Allstate Ins. Co. v. Parfrey, 91SC147

• Decision Date: 20 April 1992
• Docket Number: No. 91SC147,91SC147
• Citation: 830 P.2d 905
• Parties: ALLSTATE INSURANCE COMPANY, Petitioner, v. Stephen PARFREY and Deborah Parfrey, Respondents.
• Court: Colorado Supreme Court

Page 905

830 P.2d 905

ALLSTATE INSURANCE COMPANY, Petitioner, v. Stephen PARFREY and Deborah Parfrey, Respondents.

No. 91SC147.

Supreme Court of Colorado,

En Banc.

April 20, 1992.

Zupkus & Ayd, P.C., Robert A. Zupkus, Greg Van Der Wey, Denver, and Sonnenschein Nath & Rosenthal, Jeffrey Lennard

and Catherine A. Van Horn, Chicago, Ill., for petitioner.

Salmon, Godsman & Nicholson, P.C., David I. Levy, Englewood, for respondent.

Wilcox, Ogden & Cox, P.C., Ralph Ogden, Denver, for amicus curiae Colorado Trial Lawyers Ass'n.

Justice QUINN delivered the Opinion of the Court.

We granted certiorari to review the court of appeals' decision in Parfrey v. Allstate Ins. Co., 815 P.2d 959 (Colo.App.1991), which reversed a summary judgment in favor of Allstate Insurance Company (Allstate) and remanded the case for further proceedings on the complaint of Steven and Deborah Parfrey against Allstate for its alleged negligence in failing to offer the Parfreys, in accordance with the requirements of section 10-4-609(2), 4A C.R.S. (1987), optional uninsured/underinsured motorist (UM/UIM) coverage at a level higher than the minimum statutory liability limits of $25,000 per person and $50,000 per accident. The court of appeals held that section 10-4-609(2) imposes a statutory duty on an insurer "to offer UM/UIM optional coverage in definite and specific terms so as to allow the consumer to make an intelligent decision regarding whether to accept or reject this coverage" and that the breach of this duty creates a private cause of action in the insured. 815 P.2d at 962, 966. The court also construed subsections 10-4-609(2) and (3), 4A C.R.S. (1987), to require an insurer to make a new offer of UM/UIM coverage at a level higher than the minimum statutory automobile liability coverage whenever an insured makes a "material change" in a policy, such as increasing liability limits or adding a new vehicle to the policy. Id. at 964. Finally, the court of appeals held that there were disputed issues of material fact on whether Allstate breached its statutory duty when the Parfreys purchased their initial bodily injury liability policy and also when the Parfreys increased their liability coverage and added another vehicle to their existing liability policy and that, therefore, the trial court erred in entering summary judgment in favor of Allstate. Id. at 962, 964. Although we do not totally agree with the court of appeals' construction of section 10-4-609 with respect to an insurer's statutory duty to offer higher UM/UIM coverage, we do agree with the court of appeals' holding that the statute creates a private cause of action for the benefit of an insured and that summary judgment was improperly entered in favor of Allstate under the factual circumstances of this case. We accordingly affirm the judgment and remand the case for further proceedings in the trial court.

I.

The statutory scheme for insurance protection against injuries and damages caused by uninsured and underinsured motorists provides the legal framework for resolving the issues before us. We, therefore, outline the applicable legislation before summarizing the facts underlying the legal issues before us.

A.

Legislation relating to uninsured motorist coverage was originally enacted in 1965 and was designed to "assure the widespread availability to the insuring public of insurance protection against financial loss caused by negligent financially irresponsible motorists." Ch. 91, sec. 1, 1965 Colo.Sess.Laws 333. In 1983 the statutory scheme was amended to provide that uninsured motorist coverage shall also "include coverage for damage for bodily injury or death which an insured is legally entitled to collect from the owner or driver of an underinsured motor vehicle." Ch. 92, sec. 1, § 10-4-609, 1983 Colo.Sess.Laws 454 (now codified at § 10-4-609(4), 4A C.R.S. (1987)) (emphasis added). An underinsured motor vehicle is defined in section 10-4-609(4), 4A C.R.S. (1987), as follows:

An underinsured motor vehicle is a land motor vehicle, the ownership, maintenance, or use of which is insured or bonded for bodily injury or death at the time of the accident, but the limits of liability for bodily injury or death under such insurance or bonds are:

(a) Less than the limits for uninsured motorist coverage under the insured's policy; or

(b) Reduced by payments to persons other than an insured in the accident to less than the limits of uninsured motorist coverage under the insured's policy.

The duties of an automobile liability insurer with respect to UM/UIM coverage are set forth in subsections (1), (2), and (3) of section 10-4-609, 4A C.R.S. (1987), and are as follows:

(1) No automobile liability or motor vehicle liability policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any person arising out of the ownership, maintenance, or use of a motor vehicle shall be delivered or issued for delivery in this state with respect to any motor vehicle licensed for highway use in this state unless coverage is provided therein or supplemental thereto, in limits for bodily injury or death set forth in section 42-7-103(2), C.R.S., under provisions approved by the commissioner, for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness, or disease, including death, resulting therefrom; except that the named insured may reject such coverage in writing.

(2) Prior to the time the policy is issued or renewed, the insurer shall offer the named insured the right to obtain higher limits of uninsured motorist coverage in accordance with its rating plan and rules, but in no event shall the insurer be required to provide limits higher than the insured's bodily injury liability limits or one hundred thousand dollars per person and three hundred thousand dollars per accident, whichever is less.

(3) Notwithstanding the provisions of subsection (2) of this section, after selection of limits by the insured or the exercise of the option not to purchase the coverages described in this section, no insurer nor any affiliated insurer shall be required to notify any policyholder in any renewal or replacement policy, as to the availability of such coverage or optional limits. However, the insured may, subject to the limitations expressed in this section, make a written request for additional coverage or coverage more extensive than that provided on a prior policy.

Section 42-7-103(2), 17 C.R.S. (1984), to which subsection 10-4-609(1) expressly refers, defines an "automobile liability policy" as a liability policy, exclusive of interests and costs, of not less than $25,000 per person and $50,000 per accident. The Colorado Auto Accident Reparations Act also requires that any automobile liability insurance policy contain minimum legal liability coverage for bodily injury or death, exclusive of interest and costs, of $25,000 per person and $50,000 per accident. § 10-4-706(1)(a), 4A C.R.S. (1987).

The term "renewal policy," which appears in subsection (3) of section 10-4-609, is defined as "the issuance and delivery by an insurer of a policy replacing at the end of the policy period a policy previously issued and delivered by the same insurer, or the issuance and delivery of a certificate or notice extending the term of the policy beyond its policy period or term." § 10-4-601(3), 4A C.R.S. (1987). ¹ A replacement policy is not defined by the applicable legislation. Pursuant to section 10-4-609(5), 4A C.R.S. (1987), the maximum liability of an insurer for UM/UIM coverage is the lesser of:

(a) The difference between the limit of uninsured motorist coverage and the amount paid to the insured by or for any person or organization who may be held legally liable for the bodily injury; or

(b) The amount of damages sustained, but not recovered.

B.

On approximately March 8, 1985, Steven and Deborah Parfrey purchased an Allstate automobile liability insurance policy through an Allstate agent, Robert Townsend. The Allstate policy covered two vehicles, a Volkswagen owned by the Parfreys and a Toyota which they were leasing. The policy provided minimum bodily injury liability coverage of $25,000 per person and $50,000 per occurrence and also provided UM/UIM coverage at the same limits. Mrs. Parfrey stated in her deposition that the Allstate agent, when he issued the initial policy, mentioned different levels of UM/UIM coverage but did not explain any of the details concerning the coverage. The Allstate agent, on the other hand, testified in his deposition that it was his custom to present all his customers with a pamphlet which explained UM/UIM coverage, liability coverage, and no-fault coverage. Mrs. Parfrey could not recall whether she received the pamphlet from the Allstate agent.

Later in the month, on approximately March 16, 1985, the Parfreys increased their liability coverage to $50,000 per person and $100,000 per accident. A few months later the Parfreys learned that the lessor of the Toyota vehicle required higher liability limits so they increased their bodily injury liability coverage to $100,000 per person and $300,000 per accident.

Although the increases in liability coverage made the Parfreys eligible for higher UM/UIM coverage, neither Mrs. Parfrey nor the Allstate agent recalled discussing UM/UIM coverage on either of these occasions. The Allstate agent, however, stated in his deposition that it would have been his usual practice to notify an insured of the right to purchase UM/UIM coverage up to the limits of bodily injury liability coverage. At any rate, although the increases in the Parfreys' bodily injury liability coverage made them eligible to increase their UM/UIM coverage, their UM/UIM coverage remained at the initial level of $25,000 per person and $50,000 per accident.

A six-month premium renewal notice was sent to...