American Family Mutual Ins. Co. v. Allen, No. 03SC538.

• Decision Date: 06 December 2004
• Docket Number: No. 03SC538.
• Citation: 102 P.3d 333
• Parties: AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Petitioner, v. Cynthia M. ALLEN and Leland Aultman, Respondents.
• Court: Colorado Supreme Court

102 P.3d 333

AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Petitioner, v. Cynthia M. ALLEN and Leland Aultman, Respondents.

No. 03SC538.

Supreme Court of Colorado, En Banc.

December 6, 2004.

Harris, Karstaedt, Jamison & Powers, P.C., A. Peter Gregory, Englewood, for Petitioner.

Walter H. Sargent, a professional corporation, Walter H. Sargent, Norton Frickey, P.C., Robert B. Carey, Dawn R. Kubik, Colorado Springs, for Respondents.

BENDER, Justice.

In this appeal, we review and reverse in part and affirm in part the court of appeals' decision in Allen v. American Family Mut. Ins. Co., 80 P.3d 799 (Colo.App.2002). This case arises out of a single car accident and involves a claim for coverage under an automobile insurance contract containing a Personal Injury Protection¹ (PIP) endorsement and a tort claim for the breach of an insurer's duty of good faith. The court of appeals upheld the trial court's construction of this insurance policy that made ownership of the vehicle involved in the accident irrelevant in determining whether coverage existed. With respect to the tort claim, the court of appeals held that expert testimony was not required to establish industry standards of care when claiming that the insurer breached its duty of good faith.

On the contract claim, we hold that this particular policy only provides PIP coverage for injuries sustained by permissive drivers of vehicles owned by the named insured and identified in the policy. Therefore, we reverse the court of appeals on the contract claim and order a new trial for the jury to resolve the disputed factual issue of who owned the vehicle involved in the accident.

On the issue of whether expert testimony was required for the tort claim, we affirm the court of appeals and hold that in a first-party claim for the breach of an insurer's duty of good faith, expert testimony is not required to establish the insurer's standard of care when a statute provides valid, but not conclusive, evidence of the standard of care and when the standard of care is within the common knowledge and experience of the average juror. Hence, upon remand, the damage award on the contract claim and the tort claim shall stand in the event the jury returns a finding that ownership of the vehicle had not transferred to the plaintiff at the time of the accident.

FACTS AND PROCEEDINGS BELOW

Cynthia Allen, respondent before us and plaintiff in the trial court, lived with Phillip Jackson and his wife in Grand Junction, Colorado. Jackson sold automobile insurance out of his home office for American Family Mutual Insurance Company, petitioner here and defendant in the trial court. Allen was paid by the Jacksons to do housework and carve spears which Jackson sold at local and regional art fairs. Jackson paid Allen's weekly salary in cash which varied depending on the number of hours she worked and the number of spears she completed. From her salary, Jackson would deduct $100 for rent plus other expenses but did not withhold taxes or other employment deductions.

Allen occasionally borrowed Jackson's 1986 GMC truck to run errands and visit family in the Grand Junction area. On June 19, 1998, Allen and Jackson entered into a hand-written agreement for Allen to purchase the truck for $2,600. The terms of this agreement permitted Jackson to deduct an additional $75 to $100 from Allen's weekly salary. On the top of the first page was written: "Contract entered into June 19th 1998[-] Represents a Bill of Sale." The agreement contained the terms of the sale:

Cindy will purchase 1986 GMC P-up ... for the amount of $2,600, with no interest charged if paid in full by Jan. 31st 1999. Cindy agrees to pay for vehicle weekly, from bonus monies earned, min of $75 weekly and try for $100 weekly. To be taken from her earnings, exceptions to this payment schedule, must be agreed upon by both parties.

Three payments totaling $300 were recorded on the first page of the document and initialed by both parties. The agreement contained several blank pages to record future payments. On the fourth page, dated June 21, 1998, and signed by both parties, the agreement stated that beginning June 19, 1998, Allen would be responsible for the insurance, maintenance, gas, and all upkeep of the vehicle and that "Cindy and Phil" would transfer title to the vehicle at the end of June or in early July:

Cindy Allen will totally be responsible for vehicle from June 19th, insurance, maint., gas, [and] all upkeep. Cindy and Phil will go to bank later and get the title, last weekend in June or first week in July.

Jackson maintained insurance on the vehicle with American Family after this agreement was signed and after Allen made three payments.² Jackson testified that he knew Allen did not have a driver's license and that she did not have insurance at the time the agreement was concluded. Jackson also retained a set of keys to the truck, did not remove his license plates from the vehicle, and left his proof of insurance and registration/ownership tax receipt in the glove box of the truck. Jackson also drove the truck on at least one occasion after agreeing to sell it to Allen. Title to the vehicle was never transferred to Allen.

Three weeks after signing this agreement, on July 3, 1998, Allen drove the truck to Denver with several other passengers. On the return trip, Allen became tired and asked one of the passengers to drive. The new driver fell asleep and the truck swerved off the road, flipped, and both Allen and Leland Aultman³ were severely injured.

At trial, the parties disputed whether Allen needed Jackson's permission to use the truck the weekend of the accident. Allen testified that she believed she needed permission to drive the truck. Her testimony was supported by the claims report filed three days after the accident by Jackson's wife who stated: "[Jackson] had given Cindy Allen permission to drive the vehicle out to her mom's house in Clifton and that it would be parked there for the week-end [sic]." Jackson testified that once they had entered into the agreement, he did not restrict Allen's use of the truck and that on the weekend of the accident he did say something to the effect of "go out and park the vehicle, and don't get in trouble this weekend."

Coverage for damage to the truck and injuries sustained by Allen was requested under Jackson's American Family insurance policy. His policy contained both liability coverage, which protects against damage to the vehicle, and a Deluxe Personal Injury Protection endorsement. Under the PIP endorsement, an eligible injured person receives compensation for medical and rehabilitation expenses, work loss, essential services expenses, and death compensation. Page two of the endorsement defines an individual eligible to receive these benefits as the named insured or "[a]ny other person who sustains bodily injury while: 1) [o]ccupying the insured motor vehicle with the named insured's consent...."

Four days after the accident, on July 7th, John St. Vrain, a casualty claims investigator working for American Family, recorded a telephone conversation with Jackson about this agreement to sell the truck to Allen. Jackson told St. Vrain he had not yet given Allen title to the truck and that the vehicle was not registered in Allen's name. St. Vrain obtained a copy of their agreement but did not interview Allen as to who owned the truck on the date of the accident.

On July 9th, St. Vrain conferred with his supervisor and then wrote a letter to Jackson denying liability coverage. He wrote that Allen was "in possession of" the truck and that Jackson's auto policy did not allow for assignment of an interest in the policy without American Family's written consent.⁴ In pointing to the assignment clause, the letter incorrectly referenced "Section Part IV General Provisions" of Jackson's policy, which concerns loss due to vehicle damage.⁵

In addition, St. Vrain referred Jackson to the case of United Fire and Casualty Co. v. Perez⁶ for the proposition that once a conditional purchaser takes possession of a vehicle, American Family's liability under the policy terminates. The letter contained the following quotation attributed to the Perez case:

Where a conditional sale of a motor vehicle takes place, such as where installment payments are agreed upon, the seller's liability insurance terminates when the sale (Transfer [sic] of car physically) takes place. This is true even though the title is not delivered until the final payment is made. If an accident occurs during the term of the contract, it is the buyer's responsibility to have liability insurance.

At trial it was stipulated that this quotation was not a direct quotation from Perez but was taken from a memorandum written by American Family's legal department.

On the same day that St. Vrain interviewed Jackson by telephone, Jackie Greathouse, an American Family investigator, also interviewed Jackson by telephone about the accident. Greathouse, who did not talk to St. Vrain about the investigation, reported that Jackson said he "was intending to sell [the] truck" to Allen and thought that Allen was using the vehicle to go to her stepmother's home where it would remain over the weekend.

A day after her telephone conversation with St. Vrain, Greathouse conducted a telephone interview with Allen at the hospital. At trial, Allen testified that she did not remember this conversation and was still on a "morphine drip" when the interview occurred on July 8th. Greathouse reported that Allen told her she was buying the vehicle from Jackson and had made several payments on the total purchase price. She also noted that Allen "considered it her vehicle [but] ... title was never transferred." Greathouse concluded in her report that "[American Family] would need to investigate to determine if there is coverage for payment of [Allen's] medical bills."

American Family's Cheryl Lawson, who was responsible for making PIP...