The Merlin Law Group blog cites a small portion of a lengthy Hastings Law Journal article written by Professor Chuck Knapp.1 Dr. Knapp did not like the use, by appellate courts, of the concept that there is a duty to read (DTR) an insurance policy.
The blog post by the Merlin Law Group proposed that Dr. Knapp's suggestions would allow the court to rewrite the terms and conditions of the policy. Dr. Knapp did not do that but spent many pages explaining why the word "duty" should not be used and the exceptions available to the courts when interpreting an insurance contract as well as other contracts.
The Reality of Insurance Contract Acquisition
In my opinion, and that of a majority of the courts that have been called on to interpret an insurance policy, the person seeking insurance has an obligation to read the insurance contract or, at the very least, have a lawyer or insurance professional read, understand, and explain the policy to the person acquiring the insurance.
For the last 52 years, I have asked people making claims on an insurance policy whether they have read and understood their insurance policy. Most just laughed and claimed they never tried. Two, in my career, answered "yes." After further questioning, it became obvious that both lied since they knew nothing about the terms or conditions of the policy. These facts horrify me as an insurance coverage lawyer, a consultant, and an expert witness testifying in courts across the United States.
My career required that I read, understand, and apply insurance policies issued by my clients to individuals and businesses. I have written, edited, or revised policies of insurance on behalf of insurer clients. I even read insurance policies I acquire to protect my property and protect me against tort liability before I order the policy. I know I am unusual, but I should not be. My practice should be the norm.
Many states have different definitions of the word "insurance," but each have the following same essential elements.
It must be a written contract.
One party (the insurer) agrees with the other (the insured).
The insurer, for consideration (payment of a premium), agrees to indemnify the insured against a contingent or unknown event.
The promise to indemnify is limited to certain identified risks of loss arising from a fortuitous, contingent, or unknown event.
Insurance is a contract like all other contracts. No one should enter into a contract ignorant. Most people would never sign a lease without reading it or agree to the terms of a mortgage without reading the contract. Insurance contracts, however, are almost never read by the person insured. Some are not read by the agent, broker, or underwriter who sells the insurance.
There is no excuse for not reading an insurance policy. Modern insurance policies, as a result of state statutes, are required to be written in plain language or easy-to-read language sufficient for anyone with a fourth-grade education to understand. I describe the modern language of insurance policies as "Sesame Street English."
Why, then, do people fail to read their insurance policy?
Insurance policies have a bad reputation. People believe insurance policies are impossible to understand. Courts in the past have encouraged this belief. Policies are believed by the common person as being confusing and complicated. Sections of the contract are frequently cross-referenced to other sections of the policy, often in a convoluted way.
Insurance companies strive to make their policies as clear as possible because when coverage is subject to a legal challenge, ambiguity in the language will always be interpreted in a way that favors the insured, not the insurer.
For example, in Insurance Co. of N. Am. v. Electronic Purification Co., 67 Cal. 2d 679, 689, 63 Cal. Rptr. 382, 433 (1967), the California Supreme Court noted the following.
[T]he insurance company gave the insured coverage in relatively simple language easily understood by the common man in the marketplace, but attempted to take away a portion of this same coverage in paragraphs and language which even a lawyer, be he from Philadelphia or Bungy, would find difficult to comprehend.
Courts, called on to interpret or enforce a contract of insurance, will always conclude that, if an insurance contract is neither ambiguous or difficult to comprehend, it will be enforced as written. (Sharbono v. Universal Underwriters Ins. Co., 139 Wash. App. 383, 394 (2007))
Dr. Knapp's Position
Dr. Knapp contends, in his Hastings Law Journal article, with regard to the interpretation of insurance contracts the following.
It is not surprising that the DTR principle figures prominently in disputes involving insurance coverage. In nearly every litigated dispute of this type, the loss of which the insured plaintiff is complaining has already occurred and there is no way for her to mitigate by purchasing better coverage, from the defendant insurer or anybody else. The only way for the plaintiff to be compensated for her loss is thus to show either that the insurer itself should be liable on the policy, or that an insurance agent acting for the plaintiff should be liable to her for failing to procure the disputed coverage. Except for the possibility of the plaintiff's bringing a bad faith claim against the company, or in extreme cases a disciplinary action against the plaintiff's attorney, neither side has much to lose by digging in its heels. And if the insurer or agent is relying on language in the policy that supports its claim of noncoverage, the plaintiff will have to confront the general principle of DTR.
Dr. Knapp also reported that possible means of circumventing the DTR rule in insurance cases include ambiguity in the fine print of the policy and the insurer's failure to make the terms of the policy reasonably available. He concludes that judges should stop calling the need to read a contract a "duty." He contends that no one reads contracts, and people are discouraged from reading the contract. He concludes: "Contract recitations that say, 'I have read all of this contract' are patently false, and are known to be false—to the party who presents a written contract for signature as well as to the party who signs it." In addition, Dr. Knapp wrote the following.
If twenty-first century judges want to make better sense of this area of law, they could start by understanding and admitting that:
Nobody reads everything she signs;
Nobody is able to read everything she signs;
Nobody wants her to read everything she signs.
What drafters do want is to be able to treat her as if she had read everything. They do not care if in fact she has not—and, indeed, in many cases would prefer that she did not.
So do not call it a "duty." This just adds insult to injury.
However, Dr. Knapp concludes in his lengthy Hastings Law Journal article with the following.
One who knowingly and voluntarily assents to a contract whose terms are contained in a given writing should be held legally responsible for her actions by being held to those terms, in the absence of fraud, mistake, or other excusing cause
Basically, Dr. Knapp is arguing against the use of the word "duty," not the requirement that a person read any contract signed and must be held responsible to the terms of the contract, absent fraud or mistake.
He does not wish to change the law of contracts, but rather, he wishes to change how judges interpreting contracts write their reasons for enforcing the contract.
Whether Dr. Knapp is correct in his conclusion that almost no one reads their insurance policies—and my experience seems to agree—almost no one reads insurance contracts. That fact does not make them less effective contracts. An adhesion contract only means the person offering the contract gives the person to whom it is offered only the following two choices.
Accept the contract
Reject the contract
The Need for "Plain Language" Insurance Policies
The need for "plain language" in an insurance policy was first used in the United States in the early 1950s. The federal government's most recent plain-language initiative began in 1998 when President Bill Clinton issued a "Memorandum on Plain Language in Government Writing" to the heads of executive departments and agencies. He said the following.
We are determined to make the Government more responsive, accessible, and understandable in its communications with the public. By using plain language, we send a clear message about what the Government is doing, what it requires, and what services it offers. Plain language saves the Government and the private sector time, effort, and money. [President Clinton. Memorandum for the Heads of Executive Departments and Agencies on Plain Language in Government Writing. June 1, 1998.2
There is no one generally accepted definition of plain language or plain English. But most people agree that a plain-language document is one in which people can do the following.
Find what they need
Understand what they find
Act appropriately on that understanding
The following are key elements of plain language.
Organize information so the most important behavioral or action points come first.
Break complex information into understandable chunks.
Use simple language or define technical terms.
Provide ample white space so pages look easy to read.
In addition to the key elements, there are dozens of plain-language guidelines and techniques such as using short sentences and active voice when possible. Document design principles highlight the importance of organization and format and enhance the impact of plain language.
Good document design required bringing together prose, graphics, and typography for purposes of instruction, information, or persuasion. Plain language does not require the writer of an insurance policy to "dumb down" the policy.
Sometimes, insurance professionals are concerned that using plain language will oversimplify information to the point where it is inaccurate or worthless. Plain language is not antiintellectual, unsophisticated, drab, or inadequate. Plain language has to do with clear and effective communication—nothing more or less. It is the style of Abraham Lincoln, Mark Twain, and Winston Churchill. Plain language is not just about vocabulary or grade level. Writing to a certain grade level does not necessarily ensure that the message is in plain language or understood by the intended audience. All materials, especially in an insurance policy, should be evaluated for understanding with the intended users, regardless of the grade-level score.
States followed the direction set by the federal government and required insurers to modify their insurance policies to be written in plain language. In doing so, the plain language insurance policies took away the argument that the policy was too hard to understand and, for that reason, should not be enforced to the detriment of the insured.
So, why with the new, easy to read, plain language policies, do people fail to read the insurance policy? There is no logical answer. Perhaps it is the embedded prejudice that makes some people believe they could never understand a policy even if they tried to read it.
From my 52 years' experience, I can only say that those people who did not read their policy get very upset when their insurance agent or broker told them they acquired the best available policy and that it covers almost everything does not mean the policy covered every possible contingency. When an adjuster or lawyer points out that there is no available coverage for the claim, they may feel that they were deceived. Had the insured read the policy before it was acquired, they would know that no insurance policy covers every possible risk of loss faced by a person or business. Some risks of loss are difficult, if not impossible, to insure. Consider the risk of loss by war, atomic attack, earthquake, flood, etc., can be insured but only for extremely high premium and deductibles or self-insured retentions so expensive to make such coverages unsaleable.
Most insurance policies, as a result, exclude—in clear and unambiguous language—coverage for those extreme risks. The person insured who does not read the policy will be upset when his property is destroyed by a flood or earthquake. Had he or she read the policy and wanted coverage for earthquake or flood, he or she would have been directed to a specialty policy—probably expensive—that provides that coverage.
Do Courts Impose on an Insured a Duty to Read the Policy?
Dr. Knapp agrees that many courts impose a duty to read insurance policies. My research agrees and resulted in findings of the duty in multiple jurisdictions. The following is an example.
In Georgia, the insured has a duty to read and understand the policy. (Cotton States Mut. Ins. Co. v. Coleman, 530 S.E.2d 229, 231 (Ga. Ct. App. 2000).) An insured who can read is required to read the policy and is presumed to have understood its contents.
In Mississippi, a plaintiff is deemed as a matter of law to have read and understood the terms and conditions of his insurance contract. (Mladineo v. Schmidt, 52 So.3d 1154, 1167 (Miss. 2010)). Under the "duty-to-read" and "imputed-knowledge" doctrines, an insured is deemed to have knowledge of his insurance policy. An insured may not neglect or purposefully omit acquainting himself or herself with the terms and conditions of the insurance policy and then complain of his or her ignorance of them.
In Texas, misrepresentation claims accrue when the policy is issued because the insured has a duty to read the policy and is responsible for understanding the policy's terms and conditions. (Khoei v. Stonebridge Life Ins. Co., No. H-13-2181, 2014 WL 585399, at *7 (S.D. Tex. Feb. 14, 2014).) Under Texas law, an insurance agent has no duty to explain policy terms, and the insured has a duty to read his or her insurance policy and is bound by its terms even if they were not fully explained. (Avila v. State Farm Fire & Cas. Co., 147 F. Supp. 2d 570, 581 (W.D. Tex. 1999); Dike v. Penn Ins. & Annuity Co., 295 F.Supp.3d 530 (E.D. Pa., 2018).)
In Alabama, the insured was under a duty to read his insurance policy. (Alfa Life Ins. Corp. v. Reese, 185 So. 3d 1091, 1102-04 (Ala. 2015).)
In West Virginia, a party to a contract has a duty to read the instrument. In Soliva v. Shand, Morahan & Co., Inc., 176 W. Va. 430, 345 S.E.2d 33 (1986), the court found that an insured had a duty to read the coverage reduction provision, as directed by his insurer. In American States Ins. Co. v. Surbaugh, 231 W. Va. 288, 299, 745 S.E.2d 179, 190 (2013), the West Virginia supreme court explained the following.
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. (Mitchell v. Broadnax, 208 W.Va. 36, 537 S.E.2d 882 (W.Va., 2000).)
In Indiana, an insured has a duty to read and become familiar with the contents of an insurance policy. (National Mut. Ins. Co. v. Curtis, 867 N.E.2d 631, 635 (Ind. Ct. App.2007).) However, a different scenario arises if an insured relies upon the representation of the insurer that a particular loss is covered, as reasonable reliance on an agent's representations as to what will be covered under a policy can override the insured's duty to read the policy. (Filip v. Block, 879 N.E.2d 1076, 1084 (Ind.2008), citing Village Furniture, Inc. v. Associated Ins. Managers, Inc., 541 N.E.2d 306, 308 (Ind.Ct.App.1989).)
In New Mexico, it is a fundamental tenet of contract law that each party to a contract has a duty to read and familiarize himself with the contents of the contract, each party generally is presumed to know the terms of the agreement, and each is ordinarily bound thereby. (Ballard v. Chavez, 1994-NMSC-007, ¶ 8, 868 P.2d 646, 648.)
In California, the general rule is that one who assents to a contract is bound by its provisions and cannot complain of unfamiliarity with the language of the instrument. (Madden v. Kaiser Found. Hosps., 17 Cal. 3d 699, 710 (1976).) An insured has a duty to read his or her policy. (Fields v. Blue Shield of Cal., 163 Cal. App. 3d 570, 578 (1985).) If the language of an insurance contract is in fact clear and unequivocal, a party will be bound by its plain meaning because an insured has a duty to read his or her insurance policy. (Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d 925.)
Under Washington law, the insured has an affirmative duty to read his or her policy and be on notice of the terms and conditions of that policy. (Dombrosky v. Farmers Ins. Co. of Washington, 54 Wash. App. 245, 257, 928 P.2d 1127 (1996); Int'l Marine Underwriters v. ABCD Marine, LLC, 313 P.3d 395, 402 n.14 (Wash. 2013).)
In North Carolina, a person of mature years of sound mind who can read or write who signs or accepts a deed or formal contract affecting his or her pecuniary interest, it is his or her duty to read it, and knowledge of the contents will be imputed to him or her. Where an insured failed to use reasonable diligence by not reading the insurance policy he or she cannot complain. (Holmes v. Sheppard, 805 S.E.2d 371, 376 (N.C. App. 2017).)
In Delaware, the Delaware Supreme Court has made it clear that extrinsic evidence is not to be used to interpret contract language where that language is plain and clear on its face. (O'Brien v. Progressive N. Ins. Co., 785 A.2d 281, 289 (Del. 2001).)
Applying federal law, an Oregon District Court made clear that the insured had a duty to read the policy and acted unreasonably in relying on adjusters provided only as a "courtesy" by an insurer fulfilling a National Flood Insurance Program (NFIP) policy. (Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 385 (1947); Surfsand Resort, LLC v. Nationwide Mut. Fire Ins. Co., (D. Or., 2018).) Given the special nature of the insurance relationship involved under the NFIP, courts have made it clear that an insured has a duty to read and understand the terms of its standard flood insurance policy. (Richmond Printing, LLC v. Dir. Fed. Emergency Mgmt. Agency, 72 Fed. Appx. 92, 98 (5th Cir. 2003).)
In Illinois, the court has specifically recognized an insured's duty to read an insurance policy. (Perelman v. Fisher, 298 Ill. App. 3d 1007 1011, 233 Ill. Dec. 88, 700 N.E.2d 189 (1998).) When an insured sues his or her insurer after failing to note a discrepancy between the policy issued and received and the policy requested or expected, the insured will be bound by the contract terms because he or she is under a duty to read the policy. (First Mercury Ins. Co. v. Ciolino, 2018 IL App (1st) 171532, 107 N.E.3d 240 (Ill. App. 2018).)
In Michigan, an insurance policy is, like any other contract, an agreement between two parties. (Tenneco Inc. v. Amerisure Mut. Ins. Co., 281 Mich. App. 429, 444; 761 NW2d 846 (2008).) The goal in the interpretation of a contract is to honor the intent of the parties. (Klapp v United Ins Group Agency, Inc., 468 Mich. 459, 473; 663 NW2d 447 (2003).) The primary source of a policy of insurance is the language of the contract itself. (City of Grosse Pointe Park, 473 Mich. at 197-198.) Thus, insurance policies are enforced according to their terms, and a court may not hold an insurer liable for a risk it did not assume. (Liparoto Const., Inc. v General Shale Brick, Inc., 284 Mich. App. 25, 35; 772 NW2d 801 (2009).)
When There Is No Duty to Read the Policy
In ordinary circumstances, the insured has no duty to read a renewal policy sent to him or her and may assume that the renewed policy contains the same terms and conditions as the previous policy. (Annot., 91 A.L.R.2d at 558; Government Employees Ins. Co. v. United States, 400 F.2d 172, 175 (10th Cir. 1968); Whiteside v. New Castle Mut. Ins. Co., 595 F. Supp. 1096 (D. Del. 1984).)
"Plaintiff had a right to rely on the superior expertise of its agent and had the right to assume that its agent performed its duty." Thus, contrary to the defendant's contention, the plaintiff had no duty to read the policy. (United Olympic Life Ins. Co. v. Gunther, 19 F.3d 1441, 1994 WL 96328 (9th Cir., 1994).)
In Pennsylvania, the Pennsylvania Supreme Court has stated that the idea that people do not read or are under no duty to read a written insurance policy is not novel. (Rempel v. Nationwide Life Ins. Co., Inc., 471 Pa. 404, 370 A.2d 366, 368 (1977); Tran v. Metropolitan Life Ins. Co., 408 F.3d 130 (3rd Cir., 2005); (citing Dowling v. Merchants Ins. Co., 168 Pa. 234, 31 A. 1087 (1895).) The Rempel court elaborated on this principle and held that "the policyholder had no duty to read the policy unless under the circumstances it is unreasonable not to read it" and held that the question of whether policyholders' reliance on the agent's allegedly fraudulent representations was justifiable should be presented to the jury. (Tran v. Metropolitan Life Ins. Co., 408 F.3d 130 (3rd Cir., 2005).) In Pennsylvania, it was held that the policyholder has no duty to read the policy unless under the circumstances it is unreasonable not to read it. (Tonkovic v. State Farm Mut. Auto. Ins. Co., 513 Pa. 445, 521 A.2d 920 (Pa. 1987).)
In Kansas, the courts provide an insured an exception to the requirement that the insured read the policy. The Tenth Circuit Court of Appeals found it clear that in Kansas the insured may assume that an insurance policy will conform to the application. The insured may rely on this assumption and is under no duty to read the policy to see whether it does, in fact, conform. (Stamps v. Consolidated Underwriters, 205 Kan. 187, 468 P.2d 84; German Am. Ins. Co. v. Darrin, 80 Kan. 578, 103 P. 87.) The purpose of allowing such relief is to make the insurance policy reflect the expectations of the insureds when they executed the application. (Rider v. State Farm Mut. Auto. Ins. Co., 514 F.2d 780 (10th Cir. 1975).)
When a court held that there may be no duty to read an insurance policy where misrepresentation and concealment are alleged under certain circumstances, an insurer may be liable for misrepresentation or failure to deliver agreed-upon coverage where the agent misleads the insured as to the extent of coverage, even though the insured did not read the policy and discover the actual extent of the coverage. (Lin v. John Hancock Variable Life Ins. Co., B189108 (Cal. App. 2007))
It has long been the law in Oklahoma that an insured's failure to promptly examine a policy and discover departure from an insurance agent's assurances does not defeat reformation of the policy. (Commercial Cas. Ins. Co. v. Varner, 160 Okla. 141, 16 P.2d 118 (1932), followed by Warner v. Continental Cas. Co., 534 P.2d 695 (Okla. App.1975).) Under Oklahoma law, an insured has no duty to read his written policy and notice discrepancies between it and previous representations of a soliciting agent. (Business Interiors, Inc. v. Aetna Cas. and Sur. Co., 751 F.2d 361 (10th Cir. 1984))
If the contract is accepted, it should be binding on both parties as long as it is clear and unambiguous, and if none of the exceptions to the requirement that the policy must be read by the insured apply, it will be enforced as written. In that regard, I agree with Dr Knapp. I don't believe it is necessary to change the language used by a court interpreting an insurance contract. I only expect that the court interpret the contract as binding as long as it is clear and unambiguous and was not obtained as a result of a mistake, misrepresentation of material fact, concealment of material fact, or fraud.
Dr. Knapp is right that most people do not read their insurance policy, do not read the lease for their automobile, do not read the lease for their apartment, do not read mortgage contracts, and do not read the contract issued by the parking garage or any other adhesion contract. Whether read or not, all of those contracts are enforceable, and no one should argue that the terms should be ignored because they were not read.
Courts, interpreting insurance policies, seeking to deal fairly and in good faith with both parties to the insurance contract, must do the following.
Recognize that all parties to the insurance contract are required to treat each other with the utmost good faith and do nothing to deprive the other of the benefits of the contract.
Read every word in the insurance policy from the cover sheet, to the declarations page, to the basic wording, to all endorsements, and every other word up to the signature by the insurer.
Identify all parties to the contract.
Determine whether the policy was acquired from an insurance agent representing the insurer or a broker representing the insured.
Determine if the insured actually read the policy before ordering it.
Determine if any specialist—lawyer, risk manager, insurance consultant, agent, or broker—advised the insured about the contents of the policy.
Determine if any mistakes were made in the production of the policy wording.
Determine if either party did the following.
Misrepresented a material fact
Concealed a material fact
Deceived the other
Defrauded the other
Determine if the policy wording contains any ambiguity that would affect the rights and obligations of the parties.
Find the best way for each of the parties to the contract to obtain the benefits of the contract.
Determine how each party has treated the other with the utmost good faith and fair dealing.
Make a ruling that is fair, reasonable, and allows the parties to the contract to keep the promises made.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
1 Professor Chuck Knapp is a graduate of New York University School of Law, JD (1960), University of Sydney, Rotary Foundation Scholar (1957), and Denison University, B.A. (1956). He came to UC Hastings in 1998 from New York University Law School, where he had been a faculty member since 1964, and was the Max E. Greenberg Professor of Contract Law. Dr. Knapp, warned in his article, "Is There a 'Duty To Read'?," that lawyers and judges should not blindly write that there is a duty to read an insurance contract.