April 19, 2019

Colorado Supreme Court: Ambiguity Must Exist Within Four Corners of Contract Before Looking at Extrinsic Evidence

The Colorado Supreme Court issued its opinion in Hansen v. American Family Mutual Insurance Co. on Monday, June 20, 2016.

Insurance—Ambiguity, Uncertainty, or Conflict—Persons Covered—Unfair Practices—Bad Faith—Penalties.

Respondent Hansen was injured in a motor vehicle accident and presented an underinsured motorist claim to petitioner American Family Mutual Insurance Company (American Family). 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, indicated that the named insureds on the policy at the time of the accident were Hansen’s mother and stepfather. 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, among other things, a statutory bad faith claim for unreasonable delay or denial of benefits under C.R.S. §§ 24 10-3-1115 and -1116. 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 that American Family had delayed or denied payment without a reasonable basis for its action. The Court of Appeals affirmed, finding that the lienholder statements created an ambiguity.

The Supreme Court held that because the insurance contract unambiguously named Hansen’s mother and stepfather 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. 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 C.R.S. §§ 10-3-1115 and -1116 for statutory bad faith. The judgment was reversed.

Summary provided courtesy of The Colorado Lawyer.

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