State Farm Mutual Automobile Insurance Company v. Brekke, Case No. 03SC585 (CO 1/31/2005), Case No. 03SC585.

Decision Date31 January 2005
Docket NumberCase No. 03SC719.,Case No. 03SC585.
CourtColorado Supreme Court

Certiorari to the Colorado Court of Appeals Court of Appeals Case Nos. 02CA0582, 02CA1918.

Opinion modified, and as modified, Petition for Rehearing DENIED.


Faegre & Benson, LLP, Michael S. McCarthy, Marie E. Williams, Denver, Colorado, Attorneys for State Farm Mutual Automobile Insurance Company.

Gradisar, Trechter, Ripperger, Roth & Croshal, James M. Croshal, Pueblo, Colorado, Attorney for Gloria Brekke.

William Muhr, LLP, William Muhr, David A. Harper, Colorado Springs, Colorado, Attorneys for Clinton & Laura Shaffer.

Seaman, Giometti & Murphy, P.C., Gregory R. Giometti, David S. Canter, Esq., Greenwood Village, Colorado, Attorneys for Amicus Curiae Colorado Defense Lawyers Association.

Roberts, Levin & Patterson, P.C., Bradley A. Levin, Laura E. Schwartz, Denver, Colorado, Attorneys for Amicus Curiae Colorado Trial Lawyers Association.

JUSTICE MARTINEZ delivered the Opinion of the Court.

In this opinion, we consolidate and address the appeals from two court of appeals' decisions, Brekke v. State Farm Mut. Auto. Ins. Co., 81 P.3d 1101 (Colo. App. 2003), and an unpublished case, Shaffer v. State Farm Mut. Auto. Ins. Co., No. 02CA2274, 2003 WL 22113741 (Colo. App. Sept. 11, 2003). We consider how an insurance provider may participate in tort litigation between its insureds and uninsured motorists who injured the insureds.

In these cases, two individuals purchased uninsured motorist coverage (UM coverage) from State Farm Mutual Automobile Insurance Company (State Farm). They were injured in accidents with uninsured motorists and sued both State Farm and the uninsured motorists who had caused their injuries. The uninsured motorists failed to appear or answer the complaints, but State Farm appeared and demanded a jury trial both on the insureds' claim that State Farm should have paid under their UM coverage and also on the insureds' claim that the uninsured motorists had negligently caused injury to them.

The district courts conducted default judgment hearings on the negligence claims to determine the liability and damages of the uninsured motorists and allowed State Farm to participate as a party adverse to its insureds. State Farm appealed.

In its appeals, State Farm challenged the district courts' decisions to deny jury trials on the negligence claims against the uninsured motorists. State Farm claimed that its contractual provision that the liability of the uninsured motorist must be determined in an "actual trial," and its request for a jury trial under C.R.C.P. 38, required the district courts to hold a jury trial on the negligence claims against the uninsured motorists. The court of appeals affirmed the actions of the trial courts. State Farm successfully petitioned for certiorari.

We determine that the "actual trial" clauses in the insureds' UM contracts, which attempt to preclude default judgment against uninsured motorists from effectively establishing liability, violate public policy. As we explain in the body of the opinion, UM coverage mandated by section 10-4-609, C.R.S. (2004) is diluted if an insurance company contractually prohibits a default judgment from establishing the liability of an uninsured motorist.

We next consider State Farm's role in the negligence claims filed by the insureds against the uninsured motorists. We first distinguish the negligence claims against the uninsured motorists from the contract claims against State Farm and hold that State Farm had the right to a jury trial on its contract claims.

Regarding the negligence claims, we examine the reciprocal duties owed by State Farm and its insureds, and how the litigation is affected by the public policy underlying UM coverage in Colorado. We determine that the district court must take into consideration the unique relationship between the insured and insurance provider and balance the insurance provider's duties to the insured and the insured's right to undiluted UM recovery against the interest of the insurance provider in receiving a fair hearing on its legitimate defenses. While the insurance provider may participate in the tort litigation, its participation must be no more extensive than necessary to preserve that balance.

Balancing the duties and rights in these cases, we conclude that State Farm did not allege facts that justify a role greater than the role it was allowed by the district courts in the default damages hearings. Consequently, the district courts did not abuse their discretion when the courts denied State Farm a jury trial on the negligence claims in either case. However, because the district court in Brekke entered judgment against State Farm on the negligence claim against the uninsured motorist, effectively treating State Farm as a defendant on that claim, we conclude the district court abused its discretion.


The first insured, respondent Gloria Brekke (Brekke), was injured in a hit-and-run accident with a vehicle owned by uninsured motorist Garfield Gus Garcia (Garcia) in September, 1995.

Between 1995 and 1998, however, Brekke and State Farm could not reach settlement on the UM claim. Therefore in September of 1998, almost three years later, Brekke filed suit against Garcia and State Farm.

Brekke's complaint initially included two causes of action, the first alleging the negligence of Garcia, and the second alleging that Defendant State Farm should have paid under its UM coverage for injury caused by Garcia's negligence.

Although Garcia was served with the summons and complaint, he never appeared or filed an answer. State Farm filed an answer and demanded a jury trial on all issues.

Brekke moved for a default judgment against Garcia a year after the suit was initiated, requesting actual and punitive damages.

A few days after the district court had entered a default on Garcia's liability, State Farm filed a response conceding that it was only challenging damages and contending that the default entered against Garcia did not bind State Farm.

The district court denied State Farm's request that the default judgment against Garcia not bind it, but allowed State Farm to contest the amount of damages it would be awarding against Garcia.1

State Farm next argued that its contract prohibited the default judgment against Garcia from binding State Farm. State Farm pointed to language in its contract that required issues of liability and damages to be determined as "the final result of an actual trial and an appeal, if an appeal is taken." State Farm contended that this contract language required a jury trial on damages. It therefore asked the court to reconsider its determination that the default judgment against Garcia would bind State Farm.

Alternately, State Farm contended that since it made a demand under C.R.C.P. 38 for a jury trial and it was a codefendant with Garcia, the court's denial of its request deprived State Farm of its statutory right to a jury trial.

The district court denied State Farm's request for a jury trial. First, it held that Garcia had never made a demand for a jury trial on the issue of his negligence and State Farm had waived any rights to a jury trial on the issue of Garcia's liability for negligence through its prior pleadings. Second on the issue of damages, the district court held that State Farm's contractual language did not require a jury trial. After noting that trial by jury was not constitutionally required in Colorado civil cases, the district court determined that a hearing to the court would adequately protect State Farm's interests in the damages to be assessed against Garcia.

The default judgment damages hearing took place in February of 2001. State Farm contested damages, calling its own witnesses and cross-examining Brekke's witnesses. Following the hearing, the district court entered judgment against both defendants for damages and interest totaling $288,652. State Farm timely appealed.

In its opinion, the court of appeals held that State Farm's contractual language implicitly waived the right to a jury trial on the negligence claim against Garcia and that State Farm received a fair and adequate opportunity to protect its interests through its participation in the damages phase of the default judgment hearing. Brekke v. State Farm Mut. Auto. Ins. Co., 81 P.3d 1101, 1102-03 (Colo. App. 2003). The court of appeals reasoned that if it interpreted the contractual language to require a jury trial, such an interpretation would violate public policy because it would resolve the dispute in the most inefficient and expensive way possible. Id. at 1104.

We granted certiorari.


The second insured, respondent Clinton Shaffer (Shaffer), was involved in an auto accident with uninsured motorist Jordan Rodriguez (Rodriguez) in August 1996. After three years, during which Shaffer and State Farm could not reach an agreement, Shaffer filed suit in October of 1999 against Rodriguez and State Farm.

Shaffer filed negligence claims against Rodriguez and claims based on the UM contract against State Farm.

As in Brekke's case, the uninsured motorist Rodriguez never appeared or answered the complaint. State Farm answered, denying all Shaffer's claims, pleading affirmative defenses and requesting a jury trial on all issues.2 Subsequently, Shaffer moved for default judgment against Rodriguez and requested damages of $450,000.

State Farm opposed the default judgment and reiterated its demand for a jury trial. In the alternative, State Farm requested that the default judgment be entered only against Rodriguez and that damages be determined...

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