140 Ariz. 383
-Third-party plaintiff insured appealed the judgment from the Court of Appeals, Division One (Arizona) that affirmed the judgment of the trial court, which granted summary judgment in favor of third-party defendants, insurer and agent, in an action where third-party plaintiff sought expected coverage under the all-risk clause of the umbrella policy.
Third-party plaintiff insured sought expected coverage under an umbrella insurance policy with third-party defendant insurer. Based on a strict reading of the contract, the third-party defendant contended that the policy was limited to a lower amount than third-party plaintiff sought.
-The court held that it was not limited solely to the written words of the boilerplate insurance contract.
-The court recognized equitable estoppel as a device to prevent enforcement of boilerplate terms of an insurance contract, which were more limited than the coverage expressly agreed upon by the parties. The court also recognized the doctrine of reformation.
-The court held that summary judgment in favor of third-party defendant was not proper because the court was not restricted solely to the words of the boilerplate contract.
-The terms of a standardized form contract may be superseded by separately negotiated or added terms, are construed against the contract’s draftsmen, and are subject to the overriding obligation of good faith and the power of the court to refuse to enforce an unconscionable contract or term
- In insurance law, as in other areas of contract law, the parol evidence rule is not strictly applied to enforce an illusory bargain set forth in a standardized contract when that bargain was never really made and would, if applied, defeat the true agreement which was supposedly contained in the policy.
- Except as where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, that term is not part of the agreement, where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing. Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing
- The limitations that the law may impose are that standard terms may be superseded by separately negotiated or added terms, they are construed against the draftsman, and they are subject to the overriding obligation of good faith and to the power of the court to refuse to enforce an unconscionable contract or term
- An insured who adheres to the insurer’s standard terms does not assent to a term if the insurer has reason to believe that the insured would not have accepted the agreement if he had known that the agreement contained the particular term. Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances. Reason to believe may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction. The inference is reinforced if the adhering party never had an opportunity to read the term, or if it is illegible or otherwise hidden from view.
- The elements of estoppel are conduct by which one induces another to believe in certain material facts, which inducement results in acts in reliance thereon, justifiably taken, which cause injury.
- The fact that the insured has not read the insurance policy “word for word” is not, as a matter of law, an absolute bar to his theory of estoppel.
- Since the parol evidence rule does not necessarily prevent establishing the true agreement, estoppel may apply where, from the nature of the transaction, the fact finder is able to determine that the insured acted reasonably in not reading the particular provision of the policy.
- Where an insurer or its agent misrepresents, even though innocently, the coverage of an insurance contract or the exclusions therefrom, to an insured before or at the inception of the contract, and the insured reasonably relies thereupon to his ultimate detriment, the insurer is estopped to deny coverage after a loss on a risk or from a peril actually not covered by the terms of the policy.
- The key question is whether the clause or provision was one bargained for and agreed upon, in which case it is enforced as written and interpreted, or whether it was part of the standardized form which the customer would not ordinarily be expected to read, in which case it would be enforced as written, subject to constraints and limitations.
-The court vacated the decision of the appellate court and reversed the trial court’s summary judgment in favor of third-party defendant insurer because the umbrella insurance policy could be interpreted in favor of third-party plaintiff insured using the doctrines of equitable estoppel and reformation.