635 F. App'x 553
10th Cir.2016Background
- Sixteen-year-old James Checkley, unlicensed, was asked by Johnny Branner to drive a Jeep; Checkley swerved and crashed, fracturing his hip.
- GEICO denied liability under the vehicle owner’s policy; Checkleys then sought uninsured/underinsured motorist (UM/UIM) benefits from their insurer Allied, which also denied coverage.
- Allied’s policy excluded from the definition of “uninsured motor vehicle” any vehicle operated by the insured or a relative, which Allied applied here because Checkley (a relative) was driving.
- The Checkleys sued in Colorado state court for breach of contract (UM/UIM), common-law bad faith, and statutory delay/denial under Colo. Rev. Stat. §§ 10-3-1115–1116; Allied removed and moved to dismiss under Rule 12(b)(6).
- The district court dismissed all claims and denied Allied’s request for attorney’s fees under Colo. Rev. Stat. § 13-17-201; the Tenth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy’s family-driver exclusion voids UM/UIM coverage required by Colo. Rev. Stat. § 10-4-609 | Checkley argues he is "legally entitled to collect" from Branner under negligent entrustment, so the UM/UIM statute mandates coverage despite the exclusion | Allied argues negligent entrustment does not apply to bar the exclusion here; the exclusion is valid and precludes coverage | Exclusion valid; negligent entrustment does not overcome exclusion given Checkley’s knowledge of his inexperience and Colorado precedent/policy reasons |
| Whether negligent entrustment theory requires coverage despite the exclusion | Checkley relies on Casebolt to assert negligent entrustment allows recovery from Branner, making UM/UIM coverage required | Allied contends Casebolt is limited and Colorado would not extend negligent entrustment to override the contractual exclusion | Court interprets Casebolt and the Restatement to limit negligent entrustment where the entrustee knew of incompetence; here Checkley knew he was unlicensed, so doctrine does not invalidate the exclusion |
| Whether denial of benefits was common-law or statutory bad faith/unreasonable and thus actionable | Checkley contends Allied unreasonably denied benefits and acted in bad faith/statutorily violated §§ 10-3-1115–1116 | Allied contends denial was reasonable because the claim was fairly debatable given the clear policy exclusion and unsettled law | Denial was reasonably debatable; bad-faith and statutory claims fail as a matter of law |
| Whether defendant is entitled to attorney’s fees under Colo. Rev. Stat. § 13-17-201 after dismissal on Rule 12(b)(6) | Checkleys argue the action’s essence is contract, not tort, so fees are not mandatory | Allied argues statute mandates fees for actions brought as a result of injury when dismissed under Rule 12(b)(6) because bad-faith/tort claims were pleaded | Court held the essence of the action was breach of contract (not primarily tort), so district court properly denied attorney’s fees |
Key Cases Cited
- Casebolt v. Cowan, 829 P.2d 352 (Colo. 1992) (recognizes negligent entrustment doctrine but endorses a case-by-case, policy-sensitive approach)
- Terranova v. State Farm Mut. Auto. Ins. Co., 800 P.2d 58 (Colo. 1990) (UM/UIM statute protects insureds from third-party underinsured motorists; some policy limits on UM benefits can be valid)
- DeHerrera v. Sentry Ins. Co., 30 P.3d 167 (Colo. 2001) (parties may not contractually limit statutorily required coverage, but interpretation depends on context)
- Kral v. Am. Hardware Mut. Ins. Co., 784 P.2d 759 (Colo. 1989) (UM/UIM purpose is compensation for loss caused by financially irresponsible motorists)
- Sanderson v. Am. Family Mut. Ins. Co., 251 P.3d 1213 (Colo. App. 2010) (elements for common-law bad-faith claim: unreasonable conduct plus knowledge or reckless disregard)
- Shrader v. Beann, [citation="503 F. App'x 650"] (10th Cir. 2012) (Colorado § 13-17-201 attorney-fee award for 12(b) dismissals is mandatory)