Exceptions to One Auto-Policy Exclusion Do Not Create Ambiguity or Coverage Against a Separate, Independently Dispositive Exclusion (and No Colorado Bad Faith Without Owed Benefits)

Introduction

In Garrison Property and Casualty v. Horton (10th Cir. Mar. 25, 2026) (nonprecedential “Order and Judgment”), the Tenth Circuit—applying Colorado insurance-contract law in a diversity declaratory-judgment action—affirmed summary judgment for USAA Property & Casualty Insurance Company and Garrison Property & Casualty Insurance Company (collectively, “Appellees”).

The dispute arose after a catastrophic March 13, 2018 motorcycle collision in which Nicholas S. Horton (driver) and Taishara Abeyta (passenger) were severely injured. The motorcycle was owned by Horton’s father, insured through a Progressive policy, and was not listed on the declarations page of either Horton’s Garrison auto policy or the father’s USAA auto policy. After Abeyta obtained a $42 million verdict (allocating 5% fault to Horton) and a judgment against Horton exceeding $3 million, Appellees sought a declaration of no liability coverage for the motorcycle accident under their auto policies.

The central coverage issue on appeal was narrow but consequential: whether an unambiguous “not your covered auto” exclusion (Exclusion B.1) could be rendered ambiguous—thus construed in favor of coverage—because exceptions in different exclusions (Exclusions B.2 and B.3) might restore coverage for certain non-declared vehicles based on ownership/regular-use circumstances.

Appellants also argued waiver/estoppel (based on delay and shifting exclusion citations) and pursued common-law and statutory bad-faith theories.

Summary of the Opinion

  • Coverage: No liability coverage existed because Exclusion B.1 plainly barred coverage for “any vehicle that is not your covered auto,” and the motorcycle was not listed on the declarations page and did not fit B.1’s enumerated vehicle-type carveouts.
  • No ambiguity from other exclusions’ exceptions: Exceptions to Exclusions B.2 and B.3, by their text, applied only to those exclusions and did not override Exclusion B.1. The court rejected reliance on Simon v. Shelter Gen. Ins. Co. as distinguishable.
  • Waiver/estoppel: Under Colorado law, waiver/estoppel cannot create or extend coverage beyond policy terms; thus they could not supply coverage barred by Exclusion B.1.
  • Bad faith: Because there was no coverage/benefits owed, Appellants’ common-law failure-to-settle claim and statutory claim under C.R.S. § 10-3-1115 failed as a matter of law.

Analysis

Precedents Cited

1) Standards of review and choice of law

The panel framed the appeal as a de novo review of cross-motions for summary judgment under Allen v. Sybase, Inc., applying Fed. R. Civ. P. 56. Because jurisdiction rested on diversity, it applied Colorado law under Essex Ins. Co. v. Vincent, referencing Broderick Inv. Co. v. Hartford Accident & Indem. Co., and confirmed de novo review of state-law interpretation under Salve Regina College v. Russell and Kirchner v. Chattanooga Choo Choo.

2) Colorado insurance-contract interpretation and ambiguity doctrine

The court applied “traditional principles of contract interpretation” to insurance policies, citing Buell v. Security Gen. Life Ins. Co. and Wota v. Blue Cross and Blue Shield. It reiterated core Colorado rules:

  • Plain, unambiguous provisions are enforced as written: Am. Fam. Mut. Ins. Co. v. Johnson.
  • True ambiguity is construed against the drafter and in favor of coverage: Chacon v. Am. Fam. Mut. Ins. Co.; and consistent federal application in United Bank of Pueblo v. Hartford Accident & Indem. Co..
  • Ambiguity exists only when language is “reasonably susceptible to more than one meaning”: Ballow v. PHICO Ins. Co..
  • Courts must not “labor to create ambiguities” or rewrite clear text: Republic Ins. Co. v. Jernigan; Parrish Chiropractic Ctrs. v. Progressive Casualty Ins. Co..

3) Reading the policy as a whole (anti-redaction principle)

The panel emphasized holistic reading of policy language—rather than isolating snippets—quoting Curtis Park Grp., LLC v. Allied World Specialty Ins. Co. (which cited Cyprus Amax Mins. Co. v. Lexington Ins. Co.). This principle underwrote the court’s rejection of Appellants’ approach, which the panel characterized as effectively “redacting” limiting language (“This exclusion (B.2) does not apply…”) to manufacture a conflict.

4) Distinguishing “conflicting provisions” cases

Appellants’ primary ambiguity authority was Simon v. Shelter Gen. Ins. Co.. The panel found it distinguishable on two axes:

  • In Simon, the conflicting terms were in separate instruments (policy vs. endorsement), increasing the risk of contradictory grants/exclusions.
  • More importantly, the provisions in Simon addressed the same subject matter (warranty-related product-hazard coverage) and could not be harmonized. Here, Exclusion B.1 (vehicle type/“covered auto” requirement) and Exclusions B.2–B.3 (ownership/regular-use restrictions) were treated as independent screens.

5) Waiver/estoppel cannot expand coverage

On waiver/estoppel, the court relied on Sellers v. Allstate Ins. Co. (citing Hartford Live Stock Ins. Co. v. Phillips) and also quoted secondary authority (44A Am. Jur. 2d Insurance § 1502) for the settled rule: waiver/estoppel may enforce existing coverage but cannot create coverage for a risk outside the policy’s terms.

The panel also denied certification, citing Pino v. United States, reflecting the Tenth Circuit’s general reluctance to certify where a “reasonably clear and principled course” exists.

6) No bad faith where coverage/benefits are properly denied

For common-law bad faith, the panel applied MarkWest Hydrocarbon, Inc. v. Liberty Mut. Ins. Co., which it described as settling that a bad-faith claim fails where coverage was properly denied and damages flow only from denial of coverage. It traced that rule to Colorado Court of Appeals decisions including Tynan's Nissan, Inc. v. Am. Hardware Mut. Ins. Co., M.L. Foss, Inc. v. Liberty Mut. Ins. Co., and Jarnagin v. Banker's Life and Cas. Co., and noted a recent district-court application in Barry v. State Farm Mut. Auto. Ins. Co..

On issue preservation, it invoked Bronson v. Swenson to decline consideration of an unbriefed “failure to investigate” theory.

7) Statutory bad faith under C.R.S. § 10-3-1115 requires benefits owed

For C.R.S. § 10-3-1115, the panel relied on district-court authority emphasizing that statutory bad faith requires that “benefits were owed under the policy,” citing TBL Collectibles, Inc. v. Owners Ins. Co., Lucia Fam. Tr. v. Am. Fam. Mut. Ins. Co., S.I., and Keller v. State Farm Mut. Auto. Ins. Co..

Appellant Horton’s “duty to defend as an independent benefit” argument was analyzed through Hecla Mining Co. v. N.H. Ins. Co.. The panel acknowledged Hecla’s “might fall within coverage” formulation for the duty to defend, but treated that inquiry as ultimately governed by policy terms as interpreted; because the policy terms excluded coverage, no defense was owed.

Legal Reasoning

1) Exclusion B.1 as an independently dispositive coverage bar

Exclusion B.1 removed liability coverage for “any vehicle that is not your covered auto,” and “your covered auto” meant any vehicle shown on the Declarations. The motorcycle was undisputedly not on either declarations page and did not qualify for B.1’s specific vehicle-type exceptions (four- or six-wheel land motor vehicle, moving van for personal use, miscellaneous vehicle, or farm/ranch vehicle). The court therefore treated B.1 as sufficient, standing alone, to defeat coverage.

2) Why exceptions to B.2/B.3 did not create ambiguity with B.1

The panel read the policy “as a whole” and gave decisive weight to the limiting introductory language of the B.2 and B.3 carvebacks—e.g., “This exclusion (B.2) does not apply….” In the court’s view, the only reasonable reading is structural: each exception merely narrows its own exclusion and does not operate as an affirmative coverage grant or a trump card over other exclusions.

The court also conceptualized the exclusions as operating on different axes:

  • B.1: a “vehicle-type/covered-auto” gatekeeping exclusion (is the vehicle a declared “covered auto,” or within listed vehicle-type carveouts?).
  • B.2 and B.3: “ownership/regular-use” exclusions addressing different risk-allocation concerns even for non-declared vehicles.

Because exclusions can operate cumulatively, the panel reasoned that an exception that removes one bar (B.2 or B.3) does not prevent a different bar (B.1) from still applying. This preserved the internal coherence of the policy without rewriting.

3) Waiver/estoppel and delay arguments could not overcome a lack of contractual coverage

Appellants argued prejudice from USAA’s initial reference to Exclusion B.2 and both insurers’ delayed reliance on Exclusion B.1, asserting missed settlement opportunities. The panel did not reach factual prejudice questions because it treated the legal limit as dispositive: waiver/estoppel cannot “create or extend coverage.” Once the motorcycle was outside the policy’s coverage grant as limited by B.1, litigation conduct could not expand the risk insured.

4) Bad faith theories failed because no covered benefit was owed

For common-law failure to settle, the panel applied the Colorado rule (as described in MarkWest Hydrocarbon, Inc. v. Liberty Mut. Ins. Co.) that bad faith fails when coverage is properly denied and damages flow from the denial. It also noted counsel’s concession that no authority imposes a duty to settle a noncovered claim.

For statutory bad faith under C.R.S. § 10-3-1115, the panel treated “benefits owed” as an element; with no coverage and no duty to defend triggered by the pleadings as interpreted under the policy, there was no benefit whose payment could have been unreasonably delayed or denied.

Impact

  • Policy drafting and litigation framing: The decision reinforces that courts will respect internal policy architecture—exclusions and their exceptions—when the text expressly limits an exception to “this exclusion.” Insureds may face an uphill battle arguing that an exception in one subsection implicitly negates a separate exclusion without explicit cross-referencing.
  • Ambiguity arguments post-Simon: By distinguishing Simon v. Shelter Gen. Ins. Co., the panel narrows how far that case can be used to claim ambiguity—suggesting that true conflict requires provisions addressing the same subject matter and being irreconcilable, not merely yielding different results under different analytic screens.
  • Bad faith as coverage-dependent in this posture: The opinion underscores a practical sequencing point for Colorado coverage litigation: when the only alleged harm is attributable to nonpayment/nondefense and the policy is adjudicated to afford no coverage/benefits, both common-law and statutory bad-faith claims are vulnerable at summary judgment.
  • Limits of waiver/estoppel in coverage disputes: Even significant delay or evolving coverage positions may not matter where the requested remedy would expand coverage beyond the contract. This can influence settlement strategy: insureds may need early declaratory relief to resolve “covered vs. not covered” rather than relying on waiver theories later.

Note: because the court labeled its disposition as nonprecedential, its formal binding effect is limited (law of the case, res judicata, collateral estoppel), but it may be cited for persuasive value under Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

Complex Concepts Simplified

Declarations page (“Declarations”)
The policy’s summary page listing insured vehicles and coverages. Here, “your covered auto” meant vehicles “shown on the Declarations.” If a vehicle is not listed, it may be excluded unless an exception applies.
Exclusion vs. exception to an exclusion
An exclusion removes coverage; an exception to an exclusion gives back coverage only within the scope the policy specifies. This case treated “This exclusion (B.2) does not apply …” as limiting the exception strictly to B.2, not as a general coverage grant.
Ambiguity and “construed against the drafter”
If a policy term reasonably has more than one meaning, Colorado construes it against the insurer (drafter) to favor coverage (Chacon v. Am. Fam. Mut. Ins. Co.). But courts do not create ambiguity by strained readings (Republic Ins. Co. v. Jernigan).
Duty to defend vs. duty to indemnify
The duty to defend is broader and can be triggered if allegations “might fall within” coverage (Hecla Mining Co. v. N.H. Ins. Co.). The duty to indemnify concerns paying covered liability. Here, the court concluded that, under the policy terms as interpreted, the allegations did not trigger coverage and therefore did not trigger a defense.
Waiver and estoppel in insurance
These doctrines can sometimes prevent an insurer from relying on certain defenses, but (under the rule applied here) they cannot expand the policy to cover risks the contract never covered (Sellers v. Allstate Ins. Co.).
Common-law vs. statutory bad faith (Colorado)
Common-law bad faith focuses on unreasonable insurer conduct, but in the cited line of cases it fails when coverage was properly denied and damages stem from denial. Statutory bad faith under C.R.S. § 10-3-1115 targets unreasonable delay/denial of “benefits owed”; if no benefits are owed, the claim fails.

Conclusion

The Tenth Circuit’s decision affirms a structurally faithful approach to auto-policy exclusions: an exception written to limit “this exclusion” does not create coverage or ambiguity against a separate exclusion that independently and plainly bars coverage. The court further reinforced two practical Colorado principles: waiver/estoppel cannot create coverage beyond the contract, and bad-faith theories—common-law failure to settle and statutory delay/denial—generally fail where no covered benefit is owed under the policy as interpreted.