Chapter 3 - § 3.8 • LIABILITY COVERAGE FOR PERMISSIVE USERS

• Jurisdiction: Colorado

§ 3.8 • LIABILITY COVERAGE FOR PERMISSIVE USERS

In Colorado, the No-Fault Act generally required liability coverage for permissive users of insured vehicles. Under former C.R.S. § 10-4-703(6), the definition of the term "insured" included the named insured, resident relatives of the named insured, and persons who used a vehicle described in the policy with the named insured's permission. The definition of the term "insured" remained the same after the No-Fault Act was repealed and C.R.S. § 10-4-601(5) was enacted. Concomitantly, former C.R.S. § 10-4-712(2)(b) permitted insurers to exclude coverage where an injured person operated a motor vehicle "as a converter without a good faith belief that he is legally entitled to operate or use such vehicle." This permitted exclusion has remained intact with the adoption of C.R.S. § 10-4-623. In two decisions in the 1990s, the Colorado Supreme Court adopted an "initial permission rule" applicable in the context of liability coverage: Wiglesworth v. Farmers Insurance Exchange, 917 P.2d 288 (Colo. 1996), and Metropolitan Property & Casualty Co. v. Hertz Corp. , 981 P.2d 1091 (Colo. 1999). Under this initial permission rule, "once a named insured permits another to drive the insured vehicle on public highways, the No-Fault Act extends coverage to subsequent permittees." Metropolitan, 981 P.2d at 1093. In Wiglesworth, the supreme court rejected a subjective test as to whether a driver is a permissive user. 917 P.2d at 291. However, under the rule adopted in Metropolitan, it is the user's subjective knowledge as to whether he or she has been forbidden to use the vehicle that is determinative of the user's status. The Metropolitan court held that "if a driver is given permission from an insured to operate a vehicle, and has no knowledge that she has been forbidden to drive the vehicle by the vehicle's owner, the driver is a permissive user." 981 P.2d at 1095. Under this rule, a user of a vehicle is not a "converter" unless he or she actually knows that the use of the vehicle has been forbidden.

Making the matter more complicated, in 1999, the Colorado legislature amended C.R.S. § 10-4-703(2.5) to include, for the first time, a definition of the term "converter." The new definition apparently was intended to replace the subjective test adopted by the supreme court in Metropolitan with an objective, "reasonable person" test. The definition of "converter" is now contained in C.R.S. § 10-4-601(3). Under the statutory definition, whether a person is using a vehicle as a converter depends upon whether, under the circumstances, a reasonable person would determine that the use of the vehicle was forbidden or unauthorized. In the author's opinion, the statutory definition of the term "converter" may affect the initial permission rule adopted in Wiglesworth and Metropolitan. Since both of those opinions were based upon an interpretation of the No-Fault Act, the legislature's 1999 amendment to the No-Fault Act, and the subsequent adoption of § 10-4-601(3), should have an impact on how the courts determine who is a "permissive user" and who is a "converter." The decisions in Wiglesworth and Metropolitan are reviewed more fully below.

§ 3.8.1—Purchaser of Vehicle, Who Has Taken Possession from Named Insured, Is Not a Permissive User Entitled to Liability Coverage Under Named Insured's Policy

Where vehicle was sold to buyer, who took possession of vehicle before paying for it, but title to vehicle remained in named of seller, and buyer was subsequently involved in an automobile accident, buyer was not insured as a permissive user under seller's liability insurance policy. Buyer was in possession of vehicle as a conditional vendee, and not by virtue of any permission to use vehicle given by seller. United Fire & Casualty Co. v. Perez, 419 P.2d 663 (Colo. 1966).

United Fire & Casualty Co. v. Perez, 419 P.2d 663 (Colo. 1966), arose out of an automobile accident that occurred on November 7, 1962. The accident occurred when Gary Reese was driving a 1953 Lincoln, which he had purchased in October 1961, from Melvin Edmonds. Reese took possession of the vehicle before paying for it, and by the time of the accident, Reese had only paid a small portion of the purchase price. When the accident occurred, title to the vehicle remained in Edmonds's name.

Frank and Dolores Perez brought suit against Reese for damages caused by the accident. In February 1965, they obtained a judgment against Reese and thereafter served writs of garnishment upon two insurance companies, United Fire and Casualty and Boston Insurance Company. In February 1962, Boston had issued a liability policy to Edmonds that covered the 1953 Lincoln. In August 1962, Reese had obtained a policy from United to cover the 1953 Lincoln. Both policies were in effect at the time of the accident.

The policy issued by Boston defined the term "insured" to include "'[a]ny other person using [the described] automobile, provided the actual use thereof is with the permission of the named insured . . . .'" Id. at 664-65. Boston argued that Reese was not an insured under this provision because he was driving the vehicle as an owner of the vehicle, not as a permissive user. United admitted liability for half the judgment but asserted that Boston was responsible for the other half. The trial court entered judgment against United for the entire amount of the judgment against Reese and entered judgment in favor of Boston. The supreme court affirmed.

The supreme court held that the policy issued by Boston provided no coverage to Reese. "His status was synonymous with that of a conditional vendee and upon delivery of the automobile to him his right to the use of the car was by virtue of his ownership and his unrestricted right to control it, and not by virtue of any grant of permission to him by Edmonds." Id. at 665. Thus, the permissive user provision of the Boston policy did not apply.

Although...