C & J Fertilizer, Inc. v. Allied Mutual Insurance Co.

Brief Fact Summary. Plaintiff C & J Fertilizer, Inc. purchased a burglary policy from Defendant Allied Mutual Insurance Co.  After Plaintiff’s premises were burglarized, Defendant denied coverage under the policy on the basis that there were no visible marks or physical damage to the exterior of the premises.

Synopsis of Rule of Law. To apply the reasonable expectations doctrine, the Court looks at the reasonable expectations of the parties when there is an adhesion contract and interprets any non-bargained for terms according to the reasonable expectations of the non-drafting party.

Facts. Plaintiff had a burglary policy issued by Defendant.  In April of 1970, equipment was stolen from Plaintiff’s premises.  There were no signs of forced entry on the outside of the building, but there were signs of forced entry on the inside of the building.  However, there were tread marks near a door to the warehouse that could be forced open without leaving visible marks or damage.  The burglary policy stated that it only covered where there are “visible marks made by tools, explosives, electricity or chemicals upon, or physical damage to, the exterior of the premises at the place of . . . entry.”  Prior to the purchase of the policy, an agent of Defendant informed Plaintiff during their conversation about coverage that there needed to be visible evidence of burglary for a burglary to be covered under the policy.  Defendant denied coverage for the burglary under the policy.  Defendant’s agent who sold Plaintiff the policy was surprised.

Issue. Did the burglary definition in the policy violate Plaintiff’s reasonable expectations?

Held. Yes.  The burglary definition in the policy violated Plaintiff’s reasonable expectations.
•    The Court determines that the policy is an adhesion contract because it contains standardized terms that were presented to Plaintiff, the weaker party, on a take it or leave it basis.
•    Plaintiff argues that the reasonable expectations doctrine should apply.  The reasonable expectations doctrine looks at the reasonable expectations of the parties when there is an adhesion contract and interprets any non-bargained for terms according to the reasonable expectations of the non-drafting party.  If the non-dickered terms violate the dickered terms, the terms go against the main purpose of the document, or the terms are bizarre or oppressive, it may be inferred that there was reason to believe that the other party would not accept to the terms.
•    Although the Court determines that Plaintiff had reason to expect that the coverage would not cover an inside job, the Court does not find that Plaintiff had reason to know that coverage would be denied when there was extensive proof that the burglary was not an inside job.
•    The Court also notes that the burglary definition in the policy is not consistent with the layman’s concept or the legal definition.
•    The Court finds that the most Plaintiff could have anticipated the burglary clause would require is visible evidence that the burglary was not an inside job.  Here there is such evidence.

Discussion. In the present case, Defendant’s definition of burglary in the policy violated Plaintiff’s reasonable expectations of what would be covered under the policy.