Is there a duty to read insurance contracts?
The “duty to read” is a legal fiction, better stated as "policyholders are deemed to know the essential terms of their contracts."
We accept as true a lot of things that aren’t.
It’s generally accepted that Rick Blaine, Humphrey Bogart’s character in Casablanca, told his pianist, “Play it again, Sam.” He didn’t — never happened. Nor does the Bible say, “The Lord helps those that help themselves.” In Conan Doyle’s works, Sherlock Holmes never says, “Elementary, my dear Watson.” But because we’ve heard those supposed sayings so often, we treat them as genuine.
Here’s another one: “Policyholders have a duty to read their insurance contracts.” This duty has been treated as an article of faith in the insurance industry for generations, and enshrined, with some variations, in judicial opinions in nearly every state. It has also, incorrectly, been accepted as gospel by brokers and agents who regrettably later learn otherwise.
Where is this “duty” found? Certainly not in most insurance policies. Policies expressly require policyholders to pay their premiums, give their insurers prompt notice of losses and claims, and cooperate with the insurers in defending lawsuits. Where is it engraved, “Thou shalt read thy policy”? (Some policies do recite, “I have read this policy,” but even they don’t state it as a condition to being covered.)
If there were truly a “duty to read the policy,” the transcripts of most insurance coverage trials would fit on a cocktail napkin:
Insurer’s counsel: “Mr. Policyholder, did you, at any time before your loss, read your entire insurance policy?”
Policyholder: “Well, um, no.”
Judge: “Case dismissed.”
In real life, very few people completely read their insurance policies, mortgage closing papers, or those tissue-paper thin warning scrolls that come with prescription medications. The “duty to read” is a legal fiction, perhaps better stated as policyholders being deemed to know the essential terms of their contracts.
Dissenting voices
In 2015, Hastings Law School professor Charles Knapp addressed the subject from a legal perspective (Hastings Law Journal, Vol. 66, Issue 4, pp. 1083-1112, “Is there a ‘Duty to Read’?”) in which he surveyed and critiqued cases from many jurisdictions:
Do not call it a ‘Duty.’ This is not only technically incorrect, but it also encourages judges (and others as well) to moralize or be condescending to persons who do not read everything they sign. Nobody does that, and in fact, nobody is expected to. In standardized form contracting, it is not only not encouraged, it is essentially discouraged. Contract recitations that say, ‘I have read all of this contract’ are patently false, and are known to be false—to the party who presents a written contract for signature as well as to the party who signs it. All those words really convey to the signer is this: ‘Although we know you haven’t read much or any of this contract, and probably wouldn’t understand its importance if you had, we expect to hold you to it.’ . . .
If twenty-first-century judges want to make better sense of this area of law, they could start by understanding and admitting that:
> Nobody reads everything she signs;
> Nobody is able to read everything she signs; and
> Nobody wants her to read everything she signs.
What drafters do want is to be able to treat her as if she had read everything. They do not care if in fact she has not — and, indeed, in many cases would prefer that she did not.
So do not call it a ‘duty.’ This just adds insult to injury.
Professor Knapp goes on to suggest when a contracting party should be charged with knowing the terms of the agreement, and how that implied knowledge stacks up against contrary evidence, such as express representations by insurers that differ from the printed policy form.
I rarely recommend that people read law review articles, but most non-lawyers can easily understand Professor Knapp’s article.
Commentary
The fiction that policyholders routinely read their policies serves as a reminder that an insurance contract is a two-way street, on which each of the contracting parties is taking some risks.
On the day an application for insurance is signed, neither the insurer nor the applicant knows whether or when a claim under the policy will arise, what specific coverage afforded by the policy will apply to it, if any, or its severity. Even a policyholder who reads the entire policy on the day it arrives would not likely remember all the potentially applicable terms when, eight months later, one of the insured risks becomes a reality.
Insurance is a financial product that provides some protection against some specified risks of loss, subject to limits, exclusions, and conditions. That’s not as marketable a description as “peace of mind,” but it is more accurate. In mass-marketed and highly regulated consumer insurance, there are many similarities among competing products, in the same way that the locations of steering wheels, gas and brake pedals, and rearview mirrors on cars are standardized. But no one would mistake a Prius for a Ferrari. The differences between two insurance policies aren’t as easy to spot.
People don’t like “gotcha” surprises, and likewise, neither do judges or juries. When a printed policy’s terms differ in a material way from the product’s descriptions, it can be difficult to enforce a deeply buried or obtusely worded restriction or exclusion. By the same token, while purchasers may not have a “duty” to read their entire policy, they should familiarize themselves with the unique features of their coverage, especially those that they consider most relevant to their greatest risks.
We’ve come a long way from the days of caveat emptor — “Let the buyer beware” — but we’re not yet in an insurance world where a policy term “means just what I choose it to mean, neither more nor less.”
Rick Blaine didn’t say that, either. Humpty-Dumpty did.
Louie Castoria (lcastoria@kdvlaw.com) is a mediator at Castoria Dispute Resolution and an Adjunct Professor of Law at Golden Gate University. He is a partner in the San Francisco office of Kaufman Dolowich & Voluck LLP, a national law firm, is a Director of the Professional Liability Defense Federation, and Chairman Emeritus of the Insurance Educational Association (IEATraning.com), where his online, interactive guide to writing for insurance professional is offered. This article does not provide legal advice. The views expressed are the author’s and not necessarily the firm’s or its clients’.
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