Opinion supports principle that exceptions to coverage be clearly stated
Too often, in our experience, insurers attempt to construe their policy language in ways that defy their policyholders’ expectations. On January 12, the Colorado Court of Appeals rejected such an attempt, issuing a decision a tractor is a “motor vehicle” under a State Farm underinsured motorist policy.
In Smith v. State Farm Mutual Automobile Insurance Co., 2017 COA 6, the court was asked to determine whether a tractor involved in a collision on a rural public road was a “motor vehicle” under the bodily injury portion of the policy. That portion of the policy did not define the term “motor vehicle.” Applying a plain language approach, the court looked to a Webster’s dictionary definition and concluded that, in this context, the tractor was a “motor vehicle” because the tractor “had wheels, its own motor, and was not operated on rails.”
Among other State Farm arguments it rejected, the court rejected State Farm’s assertion that the court was constrained by the underinsured motorist statute’s definition of “motor vehicle.” The court quoted a prior Court of Appeals case that concluded, “It would defy common experience as well as our precedent to require an insured to have working familiarity with the [Colorado statutes] in order to be able to understand the definition of a term used in the Policy ….”
While State Farm may appeal to the Colorado Supreme Court, the Smith case demonstrates a core principle of insurance policy interpretation: exceptions to coverage must be clearly stated.
Insurers, not policyholders, draft policy language. When they draft language, insurers attempt to provide broad coverage. Insurers also generally market their policies as providing broad coverage, emphasizing the degree of security their policies provide to policyholders. Because policyholders purchase these policies in reliance upon insurers’ broad marketing promises, usually without seeing the policy language beforehand, it is mandatory upon insurers to state any exclusions to the broad coverage promises clearly.
A collision between an automobile and a tractor driven on a rural Colorado road is not an unanticipated, freak occurrence. State Farm could easily define the term “motor vehicle” to exclude tractors and thereby avoided coverage for such collisions. It didn’t, and thus its policyholder had no way of knowing that State Farm would refuse to cover him for such an accident. Fortunately, the policyholder prevailed.