Independent Operation of Auto Policy Exclusions Under Colorado Law: Exceptions to One Exclusion Do Not Create Ambiguity with Another, and No Bad-Faith Liability Without Coverage

1. Introduction

In Garrison Property and Casualty Insurance Company v. Abeyta (10th Cir. Mar. 25, 2026) (unpublished), the Tenth Circuit affirmed summary judgment for insurers USAA and Garrison in a declaratory judgment action concerning liability coverage for a 2018 motorcycle accident in Colorado. The motorcycle—owned by the driver’s father and insured under a Progressive policy—was not listed on either the USAA or Garrison auto policy declarations page.

The principal coverage issue was whether the policies’ separate “vehicle not your covered auto” exclusions could be read to create an ambiguity: one exclusion (B.1) broadly removed coverage for non-declared vehicles (subject to vehicle-type exceptions), while other exclusions (B.2 and B.3) contained ownership-based exceptions that, if read globally, might appear to “restore” coverage. The insureds contended that this asserted conflict required coverage under Colorado’s contra proferentem doctrine.

The appeal also raised (i) waiver/estoppel arguments based on the insurers’ timing and shifting exclusion reliance and (ii) common-law and statutory bad-faith theories tied to failure to settle and alleged delay/denial of defense benefits.

2. Summary of the Opinion

  • No coverage: The motorcycle fell within Exclusion B.1 because it was not a “covered auto” (not on the declarations) and did not satisfy B.1’s vehicle-type carveouts.
  • No ambiguity: The exceptions to Exclusions B.2 and B.3 were expressly limited to those exclusions and did not conflict with B.1; the exclusions address different topics (vehicle-type vs. ownership/regular use) and operate independently.
  • Waiver/estoppel rejected: Under Colorado law, waiver/estoppel cannot create or expand coverage where none exists.
  • Bad-faith claims fail: With proper denial of coverage and no benefits owed, common-law and statutory bad-faith claims (including failure-to-settle) could not proceed.

3. Analysis

A. Precedents Cited

1) Standards of review and state-law interpretation in diversity

The court applied de novo review to cross-motions for summary judgment under Allen v. Sybase, Inc., and reiterated diversity principles: apply forum-state law and review state-law interpretations de novo per Essex Ins. Co. v. Vincent (citing Broderick Inv. Co. v. Hartford Accident & Indem. Co.), with federal courts independently determining state law under Salve Regina College v. Russell and Kirchner v. Chattanooga Choo Choo.

2) Colorado insurance-contract interpretation framework

The opinion anchored its analysis in Colorado’s standard interpretive rules: traditional contract interpretation (Buell v. Security Gen. Life Ins. Co.; Wota v. Blue Cross and Blue Shield); enforce unambiguous language as written (Am. Fam. Mut. Ins. Co. v. Johnson); construe true ambiguities against the drafter (Chacon v. Am. Fam. Mut. Ins. Co.; United Bank of Pueblo v. Hartford Accident & Indem. Co.); define ambiguity as reasonable susceptibility to multiple meanings (Ballow v. PHICO Ins. Co.); and refuse to “manufacture” ambiguity through strained readings (Republic Ins. Co. v. Jernigan; Parrish Chiropractic Ctrs. v. Progressive Casualty Ins. Co.).

The court also relied on the “read the policy as a whole” principle emphasized in Curtis Park Grp., LLC v. Allied World Specialty Ins. Co. (citing Cyprus Amax Mins. Co. v. Lexington Ins. Co.).

3) Resolving alleged conflicts: distinguishing Simon v. Shelter Gen. Ins. Co.

Appellants’ primary ambiguity argument depended on Simon v. Shelter Gen. Ins. Co.. The Tenth Circuit distinguished Simon on two grounds that mattered to its outcome:

  • Different instruments: In Simon, the conflicting terms appeared in separate documents (policy vs. endorsement), creating a direct clash the insured could not harmonize.
  • Same subject matter: The conflicting provisions in Simon addressed the same risk (warranty-related product hazard) yet pointed in opposite directions.

Here, by contrast, Exclusion B.1 (vehicle-type carveouts for non-declared vehicles) and Exclusions B.2/B.3 (ownership/regular-use restrictions with limited exceptions) were read as addressing different dimensions of risk and were capable of operating simultaneously: a claim can be excluded under any one exclusion regardless of others.

4) Waiver and estoppel cannot create coverage

On waiver/estoppel, the court relied on Sellers v. Allstate Ins. Co. (citing Hartford Live Stock Ins. Co. v. Phillips) for the Colorado rule that waiver/estoppel may enforce existing coverage but cannot enlarge, extend, or create coverage for a risk outside the policy’s terms. The court also cited secondary authority consistent with that rule (44A Am. Jur. 2d Insurance § 1502).

The court denied a motion to certify state-law questions, invoking the discretionary restraint described in Pino v. United States.

5) Bad faith depends on owed benefits/coverage

For common-law bad faith, the court applied MarkWest Hydrocarbon, Inc. v. Liberty Mut. Ins. Co., which—citing 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.—states that when coverage is properly denied and damages flow from that denial, bad faith fails; “without a breach, there is no bad faith breach,” as echoed in Barry v. State Farm Mut. Auto. Ins. Co..

The court also enforced appellate issue-preservation principles under Bronson v. Swenson to reject a late-raised “failure to investigate” theory.

For statutory bad faith under C.R.S. § 10-3-1115, the court cited decisions requiring proof that “benefits were owed under the policy,” including TBL Collectibles, Inc. v. Owners Ins. Co., Lucia Fam. Tr. v. Am. Fam. Mut. Ins. Co., S.I. (quoting Keller v. State Farm Mut. Auto. Ins. Co.).

On the duty to defend, the court discussed Hecla Mining Co. v. N.H. Ins. Co.: the duty arises when the underlying complaint alleges facts that might fall within coverage, but that inquiry still turns on the policy’s terms as construed under contract principles. Because the court found no potential coverage under the policy language, it found no duty to defend and therefore no “benefit owed” to support the statutory claim.

B. Legal Reasoning

1) The core interpretive move: exceptions are scoped to their own exclusions

The court treated the policy’s structure and limiting text as decisive. Exclusion B.1 removed liability coverage for any vehicle not listed on the declarations unless it fit narrow vehicle-type categories. Exclusions B.2 and B.3 separately addressed non-declared vehicles based on ownership or regular availability, and each contained an exception introduced by explicit limiting language (“This exclusion (B.2) does not apply…”; “This exclusion (B.3) does not apply…”). Reading the policy “as a whole,” the court held those exceptions do not override B.1 and do not create cross-exclusion ambiguity.

2) No “conflict” because the exclusions are independently sufficient bars

The court reasoned that the exclusions function as multiple, independent filters: even if a claim escapes one exclusion (because an exception applies), another exclusion may still bar coverage. Because the motorcycle failed B.1 (not a declared vehicle and not within B.1’s enumerated vehicle-type exceptions), coverage was excluded regardless of how B.2/B.3 might apply in isolation.

3) Rejecting ambiguity by “redaction” or selective reading

The court characterized Appellants’ approach as effectively redacting limiting phrases and comparing fragments of exclusions in isolation, a method inconsistent with Colorado doctrine against “strained construction” and with the requirement to read the policy as a whole.

4) Consequences for waiver/estoppel and bad faith

Once the court held the risk was outside the policy’s coverage grant due to B.1, the remaining doctrines fell into place: waiver/estoppel could not expand coverage; common-law bad faith (including failure to settle) could not attach where the only damages flowed from a proper denial of coverage; and statutory bad faith failed because no policy “benefits” (including a defense) were owed absent potential coverage.

C. Impact

  • Policy drafting and litigation posture: The decision underscores that insurers can draft multiple exclusions addressing different risk dimensions, and courts may treat each as independently dispositive—limiting insureds’ ability to manufacture ambiguity by juxtaposing exceptions across exclusions.
  • Colorado ambiguity arguments narrowed (in federal court): By distinguishing Simon v. Shelter Gen. Ins. Co., the panel signaled that “conflict” analysis is context-sensitive: true contradictions on the same subject matter (especially across policy/endorsement documents) are different from separately scoped exclusions within the same policy section.
  • Bad-faith exposure tied tightly to coverage/owed benefits: The opinion reinforces a defense-friendly sequence: win the coverage question, and many failure-to-settle and § 10-3-1115 claims collapse where alleged damages arise from denial of coverage and no benefits are owed.
  • Practical settlement dynamics: The ruling limits the argument that delay in asserting a particular exclusion can itself create coverage through estoppel, even where the insured alleges lost settlement opportunities.

Note: as an “Order and Judgment,” the decision is non-precedential except for law-of-the-case, res judicata, and collateral estoppel, but it may be cited for persuasive value under Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

4. Complex Concepts Simplified

  • Declarations page: The policy’s summary list of covered vehicles. Here, “your covered auto” meant vehicles shown on that page; the motorcycle was not.
  • Exclusion vs. exception: An exclusion removes coverage; an exception to an exclusion gives some coverage back, but typically only within the scope of that specific exclusion.
  • Ambiguity (insurance): Not mere complexity—ambiguity exists only when language can reasonably be read more than one way. Courts will not “force” ambiguity by ignoring limiting words.
  • Duty to defend vs. duty to indemnify: Defend is broader, triggered by allegations that might fall within coverage; indemnify depends on actual covered liability. If the policy terms eliminate any potential for coverage, no defense is owed.
  • Waiver/estoppel: Doctrines that can prevent an insurer from asserting certain defenses in some circumstances, but (under Colorado law cited here) cannot expand the policy to cover a risk the contract never covered.
  • Bad faith (common law) and statutory bad faith (C.R.S. § 10-3-1115): Both generally require that the insured was owed something under the policy (coverage/benefits). If nothing was owed, delay/denial is not actionable on these theories as framed in this opinion.

5. Conclusion

The Tenth Circuit’s central contribution in Garrison Property and Casualty Insurance Company v. Abeyta is its disciplined, text-first approach to alleged intra-policy “conflicts”: exceptions to one exclusion do not create ambiguity with a separate exclusion where the policy’s limiting language cabins those exceptions to their own provisions and the exclusions address different coverage dimensions. With coverage barred under Exclusion B.1, the court further applied well-established Colorado rules that waiver/estoppel cannot create coverage, and that common-law and statutory bad-faith claims premised on denial of benefits fail where no benefits are owed under the policy as properly construed.