Huizar v. Allstate Ins. Co., 96SC643

Decision Date02 February 1998
Docket NumberNo. 96SC643,96SC643
Citation952 P.2d 342
Parties98 CJ C.A.R. 485 Gloria HUIZAR, Petitioner, v. ALLSTATE INSURANCE COMPANY, Respondent.
CourtColorado Supreme Court

Law Office of Lloyd Kordick, Lloyd Kordick, Colorado Springs, Law Office of Joseph J. Archuleta, Joseph J. Archuleta, Trent T. King, Denver, for Petitioner.

Holland & Hart LLP, Brian Muldoon, Denver, for Respondent.

Justice MARTINEZ delivered the Opinion of the Court.

The issue presented by this case is whether a trial de novo clause in an uninsured motorist provision of an automobile insurance policy violates public policy. 1 The trial de novo clause allows the insured or insurer to demand a trial on the merits after arbitration when the amount awarded in the arbitration proceeding exceeds a specified limit. The trial court ruled that the trial de novo clause was unenforceable. The court of appeals reversed the judgment. See Huizar v. Allstate Ins. Co., 932 P.2d 839 (Colo.App.1996). We closely scrutinize the effect of the trial de novo clause for consistency with Colorado law and determine that it is in conflict with the public policy of this state. We therefore reverse and hold that the trial de novo clause is unenforceable.

I.

The petitioner, Gloria Huizar, was a passenger in an automobile driven by her neighbor, an uninsured motorist. The neighbor lost control of the automobile and hit a curb, slamming Huizar's head into the interior post and windshield of the vehicle. Huizar immediately experienced pain in her neck and head. After six days, she began medical treatment. Allstate Insurance Company, Huizar's insurer, paid her medical expenses pursuant to the personal injury protection coverage of her policy. Because of her neighbor's uninsured status, Huizar also looked to Allstate for her additional claims.

Huizar and Allstate were unable to agree about additional compensation under the terms of her uninsured motorist protection policy. Consequently, Huizar elected to invoke the arbitration clause in her insurance policy, which provides:

If [Huizar] or [Allstate] don't agree on [Huizar's] right to receive any damages or the amount, then at the request of either, the disagreement will be settled by arbitration.

After two days of arbitration proceedings, the arbiter awarded Huizar "$30,000 plus interest from the date of the accident and appropriate costs."

The arbiter's award exceeded the $25,000.00 minimum liability coverage required by Colorado's Financial Responsibility statute. 2 Allstate initiated an action in district court by filing a "motion for trial de novo" and naming itself as the defendant. The motion was based on the trial de novo clause in Huizar's policy, which provides:

Regardless of the method of arbitration, when any arbitration award exceeds the financial responsibility limits in the State of Colorado [$25,000.00], either party has a right to trial on all issues in a court of competent jurisdiction. This right must be exercised within 60 days of the award. Costs, including attorney fees, are to be paid by the party incurring them.

In response, Huizar moved to dismiss the action and requested that the trial court docket the arbiter's award pursuant to section 13-22-216, 5 C.R.S. (1997).

Huizar argued that the trial de novo clause unduly limited her ability to recover and was therefore contrary to the public policy of providing just compensation to victims injured by uninsured motorists. After additional briefing on the issue, the trial court denied Allstate's motion and held that the trial de novo clause was "patently unfair" to Huizar because it permitted Allstate "to litigate ... issues [of liability as well as damages] twice if it's not satisfied with the first decision." The trial court concluded that the trial de novo clause "limit[s] uninsured motorist coverage [and] is void against public policy."

Allstate appealed, and the court of appeals reversed, concluding that Colorado law does not specifically require binding arbitration for uninsured motorist claims. See Huizar, 932 P.2d at 840. Thus, the court of appeals held that the trial de novo clause does not violate public policy. We do not agree.

II.

Insurance policies, as several courts have observed, differ from ordinary, bilateral contracts. See Jones v. Horace Mann Ins. Co., 937 P.2d 1360, 1361 (Alaska 1997); Wiggam v. Associates Fin. Serv., Inc., 677 N.E.2d 87, 91 (Ind.App.1997); Rodman v. State Farm Mut. Auto. Ins., 208 N.W.2d 903, 905 (Iowa 1973); U.S. Fidelity & Guaranty, Co. v. Ferguson, 698 So.2d 77, 80 (Miss.1997). Because of both the disparity of bargaining power between insurer and insured and the fact that materially different coverage cannot be readily obtained elsewhere, automobile insurance policies are generally not the result of bargaining. See Schmidt v. Midwest Fam. Mut. Ins. Co., 426 N.W.2d 870, 874 (Minn.1988) (recognizing that although an insurance policy may not technically qualify as a contract of adhesion, it possesses some of the earmarks of an adhesive contract). Instead, the provisions in a policy are often imposed on a take-it-or-leave-it basis. It is not a negotiated contract but one with terms required by legislation or dictated by the insurer. Thus, courts have assumed a "heightened responsibility" to scrutinize insurance policies for provisions that unduly compromise the insured's interests and have concluded that any provision of an insurance policy which violates public policy and principles of fairness is unenforceable. See Milbank Ins. Co. v. Henry, 232 Neb. 418, 441 N.W.2d 143, 148 (1989); Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 607 A.2d 1255, 1260 (1992).

We have previously recognized that "a contractual provision is void if the interest in enforcing the provision is clearly outweighed by a contrary public policy." FDIC v. American Cas. Co., 843 P.2d 1285, 1290 (Colo.1992) (citing University of Denver v. Industrial Comm'n, 138 Colo. 505, 509, 335 P.2d 292, 294 (1959)). We have extended this principle to the conditions and terms of an insurance contract that undermine legislatively-expressed public policy. See, e.g., Meyer v. State Farm Mut. Auto. Ins. Co., 689 P.2d 585, 589 (Colo.1984) (household exclusion in automobile liability policy held invalid as contrary to public policy expressed in Colorado Auto Accident Reparations Act); Newton v. Nationwide Mut. Fire Ins. Co., 197 Colo. 462, 468, 594 P.2d 1042, 1046 (1979) (insurance policy provision which permitted insurer to subtract PIP payments from uninsured motorist coverage so as to reduce that coverage to less than statutory minimum violative of public policy in Colorado Auto Accident Reparations Act).

In Allstate Insurance Co. v. Avis, 947 P.2d 341 (Colo.1997), we held that competing excess clauses would not be enforced, even in the absence of a direct expression of public policy or a specific statute addressing the issue and despite freedom of contract, because "an unintended consequence or absurdity contrary to public policy would result." Id. at 346. In Avis, we examined not only the facial validity of a clause in the insurance policy, but the result created by the operation of a provision of the policy in particular circumstances. We determined that Colorado's insurance laws favor adequate, fair and timely resolution of claims. See id. Similarly, here we do not confine ourselves to scrutinizing the insurance policy on its face, but we also examine whether the effects created by the operation of the trial de novo clause are consistent with public policy. We consider public policy derived from several sources and take an integrated approach to understanding public policy as it affects the resolution of disputes involving uninsured motorist claims.

We begin our analysis by considering the pertinent public policies within the automobile insurance context. Next, we examine the effects created by the operation of the trial de novo clause and we closely scrutinize the de novo clause for consistency with public policy.

III.

The following public policies are pertinent to a consideration of the trial de novo provision: (1) the policy against dilution of the uninsured motorist coverage evinced by the adoption of section 10-4-609, 3 C.R.S. (1997), (2) the policy against undue delay in access to the courts and in favor of speedy resolution of disputes contained in Colorado Constitution Article II, Section 6, and (3) the policy in favor of encouraging arbitration as an alternative to litigation embodied in Colorado Constitution Article XVIII, Section 3 and in sections 13-22-201 to -223, 5 C.R.S. (1997).

A.

The General Assembly enacted the Motor Vehicle Financial Responsibility Act (Act) in 1965 to "assure the widespread availability to the insuring public of insurance protection against financial loss caused by negligent financially irresponsible motorists." Ch. 91, sec. 1, 1965 Colo. Sess. Laws 333 (declaration of purpose). The current uninsured motorist statute requires insurers to offer uninsured motorist coverage under the liability provisions of an automobile insurance policy. 3 See § 10-4-609, 3 C.R.S. (1997). Uninsured motorist insurance ensures that victims injured by an uninsured motorist recover as if they had been injured by a driver covered by the required liability insurance. See Terranova v. State Farm Mut. Auto. Ins. Co., 800 P.2d 58, 60-61 (Colo.1990); Alliance Mut. Cas. Co. v. Duerson, 184 Colo. 117, 124, 518 P.2d 1177, 1181 (1974) (legislative intent is satisfied by recovery which assures that an injured motorist will be compensated at least to the same extent as one injured by a motorist who is insured in compliance with Motor Vehicle Financial Responsibility Act); Briggs v. American Family Mut. Ins. Co., 833 P.2d 859, 861 (Colo.App.1992) (the purpose of uninsured motorist coverage is to compensate insureds for losses caused by negligent and financially irresponsible motorists).

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