Applying Minnesota law, the Eighth Circuit Court of Appeals has rejected an attempt to circumvent a “criminal acts” exclusion in a homeowner’s insurance policy through the “reasonable expectations” doctrine. In Country Mutual Insurance Company v. Orloske, — F.3d —, No. 15-1097 (8th Cir. Apr. 11, 2016), the Court refused to allow the reasonable expectations doctrine to trump a homeowner’s policy’s criminal act exclusion. The Court held the exclusion applied to bar coverage to a homeowner who accidentally shot his brother.
On the night in question, the brothers spent the evening together, drinking heavily. The decedent had become increasingly rowdy when the homeowner retrieved his shotgun from the upstairs bedroom and brandished it to scare his brother into either calming down or leaving. The homeowner did not know that the gun was loaded. As he proceeded down the stairs with the gun, he tripped and the gun discharged, killing his brother. The homeowner pled guilty to second degree manslaughter.
The wrongful death trustee sued the homeowner for wrongful death. The homeowner’s insurer, Country Mutual Insurance Company (“Country Mutual”), brought a declaratory judgment action to establish that its homeowner’s policy did not provide coverage. County Mutual asserted it had no duty to defend or indemnify the homeowner because of an exclusion for claims based on acts or omissions “criminal in nature or for which a penal statute or ordinance permits or requires any term of imprisonment or sentence of public service duties.”
The trustee argued Minnesota’s reasonable-expectations doctrine should render the criminal-acts exclusion unenforceable. The United States District Court disagreed, and held the reasonable-expectations doctrine did not apply “because the criminal-acts exclusion is neither ambiguous nor obscure.”
On appeal, the trustee claimed the district court erred in its narrow application of the reasonable expectations doctrine established in the seminal case Atwater Creamery Co. v. Western National Mutual Insurance Co., 366 N.W.2d 271 (Minn. 1985). The trustee argued, in essence, that the doctrine applied more broadly to circumstances where the insured would be surprised to learn there was no coverage. Here, that meant learning “a negligence claim” was excluded from coverage due to a criminal acts exclusion.
The Eighth Circuit disagreed. The panel closely analyzed Atwater Creamery and concluded that the reasonable expectations doctrine is strictly limited to circumstances where exclusions are “unreasonably hidden.” Specifically, the Eighth Circuit held Minnesota law has evolved to limit the reasonable expectations doctrine to those “few egregious occasions when an exclusion is disguised in a policy’s definitions section.”
The decision is important. It affirms the extremely limited application of the reasonable expectations doctrine – to only those instances where coverage is lost due to language hidden in a policy’s definitions section. Accordingly, where the subject exclusion is unambiguous and is plainly set forth in the exclusions section of the policy, it will be applied under Minnesota law.