Waiver by One Named Insured is Binding on all Named Insureds
Pundits have properly claimed that if a person wants something done right he must do it himself. When a person delegates the purchase of insurance to another he or she must be bound by what the person to whom the purchase of insurance was delegated did. In State Farm Mutual Automobile Insurance Company v. Johnson, Supreme Court of Colorado, — P.3d —-, 2017 WL 2417764 (June 5, 2017) the Supreme Court of Colorado was faced with a question of statutory interpretation dealing with the actions of a person waiving the UM/UIM coverage in accordance with the state statutes.
Consistent with his prior practices, the respondent, Brian K. Johnson, tasked a friend with purchasing automobile insurance for the new car that he and the friend had purchased together. The friend did so, and in the course of that transaction, she chose to reject uninsured/underinsured motorist (UM/UIM) coverage on the new car. After an accident in that car with an underinsured motorist, Johnson contended that his friend’s rejection of UM/UIM coverage was not binding on him. A division of the court of appeals ultimately agreed with him and this case now presents two questions for the Colorado Supreme Court’s consideration:
- does the UM/UIM statute require each named insured to reject such coverage, or is one named insured’s rejection binding on all?
- Did the legislature, by enacting the statute abrogate the common law agency principles of implied authority and apparent authority?
Johnson was living with his friend when the two decided to buy a car together. Although Johnson was to be the primary driver, the car was purchased, financed, and titled in both his and the friend’s names.
For about six months, an insurance policy owned by Johnson and his estranged wife covered the new car. His friend suggested that she insure the car through the petitioner, State Farm Mutual Automobile Insurance Company, from whom she had purchased insurance for her primary car and with whom she had had a long and good business relationship. Consistent with his prior practice of deferring insurance matters to his estranged wife, Johnson agreed to defer to his friend concerning the present insurance matter.
Johnson’s friend then contacted State Farm and explained that she wanted the same coverage on the new car as she had on her primary car. A State Farm employee responded that the friend’s current policy included $100,000 in UM/UIM coverage, which extended to everyone who lived in her household (including, at the time, Johnson), regardless of which car he or she was driving. To add UM/UIM coverage for the new car the amount of $200,000, but that the friend would have to pay a separate premium for the additional coverage. The friend ultimately signed a form rejecting UM/UIM coverage on the new car and received from State Farm a policy that did not include such coverage.
Approximately one month later, Johnson was driving the new car when he was hit by an underinsured driver and sustained serious injuries. Johnson was not at fault, and he made a demand on State Farm for the $100,000 in UM/UIM benefits. Johnson subsequently sued State Farm, among others, and sought the additional UM/UIM benefits.
State Farm moved for summary judgment, arguing that Johnson’s friend was authorized to reject — and did, in fact, reject — UM/UIM coverage on the new car. In ruling on this motion, the district court considered the statute and that Johnson’s friend could reject such coverage on behalf of both of them or whether, as Johnson contended, the statute required each named insured (i.e., both Johnson and his friend) to reject such coverage. The trial court entered judgment in State Farm’s favor.
According to the division the statute clearly and unambiguously requires that each person listed as the named insured must expressly waive UM/UIM coverage. Thus, the division opined, a named insured acting as an agent for another can waive UM/UIM coverage for the other only with the express actual authority to do so. Common law principles of implied authority and apparent authority do not apply.
Here, the legislature mandated the offer of UM/UIM coverage does not mention the common law—much less expressly abrogate any part of it. The Supreme Court concluded that the legislature did not abrogate the common law agency principles of implied actual authority and apparent authority, and thus, they remain in effect in the context of UM/UIM coverage rejections.
AUTHORITY TO WAIVE UM/UIM COVERAGE
The common law of agency attributes the legal consequences of one person’s action to another person on three distinct bases, two of which are pertinent here: apparent authority and actual authority. An agent can make his principal responsible for his actions if he is acting pursuant to either actual or apparent authority, regardless of whether the principal has knowledge of the agent’s conduct.
An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent so to act. Actual authority thus incorporates concepts of both express and implied authority. Express authority exists when the principal directly states that the agent may perform a particular act on the principal’s behalf. Johnson did not give his friend express authority to waive UM/UIM coverage.
Implied authority, in turn, embraces the authority to perform acts that are incidental to, or are necessary, usual, and proper to accomplish or perform, the main authority expressly delegated to the agent. Implied authority is express authority circumstantially proved.
Here, the district court found, with ample record support, that after Johnson was unable to procure insurance for the new car on his own, he delegated to his friend the responsibility to purchase insurance for that car. This delegation was in keeping with Johnson’s prior practice of deferring insurance matters to his estranged wife.
In our view, the foregoing facts establish that Johnson’s friend had implied authority to reject UM/UIM coverage on Johnson’s behalf and that she properly did so. 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.
The Supreme Court’s decision today is fully consistent with what has been called “the growing trend” that a rejection of UM/UIM coverage or a selection of lower limits of UM/UIM limits by one named insured is binding on all named insureds and all additional insureds, rendering it unnecessary for insurers to obtain additional rejections or waivers from all named insureds and all potential additional insureds.
The Supreme Court concluded that Johnson’s friend had the authority to reject UM/UIM coverage on his behalf. In light of the Supreme Court’s conclusion, the Supreme Court decided it need not consider the meaning of “the named insured” because, even if Johnson and the division below were correct that this provision requires the assent of each named insured, the court concluded that this requirement was satisfied here.
Specifically, the legal consequences of a rejection of UM/UIM coverage by Johnson’s agent (here, his friend) are attributable to Johnson himself. As a result, whatever “the named insured” may mean, it has no bearing on the outcome of the present case.
No one expects to be injured in an automobile accident. Because of certainty that they are immortal and experienced drivers of automobiles, they limit their available coverage. When their immortality is proven wrong and they are injured they then, as Mr. Johnson did here, try to get the coverages they did not purchase. When Johnson gave his friend the authority to buy insurance on their jointly owned vehicle, he gave up any right to change what the friend did. If he wanted UM/UIM coverage he could have bought it.
This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
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