Chapter 2 - § 2.12 • INSURED'S RIGHT OF ACTION AGAINST INSURER FOR BREACH OF DUTY TO OFFER UM|UIM COVERAGE AND|OR COVERAGE WITH HIGHER LIMITS THAN LIMITS OF LIABILITY COVERAGE — REFORMATION OF POLICY
| Jurisdiction | Colorado |
§ 2.12.1—Insurer Has Duty to Advise Insureds of Nature and Purpose of UM/UIM Coverage and to Offer Insureds the Opportunity to Purchase UM/UIM Coverage in an Amount Equal to Bodily Injury Liability Limits, and Insured Has Right of Action Against Insurer for Breach of This Duty
Where insureds initially purchased minimum liability coverage of $25,000/$50,000 and UM coverage of same amount, but subsequently increased liability limits to $50,000/$100,000 and then to $100,000/$300,000, but kept UM limits at $25,000/$50,000, and insured was injured in an accident with motorist who had liability limit of $25,000, which insured recovered through settlement, and insured claimed insurer had failed to offer him UM coverage with limits equal to his liability coverage, insured could bring an action against insurer based upon insurer's alleged negligence in failing to offer higher UM coverage. C.R.S. § 10-4-609(2) (1987) gave insureds the right to obtain UM/UIM coverage higher than statutory minimum. Insureds had private civil remedy to redress insurer's breach of statutory duty. Under C.R.S. §§ 10-4-609(2) and (3) (1987), insurer had one-time duty to notify insured of nature and purpose of UM/UIM coverage and to offer insured the opportunity to purchase such coverage in an amount equal to insured's bodily injury liability limits, or $100,000/$300,000, whichever was less. If insurer failed to discharge duty before issuance of policy, duty continued and could only be discharged by adequate notification and offer on some future occasion. Further, based upon addition of subsection (3) to C.R.S. § 10-4-712 in 1991, it was clear that insurer must offer new UM/UIM coverage if there was an increase in bodily injury liability limits and limits of UM/UIM coverage would be less than such limits. Allstate Insurance Co. v. Parfrey, 830 P.2d 905, 907-13 (Colo. 1992).
In Allstate Insurance Co. v. Parfrey, 830 P.2d 905 (Colo. 1992), Steven and Deborah Parfrey brought an action for negligence against Allstate Insurance Co., asserting that the company had failed to offer them UM/UIM coverage with higher limits than the limits of their bodily injury liability coverage, as required by C.R.S. § 10-4-609(2) (1987). The Parfreys purchased an automobile insurance policy from Allstate on March 8, 1985. The policy covered two vehicles, a Volkswagen and a Toyota. The policy had minimum liability limits of $25,000 per person and $50,000 per accident, and it also included UM/UIM coverage with the same limits. On March 16, 1985, the Parfreys increased the limits of their bodily injury liability coverage to $50,000 per person and $100,000 per occurrence. Several months later, they increased the limits again to $100,000 per person and $300,000 per occurrence. Although these increases in their liability limits made them eligible to increase their UM/UIM coverage limits, neither the Parfreys nor the Allstate agent could recall discussing UM/UIM coverage when these changes were made. The policy was automatically renewed in July 1985, but there was no record as to whether the Allstate agent advised the Parfreys of their statutory right to increase their UM/UIM coverage at that time. In November 1985, the Parfreys bought a Ford truck and added it to their policy. Although the Allstate agent did not recall specifically discussing UM/UIM coverage when this change was made, he stated it was his custom to offer higher UM/UIM coverage on such an occasion.
On October 30, 1986, Steven Parfrey was injured in an accident with an underinsured motorist while he was driving his Ford truck. Parfrey settled his claim against the underinsured motorist for the policy limits of $25,000. However, the Parfreys believed that this settlement did not constitute adequate compensation for Mr. Parfrey's injuries, so in June 1988, they commenced their negligence action against Allstate, which quickly filed a motion for summary judgment. Allstate argued that C.R.S. § 10-4-609(2) did not create a private right of action allowing an insured to sue an insurer for failing to offer higher UM/UIM coverage limits. Allstate also argued that it had no duty to offer the Parfreys UM/UIM coverage with higher limits when they first bought their policy, since their UM/UIM coverage limits of $25,000/$50,000 were the same as their bodily injury liability limits at that time. Finally, Allstate asserted that it had no duty to advise the Parfreys of their right to obtain higher UM/UIM coverage limits when they increased their bodily injury coverage limits or when they added the Ford truck to their policy. The trial court granted Allstate's motion for summary judgment, holding that Allstate had fulfilled its statutory duty by offering the Parfreys UM/UIM coverage with minimum limits of $25,000/$50,000 and that Allstate had no further duty to advise them of their right to purchase coverage with higher limits.
The Parfreys appealed, and in Parfrey v. Allstate Insurance Co., 815 P.2d 959 (Colo. App. 1991), the court of appeals reversed the summary judgment in favor of Allstate. The court of appeals held that C.R.S. § 10-4-609(2) did create a private right of action enabling an insured to commence a negligence action against an insurer for breach of its statutory duty. Further, the court of appeals held that under C.R.S. §§ 10-4-609(2) and (3) an insurer had a duty to inform an insured in definite and specific terms of the insured's right to purchase UM/UIM coverage. The court of appeals concluded that because there were issues of fact as to whether Allstate had complied with its statutory duty, summary judgment was improperly granted.
The Colorado Supreme Court granted certiorari to address two issues:
whether the court of appeals erred in determining that the Parfreys could assert a violation of section 10-4-609(2) as the basis for a negligence claim against Allstate for breach of an insurer's statutory duty to offer an insured increased UM/UIM coverage; and whether the court of appeals properly concluded that the Parfreys' increase in their bodily injury liability coverage and the addition of another vehicle to their liability policy were material changes that triggered Allstate's statutory duty to offer the Parfreys the right to obtain higher UM/UIM coverage on those occasions.
830 P.2d at 910. The supreme court affirmed the decision of the court of appeals that the statute did confer on the Parfreys the right to bring a negligence action against Allstate. The court also affirmed the decision of the court of appeals that the existence of disputed issues of material fact precluded summary judgment. However, the supreme court disagreed with the court of appeals' decision regarding the nature and extent of an insurer's duty to offer UM/UIM coverage with higher limits than the insured's bodily injury liability limits.
First, the supreme court rejected Allstate's argument that the Parfreys had no right to bring a negligence action under C.R.S. § 10-4-609(2). Allstate argued that because the statute did not specifically confer a right of action upon an insured, the exclusive responsibility for redressing breaches of the statute rests within the administrative process. The supreme court noted that whether a private tort remedy is available for violating a statutory duty
involves a consideration of three factors: whether the plaintiff is within the class of persons intended to be benefited by the legislative enactment; whether the legislature intended to create, albeit implicitly, a private right of action; and whether an implied civil remedy would be consistent with the purposes of the statutory scheme.
830 P.2d at 911. Here, the court concluded that all three factors supported recognition of a private right of action. Id. Of particular importance to the court was the purpose of UM/UIM coverage to provide protection from inadequate compensation for injuries and damages sustained in automobile accidents. The court noted that this "goal would be substantially frustrated if an insured is without a private civil remedy to redress the injuries and damages caused by an insurer's failure to discharge its statutory responsibility." Id.
The supreme court next considered the court of appeals' ruling that under C.R.S. §§ 10-4-609(2) and (3), Allstate had a duty to offer the Parfreys higher UM/UIM coverage limits when they increased their bodily injury coverage limits and added the Ford truck to their policy. The court rejected Allstate's argument that "once it offered the Parfreys the initial policy and the Parfreys purchased both bodily injury liability and UM/UIM coverage at the same level of $25,000 per person and $50,000 per accident, Allstate had no further obligation to offer the Parfreys higher UM/UIM coverage." 830 P.2d at 911. The court found that Allstate's interpretation of C.R.S. §§ 10-4-609(2) and (3) was faulty.
The supreme court pointed out that the foremost principle of statutory construction is that "a statute should be construed in a manner which gives effect to legislative intent or purpose." 830 P.2d at 911. Legislative intent is primarily expressed "in the statutory language employed by the General Assembly in carrying out its law-making function." Id. at 912. In construing a statute, such as C.R.S. § 10-4-609, a court may presume that the legislature intended each part to be effective. 830 P.2d at 912. The court outlined the pertinent statutory scheme as follows:
Subsection (1) of section 10-4-609 prohibits an insurer from issuing an automobile liability policy unless UM/UIM coverage is included in the policy, except where the named insured rejects UM/UIM coverage in writing. Subsection (2) requires an insurer, "prior to the time the policy is issued or renewed," to notify the insured of the right to obtain...
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