Hallowell v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 02 March 1982
• Citation: 443 A.2d 925
• Parties: William E. HALLOWELL, individually, and William E. Hallowell, as Administrator of the Estate of Frances Hallowell, deceased, Plaintiff, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation of the State of Illinois, Defendant, Appellee.
• Court: Supreme Court of Delaware

Page 925

443 A.2d 925

William E. HALLOWELL, individually, and William E Hallowell, as Administrator of the Estate of Frances Hallowell, deceased, Plaintiff, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation of the State of Illinois, Defendant, Appellee.

Supreme Court of Delaware.

Submitted Jan. 12, 1982.

Decided March 2, 1982.

Upon appeal from Superior Court. Affirmed.

David Roeberg (argued) and Frederick T. Haase, Jr., of Roeberg & Associates, P. A., Wilmington, for plaintiff-appellant.

F. Alton Tybout (argued), of Tybout, Redfearn, Casarino & Pell, Wilmington, for defendant-appellee.

Before HERRMANN, C. J., and DUFFY and HORSEY, JJ.

DUFFY, Justice:

This is the second appeal in this case which centers on a controversy involving the "uninsured motorist" clause in a Delaware insurance contract. All of the pertinent facts, the statutes and the history of the litigation are reported in our prior opinion, State Farm Mutual Automobile Insurance Company v. Hallowell, 426 A.2d 822 (1981), to which reference is made.

Under our first opinion, the case was remanded to the Superior Court, which thereafter granted a motion by State Farm Mutual Automobile Insurance Company (defendant) for summary judgment against its insured, William E. Hallowell (plaintiff). Hallowell has appealed from that ruling, raising four separate arguments the gravaman of which is that he is entitled to judgment, or a factual trial, based upon the doctrine of "reasonable expectations" as announced by this Court in State Farm Mutual Automobile Insurance Company v. Johnson, Del.Supr., 320 A.2d 345, 347 (1974).

I

Because an insurance policy is an adhesion contract and is not generally the result of arms-length negotiation, courts have developed rules of construction which differ from those applied to most other contracts.

As a general rule, for example, an insurance contract is construed strongly against the insurer, and in favor of the insured, because the insurer drafted the language that is interpreted. Steigler v. Insurance Co. of North America, Del.Supr., 384 A.2d 398, 400 (1978); Novellino v. Life Ins. Co. of North America, Del.Supr., 216 A.2d 420, 422 (1966). This rule is not applicable, however, unless there is some ambiguity in the policy language; in other words, if the language is clear and unambiguous a Delaware court will not destroy or twist the words under the guise of construing them. Apotas v. Allstate Insurance Co., Del.Supr., 246 A.2d 923, 925 (1968); Novellino, supra, 216 A.2d at 422. Moreover, when the language of an insurance contract is clear and unequivocal, a party will be bound by its plain meaning because creating an ambiguity where none exists could, in effect, create a new contract with rights, liabilities and duties to which the parties had not assented. Apotas, supra, 246 A.2d at 925; Lamberton v. Travelers Indemnity Company, Del.Super., 325 A.2d 104, 106 (1974), aff'd, 346 A.2d 167 (1975). And an ambiguity exists when the language in a contract permits two or more reasonable interpretations. Cheseroni v. Nationwide Mutual Insurance Company, Del.Super., 402 A.2d 1215, 1217 (1979), aff'd, 410 A.2d 1015 (1980); Lamberton, supra, 325 A.2d at 106.

From these general rules of construction we now move to the concept which is at issue in this appeal.

II

In recent decades, a doctrine has emerged in insurance law which, in essence, states that an insurance policy should be construed "to effectuate the reasonable expectations of the average member of the public who buys it...." Kievit v. Loyal Protective Life Insurance Company, N.J.Supr., 34 N.J. 475, 170 A.2d 22, 30 (1961). See also, Davenport Peters Co. v. Royal Globe Insurance Co., D.Mass., 490 F.Supp. 286, 291 (1980); and Keeton, Insurance Law Rights at Variance With Policy Provisions, 83 Harv.L.Rev. 961, 962 (1970).

That doctrine was accepted by this Court in Johnson, supra, wherein we stated as follows:

"Although some jurisdictions continue to describe insurance contracts as agreements to which the parties have voluntarily bound themselves with knowledge of strict policy provisions, we now follow New Jersey's lead in recognizing '... that the terms of an insurance policy are not talked out or bargained for as in the case of contracts generally, that the insured is chargeable with its terms because of a business utility rather than because he read or understood them, and hence an insurance contract should be read to accord with the reasonable expectations of the purchaser so far as its language will permit.' "

320 A.2d at 347 (emphasis added) quoting from Cooper v. Government Employees Ins. Co., N.J.Supr., 51 N.J. 86, 237 A.2d 870, 873 (1968). Since its adoption, the principle has been recognized or applied by this Court in Steigler, supra, 384 A.2d at 401, and in Megee v. United States Fidelity and Guaranty Company, 391 A.2d 189, 192 (1978).

As we explicitly stated in Johnson, supra, a fundamental premise of the doctrine is that the policy will be read in accordance with the reasonable expectations of the insured "so far as its language will permit." 320 A.2d at 347. Thus, the rule, as recognized by this Court, is consistent with the general rules of construction, to which we have referred, that is, the Court will look to the reasonable expectations of the insured at the time when he entered into the contract if the terms thereof are ambiguous or conflicting, or if the policy contains a hidden trap or pitfall, or if the fine print takes away that which has been given by the large print. But the doctrine is not a rule granting substantive rights to an insured when there is no doubt as to the meaning of policy language.

III

Turning now to Hallowell, he contends that the uninsured motorist provisions in his contract with State Farm are ambiguous but, even if they are not, he is entitled to his reasonable expectations of coverage to the extent of the uninsured motorist policy limits, even though he was in fact injured by an "underinsured" motorist. See Hallowell, supra, 426 A.2d at 824. In support of his argument, Hallowell refers to cases in other jurisdictions, some of which are cited in the footnote, ¹ that contain language suggesting that the doctrine is applicable in spite of clear and certain policy language.

With all due deference, we decline to extend the reasonable expectations doctrine as far as it has been taken in some other jurisdictions; to do so would, in our judgment, effectively overrule Johnson and almost a century of Delaware case law. ² We are well aware of the complex and confusing nature of many insurance policies and of frequent admonitions by the courts to insurance companies to write clear and unambiguous policies that can be understood by an average insured. But we have consistently held that an insured has a duty to read his insurance policy and he is bound by the provisions thereof if they are clear and unequivocal. Given our law as we find it now, we conclude that the Court should not rewrite an insurance policy nor ignore its clear and certain terms. See e.g., Novellino, supra, 216 A.2d at 422; and Apotas, supra, 246 A.2d at 925. Therefore, we hold that the doctrine of reasonable expectations is applicable in Delaware to a policy of insurance only if the terms thereof are ambiguous or conflicting, or if the policy contains a hidden trap or pitfall, or if the fine print purports to take away what is written in large print.

IV

In the prior appeal we focused on the language of 18 Del.C. § 3902 which basically provides that each automobile liability insurance policy issued in this State must offer uninsured motorist coverage. The Superior Court had reasoned that because statutes (in other states) requiring uninsured motorist coverage had been construed to apply to injuries caused by a motorist who was insured for less than the statutory minimum, an ambiguity existed as to the meaning of the term "uninsured motorist." In response to that reasoning we wrote, as follows:

"It is true that some courts have judicially construed similar statutes to also require protection against a tort feasor who carries some insurance but less than the statutory minimum but, the fact that under those circumstances a tort feasor can be said to be 'underinsured' does not compel the conclusions that the phrase ('uninsured motor vehicle') is ambiguous and that whenever a tort feasor can be labeled 'underinsured,' the insured has a right to recover. The short of it is that we find no ambiguity in § 3902; uninsured motorist coverage provides protection only when the tort feasor is uninsured and as judicially construed, when the tort feasor carries liability insurance in amounts less than the statutory minimum. Nothing more is required by the Statute."

426 A.2d at 826.

Likewise, Hallowell's insurance...