Policyholders pay substantial premium dollars every day to purchase insurance coverage to protect their homes and their businesses. That much is certain. What is tragically (but commonly) uncertain is whether those same policyholders receive the proper benefit of their insurance coverage when they need it most — when disaster strikes. Far too often, policyholders experience a loss that involves their normal day-to-day business operations, seek coverage for that loss, and receive a less than expected or satisfactory response from their insurance company. Indeed, that response often comes in the form of resistance, stalling or a flat denial of insurance coverage. Even when any business or person that purchased the insurance would have thought a claim involving their normal functions would be within the scope of coverage purchased, often times they are told otherwise by their insurance companies. In sum, policyholders’ reasonable expectations of coverage often remain unmet.
A number of factors must be considered when determining whether the insurance company’s hesitance or refusal to pay a claim is proper. Naturally, a review of the language of the applicable insurance policy is critical to determining whether coverage exists. The language of an insurance policy, however, is not the only factor. Critical to determining whether insurance coverage exists, and whether the insurance company has acted appropriately, are the policyholder’s reasonable expectations surrounding the purchase of insurance coverage. In short, is the policyholder seeking coverage for the type of claim or loss that any reasonable business or person would expect to be protected against by insurance purchased for their normal operations?
Courts throughout the country recognize the importance of the Reasonable Expectations Doctrine (the “Doctrine”), and apply it when making determinations of insurance coverage. In this article, we will discuss the law as it relates to the Doctrine in four states — Pennsylvania, New Jersey, New York and Louisiana — and discuss a recent decision in which the Doctrine played an important role in the finding of insurance coverage for potentially thousands of policyholders devastated by Hurricane Katrina.