In Alspaugh v. Federated Mutual Insurance, a customer of McDonald Automotive Group (“MAG”) got into a motor vehicle collision while conducting a test drive.[i] It was established that the customer was responsible for the collision. MAG was insured under a Commercial Package Policy issued by Federated Mutual Insurance (“defendant”), providing coverage specific to auto dealerships, including those instances in which customers get into a motor vehicle collision. Plaintiff filed a claim with defendant to recover for damages caused by this collision. However, defendant denied the claim because the customer who caused the collision was not insured under the policy provided to MAG. After review, the district court agreed with the defendant, relying on a Colorado Supreme Court case as authority.[ii]
The Terms of the Policy Debated
According to defendant, the terms of the insurance policy guaranteed that every vehicle will be operated with at least the minimum insurance coverage as required under Colorado’s mandatory insurance scheme.[iii] As such, defendant provided coverage under this policy for auto dealerships’ customers only if the customer did not have other insurance, or if their coverage did not meet the minimum policy amount required by Colorado law. The defendant asserted since the customer in this case had personal auto insurance which provided the minimum amount of coverage as required under Colorado law, the customer did not qualify as an insured under the commercial package policy.
Plaintiff filed an action against defendant alleging breach of contract, bad faith breach of contract, and statutory bad faith, all based on the allegation defendant incorrectly denied coverage. However, the court ruled in favor of defendant, granting defendant’s motion for summary judgement and denying plaintiff’s motion for declaratory relief.
The Court’s Rationale
The court’s reasoning for granting the motion for summary judgment was that the customer was not an insured under the policy because at the time of the accident, he was insured by other insurance. Further, the court stated the policy was consistent with Colorado’s mandatory insurance statutes, as the policy requirements in this case were satisfied by customers’ personal policies which had the required minimum amount of coverage.
In Colorado, a car dealership’s commercial policy package is valid and consistent with the state mandatory insurance statute if it provides coverage to the car dealership’s customers who are either (a) not covered under another policy that would provide coverage for motor vehicle accidents while conducting a test drive, or (b) covered by a policy that does not meet the minimum coverage amount as mandated by Colorado statute.
Co-authored by Ashley Paige Fetyko
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[i] Alspaugh v. Federated Mutual Insurance Company, No. 22-cv-1737-WJM-SKC, 2023 WL 5333748 (D. Colo. Aug. 18, 2023).
[ii] Id. also see Shelter Mutual Insurance Company v. Mid Century Company, 246 P.3d 651 (Colo. 2011).
[iii] Alspaugh v. Federated Mutual Insurance Company, No. 22-cv-1737-WJM-SKC, 2023 WL 5333748 (D. Colo. Aug. 18, 2023); C.R.S. Section 10-4-619 and 10-4-620.