Meyer v. State Farm Mut. Auto. Ins. Co., s. 82SC155

Decision Date24 September 1984
Docket Number82SA474 and 82SA298,Nos. 82SC155,s. 82SC155
Parties, 53 USLW 2200 Sophie H. MEYER and Kenneth Meyer, Petitioners, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent. FARMERS INSURANCE EXCHANGE, a reciprocal or inter-insurance exchange, Plaintiff-Appellee, v. Clara AGUIRRE and Porfirio Aguirre, Defendants-Appellants. Marianne I. ADCOCK and John R. DeCrescentis, Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a foreign corporation, Defendant-Appellee. .
CourtColorado Supreme Court

Bruce A. Matas, Denver, for petitioners in No. 82SC155.

Renner, Rodman & Burke, John R. Rodman, Denver, for respondent in No. 82SC155.

Rector, Retherford, Mullen & Johnson, Neil C. Bruce, Colorado Springs, for plaintiff-appellee in No. 82SA474.

Lee N. Sternal, P.C., Pueblo, for defendants-appellants in No. 82SA474.

Wagner & Waller, William C. Waller, Jr., Denis H. Mark, Jon J. Walkwitz, Englewood, for plaintiffs-appellants in No. 82SA298.

DeMoulin, Anderson, Campbell & Laugesen, P.C., Laird Campbell, Denver, for defendant-appellee in No. 82SA298.

Kritzer & Chalat, Stuart Kritzer, Denver, for amicus curiae, Colorado Trial Lawyers Ass'n.

NEIGHBORS, Justice.

These consolidated appeals present the issue of whether a "household exclusion clause" 1 in an automobile liability insurance policy is invalid because it violates the Colorado Automobile Reparations Act, 2 commonly known as the No-Fault Act (Act), and is therefore contrary to public policy as reflected in the Act. We granted certiorari in State Farm Mutual Automobile Insurance Co. v. Meyer, 647 P.2d 683 (Colo.App.1982), to review the court of appeals' decision that such a clause is valid and enforceable. In Farmers Insurance Exchange v. Aguirre, No. 82SA474, and Adcock v. State Farm Mutual Automobile Insurance Co., No. 82SA298, the respective trial courts also upheld the validity of the clause. Both cases were transferred to this court from the court of appeals for consolidation with Meyer. We hold that the household exclusion clause is invalid and reverse the judgments in all three cases.

I.

Even though the principal issue in these appeals is identical, the litigation in each case arose in a different context. Therefore, we will discuss the pertinent facts of each case separately. 3

A. Meyer

On August 26, 1978, Kenneth Meyer was driving an automobile in which Sophie Meyer, his mother, was a passenger. Sophie resided with Kenneth; however, they lived together primarily for financial reasons and kept their financial matters separate. The automobile was involved in a one-car accident and Sophie was injured. She sued Kenneth to recover damages for her personal injuries. Kenneth's insurance carrier, State Farm Mutual Insurance Co., paid Sophie's medical expenses as required by the Personal Injury Protection (PIP) provisions of the policy. However, State Farm filed suit seeking a declaratory judgment that Sophie is not entitled to recover additional damages for bodily injuries under Kenneth's liability coverage.

Kenneth's insurance policy provides that State Farm will pay, on Kenneth's behalf, all claims for bodily injury which he becomes legally obligated to pay. The policy also states that the bodily injury coverage does not apply to "any insured or any member of the family of an insured residing in the same household as the insured." (Emphasis in original.) The trial court held that this exclusionary provision applied to Sophie and did not violate the requirements of the Act. Thus, the trial court entered a summary judgment that Kenneth was not entitled to bodily injury coverage for Sophie's claim. The court of appeals affirmed, holding that when the claimant is a relative of the insured and resides in the insured's household, the minimum required coverage is that for no-fault benefits specified in section 10-4-706(1)(b) to (e), 4 C.R.S. (1973 & 1983 Supp.), and the Act in such circumstances does not require the liability coverage described in section 10-4-706(1)(a), 4 C.R.S. (1973 & 1983 Supp.). State Farm Mutual Automobile Insurance Co. v. Meyer, 647 P.2d 683 (Colo.App.1982).

B. Aguirre

On September 15, 1976, Clara Aguirre was a passenger in a car owned and driven by her husband, Porfirio Aguirre. They were involved in a one-car collision in which Clara suffered bodily injuries. She sued Porfirio for damages based on his alleged negligence. The automobile was insured by a policy issued by Farmers Insurance Exchange to Clara and Porfirio. Farmers filed a complaint seeking a declaratory judgment that it is not legally obligated to defend Porfirio or to pay any judgment rendered against him. The insurance policy excludes coverage for "liability of any insured for bodily injury to (a) any member of the same household of such insured except a servant, or (b) the named insured." The trial court held that the exclusion clause is not contrary to the Act or public policy, citing Meyer, 647 P.2d at 683. Therefore, the trial court ruled that Farmers is not legally obligated to provide a defense to Porfirio or to pay any judgment which may be rendered against him.

C. Adcock

On July 12, 1978, Marianne Adcock was a passenger in an automobile owned by her and driven by John R. DeCrescentis with Adcock's permission. The car was involved in an accident and Adcock filed suit against DeCrescentis for injuries she sustained as a result of his alleged negligence. DeCrescentis was insured by Government Employees Insurance Company (GEICO). GEICO paid Adcock its policy limits of $15,000, the minimum coverage required by the Act, in return for an agreement and covenant not to enforce judgment.

At the time of the accident Adcock was insured by State Farm Mutual Automobile Insurance Co. Her insurance policy provided that the liability coverage does not apply to "any insured or any member of the family of an insured residing in the same household as the insured." Under the policy provisions, the term "insured" includes any person using the automobile with the permission of the named insured. Adcock and DeCrescentis sought a declaratory judgment that State Farm is legally obligated to provide a defense for DeCrescentis in Adcock's suit against him, and to pay any judgment that might be awarded to Adcock. The trial court dismissed the complaint filed by Adcock and DeCrescentis.

II.

Although declaratory relief was sought by a different party in each case, the pivotal issue is the same: Whether the insured or a member of the insured's household may recover under the insured's liability coverage, notwithstanding the existence of a clause in the policy which purports to exclude such coverage. We hold that the household exclusion is invalid because it is contrary to the provisions of the Act and thereby violates public policy as expressed in the Act.

The starting point for our analysis begins with the Act. In order to determine whether the household exclusion is inconsistent with the Act, we first look to the underlying public policy expressed by the General Assembly. Section 10-4-702, 4 C.R.S. (1973), 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.

We, therefore, conclude that the legislative purpose in adopting the Act was twofold: 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.

Section 10-4-706(1)(a), 4 C.R.S. (1973), 4 mandates compulsory liability coverage. This provision states:

Required coverages. (1) Subject to the limitations and exclusions authorized by this part 7, the minimum coverages required for compliance with this part 7 are as follows:

(a) Legal liability coverage for bodily injury or death arising out of the use of the motor vehicle to a limit, exclusive of interest and costs, of fifteen thousand dollars to any one person in any one accident and thirty thousand dollars to all persons in any one accident, and for property damage arising out of the use of the motor vehicle to a limit, exclusive of interest and costs, of five thousand dollars in any one accident....

(Emphasis added.) Sections 10-4-706(1)(b) to (1)(e), 4 C.R.S. (1973 & 1983 Supp.), require what are generally referred to as personal injury protection (PIP) or no-fault benefits--compensation without regard to fault for medical expenses, rehabilitation expenses, lost pay, and death benefits. 5 Liability and PIP coverages provide benefits for claims that are fundamentally distinct in character. Cingoranelli v. St. Paul Fire & Marine Insurance, 658 P.2d 863 (Colo.1983). Both liability and PIP coverages "play a role in effectuation of the legislative purpose." Marquez v. Prudential Property & Casualty Ins. Co., 620 P.2d 29, 33 (Colo.1980). The statutes in effect at the time these cases arose provide that an owner who fails to have in effect a policy containing the required coverages for liability and no-fault "shall be subject to the sanctions provided under section 42-7-301, C.R.S. 1973, of the 'Motor Vehicle Financial Responsibility Act'." § 10-4-705(1), 4 C.R.S. (1973). In addition, an owner who fails to have a no-fault policy in effect becomes personally liable for the payment of no-fault benefits. § 10-4-705(2), 4 C.R.S. (1973).

Having determined that liability insurance is mandatory under the Act, we must now examine the statutory scheme to determine if any of the provisions pertaining to exclusions from the Act permit the carriers to enforce...

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