Timeless and Ahead of Its Time: Lach\u27s v. Fidelity & Casualty of New York

Abstract

The publication of Judge Keeton\u27s important article “inventing” the reasonable expectations doctrine in 1971 is notable for infusing a good deal of intellectual energy into the study of insurance law, particularly judicial decisions about insurance coverage. Keeton\u27s article, which deduced from cases the principle that courts tended to interpret policies to vindicate the objectively reasonable expectations of the insured, has rightly been viewed as a milestone. It clarified an area of law long seen as inconsistent or result-oriented. It spurred additional important scholarship in the area and elevated insurance caselaw from something of a backwater to at least a respectable academic discipline, even if not quite an exciting one. But as important as Keeton\u27s article was, it to some extent perhaps even understated the extent to which courts had long utilized the reasonable expectations concept without mentioning it by that name. It also tended to underplay the degree to which courts construed insurance contracts in light of their intended purpose, irrespective of whose expectations were involved. Most important for purposes of this Symposium topic, Keeton\u27s seminal article cited Lachs v. Fidelity & Casualty Co. of New York only in passing. The short treatment seems unusual in that Lachs is a most interesting case from the then-largest state in the nation, a case that utilized not only the reasonable expectations principle, but also an array of contract concepts designed to illuminate the apt meaning of the insurance policy. Furthermore, Keeton arguably mischaracterizes Lachs as a case that is straining to construe the insurance policy to provide coverage. He suggested that Lachs had “tortured” the policy language and in effect applied a sub silentio strong form of the reasonable expectations doctrine that protects policyholder expectations even in the face of clear contrary policy language. To be sure, Lachs utilized the reasonable expectations approach and did so nearly twenty years before Keeton coined the term and introduced the reasonable expectations concept to the academic world. But Lachs used other contract construction tools to appropriately find coverage and, in my view, hardly “tortured” the policy language. Rather, Lachs took a comprehensive, context-sensitive, eclectic approach to policy construction, an approach in which policyholder expectations were a part of the analysis rather than a trump card for the policyholder. Unfortunately, Lachs has long been either overlooked or treated as something of a novelty case because of its subject matter - “vending machine” or “self-service” flight insurance. On closer examination, Lachs provides not only an interesting (if tragic) fact pattern but also illustrates with understated grace the appropriate approach to resolving insurance coverage disputes with consideration to questions of text, party intent, purpose, expectations, and public policy