Hansen v. Barmore, 87CA1518

• Decision Date: 23 February 1989
• Docket Number: No. 87CA1518,87CA1518
• Citation: 779 P.2d 1360
• Parties: Susan Rose HANSEN, Plaintiff-Appellant, v. Keith A. BARMORE, Defendant, and Allstate Insurance Company, Garnishee-Appellee. . III
• Court: Colorado Court of Appeals

Page 1360

779 P.2d 1360

Susan Rose HANSEN, Plaintiff-Appellant, v. Keith A. BARMORE, Defendant and Allstate Insurance Company, Garnishee-Appellee.

No. 87CA1518.

Colorado Court of Appeals, Div. III.

Feb. 23, 1989.

Rehearing Denied March 23, 1989.

Certiorari Denied Sept. 5, 1989.

Ozer, Kiel, Trueax, Pribila & Kullmann, P.C., Robert F. Pribila, Colorado Springs, for plaintiff-appellant.

Zupkus & Ayd, P.C., Robert A. Zupkus, Denver, for garnishee-appellee.

FISCHBACH, Judge. ^*

Plaintiff, Susan Rose Hansen, appeals the trial court's order denying her garnishment claim against Allstate Insurance Company. The issue before us is whether the trial court erred in concluding that Allstate has no liability to Hansen because Allstate's insured, Keith Barmore, failed to forward to Allstate copies of the summons and complaint Hansen served upon him. We reverse.

Hansen was injured on November 27, 1984, when Barmore drove into Hansen's car broadside. Barmore was the permissive driver of a vehicle owned by Debra Denham and insured by Allstate. Barmore, as well as Denham and Hansen, advised Allstate of the accident in timely fashion.

Hansen served Barmore with a summons and complaint on February 6, 1986, and, after receiving no answer, forwarded a copy of each to Allstate with an accompanying letter warning of a possible default judgment against Barmore. Allstate acknowledged receipt of the suit papers on May 1, 1986, and, on August 19, Hansen moved for a default judgment, which was granted on October 16, 1986.

On May 12, 1987, Hansen served Barmore and Allstate with a writ of garnishment, requiring Allstate to identify all personal property it held or possessed that was "owed to or owned by" Barmore. Allstate answered that it held no property of Barmore's. The trial court agreed with Allstate and denied Hansen's traverse, concluding that because Barmore had breached the insurance policy provision requiring the insured to "immediately forward to Allstate every demand, notice or summons received," Allstate had no duty to defend or pay under the policy. This appeal followed.

I.

The rights of parties to an insurance policy are contractual and are measured by a reasonable and natural construction of the terms and conditions of the policy. Barclay v. London Guarantee & Accident Co., 46 Colo. 558, 105 P. 865 (1909). Accordingly, express provisions in a policy requiring that the insured give notice of the accident and forward suit papers to the insurer as a condition precedent to coverage are enforceable. See Marez v. Dairyland Insurance Co., 638 P.2d 286 (Colo.1981); Thomas v. Guaranty National Insurance Co., 43 Colo.App. 34, 597 P.2d 1053 (1979). However, such provisions may be set aside for substantial justification. Marez, supra.

Substantial justification exists when the insured has adequate excuse for noncompliance, Barnes v. Waco Scaffolding & Equipment Co., 41 Colo.App. 423, 589 P.2d 505 (1979), or when the purposes of the provisions are met by actual notice to the insurer, whether or not in strict compliance with the policy. Emcasco Insurance Co. v. Dover, 678 P.2d 1051 (Colo.App.1983); Wilson v. U.S. Fidelity & Guaranty Co., 633 P.2d 493 (Colo.App.1981).

A.

Allstate first argues that notice to the insurer by a third party, even if otherwise timely, cannot constitute substantial justification for setting aside a policy's notice provisions. We disagree.

The question of whether there is substantial justification for enforcing an insurance policy when its notice provisions, including notice of both accident and suit, are satisfied by an injured third party rather than the insured, is one of first impression in Colorado. It is not, however, a question attracting widespread debate. To the contrary, the rule we now adopt--that compliance by the injured party suffices--is in accordance with the vast majority of jurisdictions that have ruled on the issue. See Casualty Indemnity Exchange v. Crete, 731 F.2d 457 (7th Cir.1984); Foundation Reserve Insurance Co. v. Kelly, 388 F.2d 528 (10th Cir.1968); Stonewall Insurance Co. v. Farone, 129 Ga.App. 471, 199 S.E.2d 852 (1973); Transamerica Insurance Co. v. Norfolk & Dedham Mutual Fire Insurance Co., 361 Mass. 144, 279 N.E.2d 686 (1972); Kidwell v. Chuck Olson Oldsmobile, Inc., 4 Wash.App. 471, 481 P.2d 908 (1971). Recognized treatises on insurance law also accept that rule as not open to serious challenge. See, e.g., 8 J. Appelmann, Insurance Law & Practice § 4738 (1981).

The conclusion reached by this majority of jurisdictions is based on two lines of reasoning: the public nature of automobile insurance, and the purposes behind policy notice provisions.

As to the public nature of automobile insurance, in Simmon v. Iowa Mutual Casualty Co., 3 Ill.2d 318, 121 N.E.2d 509 (1954), the Supreme Court of Illinois noted that such insurance: "is no longer a private contract between parties." Rather, because of the significant amount of litigation arising from the operation of motor vehicles and the numerous laws aimed at protecting those injured in automobile accidents, it pointed out that "[g]overnment and the general public have an understandable interest in the problem." With those principles in mind, the Illinois court stated:

"Conceding that the insurance company is entitled to reasonable notice to protect its interests, where such notice is given by a person other than the assured, is the company then without liability in the event the injured party is entitled to recovery? We do not feel that such a harsh result should follow, nor that it was intended by the contracting parties."

By also looking to the purpose of the notice provisions, the majority of courts have counterbalanced the public interest in automobile insurance with the private interest of the insurance company as a party to the contract. The dual purpose of the requirements of prompt and timely notice of the accident and suit is "(1) to afford the insurer opportunity to make reasonable investigation and (2) to enable the insurer to adequately prepare a defense, if that be necessary." White v. Nationwide Mutual Insurance Co., 245 F.Supp. 1 (W.D.Va.1965), aff'd, 361 F.2d 785 (4th Cir.1966); see Marez v. Dairyland Insurance Co., supra; Wilson v. U.S. Fidelity & Guaranty Co., supra. In satisfying this dual purpose, "[t]he question as to who gives the notice to the insurer is obviously of minor importance as long as notice is actually given of the occurrence of the accident or the pendency of the suit." Annot., 18 A.L.R.2d 443 at 448 (1951), quoted in Kidwell v. Chuck Olson Oldsmobile, Inc., supra.

The rule that an automobile insurance policy shall be enforced when the injured party complies with the policy's notice provisions also is consistent with Colorado precedent.

The only Colorado case implicitly addressing the importance of the source of notice is Wilson v. U.S. Fidelity & Guaranty Co., supra, in which this court affirmed a garnishment order against an insurance company over its objection that the insured had breached the policy by failing to forward suit papers. Because the purpose of the notice requirements--to allow the insurer to make appropriate investigations and to facilitate reasonable settlements of claims--was satisfied by actual oral notice of the action, the company could not escape liability under the policy for failure to receive the papers. Significantly absent from the opinion was an identification of who gave the company the oral notice. The actual notice, not its source, controlled the outcome.

Citing Marez v. Dairyland Insurance Co., supra, Allstate argues, in effect, that regardless of Wilson v. U.S. Fidelity & Guaranty Co., supra, our supreme court has since clarified that notice must be provided by the insured himself. Allstate's interpretation of Marez is inaccurate.

In Marez, denial of benefits to the injured party was explicitly based on the facts there at issue, including lack of notice by anyone of both accident and suit until the insurance company by chance learned of them two and one-half years after the accident. In light of these facts, the supreme court affirmed the trial court's conclusion that no substantial justification existed for setting aside the policy conditions and requiring payment by the totally innocent and uninformed company. The Marez court by no means overruled Wilson v. U.S. Fidelity & Guaranty Co., a case upon which it had denied certiorari only a few months previously, nor did it suggest that substantial justification would not exist if the company had received adequate notice from the injured party rather than the insured.

We therefore conclude that the trial court erred in denying Hansen's garnishment against Allstate on the basis of Barmore's failure to forward suit papers.

B.

Having concluded that Hansen was eligible to...