Independent Policy Exclusions Are Read Separately; Cross-Exclusion Exceptions Do Not Create Ambiguity, and Bad-Faith Claims Fail Absent Coverage

Case: Garrison Property and Casualty v. Horton (Nos. 25-1113 & 25-1122)
Court: United States Court of Appeals for the Tenth Circuit
Date: March 25, 2026
Posture: Appeal from summary judgment (D. Colo.) in insurers’ declaratory-judgment action; consolidated appeals by insured and assignee.

1. Introduction

This insurance-coverage dispute arose from a catastrophic motorcycle collision on March 13, 2018, in which Nicholas S. Horton (operator) and Taishara Abeyta (passenger) were severely injured. The motorcycle was owned by Horton’s father and insured under a Progressive Casualty Insurance Company policy. Horton’s father also held an automobile policy with USAA, and Horton held an automobile policy with Garrison. Critically, the motorcycle was not listed on either the USAA or Garrison declarations page.

After Abeyta obtained a multi-million-dollar judgment against Horton in state court, the insurers filed a federal declaratory-judgment action seeking a ruling of no liability coverage for the motorcycle accident under their auto policies. Horton and Abeyta counterclaimed for bad faith (including a common-law failure-to-settle theory and a statutory claim under C.R.S. § 10-3-1115). The central interpretive issue was whether the policies’ exclusion for vehicles not listed on the declarations page (Exclusion B.1) was rendered ambiguous by “exceptions” found in different exclusions (Exclusions B.2 and B.3).

2. Summary of the Opinion

The Tenth Circuit affirmed summary judgment for USAA and Garrison. It held:

  • No coverage: Exclusion B.1 plainly excluded liability coverage because the motorcycle was not a “covered auto” (i.e., not shown on the Declarations) and did not fit within B.1’s enumerated vehicle-type exceptions.
  • No ambiguity from cross-exclusion exceptions: The exceptions to Exclusions B.2 and B.3 were expressly limited to those exclusions (“This exclusion (B.2) does not apply …”); they did not override Exclusion B.1. The court rejected reliance on Simon v. Shelter Gen. Ins. Co. as distinguishable.
  • Waiver/estoppel unavailable to create coverage: Even if there were delay or shifting coverage positions, waiver or estoppel cannot enlarge coverage beyond policy terms.
  • Bad faith claims fail absent benefits/coverage: Under Colorado law, where coverage is properly denied and claimed damages flow from denial of coverage, common-law and statutory bad faith claims fail. The statutory theory premised on a duty to defend also failed because the court found no coverage-triggering allegations under the policy.

3. Analysis

3.1 Precedents Cited (and How They Shaped the Decision)

A. Standards of review and choice of law

  • Allen v. Sybase, Inc.: Supplied the de novo review standard for summary judgment and the requirement to draw inferences in favor of the nonmovant.
  • Essex Ins. Co. v. Vincent (citing Broderick Inv. Co. v. Hartford Accident & Indem. Co.): Confirmed that in diversity the forum state’s law (Colorado) governs.
  • Salve Regina College v. Russell and Kirchner v. Chattanooga Choo Choo: Supported de novo review of state-law interpretation by a federal appellate court.

B. Colorado insurance-contract interpretation and ambiguity

  • Buell v. Security Gen. Life Ins. Co. and Wota v. Blue Cross and Blue Shield: Anchored the use of traditional contract-interpretation principles in construing insurance policies.
  • Am. Fam. Mut. Ins. Co. v. Johnson: Drove the court’s emphasis that unambiguous policy language must be enforced according to its plain meaning.
  • Chacon v. Am. Fam. Mut. Ins. Co. and United Bank of Pueblo v. Hartford Accident & Indem. Co.: Framed the contra proferentem rule—ambiguities are construed against the drafter and in favor of coverage—while implicitly underscoring that the threshold question is whether an ambiguity truly exists.
  • Ballow v. PHICO Ins. Co.: Supplied the definition of ambiguity (“reasonably susceptible to more than one meaning”).
  • Republic Ins. Co. v. Jernigan and Parrish Chiropractic Ctrs. v. Progressive Casualty Ins. Co.: Prevented the interpretive move Appellants urged—courts should not rewrite clear language or strain to manufacture ambiguity.

C. Reading the policy as a whole

  • Curtis Park Grp., LLC v. Allied World Specialty Ins. Co. (citing Cyprus Amax Mins. Co. v. Lexington Ins. Co.): Supported the holistic reading principle. The panel used this to reject Appellants’ invitation to “redact” limiting language and compare provisions in isolation.

D. Appellants’ ambiguity theory and the attempted use of Simon

  • Simon v. Shelter Gen. Ins. Co.: Appellants argued Simon compelled a finding of ambiguity whenever one provision appears to restore coverage that another provision excludes. The panel distinguished Simon on two key grounds stated in the Opinion: (1) the conflicting terms in Simon were in different documents (policy vs. endorsement), and (2) the provisions in Simon addressed the same subject matter and were irreconcilable (warranty coverage simultaneously excepted and excluded). Here, Exclusion B.1 (vehicle-type gatekeeper) and Exclusions B.2/B.3 (ownership-based exclusions with limited carve-backs) were treated as independent screens, not mutually contradictory terms.

E. Waiver and estoppel limits in coverage disputes

  • Sellers v. Allstate Ins. Co. (citing Hartford Live Stock Ins. Co. v. Phillips): Provided the controlling rule that waiver/estoppel may enforce existing coverage but cannot create or extend coverage to risks not within policy terms.
  • 44A Am. Jur. 2d Insurance § 1502: Reinforced the same limitation as a widely recognized insurance-law principle.
  • Pino v. United States: Supported denial of certification to the Colorado Supreme Court where a “reasonably clear and principled course” exists.

F. Bad faith: coverage as a prerequisite and “benefits owed” under C.R.S. § 10-3-1115

  • MarkWest Hydrocarbon, Inc. v. Liberty Mut. Ins. Co.: The linchpin for the court’s conclusion that when coverage is properly denied and damages flow from that denial, a bad faith claim fails under Colorado law.
  • Tynan's Nissan, Inc. v. Am. Hardware Mut. Ins. Co., M.L. Foss, Inc. v. Liberty Mut. Ins. Co., Jarnagin v. Banker's Life and Cas. Co.: Cited by MarkWest and used to show the Colorado doctrinal continuity: no breach/no owed coverage means no bad-faith breach.
  • Barry v. State Farm Mut. Auto. Ins. Co.: Quoted for the straightforward synthesis: “without a breach, there is no bad faith breach.”
  • Bronson v. Swenson: Used to dispose of an unpreserved “failure to investigate” argument (not properly raised in the opening brief).
  • 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.): Supported the statutory requirement that “benefits were owed” to maintain a C.R.S. § 10-3-1115 claim.
  • Hecla Mining Co. v. N.H. Ins. Co.: Invoked by Appellant Horton to argue a duty to defend exists if coverage is “arguable.” The panel emphasized Hecla’s operative test: the duty to defend arises when the complaint alleges facts that might fall within coverage under the policy terms. After finding no coverage under the policy as written, the panel concluded no defense was owed and thus no statutory bad faith.

3.2 Legal Reasoning

A. The policy architecture: independent exclusions as separate “coverage screens”

The opinion treats Exclusion B.1 as a threshold “not your covered auto” exclusion with narrow vehicle-type exceptions. Because “your covered auto” is defined as “[a]ny vehicle shown on the Declarations,” and the motorcycle was not listed, B.1 negated liability coverage unless a B.1 exception applied—none did, and the parties did not dispute that point.

Appellants’ primary move was to treat carve-backs in different exclusions (B.2 and B.3) as if they were global restorations of coverage, such that the policy simultaneously excluded and included liability coverage for the motorcycle. The court rejected this because:

  • The carve-backs were textually limited (“This exclusion (B.2) does not apply …”; “This exclusion (B.3) does not apply …”), which the court regarded as dispositive plain language.
  • The exclusions addressed different organizing principles (vehicle type vs. ownership/regular-use circumstances), and thus could operate independently; a claim can fail if any exclusion applies, regardless of whether another exclusion might not.
  • Appellants’ approach required “redacting” limiting language and comparing provisions in isolation, contrary to Colorado’s “read as a whole” methodology and the rule against forced constructions.

B. Distinguishing Simon: conflict must be real, not manufactured

The court did not deny that conflicting policy language can create ambiguity; it held that conflict was absent here. Simon was distinguished as a case where the insurer’s own drafting created an irreconcilable clash over the same subject (warranties) across policy materials (policy vs. endorsement). In contrast, the Horton policy was read as a layered structure in which multiple exclusions can each independently bar coverage.

C. Waiver/estoppel cannot transform a non-covered risk into a covered risk

Even accepting Appellants’ factual theme—delay in raising B.1 and earlier reliance on B.2—the court applied the hard boundary from Sellers/Hartford: waiver or estoppel cannot create coverage where policy language provides none. Thus, alleged prejudice affecting settlement opportunities could not supply coverage that the contract withheld.

D. Bad faith and the centrality of “benefits owed”

The bad-faith rulings follow directly from the coverage holding. For Abeyta’s common-law failure-to-settle claim, the court relied on MarkWest and related Colorado authorities to hold that when coverage is properly denied and damages flow from that denial, bad faith fails as a matter of law. For Horton’s statutory claim (C.R.S. § 10-3-1115), the court treated “benefits owed” as an element; absent owed benefits (including a defense obligation), there can be no unreasonable delay or denial.

Horton’s duty-to-defend theory—framed as an “independent covered benefit”—was rejected on Hecla’s own terms: the duty to defend turns on whether the underlying complaint alleges facts that might fall within coverage under the policy interpreted by ordinary contract principles. Because the panel affirmed that the policy excluded coverage for this accident, it concluded no defense was owed.

3.3 Impact

  • Policy drafting and litigation posture: The decision reinforces that courts will enforce explicit “this exclusion does not apply” limitations. Insureds seeking coverage through carve-backs must tie the carve-back to the operative exclusion that bars coverage, not treat it as a free-floating grant.
  • Ambiguity arguments narrowed: The opinion signals that cross-provision “conflict” arguments are unlikely to succeed where the policy can be harmonized by recognizing independent exclusions and honoring limiting language, especially under Colorado’s anti-manufactured-ambiguity cases (Republic Ins. Co. v. Jernigan; Parrish Chiropractic Ctrs. v. Progressive Casualty Ins. Co.).
  • Noncoverage as a barrier to bad faith: For Colorado-governed disputes litigated in federal court, the opinion consolidates a practical lesson: when coverage is absent, both common-law and C.R.S. § 10-3-1115 claims face steep legal headwinds because “benefits owed” (including a defense) is foundational.
  • Settlement-pressure narratives won’t override contract limits: Even compelling prejudice facts (lost settlement opportunities) do not expand coverage through waiver/estoppel, preserving predictability in risk allocation.

Note on precedential force: The court labeled the disposition an “order and judgment” that is “not binding precedent” except under law-of-the-case, res judicata, and collateral estoppel; it may still be cited for persuasive value under Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

4. Complex Concepts Simplified

  • Declarations page / “your covered auto”: The declarations page is the policy’s schedule of insured vehicles. If a vehicle is not listed, it often is not a “covered auto,” which can be dispositive under exclusions like B.1.
  • Exclusion vs. exception (carve-back): An exclusion removes coverage; an exception to an exclusion restores coverage only to the extent the exception applies—and, as this case emphasizes, typically only within that exclusion’s own scope.
  • Ambiguity: A policy is ambiguous only if it is reasonably susceptible to more than one meaning. Courts do not create ambiguity by isolating text or ignoring limiting language.
  • Contra proferentem: If a genuine ambiguity exists, it is construed against the insurer (drafter) and in favor of coverage; the doctrine is not a license to rewrite clear terms.
  • Waiver and estoppel in insurance: These doctrines can sometimes prevent an insurer from asserting certain defenses, but (under Colorado law as applied here) they cannot create coverage for a risk the policy never covered.
  • Duty to defend vs. duty to indemnify: The duty to defend is broader and depends on the complaint’s allegations potentially falling within coverage, but it still arises from the policy’s terms; no coverage-triggering allegations means no defense obligation.
  • C.R.S. § 10-3-1115 (“statutory bad faith”): This statute targets unreasonable delay/denial of “benefits owed.” If no benefits are owed under the policy, the claim fails as a matter of law.
  • Assignment of bad faith claim: Horton assigned his common-law bad faith claim to Abeyta, allowing her to pursue it as a counterclaim, but assignment does not improve the claim’s merits if coverage is absent.

5. Conclusion

The Tenth Circuit’s decision is a contract-first coverage opinion applying Colorado interpretive rules to reject an “inter-exclusion ambiguity” theory. The court enforced the policy’s threshold exclusion for vehicles not listed on the declarations page, treated other exclusions and their carve-backs as limited and independent, and distinguished Simon v. Shelter Gen. Ins. Co. as a true conflict case not replicated by the policy structure here. Having found no coverage, the court then applied settled Colorado principles to foreclose waiver/estoppel as a coverage-creating device and to defeat common-law and statutory bad faith theories that depended on benefits (including a defense) being owed under the policy.