In a recent decision, the Third Circuit Court of Appeals (a federal appellate court supervising the federal trial courts in Delaware, New Jersey, Pennsylvania, and the Virgin Islands) enforced the plain meaning of an insurance policy, and rejected an appeal to the common law reasonable expectation doctrine. In Frederick Mut. Ins. Co. v. Hall, the court explained that a general liability policy cannot be construed more broadly than the unambiguous language of the policy allows, despite a reasonable expectation of the insured.
Hallstone, Inc. (“Hallstone”), through its principal, Donald Hall (“Hall”), contacted an insurance agent seeking all-encompassing, “soup to nuts” coverage for the company. The insurance agent, in turn, obtained a liability policy from Frederick Mutual Insurance Company (“Frederick”). Frederick and Hall never corresponded with each other directly, and Hall never received a copy of the insurance policy. Thereafter, Hallstone performed around $300,000 of custom masonry work on a home which ultimately had to be repaired for $352,294. The homeowners alleged that Hallstone’s poor workmanship necessitated the repairs and filed suit in Pennsylvania state court for breach of warranty, negligence, and associated statutory claims.
Frederick defended the case under a reservation of rights, and at the same time instituted an action in the federal district court seeking a declaration that Frederick did not have a duty to defend or indemnify Hallstone for its allegedly defective workmanship. The district court held a bench trial and entered judgment for Hallstone because, even though the policy unambiguously excluded faulty workmanship coverage, the court found that Hallstone had a “reasonable expectation of workmanship coverage.”
On appeal, the Third Circuit reversed and explained that, “[g]enerally, courts cannot invoke the reasonable expectation doctrine to create ambiguity where the policy itself is unambiguous.” As a result, the district court erred when it continued its analysis beyond the determination that the policy language was unambiguous. The Hall court then distinguished the case from Tonkovic v. State Farm. Mut. Auto. Ins. Co., a Pennsylvania Supreme Court case which the trial court heavily relied on in its opinion, where the reasonable expectation doctrine was applied to extend coverage to the insured.
In Tonkovic, a man specifically sought to obtain disability insurance that would cover his mortgage payments even if he was entitled to worker’s compensation benefits. Despite this clear expression of his requirements for an insurance policy, the insurance company issued him a policy that excluded such payments. Evidence also showed that he never received a copy of the policy, and the insurer never advised him of the differences between what he requested and the coverage that was actually provided. Comparatively, Hall “did not apply for the specific type of insurance coverage he now claim[ed] that he expected as he asked in general terms for ‘soup to nuts’ coverage through a broad term that was not specific.” The Hall court reasoned that failure to “bargain for a particular coverage precludes a court from finding that the insured expected such coverage.” Moreover, even if the reasonable expectation doctrine did apply, “only objectively reasonable expectations are protected.” Hall’s claimed expectation that “soup to nuts” coverage included workmanship coverage was, according to the court, “no more reasonable than if a purchaser of auto insurance expected his policy to cover repairs if his car breaks down... It is simply not the kind of coverage insurance agents and insurance companies expect to provide unless the insured explicitly requests such coverage.”
Never assume that a document—whether a bid, contract, or insurance policy—says anything more than what is unambiguously stated. If a document is silent on an issue entirely, do not assume that the missing element is somehow included as part of the larger scope or objective of the document. When in doubt, ask questions, read all applicable document(s), and, when still in doubt, contact counsel. As Hall points out, reasonable expectations may not be enough to overcome unambiguous, contradictory language.