Sachtjen v. American Family Mut. Ins. Co.

• Decision Date: 01 July 2002
• Docket Number: No. 01SC481.,01SC481.
• Citation: 49 P.3d 1146
• Parties: Anita Donez SACHTJEN, individually, as next friend of Caela Anisa Sachtjen, a minor, and as Personal Representative of the Estate of Wendy L. Emken (deceased), Petitioner, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin insurance company authorized to do business in Colorado, Respondent.
• Court: Colorado Supreme Court

49 P.3d 1146

Anita Donez SACHTJEN, individually, as next friend of Caela Anisa Sachtjen, a minor, and as Personal Representative of the Estate of Wendy L. Emken (deceased), Petitioner, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin insurance company authorized to do business in Colorado, Respondent.

No. 01SC481.

Supreme Court of Colorado, En Banc.

July 1, 2002.

Charles M. Hobbs, Brad D. Redmiles, Fort Morgan, Colorado, Attorneys for Petitioner.

Grund & Breslau, P.C., Della S. Nelson, Denver, Colorado, Attorneys for Respondent. Justice COATS delivered the Opinion of the Court.

Anita Sachtjen sought review of the court of appeals' decision in American Family Mutual Insurance Co. v. Sachtjen, No. 00CA1415 (Colo.App. May 31, 2001)(not selected for official publication), affirming a declaratory judgment in favor of American Family Mutual Insurance Company. The district court declared that American Family had no liability for damages resulting from an accident involving a motor vehicle that was being driven by a conditional vendee rather than the American Family policy holder. It concluded that the driver became the owner of the vehicle upon entering into the conditional sale agreement and taking physical possession of the vehicle. The court of appeals affirmed, similarly holding that because a conditional sale had occurred and possession and control of the vehicle had been transferred to the vendee, she was no longer indemnified as a permissive driver under the seller's liability policies. Because we hold that the conditional sale agreement did not vest the right of possession of the vehicle in the vendee, the judgment of the court of appeals is reversed and the case is remanded for further proceedings.

I.

The events giving rise to this action for declaratory judgment occurred in June 1998, when twenty-four-year-old Wendy Emken and her fiancé, Charles Sachtjen, and his three children were involved in a multi-vehicle accident while driving between Fort Morgan and Greeley. With the exception of one child, all occupants of the vehicle were killed. The vehicle being driven by Emken, a 1988 Ford Bronco II, was titled and registered to Joseph Martin and insured by him through American Family, under general motor vehicle liability and personal liability umbrella policies.

According to Martin's uncontested trial testimony and the findings of the trial court, Martin and Emken became housemates in 1996 when Emken moved into her mother's house, where Martin had been renting a room since 1992. By late 1997, a parent-child-like relationship had developed between Martin and Emken, and he began allowing her to use several of his vehicles on an occasional basis to drive to and from work. Though such use initially required permission at each instance, Emken was eventually allowed to use the Bronco without asking, but only for purposes of going to and from work. About this time, Martin added Emken to his motor vehicle liability policy as an additional driver.

In November 1997, with the insurance premium and annual registration fees coming due the following January, Martin decided to sell the vehicle. Emken expressed an interest in buying it, and an oral agreement was reached for the sale of the vehicle to Emken for a price of $3,000 plus Martin's cost of maintaining insurance coverage and registering the vehicle, to be paid over a period of time. Emken agreed to give Martin her federal and state income tax refunds when she received them and the remaining amount by August 1998.¹ The parties agreed that Martin would keep the certificate of title in his name and would keep a set of keys to the vehicle until Emken made full payment. Although Martin continued to allow Emken to use the vehicle, as he had prior to the agreement, he specified that Emken not put excessive mileage on the vehicle nor allow anyone else to drive it. Emken was also to keep the vehicle in good condition and either pay for any necessary repairs on the vehicle or reimburse Martin for doing so.

Shortly after the agreement was entered into, Emken moved from their shared house in Fort Morgan to Greeley and, after seeking and obtaining Martin's consent, took the vehicle with her. Prior to the August deadline for full payment and transfer of title, Emken was involved in the fatal accident.² Martin subsequently filed a claim with American Family and received $5,000 for the loss of the vehicle. American Family sought declaratory relief from liability for Emken's alleged negligence on the grounds that her status had changed from that of permissive driver to non-covered owner upon entering into the sales contract and taking actual possession of the vehicle.

The district court agreed, holding that under Colorado's Uniform Commercial Code and the case law of this jurisdiction, ownership of a vehicle is transferred upon the formation of a conditional sales contract and physical delivery of the vehicle, even though the certificate of title remains with the seller. The court held that under the circumstances of this case, Emken became the owner of the vehicle upon physical delivery of the keys following the agreement, and therefore she was no longer covered by Martin's policy at the time of the accident. Sachtjen appealed, and the court of appeals affirmed, finding dispositive this court's opinion in United Fire & Casualty Co. v. Perez, 161 Colo. 31, 419 P.2d 663 (1966). The appellate court held that although Martin retained some minor aspects of control, a "fundamental change in the control" of the vehicle took place "when the driver became the primary driver," such that Emken was no longer covered by Martin's policies.

We granted Sachtjen's petition for a writ of certiorari to the court of appeals.³

II.

Although ownership of a motor vehicle is defined by the General Assembly in different ways for different purposes, the holder of a certificate of title clearly has an interest in insuring against liability for damages resulting from use of the vehicle. See § 10-1-102(6), 3 C.R.S. (2001)("`[I]nsurable interest' in property means every interest in property or any relation thereto, or liability in respect thereof, of such a nature that a contemplated peril might directly damnify the insured."); § 42-3-126, 11 C.R.S. (2001)("The owner of a motor vehicle who has made a bona fide sale or transfer of such owner's title or interest and who has delivered possession of such vehicle and the certificate of title thereto properly endorsed to the purchaser or transferee shall not be liable for any damages thereafter resulting from negligent operation of such vehicle by another.")(emphasis added); see, e.g., Mercado v. The Travelers Ins. Co., 59 Tenn.App. 741, 443 S.W.2d 819, 823 (1969)

("The peril of being sued simply because the title was registered in [the seller's] name is sufficient explanation of the purchase of the insurance."); see generally R.A. Vinluan, Annotation, Liability Insurance: Insurable Interest, 1 A.L.R.3d 1193, §§ 1(c)-3 (2002)(concluding that nearly all jurisdictions deem legal title to motor vehicle sufficient for insurable interest); 7 Am.Jur.2d Automobile Insurance §§ 229-30 (1997).⁴

If, however, the driver is using the car by virtue of his right to possess and control it rather than merely by grant of permission from the policy holder, the driver is generally not considered to be a permissive driver within the meaning of liability coverage. See Perez, 161 Colo. at 35-36,

419 P.2d at 665-66 (and cases cited therein); see also Worchester v. State Farm Mut. Auto. Ins. Co., 172 Colo. 352, 359, 473 P.2d 711, 715 (1970)(holding that party with "legal control" has the "full right of control to permit whomever [that party chooses] to drive the vehicle"); Benton v. State Farm Mut. Auto. Ins. Co., 306 F.2d 179, 181 (6th Cir.1962); Nationwide Mut. Ins. Co. v. Cole, 203 Va. 337, 124 S.E.2d 203, 206 (1962); Debra E. Wax, Annotation, What Constitutes Ownership of Automobile Within Meaning of Automobile Insurance Owner's Policy, 36 A.L.R.4th 7, §§ 5, 6 (2001). The existence of a "right" to possession by the driver, separate and apart from the consent of the policy holder, is therefore critical to the applicability of an insurance policy providing liability coverage for permissive drivers.

Despite some suggestion to the contrary, see § 42-6-109(1), 11 C.R.S. (2001), the General Assembly has not prohibited the right of possession from vesting in a conditional vendee prior to transfer of the certificate of title. Although the Certificate of Title Act states that no purchaser shall acquire any "right, title, or interest" in a motor vehicle unless he first obtains the certificate of title, § 42-6-109(1), it is well-established that the provisions of the Act were designed to allow purchasers to readily and reliably ascertain the status of a seller's title without recourse to official state records, Guy Martin Buick v. Colo. Springs Nat'l Bank, 184 Colo. 166, 171-72, 519 P.2d 354, 357 (1974), and do not govern the respective rights of the parties to a sale. Perez, 161 Colo. at 36, 419 P.2d at 666; see also People v. Ayala, 770 P.2d 1265, 1268-69 (Colo.1989)

; Colo. Auto & Truck Wreckers Ass'n v. Dep't of Rev., 618 P.2d 646, 654 (Colo.1980).

The General Assembly has also acknowledged that the right to possession of a motor vehicle need not remain with legal title by requiring the person with the immediate right of possession to provide insurance coverage under certain circumstances instead of the holder of legal title. Under the provisions of the Colorado Auto Accident Reparations Act, title 10, article 4, part 7, 3 C.R.S. (2001), liability coverage is compulsory for every owner who operates or knowingly permits another to operate his vehicle on a public highway. § 10-4-705. The owner for purposes of the compulsory coverage provision of the Act is defined as the person who holds legal title to the vehicle unless there is an agreement for conditional sale, a...