Shelter Mut. Ins. Co. v. Mid-Century Ins. Co.

CourtCourt of Appeals of Colorado
Citation214 P.3d 489
Docket NumberNo. 07CA2063.,07CA2063.
PartiesSHELTER MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. MID-CENTURY INSURANCE COMPANY; American Family Mutual Insurance Company; and Virginia Johnson, Defendants-Appellants.
Decision Date11 December 2008

Light Harrington & Dawes, P.C., Steven J. Dawes, Sophia H. Tsai, Denver, CO, for Plaintiff-Appellee.

Wick & Trautwein, L.L.C., Robin L. Wick, Kimberly B. Schutt, Fort Collins, CO, for Defendant-Appellant Mid-Century Insurance Company.

Harris, Karstaedt, Jamison & Powers, P.C., Mark A. Sares, Heather A. Salg, Laura M. Martinez, Englewood, CO, for Defendants-Appellants American Family Mutual Insurance Company and Virginia Johnson.

Opinion by Judge WEBB.

In this automobile liability insurance coverage dispute, defendants, Mid-Century Insurance Company, Virginia Johnson, and American Family Mutual Insurance Company, her insurer, appeal the partial summary judgment in favor of plaintiff, Shelter Mutual Insurance Company, declaring the Mid-Century and Shelter insurance coverages co-primary and Shelter's "step-down" clause enforceable. We affirm as to co-primary coverage, reverse as to enforceability of the step-down clause, and remand for further proceedings on the bifurcated tort claims.

Johnson was injured in an accident involving a car owned by Bruce Brown, who is not a party, permissively driven by his son, Mark Brown, and insured by Shelter. The Shelter policy provided coverage of $50,000 per person or $100,000 per accident for bodily injury, and $50,000 for property damage. Mark Brown also had his own automobile insurance policy issued by Mid-Century, with coverage of $250,000 per person or $500,000 per accident for bodily injury, and $100,000 for property damage. Both policies contained competing "excess" clauses, also known as "other insurance" clauses, which make the respective coverages secondary to other collectible insurance.

The Shelter policy also contained a "step-down" clause that became effective when Bruce Brown renewed the policy shortly before the accident. This clause limited Shelter's liability "for persons who meet the definition of insured solely because they have permission or general consent to use the described auto ... [to] the minimum limits of liability insurance coverages mandated by the financial responsibility law applicable to the accident." Thus, it capped Shelter's liability for permissive drivers at $25,000 per person or $50,000 per accident for bodily injury, and $50,000 for property damage. See § 10-4-620, C.R.S.2008. Before the renewal, permissive drivers had the same coverage as the named insured.

Shelter filed a declaratory judgment action seeking to compel Mid-Century to contribute on a co-primary basis until the limits of Shelter's coverage had been reached and to limit its obligation to the step-down clause. Mid-Century responded that Shelter's excess clause was unenforceable because it contravenes Colorado's compulsory liability insurance statute, section 10-4-619, C.R.S.2008, and that Shelter's step-down clause was unenforceable because Shelter had provided insufficient notice of the clause to Bruce Brown before the renewal. Johnson and American Family filed tort cross-claims against Mark Brown, but later stipulated to bifurcate the tort claims from the declaratory judgment claim for purposes of trial.

On cross-motions for summary judgment, the trial court ruled for Shelter on both issues and certified its ruling as final under C.R.C.P. 54(b).

I. Summary Judgment Standard

We review a summary judgment de novo. Brodeur v. Am. Home Assurance Co., 169 P.3d 139, 146 (Colo.2007). Summary judgment is appropriate only if the pleadings and supporting documents show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Id. The nonmoving party is entitled to the benefit of all favorable inferences reasonably drawn from the undisputed facts; all doubts must be resolved against the moving party. Id.

We review the interpretation of an insurance policy de novo and construe it according to principles of contract interpretation. Hoang v. Assurance Co. of America, 149 P.3d 798, 801 (Colo.2007). When interpreting a contract, we give effect to the intent and reasonable expectations of the parties. Id.

II. Co-Primary Coverage

Mid-Century contends Shelter's excess clause is void because it erodes the mandate of section 10-4-619 that vehicle owners carry minimum liability insurance, and, alternatively, Shelter has primary coverage because its clause is not subject to dollar-for-dollar apportionment with other coverage under Allstate Ins. Co. v. Avis Rent-A-Car System, Inc., 947 P.2d 341 (Colo.1997). We consider and reject each contention in turn.

A. Mandatory Insurance Coverage Can Include an Excess Clause

Mid-Century's challenge to the excess clause in statutorily-mandated coverage exposes the tension between such coverage and the right of insureds and insurers to contract freely. See generally Principal Mutual Life Ins. Co. v. Progressive Mountain Ins. Co., 1 P.3d 250, 255-56 (Colo.App.1999) (recognizing conflict between mandatory insurance coverage and freedom of contract), aff'd, 27 P.3d 343 (Colo.2001). Based on the Colorado insurance statutes, we conclude the latter prevails.

Statutory interpretation is a question of law subject to de novo review. See, e.g., Reg'l Transp. Dist. v. Aurora Pub. Schs., 45 P.3d 781, 782 (Colo.App.2001). We seek to ascertain legislative intent, starting with the plain language of the statute and giving the words their ordinary meaning. USA Tax Law Ctr., Inc. v. Office Warehouse Wholesale, LLC, 160 P.3d 428, 431 (Colo.App. 2007). If that language is unambiguous, we look no further. Id.

Under section 10-4-619, "[e]very owner of a motor vehicle who operates the motor vehicle ... or who knowingly permits the operation of the motor vehicle ... shall have in full force and effect a complying policy ...." § 10-4-619(1), C.R.S.2008. Owners who fail to comply are subject to sanctions under Colorado's Motor Vehicle Financial Responsibility Act. Id.; §§ 42-4-1409, 42-7-301, C.R.S.2008.

Mid-Century identifies no Colorado case or current Colorado statute, and we have found none, requiring that the owner's compulsory coverage be treated as primary. To the contrary, an owner's compulsory coverage "may be subject to conditions and exclusions that are not inconsistent with the requirements" of the statute. § 10-4-623(1), C.R.S.2008. Because section 10-4-623 imposes no other limitation, an excess clause could be such a condition or exclusion.

We are also informed by former section 10-4-707(4), which sunset with the No-Fault Act in 2003. Ch. 189, sec. 1, § 10-4-726, 2002 Colo. Sess. Laws 649. As to Personal Injury Protection (PIP) benefits, it provided:

When an accident involves the operation of a motor vehicle by a person who is neither the owner of the motor vehicle ... nor an employee of the owner ... and the operator of the motor vehicle is an insured under a complying policy other than the complying policy insuring the motor vehicle involved in the accident, primary coverage ... shall be afforded by the policy insuring the said operator ... and any policy under which the owner is an insured shall afford excess coverage.

(Emphasis added.)

This section shows that the General Assembly knows how to identify primary insurance coverage. See, e.g., Pueblo Bancorporation v. Lindoe, Inc., 63 P.3d 353, 362 (Colo. 2003) (finding use of fair market value damages measure in many statutes indicates General Assembly knew how to use phrase). Therefore, we will not read a primacy requirement into coverage mandated by section 10-4-619. See Travelers Indemnity Co. v. Barnes, 191 Colo. 278, 283, 552 P.2d 300, 304 (1976) (primacy scheme in former section 10-4-707(4) limited to PIP coverages, and would not be extended by implication to liability coverage).

After the No-Fault Act sunset, the General Assembly readopted and incorporated specific sections of the Act into the current fault system. See, e.g., §§ 10-4-619, -621, C.R.S. 2008 (formerly §§ 10-4-705, -710, respectively). However, as indicated, no provision of the current scheme treats mandatory coverage as primary or prohibits excess clauses in mandatory coverage. We cannot dismiss this omission by the General Assembly as inadvertent. See Avis Rent-A-Car System, Inc. v. Allstate Ins. Co., 937 P.2d 802, 805 (Colo. App.1996) ("[T]he General Assembly has chosen not to address the primacy of liability coverage as it has that of PIP coverage ... we are hesitant to conclude that the excess clause in the Avis rental agreement is void as against any legislatively declared public policy. Such an argument is better addressed to the General Assembly."), aff'd, 947 P.2d 341 (Colo.1997).

Therefore, these enactments do not suggest that insureds and insurers are prohibited from determining by contract what coverages are primary and what coverages are excess as to compulsory coverage.

For the following reasons, we decline to join cases in other jurisdictions holding that an owner's compulsory insurance coverage is necessarily primary. See Bowers v. Alamo Rent-A-Car, Inc., 88 Hawai`i 274, 965 P.2d 1274, 1277 n. 3 (1998) (collecting cases).

The Bowers court determined that Hawaii's financial responsibility law had not been satisfied "simply because there [was other] insurance available," reasoning that the owner is obligated to provide coverage and may not meet this duty by contractually shifting responsibility to the driver's insurer. Id. at 1279. To hold otherwise would "create a practical exemption to the broad statutory mandate that all automobile owners carry liability insurance...." Id. at 1278.

However, the Bowers rule is contrary to our supreme court's holding in Allstate. The court noted that section 10-4-705 (now codified at section 10-4-619) required Avis, as...

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