Shelter Mut. Ins. Co. v. Mid–century Ins. Co.

• Citation: 246 P.3d 651
• Decision Date: 18 January 2011
• Docket Number: No. 09SC62.,09SC62.
• Parties: SHELTER MUTUAL INSURANCE COMPANY, Petitioner/Cross–Respondentv.MID–CENTURY INSURANCE COMPANY, Respondent/Cross–Petitioner.
• Court: Supreme Court of Colorado

246 P.3d 651

SHELTER MUTUAL INSURANCE COMPANY, Petitioner/Cross–Respondent

v.MID–CENTURY INSURANCE COMPANY, Respondent/Cross–Petitioner.

No. 09SC62.

Supreme Court of Colorado, En Banc.

Jan. 18, 2011.

Light, Harrington & Dawes, P.C., Sophia H. Tsai, Denver, Colorado, Attorneys for Petitioner/Cross–Respondent.Wick & Trautwein, LLC, Robin L. Wick, Kimberly B. Schutt, Fort Collins, Colorado, Attorneys for Respondent/Cross–Petitioner.John W. Suthers, Attorney General, Todd S. Larson, Senior Assistant Attorney General, Denver, Colorado, Attorneys for Amicus Curiae Colorado Division of Insurance.Justice MARTINEZ delivered the Opinion of the Court.

I. Introduction

We granted certiorari to review the court of appeals' decision in Shelter Mutual Insurance Co. v. Mid–Century Insurance Co., 214 P.3d 489 (Colo.App.2008). At issue in this case is how two insurance companies must share losses arising from an automobile accident. The owner of one of the automobiles involved in the accident insured his vehicle through Shelter Mutual Insurance Company (“Shelter”); Shelter is responsible for losses because the vehicle owner permissively lent the vehicle to his son—the driver—who crashed the vehicle. But the driver also had his own insurance policy with Mid–Century Insurance Company (“Mid–Century”), which is responsible for losses because it covered the driver as a non-owner operator of the vehicle.

How the insurers divide responsibility for losses depends on two main issues. ¹ The first involves whether a “step-down” provision in Shelter's policy that reduces the amount of coverage available for permissive drivers is either unenforceable because the insurer failed to adequately notify the insured of the provision's inclusion in a renewal policy, or, if notice was adequate, whether “step-down” provisions are void as a matter of public policy. The second issue involves whether Shelter's excess clause is valid under Colorado law, and if it is, what effect it has given that Mid–Century's policy also includes an excess clause.

The court of appeals held that Shelter's “step-down” provision is unenforceable because Shelter failed to provide the owner with sufficient notice of the reduction in coverage when the owner renewed his policy. Because of this determination, the court never reached the question of whether “step-down” provisions are void as a matter of public policy.

The court of appeals also held that Shelter's excess clause does not violate Colorado law, and that because both Shelter's and Mid–Century's policies contain excess clauses, both clauses are mutually repugnant and void; accordingly, the two insurers are co-primary for covering the losses.

We agree with the court of appeals and affirm its decision. Shelter failed to clearly and unequivocally call out to the owner's attention the reduction in coverage effected by the “step-down” provision. The general notice of policy changes did not sufficiently negate the owner's reasonable expectation that his renewal policy contained the same terms as his original policy. Hence, Shelter's “step-down” provision is unenforceable for lack of adequate notice, and Shelter is bound by the terms in its original policy. Because the “step-down” provision is unenforceable for lack of adequate notice, we do not address whether “step-down” provisions are void as a matter of public policy.

Shelter's excess clause does not violate Colorado law; we disagree with the argument that it erodes the statutory mandate that all vehicle owners purchase insurance. Based on the reasoning in Allstate Insurance Co. v. Avis Rent–A–Car System, Inc., 947 P.2d 341 (Colo.1997), which was decided under Colorado's No–Fault Act, we hold that a vehicle owner's insurer need not be the primary insurer where there is more than one applicable insurance coverage. The plain language of Colorado's mandatory-insurance laws does not establish a primary-insurer requirement, and the legislature clearly knew how to establish such a requirement had it desired to do so.

Nor is there any compelling public policy basis for reading a primary-insurer requirement into the statutory scheme. The public policy behind Colorado's mandatory-insurance laws only requires that the public benefit from insurance coverage—not that any insurer be primary. Based on this coverage principle and Colorado's strong policy of freedom of contract, insurers are not prevented from using other-insurance clauses.

We also decline to read into the statutory scheme a primary-insurer requirement arising from industry custom. No industry custom exists that compels the vehicle-owner's insurer be primary, and we instead turn to the language of the insurance policies themselves to determine which insurers are primary.

Because Shelter's and Mid–Century's policies both contain valid excess clauses, they are mutually repugnant and void. Accordingly, both insurers are co-primary, and they must share the losses on a dollar-for-dollar basis until the policy limits of one insurer have been exhausted.

II. Background

The following facts are undisputed. In September 2004, Mark Brown (the “driver”), permissively borrowed and drove his father's automobile, colliding with another automobile driven by Virginia Johnson; both drivers sustained injuries.

Two insurance companies are now responsible for covering losses caused by this collision. First, at the time of the accident, the driver had automobile liability insurance coverage with Mid–Century, which covered him as a non-owner operator of the vehicle. Second, the owner of the automobile, Bruce Brown (the “owner”), insured the automobile with Shelter, which covered the driver as a permissive driver.

When the owner initially purchased his policy through Shelter, he had elected coverage in the amounts of $50,000 per person or $100,000 per accident for bodily injury, and $50,000 for property damage. This coverage was greater than the minimum coverage amounts required by Colorado law. See § 10–4–620, C.R.S. (2010) (requiring liability insurance for $25,000 per person and $50,000 per accident for bodily injury, and $50,000 for property damage).

When the time came for the owner to renew his policy, Shelter sent him a packet of policy-renewal forms, the first page of which was titled “Notice of Automobile Policy Changes.” The notice, in its entirety, provided the following:

When you pay this renewal premium, you will be issued our new Automobile Insurance Policy. You should take some time to become familiar with its provisions and the responsibilities you have as a policyholder under this contract.

New definitions have been added to assist in policy coverage interpretation. The policy has been rearranged in some areas for ease of reading.

Some changes will affect coverage you now have and will require decisions on your part. You may want to discuss these items with your agent.

Please note—if the owner listed on the title of the vehicle insured under this policy is not one of the named insureds listed on the declarations page, please contact your agent.

Thank you for selecting Shelter Insurance as your insurance provider.

This notice did not inform the owner of any of the changes that were being made, nor were those changes marked in the policy.

As pertinent here, Shelter made two changes. The first change was that, through a “step-down” provision, Shelter sought to limit its liability for permissive drivers to the minimum coverage amounts mandated by law:

As used in this Part, insured means:

...

(5) any individual who has permission or general consent to use the described auto. However, the limits of our liability for individuals who become insureds solely because of this subparagraph, will be the minimum limits of liability insurance coverage specified by the financial responsibility law applicable to the accident, regardless of the limits stated in the Declarations, and only those coverages required by such law will be provided unless a specific coverage specifically states otherwise.

The new policy referenced this change twice. But the renewal notice provided to the owner did not explain that the “step-down” provision would—at least in Colorado—result in coverage amounts for permissive drivers that were less than what the owner had earlier elected. Similarly, the Declarations page for the new policy did not explicitly reference the potentially lower coverage amounts for permissive drivers; rather, it only broadly disclaimed that the limit of Shelter's liability “is stated in the policy.”

The second change was that Shelter added an excess clause that sought to shift liability to other, applicable insurances: “If there is other insurance which covers the insured's liability with respect to a claim also covered by this policy, Coverages A and B of this policy will apply only as excess to such other insurance.” In Shelter's policy, Coverage A covers bodily-injury liability, and Coverage B covers property-damage liability.

Shelter's excess clause was similar to the one Mid–Century included in its policy covering the driver: “Any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.”

Despite the changes Shelter made to the policy, the owner renewed his policy by paying the same premium he paid when he first obtained the policy.

After the accident between the driver and Ms. Johnson, Shelter brought a declaratory judgment action asserting its reduced liability through the “step-down” provision and, because of the conflicting excess clauses in both policies, seeking to compel Mid–Century to contribute on a co-primary basis. In response, Mid–Century argued that Shelter's “step-down” provision was invalid under Colorado law, and even if it were valid, it was unenforceable because Shelter failed to provide sufficient notice of the reduction in coverage to the owner at the time of the policy renewal. In regards to Shelter's excess clause, Mid–Century argued that it was...