Chapter 2 - § 2.14 • PUBLIC POLICY ISSUES

• Jurisdiction: Colorado

§ 2.14 • PUBLIC POLICY ISSUES

A major theme in Colorado cases involving disputes over UM and UIM claims is that insurance contract provisions that dilute, condition, or restrict statutorily required coverage are void and unenforceable, as contrary to public policy. Colorado courts have repeatedly invoked this principle to invalidate restrictive policy provisions. A number of cases illustrating the courts' application of this principle are discussed in the subsections below.

§ 2.14.1—Policy Provision Allowing Insurer to Reduce UM Benefits by Amount Paid to Insured as Workers' Compensation Benefits Is Contrary to Public Policy

Where insured was injured in an accident with an uninsured motorist and made claim for UM benefits with her automobile insurer, and claim proceeded to arbitration, resulting in an award for insured, but insurer refused to pay entire award, based upon provision in policy that stated that the amount payable as UM benefits was to be reduced by any amount paid or payable to insured as workers' compensation benefits, insurer was required to pay entire amount of arbitration award, since policy provision relied upon by insurer was contrary to public policy. Nationwide Mutual Insurance Co. v. Hillyer, 509 P.2d 810 (Colo. App. 1973).

Nationwide Mutual Insurance Co. v. Hillyer, 509 P.2d 810 (Colo. App. 1973), involved a dispute over the amount payable to Nationwide's insured, Hillyer, as UM benefits. Hillyer was injured in an accident with an uninsured motorist and presented a claim for UM benefits to Nationwide. The case went to arbitration, and the arbitrators awarded Hillyer $7,150 in UM benefits. However, Nationwide refused to pay the entire award, contending that it was entitled to reduce the award by $4,150, the amount that Hillyer had received as workers' compensation benefits. Nationwide relied upon a provision in the insurance contract that stated that the amount payable as UM benefits "'shall be reduced by . . . (2) The amount paid and the present value of all amount payable on account of bodily injury under any workmen's compensation law, disability benefits law, or any similar law.'" Id. at 811. Nationwide initiated a declaratory judgment obligation to determine the amount payable under the policy, and the trial court ruled in its favor, holding that Nationwide was only obligated to pay Hillyer $3,000. The court of appeals reversed the judgment.

The court of appeals pointed out that in 1965 the legislature had required insurers to offer UM coverage with at least the minimum limits for bodily injury or death set forth in the financial responsibility act. Id. The court found that the policy provision relied upon by Nationwide would permit it to reduce the amount of UM coverage required by statute. Therefore, the court held that the provision was "contrary to public policy." Id.

The court rejected Nationwide's argument that the policy clause was enforceable because it had been approved by the Insurance Commissioner before the policy was issued. The court held that the "Commissioner . . . cannot by any of his actions vary the requirements of this statute or change the public policy of this state as determined by the legislature." Id. at 812. Therefore, the court reversed the judgment and directed that judgment be entered against Nationwide for the remaining amount due of $4,150.

§ 2.14.2—"Other Insurance" Clause, Under Which Excess Insurer Is Obligated to Pay UM Benefits Only to the Extent That the Limits of Liability Exceed Those of Primary Insurer, Is Not Contrary to Public Policy

Where insured was injured by an uninsured motorist while insured was riding on a motorcycle covered for UM benefits by primary insurer, and primary insurer paid its UM policy limit to insured, insured was not entitled to recover additional UM benefits from excess carrier, where excess carrier's policy limits were the same as those of primary carrier. Policy provision that stated that excess carrier was liable for payment of UM benefits only to the extent that excess carrier's policy limit exceed that of primary carrier was not contrary to public policy of uninsured motorist statute. Alliance Mutual Casualty Co. v. Duerson, 518 P.2d 1177 (Colo. 1974).

In Alliance Mutual Casualty Co. v. Duerson, 518 P.2d 1177 (Colo. 1974), Mary Duerson was injured in an accident involving an uninsured motorist while she was riding on a motorcycle owned and operated by Dennis Wade. Wade's motorcycle was insured by State Farm, and the policy included UM coverage with the minimum statutory limits of $10,000 then in effect. Duerson was also covered under an automobile insurance policy issued to her mother by Alliance Mutual Casualty Co., and the Alliance policy likewise provided UM coverage with limits of $10,000. However, the Alliance policy contained a provision that stated that

where the insured is injured in a vehicle not owned by him, which is covered by other similar insurance applicable as primary insurance, recovery may be had from Alliance only to the extent that the limit of liability of the policy of Alliance exceeds the limit provided in the other similar insurance . . . .

518 P.2d at 1178. After State Farm paid its policy limits of $10,000 to Duerson, Alliance refused further payment and brought a declaratory judgment action against Duerson. The trial court found that the "other insurance" clause in the Alliance policy was valid and enforceable and that Alliance had no liability to Duerson, since its policy limits were the same as those of State Farm. In Alliance Mutual Casualty Co. v. Duerson, 510 P.2d 458 (Colo. App. 1973), the court of appeals reversed. The supreme court in turn reversed the judgment of the court of appeals and held that the "other insurance" clause was not offensive to public policy as set forth in the uninsured motorist statute.

First, the supreme court rejected Duerson's argument that the "other insurance" provision was ambiguous. The court found that the provision clearly provided UM protection only as excess coverage. "Simply stated, this means that recovery can be had only if the limit of liability stated in the excess carrier's policy exceeds that stated in the primary carrier's policy." 518 P.2d at 1178-79. The court noted that its interpretation of the "other insurance" clause as providing only excess insurance was supported by its earlier decision in Certified Indemnity Co. v. Thompson, 505 P.2d 962 (Colo. 1973).

The court next considered Duerson's contention that the "other insurance" provision was contrary to public policy as expressed in the uninsured motorist statute. The court noted that the statute required insurers to offer UM coverage, and that if the named insured did not reject UM coverage, the minimum amount of that coverage was that set forth in the Motor Vehicle Financial Responsibility Law. Here, the required minimum coverage was $10,000 per person and $20,000 per accident. 518 P.2d at 1179. Moreover, pursuant to the terms of the Alliance policy, if State Farm as the primary carrier had failed to pay the statutory minimum benefits of $10,000, then Alliance would have been obligated to do so. The court found "nothing offensive to public policy in an 'other insurance' clause which denied recovery of additional sums over and above that provided by the primary insurance carrier." Id. at 1180. Further, the court could perceive no legislative intent in the uninsured motorist statute requiring full compensation for injuries caused by uninsured motorists. The court noted that if the General Assembly had intended that result, "it would not have granted the option of totally rejecting the uninsured motorist coverage." Id. Rather, Colorado's statute "mandates only that insurance companies make available uninsured motorist coverage in an amount as prescribed by the Motor Vehicle Financial Responsibility Law." Id. In the court's view, "the legislative intent is satisfied by coverage which assures that one injured by an uninsured motorist will be compensated at least to the same extent as one injured by a motorist who is insured in compliance with the Motor Vehicle Financial Responsibility Law." Id. at 1181.

The "other insurance" clause in the Alliance policy was in keeping with the uninsured motorist statute because it permitted recovery if the excess carrier's limits of liability exceeded those of the primary carrier. Moreover, nothing in the Alliance policy reduced "recovery to less than that required by the Motor Vehicle Financial Responsibility Law." Id. Therefore, the court directed that the trial court's judgment in favor of Alliance be reinstated.

§ 2.14.3—Policy Provision in Uninsured Motorist Policy Allowing Insurer to Reduce UM Benefits on a Dollar-For-Dollar Basis by Amount of PIP Benefits Paid Is Contrary to Public Policy — Proper Procedure to Avoid Double Recovery of PIP Benefits

Insureds were injured in an automobile accident with an uninsured motorist, and insureds had UM coverage with limits of $15,000 per person and $30,000 per accident. Insureds' UM claim was arbitrated, resulting in an award of general damages of $15,250. However, UM policy provided that any amount payable under UM coverage was to be reduced by amount of PIP or PIP benefits paid or payable under the policy. Relying on this provision, insurer sought to reduce arbitration award by $5,865.05, the amount of PIP benefits that had been paid to claimants. This policy provision was void as contrary to public policy because it allowed the insurer to reduce required UM coverage below the minimum statutory amounts. Newton v. Nationwide Mutual Fire Insurance Co., 594 P.2d 1042 (Colo. 1979), reversing Nationwide Mutual Insurance Co. v. Newton, 579 P.2d 1178 (Colo. App. 1978).

In Newton v. Nationwide Mutual Fire Insurance Co., 594 P.2d 1042 (Colo. 1979), Julia Newton, Ethel Clark, and James Saunders, Jr. were riding in a car that was involved in an accident with a vehicle driven by an uninsured motorist. The vehicle...