State Farm Fire & Casualty Ins. Co. v. Grabowski – 1/30/2007

January 31, 2007

Arizona Court of Appeals Division One Finds Jury Instructions on Doctrine of Reasonable Expectations Must Include Requirement That Insurer Have Reason to Believe Insured Would Not Have Agreed to Challenged Policy Provision.

A husband and wife were killed in a single-vehicle automobile crash. Plaintiff, the mother of the deceased wife, sued the estate of the deceased husband, asserting a claim for wrongful death. The husband’s automobile insurer denied coverage and sought a declaration of non-coverage under its umbrella policy exclusion for claims arising out of bodily injury to a named insured. Plaintiff claimed that the exclusion was unenforceable under the doctrine of reasonable expectations. On remand from a prior appeal, the issue of reasonable expectations was tried to a jury, which found that the doctrine prevented enforcement of the exclusion under the circumstances. The insurer appealed, claiming that the jury had been improperly instructed regarding the elements of the reasonable expectations doctrine.

On appeal, the Court of Appeals reversed the jury verdict, agreeing with Plaintiff that the jury instructions were flawed. The doctrine of reasonable expectations renders unenforceable certain provisions of standard form agreements when a party to the contract has reason to know that the other party would not have signed the contract had he known that it contained the particular provision. Because the jury instructions given by the trial court failed to require the jury to find that the insurer had reason to know that the insured would not have agreed to the exclusion in question, it was not certain whether the jury would have made that requisite finding. The court remanded for a new trial.

Presiding Judge Timmer wrote the opinion for the unanimous panel; Judges Norris and Johnsen concurred.