The S.C. Supreme Court declined to adopt the doctrine of reasonable expectations within the insurance coverage context in Bell v. Progressive Direct Insurance Co., Op. No. 27381 (S.C. Sup. Ct. filed April 9, 2014). Instead, the court held the doctrine may be used as another interpretive tool, but it does not apply where a contract of insurance unambiguously denies coverage under its plain terms.
Bell was injured in a car accident in a car driven by a co-employee. The liability limits of at-fault driver were tendered. There was no underinsured motorist (UIM) coverage on the vehicle in which he was riding. Bell submitted a claim for UIM benefits under a policy issued to Sarah Severn, the woman with whom Bell lived. Bell described Severn as his “on again and off again fiancé.” He testified they were engaged, but had not set a date, and that she kept pushing the date back. They did have a child together. Both Bell’s and Severn’s names appear on the Declarations Page under the heading “Drivers and Household Residents.” Only Severn was listed as the “Named Insured.” The policy provided UIM coverage for “Insured Person” defined as, inter alia, “You or a Relative.”
The circuit court granted the insured summary judgment. In an unpublished opinion, the Court of Appeals affirmed. On appeal to the Supreme Court, Bell raised three issues. He first argued the policy was ambiguous. The court concluded that despite being listed as a “driver” or “household resident,” there was no doubt that Bell was not a “Named Insured” as defined by the policy. The court also rejected Bell’s claim that he was Severn’s common-law spouse, concluding that while Bell and Severn lived together and shared domestic and financial responsibilities, they were merely engaged to be married.
Bell argued the court should extend coverage to him under the doctrine of reasonable expectations. Under the doctrine, the objectively reasonable expectations of applicants and intended beneficiaries of an insurance policy will be honored even though the policy provisions would have negated those expectations. The court held that South Carolina’s jurisprudence does not support the creation of a substantive right in reasonable expectations; however, the reasonable expectations of parties entering into an insurance contract would be honored within the confines of interpretive rules and fairness principles. S.C. Farm Bureau Mut. Ins. Co. v. Kennedy, 398 S.C. 604, 615, 730 S.E.2d 862, 867 (2012) (“Although [the insurer] contends this dispute can be resolved by a literal interpretation of the plain of ‘physical contact,’ we disagree, as the Supreme Court of Rhode Island recently observed the literal interpretation of policy language will be rejected where its application would lead to unreasonable results and the definitions as written would be so narrow as to make coverage merely ‘illusory.’ (quoting Empire Fire & Marine Ins. Cos. v. Citizens Ins. Co., 43 A.3d 56, 60 (R.I. 2012))).
The Court concluded that although the doctrine can be used as an interpretive tool, it cannot be used to alter the plain terms of a policy.