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Are Your Expectations Reasonable?


March 29, 2004


Sébastien Pierre-Roy
William G. Scott
Junior Sirivar

Given the relative inequalities in bargaining power between policyholders and insurers, one would think that a standard insurance policy would be construed in a manner consistent with the reasonable expectations of the ordinary person as to the coverage purchased. One may also have thought that the courts would impose all the coverage that might reasonably be expected to be provided, subject only to a clearly worded exclusion. After all, insurance coverage is usually sought after for a reason.

However, standard form contracts are prepared by insurance companies with the assistance of legally trained drafters and without the input of the insured. Indeed, the very concept of a standard form of insurance policy precludes participation by the insured. The individual can do no more than accept or reject the policy which is presented to them on a form regularly used by and familiar to the drafter.

Despite the fact that the insured is in a poor position, at best, to negotiate policy wording, courts will often not give effect to the reasonable expectations of the insured unless an ambiguity in the policy can be found. Instead, the courts will give effect to the wording of the insurance contract without embarking on an investigation of what the insured might have reasonably expected as to coverage. Furthermore, courts will not resort to a strained construction of the policy for the purpose of creating an ambiguity. Simply put, absent a clear ambiguity, courts will favour the written words of the contract over the reasonable expectations of the insured.


This situation has led some jurisdictions in the United States to consider the reasonable expectations of the policyholder. The Civil Code of Quebec also provides substantial arguments in favour of interpreting the policy in line with the reasonable expectations of the insured. For example, an exclusion of the policy which is deemed to be excessively and unreasonably detrimental to the insured can be annulled. An exclusion will be deemed to meet this criteria when it so departs from the fundamental obligations arising from the rules normally governing insurance policies that it changes the nature of the policy. Arguably, an exclusion that removes or renders illusory all of the coverage expected from the insurance policy could meet that test.


As it would be dangerous to rely on an ambiguity or on the Civil Code of Quebec to obtain coverage where there would appear to be none, it is thus critical to ensure that your business’ legitimate expectations as to coverage are fully reflected in the policy wording.