Ballow v. PHICO Ins. Co., 92SC530

Decision Date11 July 1994
Docket NumberNo. 92SC530,92SC530
PartiesEdward BALLOW, D.P.M.; Foot Associates, P.C.; Mark P. Berland, D.O.; Richard N. Bernhardt, M.D., Richard N. Bernhardt, M.D., P.C.; Leonard D. Bernstein, M.D., The OB/GYN Associates, P.C.; J. Tashof Bernton, M.D.; J. Tashof Bernton, M.D., P.C.; Roland J. Brandt, D.O.; High Country Orthopedic Associates of Colorado Springs, P.C.; Robert A. Brumfield, M.D.; Rustic Hills Orthopaedic Association, P.C.; W.M. Campbell, M.D.; Southern Colorado OB/GYN, P.C.; Joseph Carpenter, M.D.; Joseph Carpenter, M.D., P.C.; John Chisholm, M.D.; Denver Obstetrical and Gynecological Associates, P.C.; Harvey M. Cohen, M.D.; Cohen and Conner Professional Corporation; Wayne Conner, M.D.; Gayle P. Crawford, M.D.; Drs. Ross and Crawford, P.C.; David L. Crosson, M.D.; Pueblo Orthopedic Professional Corporation; Jacqueline M. Demolin, M.D.; Goodman OB/GYN Associates, P.C.; Larry M. Dewell, M.D.; Beverly E. (Jessup) Donnelly, M.D.; Fort Collins Women's Clinic, P.C.; Terry A. Downing, M.D.; Terry A. Downing, M.D., P.C.; John H. Drabing, D.O.; Thomas F. Driver, M.D.; Paul S. Drohan, M.D.; Paul S. Drohan, M.D., P.C.; Edward Duerksen, M.D.; Edward Duerksen, M.D., P.C.; Samuel C. Duhon, Jr., M.D.; Samuel C. Duhon Jr., M.D., P.C.; Edward L. Ehrichs, M.D.; Reich & Ehrichs, P.C.; Frederick C. Feiler, M.D.; Glen C. Ferguson, D.O.; Glen C. Ferguson, D.O., P.C.; Glenn T. Foust, III, M.D.; Denver-Evergreen OB/GYN Group, P.C.; Donald P. Gazibara, M.D.; W.B. Goddard, M.D.; Woodridge Women's Clinic, P.C.; Reid A. Goodman, M.D.; Stanley N. Goodman, M.D.; Ronald A. Green, D.P.M.; Michael L. Hall, M.D.; Linder and Hall OB/GYN Associates, P.C.; Gordon C. Ham, M.D.; Gordon C. Ham, M.D., P.C.; Richard G. Hamill, M.D.; David Harris, M.D.; David Harris, M.D., P.C.; Lowell N. Harris, M.D.; James F. Hartman, M.D.; James F. Hartman, M.D., P.C.; Duval E. Harvey, M.D.; Robert W. Hendee, Jr., M.D.; Pediatric Neurosurgery, P.C.; Raymond W. Henry, M.D.; David F. Holz, D.P.M.; Allied Foot and Ankle Clinics of Colorado, P.C.; Bre
CourtColorado Supreme Court

McDermott, Hansen & Reilly, Gerald P. McDermott, William J. Hansen, Denver, for petitioners.

Wood, Ris & Hames, P.C., F. Michael Ludwig, Mary E. Kanan, Mary E. Gibbons, Dennis A. Hanson, Denver, for respondent.

Hall & Evans, Alan Epstein, Denver, for amicus curiae American Ins. Ass'n.

Catherine Sparkman, Denver, for amicus curiae Blue Cross and Blue Shield of CO and American Council Life Ins.

Gale A. Norton, Atty. Gen., Raymond T. Slaughter, Chief Deputy Atty. Gen., Timothy

M. Tymkovich, Sol. Gen., Robert M. Howard, Sr. Asst. Atty. Gen., Regulatory Law Section, Denver, for amicus curiae CO Com'r of Ins.

Justice MULLARKEY delivered the Opinion of the Court.

The liability issues involved in this insurance contract and tort action brought by 105 doctors against PHICO Insurance Company (PHICO) were addressed by this court in Ballow v. PHICO Insurance Co., 875 P.2d 1354 (Colo.1993) (Ballow I ). In that case, we reversed the court of appeals, 841 P.2d 344 and held that PHICO breached its malpractice insurance contracts with the doctors, and engaged in fraudulent misrepresentations and in bad faith insurance practices when it did not renew the doctors' claims-made policies 1 and withdrew from the Colorado market. However, we retained jurisdiction over the case in order to decide in a separate opinion all damages issues raised by the parties. For the reasons set forth below, we now affirm the trial court's order regarding damages in part, and reverse in part. We return the case to the court of appeals with directions to remand the case to the trial court for further proceedings consistent with this opinion.


In order to fully understand the damages issues raised by the parties in this case, we first must describe in detail all damages which were awarded by the trial court. Since the facts underlying this case are set forth fully in Ballow I, id., 875 P.2d at 1357-59, we will discuss only those facts which directly pertain to the damages awarded in this case.

First, the trial court determined that PHICO breached its contract with the doctors by changing the percentage and method by which the cost of tail coverage 2 was calculated. As we explained in Ballow I, id., 875 P.2d at 1358, PHICO's early policy endorsements provided that tail coverage would be available for 79 percent of the mature rate premium after one year of coverage with PHICO, 112 percent of the mature rate premium rate after two years of coverage, and 118 percent after the third and every subsequent year of coverage. PHICO then raised these rates on October 1, 1984 to 89 percent of the mature premium rate after one year, 134 percent after the second year, and 140 percent after the third and every subsequent year. Finally, as part of its April 1, 1986 premium increase, PHICO changed the date from which the tail premium was calculated from the premium in effect at the beginning of the last policy year, to the premium in effect at the inception of the tail policy. Based upon these findings, the trial court awarded contract damages to the doctors in an amount equal to the difference between the bargained-for fourth-year mature rate (118 percent) and the actual tail rate imposed (140 percent).

The trial court then awarded the doctors damages on their tort claims. The trial court first awarded the full cost of the tail premium to those doctors who purchased tail coverage from PHICO. Although it is not entirely clear from the trial court's order, the award of free tail coverage apparently was based on the court's conclusion that PHICO told the doctors that they only would have to buy a tail policy once in their careers. For those doctors who elected not to purchase tail coverage from PHICO, or who obtained tail policies in an amount less than they were insured by PHICO, the trial court ordered PHICO to "specifically perform" the contracts by providing free tail coverage to the doctors. However, no free tail coverage or equivalent damages were awarded to those doctors who purchased prior acts coverage from a subsequent insurance carrier, that is, a carrier other than PHICO.

In addition to the cost of the tail policy and/or specific performance, the trial court awarded the doctors the cost of paying into the surplus funds of post-PHICO carriers, such as the COPIC Trust, 3 as a prerequisite for purchasing new insurance from that carrier. It also awarded damages for the costs of financing tail coverage or surplus contributions, as well as damages for emotional distress.

Finally, punitive damages were awarded to twenty-nine of the doctors who had direct verbal contact with PHICO on, around or after May 15, 1986, concerning whether PHICO would stay in the Colorado market. Additionally, the trial court awarded prejudgment interest on all compensatory and punitive damages, and costs for expert witness fees and photocopying. Both PHICO and the doctors have raised various challenges to the damages awarded by the trial court, each of which we will address below.

II Compensatory Damages

PHICO first argues that the trial court erred in awarding free tail coverage to those doctors who purchased tail coverage from PHICO. According to PHICO, this award results in an unjust economic windfall for the doctors since they did not bargain for free tail coverage. We agree.

Compensatory damages are awarded in order to make the injured party whole. Board of County Comm'rs v. Slovek, 723 P.2d 1309, 1314 (Colo.1986); Airborne, Inc. v. Denver Air Ctr., Inc., 832 P.2d 1086, 1091 (Colo.App.1992); Great Western Sugar Co. v. Pennant Products, Inc., 748 P.2d 1359, 1361 (Colo.App.1987), cert. denied (Feb. 1, 1988). In other words, "[w]here a legal...

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