Bailey v. Lincoln General Insurance Co.
2011 Colo. LEXIS 413
| Colo. | 2011Background
- Insurance coverage dispute over a criminal-acts exclusion in a $1,000,000 excess SLI policy issued by Lincoln General tied to a rental car.
- Insured, under methamphetamine influence, led police on a 12-minute chase, causing severe injuries to Julie Bailey and death of her son Brandon Magnusson.
- Insured pled guilty to five felonies, including second-degree murder; he assigned his rights to the plaintiffs for the SLI policy proceeds.
- Dollar Rent-A-Car provided underlying primary coverage; SLI the excess coverage activated only after underlying limits were exhausted.
- Rental agreement warned that prohibited uses, including felonious acts, voided benefits; the insured did not read or receive the SLI brochure or policy.
- Lower courts held the criminal-acts exclusion enforceable and did not violate public policy or reasonable-expectations doctrine; appellate review affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Public policy validity of criminal-acts exclusion in excess policy | Bailey argues exclusion violates public policy by denying tort victims. | Lincoln General contends policy preserves contract freedom to exclude criminal acts. | Exclusion does not violate public policy. |
| Reasonable expectations doctrine applicability | Bailey asserts exclusion is ambiguous or deceitful, undermining insured expectations. | Lincoln General contends no deception or ambiguity; exclusion clearly communicated. | Exclusion does not violate reasonable expectations. |
| Potential illusory coverage due to broad exclusion | Exclusion potentially leaves insured with no coverage for fortuitous damages. | Policy excludes intentional/criminal acts; coverage remains for fortuitous events. | Not illusory; excess policy remains valid within contract limits. |
Key Cases Cited
- Peterman v. State Farm Mut. Auto. Ins. Co., 961 P.2d 487 (Colo. 1998) (public policy voids insurance provisions that dilute mandated coverage)
- Friedland v. Travelers Indem. Co., 105 P.3d 639 (Colo. 2005) (public policy favors tort Victims; affirming coverage limitations under contract)
- Shelter Mut. Ins. Co. v. Breit, 908 P.2d 1149 (Colo. App. 1995) (renewal-notice and reasonable expectations in standardized contracts)
- Davis v. M.L.G. Corp., 712 P.2d 985 (Colo. 1986) (exclusion in rental agreement scrutinized under reasonable expectations)
- Nissen v. State Farm Mut. Auto. Ins. Co., 851 P.2d 165 (Colo. 1993) (insurance terms read in ordinary reader sense; ambiguities resolved against insurer)
- Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294 (Colo. 2003) (reasonableness of insurance-coverage interpretations; whole-policy reading)
- Reg'l Bank of Colo., N.A. v. St. Paul Fire & Marine Ins. Co., 35 F.3d 494 (10th Cir. 1994) (interpretation of insurance terms; reasonable reader standard)