ARVADA v. INTERGOVERN. RISK SHARING AGENCY

• Decision Date: 20 February 2001
• Docket Number: No. 99SC418.,99SC418.
• Parties: CITY OF ARVADA, Petitioner, v. COLORADO INTERGOVERNMENTAL RISK SHARING AGENCY, Respondent.
• Court: Colorado Supreme Court

19 P.3d 10

CITY OF ARVADA, Petitioner, v. COLORADO INTERGOVERNMENTAL RISK SHARING AGENCY, Respondent.

No. 99SC418.

Supreme Court of Colorado, En Banc.

February 20, 2001.

Rehearing Denied March 12, 2001.

Roberts Levin Zboyan & Patterson, P.C., Thomas L. Roberts, Denver, CO, Attorneys for Petitioner.

Senter Goldfarb & Rice, L.L.C., Thomas S. Rice, Richard W. Pruett, Peter H. Doherty, Denver, CO, Attorneys for Respondent.

Griffiths, Tanoue & Light, P.C., Tami A. Tanoue, Denver, CO, Attorneys for Amici Curiae Colorado Counties Casualty and Property Pool, County Workers' Compensation Pool, Colorado Special Districts Property and Liability Pool.

Berenbaum, Weinshenk & Eason, P.C., Eugene M. Sprague, Denver, CO, Attorneys for Amicus Curiae Colorado School Districts Self-Insurance Pool.

Justice RICE delivered the Opinion of the Court.

We granted certiorari to review the court of appeals' decision in City of Arvada v. Colorado Intergovernmental Risk Sharing Agency, 988 P.2d 184 (Colo.Ct.App.1999), holding that the notice requirements of section 10-4-110.5, 3 C.R.S. (2000) do not apply to self-insurance pools established pursuant to section 24-10-115.5, 7 C.R.S. (2000). In so holding, the court of appeals relied on the language in section 24-10-115.5(2) that states, "Any self-insurance pool authorized by . . . this section shall not be construed to be an insurance company nor otherwise subject to the provisions of the laws of this state regulating insurance or insurance companies. . . ."

We now affirm the court of appeals' decision and hold that the Colorado Intergovernmental Risk Sharing Agency ("CIRSA" or the "Pool") is not an insurer under section 10-4-110.5, and that section 24-10-115.5 specifically exempts it, as a self-insurance pool, from section 10-4-110.5, because that section regulates insurance. This interpretation is consistent with the plain language of the statutes, the intent of the General Assembly, and caselaw from other jurisdictions that have interpreted similar statutory schemes.

Facts and Procedural History

CIRSA is a public entity self-insurance pool created under the authority of section 24-10-115.5, and is comprised of over 150 municipalities throughout Colorado. The Pool is formed by an intergovernmental agreement that operates as the Pool's bylaws. Under the agreement, individual members of the Pool maintain a self-insured retention ("SIR"): an amount of loss ranging from $1,000 to $150,000 for which they are responsible before the Pool's coverage becomes applicable. Above each member's SIR, CIRSA covers losses up to $400,000. For losses greater than $400,000, CIRSA had purchased excess insurance from Lloyd's of London ("Lloyd's"), which covers losses up to $1 million. The individual municipalities are named insureds on the Lloyd's policy. The coverage by the Pool does not apply to all losses; rather, the coverage terms mirror those contained in the Lloyd's policy. In other words, only if a loss would be covered by Lloyd's, is it covered by the Pool. If an exclusion or endorsement would preclude coverage under the commercial policy, coverage is similarly barred by the Pool. In these situations, the municipality is responsible for covering its own losses in their entirety.

The City of Arvada (the "City") joined CIRSA in 1989 under coverage that was effective from January 1, 1989 until January 1, 1992. Under this coverage, the City elected to maintain a $150,000 SIR. The City renewed its coverage in 1992 under policy terms effective until January 1, 1995. Upon renewal, the City was provided with a revised copy of the Pool Manual which contained coverage provisions contracted for and agreed upon by the separate members of the Pool. Although the City had received a copy of "Endorsement 32," a new provision in the Lloyd's policy that summarily excluded coverage for breach of contract claims, it did not receive explicit notice from CIRSA of the new provision.

In the underlying action that gave rise to the instant dispute, the City leased restaurant facility space to ACRC, Inc. d/b/a/ Café Montmartre ("ACRC"). The City later breached the lease, and ACRC sued, claiming, among other things, breach of contract and bad faith. The City submitted the suit to CIRSA, requesting both defense and indemnification. CIRSA denied the claim, relying on Endorsement 32 of the Lloyd's policy.¹ Subsequently, a judgment in the amount of $422,054 was entered against the City, at which time the City renewed its request for coverage. Again CIRSA denied its request, and this suit followed.

The City alleges that Endorsement 32 is unenforceable under section 10-4-110.5, which invalidates coverage reductions included in renewal policies absent explicit written notice. The City also argues that Tepe v. Rocky Mountain Hospital & Medical Services, 893 P.2d 1323 (Colo.Ct.App.1994), which holds that broader coverage contained in an earlier policy applies when an insured is not notified of a reduction in coverage in a renewal policy, renders Endorsement 32 unenforceable. The court of appeals rejected these arguments, finding that under section 24-10-115.5, self-insurance pools are not subject to laws regulating insurance such as section 10-4-110.5. City of Arvada, 988 P.2d at 189. The court further held that Tepe, which specifically concerned the notice obligations of insurance companies, is inapplicable to the present case because section 24-10-115.5 was intended by the legislature to exempt self-insurance pools from obligations imposed by case law concerning insurance companies. Id. This appeal followed.

We must now determine whether CIRSA had a duty to notify the City of its reduction in coverage in the 1992 renewal policy under section 10-4-110.5.² We hold that CIRSA had no duty to notify the City of the addition of Endorsement 32 to the Lloyd's policy because CIRSA is not an insurer under section 10-4-110.5, and because section 24-10-115.5 specifically exempts it, as a self-insurance pool, from section 10-4-110.5, because that section regulates insurance.

Analysis

In 1986, the General Assembly amended the insurance laws under Title 10 of the Colorado Revised Statutes to add the notice provisions at issue here. Those provisions, contained in section 10-4-110.5, provide in relevant part that:

No insurer shall . . . decrease the coverage benefits on renewal of a policy of insurance that provides coverages . . . . unless the insurer mails by first-class mail to the named insured . . . at least forty-five days in advance a notice, accompanied by the reasons therefor, stating the renewal terms and the amount of the premium due. If the insurer fails to furnish the renewal terms . . . at least forty-five days prior to the expiration date of the policy, the insurer shall automatically extend the existing policy for a period of forty-five days. . . . If the insurer fails to meet the requirements of this section prior to the expiration date of the existing policy, the insurer shall be deemed to have renewed the insured's policy for an identical policy period at the same terms, conditions, and premium as the existing policy.

§ 10-4-110.5 (emphasis added).³

To determine whether self-insurance pools are subject to the notice provisions of 10-4-110.5, we look first to the language of the statute⁴ and specifically to the definitions of the words "insurance company," "insurance," and "insurer." These terms are defined in the following manner: "Insurance company" includes "corporations, associations, partnerships, or individuals engaged as insurers in the business of insurance." § 10-1-102(4), 3 C.R.S. (2000). "Insurance" is defined as "a contract whereby one, for consideration, undertakes to indemnify another or to pay a specified or ascertainable amount or benefit upon determinable risk contingencies." § 10-1-102(7), 3 C.R.S. (2000). Finally, "insurer" is defined as "every person engaged as a principal, indemnitor, surety, or contractor in the business of making contracts of insurance." § 10-1-102(8), 3 C.R.S. (2000).

It is clear from these definitions that a self-insurance pool does not qualify as either an insurance company or an insurer. Self-insurance pools are not in the business of making contracts of insurance, as they are not for-profit associations. See Crist v. Mo. Intergovernmental Risk Mgmt. Ass'n, No. 39,286, 1988 Mo.App. LEXIS 203 at *10 (Mo. Ct.App.1988) (holding that a self-insurance pool is not an unauthorized insurance business because it is "an association of municipalities. . . [that] does not . . . attempt to make a profit or accumulate a surplus"); Black's Law Dictionary 192 (7th ed.1999) (defining "business" as "a commercial enterprise carried on for profit; a particular occupation or employment habitually engaged in for livelihood or gain"). Furthermore, insurance pools do not undertake the indemnification of a third party. Rather, an insurance pool is, in essence, an extension of each member, as the funds that provide the coverage come directly from the members, and the type and extent of coverage is determined collectively by the members themselves. Thus, self-insurance pools are more properly likened to simple self-insurance than to insurance companies.⁵

Indeed, by enacting section 24-10-115.5, the statute authorizing the creation of self-insurance pools, the legislature intended to distinguish between such pools and traditional insurance by exempting self-insurance pools from laws regulating traditional insurance companies. Section 24-10-115.5 provides, in relevant part, that: "Any self-insurance pool authorized by . . . this section shall not be construed to be an insurance company nor otherwise subject to the provisions of the laws of this state regulating insurance or insurance companies . . . ." § 24-10-115.5(2) (emphasis added).⁶ Modeled after a similar statute in California, section 24-10-115.5 was enacted in response to the rapidly rising costs — and occasional altogether...