Farmers Ins. Exchange v. Benzing, 07SC483.

• Citation: 206 P.3d 812
• Decision Date: 27 April 2009
• Docket Number: No. 07SC483.,07SC483.
• Parties: FARMERS INSURANCE EXCHANGE, an insurer, and owner of Mid-Century Insurance Company; and Mid-Century Insurance Company, a California corporation, Petitioners v. Marc A. BENZING, on behalf of himself and all others similarly situated, Respondent.
• Court: Supreme Court of Colorado

206 P.3d 812

FARMERS INSURANCE EXCHANGE, an insurer, and owner of Mid-Century Insurance Company; and Mid-Century Insurance Company, a California corporation, Petitioners v. Marc A. BENZING, on behalf of himself and all others similarly situated, Respondent.

No. 07SC483.

Supreme Court of Colorado, En Banc.

April 27, 2009.

Davis Graham & Stubbs LLP, Thomas P. Johnson, Janette L. Ferguson, Denver, Colorado, Attorneys for Petitioners.

The Carey Law Firm, Robert B. Carey, Leif Garrison, Colorado Springs, Colorado,

Walter H. Sargent, a professional corporation, Walter H. Sargent, Colorado Springs, Colorado, Attorneys for Respondent.

Arnold & Porter LLP, Timothy R. MacDonald, James E. Scarboro Denver, Colorado, Attorneys for Amici Curiae Colorado Civil Justice League, Colorado Association of Commerce and Industry, Colorado Competitive Council, and Denver Metro Chamber of Commerce.

Roberts Levin Rosenberg PC, Bradley A. Levin, Alexa R. Salg, Denver, Colorado, Attorneys for Amicus Curiae The Colorado Trial Lawyers Association.

Hill & Robbins, P.C., Robert F. Hill, John H. Evans, Nathan P. Flynn, Denver, Colorado, McFarland Law Offices, Thomas D. McFarland, Golden, Colorado, Evans & McFarland, LLC, M. Gabriel McFarland, Luke McFarland, Golden, Colorado, Attorneys for Amici Curiae John Quinn, Marcia Quinn, and Lynn Young.

Justice BENDER delivered the Opinion of the Court.

Introduction

In this case, we review whether the court of appeals erred in holding that the trial court abused its discretion when it decertified the plaintiff's class. Benzing v. Farmers Ins. Exch., 179 P.3d 103 (Colo.App.2007). The plaintiff alleged, inter alia, that the defendant automobile insurance companies violated the Colorado Consumer Protection Act (CCPA) when they failed to disclose to insurance purchasers this court's decision in DeHerrera v. Sentry Insurance Co., 30 P.3d 167 (Colo.2001). As a consequence of DeHerrera, insureds, once they have purchased the first unit of uninsured/underinsured motorist (UM/UIM) coverage, need not purchase additional UM/UIM coverage on a second vehicle in order to protect themselves and resident family members. See id. at 176.

The trial court initially certified the class, accepting as true the plaintiff's allegation that he and the class of insureds purchased UM/UIM coverage on additional vehicles that provided no meaningful benefits. The case was then transferred to another trial judge who, after the parties undertook partial discovery, ruled that the UM/UIM coverage on additional vehicles did in fact provide a benefit: UM/UIM protection for guests and nonresident family members traveling in those vehicles. Concluding that "mini-trials" would be necessary to determine if the defendants' alleged failure to disclose DeHerrera caused injury to any of the insureds, the court ruled that the plaintiff's original class certification was inappropriate.

On appeal, the court of appeals reversed. Benzing, 179 P.3d at 115. In doing so, the court of appeals primarily relied on the plaintiff's argument that the CCPA's causation element could be established using the fraud on the market theory. Id. at 112-14. Because this theory could eliminate the need to prove individual causation, the court of appeals held that the trial court abused its discretion in decertifying the class. Id.

Upon review, we hold that, under the circumstances of this case, the fraud on the market theory cannot be applied to maintain a class action. The fraud on the market theory is a judicially created presumption typically employed by plaintiffs in securities class actions to prove the reliance element of a section 10(b) and rule 10b-5 securities fraud claim. Here, the plaintiff class did not allege reliance on both the market price of the policies and the integrity of the market. Rather, the class alleges reliance upon the defendant's omissions in face-to-face transactions. Thus, market price is not the causal impetus of the plaintiff class's reliance. In addition, a plaintiff class attempting to invoke the fraud on the market theory must demonstrate that the market at issue is efficient; that is, the market price promptly reflects all available material public information. The class here did not and cannot demonstrate that the market for commercial UM/UIM insurance is efficient. Lastly, our decision in DeHerrera was public information at the time of the class's alleged reliance, and so the success of the plaintiff class's substantive CCPA claims actually depends on the inefficiency of the market for commercial UM/UIM insurance.

In addition, the plaintiff argues to us an alternate theory of causation. The plaintiff argues that causation may be presumed on a class-wide basis where there is a uniform material omission or misrepresentation. This presumption is akin to the presumption articulated in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). However, this theory was not raised in the trial court, not considered by the court of appeals, and we therefore reach no opinion as to the merits of this argument.

Because the plaintiff advanced no theory of class-wide causation sufficient to maintain a class action, we hold that the trial court did not abuse its discretion when it decertified the class. Hence, the court of appeals' judgment is reversed. We remand this case to the court of appeals to be returned to the trial court with directions to enter judgment consistent with this opinion.

Facts and Proceedings Below

The plaintiff, Mark Benzing, sued Mid-Century Insurance Company and its parent company, Farmers Insurance Exchange, alleging that the insurers sold him UM/UIM coverage using deceptive trade practices by failing to disclose to him this court's decision in DeHerrera v. Sentry Insurance, 30 P.3d 167 (Colo.2001).¹ In DeHerrera, we held that UM/UIM coverage applies to an insured person and his or her resident relatives when injured by a financially irresponsible motorist, irrespective of the vehicle that the insured or resident relative occupies at the time. Id. at 176. In light of this court's decision in DeHerrera, a division of the court of appeals invalidated "owned but not insured" policy exclusions, which limited coverage, including UM/UIM coverage, to insureds injured when occupying a vehicle insured under that policy. Jaimes v. State Farm Mut. Auto. Ins. Co., 53 P.3d 743 (Colo.App.2002).²

Benzing and his wife bought automobile insurance from Farmers on a first vehicle in 1997, and then bought additional coverage for a second vehicle in 1999. Both policies contained UM/UIM insurance. Benzing alleged that, after the DeHerrera and Jaimes decisions, Farmers continued to sell UM/UIM coverage on a per vehicle basis without telling insureds that they need not purchase UM/UIM insurance on each household vehicle to cover the insureds and their resident relatives. Benzing brought this lawsuit claiming, inter alia, that Farmers committed a deceptive practice under the Colorado Consumer Protection Act (CCPA), sections 6-1-101 to-1120, C.R.S. (2006), by selling UM/UIM coverage on a per vehicle basis without disclosing the implications of DeHerrera and Jaimes to the insureds.³

Benzing then moved for class certification pursuant to C.R.C.P. 23. The trial court certified a class of all persons insured by the defendants with multiple policies, at least two of which contained UM/UIM coverage, who purchased or renewed their policies after the DeHerrera decision was issued. For the purposes of class certification, the court accepted as true the plaintiff's allegation that the additional UM/UIM policies "provided no meaningful benefit to the purchaser." While the trial court noted there was some factual dispute as to what representations were made by the defendants' insurance agents to each of its insureds, the defendants primarily argued that they had no duty to disclose the DeHerrera decision to any of its insureds, and thus the court found the proposed class satisfied the "commonality" and "typicality" prerequisites of C.R.C.P. 23(a). It noted that the damages calculation, consisting of excess premiums that provided no benefits to insureds, was suited for resolution by a court-appointed master. The court also concluded that the class was maintainable under C.R.C.P. 23(b)(3) because common questions of law and fact predominated over individual issues.

Following partial discovery, the defendants moved to decertify the class on the basis that benefits did accrue at least to some class members purchasing additional policies with UM/UIM insurance. DeHerrera and Jaimes only require that the insureds and their resident family members are covered on all vehicles after they purchase one policy with UM/UIM coverage. Purchasing UM/UIM coverage on additional vehicles extends UM/UIM protection to guests and nonresident relatives of the insureds traveling in the added vehicles.

Defendants cited Benzing's own deposition testimony that, if given the choice between purchasing UM/UIM coverage that protected his guest passengers and nonresident relatives and coverage that did not, he would choose the broader, additional coverage. The defendants also introduced under seal statistical evidence obtained from another company, State Farm Insurance, which indicated that after State Farm's mass mailing to Colorado policyholders disclosing the import of DeHerrera, there were relatively few requests for cancellation of UM/UIM coverage on additional vehicles. Because a plaintiff asserting a private cause of action under the CCPA must show that the defendant's deceptive trade practice caused an injury to the plaintiff, the defendants argued liability could not be established on a class-wide basis because the class would not be able to show that defendants' alleged non-disclosure of DeHerrera's implications affected their decisions to purchase additional coverage. See Hall v. Walter, 969 P.2d 224,...