140 Ariz. 383 (1984) 682 P.2d 388

DARNER MOTOR SALES, INC., d/b/a Darner Leasing Co., an Arizona corporation, Third-Party Plaintiff-Appellant,
v.
UNIVERSAL UNDERWRITERS INSURANCE COMPANY, John Brent Doxsee, Third-Party Defendants-Appellees.

No. 16551-PR.

Supreme Court of Arizona, En Banc.

March 29, 1984. Reconsideration Denied May 22, 1984.

*384 Udall, Shumway, Blackhurst, Allen, Lyons & Davis by John H. Lyons, Clark R. Richter, Mesa, for third-party plaintiff-appellant.

Black, Robertshaw, Frederick, Copple & Wright by Harold A. Frederick, Philip Thorpe, Phoenix, for third-party defendants-appellees.

FELDMAN, Justice.

Darner Motor Sales, Inc., dba Darner Leasing Co. (Darner Motors), petitions for review of a memorandum decision of the court of appeals (Darner Motor Sales, Inc. v. Universal Underwriters Insurance Company, No. 1 CA-CIV 5796, filed February 22, 1983). That decision affirmed a summary judgment in favor of Universal Underwriters *385 Insurance Company (Universal) and their agent, John Brent Doxsee (Doxsee), who were the third party defendants impleaded by Darner Motors. We granted review because we believe that the issues presented call into question the clarity and consistency of a large body of Arizona law dealing with insurance coverage. We have jurisdiction pursuant to Ariz. Const. Art. 6, § 5(3) and Rule 23, Rules of Civ.App.P., 17A A.R.S.

FACTS

Darner Motors is in the automobile sales, service and leasing business. Prior to transacting business with Universal, Darner Motors' various operations were insured under several policies issued by The Travelers Company (Travelers). In October of 1973, Doxsee, an insurance agent who was a full-time employee of Universal, contacted Joel Darner to solicit insurance business. The following month, Darner purchased a Universal "U-Drive policy" through Doxsee. This policy insured Darner Motors and the lessees of its cars for automobile liability risk. Darner Motors was covered in limits of $100,000 for any one injury and $300,000 (100/300) for all injuries arising out of any one accident. The lessees were covered in limits of 15/30. The rest of Darner Motors' business risks continued to be insured under a "dealership package policy" issued by Travelers.

It is unclear from the record, but this situation presumably continued until April of 1975, a renewal date of the Travelers policy. In April of 1975, Universal "picked up" the entire insurance "package" for Darner Motors' various business activities. This "package" consisted of a Universal "Unicover" policy which included coverage for garagekeeper's liability, premises liability, property coverage, crime coverage, customer car coverage, and plate glass insurance. The parties describe this as an "umbrella policy," so it is possible that, in addition to covering multiple risks, it also contained excess coverage over other policies which provided primary coverage.^[1] In addition to the umbrella policy, Universal also renewed the U-Drive policy, which provided coverage to the lessees of Darners Motors.^[2]

Substantial controversy exists with regard to many of the factual allegations. However, according to Darner, he informed Doxsee that renewal of lessee coverage was to be in the same limits as applied to Darner Motors in the original U-Drive policy. When the new U-Drive policy arrived after renewal in April of 1975, Darner examined it and noticed that the limits of coverage for lessees were 15/30. After reading this, Darner claims that he called Doxsee. He was concerned because his rental contract contained a representation of greater coverage (100/300) and because he felt that it would be better for his business operation if his lessees had the higher coverage. Darner told Doxsee that the liability limits of the U-Drive policy did not conform to their prior agreement, and asked Doxsee to come to Darner Motors and discuss the matter. Doxsee did call upon Mr. Darner at the latter's office. Although Doxsee could not recall the subsequent conversation, both Darner and his former sales manager, Jack Hadley, testified about the discussion. Their deposition testimony would support a finding that Doxsee told Darner not to worry about the limits because, although the U-Drive policy provided only 15/30 coverage, the all-risk clause of the umbrella policy would provide additional coverage to limits of 100/300.^[3]

*386 At some time after he received the U-Drive policy and, presumably, also after his discussions with Doxsee, Darner did receive a copy of the umbrella policy. That policy was evidently quite lengthy and forbidding. Darner admits never reading it; he explained this omission by pointing out that "it's like reading a book" and stating that, following his conversations with Doxsee, "I didn't think I needed to." Darner's office manager testified that she never really read the policy either and saw little need to do so in view of the fact that Doxsee would occasionally appear, remove pages from the loose-leaf binder and insert new pages. So far as the record shows, the printed, boiler-plate provisions contained in the loose-leaf type, "book length," all-risk policy were neither negotiated before nor discussed after the policy was delivered. The parties seem to have confined themselves to a discussion of the objectives that would be realized from the purchase of the policy rather than an attempt to negotiate the wording of the policy.

Approximately twenty months after the conversation between Darner and Doxsee concerning coverage under the Universal policies, Darner Motors rented a car to Dwayne Crawford. The transaction was in the ordinary course of business, except that the form used for the rental agreement was the "old type," which contained a representation of coverage in the amount of 100/300.^[4] While driving the vehicle under this rental contract, Crawford negligently injured a pedestrian and caused severe injuries. The pedestrian sued Crawford, who looked to Universal for coverage. Universal claimed that lessee's coverage on the "U-Drive" policy was limited to 15/30. Crawford then sued Darner Motors under the rental agreement warranty that coverage was provided in limits of 100/300. Darner Motors called upon Universal to provide additional coverage under the umbrella policy. The umbrella policy did contain the higher limits, but

Universal claimed that lessees were not parties "insured" as that term was defined in the all-risk policy. Universal was therefore unwilling to provide coverage in excess of the $15,000 limit of the U-Drive policy. Darner Motors then filed a third-party complaint, naming Universal and Doxsee as third party defendants.

Eventually, the pedestrian recovered $60,000 from Crawford. Universal paid $15,000 of this amount, and Darner Motors has either paid or is liable to Crawford for the remainder. Darner Motors claims that Universal and Doxsee are obligated to indemnify it against that loss. To support that contention, Darner Motors advances the following theories:

(1) Universal is estopped to deny coverage for lessees under the umbrella policy in amounts less than 100/300;

(2) The umbrella policy should be reformed so that it does contain such coverage;

(3) If no coverage is found through estoppel or reformation, then the loss incurred by Darner Motors was caused by the negligence of Universal and its agent, Doxsee, and should be borne by them;

(4) If no coverage exists by way of estoppel or reformation, then the loss incurred by Darner Motors is the result of fraud committed by Universal and its agent, Doxsee.

After considerable discovery, Universal and Doxsee moved for summary judgment, contending that there was no genuine issue of fact and that they were entitled to judgment as a matter of law. The motion was granted and judgment entered against Darner Motors. The court of appeals affirmed; pointing out that Darner Motors had not claimed that the umbrella policy was ambiguous, the court held that the *387 insured's failure to read the policy prevented recovery on any theory, even though the contents of the policy did not comport with the representations of the insurance agent and those same representations were a part of the reason that the insured failed to read the policy.

The court of appeals stated that under Arizona law an insured who had received a copy of an unambiguous policy could not "expand the insurer's liability beyond the terms of the ... policy issued...." We believe this statement is too broad, though we acknowledge that the law is, at best, confused on this subject. In an attempt to bring some clarity and logic to the question, we have reviewed our cases and will discuss each of the theories advanced by Darner Motors. Before doing so, however, we must consider the inherent nature of an insurance contract and of the issues presented by the fact situation before us.

CONTRACT LAW AND INSURANCE POLICIES

Since this is an appeal from summary judgment, we must view the facts in the light most favorable to the party against whom judgment was taken. Gulf Insurance Co. v. Grisham, 125 Ariz. 123, 124, 613 P.2d 283, 284 (1980). Taking the facts in that light, the question we must decide is whether the courts will enforce an unambiguous provision contrary to the negotiated agreement made by the parties because, after the insurer's representations of coverage, the insured failed to read the insurance contract which was in his possession.^[5]

Implicit in the reasoning of the court of appeals is the concept that the insurance policies purchased by Darner constitute the contract between Darner and Universal. Darner is considered to be bound by the terms contained within the documents. The court of appeals held:

Because Mr. Darner received a copy of the umbrella policy and made no contention that it was ambiguous or confusing, he cannot expand the insurer's liability beyond the terms of the umbrella policy issued by Universal.

(slip op. at 7). Basic to this holding is the principle that the oral agreement between Doxsee and Darner cannot be shown to vary the terms of the insurance policy. This, indeed, was at one time the majority view. See cases cited in 12 Appleman, Insurance Law and Practice § 7155 (1981); similar language is contained in Parks v. American Casualty Co. of Reading, Pa., 117 Ariz. 339, 572 P.2d 801 (1977); Sellers v. Allstate Insurance Company, 113 Ariz. 419, 422, 555 P.2d 1113, 1116 (1976); see also Western Farm Bureau Mut. Ins. Co. v. Barela, 79 N.M. 149, 441 P.2d 47 (1968). Some cases, including those from our own state, hold that since insurance policies are like other contracts, where the meaning and intent of the parties is "clear" from the words used in the instrument, the courts cannot "rewrite" the policy by considering the actual "words" used in striking the bargain. Thus, the rule of interpretation is stated to be that the intention of the parties as derived from the language used within the four corners of the instrument must prevail. See, e.g., Rodemich v. State Farm Mutual Auto Insurance Co., 130 Ariz. 538, 539, 637 P.2d 748, 749 (App. 1981) (a vehicle which turned over and was damaged when the driver swerved to avoid an animal was not covered under the "upset" clause of a comprehensive risk policy because "upsets" resulting *388 from attempts to avoid collision with animals were not covered unless there was actual contact).

Rodemich is a good example of the mischief made by applying ordinary contract law to insurance policies. No doubt it would have come as a great surprise to Mr. and Mrs. Rodemich (and, also, to the State Farm agent who sold the policy) to learn that they had formed any intent to delete collision coverage — which covers physical damage even when there is no collision — and to include comprehensive coverage, which generally excludes "collision" damage but covers other physical damage, such as that caused by upset, except upset damage resulting from attempts to avoid birds or animals. In the latter situation there is coverage under the comprehensive clause only if one collides with the bird or animal. It would have surprised the Rodemichs even more to learn of the method by which the court was able to determine, from the four corners of the instrument, their specific intent not to be covered for physical damage resulting from the overturning of their vehicle in a successful attempt to avoid striking an animal on the road. The court reasoned as follows:

However, [coverage D of the policy includes the clause] a "loss caused by ... colliding with birds or animals shall not be deemed to be loss caused by collision." (Emphasis added). Hence, Coverage D provides that a loss caused by colliding with an animal would be within the comprehensive coverage. We believe that the policy's use of the term "colliding," rather than the term "collision" which was specifically defined in the policy, indicates that, "collision" and "colliding" are not the same thing under policy. "Collision is defined to include "upsets" of the covered vehicle, regardless of the cause, and therefore does not require any contact between the vehicle and any other object. Because the policy used the different term "colliding" in excluding from the definition of "collision" any "loss caused by ... colliding with birds or animals," we believe that the terms of the policy indicate that the parties intended "colliding with ... animals" to be read in its ordinary dictionary sense and thus to require an actual striking, clashing, or coming together of the motor home and an animal. Therefore, unless the motor home actually struck the animal, there was no "loss caused by ... colliding with ... animals." Instead, the motor home suffered an upset, within the definition of "collision" excluded from the comprehensive coverage.

Rodemich v. State Farm, 130 Ariz. at 540, 637 P.2d at 750 (footnote omitted, last emphasis supplied.)^[6] At best, such reasoning, *389 based on patently unfounded assumptions of intent, is result oriented; at worst, it makes no sense. If there was some reason why the Rodemichs should not have prevailed, there must be some better way to find and articulate what it might be. Artificial results derived from application of ordinary rules of contract construction to insurance policies have made courts struggle to find some method of reaching a sensible resolution within the conceptual bounds of treating standardized, formal contracts as if they were traditional "agreements," reached by bargaining between the parties. This difficult task is often accomplished by the use of various constructs which enable courts to reach a desired result by giving lip service to traditional contract rules. One of the most prominent of these methods is the well recognized principle of resolving ambiguities against the insurer. See Almadova v. State Farm Mutual Automobile Ins. Co., 133 Ariz. 81, 649 P.2d 284 (1982). The limitations of this principle have been discussed by Professor Robert Keeton, who comments that

[t]he principle of resolving ambiguities against the draftsman is simply an inadequate explanation of the results of some cases. The conclusion is inescapable that courts have sometimes invented ambiguity where none existed, then resolved the invented ambiguity contrary to the plainly expressed terms of the contract document.

Keeton, Insurance Law Rights at Variance with Policy Provisions, 83 Harv.L. Rev. 961, 972 (1970) (footnotes omitted). Our court of appeals has attempted to avoid the problem of invented ambiguity by stating the principle that courts should not create ambiguities in order to rewrite the policy. Cf. Barber v. Old Republic Life Ins. Co., 132 Ariz. 602, 604, 647 P.2d 1200, 1202 (App. 1982) with State Farm v. Gibbs, supra. However, we also follow the rule of construction that where different jurisdictions reach different conclusions regarding the language of an insurance contract "ambiguity is established," Federal Insurance Co. v. P.A.T. Homes, Inc., 113 Ariz. 136, 138, 547 P.2d 1050, 1052 (1976); thus, we may find ourselves justly criticized for accepting the inventions of other courts. It is also illogical to hold that an unexpected, unknown ambiguity in a clause which the parties did not negotiate, write or read should permit them to show the true terms of the agreement, but that the lack of such an ambiguity prevents them from so doing.

Such systems of logic — or illogic — have been criticized by Keeton, supra, and others for failing to recognize the realities of the insurance business and the methods used in modern insurance practice. See, e.g., Zuckerman v. Transamerica Ins. Co., 133 Ariz. 139, 144-46, 650 P.2d 441, 446-48 (1982); Harr v. Allstate Insurance Co., 54 N.J. 287, 301-04, 255 A.2d 208, 216-18 (1969); Restatement of Contracts (Second) § 211, comment b, and authorities cited in the reporter's note thereto; Abraham, Judge-Made Law and Judge-Made Insurance: Honoring the Reasonable Expectations of the Insured, 67 Va.L.Rev. (1981); Murray, The Parole Evidence Process and Standardized Agreements under the Restatement (Second) of Contracts, 123 U.Pa.L.Rev. 1342 (1975).

Abraham, supra, argues that "insurance law should be brought into the mainstream of our jurisprudence," and notes that "in many states, a principle authorizing the courts to honor the `reasonable expectations' of the insured is emerging." Id. at 1151. "Emergence" is probably an inaccurate description of the use of the reasonable expectations test since, if correctly understood, that doctrine has long been a basic principle in the law of contracts.

That portion of the field of law that is classified and described as the law of contracts attempts the realization of reasonable expectations that have been induced by the making of a promise.

1 Corbin, Contracts § 1, at 2 (1963) (emphasis supplied). We have previously recognized the doctrine of "reasonable expectations." Zuckerman v. Transamerica Ins. Co., 133 Ariz. at 146, 650 P.2d at 448; Sparks v. Republic Nat. Life Ins. Co., 132 Ariz. 529, 536-37, 647 P.2d 1127, 1134-35, *390 cert. denied, 459 U.S. 1070, 74 L.Ed.2d 632, 103 S.Ct. 490 (1982). Of course, if not put in proper perspective, the reasonable expectations concept is quite troublesome, since most insureds develop a "reasonable expectation" that every loss will be covered by their policy. Therefore, the reasonable expectation concept must be limited by something more than the fervent hope usually engendered by loss. Such a limitation is easily found in the postulate contained in Corbin's work — that the expectations to be realized are those that "have been induced by the making of a promise." 1 Corbin, supra § 1 at 2.

We think it better, then, to start the analysis by attempting to determine what expectations have been induced. We note the concept that contracts are not merely printed words. The words, of course, are usually of paramount importance. However, other matters are also significant. 3 Corbin, supra §§ 538, 549. It is important to recognize that although the writing "may be coextensive with the agreement, it is not the agreement but only evidence thereof." Murray, supra, 123 U.Pa.L.Rev. at 1389. Murray adds that "if the writing is normally executed absent understanding of its fine print provisions, it is less worthy as evidence of the true agreement." Id. at 1373. Llewellyn puts the proposition another way:

The fine print which has not been read has no business to cut under the reasonable meaning of those dickered terms which constitute the dominant and only real expression of agreement, but much of [the writing] commonly belongs in [the contract].

Llewellyn, The Common Law Tradition 370 (1960). Thus, Llewellyn concludes, "any contract with boiler-plate results in two several contracts: the dickered deal and the collateral one of supplementary boiler-plate." Id. at 371 (emphasis in original).

If we continue to look at an insurance policy as a contract between the insured and insurer, the foregoing analysis compels the conclusion that the problem is simply the application of the parol evidence rule. The traditional view of the law of contracts is that a written agreement adopted by the parties will be viewed as an integrated contract which binds those parties to the terms expressed within the four corners of the agreement. Thus, the parties may not vary or expand the agreement by introducing parol evidence to show understandings or antecedent agreements which are in some way contrary to the terms of the contract. Restatement (Second) of Contracts § 215. This rule is applied with varying degrees of exactitude to insurance policies. Cases from this state reflect that attitude. See Sparks v. Republic Nat. Life Ins. Co., supra; Isaak v. Massachusetts Indemnity Life Ins. Co., 127 Ariz. 581, 623 P.2d 11 (1981); Dairyland Mutual Ins. Co. v. Andersen, 102 Ariz. 515, 433 P.2d 963 (1967); but see Southern Casualty v. Hughes, 33 Ariz. 206, 263 P. 584 (1928); Ranger Insurance Co. v. Phillips, 25 Ariz. App. 426, 544 P.2d 250 (1976).

When faced with harsh or illogical results, such as those produced by application of the parol evidence rule to most insurance contracts, the law usually reacts by recognizing exceptions which permit courts to avoid injustice. The ambiguity rule is, of course, one of those exceptions. Others, advanced with varying success, are the doctrines of waiver and estoppel. In our view, a better rationale is to be found by application of established principles of contract law. In so doing, however, we must remember that the usual insurance policy is a special kind of contract. It is largely adhesive; some terms are bargained for, but most terms consist of boilerplate, not bargained for, neither read nor understood by the buyer, and often not even fully understood by the selling agent. In contracts, as in other fields, the common law has evolved to accommodate the practices of the marketplace. Thus, in insurance law, as in other areas of contract law, the parol evidence rule has not been strictly applied to enforce an illusory "bargain" set forth in a standardized contract when that "bargain" was never really made and would, if applied, defeat the true agreement which *391 was supposedly contained in the policy. Sparks v. Republic National Life Insurance Co., 132 Ariz. at 537, 647 P.2d at 1135. See also Zuckerman v. Transamerica Insurance Co., 133 Ariz. at 144, 650 P.2d at 446.

Sparks and Zuckerman reflect this court's attempt to bring some degree of logic and predictability into the field of insurance. What is needed, however, is recognition of a general rule of contract law. We believe that the current formulation of the Restatement (Second) of Contracts contains a workable resolution of the problem. The Restatement approach is basically a modification of the parol evidence rule when dealing with contracts containing boiler-plate provisions which are not negotiated, and often not even read by the parties.

Standardized Agreements

(1) Except as stated in Subsection (3), where a party to an agreement signs or otherwise manifests assent to a writing and has reason to believe that like writings are regularly used to embody terms of agreements of the same type, he adopts the writing as an integrated agreement with respect to the terms included in the writing.

(2) Such a writing is interpreted wherever reasonable as treating alike all those similarly situated, without regard to their knowledge or understanding of the standard terms of the writing.

(3) Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement.

Restatement (Second) of Contracts § 211. We believe that the comments to this section of the Restatement support the wisdom of the rule formulated. Comment (a) points out that standardization of agreements is essential

to a system of mass production and distribution. Scarce and costly time and skill can be devoted to a class of transactions rather than to details of individual transactions.... Sales personnel and customers are freed from attention to numberless variations and can focus on meaningful choice among a limited number of significant features: transaction-type, style, quantity, price, or the like. Operations are simplified and costs reduced, to the advantage of all concerned.

Subsections (1) and (2) of § 211 reflect the reality of the marketplace. Thus, those who make use of a standardized form of agreement neither expect nor desire their customers "to understand or even to read the standard terms." Id. comment(b). On the other hand, customers "trust to the good faith of the party using the form [and] ... understand that they are assenting to the terms not read or not understood, subject to such limitations as the law may impose." Id. The limitations that the law may impose are that standard terms

may be superseded by separately negotiated or added terms (§ 203), they are construed against the draftsman (§ 206), and they are subject to the overriding obligation of good faith (§ 205) and to the power of the court to refuse to enforce an unconscionable contract or term (§ 208).

Id. comment (c).^[7]

Subsection (3) of § 211 is the Restatement's codification of and limitation on the "reasonable expectation" rule as applied to standardized agreements. The comment reads as follows:

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.... [An insured] who adheres to the [insurer's] standard terms does not assent to a term if the [insurer] has reason to believe that the [insured] *392 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.

Id. comment (f). We believe the analysis contained in the comments to the cited sections in the Restatement is a sensible rationale for interpretation of the usual type of insuring agreement.^[8]

This treatment of insurance law is neither radical nor new. All that is new in the "changed" Restatement is the articulation of the rule. Some cases long ago recognized the underlying principles. For instance, in Southern Casualty v. Hughes, 33 Ariz. 206, 263 P. 584 (1928), we held that an insurer was bound to provide coverage contrary to the express terms of the policy because of the oral representations which had been made with regard to that coverage. In another case, we looked to the insured's expectation that, at renewal, the insurer would not vary the policy terms and held the insurer bound by the terms of the old policy, despite the fact that a new one had been provided and presumably the parties had made a new "bargain" as set forth in the four corners of the new document. Lumbermen's Insurance Co. v. Heiner, 74 Ariz. 152, 245 P.2d 415 (1952). In Zuckerman, supra, we refused to give effect to a special statute of limitations which was contained in the policy conditions and which had not been bargained for because we found it oppressive when used as a method to avoid payment of just claims. In Sparks, supra, we avoided the integration/parol evidence rule by holding that since the insured had not been given an opportunity to read the policy, an ambiguity could be found by considering an advertising brochure given to the insured before the contract was made. Ordinarily, of course, the making of an integrated contract discharges "prior agreements to the extent that it is inconsistent with them." Restatement (Second) of Contracts § 213.

Thus, not all the cases have been decided on the "four corners" hypothesis. Missing has been the articulation or formulation of some general rule to explain results of many past cases and to provide a pragmatic, honest approach to the resolution of future disputes. Hopefully, the adoption of § 211 of the Restatement as the rule for standardized contracts will provide greater predictability and uniformity of results — a benefit to both the insurance industry and the consumer.

In adopting this rule, we do not create a special field of contract law, we merely adopt a rule of integration which recognizes the method by which people do business. Indeed, the law pertaining to non-standardized, negotiated contracts long ago began to move in the same direction. "Ordinary" contract law now recognizes that an agreement may be "partially integrated," or "completely integrated," depending upon "the degree to which the parties intended the writing to express their agreement." E. Farnsworth, Contracts, § 7.3 at 452 (1982). The relationship between the *393 degree of integration and the application of the parol evidence rule has been the subject of much scholarly controversy. The authors of the leading contract treatises, Williston and Corbin, present differing views. "The point in dispute is whether the fact that the writing appears on its face to be a complete and exclusive statement of the terms of the agreement establishes conclusively that the agreement is completely integrated." Farnsworth, supra at 455. If it does, Williston would restrict interpretation to the four corners of the document. Id.; See 4 Williston on Contracts §§ 600A, 629, 633 (3d ed. 1961). Corbin argues that account should always be taken of all the surrounding circumstances to determine the extent of the integration and the interpretation of the agreement. Farnsworth, supra at 456; 3 Corbin, supra, § 582.

Recent decisions, the Uniform Commercial Code and the Restatement (Second) of Contracts have all favored Corbin's view. Farnsworth, supra at 453. See also Braucher, Interpretation and Legal Effect in the Second Restatement of Contracts, 81 Colum.L.Rev. 12 (1981). Arizona has followed the modern trend and adopted the Corbin view. In Smith v. Melson, 135 Ariz. 119, 121, 659 P.2d 1264, 1266 (1983) we stated that a "contract should be read in light of the parties' intentions as reflected by their language and in view of all the circumstances." We held that "the purpose of an agreement is to be divined from the entire instrument and the surrounding circumstances and not from the label the parties attach to it." Id. at 122, 659 P.2d at 1267. In Arizona, therefore, the interpretation of a negotiated agreement is not limited to the words set forth in the document. Evidence on surrounding circumstances, including negotiation, prior understandings, subsequent conduct and the like, is taken to determine the parties' intent with regard to integration of the agreement; once the court is able to decide what constitutes the "agreement," the evidence may be used to interpret the meaning of the provisions contained in the agreement. This method obtains even though the parties have bargained for and written the actual words found in the instrument. Smith v. Melson, supra; 3 Corbin, supra, § 582 at 455-57; 4 Williston, supra, § 629 at 918.

It would be anomalous, indeed, to follow this view for contracts with bargained terms but to cling to the rejected rule in cases involving standardized form contracts. It would be even more anomalous if reasonable expectations induced by promises or conduct of a party are to be considered in determining integration or interpreting the words of a negotiated boilerplate agreement but disregarded when dealing with boilerplate, so that regardless of intent or even actual agreement, the parties are bound by provisions that were never discussed, examined, read or understood.

The general rule of contract interpretations adopted by the Restatement and based on Corbin's viewpoint is a modern view which takes into account the realities of present day commercial practice. See, Trakman, Interpreting Contracts: A Common Law Dilemma, 59 Canadian Bar Review 241 (1981). The rule which we adopt today for interpretation of standardized contracts recognizes modern commercial practice by business entities which use automated equipment to effect a large volume of transactions through use of standardized forms. It parallels the general rule which applies to all contracts by attempting to discover the intent of the parties, in so far as intent existed, and attempts to ascertain the real agreement so far as it was expressed or conveyed by implication. However, it recognizes that most provisions of standardized agreements are not the result of negotiation; often, neither customer nor salesperson are aware of the contract provisions. The rule adopted today recognizes reality and the needs of commerce; it allows businesses that use such forms to write their own contract. It charges the customer with knowledge that the contract being "purchased" is or contains a form applied to a vast number of transactions and includes *394 terms which are unknown (or even unknowable); it binds the customer to such terms. However, the rule stops short of granting the drafter of the contract license to accomplish any result. It holds the drafter to good faith and terms which are conscionable; it requires drafting of provisions which can be understood if the customer does attempt to check on his rights; it does not give effect to boilerplate terms which are contrary to either the expressed agreement or the purpose of the transaction as known to the contracting parties. From the standpoint of the judicial system, the rule recognizes the true origin of standardized contract provisions, frees the courts from having to write a contract for the parties, and removes the temptation to create ambiguity or invent intent in order to reach a result.

The rule does not set a premium on failure to read. Those who negotiate their transactions will be held to the same rules as have previously obtained with regard to the duty to read. The rule which we adopt applies to contracts (or parts of contracts) made up of standardized forms which, because of the nature of the enterprise, customers will not be expected to read and over which they have no real power of negotiation.^[9]

To apply the old rule and interpret such contracts according to the imagined intent of the parties is to perpetuate a fiction which can do no more than bring the law into ridicule. To those troubled by the change in the law, we point out that the fundamental change occurred first in business practice. The change in legal analysis does no more than reflect the change in methods of doing business. To acknowledge standardized contracts for what they are — rules written by commercial enterprises — and to enforce them as written, subject to those reasonable limitations provided by law, is to recognize the reality of the marketplace as it now exists, while imposing just limits on business practice. These, we think, have always been the proper functions of contract law.

We turn, then, to the facts of this case. We have adopted a rule of law which, in proper circumstances, will relieve the insured from certain clauses of an agreement which he did not negotiate, probably did not read, and probably would not have understood had he read them. Does this case present a proper circumstance? If so, by what process is this to be accomplished? How is the restatement rule to be given effect?

EQUITABLE ESTOPPEL

The elements of estoppel are "conduct by which one ... induces another to believe ... in certain material facts, which inducement results in acts in reliance thereon, justifiably taken, which cause injury...." Sahlin v. American Casualty Company of Reading, 103 Ariz. 57, 59, 436 P.2d 606, 608 (1968) (quoting Builders Supply Corp. v. Marshall, 88 Ariz. 89, 94, 352 P.2d 982, 985 (1960)).

The majority rule is considered to be "that the doctrines of waiver and estoppel are not available to bring within the coverage of an insurance policy risks not covered *395 by its terms, or expressly excluded therefrom." Annot. 1 A.L.R.3d 1149, 1147 (1965). Indeed, the annotation lists only two jurisdictions (Idaho and South Dakota) that clearly take the contrary view. Id. at 1150-51. However, since the annotation was published several other states have adopted the view that estoppel may be available under certain circumstances. Harr v. Allstate Insurance Co., 54 N.J. 287, 255 A.2d 208, (1969); King v. Travelers Ins. Co.,