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Domokos v. Shelter Mutual Insurance Co.

United States District Court, D. Colorado

September 24, 2019

AMY DOMOKOS, Plaintiff,
v.
SHELTER MUTUAL INSURANCE COMPANY, Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT, AND DENYING PLAINTIFF’S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT

          William J. Martinez United States District Judge.

         Plaintiff Amy Domokos (“Domokos, ” although sometimes “Amy” to distinguish her from her parents, who play a role here) sues Shelter Mutual Insurance Company (“Shelter”) for breach of insurance contract, common-law bad faith breach of insurance contract, and unreasonable delay or denial of insurance benefits in violation of Colorado Revised Statutes §§ 10-3-1115 and -1116.

         Currently before the Court is Shelter’s Motion for Summary Judgment (ECF No. 51) and Domokos’s Cross Motion for Summary Judgment (ECF No. 79), which is actually a cross-motion for partial summary judgment. For the reasons explained below, Shelter’s motion is granted except as to Domokos’s common-law bad faith claim, and Domokos’s motion is denied. Therefore, this matter remains set for trial on Domokos’s bad faith claim.

         I. LEGAL STANDARD

         Summary judgment is warranted under Federal Rule of Civil Procedure 56 “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248–50 (1986). A fact is “material” if, under the relevant substantive law, it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231–32 (10th Cir. 2001). An issue is “genuine” if the evidence is such that it might lead a reasonable trier of fact to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

         In analyzing a motion for summary judgment, a court must view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). In addition, the Court must resolve factual ambiguities against the moving party, thus favoring the right to a trial. See Houston v. Nat’l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987).

         II. BACKGROUND

         The following facts are undisputed unless attributed to a party or otherwise noted.

         A. Removal of UM/UIM Coverage from the Altima Policy

         In early 2015, Domokos’s father, Glenn Domokos, was paying for a total of $750, 000 in UM/UIM coverage from Shelter-$250, 000 each for a Dodge Caravan, Ford Taurus, and Nissan Altima. (ECF No. 51 at 3–4, ¶¶ 5, 8–10; ECF No. 76 at 12, ¶¶ 52–53.)[1] Around that time, Glenn called his usual Shelter agent, James Mosier, to see if he could reduce his premiums while still preserving $250, 000 in UM/UIM coverage for each of the three vehicles, including the Nissan Altima, which was owned and driven by Amy Domokos. (ECF No. 51 at 2, ¶ 2; ECF No. 76 at 12, ¶ 51; ECF No. 76-2 at 3.)

         Mosier is “a contracted agent, ” not a Shelter employee. (ECF No. 85-1 at 10.) He sells policies exclusively for Shelter (which allows Mosier to sell policies for one other company, although he does not), uses only Shelter computers and software, displays a Shelter sign on the outside of his office, includes “Shelter” on his business card and letterhead, and generally sets up his business so that anyone coming to his office knows they are working with a Shelter agent. (Id.; ECF No. 88-1 at 4–5.)

         According to Mosier’s recollection at his deposition in this lawsuit, the conversation between himself and Glenn Domokos lasted “maybe 10 minutes, 15 minutes.” (ECF No. 85-1 at 4.) Mosier explained to Glenn that he could remove the UM/UIM coverage on all but one of his policies and it would still apply to all three cars if the driver was “in the same household” as Glenn. (Id. at 3–4.) The specific words he remembers using are “living in the household.” (Id. at 5.) Mosier also recalled saying “the only way you can keep this coverage [on drivers of all three vehicles] is by being a member of the household.” (Id. at 6.)

         As will become clear below, Shelter’s policy actually speaks of “relatives” who “reside” with the named insured. “Household” appears in the policy, but not as a defined term. Mosier testified that he generally explains the limitation in terms of “household” because “if you tell [customers] something different, they don’t remember that.” (Id. at 5.)

         Based on his explanation to Glenn Domokos, Mosier “assum[ed] [Glenn] knew that if somebody moved out, they would not have this coverage, ” but he does not remember if he used words explicitly to that effect. (Id. at 6, 8.) Later in his deposition, Mosier elaborated that “I assumed that he thought that [Amy] physically had to be in the household, ” and that his assumption arose from “the way we were talking, ” including “just the way it seemed like he was talking that she was physically in the household.” (Id. at 8.) Since 2009, however, Amy had lived in a townhome in Parker, Colorado, rather than with her parents at their home in Littleton, Colorado-although her parents kept a bedroom for her in their Littleton house, in which she would stay four to five nights per month. (ECF No. 51 at 6, ¶¶ 27–29; ECF No. 76 at 9, ¶ 27.)

         Shelter presents no evidence contradicting Mosier’s recollection of his conversation with Glenn Domokos. Amy Domokos likewise does not challenge Mosier’s account, except for two matters. Through a declaration from her father, she asserts, among other things, that: (1) the conversation with Mosier lasted “no more than 10 minutes, ” as compared to Mosier’s memory of 10–15 minutes; and (2) “Mr. Mosier never [said] to me [Glenn] that this coverage was dependent on Amy living with me, ” in contrast to Mosier’s recollection that he used the words “living in the household.” (ECF No. 76-1 ¶¶ 4, 13.) Glenn does not deny that Mosier use the words “member of the household.” Glenn says, rather, that

Mr. Mosier did not tell me that Amy had to be living in my house in order for the UM/UIM coverage to apply. Mr. Mosier did not tell me that Amy would lose UM/UIM coverage if she moved out of my house. Mr. Mosier did not explain to me the meaning of household, or that if Amy lived somewhere other than my address, she would not be a member of my household.

(Id. ¶¶ 13–15.)

         Regardless, as a result of the conversation, Mosier prepared new forms, including one in which Amy Domokos explicitly waived UM/UIM coverage on her Altima. (Id. at 4; ECF No. 51 at 3, ¶ 6; ECF No. 51-6 at 2.) Mosier has never spoken with Amy Domokos. (ECF No. 76-2 at 14.) The record does not make clear who asked Amy to sign this form.[2]

         B. Relevant Policy Language

         Updated policies issued for both the Altima and the Caravan (and presumably the Taurus too, although it is not relevant here). (ECF Nos. 51-5, 51-7.) The Altima policy listed the “named insureds” as Amy and Glenn, at Glenn’s address in Littleton. (ECF No. 51-5 at 3.) The Caravan policy listed the “named insureds” as Glenn and Josephine, again at Glenn’s address in Littleton. (ECF No. 51-7 at 3.) The policy numbers for both policies included a seven-digit code known as a “family number.” (ECF No. 51 at 3, ¶ 10.)

         For reasons that will become clear below, the Caravan policy is the focus of this dispute. Its declarations page appears as follows, showing Glenn and Josephine as the “named insureds, ” and, below that, the two of them alongside their daughter as “additional listed insureds”:

         (Image Omitted)

         (ECF No. 51-7 at 3.)[3]

         The Caravan policy defines “named insured” to mean “any person listed in the Declarations under the heading ‘Named Insured’. Persons listed under other headings are not named insureds unless they are also listed under the heading ‘Named Insured’.” (ECF No. 51-7 at 8.)[4]

         The definitions section does not define “additional listed insured.” That term receives its meaning from the Caravan policy’s liability coverages (bodily injury under “Coverage A” and property damage under “Coverage B”). (Id. at 14.) There, the persons entitled to coverage are broken into separate categories. “Category 2” applies to “Relatives” and “Individuals listed in the Declarations as an ‘additional listed insured’.” (Id.) “Relatives” means any person related to the named insured “by blood, marriage, or adoption, who is a resident of [the named insured’s] household, ” where “resident” is defined derivatively from the definition of “reside, ” which means “to actually live in a location with the intent to make that place, and no other, one’s primary, and permanent home.” (Id. at 9.) “Additional listed insured” is not further defined. Per “Category 2, ” both relatives and additional listed insureds are covered “for claims resulting from their maintenance, use, or operation, of the described auto.” (Id. at 9, 14.) “Described auto” means “the vehicle described in the Declarations” (id. at 7), i.e., the Caravan.

         UM/UIM coverage is “Coverage E” under the Caravan policy. (Id. at 19.) Coverage E applies to (1) the named insured, with no restriction on the vehicle the named insured is occupying at the time of the accident, (2) relatives (as defined above), again with no restriction on which vehicle the relative is occupying, and (3) anyone else “who sustains damages while occupying the described auto [i.e., the Caravan] with permission or general consent.” (Id.) In other words, consistent with the advice Mosier claims to have given Glenn Domokos, UM/UIM coverage does not extend beyond the named insureds or the Caravan itself unless the person claiming coverage is a “relative, ” i.e., someone residing with the named insureds.

         C. Amy Domokos’s Accident and Shelter’s Initial Response

         The reader can probably see where this is headed. Later that same year-on October 25, 2015, specifically-Amy Domokos was in a collision while driving her Altima. (ECF No. 51 at 2, ¶¶ 1–2.) The following month, she submitted a UIM claim to Shelter, asserting coverage as an additional listed insured. (Id. ¶ 3; ECF No. 76-3 ¶ 2.) She disavows claiming coverage under some other status. (Id. ¶¶ 2–3.)

         Shelter assigned one of its adjusters, Amanda Coon, to handle the claim. (ECF No. 51 at 2, ¶ 4.) As Coon reviewed the claim, she noticed that “all of the individuals insured under the Altima and Caravan Policies, i.e. Glenn, Josephine and Amy Domokos, were members of the same household, because [the policies] were issued [to Domokos] and her parents, respectively, at [Glenn and Josephine’s Littleton address] under the same family number.” (Id. at 5, ¶ 21.) Coon therefore “presumed” that Glenn, Josephine, and Amy “were members of the same household.” (Id.) Coon explained at her deposition that this presumption led her to conclude that Amy was entitled to UIM coverage under the Caravan policy. (Id. ¶ 22.)

         Domokos disputes that this was the only reason Coon came to that conclusion. Domokos emphasizes that Coon’s contemporaneous claim notes do not contain any explanation of how she decided that coverage was available. (ECF No. 76 at 9, ¶ 22.) Domokos also points to a portion of Coon’s deposition testimony where she “testified that [her] determination was influenced by Amy being listed as an additional listed insured on the Declarations Page.” (Id.) The relevant deposition testimony is as follows:

Q. So what did you do when you first received the claim to determine coverage?
A. I looked at the declarations pages, and I saw that she was an additional listed insured. It appeared to me that she was living in the household at the time. So that is where my coverage determination came from.

(ECF No. 51-4 at 3.) Finally, Domokos notes that Coon reviewed a police report regarding the car accident, and that police report showed Domokos’s address in Parker. (ECF No. 76 at 11, ¶ 43.) In any event, from her determination of coverage until this lawsuit was filed, Coon “handled the claim under the assumption that UIM coverage was available to Ms. Domokos under the Caravan Policy issued to her parents.” (ECF No. 51 at 6, ¶ 23.)

         In June 2016, Domokos settled with the driver that caused the accident. (Id. ¶ 24.) She then turned her attention to UIM benefits. The negotiations in this regard apparently got bogged down in a dispute over whether Domokos had developed a stutter as a result of the accident. (See ECF No. 76 at 3–4.)[5] Shelter’s made offers of $20, 000 and then $75, 000. (ECF No. 76-6 at 1–4.) Explaining the $75, 000 offer in a February 2018 letter, Coon stated,

We have based our settlement evaluation on the medical records and bills presented by your office [i.e., Domokos’s attorney’s office] and lost wages. The medical records state that they do not believe [the] stutter is related to this accident. Furthermore, we feel that some of these complaints were caused by the second accident on January 4, 2016.

(Id. at 5.)[6] Enclosed with that letter was a $75, 000 check (id.), although the record does not state whether Domokos ever cashed that check.

         Domokos filed this lawsuit in April 2018, claiming entitlement to the full $250, 000 policy limits under the Caravan policy’s UIM coverage. (ECF No. 1 ¶¶ 6, 80.) Both her original complaint and the currently operative complaint (the Second Amended Complaint) set forth four causes of action: (1) “Underinsured Motorist Benefits”; (2) breach of contract, apparently somehow separate from the first cause of action; (3) unreasonable delay/denial of insurance benefits in violation of Colorado Revised Statutes §§ 10-3-1115 and -1116; and (4) common-law bad faith breach of insurance contract. (See ECF No. 83 at 8-11.)

         III. ANALYSIS

         Shelter moves for summary judgment in its favor on the first and second causes of action, asserting that the Caravan policy does not provide UIM coverage to Domokos. (ECF No. 51 at 7–9.) And, in light of the lack of coverage, Shelter argues that the unreasonable delay/denial and bad faith claims necessarily fail. (Id. at 9–10.) Domokos cross-moves for partial summary judgment, arguing under various legal theories that the Caravan policy must be construed to provide coverage. (ECF No. 79 at 1–2; see also ECF No. 76 at 15–36.)

         Notably, Domokos nowhere argues that the Caravan policy (or any other policy), by its terms, provides UIM coverage to her. She argues only under the facts of this case that Colorado law requires UIM coverage to be deemed to exist. Accordingly, it is undisputed that the Caravan policy, by its terms, provides no UIM coverage to Domokos. And in that light, the questions before the Court are now twofold. First, does any principle of Colorado law require Shelter to provide UIM coverage anyway? Second, what is the effect of the answer to the first question (whether in favor of Domokos or Shelter) on Domokos’s causes of action for unreasonable delay/denial and bad faith? The Court will address these questions in turn.

         A. Reasonable Expectations

         Domokos’s primary argument that UIM coverage must exist in these circumstances relies on Colorado’s “reasonable expectations doctrine.”

         1. Reasonable Expectations Generally

         The Colorado Supreme Court has summarized the reasonable expectations doctrine as follows:

Given insurance policies’ unique nature, which includes significant potential for insurers to take advantage of or mislead insureds, such policies are subject to heightened scrutiny, including the doctrine of reasonable expectations, which obligates insurers to clearly and adequately convey coverage-limiting provisions to insureds. In Colorado, the reasonable expectations of insureds have succeeded over exclusionary policy language in two main situations:
(1) where an ordinary, objectively reasonable person would, based on the language of the policy, fail to understand that he or she is not entitled to the coverage at issue; and
(2) where, because of circumstances attributable to an insurer, an ordinary, objectively reasonable person would be deceived into believing that he or she is entitled to coverage, while the insurer would maintain otherwise.

Bailey v. Lincoln Gen. Ins. Co., 255 P.3d 1039, 1048–49 (Colo. 2011). The Court will address these principles in greater detail below. First, however, the Court must address Shelter’s argument that the reasonable expectations doctrine fails from the outset.

         2. The Effect of Hansen

         Shelter contends that the reasonable expectations doctrine can never apply here in light of American Family Mutual Insurance Co. v. Hansen, 375 P.3d 115 (Colo. 2016) (“Hansen”). (See ECF No. 85 at 8–9.) In that case, it was undisputed that the plaintiff, Jenny Hansen, was not a “named insured” under the relevant auto policy. Id. at 120. However, sometime before the auto accident in question, an agent for the insurance company, American Family had given Hansen a lienholder statement showing a named insured of “Davis, Jenny”-Davis was Hansen’s stepfather’s surname, although not a surname Hansen had ever used. Id. at 117. After a car accident, she received from the same agent another lienholder statement listing “Hansen, Jenny” as the named insured. Id. at 118. But, as it turned out, the only named insureds on the policy itself were Hansen’s mother and stepfather. Id. at 117 & n.1. Hansen argued successfully in the trial court that the lienholder statement created an ambiguity in coverage that must be resolved in her favor, and the Colorado Court of Appeals agreed. Id. at 119–20. But the Colorado Supreme Court reversed.

         As to Hansen’s ambiguity argument, the Colorado Supreme Court invoked the doctrine that a contract which is not ambiguous on its face cannot be declared ambiguous by looking at extrinsic evidence (such as the lienholder statement). Id. at 120–21. And, on the facts of that case, the “named insured” section unambiguously listed only Hansen’s mother and stepfather. Therefore, the lower courts erred in finding an ambiguity and construing it against American Family. Id. at 121.

         But Hansen also argued for affirmance on alternate ground, namely, “even if the insurance contract itself is unambiguous, ambiguity nevertheless arises under the doctrine of reasonable expectations.” Id. at 122. Drawing on Bailey, the Colorado Supreme Court responded that “the doctrine of reasonable expectations applies only to ‘the reasonable expectations of insureds, ’ and thus only after it is determined that the claimant is an insured.” Id. (quoting Bailey, 255 P.3d at 1054) (citation omitted; emphasis in original). “In this case, ” the court said, “Hansen cannot rely on her reasonable expectations to establish her identity as the named insured when [the relevant] declaration page unambiguously identifies [her mother and stepfather] as the insureds.” Id.

         Relying on Hansen, Defendant argues that Plaintiff

is not a ‘named insured’ on the Caravan Policy. Further, she does not qualify as an ‘insured’ for this accident under the express terms of that policy (as she was also not driving the covered vehicle and is not a resident-relative of the insureds). Accordingly, under the rule of Hansen, ...

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