Opinion
No. 1 CA-CV 13-0623
02-12-2015
STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff/Appellant, v. ROCKY SAPP, a single man; ALICIA FISK, a single woman, Defendants/Appellees.
COUNSEL DeCiancio Robbins, PLC, Tempe By Joel DeCiancio, Christopher Robbins Counsel for Plaintiff/Appellant Rocky Sapp, Kingman Defendant/Appellee Aspey Watkins & Diesel, PLLC, Flagstaff By Louis M. Diesel, Brian Y. Furuya Law Offices of Bruce Colodny, San Bernardino, CA By Bruce E. Colodny, Pro Hac Vice Co-Counsel for Defendant/Appellee Alicia Fisk
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE. Appeal from the Superior Court in Mohave County
No. S8015CV201200312
The Honorable Charles W. Gurtler, Jr., Judge
AFFIRMED
COUNSEL DeCiancio Robbins, PLC, Tempe
By Joel DeCiancio, Christopher Robbins
Counsel for Plaintiff/Appellant
Rocky Sapp, Kingman
Defendant/Appellee
Aspey Watkins & Diesel, PLLC, Flagstaff
By Louis M. Diesel, Brian Y. Furuya
Law Offices of Bruce Colodny, San Bernardino, CA
By Bruce E. Colodny, Pro Hac Vice
Co-Counsel for Defendant/Appellee Alicia Fisk
MEMORANDUM DECISION
Presiding Judge Patricia A. Orozco delivered the decision of the Court, in which Judge Randall M. Howe and Judge Maurice Portley joined. OROZCO, Judge:
¶1 For nearly thirty years, Arizona courts have used the "reasonable expectations doctrine" in analyzing adhesion contracts establishing insurance coverage. See generally Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388 (1984); Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 266, 742 P.2d 277 (1987). This appeal requires determining whether the reasonable expectations doctrine applies to an umbrella insurance policy sold by State Farm Fire and Casualty Company (State Farm). Because we conclude the doctrine applies and the trial court reasonably applied it here, we affirm.
FACTS AND PROCEDURAL BACKGROUND
¶2 Alicia Fisk was seriously injured in a one-car accident while riding in a car driven by her fiancé, Rocky Sapp. When the accident occurred, Fisk and Sapp lived together in a Golden Valley, Arizona home owned by Fisk's parents, Robert and Hiroko Hartwig. The Hartwigs also owned the car, which was registered in Arizona. The Hartwigs gave Fisk and Sapp permission to use the car. The Hartwigs also purchased an auto insurance policy for the car from a State Farm agent in Kingman, Arizona. The auto policy listed only the Hartwigs as named insureds, but the policy also defined an "insured" as relatives "of the person named in the declarations" and "any other person while driving [a named insured's vehicle] if its use is within the scope of consent of the [named insured]."
¶3 Before the accident, Robert Hartwig purchased an umbrella policy from a State Farm agent in California. Hartwig stated that he wanted to "update" his homeowners' insurance policy, and he also expressed concern to the State Farm agent about whether he had "adequate" coverage under his auto policy. He stated that he knew Sapp and Fisk drove his car in Arizona, and he indicated he was concerned about the potential liability costs of a car accident. At the State Farm agent's suggestion, Hartwig purchased the umbrella policy. The umbrella policy defined an "insured," in relevant part, as "you or your relatives whose primary residence is your household" and "any other human being under the age of 21 whose primary residence is your household and who is in the care of a person described [previously]." "You" and "Your" were defined as "the persons shown as 'Named Insured' on the [policy] declarations page," and "relative" was defined as "any person related to you by blood, adoption, or marriage."
¶4 Hartwig stated in deposition testimony that he never received or read the umbrella policy and that he bought the umbrella policy because of a past accident that resulted in significant medical bills. Hartwig repeatedly testified that his primary reason for purchasing the umbrella policy was to protect his assets from any potential liability. He also testified that he expected Sapp and Fisk to be covered under the umbrella policy and that he would not "have to have a special policy" for Sapp.
¶5 Fisk stated in deposition testimony that she recalled dropping off personal information about her and Sapp at a State Farm office because she believed Hartwig was adding them both as named insureds on his policy. She could not recall, however, if Hartwig planned to add her and Sapp as named insureds to the auto policy or umbrella policy.
¶6 State Farm paid Fisk $250,000 under the auto policy after the accident. State Farm then sought declaratory relief, asking the trial court to determine as a matter of law, that Sapp was not covered under the umbrella policy and that State Farm had no obligation to defend or indemnify Sapp against any claims against him brought by Fisk. The parties filed contemporaneous summary judgment motions and, after a hearing, the trial court granted summary judgment in favor of Sapp and Fisk. State Farm timely appealed and we have jurisdiction pursuant to Article 6, Section 9 of the Arizona Constitution and Arizona Revised Statutes (A.R.S.) sections 12-120.21.A.1 and -2101.A.1 (West 2015).
We cite the current version of applicable statutes when no revisions material to this decision have since occurred.
DISCUSSION
¶7 State Farm offers two principal arguments that the trial court erred. First, State Farm contends the reasonable expectations doctrine does not apply in this case. Second, State Farm concludes that even if the reasonable expectations doctrine could apply, the facts show Hartwig cannot establish a reasonable expectation as set forth under Gordinier.
¶8 We review de novo a grant of summary judgment. Andrews v. Blake, 205 Ariz. 236, 240, ¶ 12, 69 P.3d 7, 11 (2003). Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(a). As such, "[s]ummary judgment is appropriate where the facts would not allow reasonable minds to differ." Allstate Indem. Co. v. Ridgely, 214 Ariz. 440, 445, ¶ 21, 153 P.3d 1069, 1074 (App. 2007).
I. The Scope of the Reasonable Expectations Doctrine
¶9 This case turns on our review and application of Arizona's reasonable expectations doctrine. The doctrine's current form emerged as a result of the Arizona Supreme Court's determination that analyzing insurance contracts require something other than "applying ordinary contract law to insurance policies." See Darner, 140 Ariz. at 388, 682 P.2d at 393.
¶10 In Darner, our supreme court held adhesion insurance contracts should be analyzed under the "reasonable expectations" doctrine. Id. at 389, 682 P.2d at 394. "Reasonable expectations," broadly defined, are those expectations "that have been induced by the making of a promise." Id. at 390, 682 P.2d at 395 (internal punctuation and citations omitted). The doctrine acknowledges "the concept that contracts are not merely printed words." Id. Accordingly, the court adopted what it called "basically a modification of the parol evidence rule" found in the comments to the Restatement (Second) of Contracts (Restatement). Id. at 391, 682 P.2d at 396. This modified rule provided that customers "are not bound to unknown terms [contained in standardized agreements] which are beyond the range of reasonable expectation[.]" Id. Furthermore, an insured who agrees to an 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 [the insured] had known that the agreement contained the particular term." Id. at 391-92, 682 P.2d at 396-97 (internal punctuation omitted).
¶11 Several years after Darner, our supreme court reviewed the doctrine's scope. Gordinier , 154 Ariz. at 269-74, 742 P.2d at 280-85. Analyzing Darner as holding that standardized, non-negotiated clauses of insurance agreements would not be enforced against insureds "in proper circumstances," the Gordinier court reiterated Darner's adoption of the Restatement principle that "courts will enforce a boilerplate term unless the drafter had reason to believe that the adhering party would not have assented to the particular term had he or she known of its presence." Id. at 272, 742 P.2d at 283. The court then noted four situations in which Arizona courts would not enforce "even unambiguous boilerplate terms in standardized insurance contracts[:]"
1. Where the contract terms, although not ambiguous to the court, cannot be understood by the reasonably intelligent consumer who might check on his or her rights, the court will interpret them in light of the objective, reasonable expectations of the average insured;Id. at 272-73, 742 P.2d at 283-84 (internal citations omitted).
2. Where the insured did not receive full and adequate notice of the term in question, and the provision is either unusual or unexpected, or one that emasculates apparent coverage;
3. Where some activity which can be reasonably attributed to the insurer would create an objective impression of coverage in the mind of a reasonable insured;
4. Where some activity reasonably attributable to the insurer has induced a particular insured reasonably to believe that he has coverage, although such coverage is expressly and unambiguously denied by the policy.
¶12 The reasonable expectations doctrine as established by Darner and Gordiner currently remains the law in Arizona. Having examined the doctrine's scope, we now turn to State Farm's arguments.
II. The Scope and Applicability of the Reasonable Expectations Doctrine
A. Reasonable Expectations and the "Dickered Deal"
¶13 State Farm argues that the reasonable expectations doctrine does not apply because coverage for Sapp under Hartwig's umbrella policy was not established in the "dickered deal" as represented by the policy's declarations page. State Farm asserts that Darner establishes that "the reasonable expectations doctrine applies only to boilerplate provisions and not to the dickered deal." State Farm further contends that terms as expressed in the declarations page should control over any possible conflict with similar terms defined in the standardized provisions; specifically, in this case, the definition of "insured."
¶14 As discussed in case law, the "dickered deal" is essentially the parties' "negotiated deal" that may be represented in writing separate from the standardized provisions that accompany most insurance contracts. See Darner, 140 Ariz. at 390, 682 P.2d at 395; State Farm Mut. Auto. Ins. Co. v. Bogart, 149 Ariz. 145, 151, 717 P.2d 449, 455 (1986) (superseded by statute on other grounds). State Farm's reliance on Darner to assert that the reasonable expectations doctrine does not apply to the negotiated deal is misplaced, however. Although it mentions a possible distinction between a "dickered deal" and a standardized adhesion contract, Darner neither instructs Arizona courts to recognize the distinction, nor does it indicate whether a term contained in a declarations page controls over standardized definitions if a conflict arises.
In setting up the framework for relying on the Restatement, Darner notes that one commentator argues any contract containing boilerplate language is actually two separate contracts - the primary, "dickered" contract and the supplementary, boilerplate contract. Darner, 140 Ariz. at 390, 682 P.2d at 395 (noting the view of Karl Llewellyn). After noting this view, the court never expressly adopts it.
¶15 Darner's silence about whether standardized or negotiated provisions control a term's meaning is better interpreted as implying that a declarations page and its accompanying standardized provisions should be read in tandem as one contract. Although our supreme court has recognized that a declarations page "is an indication" of a dickered deal, see Bogart, 149 Ariz. at 151, 717 P.2d at 455, the court never suggested that the terms of a declarations page govern over similar terms that may be found in standardized provisions. Indeed, the Bogart court declined to analyze the insurance policy at issue in that case solely through what was represented on the declarations page. Id. at 152-53, 717 P.2d at 456-57 ("taking the policy as a whole," including standardized terms in tandem with the declarations page). Darner itself further notes that Arizona had, by that time, adopted a view that "a contract should be read in light of the parties' intentions as reflected by their language and in view of all the circumstances." Darner, 140 Ariz. at 393, 682 P.2d at 398 (quoting Smith v. Melson, 135 Ariz. 119, 122, 659 P.2d 1264, 1267 (1983) (emphasis added). State Farm cites no authority showing that the trial court "should have disregarded" any term defined in the standardized portion of Hartwig's policy that might have conflicted with the declarations page.
¶16 Accordingly, we find no rule in Arizona law that an insurance policy's declarations page is the sole indicator of a dickered deal, nor do we conclude that terms used or defined in the written representation of the dickered deal control over any conflicting terms defined by standardized provisions. Furthermore, we do not read the relevant cases as precluding application of the reasonable expectations doctrine to the negotiated, dickered portions of an insurance contract.
B. Applying The Reasonable Expectations Doctrine Can Result In Subtracting Standardized Provisions Or Adding Coverage
¶17 State Farm further asserts that the reasonable expectations doctrine does not apply to this case because the doctrine "can be used to subtract a boilerplate term from the policy but cannot be used to add coverage[.]" State Farm relies on a federal district court decision that draws this conclusion in light of Darner and Gordinier. See generally Gregorio v. GEICO Gen. Ins. Co., 815 F. Supp.2d 1097 (D. Ariz. 2011). Therefore, State Farm concludes the reasonable expectations doctrine cannot apply because any expectation that Sapp was covered under the umbrella policy would add coverage rather than simply invalidate a standardized term.
¶18 Gregorio involved a plaintiff seeking payment under an umbrella policy that the plaintiff claimed was purchased to supplement the underinsured and uninsured motorist coverage contained in her auto policy. Id. at 1099. The insurer denied coverage because one of the umbrella policy's standardized provisions unambiguously excluded underinsured and uninsured motorist claims. Id. The federal district court enforced the exclusion and rejected the plaintiff's argument that Arizona's reasonable expectations doctrine applied. Id. at 1100-01. In doing so, the district court reviewed the origins of the reasonable expectations doctrine and its application in Arizona. Id. at 1101-06. The district court concluded that "Arizona's formulation of the reasonable expectations doctrine is expansive" and that "the doctrine allows individuals to obtain more comprehensive insurance coverage than was originally bargained for." Id. at 1105. Nevertheless, the district court believed that adding policy language "to grant coverage not otherwise provided for" would "mark a significant departure from the way [the reasonable expectations doctrine] has been applied in Arizona." Id. at 1106.
¶19 Gregorio applies a bright line rule that, in our reading of the applicable cases, was not established by the Arizona Supreme Court. The district court's key conclusion that "[c]ourts cannot . . . invoke the [reasonable expectations] doctrine to add language to a policy to grant coverage not otherwise provided for" is made without citation and in contravention of the district court's acknowledgement, made just a paragraph before, that the reasonable expectations doctrine "allows individuals to obtain more comprehensive insurance coverage than was originally bargained for." Id. at 1105. If the doctrine generally allows for obtaining more coverage in certain circumstances, it does not follow that courts are limited to analyzing reasonable expectations only in cases where it might decline enforcing standardized provisions. The doctrine's whole purpose is to prevent insurance providers from refusing coverage when insureds reasonably believed they possessed coverage. This purpose may be fulfilled as much in situations where existing coverage is extended as it would be by refusing to enforce a standardized provision. See Averett v. Farmers Ins. Co. of Ariz, 177 Ariz. 531, 533-34, 869 P.2d 505, 507-08 (1994) (extending coverage in spite of an unambiguous standardized exclusion because plaintiff reasonably believed he had purchased "full coverage" for his family). We therefore reject Gregorio's conclusion that Arizona's reasonable expectations doctrine may never apply to extend coverage.
Notwithstanding our analysis, we note that Gregorio is not binding on this court, although it "is entitled to respectful consideration." See State v. Gates, 118 Ariz. 357, 359, 576 P.2d 1357, 1359 (1978).
III. Hartwig Had a Reasonable Expectation of Coverage for Sapp
¶20 State Farm contends that, even if the reasonable expectations doctrine applies, the facts do not show anything more than Hartwig's "fervent hope" for coverage. State Farm further argues the trial court erred in finding that the situations established in Gordinier for applying the reasonable expectations doctrine existed in this case.
¶21 When analyzing the evidence with the reasonable expectations doctrine in mind, we must consider the record's full circumstances "in determining the parties' understanding." Do by Minker v. Farmers Ins. Co. of Ariz., 171 Ariz. 113, 116, 828 P.2d 1254, 1257 (App. 1991) (citing Darner, 140 Ariz. at 393, 682 P.2d at 698). As noted previously, Gordinier established four situations in which Arizona courts should apply the reasonable expectations doctrine. 154 Ariz. at 272-73, 742 P.2d at 283-84; supra ¶ 11. Here, the trial court found the record established that the reasonable expectations doctrine applied under all four Gordinier situations. Because only one Gordinier situation must be established to apply the reasonable expectations doctrine, we affirm summary judgment under the Gordinier situation that we conclude is established by this record.
¶22 The record indisputably shows that Sapp is not an "insured" person as defined in the umbrella policy's standardized definition of the term. The record also indisputably shows that Hartwig was motivated in part to purchase umbrella coverage to protect his and his wife's assets. In deposition testimony, however, Hartwig stated that after growing concerned with his exposure to possible accident liability, he spoke with a State Farm agent to "update" his homeowner's and automobile policies to ensure he had "adequate" coverage. He purchased an umbrella policy after the agent suggested he consider such coverage in conjunction with his other policies.
¶23 At that time, Hartwig knew Sapp was driving Hartwig's Arizona vehicle and understood that the umbrella would "cover you for whatever and everything." He also understood that Sapp was covered under the automobile policy. Hartwig testified he "never actually saw" the umbrella policy, and he "just took the word of the agent" regarding what it said. Hartwig noted that State Farm never advised him that individuals covered under his auto policy were or could be different from those covered under the umbrella policy. As such, Hartwig stated "[u]nder the policies that I had, I believed that [Sapp] was covered." Hartwig also stated that he would not have purchased the umbrella policy had he known that coverage would not be extended in the same way as his automobile policy.
¶24 The second Gordinier situation requires applying the reasonable expectations doctrine "[w]here the insured did not receive full and adequate notice of the term in question, and the provision is either unusual or unexpected, or one that emasculates apparent coverage." Gordinier, 154 Ariz. at 273, 742 P.2d at 284. State Farm glosses over Hartwig's testimony that he never saw the umbrella policy by asserting "Hartwig had full and adequate notice of who was an insured . . . by purchasing the policy and asking that he and his wife be designated as the named insureds."
¶25 State Farm's conclusion is unwarranted based on the record before us and our determination that Arizona law does not require terms used in a policy's declarations page, here the "insureds," to govern how those terms could be defined in standardized provisions. The facts presented to the trial court, which State Farm did not contravene, show that Hartwig's conversation with the State Farm agent led him to believe that the same individuals covered under the auto policy would be covered by the umbrella policy. Under this belief, Hartwig would not and could not receive notice that the definition of "insured" differed between the umbrella and auto policies without looking at the policy itself. Because he never received the umbrella policy, merely purchasing it and designating the named insureds is insufficient to prove Hartwig had notice that Sapp may not have been covered. On the facts before us, Hartwig did not receive full and adequate notice that the umbrella policy covered different "insureds."
State Farm argues that summary judgment was improper because Fisk did not meet her burden of proof to establish Sapp's coverage under the umbrella policy. However, the uncontroverted testimony was that Hartwig did not expect that an "insured" would be different under the umbrella policy than it was from the auto policy. Had State Farm submitted any indication that Hartwig might have received notice of the umbrella policy's terms, the question of what Hartwig knew and expected would be in dispute, which a jury could decide. Because the evidence presented established Hartwig's reasonable expectation of coverage, summary judgment was appropriate. See Ramsey v. Yavapai Family Advocacy Ctr., 225 Ariz. 132, 140, ¶ 30, 235 P.3d 285, 293 (App. 2010) (affirming summary judgment because a lack of evidence in the record supported assertions that issues of genuine material fact existed).
We further note that this fact makes this case different from Gregorio, in which there is a factual inference throughout the decision that the Gregorio plaintiff had received the umbrella policy and was aware of its provisions. See e.g. Gregorio, 815 F. Supp.2d at 1100 ("[Plaintiff] claims that she read [a provision] to include rather than exclude [certain coverage]").
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¶26 Hartwig's lack of notice about the umbrella policy's different definition of "insured" is significant because the questioned provision also must be "unusual," "unexpected," or "emasculate apparent coverage." Gordinier, 154 Ariz. at 273, 742 P.2d at 284. The facts here made the umbrella policy's definition of "insured" unexpected. A provision may be "unexpected" "not only by virtue of its rarity, but by how it affects the transaction." Angus Med. Co. v. Digital Equip. Corp., 173 Ariz. 159, 166, 840 P.2d 1024, 1031 (App. 1992) (citing Gordinier). Here, the umbrella policy's different definition of "insured" from the auto policy affected the transaction by denying coverage that Hartwig reasonably believed he purchased. Accordingly, the trial court correctly found the second Gordinier factor applied.
¶27 We therefore conclude the trial court did not err by finding the record establishes the second Gordinier situation. This record establishes that Hartwig had a reasonable expectation of coverage for Sapp under the umbrella policy, and the trial court correctly granted summary judgment in Fisk's and Sapp's favor.
CONCLUSION
¶28 We affirm the trial court's summary judgment grant. In our discretion, we award Appellees their reasonable attorney fees and costs upon compliance with ARCAP 21.