Granite State in. v. Ken Caryl Ranch Master

• Decision Date: 12 May 2008
• Docket Number: No. 06SC627.,06SC627.
• Parties: GRANITE STATE INSURANCE COMPANY, a corporation authorized to do business in the State of Colorado, Petitioner v. KEN CARYL RANCH MASTER ASSOCIATION, a Colorado nonprofit corporation, d/b/a Ken Caryl Ranch Association, Respondent.
• Court: Colorado Supreme Court

183 P.3d 563

GRANITE STATE INSURANCE COMPANY, a corporation authorized to do business in the State of Colorado, Petitioner v. KEN CARYL RANCH MASTER ASSOCIATION, a Colorado nonprofit corporation, d/b/a Ken Caryl Ranch Association, Respondent.

No. 06SC627.

Supreme Court of Colorado, En Banc.

May 12, 2008.

Wheeler Trigg Kennedy LLP, John R. Trigg, Steven M. Kelso, Denver, Colorado, Attorneys for Petitioner.

Bell & Pollock, P.C., Bradley P. Pollock, Greenwood Village, Colorado, Attorneys for Respondent.

Justice BENDER delivered the Opinion of the Court.

I. Introduction

We granted certiorari in this case to review the court of appeals' decision in Ken Caryl Ranch Master Ass'n v. Granite State Insurance Co., 155 P.3d 457 (Colo.App.2006), in which the court of appeals construed Colorado's insurance notice statute, section 10-4-110.5(1), C.R.S. (2007), to require an insurer: (1) to notify its insured of any increase in premium or decrease in coverage at least forty-five days before the expiration of the existing policy; and (2) in the event that the insurer fails to notify the insured of the change at least forty-five days before the expiration of the insured's existing policy, to inform the insured that the existing policy has been extended for forty-five days at a prorated premium.¹

The notice statute is comprised of three sentences. § 10-4-110.5(1). Under the plain language of the statute, we construe the first sentence as establishing the statute's notice requirements and the second and third sentences as providing distinct remedies to the insured if the insurer fails to comply with the notice requirements set forth in the statute's first sentence. If an insurer fails to provide adequate notice to the insured of an increase in premium or a decrease in coverage at least forty-five days before the expiration of the insured's existing policy, then the second sentence of the statute "automatically extend[s]" the insured's existing policy for forty-five days at a prorated premium. Id. If an insurer fails to provide adequate notice to the insured of an increase in premium or a decrease in coverage before the expiration of the insured's existing policy, then the third sentence of the statute "deem[s]" the insured's existing policy to be renewed for a full term under the same terms, conditions, and premium as the existing policy. Id.

Accordingly, we construe the term "requirements" as it is used in the third sentence of the notice statute as referring to the notice requirements set forth in the statute's first sentence and not to the remedy provided for in the statute's second sentence. In addition, we construe the third sentence of the notice statute as providing an insured with the remedy of a full-term renewal of the insured's existing policy, but only if the insurer fails to provide adequate notice to the insured before the expiration of the insured's existing policy. We construe the second sentence of the notice statute as a remedy provision which "automatically extend[s]" the existing policy for forty-five days at a prorated premium. For this reason, the court of appeals erred in construing the notice statute to require that if an insurer provides late, but adequate, notice to the insured, that the insurer must "affirmatively inform" the insured that the policy will be extended for forty-five days at a prorated premium.

Here, Granite State provided late, but adequate, notice to Ken Caryl five days before Ken Caryl's policy expired. Granite State's late notice resulted in a forty-five-day extension of the policy at a prorated premium, but avoided a full-term renewal of the policy. Because Ken Caryl's loss occurred after the expiration of the forty-five-day extension, the loss was governed by the terms of the policy as renewed by the parties. Hence, we reverse the court of appeals' judgment and remand the case to that court to be returned to the trial court for entry of judgment in favor of Granite State.

II. Facts and Procedural Background

The first sentence of section 10-4-110.5(1) establishes Colorado's insurance notice requirement, namely that if an insurer is intending either to increase an insured's premium or to decrease an insured's coverage upon renewal of the insured's policy, then the insurer must notify the insured of the change at least forty-five days before the expiration of the existing policy:

No insurer shall increase the premium unilaterally or decrease the coverage benefits on renewal of a policy of insurance that provides coverages on commercial exposures ... unless the insurer mails by first-class mail to the named insured, at the last address shown in the insurer's records, at least forty-five days in advance a notice, accompanied by the reasons therefore, stating the renewal terms and the amount of premium due.

Id.

If an insurer fails to provide adequate notice to its insured at least forty-five days before the expiration of the insured's existing policy, then the second sentence of the statute "automatically extend[s]" the policy for forty-five days at a prorated premium:

If the insurer fails to furnish the renewal terms and the statement of the amount of premium due at least forty-five days prior to the expiration of the policy, the insurer shall automatically extend the existing policy for a period of forty-five days and the premium for the extended policy shall be prorated based on the premium applicable to the existing policy.

Id. (emphasis added).

If an insurer fails to meet the "requirements" set forth in the notice statute before the expiration of the insured's existing policy, then the third sentence of the notice statute imposes a full-term renewal of the policy under the same terms, conditions, and premium as the existing policy:

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.

Id. (emphasis added).

Ken Caryl Ranch Master Association is a nonprofit corporation that owns and cares for approximately 4,000 acres of private open space located on Ken Caryl Ranch. As part of its operations, Ken Caryl owns and operates a number of buildings, including an indoor horseback riding arena. Granite State Insurance Company is licensed to sell insurance products and to conduct insurance business in Colorado.

Ken Caryl purchased two commercial property insurance policies from Granite State. The first policy—the 01 Policy—was, by its terms, effective from December 1, 2001, through December 1, 2002. The 01 Policy provided "blanket coverage" for Ken Caryl's buildings and other personal property up to a limit of $4,937,971. The second policy—the 02 Policy—was, by its terms, effective from December 1, 2002, through December 1, 2003. The 02 Policy did not provide blanket coverage for Ken Caryl's buildings and property, but rather provided coverage on each individual building up to a limit established by a predetermined value schedule.

Thirty-three days before the expiration of the 01 Policy, Granite State notified Ken Caryl that the 02 Policy would not provide blanket coverage for Ken Caryl's buildings and property. On November 26, 2002, five days before the expiration of the 01 Policy, Ken Caryl received a quotation for the 02 Policy, which included the renewal terms and the amount of premium due. Granite State never extended the 01 Policy for forty-five days at a prorated premium as required by the statute.

On December 6, 2002, five days after the expiration of the 01 Policy and upon Ken Caryl's request, Granite State issued an endorsement of the 02 Policy that increased, for an additional premium, the 02 Policy's coverage of each individual building by thirty percent. Under this endorsement, the 02 Policy covered Ken Caryl's indoor riding arena for a loss of up to $193,325.60.

On March 19, 2003, the roof of Ken Caryl's riding arena collapsed due to an accumulation of snow. Ken Caryl claimed a loss in excess of $300,000. When Granite State refused to pay more than $193,325.60 toward the loss, Ken Caryl initiated the present action, claiming that the 01 Policy, with its blanket coverage up to $4,937,971, governed the loss based on Granite State's failure to provide timely notice of the decrease in coverage and its failure to inform Ken Caryl that the 01 Policy was extended for forty-five days at a prorated premium pursuant to its construction of the notice statute.

In its motion for summary judgment before the trial court, Granite State argued that although it provided late notice to Ken Caryl, Ken Caryl's only remedy was the forty-five-day extension provided for in the second sentence of the notice statute. Granite State further argued that the 02 Policy governed Ken Caryl's loss because the loss occurred on March 19, 2003, and the latest the 01 Policy could have applied was January 16, 2003, forty-five days after the expiration of the 01 Policy.

The trial court agreed with Granite State's assertions and granted its motion for summary judgment, reasoning that because Granite State notified Ken Caryl of the decrease in coverage before the expiration of the 01 Policy, "albeit five days prior to the lapse of the 01 Policy," its failure to extend the 01 Policy for forty-five days at a prorated premium did not "require them to renew the 01 Policy for an additional year at the same rates."

On appeal, the court of appeals reversed, construing the notice statute to require an insurer: (1) to notify its insured of any decrease in coverage or increase in premium at least forty-five days before the expiration of the existing policy; and (2) in the event that the insurer fails to notify the insured of the change at least forty-five days before the expiration of the insured's existing policy, to inform the insured that the existing policy has been extended...