July 20, 2019

Colorado Supreme Court: Criminal-Acts Exclusion Prohibiting Use of Rental Car in Commission of Felonious Crimes Does Not Violate Public Policy

The Colorado Supreme Court issued its opinion in Bailey v. Lincoln Gen. Ins. Co. on May 16, 2011.

Criminal-Acts ExclusionPublic PolicyDoctrine of Reasonable ExpectationsAmbiguous Policy LanguageDeceptive Practices

The supreme court affirms the court of appeals determination to uphold the enforceability of a criminal-acts exclusion in a $1 million excess-insurance policy issued to an insured who rented a vehicle he later drove under the influence of methamphetamines, colliding into another vehicle, critically injuring one person and killing another.

The supreme court holds that the criminal-acts exclusion prohibiting use of a rental car “in the commission of a crime that could be charged as a felony” does not violate public policy as applied to this case, where the insured pled guilty to five felonies involving the use of the car, including second degree murder. Further, the insurer’s use of the criminal-acts exclusion was a proper exercise of the insurer’s freedom to contract and provide coverage for damages caused by fortuitous events instead of for damages caused by intentionally criminal acts.

The supreme court also holds that, in this case, insertion of the criminal-acts exclusion does not violate the doctrine of reasonable expectations. In Colorado, this doctrine manifests itself in two ways: (1) where an ordinary, objectively reasonable person would, based on the language of the insurance 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 insured would be deceived into believing that he or she is entitled to coverage, while the insurer would maintain he or she is not. In this case, from the perspective of an ordinary insured, the policy language is clear that using the rental car to commit a felonious criminal act may void coverage. Further, no circumstances attributable to the insurer can be said to have fostered objectively reasonable coverage expectations for intentional criminal acts.

Summary and full case available here.

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