Clark v. State Farm Mut. Auto. Ins. Co.
| Decision Date | 11 February 2003 |
| Docket Number | No. 01-1341.,01-1341. |
| Citation | 319 F.3d 1234 |
| Parties | Ricky Eugene CLARK, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois Corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Robert B. Carey, (Steve W. Berman, Hagens, Berman, LLP, Seattle, Washington, with him on the briefs), The Carey Law Firm, Colorado Springs, CO, for Plaintiff-Appellant.
Michael S. McCarthy, (Patrick T. Madigan, Marie E. Williams, with him on the brief), Faegre & Benson, LLP, Denver, CO, for Defendant-Appellee.
Before BRISCOE, HOLLOWAY and MURPHY, Circuit Judges.
Plaintiff-Appellant Ricky Eugene Clark filed a class action suit in Colorado District Court, County of Pueblo, against Defendant-Appellee State Farm Mutual Automobile Insurance Co. ("State Farm") for extended personal injury protection ("PIP") benefits under the Colorado Auto Accident Reparations Act ("CAARA"). See Colo.Rev.Stat. §§ 10-4-701 to -726 (2000).1 Clark sought reformation of an insurance policy issued by State Farm. In addition, Clark brought claims for breach of contract for failure to pay extended PIP benefits, breach of the duty of good faith and fair dealing, willful and wanton breach of contract, and deceptive trade practices. State Farm timely removed the action to federal district court and moved for dismissal under Federal Rule of Civil Procedure 12(b)(6), which the district court granted. This court has jurisdiction under 28 U.S.C. § 1291. Applying Brennan v. Farmers Alliance Mutual Insurance Co., 961 P.2d 550, 553 (Colo.Ct.App.), cert. denied (Colo.1998), this court affirms the dismissal of the deceptive trade practices claims, reverses the dismissal of all other claims, and remands for further proceedings.
Clark alleges the following facts in his complaint. On July 18, 1996, Clark was a pedestrian at an intersection in Pueblo, Colorado when he was struck by a vehicle driven by Monica Madrid. Clark suffered unspecified personal injuries and incurred medical expenses, rehabilitative expenses, and lost wages. The vehicle involved in the accident was owned by Hortencia Madrid, Monica's grandmother. At the time of the accident, Madrid's vehicle was insured under policy No. 643-0591-C01-06D issued by State Farm (the "Madrid policy"). Monica and Hortencia Madrid are not parties to this litigation.
The Madrid policy included the minimum level of no-fault coverage prescribed by CAARA. Before Hortencia Madrid purchased the policy, State Farm offered her extended PIP benefits for herself, her resident relatives, and passengers in her insured vehicle with her consent, but not for pedestrians. Following the accident, State Farm began paying PIP benefits to Clark in accordance with the minimum levels prescribed under section 706 of CAARA. Clark alleged that these payments, which covered medical expenses, rehabilitative costs, and lost wages, did not reimburse him to the full extent of his losses.
The stated statutory purpose of CAARA is to "avoid inadequate compensation to victims of automobile accidents." § 702; see also Brennan, 961 P.2d at 553. Colorado courts construe CAARA liberally to further its remedial and beneficial purposes. See Brennan, 961 P.2d at 553. CAARA requires that a policy include a minimum level of PIP benefits. See § 706(1). Specifically, section 706(1) requires a carrier to provide, without regard to fault, payments for medical expenses, rehabilitation expenses, and lost wages. See § 706(1)(b)(I), (1)(c)(I), (1)(d)(I). Section 706 sets dollar and time limits for each category of expense. See id.2 Section 707 defines the categories of people who receive coverage under section 706 to include "1) the named insured, 2) resident relatives of the named insured, 3) passengers occupying the insured's vehicle with the consent of the insured, and 4) pedestrians who are injured by the covered vehicle." Brennan, 961 P.2d at 553; see also § 707(1). CAARA also requires every insurer to offer the named insured extended PIP benefits in exchange for higher premiums. See § 710(2)(a); Thompson v. Budget Rent-A-Car Sys., Inc., 940 P.2d 987, 990 (Colo.Ct.App.1996). These extended PIP benefits do not place time or dollar limitations on medical expense claims and offer the possibility of greater wage loss reimbursements.3 The version of section 710 effective at the time of Clark's accident, which applied to policies issued on or after July 1, 1992, does not list or refer to persons eligible for extended coverage. See § 710. Moreover, section 707, which sets out the four categories of PIP benefits recipients, refers only to the minimum PIP benefits available under section 706 and does not reference the enhanced benefits set out in section 710. See § 707.
Approximately nineteen months after Clark's accident, the Colorado Court of Appeals decided Brennan. 961 P.2d 550. In Brennan, a pedestrian injured in a car accident sued Farmers Alliance, seeking enhanced PIP benefits under section 710. See id. at 552. Farmers Alliance did not offer extended PIP benefits to cover pedestrians. See id. The trial court reformed the policy to incorporate the extended benefits. See id. In entering summary judgment for the plaintiffs, the court awarded the difference between the maximum aggregate amount provided by the policy and the amount of minimum PIP benefits already paid to the plaintiffs. See id. On appeal, Farmers Alliance argued that the extended PIP benefits under section 710 did not include pedestrians and it was therefore not obligated to pay additional benefits. See id. at 553. In rejecting this argument, the Colorado Court of Appeals explained that although section 710(2)(a) does not specify the persons entitled to extended benefits, CAARA's statutory scheme indicated that section 710 "describes an option to purchase coverage, but at higher limits, for the same persons and under the same conditions applicable to mandatory basic PIP coverage [outlined in section 706]." Id. The court also relied on the fact that section 710 covers "injured person[s]" and not merely "insured[s]," which suggests that section 710 covered pedestrians. See id. at 554. Because Farmers Alliance did not offer extended PIP benefits to cover pedestrians in conformity with CAARA, the court read the additional coverage into the policy and affirmed the reformation of the policy. See id. at 554. The court also affirmed the trial court's judgment in favor of the plaintiffs for the difference between the minimum PIP benefit levels and the maximum PIP aggregate amount provided under the policy. See id. at 557.
The Colorado Court of Appeals proceeded, however, to affirm the dismissal of the plaintiffs' breach of contract, breach of the duty of good faith and fair dealing, fraudulent misrepresentation, and willful and wanton breach of contract claims. See id. at 555-57. In addressing the breach of contract claim, the Brennan court concluded that "until the contract was reformed, there was no policy in existence which granted plaintiffs rights for additional PIP benefits." Id. at 556. The Brennan court acknowledged that CAARA was unclear about whether extended PIP benefits under section 710 applied to pedestrians and that no appellate court had previously interpreted the scope of section 710. See id. "[U]nder such circumstances, it is not inappropriate to apply such interpretation [of CAARA] prospectively." Id. The court also justified this result by explaining that "in insurance law, until an insurance contract is reformed, the insurer has no obligation to conform to such [a] `reformed' policy." Id.
For similar reasons, the Colorado Court of Appeals affirmed the dismissal of the breach of the duty of good faith and fair dealing, fraudulent misrepresentation, and willful and wanton breach of contract claims. See id. at 556-57. The court emphasized that these claims could not survive because there was no breach of contract, and therefore no unreasonable or reckless withholding of benefits, until the contract was reformed. See id. The court also explained that the insurer's actions prior to the decision were "not incorrect" based on its reliance on the language of the policy and its "concomitant failure to anticipate" the decision in Brennan. See id. at 557.
The Colorado Supreme Court denied the petition for certiorari in Brennan on August 24, 1998. See id. at 550. Sometime after that date, State Farm issued an amendment to the Madrid policy which replaced the section on no-fault coverage. Among other things, the amendment eliminated the preexisting distinction between pedestrians and other categories of insureds4 in terms of PIP benefits. Clark's complaint alleges that at the time State Farm issued this amendment, his losses exceeded the minimum PIP coverage limits provided under the Madrid policy. Clark, however, does not allege that he submitted any claims to State Farm for processing after Brennan.
On appeal, State Farm does not dispute that Clark was entitled to the minimum level of PIP benefits mandated under section 706. It is also undisputed that State Farm has paid Clark those benefits in a timely manner.
On August 24, 2000, Clark brought the instant suit on behalf of all injured persons covered by a State Farm policy who were not offered and paid extended PIP benefits under section 710. In reliance on Brennan and State Farm's failure to offer extended PIP benefits to Madrid for injured pedestrians, he sought reformation of the Madrid policy to include extended PIP benefits in accordance with section 710. In addition, Clark brought claims for breach of contract for failure to pay extended PIP benefits, breach of the duty of good faith and fair...
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