Coors v. Security Life of Denver Ins. Co.

• Decision Date: 23 May 2005
• Docket Number: No. 03SC682.,03SC682.
• Parties: Petitioner: William K. COORS, individually, v. Respondent: SECURITY LIFE OF DENVER INSURANCE CO., a registered domestic insurance corporation.
• Court: Colorado Supreme Court

112 P.3d 59

Petitioner: William K. COORS, individually, v. Respondent: SECURITY LIFE OF DENVER INSURANCE CO., a registered domestic insurance corporation.

No. 03SC682.

Supreme Court of Colorado.

May 23, 2005.

Horowitz Wake & Forbes, Jay S. Horowitz, Robert Fishman, Denver, for Petitioner.

Wheeler Trigg & Kennedy, LLP, John M. Vaught, Julie M. Walker, Michael D. Alper, for Respondent.

Bradley A. Levin, Thomas L. Roberts, Laura E. Schwartz, Denver, for Amicus Curiae Colorado Lawyers Association.

Johnson & Ayd, P.C., James D. Johnson, Denver, for Amicus Curiae Colorado Defense Lawyers Association.

KOURLIS, J.

This case concerns a life insurance policy issued by Security Life of Denver Insurance Company to William K. Coors. Coors sued Security Life for breach of contract, fraud and violation of the Colorado Consumer Protection Act ("CCPA") on the basis that Security Life charged Coors an expense charge of $.90 per $1,000 of basic benefit, rather than the $.131 per $1,000 rate provided for in the policy. The trial court ruled in favor of Coors on all counts, and awarded $1,085,506.73 in total damages, which included treble damages and attorneys' fees. The court of appeals affirmed in part and reversed in part in Coors v. Security Life of Denver Ins. Co., 91 P.3d 393 (Colo.App.2003). The court of appeals' opinion addressed three issues on which we agreed to grant certiorari.¹ First, in reversing the decision of the trial court, the court of appeals held that Security Life's conduct affecting at most one percent of policyholders could not constitute significant public impact as required to establish a private cause of action under the Colorado Consumer Protection Act. Second, the court of appeals held that Security Life was entitled to retain a termination penalty associated with the surrender of the policy by Coors; and third, the court of appeals held that in the absence of application of the treble damages provisions triggered by the Consumer Protection Act, Security Life was not liable for punitive damages.

We now affirm the court of appeals decision with respect to the issue concerning the CCPA. By operation of Colorado Appellate Rule 35(e), where the supreme court is equally divided, the judgment of the lower court shall stand affirmed.

On the second issue, we reverse the court of appeals decision that Security Life should be allowed to retain the termination penalty, and we permit such penalty as a measure of damages for Coors. Finally, we hold that there is sufficient evidence of Security Life's fraudulent and reckless behavior to support an award of exemplary damages in the amount of three times actual damages even without reference to the CCPA. Accordingly, we affirm in part, reverse in part and remand for entry of judgment consistent with this judgment.

I. Facts

In December 1994, Coors, accompanied by his attorney, met with a representative of Security Life to consider purchasing life insurance. The parties reviewed illustrations for a Security Life Ultra UL policy. In the illustrations, the expense charge was depicted as $.90 per $1,000 of coverage but the expense charge to be used in calculating the cash surrender value of Coors' policy was not discussed.²

Coors signed an application for an Ultra UL policy and tendered a check for the first premium of the policy. The policy became effective December 15, 1994. The face page of the written policy gave Coors a twenty-day right to review and return the policy. The terms provided that the monthly expense charges were $7.00 per policy per month and $.131 per $1,000 of basic death benefit per month during the first five years of the policy. Coors accepted the policy without review.

Security Life then sent Coors a disclosure statement that stated that the monthly expense charges were $7.00 per policy per month and $.90 per $1,000 of basic death benefit per month during the first five policy years. The disclosure statement was designated as an illustration, not a contract, and referred policyholders to their written policy to the extent that the disclosure statement was in conflict.

Each month for approximately three and one-half years, Security Life charged $.90 per $1,000 of basic death benefit, or $2,340 per month, to Coors' policy. Thus, the cash surrender value was depleted accordingly. Coors received annual statements in 1995, 1996 and 1997 that reflected the total expense charges deducted each year. He did not review them. Coors paid the $331,871 premium every year from 1994 to 1997.

In October 1997, Security Life learned that a "computer truncation error" had mistakenly printed the $.131 expense charge on 227 UL Ultra policies, including Coors' policy.³ Security Life had intended to charge Coors $.90 per $1,000 and concluded that the misprint was a scrivener's error, which could be reformed. Security Life did not take action to correct this error until the spring of 1998. In June 1998, Security Life drafted a letter to Coors notifying him of the discrepancy. Security Life enclosed a new schedule page reflecting the $.90 expense charge and also enclosed a policy face page that contained the same date and twenty-day review provision as the original face page. The letter and enclosures were mailed to 192 UL policy holders, including Coors, on July 2, 1998.⁴

Coors received the letter July 6, 1998. On the same day, he requested a rescission of his policy and demanded a refund of all premiums paid, with interest, from the inception of the policy. Security Life informed Coors that the letter neither required action on his part nor triggered a new twenty-day review period. When Security Life refused to honor the right to return contained on the face page, Coors requested a surrender of his policy and demanded payment. Security Life issued Coors a check for $667,025.03; the surrender value of his policy less a termination penalty of $111,966.93.

Coors then filed an action against Security Life for breach of contract, bad faith breach of contract, fraud, violation of the Colorado Consumer Protection Act ("CCPA"), section 6-1-101, et seq., C.R.S. (2004), and punitive damages.

A bench trial was held in the Jefferson County District Court. The trial court ruled in favor of Coors on all counts and awarded Coors $1,085,506.73 in total damages, which included treble damages, attorney fees and interest pursuant to the CCPA.

The trial court delineated ten grounds for a finding of deceptive trade practices and also concluded that a violation of the Unfair Competition Deceptive Practices Act, section 10-1-101 et seq., C.R.S. (2004), is a per se violation of the CCPA.

The court of appeals reviewed the trial court's decision, affirming in part, reversing in part and remanding the case for further proceedings.⁵ The court of appeals applied the test set forth in Martinez v. Lewis, 969 P.2d 213 (Colo.1998), and found that public impact was not proven as a matter of law because an impact on "at most one percent of the policyholders could not constitute public impact;" the challenged conduct was private in nature; Coors was a sophisticated businessman accompanied by counsel during the sales process for the policy; and there was insufficient evidence before the trial court regarding any impact on other policyholders.

The court of appeals affirmed the trial court's determination that a material breach had occurred, but held that the trial court erred in its conclusion regarding the implications of that breach. First, the court of appeals concluded that allowing Coors to surrender the policy without enforcing the contractual termination penalty would be unjust enrichment. Second, the court opined that the new face sheet sent in 1998 but dated 1994 was not a new or separate contract giving Coors a new twenty-day right to review and for that reason, Security Life properly deducted the termination penalty in compliance with the policy provisions.

Based on its conclusions of law, the court of appeals reversed and vacated the award of punitive damages and attorney fees. The case now comes before this court on the question of public impact required to trigger the CCPA, the proper interpretation of the termination penalty and punitive damages.

II. Colorado Consumer Protection Act

One Justice is not participating in this case. The remaining Justices are evenly divided on the issue of whether Coors established sufficient evidence of public impact under the CCPA. Justices Kourlis, Rice and Coats would hold that there was no public impact for purposes of applicability of the CCPA. Justices Mullarkey, Bender and Hobbs would hold that there was public impact for purposes of applicability of the CCPA. Accordingly, there is no majority to overturn the court of appeals on this point, and the court of appeals opinion stands. See C.A.R. 35(e); City and County of Denver v. Board of County Comm'rs, 145 Colo. 451, 452, 359 P.2d 1031 (1961).

III. Termination Penalty

Because we affirm the court of appeals' decision that Coors failed to establish significant public impact to support his CCPA claim, we now consider whether Security Life may enforce the contract's early termination penalty against Coors.

Under contract law, a party to a contract cannot claim its benefit where he is the first to violate its terms. Scientific Packages, Inc. v. Gwinn, 134 Colo. 233, 237, 301 P.2d 719, 722 (1956) (material breach deprives party of right to demand performance by other). It is undisputed that there was a valid contract between Security Life and Coors, and that Coors performed under the terms of the contract by paying his annual premiums. Hence, if Security Life materially breached the contract, it should not be entitled to enforce the early termination penalty against Coors.

Whether a breach is material is a question of fact. Kaiser v. Mkt. Square Disc. Liquors, Inc., 992 P.2d 636, 640 (Colo. App.1999). A material term goes to the root of the matter or essence of the contract....