Clark v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 19 December 2003
• Docket Number: No. CIV.A. 00B1841PAC.,CIV.A. 00B1841PAC.
• Parties: Ricky Eugene CLARK, on behalf of himself and all others similarly situated, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois Corporation, Defendant.
• Court: U.S. District Court — District of Colorado

Page 1252

292 F.Supp.2d 1252

Ricky Eugene CLARK, on behalf of himself and all others similarly situated, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois Corporation, Defendant.

No. CIV.A. 00B1841PAC.

United States District Court, D. Colorado.

December 19, 2003.

COPYRIGHT MATERIAL OMITTED

L. Dan Rector, Leif Garrison, Robert Bruce Carey, The Carey Law Firm, Colorado Springs, CO, for Plaintiff.

Michael S. McCarthy, Katherine Megan Doberneck, Faegre & Benson, Denver, CO, for Defendant.

FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

BABCOCK, Chief Judge.

Plaintiff Ricky Eugene Clark brings claims for reformation of contract, breach of contract-failure to pay PIP benefits, breach of the duty of good faith and fair dealing, and willful and wanton breach of contract against Defendant State Farm Mutual Automobile Insurance Company ("State Farm"). The claims revolve around a July 18, 1996 incident in which Mr. Clark, a pedestrian, was struck by a car driven by Monica Madrid. The car was owned and insured by Monica Madrid's grandmother, Hortencia Madrid ("Mrs. Madrid").

On June 19, 2001, I granted State Farm's motion to dismiss, reasoning that Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550 (Colo.Ct.App.1998) did not allow Mr. Clark's reformation of contract claim to proceed because Brennan did not apply retroactively. The Tenth Circuit reversed and remanded with direction to "determine, through the exercise of [the Court's] equitable powers, the effective date of reformation," Clark v. State Farm Mut. Auto. Ins. Co., 319 F.3d 1234, 1242-43 (10th Cir.2003) and to "determine the amount of extended PIP benefits, if any, to which Clark is entitled." Id. at 1241. Pursuant to that remand a three day hearing was held November 3-5, 2003. Significant evidence was developed during that hearing sufficient to determine the amount of extended benefits to which Mr. Clark is entitled. I hold that the date of reformation is the date of this Order and that Mr. Clark is entitled to the difference between the personal injury protection ("PIP") benefits he has received and the statutory aggregate $200,000 limit provided by the policy.

I. Procedural Background

Mr. Clark brought claims in Pueblo, Colorado District Court for reformation of contract, breach of contract for failure to pay PIP benefits, breach of the duty of good faith and fair dealing, willful and wanton breach of contract, and deceptive trade practices pursuant to Colo.Rev.Stat. § 6-1-105(1)(e) and (g) against Defendant State Farm. State Farm removed the case to this Court on September 19, 2000.

In his complaint, Mr. Clark alleged that the coverage made available to him through Mrs. Madrid's insurance did not conform to Colorado law. He alleged that under Brennan v. Farmers Alliance Mutual Insurance Co., 961 P.2d 550 (Colo.Ct. App.1998) he is entitled to unlimited medical and rehabilitative benefits, in addition to 100 percent of his lost income for an unlimited time.

State Farm moved to dismiss, contending that Brennan did not apply retroactively to allow reformation of the Madrid policy. I granted the motion, reasoning that the Colorado Court of Appeals' rule in Brennan could not be applied retroactively and, therefore, could not apply to Mr. Clark's requested contract reformation because he was injured over a year before Brennan was decided. Also, because Mr. Clark's other claims were predicated on the theory that State Farm had an obligation to inform Mrs. Madrid of Brennan's effect, I reasoned, those claims likewise failed to state a claim upon which relief could be granted. I granted State Farm's motion and dismissed all of Mr. Clark's claims.

On appeal, the Tenth Circuit concluded that Brennan's rule must be applied not only prospectively, but also retroactively. Clark v. State Farm Mut. Auto. Ins. Co., 319 F.3d 1234, 1242 (10th Cir.2003). Accordingly, the Tenth Circuit concluded,

holdings in Brennan and Thompson [v. Budget Rent-A-Car Systems, Inc., 940 P.2d 987 (Colo.Ct.App.1996)] mandate that the Madrid policy be reformed to include extended PIP benefits and that pedestrians, like Clark, must be included in the class of beneficiaries eligible to receive those benefits. The Brennan court, however, also concluded that the trial court has the discretion to ascertain the date of reformation because reformation is an equitable remedy.

Id. (internal citations omitted). Clark thus directed that "the district court ... determine, through the exercise of its equitable powers, the effective date of reformation." Id. at 1242-43. The Court also affirmed the dismissal of Mr. Clark's deceptive trade practice claim under the Colorado Consumer Protection Act. Id. at 1244. With respect to Mr. Clark's breach of contract, breach of the duty of good faith and fair dealing, and willful and wanton breach of contract claims, the Court noted that those claims "will remain viable only if the district court ... determines that reformation should occur as of a date preceding its order of reformation. Only under those circumstances would there be an extant contract, tort, or statutory duty to be breached." Id.

These findings of fact and conclusions of law follow the hearing held from November 3 through November 5, 2003. Given the somewhat unique nature of this proceeding, questions of law and fact are often mixed.

II. Findings of Fact

A. The 1996 Accident Involving Mr. Clark and Monica Madrid

On July 18, 1996, Mr. Clark was a pedestrian at the intersection of Highway 50 and Bonforte Boulevard in Pueblo, Colorado, when he was struck by a 1995 Subaru Impreza driven by Monica Madrid. The Impreza was owned by Monica Madrid's grandmother, Hortencia Madrid, who insured the vehicle with State Farm's basic "P1" level Personal Injury Protection ("PIP") coverage. Pursuant to that coverage, Mr. Clark received PIP payments for medical expenses, essential services, and 52 weeks of wage losses. For the reasons stated in Section IV D.2 infra, Mrs. Madrid's PIP coverage contains an aggregate limit of $200,000.

The State Farm PIP adjuster determined that Mr. Clark's pre-injury average weekly wage was $400 and under the "P1" calculation, calculated his wage loss compensation at $302.50 per week. State Farm timely paid those claims for 52 weeks until, pursuant to "P1" level limitations, it discontinued those benefits. The company closed Mr. Clark's wage loss file thereafter in July 1997. State Farm then marked the last payment as "final" and notified Mr. Clark that he was entitled to no more wage loss benefits. State Farm designated Mr. Clark's file as inactive in early 1998, having paid Mr. Clark wage loss benefits of $15,730, expenses of $48,617.48, and $3,376.50 for essential services. Essential services under the Madrid policy are "reasonable expenses incurred ... during the insured's lifetime for ordinary and needed services the insured would have performed without pay but for the bodily injury." (Emphasis in policy). It is only Mr. Clark's wage loss benefits that are at-issue here.

Mr. Clark remains unable to return to work in any capacity. On November 29 2001, an Administrative Law Judge determined that Mr. Clark "has been under a disability as defined by the Social Security Act since July 18, 1996." Mr. Clark asserts that his inability to return to work entitles him to an additional $115,517.50 in extended PIP benefits for the 322 weeks following the date his basic PIP benefits were terminated in 1997. Because he will continue to suffer accident-related loss of income, he also asserts that he should receive wage-loss benefits at the extended PIP rate of $358.75 per week ($18,655 per year) for an indefinite period of time.

B. The Madrid Policy

The Madrid Policy contains the following limitation:

The most we pay for each insured who sustains bodily injury and the period of time from the date of the accident in which the services must be furnished or the loss of income incurred shall not exceed:

1. the amount and period of time shown in the Schedule applicable to each benefit under coverage symbol P1 if the insured is a pedestrian. This does not apply to you, your spouse, or any relative.

2. the amount and period of time shown in the Schedule applicable to each benefit under your coverage symbol for any other insured. All amounts and periods of time shown under coverage symbols P4, P8, P9 and P10 are subject to the Aggregate Limit shown.

(Emphasis in policy). The provision, known as the "Pedestrian Limitation," limited PIP coverage to the basic, or "P1" level for pedestrians. The Pedestrian Limitation limited coverage regardless of whether extended or basic coverage was selected by the named insured.

That limitation was first used by State Farm in 1975. At that time, the Colorado Division of Insurance required insurance companies doing business in Colorado to submit their proposed policy forms to the Division for approval. Pursuant to that requirement, State Farm had submitted its proposed policy endorsement "6291.1K — Personal Injury Protection Coverage" to the Colorado Division of Insurance on July 1, 1975. The Division approved the endorsement two weeks later on July 15, 1975. That original endorsement included the following language under the heading "Limits of Liability":

If bodily injury is sustained in an accident by any pedestrian who is not the named insured or any relative, coverage shall be limited to that provided under coverage designation P1 of the Schedule of benefits.

(Emphasis in policy). State Farm's policy forms, though changing slightly over the next 23 years, would continuously maintain that limitation.

On June 30, 1992, the Division of Insurance advised Colorado auto carriers that Colorado would thereafter become a "certify and use" state. Under the "certify and use" policy, new insurance policies and endorsements were no longer subject to Division approval. From that date forward, insurers were required to certify...