A recent state Supreme Court decision could give consumers more leverage to fight insurance companies when a claim is denied based on ambiguous policy terms, but the court stopped short of allowing the broad, consumer-friendly protections adopted in some other states.
The justices ruled last week that trial courts statewide now can use a legal principle known as the doctrine of reasonable expectations when settling policy coverage disputes. The doctrine states that whenever an insurance policy’s terms are not clear, the dispute will be resolved according to what the consumer believes the policy states.
Previously, South Carolina courts were bound by strict interpretation of insurance policies based solely on the wording in the policy.
“This makes a big difference,” said Gene Connell, a Surfside Beach lawyer whose case led to the court’s decision. “They had never adopted this in South Carolina until now. The courts here used to look only at the language of the policy.”
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While the ruling represents a philosophical shift for S.C. courts, the justices left no doubt that the doctrine is to be used sparingly.
“While we now hold that reasonable expectations may be used as another interpretive tool, the doctrine cannot be used to alter the plain terms of an insurance policy,” the justices wrote in their decision, adding “we decline to apply the doctrine where a contract of insurance unambiguously denies coverage under its plain terms.”
Charleston lawyer George Kefalos, who specializes in insurance law, said the ruling is a win for consumers but the doctrine of reasonable expectations probably won’t have the impact here that it’s had in other states.
“They limited its application here to only those instances where the policy is ambiguous,” Kefalos said. “In some states, it can override the terms of the policy.”
In Pennsylvania, for example, courts put heavy emphasis on a consumer’s expectations of insurance coverage and consider the language of the policy secondary, even in instances when that language is not ambiguous. In some instances, courts in that state have upheld coverage even when the wording of an insurance policy denies it.
Kefalos said the S.C. Supreme Court’s decision is an extension of a rule that’s been in place where if a policy can be interpreted two different ways the court will adopt the interpretation most favorable to the consumer.
South Carolina’s judicial system “has historically been consumer-oriented, and this is in keeping with that track record,” Kefalos said.
The case that led to the court’s ruling involved an Horry County man who was injured in an automobile accident while a passenger in a vehicle driven by a co-worker. There was no underinsured motorist coverage on the vehicle so the injured man submitted a claim under a separate policy that had been issued to his fiancee. The man and his fiancee were listed as drivers and household residents on the policy, but the man was not a “named insured” on the policy’s declarations page.
The man sued the insurance company, claiming the policy was ambiguous because it listed him as a driver but not as an insured person. A circuit court judge and the state Court of Appeals ruled against the man, saying he was not eligible for underinsured motorist coverage because he was not related to the policy’s owner, as required by the policy’s language. The man and the woman eventually broke off their engagement and never married.
While the state Supreme Court upheld the lower court’s ruling, the justices agreed to adopt the doctrine of reasonable expectations for other cases going forward.
“It was a case where we lost the battle, but we won the war,” Connell said.