One of the great intellects of the law, Judge Robert Keeton of Massachusetts, died earlier this week. Back when he was a professor at Harvard in 1970, Keeton, in a pivotal law review article, gave a name to the "reasonable expectations" doctrine, which he said was merely an empirical observation of what courts were already doing in insurance contract cases. Although the doctrine is recognized in some form by half to three-quarters of the states — depending on who is doing the counting and when — the "hard" form of the doctrine as explained by Keeton has actually been repudiated in the overwhelming majority of states.
The reasonable expectations doctrine was summarized by Keeton as follows: "The objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations." In other words, even when the policy is unambiguous and clearly does not cover a loss, in some cases a court could find the policy nevertheless should provide coverage based on the insured’s reasonable expectations at the time of contracting. An example of a state where this doctrine was used for some time and then discredited as a tool for judicial rewriting of contracts is Michigan, where in Wilkie v. Auto-Owners Ins. Co., 469 Mich. 41 (2003), the court had this to say:
In contrast to this legal pedigree [of strictly enforcing the clear language of contracts] extending over the centuries, the rule of reasonable expectations is of recent origin. Moreover, it is antagonistic to this understanding of the rule of law, and is, accordingly, in our view, invalid as an approach to contract interpretation.
The rule of reasonable expectations had innocent origins in 1970. Professor Robert E.Keeton of Harvard Law School wrote an article entitled Insurance law rights at variance with policy provisions, 83 Harv. L.R. 961, 967 (1970), in which he examined and attempted to rationalize a number of cases in which the results appeared to defy the principle that contracts will be construed according to their unambiguous terms. To explain this phenomenon, as best he could, he concluded that certain courts would evidently not enforce clear contract language in the face of one of the parties’ “reasonable expectations” of coverage . . . .
Whether Professor Keeton intended this analysis to spawn a frontal assault on the ability of our citizens to manage, by contract, their own affairs, it had that effect because numerous courts, to one degree or another, adopted some form of the rule.
I have always thought there might have been an easier explanation to the phenomenon Keeton said he observed — what most would simply call results-driven judging, or perhaps in some instances, simple boneheadedness. That would not have made for an explosive law review article, however, because it focuses on the judge’s motive or competence rather than the safe harbor of applying a purportedly objectively observable principle.