Chapter 3 - § 3.14 • INSURANCE COVERAGE FOR NEGLIGENT ENTRUSTMENT CLAIMS

• Jurisdiction: Colorado

§ 3.14 • INSURANCE COVERAGE FOR NEGLIGENT ENTRUSTMENT CLAIMS

§ 3.14.1—Under Policy Provision Excluding Coverage for Bodily Injury Arising out of Use, Ownership, Maintenance, or Operation of a Motor Vehicle, No Coverage Exists for a Claim of Negligent Entrustment of the Vehicle

Insurer, which had issued CGL policy to company that was held liable to accident victim on claim of negligent entrustment of automobile by company to employee whose driving caused accident, was not liable to injured party for proceeds of CGL policy, where policy contained an exclusion stating that coverage did not apply to bodily injury or property damage arising out of the use, ownership, maintenance, operation, or loading or unloading of any vehicle owned, operated by, or rented or loaned to the company. Since one element of a claim of negligent entrustment of an automobile derives from or relates to use, ownership, or operation of an automobile, automobile exclusion unambiguously applied in this context. Where multiple causes of an injury were alleged, claim was barred by automobile exclusion unless claim arose from non-automobile related conduct and was independent of any ownership, operation, or use of an automobile. Claim for negligent entrustment did not arise independently of the use, operation, or ownership of an automobile. Northern Insurance Co. v. Ekstrom, 784 P.2d 320, 323-25 (Colo. 1989), overruling United Fire & Casualty Co. v. Day, 657 P.2d 981 (Colo. App. 1982).

In Northern Insurance Co. v. Ekstrom, 784 P.2d 320 (Colo. 1989), Ekstrom was injured when her car was struck by a truck driven by Hobbie, an employee of Mallow Plating Works. At the time of the accident, Mallow had automobile liability coverage of $500,000 issued by Maryland Casualty Company. Mallow was also insured by Northern under a policy that contained both comprehensive general liability (CGL) provisions and special multi-peril liability provisions. However, both such coverages contained an exclusion that stated that the coverages did not apply to bodily injury or property damage arising out of the use, ownership, maintenance, operation, loading, or unloading of any automobile owned, operated by, or rented or loaned to any insured.

Ekstrom sued Mallow and Hobbie, alleging that Mallow was liable for Hobbie's negligence. She also alleged that Mallow negligently entrusted the vehicle to Hobbie and was negligent in hiring, retaining, and supervising Hobbie. The jury found Mallow liable for negligent entrustment and awarded damages of approximately $2,000,000 to Ekstrom. Maryland deposited its entire policy limit, together with approximately $300,000 in interest on the entire judgment, into the registry of the court. Ekstrom then brought a garnishment proceeding seeking the proceeds of the Northern policy. Northern denied that it held any personal property belonging to Mallow, asserting that its policy did not provide coverage for negligent entrustment of an automobile. The trial court found in favor of Ekstrom and entered judgment against Northern for $500,000, and the court of appeals affirmed. However, the supreme court reversed, holding that the policy provided no coverage.

The court of appeals relied principally upon United Fire & Casualty Co. v. Day, 657 P.2d 981 (Colo. App. 1982). In Day, the court held that a homeowner's policy that contained exclusionary language similar to that in the Northern policy did not exclude a claim based on negligent entrustment. The Day court found that the exclusion was ambiguous. It concluded that liability for negligent entrustment arose out of the personal conduct of the insured, and did not involve the...