Benzing v. Farmers Ins. Exchange, 05CA1633.

• Decision Date: 22 March 2007
• Docket Number: No. 05CA1633.,05CA1633.
• Parties: Marc A. BENZING, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. FARMERS INSURANCE EXCHANGE, an insurer and owner of Mid-Century Insurance Company; and Mid-Century Insurance Company, a California corporation, Defendants-Appellees.
• Court: Colorado Court of Appeals

179 P.3d 103 Marc A. BENZING, on behalf of himself and all others similarly situated, Plaintiff-Appellant,
v.
FARMERS INSURANCE EXCHANGE, an insurer and owner of Mid-Century Insurance Company; and Mid-Century Insurance Company, a California corporation, Defendants-Appellees. No. 05CA1633. Colorado Court of Appeals, Div. III. March 22, 2007. As Modified on Denial of Rehearing

[179 P.3d 104]

May 17, 2007.^*

Certiorari Granted February 19, 2008.

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Notes:

* Nieto, J., would grant.

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[179 P.3d 106]

The Carey Law Firm, Robert B. Carey, L. Dan Rector, Leif Garrison, Colorado Springs, Colorado, for Plaintiff-Appellant.

Davis Graham & Stubbs, LLP, Thomas P. Johnson, Janette L. Ferguson, Denver, Colorado, for Defendants-Appellees.

Opinion by Judge WEBB.

In this putative class action concerning nondisclosure in the sale by defendants, Farmers Insurance Exchange and Mid-Century Insurance Company, of uninsured/underinsured motorist (UM/UIM) coverage, plaintiff, Marc A. Benzing, appeals the trial court order decertifying the class. We conclude that the trial court abused its discretion. Therefore, we reverse and remand for further proceedings as a class action.

I. Background

After the decision in DeHerrera v. Sentry Insurance Co., 30 P.3d 167 (Colo.2001), plaintiff, who was insured by Farmers, purchased insurance that included UM/UIM coverage on a second vehicle. He brought this action alleging that defendants had sold UM/UIM coverage using deceptive trade practices by failing to disclose that DeHerrera required UM/UIM coverage to follow the insured rather than the insured's vehicle, and thus insureds had no reason to purchase UM/UIM coverage in policies insuring additional vehicles. Based on claims for declaratory relief, breach of contract, breach of the covenant of good faith and fair dealing, bad faith, and violation of the Colorado Consumer Protection Act (CCPA), § 6-1-101, et seq., C.R.S. 2006, he sought a full refund of premiums paid for this coverage by him and members of the putative class.

On plaintiff's motion for class certification, the trial court found that he had satisfied the requirements of C.R.C.P. 23(a) and (b)(1)-(3). The court accepted as true his allegation that "the Defendants continued to sell multiple policies, all including UM/UIM coverage, without disclosing to the policy holder that the additional UM/UIM coverage provided no meaningful benefit to the purchaser." It certified a class of "those persons who, subsequent to the Colorado Supreme Court opinion in DeHerrera [supra], purchased or renewed multiple policies from the Defendants which included [UM/UIM] coverage."

Following discovery, defendants moved to decertify the class, alleging that (1) as a class representative, plaintiff could not meet the typicality and adequacy requirements, because in deposition he had testified that despite knowing of DeHerrera, he would choose UM/UIM coverage on a second vehicle which protected guests and nonresident family members; (2) individual issues predominated over those issues common to the class members, because insureds obtained some benefit from including UM/UIM coverage on policies insuring additional vehicles that protected guests and nonresident family members, and thus nondisclosure of DeHerrera probably had not affected most insureds' decisions to purchase such coverage; and (3) the claims for declaratory and injunctive relief were moot, because defendants now disclose the DeHerrera holding.

In opposing the motion to decertify, plaintiff reiterated his initial position that under Mangone v. U-Haul International, Inc., 7 P.3d 189, 191 (Colo.App.1999), damages were "those amounts paid for the UM/UIM coverage," but he also asserted an alternative causation and damage theory: "[E]ven if this approach isn't accepted, the parties can put on evidence as to the value of the coverage actually sold." He asserted that he and the putative class "were duped into paying more than they would have paid had the market been fully informed of the [UM/UIM] product's worth." According to plaintiff, such damages could be established by expert testimony. On appeal, plaintiff elaborated on this theory, which he characterizes as "fraud on the market."

The trial court, with a different judge now presiding, decertified the class. The second judge found that (1) plaintiff could no longer sustain his burden for class certification under C.R.C.P. 23(a)(3) or (4); (2) plaintiff did not dispute that meaningful benefits in terms of coverage for guests and nonresident family

179 P.3d 107

members inured to persons who purchased UM/UIM coverage on additional vehicles; (3) defendants had now complied with DeHerrera and state insurance directives regarding disclosure; (4) the overwhelming majority of consumers purchasing insurance with proper disclosure of DeHerrera still elected to purchase UM/UIM coverage on additional vehicles; (5) sorting out class members who are entitled to damages from those who are not would be an impossible task; (6) common issues do not predominate; and (7) substitution of another plaintiff as a class representative would not render the lawsuit a proper class action. Plaintiff appeals this order.

II. Law

Whether to certify a class action lies within the discretion of the trial court, and its decision will not be disturbed absent an abuse of that discretion. Medina v. Conseco Annuity Assurance Co., 121 P.3d 345, 347 (Colo.App.2005). An abuse of discretion occurs when the trial court's decision is manifestly arbitrary, unreasonable, or unfair. Friends of Chamber Music v. City & County of Denver, 696 P.2d 309, 317 (Colo.1985). Misapplication of the law and factual findings manifestly against the weight of the evidence constitute abuses of discretion. See Medina v. Conseco Annuity Assurance Co., supra; Hytken v. Wake, 68 P.3d 508, 511 (Colo.App. 2002).

Certification of a class action is governed by C.R.C.P. 23, and the plaintiff has the burden of proving compliance with that rule. Medina v. Conseco Annuity Assurance Co., supra. C.R.C.P. 23(a) provides:

One or more members of a class may sue or be sued as representative parties on behalf of all only if: (1) The class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

If the requirements of C.R.C.P. 23(a) are satisfied, the action must also meet one of the subsections of C.R.C.P. 23(b). Here, for the reasons discussed in section IV below, we focus primarily on C.R.C.P. 23(b)(3), which requires that "[t]he court find[ ] that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy."

Although a court must not decide the merits of the case when determining whether to grant class certification, the substantive claims and defenses of the parties and the essential elements of those claims and defenses may be considered. See Klay v. Humana, Inc., 382 F.3d 1241 (11th Cir.2004); Joseph v. Gen. Motors Corp., 109 F.R.D. 635 (D.Colo.1986). Courts often focus on whether a common nucleus of operative fact exists. See, e.g., Joseph v. Gen. Motors Corp., supra, 109 F.R.D. at 640; Medina v. Conseco Annuity Assurance Co., supra, 121 P.3d at 348.

III. Class Decertification

Plaintiff contends the second judge erred in decertifying the class. We agree.

A. Standard of Review on Decertification

The parties dispute the standard of review, but they have cited no Colorado authority, nor have we found any, addressing whether the abuse of discretion standard applies equally to decertification. Given the similarities between C.R.C.P. 23 and Fed.R.Civ.P. 23, we look to the federal law for guidance. Goebel v. Colo. Dep't of Insts., 764 P.2d 785, 794 (Colo.1988); Medina v. Conseco Annuity Assurance Co., supra.

According to all federal circuits that have addressed the issue, because a trial court's decision to decertify a class is equivalent to a decision to deny class certification in the first instance, whether to decertify the class also lies within the trial court's discretion. See Birmingham Steel Corp. v. Tennessee Valley Auth., 353 F.3d 1331, 1335 (11th Cir.2003); Paton v. New Mexico Highlands Univ., 275 F.3d 1274, 1278 (10th Cir. 2002); Pederson v. Louisiana State Univ., 213 F.3d 858, 866 (5th Cir.2000); Lowery v.

179 P.3d 108

Circuit City Stores, Inc., 158 F.3d 742, 757 (4th Cir.1998), vacated on other grounds, 527 U.S. 1031, 119 S.Ct. 2388, 144 L.Ed.2d 790 (1999); Lusardi v. Xerox Corp., 975 F.2d 964, 973 (3d Cir.1992); Rossini v. Ogilvy & Mather, Inc., 798 F.2d 590, 596 (2d Cir.1986); Briggs v. Anderson, 796 F.2d 1009, 1017 (8th Cir.1986); Key v. Gillette Co., 782 F.2d 5, 6-7 (1st Cir.1986); Hewitt v. Joyce Beverages, Inc., 721 F.2d 625, 627 (7th Cir.1983).

In determining whether to certify a class, a court must generally accept as true the allegations in support of certification. See, e.g., Medina v. Conseco Annuity Assurance Co., supra, 121 P.3d at 348. The court's initial certification of a class "is inherently tentative." Coopers & Lybrand v. Livesay, 437 U.S. 463, 469 n. 11, 98 S.Ct. 2454, 2458, 57 L.Ed.2d 351 (1978). Hence, a court that certifies a class early in the litigation remains under a continuing obligation to review whether proceeding as a class action is appropriate, and may modify the class or vacate class certification based on evidentiary developments arising during the course of litigation. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 2372, 72 L.Ed.2d 740 (1982); In re Integra Realty Res., Inc., 354 F.3d 1246, 1261 (10th Cir.2004).

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