## Facts

- Jennifer Hansen bought an automobile policy through an American Family agent and later increased coverage, including underinsured motorist (UIM) coverage.
- The agent issued lienholder statements listing the named insured as “Davis, Jenny,” although Hansen’s surname was not Davis.
- American Family’s policy declarations listed William and Joyce Davis as the named insureds at the time of the accident.
- Hansen was injured as a passenger in her boyfriend’s vehicle and sought UIM benefits from American Family, relying on lienholder statements identifying her as the named insured.
- American Family denied coverage because, under the declarations, Hansen was not a named insured and coverage would depend on whether she resided with the Davises; American Family could not confirm residency.
- After a later lienholder statement again listed Hansen as named insured, American Family again denied the claim based on the declarations.
- Hansen sued for breach of contract, common-law bad faith, and statutory bad faith for unreasonable delay/denial under Colo. Rev. Stat. §§ 10-3-1115 and 10-3-1116.
- Before trial, American Family reformed the policy to name Hansen as an insured and settled the breach-of-contract claim; only bad-faith claims went to trial.
- The trial court treated the inconsistency between lienholder statements and declarations as creating ambiguity and instructed the jury to construe ambiguity against the insurer; the jury rejected common-law bad faith but found statutory bad faith and awarded statutory remedies.
- The court of appeals affirmed; the Colorado Supreme Court granted review.

## Issues

1. Whether agent-issued lienholder statements could be used to create an ambiguity regarding the named insured when the policy declarations unambiguously identified the named insureds.
2. Whether denying UIM benefits based on an unambiguous policy is “without a reasonable basis” under Colo. Rev. Stat. §§ 10-3-1115 and 10-3-1116.

## Decision

- The Colorado Supreme Court reversed the court of appeals and vacated the statutory bad-faith judgment.
- The policy declarations unambiguously named William and Joyce Davis as the named insureds at the time of the accident.
- The trial court erred by relying on extrinsic documents (lienholder statements) to create ambiguity where none appeared in the policy.
- Because American Family denied the claim in reliance on an unambiguous contract, the denial was reasonable as a matter of law and could not support statutory bad-faith liability.
- Statutory remedies awarded under § 10-3-1116 (fees, costs, and penalty) were vacated.

## Legal Principles

- Insurance contract ambiguity must appear within the four corners of the policy; extrinsic evidence may not be used to manufacture ambiguity when policy language is clear.
- Agent-generated documents that do not alter the policy declarations cannot change unambiguous contract terms identifying the named insured.
- Under Colo. Rev. Stat. §§ 10-3-1115 and 10-3-1116, statutory bad faith requires a showing that the insurer delayed or denied benefits without a reasonable basis in fact or law.
- An insurer’s reasonable reliance on unambiguous policy language is a complete defense to statutory bad-faith claims under §§ 10-3-1115 and 10-3-1116.

## Conclusion

The Colorado Supreme Court held that clear policy declarations controlled the identity of the named insured, that lienholder statements could not create contractual ambiguity, and that an insurer acts reasonably—and is not liable for statutory bad faith—when it denies benefits based on an unambiguous policy.


Am. Fam. Mut. Ins. Co. v. Hansen, 375 P.3d 115 (Colo. 2016)