Sandy Eloranto, Senior Counsel, Sutton | Booker | P.C.

The Colorado Supreme Court issued its opinion in State Farm v. Johnson on June 5, 2017, in an opinion that changed course from recent decisions on UM/UIM law in Colorado. State Farm v. Johnson, 2017 WL 2417764 (Colo. June 5, 2017).

The Court held that one named insured’s written rejection of  UM/UIM coverage is sufficient to bind another named insured if acting with authority under common law agency principles, reversing the Court of Appeals’ decision that C.R.S. § 10-4-609 requires “express actual authority” to reject UM/UIM coverage on behalf of another named insured.

In 2009, Brian Johnson was going through a divorce and moved in with a roommate who helped him buy a car. In 2010, Johnson delegated the task of purchasing car insurance for the jointly owned car to the roommate. The roommate, who was already insured through State Farm, contacted her State Farm agent and purchased a policy to cover Mr. Johnson’s vehicle. Mr. Johnson was not present during the call. The roommate selected coverage limits on the new policy, including rejecting UM/UIM coverage to save money given that Johnson was a member of her household and thus already covered under the  UM/UIM coverage on her policy. The declarations page and insurance cards were silent as to the UM/UIM rejection, and Johnson claimed he was unaware the coverage had been rejected and believed he had “full coverage.” Shortly after obtaining the policy, Johnson was injured in an accident caused by an underinsured driver and submitted a claim under his policy.

After a bench trial on coverage, the trial court held that Johnson’s UM/UIM coverage had been properly rejected by the roommate, and State Farm was not obligated to provide a separate offer or obtain a separate written rejection from Johnson. Johnson appealed.

The issues on appeal to the Court of Appeals included whether Colorado’s UM/UIM statute, CRS § 10-4-609—which requires insurance companies to issue automobile policies with a minimum level of UM/UIM coverage unless the named insured waives this coverage in writing—required written rejection by each named insured or whether one named insured’s written rejection was enough to bind everyone on the policy.

The Court of Appeals analyzed the statute’s legislative history including the 1965, 1983, and 2007 amendments when interpreting “the named insured” and decided the current statute required some showing of one named insured’s authority to reject UM/UIM coverage for another named insured.  The Court then held that common law agency principles did not apply. Instead, the Court of Appeals decided that “because 10-4-609(1)(a) requires an express rejection of UM/UIM coverage by each named insured, the statute necessarily prohibits one named insured acting as an agent for another from waiving UM/UIM coverage on the other’s behalf unless the agent acts with express actual authority from the other.” Johnson, 2014 WL 5033217, *9 (Colo. App. 2014).

Putting the brakes on what has seemed like a high speed expansion of UM/UIM coverage in Colorado, the Supreme Court reversed and determined the roommate’s rejection was binding on Johnson. The Court reasoned: “Nothing in the language of the section 10-4-609 precludes an agent from exercising either apparent or implied authority to reject UM/UIM coverage on behalf of a principle.” State Farm v. Johnson, 2017 WL 2417764, *3 (Colo. June 5, 2017). The Court analyzed the legislative history and found no indication that the statute was intended to abrogate common law. Stating that such an intent “cannot be inferred lightly,” the Court determined common law agency principles continue to apply in analyzing the rejection of UM/UIM under CRS 10-4-609. Id. at *9.

The Court then applied common law agency principles to the facts of the case and determined that Johnson’s roommate had his implied authority to reject UM/UIM coverage because he delegated the task of purchasing insurance to his roommate.  “Although Johnson did not specifically instruct his friend to reject (or not to reject) UM/UIM coverage for the new car, that decision was necessary, usual, and proper to the purchase of insurance, which he expressly authorized her to undertake.”

Because the Court determined the roommate had Johnson’s authority to reject UM/UIM coverage, it declined to answer whether CRS 10-4-609’s reference to “the named insured” means any or all named insureds.

For insurance companies selling UM/UIM insurance in Colorado, the Court’s June 5 opinion does not mean one named insured’s written rejection will always be enough to bind all insureds, and an analysis under common law agency principles is still necessary. However, based on Johnson, an insured who delegates the job of purchasing insurance and selecting coverage amounts to another insured has likely given that person the authority to reject UM/UIM coverage on their behalf, and he will be bound by that written rejection of coverage.