. Anthony Broadnax
Starcher, J., concurring:
I concur with the majority's analysis of our uninsured motorist insurance
statute. I agree that the statute requires an insurance carrier to demonstrate that it has
appropriately adjusted the premiums for an automobile insurance policy (which ostensibly
provides comprehensive coverage) to reflect that the coverage has in fact been reduced or
eliminated through an exclusion buried in the policy. Our insurance laws plainly require
insurance companies to ensure that any exclusion written into an automobile insurance policy
be consistent with the premium charged, and to also tell the consumer in plain language
when an exception or condition in any type of insurance policy limits the general coverage
which the consumer assumes they are purchasing.
This case is another example of the axiom that what the big print giveth, the small print taketh away. As former Justice Neely eloquently stated, In most insurance cases, the plaintiffs pay for and believe they have insurance, to discover only after disaster strikes, no insurance. The insurer has the plaintiffs' money and after the disaster -- fire, death or accident -- informs the plaintiffs that no insurance covers the fire, death or accident. Keller v. First National Bank, 184 W.Va. 681, 684, 403 S.E.2d 424, 427 (1991).
The problem in most insurance cases lies in the fact that, unlike most consumer
purchases, what consumers believe they are buying is not the product that the insurance
company actually sells and delivers.
The insurance company markets its product through
brochures and advertisements that assure the consumer they will be in good hands. T
insurance consumer buys the product believing they are buying peace of mind, and the
assurance that if bad things happen to their house, car or themselves, they will be taken care
of. However, what the insurance company is really selling is the promise to pay only a
limited amount of dollars if specific bad things happen. The consumer never discovers how
limited the insurance company's promises are until after they have paid the premiums and
a loss has occurred.
I firmly believe that insurance companies can define the risks they are insuring against by using exclusions and conditions in insurance policies. However, I also believe, as the majority opinion recognizes, that insurance companies have an affirmative duty to advise consumers of the existence of such limiting exclusions and conditions in a policy, and to advise consumers -- before litigation occurs -- that the company has adjusted the premiums so that the policy reflects the reduction or elimination of coverage caused by an exclusion.
The majority's focus in this case was on the fundamental unfairness of the Anthem owned but not insured exclusion. The record from the circuit court contains little evidence of the circumstances surrounding Mary Mitchell's purchase of insurance from Anthem, and little evidence of how Anthem communicated the exclusion to Mary Mitchell. There is absolutely no evidence in the appellate record regarding whether Anthem reduced its premiums to reflect the exclusion, and if so, whether that reduction was communicated to Mary Mitchell.
As best I can tell from the record, Mary Mitchell never asked for the exclusion, never bargained for the exclusion, and never knew it existed until after she (and later her estate) sought coverage. Mary Mitchell bought $300,000 in coverage. Anthem refused to pay anything at all. Only after months of litigation did Anthem even agree to pay a mere $20,000 in coverage.
The briefs of the attorneys for the parties inadequately discussed the statutes, case law, and public policy surrounding how we should interpret W.Va. Code, 33-6-31(b), our lengthy uninsured motorist statute. This occurred even though we specifically ordered the parties to brief these issues. Hence, the majority's opinion focused solely on correcting the unfair situation created by Anthem's owned-but-not-insured exclusion. There was no attempt to explain how the rules adopted in the majority opinion are to apply to future cases.
I write separately to emphasize the impact that the majority's opinion will have on the future handling of insurance claims in West Virginia. Surprising a policyholder, after a fire, death or accident, with an exclusion that no rational, honest person would expect to find in a comprehensive insurance policy is fundamentally unfair. The majority's opinion crafts a framework for how an insurance company bears the burden of eliminating that policyholder surprise by (1) telling the policyholder, up front, before they make a claim, that their policy contains exclusions and that there is no coverage for this, this, and that; and (2) telling the policyholder how much it has reduced their premiums because of the exclusions.See footnote 1 1
I write to fill in the framework built in the majority's opinion.
In simple terms, the Court's decision is based on the premise that consumers do not read (and even if they do read, cannot understand) the terms that insurance companies use in insurance policies. Insurance companies give consumers the impression that they have full coverage under a comprehensive policy, and routinely fail to tell the consumer in plain English of the existence and the meaning of the legalistic exclusions that the insurance company has buried in a policy. So, when an insurance company seeks to avoid liability on an automobile insurance policy through the use of an exclusion, courts should first determine whether the insurance company created a reasonable expectation of coverage in the consumer, and whether the insurance company eliminated that expectation by telling the policyholder (1) that their coverage has been reduced or eliminated by the exclusion, and (2) that their premiums have been reduced to reflect the exclusion.
A fundamental precept of our insurance statutes and our case law is the
recognized fact that insurance consumers do not, repeat, DO NOT, read insurance policies.
In the average, non-insurance contract case, courts will not excuse a party's failure to read the contract. Nevertheless, insurance contracts are treated differently by courts, in part because they are not freely negotiated agreements between the insurance carrier and the policyholder. Also, the policyholder's decision to purchase insurance is often not entirely voluntary. For example, West Virginia law requires vehicle owners to purchase liability and uninsured motorist coverage, and banks require people who borrow money to buy property insurance to insure their new home or comprehensive and collision coverage to insure their new car.
Furthermore, a policyholder buys a policy as a completed product, a standardized fill-in-the-blanks contract form that is essential to our system of mass production and distribution. By using these standardized forms, an insurance company simplifies the insurance purchasing process, and thereby reduces the overall costs of insurance. Consumers who buy a standard form insurance policy know that they cannot have the product changed or customized, and must take what they are given.See footnote 2 2 Hence, both the insurance agent and the policyholder know that it would be pointless for the policyholder to scrutinize the specific language and terms of the policy. The drafters of the Restatement of Contracts (Second), in their discussions regarding contracts of adhesion like an insurance policy, recognized that:
A party who makes regular use of a standardized form of agreement does not ordinarily expect his customers to understand or even to read the standard terms. One of the purposes of standardization is to eliminate bargaining over details of individual transactions, and that purpose would not be served if a substantial number of customers retained counsel and reviewed the standard terms. Employees regularly using a form often have only a limited understanding of its terms and limited authority to vary them. Customers do not in fact ordinarily understand or even read the standard terms. They trust to the good faith of the party using the form and to the tacit representation that like terms are being accepted regularly by others similarly situated. But they understand that they are assenting to the terms not read or not understood, subject to such limitations as the law may impose.
Restatement of Contracts (Second), § 211, comment b  (emphasis added).
In sum, how insurance companies sell insurance policies dictates how those policies will be interpreted by the courts.
[O]nly by acknowledging that the conditions of an insurance contract are for the most part dictated by the insurance companies and that the insured cannot 'bargain' over anything more than the monetary amount of coverage purchased, does our analysis approach the realities of an insurance transaction.
Collister v. Nationwide Life Ins. Co., 479 Pa. 579, 593, 388 A.2d 1346, 1353 (1978). See footnote 3 3 Because of the way insurance policies are sold, courts interpreting those policies will and do excuse a policyholder's failure to read the policy.
Another corollary problem with interpreting insurance contracts is the
knowledge of the parties to the contract. An insurance company drafts insurance policy
language in light of the statutes of dozens of different states, and in light of the varying
interpretations by courts of the statutes and policy language. Policy language is also drafted
to reflect the types of claims that are filed by policyholders. The policyholder lacks such
knowledge, and therefore lacks an understanding of the factual and legal context into which
the insurance company designs a policy provision to fit.See footnote 4
Another important consideration is that most insurance consumers do not even see -- repeat, DO NOT EVEN SEE -- the policy that they purchased until after they have paid the premiums.See footnote 5 5 It is therefore unfair to bind a consumer by the terms of an exclusion that the insurance carrier never showed to the consumer at the time the consumer purchased the policy.See footnote 6 6
Professor Keeton, in his seminal article on the interpretation of insurance
contracts, says that courts routinely, implicitly acknowledge that insurance policies are
contracts of adhesion, and that insurance consumers do not read, and if they did would not
understand, insurance policies. In response to this acknowledged problem, courts often act
to prohibit insurance companies from having any unfair or unconscionable advantage in
insurance transactions. Additionally, courts interpret insurance contracts in a way that will
honor the reasonable expectations of policyholders and beneficiaries, regardless of the details
of the policy language. R. Keeton, Insurance Law Rights at Variance with Policy
Provisions, 83 Harv.L.Rev. 961 . Professor Keeton suggests that courts have used
a number of strategies to achieve these goals, including finding policy language to be
ambiguous, or invoking contractual theories of detrimental reliance or
When a policy is read by a court against an insurance company in a manner that is at variance with the technical language of the insurance policy, observers often shrug, explaining the court's decision with the ambivalent, suggestive, and wholly unsatisfactory aphorism: 'It's an insurance case.' Id.
To give meaning to decades of conflicting court decisions, Professor Keeton distilled a fundamental principle that underlies most insurance cases, and that insurance law ought to [openly] embrace. 83 Harv.L.Rev. at 967. The principle he distilled is this:
The 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.
Seventeen years later, this Court followed Professor Keeton's suggestion and embraced this legal principle. In Syllabus Point 8 of National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987), we held that:
With respect to insurance contracts, the doctrine of reasonable
expectations is that the 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
Our Legislature has established by law a similar rule as the public policy of this State. Our insurance laws state that an insurance carrier may not issue an insurance policy which contains exceptions or conditions which deceptively affect the risk purported to be assumed in the general coverage of the contract. W.Va. Code, 33-6-9(b) . See footnote 7 7 In sum, before an insurance carrier may rely on an exclusion to avoid liability on an insurance contract, it must demonstrate that the exceptions or conditions were not deceptive, and were communicated to the insured in a manner calculated to advise the insured of the adverse effect that the exclusionary language would have on the general insurance coverage provided by the policy.
An insurance company's statutory responsibility to fully convey to a policyholder the effect that an exception or condition will have upon the risk purported to be assumed by the general coverage of the policy is parallel to its obligation of fulfilling the reasonable expectations it has created in its policyholders.
The rule of reasonable expectations applies if there is a dispute as to the existence of insurance coverage. Tynan's Nissan, Inc. v. American Hardware Mut. Ins. Co., 917 P.2d 321 (Colo.Ct.App. 1995). The doctrine exists to insure that the insurance consumer's reasonable expectations are fulfilled -- every consumer has a right to expect they will receive something of comparable value in return for the premiums they have paid.
A contract to provide insurance should be interpreted and applied as a layman would understand the contract, based upon the entire insurance purchasing transaction, and not according to an after-the-fact interpretation given by sophisticated underwriters and lawyers. The expectations of the average consumer should be enforced regardless of any ambiguity in the policy language.See footnote 8 8 When the actions of the insurance company and its agents (through their advertisements, brochures, statements, applications, policies, conditional receipts, or whatever) give a consumer a reasonable expectation that insurance coverage for an event has been purchased, then courts should enforce that reasonable expectation, regardless of the policy language.
Courts should also keep alert to the fact that the expectations of the insured are in large measure created by the insurance industry itself. Through the use of lengthy, complex, and cumbersomely written applications, conditional receipts, riders, and policies, to name just a few, the insurance industry forces the insurance consumer to rely upon the oral representations of the insurance agent. Such representations may or may not accurately reflect the contents of the written document and therefore the insurer is often in a position to reap the benefit of the insured's lack of understanding of the transaction. . . . . Courts must examine the dynamics of the insurance transaction to ascertain what are the reasonable expectations of the consumer.
Collister v. Nationwide Life Ins. Co., 479 Pa. 579, 594-95, 388 A.2d 1346, 1353-54 (1978)
Thus, in a situation in which the public may reasonably expect coverage, an exclusion must be conspicuous, plain and clear. Ninety years ago one court recognized that insurance consumers do not read policies and exclusions, and usually could not understand their implications if they did. That court suggested that as a solution, before a policy exclusion would be enforced, the insurance company would be required to bring the provision to the attention of the insurance consumer. The court stated, when discussing whether to enforce an exclusion:
It is a matter almost of common knowledge that a very small percentage of policy holders are actually cognizant of the provisions of their policies and many of them are ignorant of the names of the companies issuing the said policies. The policies are prepared by the experts of the companies, they are highly technical in their phraseology, they are complicated and voluminous -- the one before us covering thirteen pages of the transcript -- and in their numerous conditions and stipulations furnishing what sometimes may be veritable traps for the unwary. The insured usually confides implicitly in the agent securing the insurance, and it is only just and equitable that the company should be required to call specifically to the attention of the policy holder such provisions as the one before us.
Raulet v. Northwestern National Ins. Co. of Milwaukee, 157 Cal. 213, 230, 107 P. 292, 298 (1910).
When an exclusion is not brought to the attention of a policyholder, it would be unjust to apply the unknown provision to void the coverage which the policyholder fully and justifiably expects to be provided by the policy. As another California appeals court stated, nearly 30 years ago:
It is now firmly settled that insurance contracts are contracts of adhesion between parties not equally situated. Consequently, the insurer, as the dominant and expert party in the field, must not only draft such contracts in unambiguous terms but must bring to the attention of the insured all provisions and conditions which create exceptions or limitations on the coverage.
Young v. Metropolitan Life Ins. Co., 272 Cal.App.2d 453, 460-61, 77 Cal.Rptr. 382, 387 (1969). Another court suggested that verbal vacuity could not serve as clear and plain notice to the insured of noncoverage. Steven v. Fidelity and Casualty Co. of New York, 58 Cal.2d 862, 872, 27 Cal.Rptr. 172, 178, 377 P.2d 284, 290 (1962). From these precedents, a later court gleaned a general principle of public policy:
In the case of standardized insurance contracts, exceptions and
limitations on coverage that the insured could reasonably expect,
must be called to his attention, clearly and plainly, before the
exclusions will be interpreted to relieve the insurer of liability or
Logan v. John Hancock Mut. Life Ins. Co., 41 Cal.App.3d 988, 995, 116 Cal.Rptr. 528, 532 (1974).
As the majority opinion states, an insurance carrier bears the burden of dispelling a policyholder's reasonable expectations. The insurance company must prove that a policyholder has been affirmatively apprised of all exclusions in a policy that limit any general coverage that a policyholder has purchased and reasonably expects will exist to indemnify against a particular loss. We discussed this duty of an insurance carrier in National Mut. Ins. Co. v. McMahon & Sons, Inc., supra, where we stated at Syllabus Point 10 that An insurer wishing to avoid liability on a policy purporting to give general or comprehensive coverage . . . must bring such [exclusionary] provisions to the attention of the insured.
The doctrine of reasonable expectations thus limits an insurance carrier's use of exclusions in one portion of a policy to eliminate a broad grant of coverage in another portion of the policy. In other words, an insurance company may not give with the big print and take away with the small print, when the big print reasonably gave the purchaser of the policy an expectation of coverage. An insurance company has an affirmative duty to inform an insurance consumer what they are purchasing; it is not the duty of the consumer to seek out exclusions, limitations and conditions which are not plainly revealed to him or her.
If an insurance company wishes to avoid liability on an insurance policy through the operation of an exclusion or other policy condition, it must do so in clear and unequivocal language. Furthermore, the insurance company must call such limiting conditions to the attention of the insured, and explain the effect of the condition. Absent such a disclosure, the policy coverage will be deemed to be that which could be expected by the ordinary lay person.See footnote 9 9