C & J Fertilizer, Inc. v. Allied Mut. Ins. Co.

227 N.W.2d 169 (Iowa 1975)



Although customers typically adhere to standardized agreements and are bound by them without even appearing to know the standard terms in detail, they are not bound to unknown terms which are beyond the range of reasonable expectation. A debtor who delivers a check to his creditor with the amount blank does not authorize the insertion of an infinite figure. Similarly, a party who adheres to the other party's standard terms does not assent to a term if the other party has reason to believe that the adhering party would not have accepted the agreement if he had known that the agreement contained the particular term. Such a belief or assumption may be shown by the prior negotiations or inferred from the circumstances. Reason to believe may be inferred from the fact that the term is bizarre or oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to, or from the fact that it eliminates the dominant purpose of the transaction. The inference is reinforced if the adhering party never had an opportunity to read the term, or if it is illegible or otherwise hidden from view. This rule is closely related to the policy against unconscionable terms and the rule of interpretation against the draftsman. 


Plaintiff operated a fertilizer plant that he insured against burglary under the policies issued by defendant. When the plant was broken into defendant refused to pay for the loss and plaintiff brought an action to recover for the loss. Defendant argued that the break in did not comport with the definition of "burglary" in the policy, which envisaged a violent breaking that left a visible mark or physical damage to the door. The lower court found on behalf of defendant. On appeal, plaintiff claimed relief under the doctrine of reasonable expectations, implied warranty, and unconscionability. The court reversed the lower court's decision.


Did the insurance policy provision depart from the reasonable expectation of an ordinary person?




Interpretation was a matter to be determined by the court and that the meaning of the word in the policy differed widely from its legal or normal meaning. The court held that plaintiff was entitled to a judgment in his favor because the provision of the policy was unconscionable and departed from the reasonable expectation of an ordinary person. The most plaintiff might have reasonably anticipated was a policy requirement of visual evidence (abundant here) indicating the burglary was an "outside" not an "inside" job. The exclusion in issue, masking as a definition, makes insurer's obligation to pay turn on the skill of the burglar, not on the event the parties bargained for: a bona-fide third party burglary resulting in loss of plaintiff's chemicals and equipment.

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