Nicholas Horton and Taishara Abeyta were injured in a motorcycle collision in 2018. While the motorcycle was insured by a separate Progressive policy, Horton also held automobile policies with USAA and Garrison that did not list the motorcycle on their declarations pages. After a third-party lawsuit resulted in a $42 million verdict against Horton, the insurance companies refused to provide a defense or indemnity, citing policy exclusions. The insurers filed a declaratory judgment action to confirm no coverage existed, while Horton and Abeyta counterclaimed for breach of contract and bad faith. The district court granted summary judgment for the insurers, ruling that the motorcycle was excluded and that bad faith claims could not stand without coverage. The appellants appealed, arguing that exceptions to other exclusions created an ambiguity requiring coverage.
The Tenth Circuit reviewed the case de novo, applying Colorado law to interpret the insurance contracts. The court focused on Exclusion B.1, which denies liability coverage for any vehicle not listed on the declarations page unless it falls into specific categories like four-wheel land motor vehicles or farm vehicles. The motorcycle did not fit these categories. Appellants argued that exceptions within Exclusions B.2 and B.3, which restore coverage for vehicles owned by family members or available for regular use, conflicted with Exclusion B.1, creating an ambiguity that should be resolved in favor of the insured. The court rejected this, noting that Exclusions B.2 and B.3 explicitly limit their exceptions to their respective exclusions. The court distinguished the precedent of Simon v. Shelter Gen. Ins. Co., explaining that Simon involved conflicting provisions in separate documents regarding the same subject matter, whereas here, Exclusion B.1 deals with vehicle type and Exclusions B.2 and B.3 deal with ownership type. Reading the policy as a whole, the court found the provisions operate independently. Consequently, the motorcycle was excluded regardless of the ownership exceptions. The court also addressed waiver and estoppel, stating these doctrines cannot create coverage where none exists. Finally, the court dismissed the bad faith claims, citing Colorado law that a bad faith claim fails if coverage was properly denied and the damages flow from that denial. The court found no duty to settle or defend when the policy provides no coverage.
The decision reinforces that insurance policies with distinct exclusions for vehicle type and ownership type will be read independently, preventing insureds from using exceptions in one exclusion to override a clear exclusion in another. It clarifies that bad faith claims for failure to settle or defend are unavailable when the insurer has a valid basis to deny coverage under the policy terms. The case is remanded with instructions to enter judgment consistent with the affirmation of the district court's summary judgment.
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