Insuring understanding: The tested language defense

Iowa Law Review

Volumn 95, Issue 4, 2010, Pages 1075-1124

  Boardman, Michelle ^a  

^a NONE

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EID: 77955445300     PISSN: 00210552     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (183)

1. Michelle Boardman, Contra Proferentem: The Allure of Ambiguous Boilerplate, 104 MICH. L. REV. 1105,1119-20 (2006).
2. See infra Part HA (discussing consumer misconceptions about their insurance coverage). Law professors make mistakes too.
3. See infra note 21 and accompanying text (recounting a story of two law professors' insurance misconceptions).
4. See, e.g., Smith v. Am. States Ins. Co., 586 N.W.2d 784, 787 (Minn. Ct. App. 1998) ("American States easily could have drafted its policy to preclude Smith's recovery in this case.")
5. Neal-Pettit v. Lahman, No. 91551, 2008 WL 5259726, at *1 (Ohio Ct. App. Dec. 18, 2008) ("Had Allstate intended otherwise, the policy language could easily have been drafted to reflect that intention."), affd, 2010 WL 1816265 (Ohio May 4, 2010)
6. State Farm Mut Auto. Ins. Co. v. Langridge, 2004 WI App 113, ¶ 68, 275 Wis. 2d 35, ¶ 68, 683 N.W.2d 75, ¶ 68 ("While State Farm could have very easily drafted its policy language differently so as to preclude [the respondent's] claim ⋯, it chose not to do so.").
7. See Boardman, supra note 1, at 1117-19 (discussing the value of a settled clause to an insurer).
8. See infra note 8 and accompanying text (looking at the courts' treatment of policy language).
9. Robert E. Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 HARV. L. REV. 961, 967 (1970) (emphasis added). The precise form of die doctrine varies by state. Its underlying goal is controversial. See infra Part III.C (discussing die reasonable expectations doctrine).
10. Perhaps it is better to allow courts the fiction that the insurer just needs to redraft one more time; this is considered below.
11. It is more complex, of course. States may differ in their interpretation of the clause, and future application to new situations will be unstable.
12. See Boardman, supra note 1, at 1115 (noting that only in "extreme cases ⋯ insurers will find the expanded coverage untenable and drop ⋯ [it] altogedier").
13. Policyholders usually purchase first and receive the written policy second, after which they have a limited time to cancel the contract.
14. Given the existence of the $19,000 Electrolux Ergorapido vacuum, which sports Swarovski crystals, the state of the vacuum market is debatable.
15. The insurer's agent or the buyer's broker should recommend endorsements for regional risks or expensive jewelry, for example.
16. See J. David Cummins, Property-Liability Price Insurance Deregulation: The Last Bastion?, in DEREGULATING PROPERTY-LIABILITY INSURANCE: RESTORING COMPETITION AND INCREASING MARKET EFFICIENCY 1, 2-3 (J. David Cummins ed., 2002) (finding diat die deregulauon of markets for consumer-property-liability insurance resulted in highly competitive industries)
17. Banks McDowell, Competition as a Regulatory Mechanism in Insurance, 19 CONN. L. REV. 287, 300-02 (1987) (providing an example of insurer competition in Georgia).
18. Another survey found that 47% of participants were confused about termite damage. Press Release, Termite Inst., Termite Institute Website Clears Up Consumer Confusion over a $5 Billion Problem (Mar. 15, 2007).
19. Press Release, Nat'l Ass'n of Ins. Comm'rs, What Isn't Covered by Your Homeowners Insurance? (June 4, 2007), available at http://www.naic.org/Releases/ 2007-docs/homeowners-not-covered.htm (providing these statistics on what homeowners believe are covered by their insurance).
20. Bradley Steffens, Homeowners Insurance-Six Risks Not Covered, Mar. 10, 2008, available at http://business.dailydb.com/insurance/homeowners-insurance- six-risks-not-covered.html (reporting on the survey and noting that some homeowners believe that their standard homeowners insurance covers more than it actually does). Some types of insurance will cover these types of loses for an additional premium, such as state-backed earthquake insurance in parts of California. Id.
21. See FEMA, The National Flood Insurance Program, http://www.fema.gov/ business/nfip/ (last visited Apr. 27, 2010) (providing information and facts about the National Flood Insurance Program).
22. Press Release, Nat'l Ass'n of Ins. Comm'rs, supra note 15.
23. Eileen Alt Powell, Many Homeowners Confused About Insurance, INSURANCEHEADLINES.COM, July 2, 2007, http://www.insuranceheadlines.com/ Homeowners/3 450.html.
24. In the case of a flood or earthquake where infrastructure and neighborhoods are wiped out, the value of the land may indeed be lower, but this is an investment loss for the policyholder, not an insured loss.
25. But see BARRY NALEBUFF & IAN AYRES, WHY NOT?: How TO USE EVERYDAY INGENUITY TO SOLVE PROBLEMS BIG AND SMALL 53-57 (2003) (describing a rare insurance product, "Home Equity Protection," that provides coverage protection from a zipcode-wide decrease in housing prices between the day of purchase and sale).
26. See Johnny Parker, Replacement Cost Coverage: A Legal Primer, 34 WAKE FOREST L. REV. 295, 295-98 (1999) (describing "actual cash value" and "replacement cost" in the residential property context)
27. Harold H. Reader III, Modem Day Actual Cash Value: Is It What the Insurers Intend?, 22 TORT & INS. L.J. 282, 284-88, 291-93 (1987) (comparing recovery rates between the two types of policies).
28. Press Release, Nat'l Ass'n of Ins. Comm'rs, supra note 15; cf. Steffens, supra note 16 (listing six risks to homes of which homeowners are frequently unaware).
29. Powell, supra note 19.
30. Id. (quoting the Director of Product Management for MetLife Auto 8c Home).
31. If the seller fixes the problem, the consumer is happy and may again buy the product in the future. If the seller fails to fix the problem, the consumer is unlikely to repurchase, whatever rights the contract grants.
32. Many consumers may also want to consider purchasing expanded coverage for business materials, including computers and electronically stored data that are used while working at home, even if the consumer usually works in an outside office. Consumers with more than a few thousand dollars worth of jewelry-less than the value of many wedding rings-may also want to purchase additional coverage.
33. "We will pay ⋯ for [t]he legal obligation of an 'insured' to pay because of the theft or unauthorized use of credit cards issued to or registered in an 'insured's' name." INSURANCE SERVICES OFFICE, INC., FORM NO. HO 00 03 10 00, § I-Property Coverages (E)(6)(a)(1), at 6 (1999).
34. "We cover personal property owned or used by an 'insured' while it is anywhere in the world." Id. § I-Property Coverages (C)(1), at 3.
35. "Materials and supplies located on or next to the 'residence premises' used to construct, alter or repair the dwelling or other structures on the 'residence premises' [are covered]." Id. § I-Property Coverages (A) (1) (b).
36. "We will pay up to $5,000 for grave markers, including mausoleums, on or away from the 'residence premises' for loss caused by [certain perils]." Id. § I-Property Coverages (E)(12), at 8.
37. When "people have not yet learned what they like (for example, children) ⋯ decision utility [can] deviate from experienced utility."
38. Colin F. Camerer, Wanting, Liking, and Learning: Neuroscience and Paternalism, 73 U. CHI. L. REV. 87, 91 (2006).
39. See infra Appendix (discussing online methods consumers can use to compare insurers).
40. See generally Matthew Osborne, Consumer Learning, Switching Costs, and Heterogeneity: A Structural Examination 42-44 (Econ. Analysis Group, U.S. Dep't of Justice, Discussion Paper No. EAG 07-10, 2007), available at http://www.justice.gov/atr/public/eag/227376.pdf (testing the effect of consumer learning on the purchase of laundry detergents)
41. Gregory C. Crawford & Matthew Shum, Uncertainty and Learning in Pharmaceutical Demand, 73 ECONOMETRICA 1137, 1164-68 (2005) (same, regarding pharmaceuticals)
42. Tülin Erdem, Michael P. Keene, T. Sabri Öncü & Judi Strebel, Learning About Computers: An Analysis of Information Search and Technology Choice, 3 QUANTITATIVE MARKETING & ECON. 207, 237-43 (2005) (same, regarding personal computers).
43. For their arguments, see generally Richard A. Epstein, The Neoclassical Economics of Consumer Contracts, 92 MINN. L. REV. 803 (2008)
44. Oren Bar-Gill, The Behavioral Economics of Consumer Contracts, 92 MINN. L. REV. 749 (2008). Their answers speak to, as Epstein puts it, "the long-standing debate over the extent to which market failures pave the way for government regulation." Epstein, supra, at 803-04. Or, as Bar-Gill puts it, the question is whether the cognitive and decisional mistakes consumers make are "mistakes [that] merit legal intervention." Bar-Gill, supra, at 749.
45. Bar-Gill, supra note 34, at 750 (emphasis added).
46. Epstein, supra note 34, at 809. Epstein then raises two objections to even accepting persistent consumer mistake: first to "any one-size-fits-all regulation" and second to the market distortions or barriers to entry caused by regulation. Id. at 809-10.
47. Neither Epstein nor Bar-Gill directly defines standardization. Epstein critiques Bar-Gill for too narrowly defining the term, but in doing so he does not specifically define it himself. See id. at 817. Rather, he writes that Bar-Gill removes from the category of standardized products those goods "that often provide potential customers with offers that vary in two or more dimensions." Id. Epstein argues that such products are in fact compatible with the use of standardized agreements because the use of standardized options makes comparisons across products more transparent. Id. at 818.
48. Id. at 804-05 ("There are ⋯ two sets of well-recognized circumstances in which the neoclassical theory accepts that some government intervention may make sense: private monopoly and imperfect information.").
49. See Bar-Gill, supra note 34, at 759 (discussing the "collective action problem" and how it "prevents sellers from correcting consumer mistakes").
50. See PA. Samuelson, A Note on the Pure Theory of Consumer's Behaviour, 5 ECONOMICA 61, 65 (1938) (original mathematical demonstration of this theory)
51. see also John Beshears et al., How Are Preferences Revealed?, 92 J. PUB. ECON. 1787, 1787-90 (2008) (identifying the circumstances where revealed preferences are most likely to diverge from normative preferences).
52. For a critique of honoring revealed preferences and a defense of judicial paternalism, see generally Robin L. West, Taking Preferences Seriously. 64 TUL. L. REV. 659 (1990) (encouraging judges to develop a sympathetic understanding of individual litigants).
53. VILFREDO PARETO, MANUAL OF POLITICAL ECONOMY 103 (Ann S. Schwier & Alfred N. Page eds., Ann S. Schwier trans., 1971) (1927) (discussed to great effect in Camerer, supra note 31, at 88-90).
54. Id. at 103.
55. r) inhabit, and thus a compulsory pension program imposes a fiduciary duty on Aw. Id.
56. The roof is likely covered at replacement value, unless the policyholder has purchased extra coverage for market value. Some policyholders will be surprised by this difference but the policyholder will at least be right that the loss is covered.
57. According to the former CEO of the National Association of Insurance Commissioners, Cathy Weatherford, one "misconception held by more than two-thirds of policyholders is the belief that cars, boats or motorcycles stolen from their property or damaged on their property are covered by homeowners policies." Powell, supra note 19.
58. If the policy is jointly held between husband and wife, the nonarsonist has suffered an unintentional loss; whether that loss is covered depends on the contract and the state.
59. Susan Randall, Freedom of Contract in Insurance, 14 CONN. INS. L.J. 107,144-45 (2007). Randall states: Whether the intentional acts of a co-insured will defeat coverage for an innocent co-insured turns on the exclusionary language used in the policy. A policy excluding losses caused by intentional acts of "any insured" or "an insured" creates a joint obligation among co-insureds and bars coverage for both the malefactor and innocent co-insureds. Where the policy uses the words, "the insured", the obligation is several, and the exclusion applies only to the insured who intended the act and caused injury, not an innocent co-insured.
60. Id. (citation omitted)
61. see also N.J. Mfrs. Ins. Co. v. Carney, No. 3:04-CV-2468, 2006 WL 2092571, at *3-4 (M.D. Pa. July 26, 2006) (holding that a wife's arson does not stop her husband's recovery as an innocent co-insured when the policy language is ambiguous) (citation omitted).
62. "We cover personal property owned or used by an 'insured' while it is anywhere in the world." INSURANCE SERVICES OFFICE, INC., supra note 27, § I-Property Coverages (C)(1), at 3. Jewelry is covered at limits in the few thousands of dollars, which can be increased by enumerating the pieces and paying an additional fee. Id.
63. "Materials and supplies located on or adjacent to the 'residence premises' used to construct, alter or repair the dwelling or other structures on the 'residence premises'" are covered. Id. § I-Property Coverages (A)(1)(b).
64. The loss is excluded if it is "[claused by ⋯ [t]heft in or to a dwelling under construction, or of materials and supplies for use in the construction until the dwelling is finished and occupied." Id. § I-Perils Insured Against (A) (2) (c) (3), at 9.
65. The loss is excluded if it is [claused by ⋯ [f]reezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. This provision does not apply if you have used reasonable care to: (a) [m]aintain heat in the building; or (b) [s]hut off the water supply and drain all systems and appliances of water.
66. Id. § I-Perils Insured Against (A) (2) (c) (1), at 8-9.
67. See Bar-Gill, supra note 34, at 750 ("[M]istakes about a standardized product are not sustainable.")
68. Epstein, supra note 34, at 814 (arguing that standardized products are easier to understand and master).
69. But see Rissman v. Rissman, 213 F.3d 381, 385 (7th Cir. 2000) ("[T]he fact that language has been used before does not make it less binding when used again. Phrases become boilerplate when many parties find that the language serves their ends. That's a reason to enforce the promises, not to disregard them.").
70. Joseph M. Perillo, Neutral Standardizing of Contracts, 28 PACE L. REV. 179, 182-83 (2008) (citations omitted)
71. see also Henningsen v. Bloomfield Motors, Inc., 161 A.2d 69, 86 (N.J. 1960) ("Such standardized contracts have been described as those in which one predominant party will dictate its law to an undetermined multiple rather than to an individual. They are said to resemble a law rather than a meeting of the minds.")
72. Richard A. Posner, The Law and Economics of Contract Interpretation, 83 TEX. L. REV. 1581, 1585 (2005) ("[F]orm contracts used in transactions with consumers tend to be one-sided because they are drafted by firms, trade associations, or professional associations, which want such contracts to be slanted in their favor.").
73. Going a long step further, insurers could enter into collaborative drafting with a consumer interest group representing current and future policyholders. See Perillo, supra note 54, at 185-87 (discussing the collaborative, "paternalistic," and "collective bargain" approaches to drafting neutral standard-form contracts).
74. Id. at 193. Perillo does not include consumers directly but does include "business leaders and consumer activists and their lawyers." Id.
75. See also Shmuel I. Becher, A "Fair Contracts" Approval Mechanism: Reconciling Consumer Contracts and Conventional Contract Law, 42 U. MICH. J.L. REFORM 747, 751 n.15 (2009) (noting that Perillo's idea is somewhat analogous to the "fair contracts" approval mechanism for standard form contracts).
76. There is a rich, largely theoretical, literature about the incentives sellers may have to educate consumers. See, e.g., R. Ted Cruz & Jeffrey J. Hinck, Not My Brother's Keeper: The Inability of an Informed Minority to Correct for Imperfect Information, 47 HASTINGS L.J. 635, 659-60 (1996) (discussing the problems with advertising, including free riding and costs, that often outweigh the benefits)
77. Xavier Gabaix & David Laibson, Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets, 121 Q.J. ECON. 505, 507-11 (2006) (discussing the reasons why companies shroud add-on prices instead of advertising them to consumers).
78. See Gordon Stewart, Can Reputations Be "Managed"?, 31 GENEVA PAPERS ON RISK & INS. 480, 487 (2006) (discussing "obstacles to improving the relationship between insurance and the public").
79. Id.
80. Id.
81. Id.
82. See the Allstate Insurance Company, which uses the slogan, "You're in good hands." Allstate Insurance, http://www.allstate.com (last visited Apr. 28, 2010).
83. Of course, there is a genre of car ads showing only the car exterior, driving down a winding autumn road with Vivaldi's Four Seasons in the background.
84. Car insurers advertise almost exclusively on the basis of price, though this may make sense. Differences in car insurance really do come down to deductibles, caps, extent of coverage, and price-in other words, to money. Each car insurer sells different packages of deductibles, caps, and coverage, but the choices do not vary much. Nor do the perils to cars and drivers.
85. State Farm Insurance Company: "We live where you live." Database of Slogans, Insurance Advertising Slogans, http://www.textart.ru/ database/slogan/insurance-advertising-slogans.html (last visited Apr. 28, 2010).
86. Zurich Insurance Group: "Zurich. Because Change HappenZ." Id.
87. New York Life Insurance Company: "New York Life. The Company You Keep." New York Life Insurance Company Home Page, http://www.newyorklife. com (last visited Apr. 28, 2010). In fairness, the double entendre of the New York Life slogan is lost when "car" supplants "company." Still, either slogan simply says you will like the product enough to retain it.
88. For an excellent analysis of State Farm's advertising, see Posting of Jeffrey W. Stempel to Insurance Law Center Blog, March Madness Makes It "Official": State Farm Embraces the Reasonable Expectations Doctrine and Rejects Linguistic Literalism, http://www.lexisnexis.com/Community/ insurancelaw/blogs/insurancelawblog/archive/2010/02/17/March-Madness-Makes-It- 1C20-Official-1D203A00-State-Farm-Embraces-the-Reasonable-Expectations-Doctrine- and-Rejects-Linguistic-Literalism.aspx (Mar. 22, 2009,21:50 EST).
89. Id.
90. Id.
91. Id.
92. Id.
93. The worst analogy is made in an ad where customers are disappointed to find that the boardwalk "foot massage" only means massaging one foot. Stempel, supra note 68. Again, this action does not fit any definition, however technical, of a foot massage. Irate policyholders do not believe their insurers perform a bizarre and different service from the one desired-they believe the insurers fail to perform altogether.
94. Id.
95. Ice Cream Truck (State Farm Insurance Company television advertisement July 2008), available at http://www.coloribus.com/ackarchive/tv-commercials/ state-farm-ice-cream-truck-512728/ (subscription required).
96. In the alternative, State Farm could simply increase the types of claims it pays to meet expectations without changing the language. Consumer complaints that an insurer has paid despite policy language denying coverage must be rare, if not chimerical.
97. One can see a broader review of insurance commercials at http://www.coloribus.com by searching for "insurance."
98. Delivery (Travelers Insurance television advertisement May 20, 2009), available at http://www.youtube.com/user/TravelersInsurance#p/u/10/8rrVMQdSxr4. Other Travelers ads are available at Travelers' YouTube page, http://www.youtube.com/user/Travelers Insurance.
99. Id.
100. Travelers also has an ad that shows how it can insure against all worries, such as dust, trees, and shopping carts, which turn out to be threats to a computer-manufacturing business, a home, and a car-illustrating once again how it has the ability to cover a variety of objects. No Worries (Travelers Insurance television advertisement May 21, 2009), available at http://www.youtube.com/user/TravelersInsurance#p/u/8/1-5-NA4e0K0.
101. Prized Possession (Dog Commercial) (Travelers Insurance television advertisement June 23, 2009), available at http://www.youtube.com/user/ TravelersInsurance#p/u/1/5G7bGBUIx2M.
102. Id.
103. All of MetLife's advertisements are available at http://metlife.feedroom. com/. This website includes many advertisements aimed at non-English speakers, some of which have a different feel. For example, the majority of the English-language advertisements feature animation, while the Spanish-language advertisements feature a live-action, familial setting.
104. See MetLife, Employee Benefits Simplifier Tool, http://www.metlife.com/ individual/employee-benefits/employee-benefits-tool/index.html?MCAT[66]=x (last visited Apr. 28, 2010) (discussing employee benefits)
105. Metlife, Term Life and Disability Package, http://www.metlife.com/ individual/insurance/term-life-disability/index.html?MCAT[63]=x&WT.ac= Pro1-TermDisIFDiv-5-15721-T3619-IN-individual&oc-id=Pro1-TermDisIFDiv-5- 15721-T3619-IN-individual#term-life-disability-basics (last visited Apr. 28,2010) (discussing life insurance).
106. See, e.g., Generations (New York Life Insurance Company television advertisement Sept. 2002), available at http://www.coloribus.com/adsarchive/tv- commercials/new-york-life-generations-126006/ (subscription only) (noting the long history the company has, that "some things never change," that they only serve "the interests] of [their] customers," and finishing with the tag line, "the company you keep," suggesting that once you choose New York Life, you never have to shop for insurance again)
107. Lifetime of Firsts (New York Life Insurance Company television advertisement 2008) (focusing on what life insurance can do for small children because "only one gift protects a lifetime of firsts").
108. See MassMutual Financial Group, Sponsorships, Awards & Advertising, http://www.massmutual.com/aboutmassmutual/saa/advertising (last visited Apr. 28, 2010) (featuring a changing selection of MassMutual commercials and print advertisements). MassMutual focuses on uncertainty in life, with one commercial, which is no longer available online, that explains how a couple's child keeps returning-first from camp, later from college and Europe;-and that they are not "renting out his room," since he may return to live with them after his honeymoon. MassMutual's ads focus on the idea that consumers "can't predict[, but] can prepare" for the future. My Life Insured, Life Insurance Companies: MassMutual, http://www.my-life-insured.com/massmutual.php (last visited Apr. 28, 2010). Other MassMutual ads focus on the "sign of a good decision." For example, in one ad, an entrepreneur foregoes an office with an imposing view over a major city in favor of an office in his home so he can be closer to his children; in another commercial, a fishing boat, after leaving its dock, turns back around in the face of an impending storm, cutting short the fishing trip but potentially saving the lives of those on board. MassMutual Financial Group, Sponsorships, Awards & Advertising, supra. Both commercials close with the idea that a "good decision," when it comes to the world of personal finance, is choosing MassMutual. Id.
109. The series includes some lighthearted commercials, such as the "Bergwood" commercials that focus on a football-crazed fan and his hijinks. Bergwood has a website and his own YouTube channel featuring all of his recent videos. Allstate, Bergwood.net, hup:// bergwood.net (last visited Apr. 28, 2010)
110. YouTube.com, bergwooood's Channel, http://www.youtube.com/user/bergwooood (last visited Apr. 28, 2010).
111. Lucian A. Bebchuk and Richard A. Posner have argued that where reputational pressures apply to sellers but not to buyers, one-sided contracts that favor the seller are defense mechanisms that do not necessarily "imply that the transaction will be one-sided, but only that the seller will have discretion with respect to how to treat the consumer."
112. Lucian A. Bebchuk & Richard A. Posner, One-sided Contracts in Competitive Consumer Markets, 104 MICH. L. REV. 827,827 (2006). Reputational effects do not apply to consumer policyholders, but given the lack of strong reputational effects on insurance sellers, we cannot confidendy assume that one-sided insurance clauses are merely a defense against opportunistic consumers.
113. The Journal of Consumer Research, published by the University of Chicago, prints articles of varying levels of accessibility to those in the law. See Chicago Journals, Journal of Consumer Research, http://www.journals.uchicago. edu/page/jcr/brief.html (last visited Apr. 28, 2010) ("[The Journal] publishes scholarly research that describes and explains consumer behavior. Empirical, theoretical, and methodological articles spanning fields such as psychology, marketing, sociology, economics, and anthropology are featured in this interdisciplinary journal.").
114. ISO's current role in group drafting could be threatened if the McCarran-Ferguson Act, which partially exempts insurance companies from federal antitrust laws, were repealed. As of January 2010, the House of Representatives' health-care-reform bill contains a section repealing portions of the McCarran-Ferguson Act but only as to health insurers. See Health Insurance Industry Antitrust Enforcement Act of 2009, H.R. 3596, 111th Cong. § 3 (2009) ("[N]othing in the [a]ct⋯ shall be construed to permit health insurance issuers ⋯ to engage in any form of price fixing, bid rigging, or market allocations in connection with the conduct of the business of providing health insurance coverage ⋯ or coverage for medical malpractice claims or actions."). As of January 5, 2010, the Senate's version of the bill does not include a similar provision; Senator Patrick Leahy's "Health Insurance Industry Antitrust Enforcement Act" has been dropped from the bill.
115. FRITZ SCHEUREN, WHAT IS A SURVEY 37 (2d ed. 2004), available at http://www.whatisasurvey.info/. Focus groups are designed to have similar people participate, but none of the participants should know one another. Id.
116. For an example, see generally Ruui N. Bolton, An Exploratory Investigation of Questionnaire Pretesting with Verbal Protocol Analysis, 18 ADVANCES CONSUMER RES. 558, 559-60 (1991) (discussing pretesting).
117. SCHEUREN, supra note 91, at 45.
118. Id.
119. Id. at 46.
120. Id.
121. See Bolton, supra note 92, at 560 (discussing a questionnaire pretest involving fifteen customers).
122. SCHEUREN, supra note 91, at 47.
123. Id.
124. Today, mail surveys are still the most common kind of quantitative research, due to their low cost. If an insurer targets a specific subset of the population, mail surveys can be particularly effective. These need not be the old mail-out, mail-in method. Increasingly, researchers use the Internet for these types of surveys. The other main type of survey is the interview survey, which researchers can do in person or on the telephone. Experienced questionnaire designers tend to work backwards, drafting an outline of what the final report or paper will contain, allowing them to pinpoint the exact data they wish to find. In this case, the focus would be which use of language best conveys a point to consumers. See generally Elizabeth C. Hirschman, Scientific Style and the Conduct of Consumer Research, 12 J. CONSUMER RES. 225 (1985) (explaining that researchers have choices in how they phrase questions and these choices impact the outcome).
125. For example, a test subject could be asked to read a clause and answer "yes" or "no" to whether he would be covered for flooding from a broken pipe. While a subject may check "no," inside that "no" could be the longer, "I hadn't thought about it the first time I read the sentence but, now that you mention it, no."
126. An objection to this contention is that insurers benefit, sometimes, from ambiguous language. This must be true; language that puts consumers off from seeking payment or bringing suit, even if the insurer would lose in court, has some value. The value is complex because ambiguity carries heavy costs, both in litigation fees and lost suits. Where an insurer nonetheless values ambiguity over its costs, one would not expect the insurer to attempt the tested language defense. The objection, therefore, may hold that the tested language defense's use will be limited, but it does not foretell insurers using and gaming the defense at the drafting stage.
127. Francis Bacon, A Collection of Some Principall Rules and Maximes of the Common Lowes of England, in THE ELEMENTS OF THE COMMON LAWES OF ENGLAND 1, 11 (Da Capo Press & Theatrum Orbis Terrarum Ltd., photo, reprint 1969) (1630). The doctrine "is a Schoolemaster of wisdome & diligence in making men watchful in their owne businesse." Id. Of course, it is likely that contra proferentem is less "common" today, compared with other "grounds of the law," than it was in Bacon's time.
128. Mut. Life Ins. Co. of N.Y. v. Hurni Packing Co., 263 U.S. 167, 174 (1923).
129. GEORGE J. COUCH, RONALD A. ANDERSON & MARK S. RHODES, COUCH: CYCLOPEDIA OF INSURANCE LAW § 15:74 (2d ed., rev. vol. 1984).
130. Ohio Cas. Ins. Co. v. Henderson, 939 P.2d 1337, 1339 (Ariz. 1997) (quoung Transamerica Ins. Group v. Meere, 694 P.2d 181, 185 (Ariz. 1984)).
131. See infra Part III.D (proposing answers in the discussion of ambiguity and complexity).
132. Hudson v. Farm Family Mut. Ins. Co., 697 A.2d 501, 503 (N.H. 1997) (citing Green Mountain Ins. Co. v. George, 634 A.2d 1011, 1014 (N.H. 1993)) (emphasis added).
133. "If an exclusion ambiguously lends itself to two or more reasonable constructions, the ambiguity will be resolved against the insurer and in favor of coverage." Church Mut. Ins. Co. v. U.S. Liab. Ins. Co., 347 F. Supp. 2d 880, 884 (S.D. Cal. 2004) (citing Smith Kandal Real Estate v. Cont'l Cas. Co., 79 Cal. Rptr. 2d 52, 56 (Cal. Ct. App. 1998)). A version of this statement can be found in many opinions; a full reading of the opinion is required to know if the court is embracing version one or two. There are cases where courts conclude that an ambiguity created by the interaction of two clauses cannot be sensibly resolved, in which case there is no unified reading that is reasonable. Where "it is not possible to give effect to both of these provisions in a manner that resolves the ambiguity created by the policy language," the court simply provides coverage. Israel v. State Farm Mut. Auto. Ins. Co., 789 A.2d 974, 977 (Conn. 2002).
134. See Kenneth S. Abraham, A Theory of Insurance Policy Interpretation, 95 MICH. L. REV. 531, 537-44 (1996) (explaining the differences between a "strict liability" and a "negligence" version of contra proferentem).
135. Id. at 540-44.
136. Omri Ben-Shahar has identified a principle that reverses contra proferentem in certain circumstances. See generally Omri Ben-Shahar, A Bargaining Power Theory of Default Rules, 109 COLUM. L. REV. 396 (2009) (discussing the bargain-mimicking principle and how it functions). Ben-Shahar states: [T]he bargain-mimicking principle supplies a term that is most favorable to the drafter and that most closely resembles the deal the drafter would have been able to dictate. While the contra proferentum doctrine relies on the notion that the strong party should be "punished" for leaving ambiguity or indefiniteness in the contract, the bargain-mimicking principle gives the strong party what she could have gotten explicitly through bargaining. Id. at 406 (footnote omitted). Ben-Shahar argues that the principle applies to purely distributive terms. Id. at 429.
137. See Boardman, supra note 1, at 1121-22 (describing the principle and how it evolved in the insurance context).
138. Id. at 1126-27.
139. Many insurance clauses are complex enough to be ambiguous in the abstract. On rare occasions, a court looking to construe a clause in a particular way will focus on the abstract ambiguity, where the language is not ambiguous as applied.
140. Courts have taken a similar position where ISO made representations about the meaning of a clause to state regulators while seeking permission to use the language. Sat John R. Prince, III, Where No Minds Meet: Insurance Policy Interpretation and the Use of Drafting History, 18 VT. L. REV. 409, 436 (1994) (discussing the admissibility of drafting history evidence).
141. Keeton, supra note 6, at 966-67 (explaining the origins and development of the reasonable expectation doctrine). A few states reject the doctrine. See Wallace v. Balint, 761 N.E.2d 598, 606 (Ohio 2002) ("[T]here is not yet a majority on this court willing to accept the reasonable-expectations doctrine.")
142. Dakota, Minn. & E. R.R. Corp. v. Heritage Mut. Ins. Co., 2002 SD 7, ¶ 37, 639 N.W.2d 513, 519 ("[T]he doctrine of reasonable expectadons has never been adopted by South Dakota; in fact, this Court has repeatedly declined to adopt the doctrine ⋯." (internal citadons omitted)).
143. Keeton, supra note 6, at 967. The Restatement (Second) of Contracts section 211(3), addressing "Standardized Agreements," reads: "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, the term is not part of the agreement." 2 RESTATEMENT (SECOND) OF CONTRACTS § 211(3) (1981). This formulation differs substantially from the variations on the doctrine courts follow. Although it is considered the Restatements version of the reasonable expectations doctrine, section 211 (3) is rarely mentioned or cited by courts in insurance cases.
144. See James M. Fischer, The Doctrine of Reasonable Expectations Is Indispensible, If We Only Knew What for?, 5 CONN. INS. L.J. 151, 155 (1998) (discussing the weak and strong interpretations of the doctrine)
145. Roger C. Henderson, The Doctrine of Reasonable Expectations in Insurance Law After Two Decades, 51 OHIO ST. L.J. 823, 842-46 (1990) (discussing the analysis of the doctrine in various jurisdictions)
146. Peter Nash Swisher, Symposium Introduction, 5 CONN. INS. L.J. 1, 5-7 (1998) (introducing the Symposium: The Insurance Law Doctrine of Reasonable Expectations After Three Decades).
147. See Jeffrey W. Stempel, Unmet Expectations: Undue Restriction of the Reasonable Expectations Approach and the Misleading Mythology of Judicial Role, 5 CONN. INS. L.J. 181, 189, 191-95 (1998) (examining seven possible versions of the reasonable expectations doctrine).
148. For an interesting discussion of the possible divergence, see Daphna Lewinsohn-Zamir, Consumer Preferences, Citizen Preferences, and the Provision of Public Goods, 108 YALE. L.J. 377, 391-406 (1998).
149. Randall, supra note 47, at 113 (citing Bituminous Cas. Corp. v. Sand Livestock Sys., Inc., 728 N.W.2d 216, 220-21 (Iowa 2007), and Iowa Comprehensive Petroleum Underground Storage Tank Fund Bd. v. Federated Mut. Ins. Co., 596 N.W.2d 546, 551 (Iowa 1999)).
150. See, e.g., Merino v. Allstate Indem. Co., 231 F. App'x 682, 683 (9th Cir. 2007) (applying California law and holding that since the word "you" is not ambiguous, the reasonable expectations doctrine does not apply)
151. Kolb v. Paul Revere Life Ins. Co., 355 F.3d 1132, 1135-36 (8th Cir. 2004) (applying Arkansas law and holding that, consistent with the average person's expectations, the word "accidental" includes complications arising from a surgical procedure)
152. Peck v. Pub. Serv. Mut. Ins. Co., 363 F. Supp. 2d 137, 145 (D. Conn. 2005) (noting that only ambiguous terms are interpreted in light of the insured's reasonable expectations).
153. Kenneth S. Abraham, The Expectations Principle as a Regulative Ideal, 5 CONN. INS. L.J. 59, 61 (1998) [hereinafter Abraham, The Expectations Principle] (arguing that the reasonable expectations doctrine is (or was in 1998) relatively minor but that "the expectations 'principle' that lies behind the doctrine is of major significance").
154. See generally Kenneth S. Abraham, Judge-Made Law and Judge-Made Insurance: Honoring the Reasonable Expectations of the Insured, 67 VA. L. REV. 1151 (1981) (thoroughly analyzing the reasonable expectations principle both descriptively and prescriptively)
155. Abraham, The Expectations Principle, supra note 124, at 63-64.
156. See Lawrence Solan, Terri Rosenblatt & Daniel Osherson, False Consensus Bias in Contract Interpretation, 108 COLUM. L. REV. 1268, 1290 (2008) (noting, in their study on how laypeople interpret contracts, that "[p]eople believed that their understanding of the story was significantly more common than was the reality"). After experimental studies on "false consensus bias" using insurance contract language, the au thors concluded that: When individuals are given scenarios that have led to differences of opinion among the courts, they do not understand contractual language uniformly and, because they are subject to false consensus bias, believe that their interpretation is the normal interpretation, even when it is not. This is true whatever the scenario, whatever the interpretation, and whichever party will be assisted by one interpretation or the other. Id. at 1269. Judges experience the same phenomenon. Id.
157. The debate over whether penalty default rules exist in contract law is not setded here. See Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 YALE LJ. 87, 91 (1989) (introducing penalty default rules). Compare Eric A. Posner, There Are No Penalty Default Rules in Contract Law, 33 FtA. ST. U. L. REV. 563, 565 (2006) (denying their existence), with Ian Ayres, Ya-Huh: There Are and Should Be Penalty Defaults, 33 FLA. ST. U. L. REV. 589, 590 (2006) ("ya-huhing" their existence). Whether one should count interpretive rules like contra proferentem in the potential penalty default category is also a question. See Posner, supra, at 578-80 (discussing whether contra proferentem is a useful rule for the potential penalty default rule).
158. For a variation on this idea, see Dudi Schwartz, Interpretation and Disclosure in Insurance Contracts, 21 LOY. CONSUMER L. REV. 105, 118 (2008) ("Although it can be argued that whereas an Insurer who negligently drafts vague policy terms should bear the resulting costs, an Insurer who takes due care in drafting terms that are in fact impossible to phrase in a less ambiguous manner should not be subject to the rule.").
159. Thomas E. Chase, All-Risks Insurance, Exceptions to Exclusions: Burden of Proof?, N.Y.L.J., Apr. 28, 2005, at 4, 7.
160. INSURANCE SERVICES OFFICE, INC., supra note 27, §I-Perils Insured Against (A) (2) (c)(5), at 9.
161. Id. (emphasis added).
162. See Thelma Jarman-Felstiner, Mold Is Gold: But, Will It Be the Next Asbestos?, 30 PEPP. L. REV. 529, 540-50 (2003) (comparing toxic-mold litigation with asbestos litigation).
163. See John T. Waldron III & Timothy P. Palmer, Insurance Coverage for Mold and Fungi Claims: The Next Battleground?, 38 TORT TRIAL & INS. PRAC. L.J. 49, 50 (2002) (providing examples of jury verdicts of up to eighty-five-million dollars).
164. Omri Ben-Shahar, The Myth of 'Opportunity to Read' in Contract Law, 5 EUR. REV. CONT. L. 1, 2-4(2009).
165. Id. at 21-22.
166. Id. at 6.
167. In a brief discussion, Ben-Shahar places the reasonable expectations doctrine in insurance on one end of a spectrum, book-ended by the strict duty to read. Id. at 8.
168. See The Insurance Services Office, Helping Insurers Price Their Products, http://www.iso.com/About-ISO/ISO-Services-for-Property-Casualty-Insurance/ Helping-Insurers-Price-Their-Products.html (last visited Apr. 28, 2010). The ISO explained: Pricing insurance is difficult. Unlike most businesses, an insurance company can't set its prices based on known costs for production and distribution. Instead, an insurer needs to project the costs of future claims by examining historical data. The process is reliable only when the insurer uses a sufficient amount of accurate data. Id.
169. Perhaps it is 10% of people who will say they believe something, such as that "Elvis is Alive." The encouraging news is that the percentage of people who believe Elvis lives had dropped to 7% by 2002. See Jaime Holguin, "The King's" Popularity Constant, CBSNEWS, Aug. 11, 2002, http://www.cbsnews.com/stories/2002/08/11/opinion/polls/main518294.shtml.
170. For the best defense to date, see generally Daniel Schwarcz, A Products Liability Theory for the Judicial Regulation of Insurance Policies, 48 WM. & MARYL. REV. 1389 (2007).
171. See W. Kip Viscusi, Individual Rationality, Hazard Warnings, and the Foundations of Tort Law, 48 RUTGERS L. REV. 625, 639 (1996) ("[A]dditional tort liability or strict liability for the product injury is required to provide manufacturers with the appropriate incentive to produce safe products.").
172. There is a moral hazard when the existence of insurance decreases the insured's incentive to avoid loss or harm. 1 NEW APPLEMAN INSURANCE LAW PRACTICE GUIDE § 5.05[1] (L. Martinez, M. Meyerson & D. Richmond eds., 2008).
173. Many jurisdictions require manufacturers to anticipate likely misuse of a product and to address that potential with improved design or warning. See Howard Latin, "Good" Warnings, Bad Products, and Cognitive Limitations, 41 UCLA L. REV. 1193, 1201 (1994). Latin, quoting an American Law Institute report, states: "The object of a good warning is to provide users with information about risk levels so that users can harmonize their use preferences with their safety preferences in an informed way, to provide users with information about safe and dangerous use so that they can choose optimal risk reduction strategies, or to provide both types of information." Id. (quoting 2 AM. LAW INST., REPORTER'S STUDY: ENTERPRISE RESPONSIBILITY FOR PERSONAL INJURY-APPROACHES TO LEGAL AND INSTITUTIONAL CHANGE 66 (1991))
174. see also Lars Noah, The Imperative to Warn: Disentangling the "Right to Know" from the "Need to Know" About Consumer Product Hazards, 11 YALE J. ON REG. 293, 293 (1994) (discussing the overabundance of product-warning-label requirements imposed by Congress, federal regulators, and state legislatures).
175. See W. KIP VISCUSI, REFORMING PRODUCTS LIABILITY 64-66 (1991) (stating that the purpose of products-liability law is to address "inadequate risk information," which is the "chief inadequacy of the market").
176. ROBERT H. JERRY, II & DOUGLAS R. RICHMOND, UNDERSTANDING INSURANCE LAW § 25A[a], at 145 n.316, 146 (4th ed. 2007) (adding "ambiguity of organization" to the Farnsworthian categories of imprecise language)
177. see also E. Allan Farnsworth, "Meaning" in the Law of Contracts, 76 YALE L.J. 939, 954 (1967) (classifying ambiguities as either "term" or "syntax" ambiguities).
178. See Farnsworth, supra note 145, at 956 ("Ambiguity in contracts may also result from inconsistent or conflicting language.").
179. Many have concluded that excessive play in the joints of ambiguity has led courts to "fabricate ambiguities." Stephen J. Ware, A Critique of the Reasonable Expectations Doctrine, 56 U. CHI. L. REV. 1461, 1469 (1989). Michael Rappaport has suggested: The underinclusiveness of the ambiguity rule is even more problematic because it often leads judges to manufacture ambiguities. Although the ambiguity rule by its terms does not apply to inefficient, unambiguous provisions, judges sometimes- perhaps often-hold unambiguous terms to be ambiguous to avoid giving effect to provisions they perceive to be harsh.
180. Michael B. Rappaport, The Ambiguity Rule and Insurance Law: Why Insurance Contracts Should Not Be Construed Against the Drafter, 30 GA. L. REV. 171, 224-25 (1995).
181. Ukrainian novelist Mikhail Zoshchenko wrote two adjoining stories on the danger of sharp clarity. Thank you to Professor Julia Chadaga, specialist in twentieth-century Russian literature and culture, for helping me locate these stories outside of my memory. Julia Bekman Chadaga, Light in Captivity: Spectacular Glass and Soviet Power in the 1920s and 1930s, 66 SLAVIC REV. 82, 91-92 (2007).
182. MIKHAIL ZOSHCHENKO, A Clever Little Trick, in NERVOUS PEOPLE AND OTHER SATIRES 176, 176-78 (Hugh McLean ed., Maria Gordon & Hugh McLean trans., 1963).
183. MIKHAIL ZOSHCHENKO, Poverty, in NERVOUS PEOPLE AND OTHER SATIRES, supra note 149, at 141, 141-43.