Farmers Ins. Exchange v. Dotson

• Decision Date: 18 March 1996
• Docket Number: No. 95SC122,95SC122
• Citation: 913 P.2d 27
• Parties: FARMERS INSURANCE EXCHANGE, Petitioner, v. Trent M. DOTSON, Respondent.
• Court: Colorado Supreme Court

Page 27

913 P.2d 27

FARMERS INSURANCE EXCHANGE, Petitioner, v. Trent M. DOTSON, Respondent.

No. 95SC122.

Supreme Court of Colorado,

En Banc.

March 18, 1996.

Levy & Lambdin, P.C., Marc R. Levy, Linda A. Battalora, Englewood, for Petitioner.

Michael R. Bromley, P.C., Michael R. Bromley, Colorado Springs, for Respondent.

Wilcox & Ogden, P.C., Ralph Ogden, Denver, for Amicus Curiae Colorado Trial Lawyers.

Justice KOURLIS delivered the Opinion of the Court.

We granted certiorari to review the court of appeals opinion in Dotson v. Estate of Pearson, 903 P.2d 19 (Colo.App.1994), holding that a named insured exclusion ¹ in an automobile liability insurance contract is contrary to the public policy of the Colorado Auto Accident Reparations Act, sections 10-4-701 to -725, 4A C.R.S. (1994 & 1995 Supp.), and therefore, void. We affirm the judgment of the court of appeals.

I.

We derive the following facts from the parties' summary judgment motions before the trial court.

Rhonda Dotson and Robert Pearson purchased an automobile insurance policy from Farmers Insurance Exchange (Farmers), the petitioner in this action. The policy listed both Rhonda Dotson and Robert Pearson as named insureds ² and had an effective date of May 15, 1991 and an expiration date of June 9, 1991. The policy insured an automobile registered to and owned by Rhonda Dotson.

On June 8, 1991, Pearson was driving the insured vehicle. At the time, Rhonda Dotson was riding as a passenger in the car. For unknown reasons, Pearson lost control of the vehicle and crashed into a guard rail. Both Pearson and Rhonda Dotson were killed.

Trent Dotson, Rhonda Dotson's husband, brought suit against Robert Pearson's estate to recover for the wrongful death of his wife. On summary judgment, the trial court found Pearson liable for Rhonda Dotson's death under a theory of res ipsa loquitur. Ultimately, the trial court entered a judgment against Pearson's estate in the amount of $300,000: $50,000 represented the solatium amount pursuant to section 13-21-203.5, 6A C.R.S. (1993 Supp.), and $250,000 represented economic damages.

Trent Dotson filed a writ of garnishment against Farmers to collect under Pearson's automobile liability policy based on his judgment against Pearson's estate. The Farmers' policy provided that Farmers would pay "damages for which any insured person is legally liable because of bodily injury to any person ... arising out of the ownership, maintenance or use of a private passenger car...." Farmers filed an answer disclaiming any responsibility for Pearson's debt and Dotson filed a traverse.

Farmers then filed a motion for summary judgment claiming that the terms of the insurance policy precluded Rhonda Dotson from collecting benefits as a result of the negligence of Pearson. The policy excluded from coverage: "liability for bodily injury to an insured person." The policy defined the term "insured person" as a named insured or any family member of a named insured. Under this exclusion, Rhonda Dotson, as a named insured under the insurance policy, was precluded from recovering damages for which another individual insured under the contract was liable. Since Trent Dotson's claims against Pearson were derivative of his wife's claims and his wife was excluded from coverage, Farmers denied responsibility for Dotson's judgment against Pearson's estate.

Dotson filed a response to Farmers' motion for summary judgment and a cross motion for summary judgment. Dotson argued that the insurance policy's exclusion from liability coverage for insured persons was void as against public policy. Dotson further claimed that our decision in Meyer v. State Farm Mutual Automobile Insurance Co., 689 P.2d 585 (Colo.1984), invalidated such exclusions as void under the Colorado Auto Accident Reparations Act, §§ 10-4-701 to -725, 4A C.R.S. (1994 & 1995 Supp.) (No-Fault Act). Therefore, Rhonda Dotson's claims were not precluded and Dotson was entitled to recover from Farmers under the insurance policy.

The trial court granted summary judgment for Farmers, on the grounds that Rhonda Dotson was a named insured and was not entitled to recover liability benefits under the policy. Because Trent Dotson's claims were derivative of Rhonda Dotson's, Trent Dotson was also precluded from recovery.

Trent Dotson appealed the trial court's ruling to the court of appeals. Relying on our decision in Meyer, the court of appeals reversed the trial court's entry of summary judgment for Farmers. Dotson v. Estate of Pearson, 903 P.2d 19 (Colo.App.1994). The court of appeals in a two to one decision interpreted Meyer as holding that named insured exclusions like the one in the Farmers' policy are contrary to the No-Fault Act and therefore void as against public policy. Id. at 20. The court of appeals further held that the General Assembly's enactment of section 10-4-418(2)(b), 4A C.R.S. (1994), permitting household exclusions in insurance contracts did not change the public policy of the state. Rather, the statute created a narrow exception for certain household exclusions to the general public policy of the No-Fault Act disfavoring exclusions from coverage. Id. at 21. Disagreeing with the majority's interpretation of Meyer, Judge Plank dissented. Id.

Farmers petitioned this court for certiorari to determine Whether an exclusion from liability coverage for bodily injury caused to any named insured ("named insured exclusion") is consistent with the public policy underlying the Colorado Auto Accident Reparations Act, sections 10-4-701 to -725, 4A C.R.S. (1994).

We hold that named insured exclusions are contrary to the public policy of this state as reflected in the Colorado Auto Accident Reparations Act, §§ 10-4-701 to -725, 4A C.R.S. (1994 & 1995 Supp.). We therefore affirm the court of appeals' reversal of the trial court's summary judgment for Farmers and return this case to the court of appeals with directions to remand to the trial court for further proceedings consistent with this opinion.

II.

The Farmers insurance policy at issue in this case states that "liability coverage does not apply to liability for bodily injury to an insured person." The policy defines an insured person as either a named insured or a member of the named insured's family. Because Rhonda Dotson was a named insured under the insurance policy, this exclusion precludes her and all those whose rights are derivative of hers from recovering damages based on the liability of an insured under the policy. The question we must resolve is whether this exclusion violates the public policy of this state as expressed in the No-Fault Act. ³

A.

Farmers argues that the named insured exclusion in the insurance policy does not violate public policy. Farmers further argues that our decision in Meyer v. State Farm Mutual Automobile Insurance Co., 689 P.2d 585 (Colo.1984), is not dispositive of this case. We disagree.

In the absence of ambiguity, an insurance policy must be given effect according to the plain and ordinary meaning of its terms. Matter of Estate of Daigle, 634 P.2d 71, 79 (Colo.1981). However, even if a policy provision is unambiguous, a provision may be void and unenforceable if it violates public policy by attempting to "dilute, condition, or limit statutorily mandated coverage." Aetna Casualty & Sur. Co. v. McMichael, 906 P.2d 92, 100 (Colo.1995). Thus, this court has refused to enforce provisions in automobile insurance policies that are against public policy. See, e.g., Kral v. American Hardware Mut. Ins. Co., 784 P.2d 759, 765 (Colo.1989)(subrogation clause and release trust agreement unenforceable because would result in inability to obtain full compensation for loss and would violate public policy).

The public policy of the No-Fault Act is expressed in the legislative declaration included in the Act. See 10-4-702, 4A C.R.S. (1994). This declaration states:

Legislative declaration. The general assembly declares that its purpose in enacting this part 7 is to avoid inadequate compensation to victims of automobile accidents; to require registrants of motor vehicles in this state to procure insurance covering legal liability arising out of ownership or use of such vehicles and also providing benefits to persons occupying such vehicles and to persons injured in accidents involving such vehicles.

It is clear from this declaration that by enacting the No-Fault Act the legislature intended to "avoid inadequate compensation to victims of automobile accidents, and to require that motor vehicle owners purchase insurance policies which provide coverage for both liability and no-fault benefits." Meyer, 689 P.2d at 588 (emphasis in original).

In Meyer, we considered whether household exclusions in automobile insurance policies violated the public policy of the No-Fault Act. Meyer involved three consolidated cases. In two of the cases, the injured individuals were attempting to recover benefits under liability coverage provided to a member of the same household. 689 P.2d at 587-88. In a third case, the Adcock case, the plaintiff was injured while riding as a passenger in a car she owned and insured. Id. at 588. The driver of the car was a permissive user of the car and thus, an insured under the terms of plaintiff's insurance policy. The driver was not a member of the plaintiff's household. Id. In all three cases, the trial court dismissed the injured parties' claims because of liability exclusions in the respective insurance policy. The exclusion clause relied upon by State Farm Mutual Auto Insurance Company in the Adcock case is typical. It stated that liability coverage did not apply to " 'any insured or any member of the family of an insured residing in the same household as an insured.' " Id.

In the Meyer group of cases, we granted certiorari to determine: "Whether the insured or a member of the insured's household may recover under the insured's liability coverage, notwithstanding the existence of a...