Max True Plastering v. US Fidelity and Guaranty Co.
Supreme Court of Oklahoma · Contracts
ContractsInsurance contractsReasonable expectations doctrineadhesion contractsinsurance policy interpretationambiguityhidden exclusionstechnical or obscure language
Facts
Max True Plastering Company purchased a fidelity bond from United States Fidelity and Guaranty Company through agent Jeff R. Johnson to insure against some losses arising from employee dishonesty. In 1991, True discovered that employees in its Dallas office had formed LCR, Inc. and were diverting True's business to that corporation. True later notified the agent of losses from employee dishonesty and sought coverage under the policy, but USF&G denied coverage based on notice and proof-of-loss requirements and on the ground that losses such as diversion of job opportunities and lost profits were not covered. True sued USF&G and asserted coverage under the policy's terms or, alternatively, under his reasonable expectations of coverage.
Issue
Does Oklahoma recognize the reasonable expectations doctrine as a rule for construing insurance contracts? If so, in what kinds of circumstances may the doctrine be applied?
Rule
In Oklahoma, the reasonable expectations doctrine may be applied in construing insurance contracts. The doctrine applies to ambiguous policy language and to exclusions that, although clear, are masked by technical or obscure language or are hidden in policy provisions. A policy term is ambiguous if it is reasonably susceptible to more than one meaning, viewed from the standpoint of a person of ordinary intelligence.
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One of 10 multiple-choice questions for this case. Pick an answer to see why.
In Tulsa, Nora Benton bought a commercial property policy from Red Prairie Indemnity. The policy covers damage caused by a "vehicle," but elsewhere refers separately to "autos" and "mobile equipment." When a forklift operated by a delivery company crashed into Nora's loading dock, the insurer denied coverage, arguing that a forklift is not a vehicle under the policy.
If an Oklahoma court applies the reasonable expectations doctrine, which result is most likely?
Explanation. Oklahoma recognizes the reasonable expectations doctrine for insurance contracts, but limits it to ambiguous language and to hidden or obscure exclusions. A term is ambiguous if it is reasonably susceptible to more than one meaning when viewed objectively from the standpoint of a person of ordinary intelligence. If "vehicle" could reasonably include or exclude a forklift, the court may honor the insured's reasonable expectation of coverage. The doctrine does not authorize wholesale rewriting, and technical insurer-preferred meanings do not control over ordinary understanding.