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

• Decision Date: 06 March 2007
• Docket Number: No. 06-1121.,06-1121.
• Citation: 479 F.3d 727
• Parties: Kunal PADHIAR, Plaintiff-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

479 F.3d 727

Kunal PADHIAR, Plaintiff-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Defendant-Appellee.

No. 06-1121.

United States Court of Appeals, Tenth Circuit.

March 6, 2007.

Robert B. Carey (L. Dan Rector and Julie Cliff with him on the brief), The Carey Law Firm, Colorado Springs, CO, for Appellant.

Sheryl L. Anderson (Suanne M. Dell and Jennifer S. Koran with her on the brief), Wells Anderson & Race, LLC, Denver, CO, for Appellee.

Before HENRY, ANDERSON, and HOLMES, Circuit Judges.

ANDERSON, Circuit Judge.

Plaintiff and appellant Kunal Padhiar appeals the denial of his motion for summary judgment and the grant of defendant State Farm Automobile Insurance Company's motion for summary judgment in this action seeking reformation of an automobile insurance contract. We affirm.¹

BACKGROUND

The Colorado legislature enacted the Colorado Auto Accident Reparations Act ("CAARA" or "No-Fault Act") in 1973. Among other things, the No-Fault Act "require[d] that a complying [automobile insurance] policy include mandatory [personal injury protection or "PIP"] benefits." Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550, 552 (Colo.Ct.App.1998). More specifically, Colo.Rev.Stat. § 10-4-706(1)² required an insurance company to provide:

(b)(I) Compensation without regard to fault, up to a limit of fifty thousand dollars per person for any one accident, for payment of all reasonable and necessary expenses for medical . . . and nonmedical remedial care and treatment . . . performed within five years after the accident for bodily injury arising out of the use or operation of a motor vehicle. . . .

(c)(I) Compensation without regard to fault up to a limit of fifty thousand dollars per person for any one accident within ten years after such accident for payment of the cost of rehabilitation procedures or treatment and rehabilitative occupational training necessary because of bodily injury arising out of the use or operation of a motor vehicle.

Furthermore, pursuant to § 10-4-706(4)(a), "[a]n insurer issuing policies providing coverages as set forth in this section shall provide written explanations of all available coverages prior to issuing any policy to an insured."

Section 10-4-707 delineates the categories of people who must receive coverage under § 706 as including "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.

The No-Fault Act also required every insurance company to offer optional extended PIP benefits to its insureds, in exchange for higher premiums. Thus, § 10-4-710(2)(a) provided that:

Every insurer shall offer the following enhanced benefits for inclusion in a complying policy, in addition to the basic coverages described in section 10-4-706, at the option of the named insured:

(I) Compensation of all expenses of the type described in section 10-4-706(1)(b) without dollar or time limitation;

(II) Compensation of all expenses of the type described in section 10-4-706(1)(b) without dollar or time limitations and payment of benefits equivalent to eighty-five percent of loss of gross income per week from work the injured person would have performed had such injured person not been injured during the period commencing on the day after the date of the accident without dollar or time limitations.

Colo.Rev.Stat. § 10-4-710(2)(a). Although § 710 does not specify to whom the extended coverages it provides applies, Brennan held that they apply to the same four categories of individuals to whom § 706 coverage applies.

The Colorado Court of Appeals held in Brennan that "when . . . an insurer fails to offer the insured optional coverage that satisfies [CAARA], additional coverage in conformity with the offer mandated by statute will be incorporated into the policy." Brennan, 961 P.2d at 554; see also Thompson v. Budget Rent-A-Car Sys., Inc., 940 P.2d 987, 990 (Colo.Ct.App.1996) ("[W]hen a policy is violative of a statute, reformation is also required to assure that coverage will meet the statutory minimums."). Thus, in Brennan, because the insurance policy at issue failed to offer extended PIP benefits for injured pedestrians and the court determined that the No-Fault Act mandated coverage for such pedestrians, the court ordered the policy reformed to include such coverage. See Clark v. State Farm Mut. Auto. Ins. Co., 433 F.3d 703, 710 (10th Cir.2005) (Clark III) ("Brennan and Thompson reformed those insurance policies to include extended pedestrian coverage that insurers should have offered under section 710.").³

Kunal Padhiar's father, Prabhat Padhiar, first purchased automobile insurance from State Farm in 1967. His first State Farm agent was Bill Smith, Jr. and, after Smith's death, Padhiar conducted business with Gary Wilcox's State Farm insurance agency.

On February 1, 2001, Kunal Padhiar was involved in an automobile accident which caused him serious injuries. He was in a car, a 1993 Infinity, for which his father had applied for insurance in November 1993. The application form contains a section for the applicant to select one of several available PIP coverages. Prabhat Padhiar had checked the box for P1 PIP coverage, which was the mandatory minimum PIP coverage required by Colorado law. Based on Prabhat's application, State Farm issued the Padhiars an insurance policy numbered 345-8967-E03-06 covering their 1993 Infinity. That policy was amended by endorsements in October 1998, 1999 and 2000 and was thereafter assigned policy number 345-8967-E03-06A. At all times the policy contained P1 PIP coverage.

When the policy was initially sent to the Padhiars, a policy form accompanied it which contained, inter alia, a schedule of all available PIP coverages and a side-by-side comparison of the benefits and costs of each one. State Farm also sent to the Padhiars Auto Renewal Notices, which allowed them to renew their policy for the subsequent six-month period. Beginning in October 1994, State Farm sent a summary disclosure form to all of its policyholders, including the Padhiars, with each Auto Renewal Notice. In March 1995, State Farm sent to the Padhiars a revised, but substantially similar, summary disclosure form which described all major available coverages, including PIP coverages. After describing the mandatory minimum PIP coverage, the form expressly stated "Optional personal injury protection coverages also are available." Appellant's App. Vol. II at 414.

In April 1998, State Farm sent to the Padhiars an Auto Renewal Notice containing the following:

HIGHER PERSONAL INJURY PROTECTION COVERAGE LIMITS ARE AVAILABLE

You can purchase higher Personal Injury Protection coverage limits with no deductible.

Coverage P4 semi-annual premium=$146.40

Coverage P8 semi-annual premium=$142.08

See the enclosed News and Notes article for an explanation of these coverages.

Id. at 443. The enclosed "News and Notes" newsletter referenced in the above notice provided the following further description of the enhanced PIP coverages which were available:

Higher PIP coverage limits are available.

Colorado auto insurance law requires that you purchase at least the minimum level of personal injury protection (PIP or no-fault) coverage. This coverage is called "P1" on your premium notice. It includes mandatory minimum coverage limits for medical and rehabilitation expenses, loss of income, essential services, and death resulting in injuries sustained in a motor vehicle accident.

Policyholders have the option to choose higher levels of PIP coverage—two of which are P8 and P4 coverages—for an additional premium.

P8 coverage—P8 coverage has an aggregate limit of $200,000. This limit is the most we will pay for all no-fault benefits combined (medical and rehabilitation expenses, loss of income, essential services and death compensation).

The medical expenses benefit does not have a time limitation (unlike P1, which is limited to five years), and you can recover up to $200,000 for medical expenses (unless part of your aggregate limit was used for other no-fault benefits). The other no-fault benefit provisions have limitations, in addition to being subject to the aggregate limit.

P4 coverage—This coverage provides the same benefits as P8, except that it provides broader loss of income benefits. It pays 100% loss of income up to $125 a week, and up to 85% of loss of income over $125. This benefit is subject to the aggregate limit of $200,000. In contrast, P8 and P1 coverages limit loss of income benefits to $400 per week, up to a maximum of 52 weeks.

Your enclosed renewal notice quotes the premium for P4 and P8 coverages with no deductible. If you are interested in purchasing either of these coverages, please contact your State Farm agent.

Id. at 450. In February 1998 and August 1998, State Farm sent substantially similar materials to the Padhiars in connection with their insurance for their 1993 Honda.

In March 1999, State Farm sent to the Padhiars a policyholder notice called "Important Notice About No-Fault Coverage Changes." It included Endorsement 6850AJ, which, in response to the Colorado Court of Appeals' decision in Brennan, immediately removed any limitation on recovery of enhanced PIP benefits by injured pedestrians. The notice also indicated that certain no-fault coverages would change when Endorsement 6850AJ took effect, including the elimination of P6, P9 and P10 PIP coverages and the extension of time for the recovery of PIP rehabilitation expenses under P1 PIP coverage. The Endorsement further included a schedule listing all PIP coverages and providing side-by-side comparisons of the benefits and limits of each type of coverage.

As indicated, Kunal Padhiar was in an accident involving the 1993 Infinity in February 2001. He received and exhausted all P1 PIP benefits...