Unigard Sec. Ins. v. Mission Ins. Co.

• Decision Date: 03 February 2000
• Docket Number: No. 98CA2546., No. 98CA1326
• Citation: 12 P.3d 296
• Parties: UNIGARD SECURITY INSURANCE COMPANY, Plaintiff-Appellant and Cross-Appellee, v. MISSION INSURANCE COMPANY TRUST, Defendant-Appellee and Cross-Appellant.
• Court: Colorado Court of Appeals

12 P.3d 296

UNIGARD SECURITY INSURANCE COMPANY, Plaintiff-Appellant and Cross-Appellee, v. MISSION INSURANCE COMPANY TRUST, Defendant-Appellee and Cross-Appellant.

Nos. 98CA1326, 98CA2546.

Colorado Court of Appeals, Div. I.

February 3, 2000.

As Modified on Denial of Rehearing April 20, 2000.

Certiorari Denied October 10, 2000.

Antonio Bates Bernard, P.C., John L. Wheeler, Denver, Colorado, for Plaintiff-Appellant.

Law Offices of Samuel G. Livingston, Samuel G. Livingston, Golden, Colorado, for Defendant-Appellee.

Opinion by Judge ROTHENBERG.

In this declaratory judgment action, plaintiff, Unigard Security Insurance Co. (Unigard), appeals a summary judgment in favor of defendant, Mission Insurance Company Trust (Mission). Mission cross-appeals certain rulings of the trial court. We affirm in part, reverse in part, and remand with directions.

Unigard and Mission issued liability policies to the same insured, Western Pop Shoppes (Western), a subsidiary of Pop Shoppes of America, Inc.

The Unigard policy was issued on July 29, 1978, and was a primary general liability policy with a $500,000 limit. It designated Western as a named insured and stated that any person using any automobile "owned, hired, or borrowed" by any named insured (here, Western) was also an insured under the policy. However, no person using an automobile that had been "hired or borrowed" from an employee of Western was covered.

The Mission policy was an excess liability policy with a general limit of $5 million. Under its terms, Western and its employees acting within the scope of their employment were insureds. The Mission policy required exhaustion of the primary insurance limits before its coverage began. But, if one of its insureds was not covered by the primary insurance, Mission provided coverage after the first $10,000.

While these two policies were in effect, a sales and promotional meeting was held in Denver for employees of Western and other subsidiaries of Pop Shoppes of America. One of Western's employees, Lloyd McKinley, was ordered to provide transportation services for out-of-town employees. In the course of returning one of the other subsidiary's employees to her hotel and while he was allegedly under the influence of alcohol, McKinley was involved in a one-vehicle collision. It resulted in serious and permanent injuries to his passenger.

The vehicle involved in the collision was leased to McKinley by a third party, and McKinley had obtained a personal liability insurance policy with a limit of $100,000 protecting him while he was driving the vehicle. Western had not hired or borrowed the vehicle from McKinley.

The injured employee sued McKinley and Western in federal district court asserting that McKinley's negligence had caused her injuries while he was acting within the course and scope of his employment with Western. The parties entered into a settlement agreement which resulted in the dismissal with prejudice of the injured employee's claims against McKinley and Western. The employee was paid a total of $980,000. Of that amount, McKinley's private liability insurer paid its policy limit of $100,000. That insurer is not a party to this litigation. Unigard contributed $280,700 to the settlement, and Mission contributed $599,300.

At the time the federal case was settled, Unigard and Mission disagreed on the amount each was legally obligated to contribute. Consequently, they agreed that their contributions would be made with a full reservation of their rights to obtain a later judicial determination of that issue.

Following the settlement, Unigard filed this action, maintaining, inter alia, that McKinley was not covered under its primary policy because he was not using a vehicle covered by that policy. The trial court granted summary judgment in favor of Unigard, that portion of the judgment was certified as final under C.R.C.P. 54(b), and Mission appealed.

In Unigard Mutual Insurance Co. v. Mission Insurance Co., 907 P.2d 94 (Colo.App.1994), a division of this court affirmed the trial court. The panel held that McKinley was not an insured under Unigard's policy, and that Unigard was not required to contribute up to the limit of its policy before Mission became liable for coverage.

On remand, Mission continued the litigation on the theory that the Unigard policy did not reflect the terms of Unigard's agreement with Western. In the course of discovery, Mission learned of the existence of two endorsements that had been omitted from the policy sent to Western and later filed with the court. Neither endorsement was available to the division that decided Unigard Mutual Insurance Co. v. Mission Insurance Co., supra.

Mission moved for a summary judgment, contending that McKinley was covered by the endorsements to the Unigard policy. Mission also filed a fraud counterclaim and jury demand based on the alleged concealment of the endorsements.

As additional grounds for summary judgment, Mission contended that at the time of the accident, Unigard was liable based on the coverage contained in the temporary binder of insurance. Mission relied on a May 1978 memo in which Unigard had agreed to be bound for the same coverage provided by Western's previous primary insurer. The previous insurance would have covered McKinley, but the Unigard policy reduced the coverage contained in the binder.

Mission maintains that because Unigard replaced the temporary binder with a policy containing reduced coverage, it was required to comply with the notice requirements in § 10-4-720, C.R.S.1999, and Department of Regulatory Agencies Regulation No. 74-11, 3 Code Colo. Reg. 702-3 (currently in effect as Department of Regulatory Agencies Regulation No. 6-1-1, 3 Code Colo. Reg. 702-6).

According to Mission, both § 10-4-720 and Regulation No. 74-11 required Unigard to provide Western with written notice of the reduced coverage, and because Unigard failed to give such notice, the reduction in the policy was ineffective; hence, McKinley was still covered under the binder's broader definition of named insureds.

The trial court agreed and granted summary judgment against Unigard based on Unigard's failure to comply with the notice requirement. After the court entered final judgment and awarded attorney fees and costs to Mission, Unigard filed this appeal. Mission cross-appealed, challenging the calculation of the interest rate on the judgment, the denial of summary judgment regarding the endorsements, the striking of Mission's fraud counterclaim and jury demand, and the reduction of Mission's claim by the $100,000 contributed to the underlying settlement by McKinley's private liability insurer.

I.

The primary issue in this appeal is whether the notice requirement in § 10-4-720, C.R.S.1999, applies to the replacement of a temporary binder of insurance with a new insurance policy. Unigard contends the notice requirement does not apply to binders and we agree.

A binder is a temporary or preliminary contract of insurance that protects the insured until issuance of a formal policy or a written memorandum evidencing the existence of such a contract. Absent an express agreement to the contrary, a binder incorporates the terms of the contemplated policy. Southeastern Colorado Homeless Center v. West, 843 P.2d 117 (Colo.App.1992).

A binder is effective from the time it is issued until "issuance of the formal policy or until rejection of the risk." King v. Allstate Insurance Co., 906 F.2d 1537, 1541 (11th Cir.1990). Once the formal policy is issued, the binder merges into the policy and is extinguished. Its coverage no longer exists. Chevron Oil Co. v. Industrial Commission, 169 Colo. 336, 456 P.2d 735 (1969).

Section 10-4-720 is a part of the Colorado Auto Accident Reparations Act (the No-Fault Act). As relevant here, it provides that no insurer may reduce the coverage under any insurance policy that complies with the No-Fault Act without first giving the insured written notice. The notice must be clear and specific, setting out the type of coverage reduced and the extent of the reduction. The notice must also provide the effective date of the action, the reasons for the action, and the rights of the insured to protest the action to the Commissioner of Insurance.

Section 10-4-720 does not apply to any "insurance policy or coverage" that has been in effect at least sixty days at the time notice of cancellation, nonrenewal, or reclassification is mailed or delivered by the insurer, unless it is a renewal policy. Section 10-4-720(9), C.R.S.1999.

The parties here agree that over sixty days had elapsed between the date Unigard's binder took effect and the time Unigard issued its policy. Hence, § 10-4-720 would apply if a binder is an "insurance policy" within the meaning of the statute. We conclude that it is not.

The standard of review for statutory construction is de novo. Watson v. Vouga Reservoir Ass'n, 969 P.2d 815 (Colo.App.1998)

.

Our primary task in construing a statute is to give effect to the intent of the General Assembly. To discern that intent, we first look at the plain language of the statute and interpret its terms in accordance with their commonly accepted meanings. A strained or forced construction of a statutory term is to be avoided. We also look at the context in which a statutory term is employed and attempt to choose a construction that serves the purpose of the legislative scheme. Paraguay Place-View Trust v. Gray, 981 P.2d 681 (Colo.App.1999).

Here, we need look no further than the plain language of the statute. Section 10-4-720(1) states that the statute applies to "a policy of insurance," the commonly accepted meaning of which is a formal insurance contract. Binders are not included in the statute and we conclude that if the General Assembly had intended to include them within the scope of the statute, it would have done so explicitly as other states have done. See Md.Code Ann., Insurance § 27-605 (1997)(containing...