Bailey v. Lincoln Gen. Ins. Co.
| Decision Date | 16 May 2011 |
| Docket Number | No. 09SC527.,09SC527. |
| Citation | 255 P.3d 1039 |
| Parties | Julie BAILEY, individually, and as personal representative for the Estate of Brandon Magnuson, Petitionerv.LINCOLN GENERAL INSURANCE COMPANY, a Pennsylvania insurance company, Respondent. |
| Court | Colorado Supreme Court |
OPINION TEXT STARTS HERE
The Overton Law Firm, Thomas J. Overton, Richard J. Gleason, Denver, Colorado, King & Greisen, LLC, Paula Greisen, Laura E. Schwartz, Denver, Colorado, Attorneys for Petitioner.Hall & Evans, L.L.C., Malcolm S. Mead, George Koons III, Peter F. Jones, Denver, Colorado, Attorneys for Respondent.Justice MARTINEZ delivered the Opinion of the Court.
In this insurance coverage dispute, we review the court of appeals' decision in Lincoln General Insurance Co. v. Bailey, 224 P.3d 336 (Colo.App.2009), which upheld enforcement of a criminal-acts exclusion in an excess-insurance policy that absolved the insurer, Lincoln General Insurance Company (“Lincoln General”), from coverage for damages resulting from criminal acts committed by Raymond Juhl (the “insured”), Lincoln General's insured.
The insured, driving a rental car under the influence of methamphetamines, led police on a high-speed car chase that ended when, speeding on the wrong side of the road, he struck a vehicle containing Julie Bailey and her son, Brandon Magnusson. Ms. Bailey was critically injured and her son was killed; Ms. Bailey and her son's estate are the plaintiffs in this case. The insured pled guilty to five felonies, including second degree murder.
The insured assigned his rights to the plaintiffs to collect on a $1 million excess-insurance policy issued by Lincoln General when he rented his car. Lincoln General denied coverage for damages caused by the insured, relying on, in part, an exclusion in the rental agreement that voided coverage if the car was used to commit a crime that could be charged as a felony. The trial court, and the court of appeals, held that this criminal-acts exclusion was enforceable.
We consider two issues regarding this criminal-acts exclusion.1 The first is whether it violates public policy. We conclude that, although the public policy of Colorado aims to protect innocent tort victims, it also gives insurers the freedom to contract and provide coverage for damages caused by fortuitous events instead of for damages caused by intentionally criminal acts.
The second issue is whether insertion of the criminal-acts exclusion into the rental agreement violated the reasonable expectations of the insured. In Colorado, there are two general circumstances where the doctrine of reasonable expectations renders exclusionary language unenforceable: (1) where an ordinary, objectively reasonable person would, based on the language of the policy, fail to understand that he or she is not entitled to the coverage at issue; and (2) where, because of circumstances attributable to an insurer, an ordinary, objectively reasonable insured would be deceived into believing that he or she is entitled to coverage, while the insurer would maintain he or she is not. We conclude that the facts of this case implicate neither circumstance and hold that the criminal-acts exclusion does not violate the reasonable expectations of the insured.
On one afternoon in December 2003, the insured, under the influence of methamphetamines, led police on a high-speed car chase while driving a rental car. At times, police in six different cars attempted to end the chase, which lasted approximately twelve minutes and covered a distance of twenty miles. During this chase, the driver: (1) drove at speeds two to three times greater than posted speed limits, accelerating to speeds over 100 miles per hour; (2) repeatedly veered onto the wrong side of the road; (3) ran multiple stop signs; (4) forced cars, busses, trucks, and police cars to take evasive action to avoid collisions; and (5) avoided police-placed stop sticks by speeding through a hotel parking lot.
The chase ended when the driver, speeding on the wrong side of the road, crashed head-on into an automobile with two individuals inside: the driver, Ms. Bailey, and her passenger and fourteen-year-old son, Brandon Magnusson. Both sustained serious injuries. At one point, Ms. Bailey was in critical condition, but survived. Her son, however, died shortly after the collision.
The insured pled guilty to five felonies related to his use of the car, including second degree murder, first degree assault, vehicular homicide, vehicular assault, and unlawful possession with intent to distribute a controlled substance. He was sentenced to forty-three years in the Colorado Department of Corrections.
Approximately two weeks before the high-speed car chase, the insured obtained the rental car from a Dollar Rent–A–Car (“Dollar”) counter at Denver International Airport. As part of a rental car transaction that lasted no more than five to six minutes, the driver purchased a $1 million supplemental liability insurance (“SLI”) policy from Lincoln General. This SLI protection covered bodily injury and property damage in accidents involving the rental car, but only as excess insurance; the SLI coverage was only effective after “the limit of liability or limit of insurance of all underlying insurance' available to the insured” was exhausted. The “underlying insurance” in this case was provided by Dollar to the driver as part of his rental agreement, and constituted primary insurance that provided coverage up to the statutorily mandated minimum coverage amounts: $25,000 for bodily injury to any one person, and $50,000 to all persons in any one accident, including property damage. § 10–4–620, C.R.S. (2010).
The insured purchased the SLI coverage from a Dollar rental clerk, who had not received any formal training to sell insurance products. The clerk told the insured that the SLI protection “covered the car bumper to bumper; if he was to get into a wreck, the car was covered.” But the clerk never reviewed the terms of insurance with him and did not tell him about any coverage exclusions or prohibitions.
After the transaction, the clerk handed the driver a folded pamphlet, several pages long, entitled “Rental Agreement.” The conditions and terms of this agreement, though in small print, are still legible. The pamphlet is organized into sections addressing major rental-car topics. One section spells out, in capitalized block letters, how a renter can violate the terms of the agreement by engaging in a prohibited use of the vehicle, along with the attendant consequences for such a violation:
THE VEHICLE MAY NOT BE USED ... (3) IN A RACE OR SIMILAR CONTEST ...; (4) FOR ANY ILLEGAL PURPOSE, OR IN THE COMMISSION OF A CRIME THAT COULD BE CHARGED AS A FELONY; (5) WHILE THE DRIVER IS UNDER THE INFLUENCE OF ALCOHOL OR DRUGS; ... (7) TO INTENTIONALLY CAUSE DAMAGE, OR DAMAGE THE VEHICLE BY WILLFUL, RECKLESS OR WANTON MISCONDUCT ...
ANY PROHIBITED USE OF THE VEHICLE VIOLATES THE AGREEMENT AND VOIDS OR DEPRIVES YOU OF BENEFITS, PROTECTION AND OPTIONAL COVERAGES, IF ANY, TO WHICH YOU WOULD HAVE OTHERWISE BEEN ENTITLED UNDER THIS AGREEMENT.
(emphasis in original). After this section, near the end of the rental agreement, another section appears, describing the insured's third-party liability responsibility as follows:
.... Where available, and for an additional daily charge, if You initialed that You accept the optional SLI at the beginning of rental, SLI provides You with protection against third-party auto liability claims as outlined below:
A. Dollar will protect You against third party liability claims arising out of the use or operation of the Vehicle for: (i) Bodily injury or death of another ... and (ii) Property damage other than to the Vehicle. This protection is limited to an amount equal to the minimum limits specified by the compulsory insurance or financial responsibility laws relating to automobile liability insurance in the state in which the Vehicle is rented and shall be referred to as Primary Protection; and
B. SLI provides You with a separate policy providing excess coverage against such claims for the difference between the Primary Protection and a maximum combined single limit of $1,000,000.00 (U.S.) per occurrence for bodily injury, including death and property damage, for other than the Vehicle while the Vehicle is on rent to you ...
3. You understand that SLI is void if You violate the terms of the Agreement. You understand SLI is subject to other specific exclusions, which are summarized on the separate SLI brochure which is available at the rental counter.
When the insured received the rental agreement, he did not read it. And although the rental agreement provided that a brochure describing the SLI coverage was available at the rental counter, the insured neither asked for nor received this brochure. He also never received the policy describing the SLI coverage.
Before going to prison, the insured assigned to the plaintiffs his rights to collect on the SLI coverage. After the collision, Lincoln General initiated a declaratory judgment action, claiming that, because of exclusionary policy language, it owed no duty to defend or to indemnify the insured, and was not liable to the plaintiffs for any losses arising from the collision. Ms. Bailey, on behalf of herself and her son's estate, filed two complaints: one against Lincoln General, alleging breach of contract, bad faith and violation of the Colorado Consumer Protection Act (the “CCPA”); and the other against the insured and Dollar for personal injury and wrongful death. The trial court held an uncontested hearing to determine damages, entering judgment against the driver for over $2 million. Dollar then settled with Ms. Bailey, for $25,000, on the primary policy it had issued to the insured.
Lincoln General moved for summary judgment, claiming it had not violated the CCPA, and arguing that the prohibitions in the rental agreement and policy absolved it of any...
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