reasonable expectations to account for judicial decisions that favored an
insurance policyholder despite policy language that appeared to exclude or
limit coverage – decisions that could not be explained by existing
interpretive rules.50 Policing doctrines, such as fraud, misrepresentation,
concealment, duress, mistake, impracticability, and supervening frustration,
did not apply in such decisions.51 Likewise, the decisions did not involve
issues of warranty or estoppel.52 Professor Keeton’s goal was to offer a
principle that could impose order on decisions that might otherwise seem
Professor Keeton stated his reasonable expectations principle as
follows: “The objectively reasonable expectations of applicants and
intended beneficiaries regarding the terms of insurance contracts will be
honored even though painstaking study of the policy provisions would have
negated those expectations.”54 Keeton’s initial justification for the
judiciary’s use of such a principle was the disadvantage placed on
policyholders who must buy a standard form contract.55 Then, as now,
“[i]nsurance contracts continue to be contracts of adhesion.”56 In such
50. Keeton, Part One, supra note 44, at 961-62.
51. See E. Allan Farnsworth, Contracts §§ 4.1 – 4.20 (4th ed. 2004) (discussing policing
52. As used in practice, however, the reasonable expectations doctrine sometimes
resembles principles of unconscionability and estoppel. Thomas, Appleman on Insurance,
supra note 46; Jerry, supra note 45, at 36; see Rahdert, Revisited, supra note 45, at 127–28
(stating that “[t]he essential function of this facet of the reasonable expectations idea is to
secure the basic fairness of policy terms and procedures).
53. See Keeton, Part One, supra note 44, at 961 (arguing that is possible to find some
“currents of principle” in the decisions).
54. Id. at 967. The reasonable expectations principle was Keeton’s second principle. Id.
at 961-62. Keeton’s first principle of unconscionable advantage has rarely been
controversial, manifesting, as it does, a more general rule against enforcing unconscionable
provisions in contracts in general: “An insurer will not be permitted an unconscionable
advantage in an insurance transaction even though the policyholder or other person whose
interests are affected has manifested fully informed consent.” Id. at 963; see Restatement
(Second) of Contracts § 208 (1981) (stating that a court may refuse to enforce a contract or a
certain term that is found to be “unconscionable”). A third principle of detrimental reliance
is uncontroversial and is of little relevance to the issues considered here. It provides: “ A
policyholder or other person intended to receive benefits under an insurance policy is
entitled to redress against the insurer to the extent of detriment he suffers because he or
another person justifiably relied upon an agent’s representation incidental to his employment
for the insurer.” Keeton, Part One, supra note 44, at 977–78.
55. Keeton, Part One, supra note 44, at 966–67. For a seminal discussion of standard
form contracts, see generally W. David Slawson, The New Meaning of Contract: The
Transformation of Contracts Law by Standard Forms, 46 U. Pitt. L. Rev. 21 (1984).
56. Keeton, Part One, supra note 44, at 966; accord Todd D. Rakoff, Contracts of
Adhesion: An Essay in Reconstruction, 96 Harv. L. Rev. 1173, 1176–77 (1983) (defining a
contract of adhesion); Friedrich Kessler, Contracts of Adhesion—Some Thoughts About
Freedom of Contract, 43 Colum. L. Rev. 629, 631–32 (1943) (using insurance contracts as