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Petitioner: American Family Mutual Insurance Co. v. Hansen

Supreme Court of Colorado, En Banc

June 20, 2016

American Family Mutual Insurance Company, Petitioner
Jennifer Hansen, Respondent.

          Attorneys for Petitioner: Campbell, Latiolais & Averbach, LLC Colin C. Campbell Michael O. Frazier

          Attorneys for Respondent: Springer and Steinberg, P.C. Michael P. Zwiebel, Kiel & Trueax, LLC John W. Trueax, Colorado Law Office of Samuel G. Livingston Samuel G. Livingston

          Attorneys for Amici Curiae The Colorado Civil Justice League, The American Insurance Association, The Property Casualty Insurers Association of America, and The National Association of Mutual Insurance Companies: Montgomery Amatuzio Dusbabek Chase, LLP, Kevin F. Amatuzio

          Attorneys for Amicus Curiae Colorado Defense Lawyers Association: Gordon & Rees LLP John R. Mann, Sutton Booker P.C. Jacquelyn S. Booker Katie B. Johnson

          Attorneys for Amicus Curiae Pinnacol Assurance: Vaughan & DeMuro David R. DeMuro Jennifer C. Madsen

          Attorneys for Amici Curiae Colorado Association of Home Builders, The Home Builders Association of Metro Denver, and Colorado BUILDS: Davis & Ceriani, P.C. Scott W. Wilkinson George R. Lyons

          Attorneys for Amicus Curiae The Colorado Trial Lawyers Association: Roberts Levin Rosenberg PC Bradley A. Levin Michael J. Rosenberg


          EID, JUSTICE

          ¶1 Respondent Jennifer Hansen was injured in a motor vehicle accident on December 30, 2007. Four months later, she presented an underinsured motorist ("UIM") claim to petitioner American Family Mutual Insurance Company ("American Family"), asserting coverage under an American Family auto insurance policy on her 1998 Ford Escort. As proof of insurance, Hansen offered lienholder statements issued to her by American Family's local agent that identified her as the named insured at the time of the accident. American Family's own records, however, including a November 2007 declaration page, indicated that the named insureds on the policy at the time of the accident were Hansen's stepfather and mother, William and Joyce Davis (the "Davises"). In reliance upon the policy as reflected in its own records, American Family determined that Hansen was not insured under the policy and denied coverage. Hansen filed an action against American Family asserting claims for breach of contract, common law bad faith, and statutory bad faith for unreasonable delay or denial of benefits under sections 10-3-1115 and -1116, C.R.S. (2015). Prior to trial, American Family reformed the contract to name Hansen as the insured, and the parties settled the breach of contract claim, leaving only the common law and statutory bad faith claims for trial.

         ¶2 The trial court ruled that the deviation in the records issued by American Family's agent and those produced by its own underwriting department created an ambiguity in the insurance policy as to the identity of the named insured, and instructed the jury that an ambiguous contract must be construed against the insurer. The jury found in American Family's favor on the common law bad faith claim but in Hansen's favor on the statutory bad faith claim, indicating on a special verdict form that American Family had delayed or denied payment without a reasonable basis for its action. The trial court awarded Hansen attorney fees, court costs, and a statutory penalty under section 10-3-1116.

         ¶3 American Family appealed the judgment and award of statutory damages to Hansen, arguing, among other things, that the trial court erred in finding that the lienholder statements created an ambiguity in the insurance contract as to the identity of the insured and that, at the very least, the contract was arguably unambiguous such that the company had a reasonable basis to deny coverage and could not be liable for statutory bad faith. The court of appeals affirmed, finding that the lienholder statements created an ambiguity and that, even assuming American Family's legal position was a reasonable one, American Family could still be held liable for statutory bad faith. Hansen v. Am. Family Mut. Ins. Co., 2013 COA 173, ¶¶ 36, 43, P.3d .

         ¶4 We granted certiorari and now reverse. Because the insurance contract unambiguously named William and Joyce Davis as the insureds at the time of the accident, the trial court and court of appeals erred in relying on extrinsic evidence to find an ambiguity in the insurance contract. An ambiguity must appear in the four corners of the document before extrinsic evidence can be considered. See Ad Two, Inc. v. City & Cty. of Denver, 9 P.3d 373, 376–77 (Colo. 2000) ("Absent such ambiguity [in the terms of the agreement], we will not look beyond the four corners of the agreement to determine the meaning intended by the parties."). In other words, extrinsic evidence cannot create ambiguity; it is an aid to ascertaining the intent of the parties once an ambiguity is found. Accordingly, American Family's denial of Hansen's claim in reliance on the unambiguous insurance contract was reasonable, and American Family cannot be held liable under sections 10-3-1115 and -1116 for statutory bad faith. We therefore reverse and remand the case for further proceedings consistent with this opinion.


         ¶5 Hansen bought a 1998 Ford Escort on May 18, 2002. At trial, Hansen testified that she purchased an insurance policy on the car in 2002 from the Heath Burchill American Family Insurance Agency ("Burchill"), an American Family captive agent. On April 9, 2007, Hansen went to Burchill's office to add more coverage to the policy on her Ford Escort. On that date, Hansen obtained a lienholder statement from Burchill (the "2007 lienholder statement"). Apart from a note at the top of the page stating, "FOR LIENHOLDER USE, " the document resembles the declaration page of an insurance policy. It lists a policy inception date of August 1, 2002, effective dates of "12-15-2006 UNTIL CANCELLED, " $100, 000 per person in underinsured motorist coverage, and "DAVIS, JENNY" as the named insured. Although Hansen has never been named Jenny Davis, Davis is Hansen's stepfather's and mother's last name.

         ¶6 On December 30, 2007, Hansen sustained injuries when she was a passenger in a vehicle owned and operated by her boyfriend. Because her boyfriend carried only $25, 000 in insurance, Hansen filed a claim for UIM benefits on April 24, 2008, from American Family.

          ¶7 In contrast to the 2007 lienholder statement issued by Burchill to Hansen, American Family's own underwriting department produced a declaration page effective from November 26, 2007, to August 1, 2008 (the "November 2007 declaration page") naming "DAVIS, WILLIAM & JOYCE"-Hansen's stepfather and mother-as the insureds.[1] Because Hansen would be covered under her parents' policy only if she resided with them, the American Family claims adjuster assigned to her case made repeated unsuccessful attempts in April and May of 2008 to contact Hansen and determine her residence.

         ¶8 The matter lay dormant until the fall of 2009, when Hansen received an offer from her boyfriend's insurer to settle her claim for the policy limits of $25, 000. In response, Hansen contacted Burchill and requested a copy of her policy. She received a lienholder statement dated January 13, 2010, identifying "HANSEN, JENNIFER" as the named insured at the time of the accident. This document listed the same policy number and vehicle description as the 2007 lienholder statement, but now showed effective dates of "12-01-2007 to 08-01-2009."

         ¶9 On January 18, 2010, American Family sent Hansen a letter requesting verification of Hansen's residence at the time of the accident, in order to determine her eligibility for UIM coverage under her parents' policy. The letter advised Hansen that if she did not respond, the claim would be closed. On March 1, 2010, Hansen's attorney sent American Family a letter enclosing the January 13, 2010, lienholder statement and requesting permission to settle with Hansen's boyfriend's insurance ...

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