Fincher v. Prudential Property & Casualty Insurance , 76 F. App'x 917 ( 2003 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
OCT 1 2003
TENTH CIRCUIT
PATRICK FISHER
Clerk
KELLY FINCHER, by her natural father
and next friend James Fincher,
Plaintiff-Appellant,
v. No. 02-1280
PRUDENTIAL PROPERTY AND (D.C. No. 00-RB-2098)
CASUALTY INSURANCE COMPANY, (D. Colorado)
a New Jersey Corporation,
Defendant-Appellee.
ORDER AND JUDGMENT*
Before TACHA, Chief Judge, ANDERSON, and BRISCOE, Circuit Judges.
Plaintiff Kelly Fincher, appearing through her father and next friend, James
Fincher, appeals the district court’s grant of summary judgment in favor of defendant
Prudential Property and Casualty Insurance Company. We exercise jurisdiction pursuant
to 28 U.S.C. § 1291, and reverse and remand for further proceedings.
I.
On May 8, 1994, Fincher was riding her bicycle when she was struck and severely
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
injured by a vehicle driven by Anthony Bekeshka. At the time of the accident, Bekeshka
was insured under an automobile liability insurance policy issued by Prudential. Because
Fincher was considered by Colorado law to be a pedestrian at the time of the accident, she
fell within the definition of an “insured” under the no-fault provisions of Bekeshka’s
policy and was entitled to personal injury protection (PIP) benefits. Prudential paid PIP
benefits to Fincher, including medical and rehabilitative expenses, until those expenses
reached a total of $100,000, the PIP coverage limits set forth in the Bekeshka policy.
On September 21, 2000, Fincher filed a putative class action complaint in
Colorado state district court on behalf of herself and all “persons who were entitled to be
offered and paid extended [PIP] benefits by Prudential . . . , as defined under the
Colorado [No-Fault] Act, C.R.S. § 10-4-710, but who were never offered and never paid
th[o]se benefits by Prudential as required by statute.” App. at 17. Fincher’s complaint
alleged that Prudential was obligated under the No-Fault Act to offer its insureds
additional (or “extended”) PIP benefits, “including medical benefits unlimited in time or
amount, and wage loss benefits unlimited in time or amount.” Id. at 22. Fincher’s
complaint further alleged that Prudential violated this obligation with respect to the
Bekeshka policy because “no option existed allowing [the] insured to select either
unlimited medical benefits or unlimited wage loss benefits, and the highest aggregate
limit available was $150,000.” Id. The complaint asserted claims for (1) reformation of
contract to include in the Bekeshka policy (as well as in other policies covering class
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members) the extended benefits required under the No-Fault Act, (2) breach of contract,
(3) breach of covenant of good faith and fair dealing, (4) willful and wanton breach of
contract; and (5) deceptive trade practices in violation of the Colorado Consumer
Protection Act.
On or about October 23, 2000, Prudential removed the case to federal court based
on diversity jurisdiction. Prudential moved for summary judgment, arguing (1) it “did, in
fact, offer extended PIP benefits to the Bekeshkas, but they were rejected in favor of the
basic benefit package,” (2) in any event, “pedestrians were not entitled to extended PIP
benefits until 1998 [when the Colorado Court of Appeals issued its decision in Brennan v.
Farmers Alliance Mutual Insurance Company, 961 P.2d 550 (Colo. App. 1998)], 6 years
after the Bekeshka policy was issued, and 4 years after the Plaintiff’s accident,” and (3)
Fincher’s damages, if any, were limited by the statutory $200,000 minimum cap on
extended PIP benefits. Suppl. App. at 2.
On June 10, 2002, the district court granted summary judgment in favor of
Prudential. The court noted that, in Brennan, “the Colorado Court of Appeals held that
pedestrians [we]re entitled to coverage from APIP [extended PIP] benefits under the No-
Fault Act.” App. at 4. According to the district court, it “previously had been unclear as
to whether pedestrians were entitled to such benefits.” Id. at 4-5. The court concluded
that “[t]he Brennan rule should not be applied retroactively to Fincher’s 1994 accident.”
Id. at 6. In other words, the court concluded that, “at the time of Fincher’s accident,
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Colorado law did not require that pedestrians be covered by [extended PIP] benefits,” and
Fincher could not pursue “claims based on a violation of the [extended PIP] statute when
she [wa]s not entitled to benefits under that statute.” Id. at 6-7.
II.
We review the district court’s grant of summary judgment de novo, applying the
same standards as the district court under Federal Rule of Civil Procedure 56(c). Perry v.
Woodward, 199 F.3d 1126, 1131 (10th Cir. 1999). A grant of summary judgment is
appropriate if there is no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48
(1986). In applying this standard, “the substantive law will identify which facts are
material.” Id. at 248. Because this is a diversity case, we apply the substantive law of
Colorado, the forum state. See Sapone v. Grand Targhee, Inc., 308 F.3d 1096, 1100 (10th
Cir. 2002). If “no [Colorado] cases exist on a point, we turn to other state court decisions,
federal decisions, and the general weight and trend of authority.” Id. (internal quotations
omitted).
III.
Overview of No-Fault Act and Brennan
Before directly addressing the issues raised by Fincher on appeal, we find it
helpful to review the relevant provisions of Colorado’s No-Fault Act and the decision in
Brennan interpreting those provisions. Generally speaking, “[t]he No-Fault Act requires
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that a complying policy include mandatory PIP benefits.” Brennan, 961 P.2d at 552.
Section 10-4-706(1) of the Act requires an insurer 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.
Colo. Rev. Stat. § 10-4-706(1)(b)(I) and (1)(c)(I) (2001).
Section 10-4-707 of the No-Fault Act outlines persons to whom the minimum PIP
coverages apply. More specifically, § 10-4-707 provides that the minimum PIP coverages
set forth in § 10-4-706 apply “to four groups of people: 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.
Section 10-4-710 of the No-Fault Act requires insurers to offer supplemental PIP
coverage to policyholders:
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; or
(II) Compensation of all expenses of the type described in section
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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) (2001).
Prior to Brennan, at least some insurers in Colorado had concluded that § 10-4-
710(2)(a) did not require them to offer extended PIP coverage for pedestrians. The
insurers’ conclusion rested primarily on the fact that (1) § 10-4-710 did not specifically
identify to whom supplemental coverages were applicable, and (2) the list of covered
persons in § 10-4-707 referred only to the minimum PIP coverages in § 10-4-706. See
Brennan, 961 P.2d at 553. The insurers also concluded that “the legislative purpose of
§ 10-4-710 [wa]s to provide policyholders with a wider range of choices” and that “most
insureds d[id] not want to pay additional premiums for coverage for non-family
members.” Id. at 554.
In Brennan, the parents of an injured pedestrian filed suit against the insurer of the
driver who struck their child, asserting the insurer was obligated under the No-Fault Act
to provide extended PIP benefits to cover the child’s injuries. The trial court reformed
the policy at issue to include extended PIP coverage for pedestrians (which thereby
afforded plaintiffs the right to extended PIP benefits under the policy). The Colorado
Court of Appeals affirmed the trial court’s decision to reform the policy. In doing so, the
court rejected the insurer's position outlined above and concluded the extended PIP
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coverage set forth in § 10-4-710(2)(a) was applicable to pedestrians. See 961 P.2d at 553.
In reaching this conclusion, the court noted that the No-Fault Act, whose purpose was “to
avoid inadequate compensation to all victims of automobile accidents,” was “to be
liberally construed to further its remedial and beneficent purposes.” Id. The court
reviewed the language of § 10-4-710 and concluded that it clearly supported extended PIP
coverage for pedestrians:
Although [the insurer] correctly notes that § 10-4-710(2)(a) does not
list nor refer to persons who are eligible for coverage, when this section is
read in context, it is apparent that the extended coverages offered there must
apply to the categories of persons listed in § 10-4-707(1). Specifically, in
§ 10-4-710, extended coverage is to be made available “in addition to the
coverage described in § 10-4-706.” The “types” of extended coverage to be
provided are the “types” described in § 10-4-706(1)(b). And, the coverages
provided in § 10-4-706(1)(b) apply without distinction to all categories of
persons listed in § 10-4-707(1). Thus, by the plain terms of these
provisions, § 10-4-710 describes an option to purchase coverage, but at
higher limits, for the same persons and under the same conditions
applicable to mandatory basic PIP coverage.
Id. at 553-54. The court also emphasized that the No-Fault Act imposed a specific duty
on insurers:
Unlike § 10-4-706, § 10-4-710 provides no mandate to the motor
vehicle owner or operator; the purchase of the coverages by the insured, and
therefore, the extent of the coverages, are completely optional. Conversely,
the directive of § 10-4-710 is to the insurer, not to the insured: all that is
required is that the insurer offer these extended benefits.
Thus, although an insurer must offer extended coverages listed in
§ 10-4-710 which apply to all categories of persons specified in § 10-4-707,
nothing in the No-Fault Act prohibits the named insured from limiting its
purchase of additional coverage by scope, application, or amount.
Id. at 554.
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District court’s construction of No-Fault Act and Brennan
The district court here concluded that, at the time of Fincher’s accident, Colorado
law did not obligate insurers to offer extended PIP benefits for pedestrians. The district
court based its conclusion on its belief that Brennan, although clarifying that insurers
were obligated under the No-Fault Act to offer extended PIP benefits for pedestrians, was
to be applied prospectively only.
Fincher contends, and we agree, that the district court’s reasoning is undercut by
our recent decision in Clark v. State Farm Mutual Automobile Insurance Company, 319
F.3d 1234 (10th Cir. 2003), which was filed after the district court's ruling. In Clark, we
dealt with a substantially similar appeal filed by an injured pedestrian against a PIP
insurer. In sum, Clark makes clear that, contrary to the conclusion reached by the district
court, Brennan did not establish a new principle of law, and instead merely construed
§ 10-4-710 of the No-Fault Act to encompass pedestrians. Thus, we conclude that
Prudential was generally obligated at the time of Fincher’s accident to offer extended PIP
benefits for pedestrians in the amounts set forth in the No-Fault Act.
Rejection of Prudential’s extended coverage offer
In a fall-back argument, Prudential contends that, even if it was obligated under
the No-Fault Act to offer extended PIP coverage for pedestrians, the uncontroverted facts
indicate that the Bekeshkas would have rejected it. In support, Prudential notes that it
offered the Bekeshkas a number of extended coverage options (none of which actually
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satisfied the requirements of the No-Fault Act) and the Bekeshkas rejected all of those
options “because they were retired and on a fixed income, and did not want to pay a
higher premium.” Aplee. Br. at 37 n.9.
We conclude that Prudential’s arguments are contrary to the decision in Thompson
v. Budget Rent-A-Car Systems, Inc., 940 P.2d 987 (Colo. App. 1996). In Thompson, an
individual was seriously injured while a passenger in a car rented from defendant Budget.
Budget, a self-insurer under Colorado law, paid PIP benefits to the injured person in
amounts equal to the minimum PIP coverages set forth in the No-Fault Act. The injured
person’s conservator and guardian filed suit against Budget seeking additional PIP
benefits. The trial court held that Budget was obligated under the No-Fault Act to pay
medical and income loss PIP benefits to the injured party without dollar or time
limitation. Budget appealed, asserting in part that the driver (and renter of the vehicle)
would have refused extended PIP coverage if it was offered. The Colorado Court of
Appeals rejected Budget’s argument and affirmed the trial court’s reformation of the
rental agreement/insurance contract. The court held that “[w]hen an insurer fails to offer
the insured optional coverage that it is statutorily required to offer, additional coverage in
conformity with the required offer is incorporated into the agreement by operation of
law.” Id. at 990. The court also refused to place any reliance on “the driver’s
after-the-fact statement that he would have refused the additional coverage if it had been
offered.” Id. In particular, the court emphasized that an “insurer has no right to a jury
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trial to determine whether the insured would have purchased the coverage” because such
a “determination [would] be too speculative” and “would allow insurers to circumvent the
intent of the legislature.” Id. (quoting Kuchenmeister v. Illinois Farmers Ins. Co., 310
N.W.2d 86, 88 (Minn. 1981)).
Although Prudential asserts that Thompson is distinguishable for three reasons,
none of those reasons have merit. First, Prudential asserts that Thompson “does not apply
here because it did not establish pedestrians’ rights to extended PIP benefits.” Aplee. Br.
at 38. While it is true that Thompson involved an injured passenger rather than an injured
pedestrian, that distinction should not result in our treating the two differently.
Thompson’s holding regarding the reformation of an insurance contract is, in our view,
applicable to any situation where an insurer has failed to comply with the No-Fault Act
and offer an insured the extended PIP coverage set forth therein. Second, Prudential
asserts that “[n]othing in the Thompson opinion changes the subsequent Brennan
decision,” which it asserts does not apply here. Id. For the reasons outlined above,
however, it is clear that Brennan does apply and that Prudential was statutorily obligated
to offer to the Bekeshkas extended PIP benefits for pedestrians. Finally, Prudential
asserts this case is factually distinguishable from Thompson because, “[u]nlike
Thompson,” which involved an “after-the-fact affidavit [from the insured] suggesting that
he would not have purchased extended benefits even if they had been offered,” “the
Bekeshkas were offered and declined extended PIP coverage.” Id. Thus, Prudential
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asserts, “[t]here is nothing speculative whatsoever here about the facts surrounding the
Bekeshkas’ purchase decision.” Id. However, Prudential ignores the fact that its offer to
the Bekeshkas of extended PIP benefits did not comply with the No-Fault Act (since the
amounts set forth in the offer were insufficient). Thus, like the situation in Thompson, it
would be speculation to conclude the Bekeshkas would have rejected an offer that
actually complied with the No-Fault Act. In any event, Thompson does not allow an
insurer to avoid reformation by asserting factual defenses such as the one now asserted by
Prudential.
Remand for further proceedings
Having rejected the two arguments forwarded by Prudential on appeal in support
of the district court’s summary judgment ruling, it is apparent that the judgment of the
district court must be reversed and the case remanded to the district court for further
proceedings. Although Fincher, like the plaintiff in Clark, “is entitled to reformation
under Brennan, the district court must also determine [on remand], through the exercise
of its equitable powers, the effective date of reformation.”1 Clark, 319 F.3d at 1242-43.
In doing so, the district court
should consider all appropriate factors, including the following: (1) the
degree to which reformation from a particular effective date would upset
1
In her motion for summary disposition, Fincher asks the panel to conclude “that
extended benefits are incorporated into Prudential’s insurance policy by operation of law
ab initio to the full extent mandated in the No-Fault Act.” Motion for Summary Disp. at
4. Such a ruling, however, would be inconsistent with our decision in Clark.
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past practices on which the parties may have relied and whether [Prudential]
anticipated the rule in Brennan; (2) how reformation from a particular
effective date would further or retard the purpose of the rule in Brennan;
and (3) the degree of injustice or hardship reformation from a particular
effective date would cause the parties.
Id. at 1243. The district court’s decision regarding the effective date of reformation will,
in turn, have an impact on the viability of Fincher’s remaining claims against Prudential.
As was the case in Clark, Fincher’s contract, tort and statutory claims
will remain viable only if the district court in the exercise of its equitable
power determines that reformation should occur as of a date preceding its
order of reformation. Only under those circumstances would there be an
extant contract, tort, or statutory duty to be breached. Conversely, if
reformation is ordered to correspond to the date of entry of the order of
reformation, there would be no pre-existing duty to pay extended PIP
benefits.
Id. at 1244. Lastly, the district court should consider Fincher’s motion for class
certification (which was denied as moot in light of its summary judgment ruling).
The decision is REVERSED and the case is REMANDED to the district court for
further proceedings.
Entered for the Court
Mary Beck Briscoe
Circuit Judge
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