Ballow v. PHICO Ins. Co.

Decision Date04 June 1992
Docket NumberNo. 90CA0062,90CA0062
Citation841 P.2d 344
PartiesEdward BALLOW; Foot Associates, P.C.; Mark P. Berland; Richard N. Bernhardt; Richard N. Bernhardt, M.D., P.C.; Leonard D. Bernstein, The OB/GYN Associates, P.C.; J. Tashof Bernton; J. Tashof Bernton, M.D., P.C.; Roland J. Brandt; High Country Orthopedic Associates of Colorado Springs, P.C.; Robert A. Brumfield; Rustic Hills Orthopaedic Association, P.C.; W.M. Campbell; Southern Colorado OB/GYN, P.C.; Joseph Carpenter; Joseph Carpenter, M.D., P.C.; John Chisholm; Denver Obstetrical and Gynecological Associates, P.C.; Harvey M. Cohen; Cohen and Conner Professional Corporation; Wayne Conner; Gayle P. Crawford; Drs. Ross and Crawford, P.C.; David L. Crosson; Pueblo Orthopedic Professional Corporation; Jacqueline M. DeMolin; Goodman OB/GYN Associates, P.C.; Larry M. Dewell; Beverly E. (Jessup) Donnelly; Fort Collins Women's Clinic, P.C.; Terry A. Downing; Terry A. Downing, M.D., P.C.; John H. Drabing; Thomas F. Driver; Paul S. Drohan; Paul S. Drohan, M.D., P.C.; Edward Duerksen; Edward Duerksen, M.D., P.C.; Samuel C. Duhon, Jr.; Samuel C. Duhon, Jr., M.D., P.C.; Edward L. Ehrichs; Reich & Ehrichs, P.C.; Frederick C. Feiler; Glen C. Ferguson; Glen C. Ferguson, D.O., P.C.; Glenn T. Foust, III; Denver-Evergreen OB/GYN Group, P.C.; Donald P. Gazibara; W.B. Goddard; Woodridge Women's Clinic, P.C.; Reid A. Goodman; Stanley N. Goodman; Ronald A. Green; Michael L. Hall; Linder and Hall OB/GYN Associates, P.C.; Gordon C. Ham; Gordon C. Ham, M.D., P.C.; Richard G. Hamill; David Harris; David Harris, M.D., P.C.; Lowell N. Harris; James F. Hartman; James F. Hartman, M.D., P.C.; Duval E. Harvey; Robert W. Hendee, Jr.; Pediatric Neurosurgery, P.C.; Raymond W. Henry; David F. Holz; Allied Foot and Ankle Clinics of Colorado, P.C.; Brett S. Hulet; Herbert L. Jacobs; Valerie A. Jacobs; David Kessel, M.D., P.C.; Arvada Pediatric Associates, P.C.; Ransy L. Jeffrey; Johnny E. Johnson, Jr.; Johnny E. Johnson, Jr., M.D., P.C.; Elisabeth Kandel; Family Medicine Associates, P.C.; Ralph L. Kelley
CourtColorado Court of Appeals

McDermott, Hansen, Anderson & Reilly, Gerald P. McDermott, Leland P. Anderson, Denver, for plaintiffs-appellees and cross-appellants.

Wood, Ris & Hames, P.C., Mary E. Kanan, Kathleen O. Nistico, Jane L. Schmutzler, Mary E. Gibbons, Denver, for defendant-appellant and cross-appellee.

Opinion by Judge HUME.

Defendant, Phico Insurance Company (PHICO), appeals the judgment entered against it and in favor of 105 doctors and/or their professional corporations joined as party plaintiffs on claims to recover damages for breach of contract, fraud and negligent misrepresentation, and breach of duty of good faith. Plaintiffs cross-appeal the trial court's measure and award of damages. We reverse and remand with directions.

This case arises out of medical malpractice insurance which PHICO provided to the doctors. Originally, the bulk of PHICO's business involved the insuring of hospitals. However, it decided to expand its business into insuring independent physicians. In the spring of 1981, PHICO began marketing policies in Colorado through independent insurance agents and by sending direct mailings to insurance agents and individual doctors.

These solicitations focused on "claims-made" insurance rather than "occurrence" coverage which previously had been the primary type of medical malpractice insurance in Colorado. The following description of terms used in this opinion will be helpful to clarify our disposition of the issued presented.

As pertinent here, occurrence coverage is sold on a yearly basis and covers all claims arising out of events occurring during the policy period regardless of when the claims are reported. In comparison, claims-made insurance is also sold on an annual basis, but it covers claims that are reported during the policy year which arise out of acts or omissions that occurred during the present or any preceding period of claims-made coverage provided to the insured by the same insurer.

Since a small percentage of claims that arise are reported during the first year, the premium charged for the first year of claims-made coverage is relatively low. The second claims-made year covers all claims reported during the second year that arise from both the first and second accident years. Thus, the second year premium is higher than the first year premium. The third claims-made year covers claims-made in the first, second, and third years and is correspondingly higher that the first and second year rates. The fourth year rate is also known as the "mature rate," and that rate levels out because most claims arising out of a particular year are reported within the first four years. The claims-made policies offered by PHICO were attractive because the doctor realized significant premium savings, especially in the early years.

If an insured's claims-made coverage is terminated or nonrenewed, the insured may obtain coverage for subsequently asserted claims based upon occurrences during the claims-made coverage period by purchasing a "tail" policy. The tail policy provides coverage for all future claims pertaining to acts or omissions that occurred during the period when the insured had a claims-made policy with the carrier issuing the tail policy. Essentially, a tail policy converts all previous claims-made policies into occurrence policies as to claims reported after the claims-made coverage period.

As an alternative to purchasing tail coverage from the same carrier who provided claims-made coverage, an insured may purchase a "prior acts" policy to obtain similar coverage from a different carrier.

When PHICO first entered Colorado, it was in a strong financial position and was able to expand. Thus, while initially it wrote only claims-made policies, it also began offering occurrence coverage in 1983. However, from 1983 to 1986, the company's independent physician loss ratios for Colorado were very high. For example, the loss ratio for 1984 was 155.6. This meant that for every premium dollar taken in, one dollar and fifty-five cents was paid out or set aside for claims.

As a result of such loss rates, PHICO management implemented a number of changes. In 1984, it discontinued the occurrence and prior acts coverage for OB-GYNs, implemented rate increases for claims-made and tail factors, and stopped writing new policies for individual, independent physicians.

Instead, it would write policies only for physicians employed by its institutional clients or physician groups of five or more physicians. Despite these radical changes and indications that PHICO's continued presence in Colorado was questionable, the aggressive campaign for new business was kept intact. Ultimately, however, the board of directors voted in June 1986 not to renew claims-made policies for independent physicians and to withdraw completely from Colorado.

As a result of its withdrawal, the doctors commenced this action, alleging that PHICO's nonrenewal of the doctors' policies constituted fraud, negligent misrepresentation, and bad faith by virtue of the company's early marketing efforts describing PHICO as a strong and stable company. Additionally, the doctors alleged breach of contract regarding tail coverage rates, retirement provisions, and dividends provisions.

All of the plaintiffs requested compensatory and punitive damages and some claimed damages for emotional distress. Several also alleged interference with contracts and prospective business relations; however, those issues are not presented as part of this appeal. The trial court awarded compensatory damages to most of the plaintiffs and emotional distress damages to every plaintiff who made such a claim. Furthermore, punitive damages were awarded to 29 of the 105 plaintiff doctors.


Defendant first contends that the trial court erred as a matter of law in holding that it had breached its contracts with the doctors. We agree.

Plaintiffs claim that they each entered into a contract with PHICO and that PHICO breached this contract when it unilaterally changed the terms. Specifically, the doctors claim that PHICO breached the express and implied terms in two respects: by changing the tail percentage factors and the method by...

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4 cases
  • Ballow v. PHICO Ins. Co.
    • United States
    • Colorado Supreme Court
    • 15 de novembro de 1993
  • Ballow v. PHICO Ins. Co., 92SC530
    • United States
    • Colorado Supreme Court
    • 11 de julho de 1994
  • American Cas. Co. v. Glaskin, Civ. A. No. 92-B-683.
    • United States
    • U.S. District Court — District of Colorado
    • 20 de outubro de 1992
    ... ... Later decisions have characterized this relationship as "quasi-fiduciary." Allstate Ins. Co. v. Troelstrup, 789 P.2d 415, 420 (Colo.1990). However, no Colorado court has ever held that an insurance company owes a full fiduciary duty to its insured. Indeed, the opposite is true. Ballow v. Phico Ins. Co., 841 P.2d 344, 350 (Colo.App.1992), ("While an insurance company stands in a ... ...
  • People v. Saltray
    • United States
    • Colorado Court of Appeals
    • 2 de abril de 1998
2 books & journal articles
  • Mitigating Potential Condo Conversion and Renovation Construction Defect Liabilities: Part 1
    • United States
    • Colorado Bar Association Colorado Lawyer No. 48-4, April 2019
    • Invalid date
    ...claim. See Mehaffy Rider, Windholz & Wilson v. Cent. Bank Denver, N.A., 892 P.2d 230, 237 (Colo. 1995); Ballow v. PHICO Ins. Co., 841 P.2d 344, 350 (Colo.App. 1992) ("[A] representation need not always be made to the party seeking recovery. It is necessary only that the plaintiff be in the ......
  • Negligent Misrepresentation and the Economic Loss Rule
    • United States
    • Colorado Bar Association Colorado Lawyer No. 22-8, August 1993
    • Invalid date
    ...(Second) of Torts,§ 552 (1976). See Western Cities Broadcasting, Inc. v. Schueller, 849 P.2d 44 (Colo. 1993); Ballow v. PHICO Ins. Co., 841 P.2d 344, 351 (Colo. App. 1992), cert. granted, 92SC530 (Colo. June 4, 1992). 11. Colo. Jury Instruc. 9:3A Notes on Use. 12. See also Colorado Nat'l Ba......

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