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

Decision Date10 October 2007
Docket NumberNo. 05-1553.,05-1553.
Citation505 F.3d 1070
PartiesVirgil STICKLEY, Plaintiff-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

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

Todd P. Walker (Michael S. McCarthy with him on the brief), Faegre & Benson LLP, Denver, Colorado, for Defendant-Appellee.

Before O'BRIEN, McCONNELL, and HOLMES, Circuit Judges.

O'BRIEN, Circuit Judge.

Virgil Stickley appeals from the district court's grant of summary judgment to State Farm Mutual Automobile Insurance Company (State Farm). Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm.

I. Background
A. The No-Fault Act

In 1973, the Colorado legislature enacted the Colorado Auto Accident Reparations Act ("CAARA" or "No-Fault Act") which governed the sale of automobile insurance in the state.1 See Colo.Rev.Stat §§ 10-4-701 through 726. The purpose of the No-Fault Act was to avoid inadequate compensation to victims of automobile accidents. Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550, 553 (Colo.App. 1998). Under CAARA, automobile insurance policies had to include a basic level of personal injury protection (PIP).2 This basic level included: (a) $25,000 per individual, $50,000 per accident for legal liability coverage and $15,000 for property damage, exclusive of interest and costs; (b) $50,000 for medical services per person for any one accident regardless of fault if performed within five years of the accident; (c) $50,000 for rehabilitative services per person for any one accident regardless of fault if performed within ten years of the accident; (d) reimbursement for up to $400 of gross income per week plus expenses up to $25 a day for fifty-two weeks; and (e) $1,000 in death benefits. See Colo.Rev. Stat. § 10-4-706(1)(a)-(e). These basic levels applied to "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; see also Colo.Rev.Stat. § 10-4-707(1). In connection with the basic level of coverages, CAARA allowed an insurer to offer managed care options through health maintenance organizations (HMO) or preferred provider organizations (PPO). See Colo.Rev.Stat. § 10-4-706(2) (2001).

From 1992 through its repeal in 2002, § 706(3)3 of CAARA allowed an insurer to offer an "alternative to the minimum coverages" known as a "reduced" PIP policy.4 See Colo.Rev.Stat. § 10-4-706(3) (1992 through 2002). The reduced coverages included: (I) up to $25,000 per person for any one accident for identified types of medical procedures, if performed within five years of the accident; (II) no compensation for rehabilitation; and (III) $5,000 of death benefits. See Colo.Rev.Stat. § 10-4-706(3)(b)(I)-(III) (2001). In order to qualify for the reduced coverages, the combined annual gross income of the person applying and their spouse could not exceed 185% of the federal poverty level for a family of four, adjusted upward for family size. See Colo.Rev.Stat. § 10-4-706(3)(c)(I). The reduced policy was limited to "the named insured, resident spouse, and resident child." See Colo.Rev.Stat. § 10-4-706(3)(f)(I) (2001).

Enacted and repealed at the same time as the reduced PIP coverages, CAARA also contained a provision which required insurance companies to provide written explanations of available § 706 coverage options to their insureds:

An 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. After a named insured selects a policy with desired personal injury protection coverage, an insurer shall not be under any further obligation to notify such policyholder in any renewal or replacement policy of the availability of a reduced personal injury protection policy or of any alternative personal injury protection coverage.

Colo.Rev.Stat. § 10-4-706(4)(a) (2001).

Apart from the basic PIP coverages, CAARA also required insurance companies to offer their insureds optional enhanced PIP benefits in exchange for higher premiums. Section 10-4-710(2)(a) provided:

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) [medical expenses] without dollar or time limitation; or

(II) Compensation of all expenses of the type described in section 10-4-706(1)(b) [medical expenses] without dollar or time limitations and payments 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) (2003).5 Though not specified in § 10-4-710 or elsewhere in CAARA, Brennan held these enhanced PIP coverages applied to the same category of people outlined in § 10-4-707(1), including pedestrians. Brennan, 961 P.2d at 553.

B. Case Facts

On December 21, 1992, Mary Stickley purchased automobile insurance from State Farm Agent Leland Woelk for her husband, Virgil Stickley ("Stickley" or "Virgil"). At that time, State Farm offered four PIP coverage options: P1, P3, P4 and P8. P1 consisted of the basic level of PIP coverage required by CAARA ($50,000 rehabilitation and $50,000 medical expenses). The maximum amount of PIP benefits payable under P1 was $130,900. P3 provided the basic P1 benefits for rehabilitation expenses and loss of income but increased medical expense coverage to $100,000. The maximum amount of PIP benefits payable under P3 was $189,900. P4 and P8 were State Farm's enhanced PIP benefit plans. Both plans provided for payment of medical expenses with no time limit, while P4 also allowed for loss of income benefits without a time limitation. However, both plans capped benefits at $200,000 per person, per accident and excluded pedestrians from their coverages. Mary Stickley selected P3 coverage for Virgil.

In August 1998, State Farm sent Virgil a Renewal Notice for the policy along with an informational bulletin captioned "News and Notes." The Renewal Notice stated:

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 = $110.16

Coverage P8 semi-annual Premium = $107.27

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

(App. Appx. at 161.)

The "News and Notes" article provided the following with regards to enhanced PIP coverage:

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 it provides broader loss of income benefits. It pays 100 percent of loss of income up to $125 a week, and up to 85 percent 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 $100 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.

(App. Appx. at 163.) After receiving this renewal notice, Virgil paid the premium for P3 PIP coverage.6 He never requested or paid for P4 or P8 PIP coverage.

In November 1998, State Farm eliminated the Pedestrian Limitation via Endorsement 6850AJ. That same month, State Farm began disseminating Endorsement 6850AJ to its policyholders, sending it to the policyholder at his/her next renewal date (which occurred every six months). Endorsement 6850AJ became effective for Stickley no later than March 22, 1999. Not only did Endorsement 6850AJ amend Virgil's policy by removing its Pedestrian Limitation for enhanced PIP benefits, it contained a schedule detailing the coverages for P1 through P5, P7 and P8 — the seven coverages available at that time. Virgil continued paying the premium for P3 PIP coverage.

On October 6, 1999, Virgil was injured in a car accident while acting in the scope of his employment with Cheyenne Drilling. Following the accident, Virgil received medical and wage loss benefits from Cheyenne Drilling's workers' compensation insurance, specifically, $95,193.71 in medical and hospital expenses and $40,598 in lost income from October 6, 1999, through October 19, 2001. State Farm also began paying P3 PIP benefits to Virgil, paying him $5,540.90 for items not covered by workers' compensation. On October 19, 2001, Cheyenne Drilling and Virgil settled all remaining lost income claims for $60,000. On February 12, 2004, Cheyenne Drilling paid Virgil another $60,000 to settle all remaining medical claims.

C. Procedural History

On August 16, 2004, Virgil initiated this lawsuit against State Farm seeking declaratory relief and reformation of...

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