Calderon v. American Family Mutual Insurance Co

1 Opinions of the Colorado Supreme Court are available to the
2 public and can be accessed through the Judicial Branch’s homepage at
3 http://www.courts.state.co.us. Opinions are also posted on the
4 Colorado Bar Association’s homepage at http://www.cobar.org.
5
6 ADVANCE SHEET HEADNOTE
7 November 7, 2016
8
9 2016 CO 720
1 No. 14SC494, Calderon v. American Family Mutual Insurance Company—Statutory
2 Construction—Automobile Insurance Coverage—Automobile Insurance Setoffs—
3 Uninsured or Underinsured Motorist Policy Coverage.
4
5 Arnold Calderon sustained injuries caused by an uninsured driver. Calderon
6 was insured under policies issued by American Family Mutual Insurance Company,
7 which paid the $5,000 policy limit of Calderon’s medical payments (“MedPay”)
8 coverage but disputed the amount due under the uninsured/underinsured motorist
9 (“UM/UIM”) coverage. Calderon filed suit, and the jury returned a verdict of
0 $68,338.97 in his favor. The trial court reduced the award, pursuant to a provision of
1 the policy agreement, by the $5,000 that had already been paid under MedPay coverage.
2 The court of appeals affirmed, interpreting the language of section 10-4-609(1)(c), C.R.S.
3 (2016), which prohibits setoffs from “[t]he amount of the [UM/UIM] coverage available
4 pursuant to this section,” as barring only those setoffs that would reduce the coverage
5 limit, or $300,000.
6 The supreme court reverses, and holds that “[t]he amount of the [UM/UIM]
7 coverage available pursuant to this section” refers to the amount of UM/UIM coverage
8 available on a particular claim (here, $68,338.97), rather than the amount available in the
1 abstract (here, $300,000). Therefore, section 10-4-609(1) barred the setoff of MedPay
2 payments from Calderon’s UM/UIM claim.
2
1 The Supreme Court of the State of Colorado
2 2 East 14th Avenue • Denver, Colorado 80203
3 2016 CO 724 Supreme Court Case No. 14SC494
5 Certiorari to the Colorado Court of Appeals
6 Court of Appeals Case No. 13CA1185
7 Petitioner:
8 Arnold A. Calderon,
9 v.
0 Respondent:
1 American Family Mutual Insurance Company.
2 Judgment Reversed
3 en banc
4 November 7, 2016
5 Attorneys for Petitioner:
6 Franklin D. Azar & Associates, P.C.
7 Robert O. Fischel
8 Tonya L. Melnichenko
9 Keith R. Scranton
0 Aurora, Colorado
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2 Levin Rosenberg PC
3 Bradley A. Levin
4 Nelson A. Waneka
5 Denver, Colorado
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7 Attorneys for Respondent:
8 Sutton Booker, P.C.
9 Debra K. Sutton
0 Jacquelyn S. Booker
1 Katie B. Johnson
2 Denver, Colorado
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4 Attorneys for Amicus Curiae Colorado Defense Lawyers Association:
5 White and Steele, PC
6 Joel N. Varnell
7 Denver, Colorado
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2 Attorneys for Amicus Curiae Colorado Trial Lawyers Association:
3 Ogborn Mihm, LLP
4 Thomas Neville
5 Denver, Colorado
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1 JUSTICE EID delivered the Opinion of the Court.
2 JUSTICE GABRIEL dissents, and JUSTICE MÁRQUEZ and JUSTICE HOOD join in
3 the dissent.
2
¶1 Petitioner Arnold Calderon sustained injuries in a motor vehicle accident with an
uninsured motorist. At the time of the accident, Calderon was insured under policies
issued by respondent American Family Mutual Insurance Company (“American
Family”) providing a total of $300,000 in uninsured/underinsured motorist
(“UM/UIM”) coverage and $5,000 in medical payments (“MedPay”) coverage.
Following the accident, American Family paid the $5,000 MedPay policy limits directly
to Calderon’s medical providers. Calderon also made a claim for UM/UIM benefits,
but American Family disputed the extent of his damages. Calderon sued for breach of
contract, and the jury returned an award of $68,338.97 in his favor. However, the trial
court reduced the jury award by $5,000 to set off the MedPay benefits Calderon had
already received.
¶2 Calderon appealed the order reducing his judgment, and the court of appeals
affirmed, Calderon v. Am. Family Mut. Ins. Co., 2014 COA 70, ¶ 3, __ P.3d __, holding
that the setoff of MedPay coverage was not barred by the UM/UIM setoff prohibition,
which provides: “The amount of the [UM/UIM] coverage available pursuant to this
section shall not be reduced by a setoff from any other coverage, including, but not
limited to, . . . [MedPay] coverage . . . .“ § 10-4-609(1)(c), C.R.S. (2016). The court
interpreted “[t]he amount of the [UM/UIM] coverage available” as referring to the
amount available under the policy in the abstract—that is, the UM/UIM coverage limit.
See Calderon, ¶ 2. Under such an interpretation, an insurer may reduce the payment
due under the insured’s UM/UIM coverage by amounts paid pursuant to the insured’s
3
MedPay coverage as long as the UM/UIM coverage limit (here $300,000) is not reduced.
Id. at ¶¶ 2–3.
¶3 We granted certiorari and now reverse.1 We hold that “[t]he amount of the
[UM/UIM] coverage available pursuant to this section” refers not to the coverage limit
but rather to the amount of UM/UIM coverage available on a particular claim (here,
$68,338.97). Accordingly, we reverse the court of appeals and remand the case for
further proceedings consistent with this opinion.
I.
¶4 The material facts in this case are not in dispute. On August 22, 2010, an
uninsured driver ran a stop sign and collided with a vehicle driven by Calderon.
Calderon sustained injuries that left him unable to work for over a month. At the time
of the accident, Calderon was insured under American Family policies providing
$300,000 in UM/UIM coverage and $5,000 in MedPay coverage, for which Calderon
paid separate premiums. The UM/UIM policy endorsement provided in part that
No one will be entitled to receive duplicate payments for the same
elements of loss. Any amount we pay under this Part to or for an insured
person will be reduced by any payment made to that person under any
other Part of this policy. In no event shall a coverage limit be reduced
below any amount required by law.
1 We granted certiorari to review the following issues:
1. Whether the statutory structure governing automobile insurance
permits an insurer to reduce its payment to an insured for an
Uninsured/Underinsured (“UM/UIM”) claim by the payments it
already made to the insured under the insured’s Medical Payments
(“MedPay”) coverage.
2. Whether the collateral source rule prohibits a setoff of the amount of
the coverage available under UM/UIM coverage by MedPay coverage.
4
Following the accident, Calderon made claims for MedPay and UM/UIM benefits.
American Family paid the $5,000 policy limits of Calderon’s MedPay coverage to his
medical providers, but disputed the amount due under Calderon’s UM/UIM coverage.
¶5 Calderon filed suit asserting breach of contract, common law bad faith, and
statutory bad faith under sections 10-3-1115 and -1116, C.R.S. (2016). The trial court
bifurcated the contract claim from the issue of bad faith, and the contract claim was
tried to a jury on December 17 and 18, 2012. The jury returned a verdict of $68,338.97 in
Calderon’s favor, including $34,394.65 for past medical expenses. The trial court
reduced the award by the $5,000 American Family had previously paid under
Calderon’s MedPay coverage, and entered judgment against American Family for
$77,459, which included prejudgment interest. American Family paid the judgment.
The trial court then entered summary judgment for American Family on Calderon’s bad
faith claims.
¶6 Calderon appealed the order reducing his judgment, and the court of appeals
affirmed. Calderon, ¶ 3. The court interpreted the language of the setoff prohibition
barring a reduction of “[t]he amount of the [UM/UIM] coverage available” as referring
to the amount available under the policy in the abstract—that is, the UM/UIM coverage
limit. See id. at ¶ 2. The court reasoned that, because an insurer may reduce the
payment due under the insured’s UM/UIM coverage by amounts paid pursuant to the
insured’s MedPay coverage as long as the UM/UIM coverage limit (here, $300,000) is
not reduced, the setoff here was permissible. Id. at ¶¶ 2–3. According to the court,
Calderon’s argument to the contrary “incorrectly equate[d] the term ‘coverage’ with the
5
term ‘benefit,’” and improperly permitted “double recovery.” Id. at ¶¶ 12, 16–18,
25–26. We granted certiorari and now reverse.
II.
¶7 Calderon argues that the setoff of the $5,000 in MedPay coverage in this case is
contrary to section 10-4-609(1)(c), C.R.S. (2016), which, as amended in 2007, provides:
“The amount of the [UM/UIM] coverage available pursuant to this section shall not be
reduced by a setoff from any other coverage, including, but not limited to, legal liability
insurance, medical payments coverage, health insurance, or other uninsured or
underinsured motor vehicle insurance.” We agree that the setoff prohibition of section
10-4-609(1)(c) bars the setoff of MedPay coverage in this case, and accordingly reverse
the court of appeals.
¶8 Echoing the court of appeals, American Family argues that the setoff prohibition
bars only those setoffs that would reduce the coverage limit of a particular policy. It
reads the first portion of the statutory language—namely, “The amount of the
[UM/UIM] coverage available pursuant to this section”—as referring to the amount of
coverage available in a particular policy in the abstract, or the coverage limit (here,
$300,000). By contrast, Calderon reads the same statutory language as referring to the
amount of coverage available under a particular claim (here, $68,338.97).
¶9 The question, then, is whether the “amount of the [UM/UIM] coverage available
pursuant to this section” refers to the amount available under the policy in the abstract,
or in a particular case. When read in isolation, the phrase might be read either way.
However, we adopt the latter construction because it makes sense of the entirety of the
6
provision at issue here. See In re Marriage of Ikeler, 161 P.3d 663, 666–67 (Colo. 2007)
(“[A] statute must be read and considered as a whole.”).
¶10 The second phrase of the prohibition provides that the amount of UM/UIM
coverage available “shall not be reduced by a setoff from any other coverage, including,
but not limited to, . . . medical payments coverage.” § 10-4-609(1)(c) (emphasis added).
This portion of the provision refers to a setoff of the amount actually paid pursuant to a
particular coverage, not simply the coverage limit. This is true because a “setoff from
any other coverage” is a particular amount paid pursuant to that coverage. See Setoff,
Black’s Law Dictionary (10th ed. 2014) (defining “setoff” as the “right to reduce the
amount of a debt by any sum the creditor owes the debtor”). The language covers all
setoffs, not just those where coverage limits have been reached. Indeed, it would make
little sense to prohibit a setoff only for the coverage limit of other types of insurance that
the claimant might hold—for example, “legal liability insurance, . . . health insurance, or
other uninsured or underinsured motor vehicle insurance,” § 10-4-609(1)(c)—because
the coverage limit of those insurance policies would not generally be known, just the
amount paid pursuant to the coverage. In sum, reading the first phrase in light of the
second, we conclude that section 10-4-609(1)(c) bars the setoff of MedPay payments
from the amount actually paid pursuant to UM/UIM coverage.
¶11 This construction is consistent with our observation that UM/UIM insurance is
designed to put “an injured party having uninsured motorist coverage in the same
position as if the uninsured motorist had been insured.” Barnett v. Am. Family Mut.
Ins. Co., 843 P.2d 1302, 1308 (Colo. 1993) (quoting Kral v. Am. Hardware Mut. Ins. Co.,
7
784 P.2d 759, 764 (Colo. 1989)); see also USAA v. Parker, 200 P.3d 350, 358–59 (Colo.
2009) (same); § 42-7-102, C.R.S. (2016) (under UM/UIM coverage, “insurance benefits
have been paid for by either the negligent driver or the innocent victim for the purpose
of compensating the innocent victim for injuries or losses”). Here, no one disputes that
had Calderon been injured in an accident caused by an insured driver, he would have
received benefits from American Family pursuant to his MedPay coverage, as well as
medical expenses from the other driver’s insurance company. In other words, under
the construction advocated by American Family, Calderon would receive $5,000 less in
compensation because he was injured by an uninsured or underinsured driver. We see
no indication from the language of the setoff prohibition that the legislature intended
such disparate treatment.
¶12 The court of appeals rejected the construction we adopt today for two reasons,
neither of which we find persuasive. First, it concluded that such a construction
confused the term “coverage” with the term “benefit.” Calderon, ¶¶ 16–18. We agree
with the court of appeals that there is a distinction between the two terms—coverage
refers to the type of insurance, and benefit refers to the amount paid out pursuant to
that coverage, id.—but disagree that the construction we adopt today confuses the two
terms. The setoff prohibition does not use the term “coverage” in isolation. Rather, it
refers to “[t]he amount of the [UM/UIM] coverage available pursuant to this section”
and the fact that such amount cannot be reduced “by a setoff from any other coverage.”
§ 10-4-609(1)(c). Under the construction we adopt today, both uses of the term
“coverage” refer to the type of insurance. As noted above, the question is whether the
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reference point for the “amount . . . available” and “setoff from” that type of insurance
is in the abstract or in a particular case. We believe it is the latter.
¶13 The court of appeals also expressed concern about preventing double recovery.
Calderon, ¶¶ 12, 25–26. But there is no double recovery problem here. Rather, as this
court has recognized, benefits received under separate coverages can substantially
overlap without constituting a double recovery. For example, in Newton, we observed
that while personal injury protection (“PIP”) and UM/UIM coverage substantially
overlapped—the former covered medical expenses, rehabilitation and occupational
training costs, lost wages, and, to a certain extent, loss of essential services, and the
latter covered any loss stemming from bodily injury or death up to policy limits—the
coverage was not duplicative. Newton v. Nationwide Mut. Fire Ins. Co., 594 P.2d 1042,
1043–44 (Colo. 1979) (holding that a setoff of PIP benefits from UM/UIM coverage
violated public policy). Similarly, in Barnett, we concluded that Social Security
Disability Insurance (“SSDI”) benefits and UM/UIM benefits overlap but are not
duplicative, as the former is designed to compensate for a loss of income, whereas the
latter, again, covers any loss. 843 P.2d at 1309 (holding that a setoff for SSDI benefits
from UM/UIM coverage violated public policy). We affirmed the holding of Newton
that “an overlap of benefits is distinguishable from double recovery.” Id. at 1308 (citing
Newton, 594 P.2d at 1043–44).
¶14 Like the PIP benefits at issue in Newton and the SSDI benefits at issue in Barnett,
Calderon’s MedPay and UM/UIM benefits overlap but are not duplicative. MedPay
coverage pays for reasonable medical expenses regardless of fault. § 10-4-636(4)(a),
9
C.R.S. (2016). UM/UIM coverage, in contrast, compensates an insured for “loss
resulting from liability imposed by law for bodily injury or death suffered by any
person arising out of the ownership, maintenance, or use of a motor vehicle.”
§ 10-4-609(1)(a). Calderon’s MedPay coverage thus provided something his UM/UIM
coverage did not—namely, the quick reimbursement of medical expenses even where
he was at fault. It therefore provides overlapping, but not duplicative, coverage.
¶15 Moreover, while double recovery is disfavored, so is payment of duplicative
premiums. Like the insured in Newton, 594 P.2d at 1043, Calderon paid separate
premiums for the two types of coverage at issue here. As this court observed in
Newton, “[i]t is unlikely that the legislature intended that motorists pay twice for what
would be in essence a single coverage [were a setoff permitted]. While duplicating
benefits is not favored, neither is duplicating premiums.” Id. at 1045 n.8. Indeed, in
Barnett, this court expressed concern that the insurer stood to receive a windfall by
collecting two premiums for one coverage. 843 P.2d at 1307 (“Allowing American
Family to receive such a windfall at the expense of Barnett undermines the purpose of
UM/UIM coverage.”). Permitting an insured who purchased both UM/UIM and
MedPay coverage to recover benefits equal to those obtainable for injury caused by an
adequately insured motorist simply guarantees that insureds like Calderon get what
they paid for.
¶16 To the extent that Calderon’s insurance purports to allow the setoff in this case, it
is contrary to the setoff prohibition of section 10-4-609(1)(c) and is unenforceable. See
State Farm Mut. Auto. Ins. Co. v. Kastner, 77 P.3d 1256, 1260 (Colo. 2003) (citing
10
Peterman v. State Farm Mut. Auto. Ins. Co., 961 P.2d 487, 492 (Colo. 1998)) (“Should the
contract fail to conform to any statute, it is unenforceable to that extent.”). Because we
hold that the setoff prohibition of section 10-4-609(1)(c) bars the setoff of Calderon’s
MedPay coverage, we do not address Calderon’s alternative arguments against the
setoff.
III.
¶17 We hold that the setoff of MedPay benefits in this case is barred by the setoff
prohibition of section 10-4-609(1)(c). We therefore reverse and remand the case for
further proceedings consistent with this opinion.
JUSTICE GABRIEL dissents, and JUSTICE MÁRQUEZ and JUSTICE HOOD join in
the dissent.
11
JUSTICE GABRIEL, dissenting.
¶18 The majority concludes that section 10-4-609(1)(c), C.R.S. (2016), prohibited
American Family from setting off from the amount due Calderon pursuant to his
uninsured or underinsured motorist (“UM/UIM”) coverage the amount that American
Family had previously paid pursuant to Calderon’s medical payments (“MedPay”)
coverage. See maj. op. ¶¶ 7, 17. In my view, however, the statutory scheme governing
automobile insurance permits such a setoff when, as here, a setoff is necessary to avoid
a double recovery at the insurer’s expense.
¶19 Accordingly, I respectfully dissent.
I. Facts
¶20 I agree with the majority that the material facts of this case are not in dispute, id.
at ¶ 4, and I need not repeat the majority’s factual recitation here. I do, however, note
several facts that are essential to an understanding of my analysis.
¶21 The UM/UIM endorsement of Calderon’s policy provided that American
Family would “pay compensatory damages for bodily injury which an insured person
is legally entitled to recover from the owner or operator of an uninsured motor vehicle
or an underinsured motor vehicle.” Under the heading “LIMITS OF LIABILITY,” this
endorsement further provided:
No one will be entitled to receive duplicate payments for the same
elements of loss. Any amount we pay under this Part to or for an insured
person will be reduced by any payment made to that person under any
other Part of this policy. In no event shall a coverage limit be reduced
below any amount required by law.
1
¶22 Pursuant to the MedPay endorsement of Calderon’s policy, American Family
agreed to “pay to or on behalf of an insured person usual and customary medical
expenses and funeral services because of bodily injury sustained to an insured person
as a result of an accident.” This endorsement also contained a “LIMITS OF LIABILITY”
clause. That clause provided, “Any amount we pay under this coverage to or for an
injured person applies against any other coverage applicable to the loss so that there is
not a duplication of payment. In no event shall a coverage limit be reduced below any
amount required by law.”
¶23 Pursuant to this MedPay endorsement, American Family immediately paid the
$5,000 limits of Calderon’s MedPay coverage to his medical providers, to reimburse
them for medical services provided to Calderon.
II. Analysis
¶24 As noted above, Calderon’s insurance contract expressly proscribed “duplicate
payments for the same elements of loss.” Even if a policy provision is unambiguous,
however, it is “void and unenforceable if it violates public policy by attempting to
‘dilute, condition, or limit statutorily mandated coverage.’” Aetna Cas. & Sur. Co. v.
McMichael, 906 P.2d 92, 100 (Colo. 1995) (quoting Meyer v. State Farm Mut. Auto. Ins.
Co., 689 P.2d 585, 589 (Colo. 1984)); see also DeHerrera v. Sentry Ins. Co., 30 P.3d 167,
173 (Colo. 2001) (“An insurance contract that denies statutorily mandated coverage is
void and unenforceable.”); Huizar v. Allstate Ins. Co., 952 P.2d 342, 344 (Colo. 1998)
(explaining that a term in an insurance contract is void if it “undermine[s]
legislatively-expressed public policy”).
2
¶25 Accordingly, I begin by addressing the statutory scheme governing automobile
insurance, and, in particular, the provisions applicable to UM/UIM and MedPay
coverage, to determine whether the setoff at issue violates legislatively expressed public
policy. I then turn to Calderon’s alternative argument (which the majority did not
reach), namely, the applicability of the post-verdict setoff component of the collateral
source rule, codified at section 13-21-111.6, C.R.S. (2016). See Sunahara v. State Farm
Mut. Auto. Ins. Co., 2012 CO 30M, ¶ 13, 280 P.3d 649, 654 (noting that Colorado’s
collateral source rule consists of, among other things, a post-verdict setoff rule that is
codified at section 13-21-111.6).
A. Statutes Governing Automobile Insurance Policies
¶26 In 1965, the General Assembly enacted the Motor Vehicle Financial
Responsibility Act, declaring that “it is the policy of this state to induce and encourage
all motorists to provide for their financial responsibility for the protection of others, and
to assure the widespread availability to the insuring public of insurance protection
against financial loss caused by negligent financially irresponsible motorists.” Ch. 91,
sec. 1, § 13-7-60, 1965 Colo. Sess. Laws 333. In furtherance of this policy, Colorado law
now requires insurers to offer UM/UIM coverage, § 10-4-609(1), (4), C.R.S. (2016), as
well as MedPay coverage, see § 10-4-635(1)(a), C.R.S. (2016), to purchasers of liability
insurance. Calderon purchased both coverages.
1. UM/UIM Coverage
¶27 The majority concludes that section 10-4-609, which governs the UM/UIM
coverage that Calderon purchased from American Family, prohibits the $5,000 setoff.
3
See maj. op. ¶¶ 7, 17. In my view, however, this interpretation contravenes both the
express language of the statute and the public policies that this court has described in
cases construing previous versions of the statute.
a. Section 10-4-609
¶28 Section 10-4-609(1)(a) requires insurers to offer UM/UIM coverage, in addition to
liability coverage, to cover the difference, if any, “between the amount of the limits of
any legal liability coverage and the amount of the damages sustained, . . . up to the
maximum amount of the coverage obtained pursuant to this section.” Section
10-4-609(1)(c), in turn, provides, “The amount of the coverage available pursuant to this
section shall not be reduced by a setoff from any other coverage, including, but not
limited to, legal liability insurance, medical payments coverage, health insurance, or
other uninsured or underinsured motor vehicle insurance.”
¶29 The majority concludes that the above-quoted language, which was added in
2007, see ch. 413, sec. 1, § 10-4-609(1)(c), 2007 Colo. Sess. Laws 1921, prevents insurers
from ever subtracting MedPay benefits from their UM/UIM liability. See maj. op. ¶¶ 7,
17. I respectfully disagree.
¶30 Section 10-4-609(1)(c) prohibits any reduction in the “amount of coverage
available” to the insured; it does not, however, prohibit a reduction in the benefits paid
to an insured who otherwise has been fully compensated, for the purpose of avoiding
double recovery. Cf. Levy v. Am. Family Mut. Ins. Co., 293 P.3d 40, 48 (Colo. App.
2011) (“Where a double recovery is involved, by definition, an insured is not deprived
of any benefit of coverage.”). As the division in this case reasoned, the difference lies in
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the distinction between “coverage” and “benefits” in the insurance context. See
Calderon v. Am. Family Mut. Ins. Co., 2014 COA 70, ¶ 16, __ P.3d __.
¶31 Insurance is “a contract whereby one, for consideration, undertakes to indemnify
another or to pay a specified or ascertainable amount or benefit upon determinable risk
contingencies.” § 10-1-102(12), C.R.S. (2016). Under this framework, “benefit” refers to
the amount actually paid pursuant to the contract. See Benefit, Webster’s Third New
Int’l Dictionary (2002) (defining “benefit,” in pertinent part, as “a cash payment or
service provided for under an annuity, pension plan, or insurance policy”).
“Coverage,” in contrast, refers to the maximum covered risk for which the insurer may
be liable in the event that such a risk is realized. See Coverage, Black’s Law Dictionary
(10th ed. 2014) (defining “coverage” as “the risks within the scope of an insurance
policy”); see also § 10-4-601(10), C.R.S. (2016) (describing the types of “coverage” that
may be included in an automobile insurance policy, including collision, bodily injury
liability, and property damage liability); § 10-4-620, C.R.S. (2016) (requiring, at a
minimum, legal liability coverage for bodily injury or death arising out of the use of a
motor vehicle in the amounts of $25,000 per person and $50,000 per accident).
¶32 In this case, Calderon’s insurance policy guaranteed him the payment of up to
$300,000 in benefits to compensate him for damages due to bodily injury (pursuant to
the UM/UIM endorsement of his contract) and up to $5,000 for medical expenses
(pursuant to the MedPay endorsement of his contract). Moreover, Calderon’s MedPay
coverage allowed him to obtain “speedy reimbursement for medical expenses incurred
as a result of an automobile collision without regard to the insured’s fault.”
5
DeHerrera v. Am. Family Mut. Ins. Co., 219 P.3d 346, 351 (Colo. App. 2009). The jury
ultimately determined that due to the collision, American Family owed Calderon
benefits in the amount of $68,338.97, reflecting the total sum of his damages, including
medical expenses. Under different circumstances, however, American Family could
have been liable to Calderon for up to $305,000, the total amount of coverage available
under the policy. Section 10-4-609(1)(c) prohibits a setoff that would reduce the amount
of coverage available to an insured; it does not, however, prohibit a setoff from the
benefits paid in order to avoid a double recovery, which is the type of setoff at issue in
this case.
¶33 A contrasting example illustrates the distinction between benefits and coverage
in this context. Had Calderon’s damages exceeded the limits of his UM/UIM coverage
(i.e., $300,000), American Family could not have reduced its liability below those limits
by offsetting amounts that it had paid Calderon pursuant to his MedPay coverage. For
example, if a plaintiff with Calderon’s policy suffered $310,000 in damages, then he or
she could collect $300,000 in UM/UIM benefits plus $5,000 in MedPay benefits from
American Family, for a total of $305,000. A setoff in these circumstances would amount
to a reduction in the “amount of coverage available” to compensate an insured and
would violate both section 10-4-609(1)(c) and the terms of Calderon’s policy, which
provided that “[i]n no event shall a coverage limit be reduced below any amount
required by law.”
¶34 For these reasons, I am not persuaded by the majority’s conclusion that the
“setoff” prohibition in section 10-4-609(1)(c) refers to the amount actually paid pursuant
6
to a particular coverage, and not to the coverage limit. See maj. op. ¶ 10. Although the
majority acknowledges that “benefits” and “coverage” are distinct concepts, see id. at
¶ 12, its analysis nonetheless appears to conflate the two.
¶35 Accordingly, in my view, the plain language of section 10-4-609 does not prevent
American Family from taking a setoff in this case, and I proceed to consider whether
public policy precludes such a setoff, as Calderon contends.
b. Public Policy
¶36 In a trilogy of cases concerning an earlier version of section 10-4-609, this court
limited insurers’ ability to take setoffs against their UM/UIM liability. Calderon argues
that the public policies discussed in those cases prohibit offsetting the MedPay benefits
that he received from American Family’s UM/UIM liability. I disagree.
¶37 In the first case of the trilogy, Newton v. Nationwide Mutual Fire Insurance Co.,
594 P.2d 1042 (Colo. 1979), this court invalidated a setoff clause that would have
allowed the insurer to reduce the amount payable under its UM policy by any amount
of personal injury protection (“PIP”) benefits paid as a result of the same collision. We
noted that PIP coverage and UM coverage provide benefits that “overlap to some extent
but are not duplicative.” Id. at 1043. Specifically, UM benefits compensate an insured
for “losses incurred above the PIP limits for medical expenses, lost wages and lost
essential services, plus general damages different in kind from those compensable
under the PIP provisions, such as pain and suffering.” Id. at 1044. As a result, allowing
the insurer to reduce the amount payable under its UM policy by the amount of PIP
benefits paid effectively would have allowed the insurer to provide less than the
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statutorily required minimum UM coverage. Id. at 1043. We concluded that such a
result was “contrary to the legislative intent to encourage purchase of stated minimum
coverages of uninsured motorist insurance” and that therefore, the setoff clause at issue
was invalid and unenforceable. See id.
¶38 Ten years later, in Kral v. American Hardware Mutual Insurance Co., 784 P.2d
759, 760–61 (Colo. 1989), an insured party challenged the enforceability of (1) a
subrogation clause that required the insured to reimburse the insurer in the event that
the insured recovered funds from “another party” and (2) a release-trust agreement in
which the insured agreed to hold fifteen percent of any monies received in her tort
action in trust for the insurer. This court agreed with the insured’s argument that
agreements limiting insurers’ liability for UM benefits were enforceable “only to the
extent such reduction in benefits would not impair the ability of the insured to achieve
full compensation for any loss caused by the conduct of an uninsured motorist.” Id. at
763. In addition, we discerned a “clear legislative purpose to place an injured party
having uninsured motorist coverage in the same position as if the uninsured motorist
had been insured.” Id. at 764.
¶39 Turning then to the facts presented, we concluded that enforcement of the
agreements at issue would have put the insured in the same position as if she had not
purchased UM coverage at all, and we opined that such a result would have
contravened public policy. Id. We further concluded, however, that the insurer could
enforce the release-trust agreement in part, namely, to the extent necessary to prevent
the insured from “receiving sums in excess of her total loss.” Id. In so holding, we
8
stated that “the General Assembly did not intend to grant windfall profits to insureds
by authorizing them to obtain double recovery for the same loss.” Id. at 766.
¶40 Finally, in Barnett v. American Family Mutual Insurance Co., 843 P.2d 1302,
1307–08 (Colo. 1993), this court concluded that insurers could not “absolve their liability
under UM/UIM provisions by reducing the amount of UM/UIM coverage they
contracted to provide by payments received for separate and distinct insurance
benefits,” such as Social Security Disability Insurance (SSDI) benefits. In light of this
conclusion, we rejected the insurer’s argument that precluding a setoff of the SSDI
benefits from the UM/UIM benefits would result in an improper double recovery for
the insured. Id. at 1309. In so ruling, we observed, “The SSDI benefits are designed to
compensate the insured for a loss of income resulting from a disability, while UM/UIM
coverage compensates the insured for ‘[a]ny loss arising from bodily injury or death up
to the policy limits.’” Id. at 1309 (quoting Newton, 594 P.2d at 1044). Like the PIP
benefits at issue in Newton, we viewed SSDI benefits as overlapping with, but not
duplicative of, UM/UIM benefits. Id. Accordingly, we concluded that allowing the
insurer to subtract SSDI benefits from its UM/UIM liability “would contravene the
public policies of providing full recovery within policy limits[] and placing ‘an injured
party having uninsured motorist coverage in the same position as if the uninsured
motorist had been insured.’” Id. at 1308 (quoting Kral, 784 P.2d at 764).
¶41 In my view, all three of these cases required this court to balance two
sometimes-competing objectives: the avoidance of double recovery by an insured and
the full protection of coverage for which insureds have paid premiums. In the instant
9
case, the setoff at issue furthers both of these objectives. Specifically, it prevents
Calderon from recovering twice (and avoids American Family’s having to pay twice)
for the same loss, namely, $5,000 in medical bills. In addition, the setoff provides
Calderon with the benefits of his UM/UIM coverage “to the extent necessary for full
compensation for loss caused by the negligent conduct of a financially irresponsible
motorist.” Kral, 784 P.2d at 764.
¶42 Moreover, the setoff in this case is fully consistent with the coverages for which
Calderon paid premiums. Specifically, as stated above, Calderon’s UM/UIM and
MedPay policies provided, in turn, that (1) any amounts paid by American Family
pursuant to the UM/UIM provision would be reduced by any payment made under
any other part of Calderon’s policy and (2) any amount paid under the MedPay
provision applied against any other applicable coverage so that no duplicate payment
would result. In other words, Calderon received precisely what his policies promised
he would receive, and unlike the majority, I perceive no basis for concluding that the
foregoing policy provisions are unenforceable. See maj. op. ¶ 16. To the contrary, for
the reasons noted above, the policy provisions at issue are consistent with the statutory
scheme, and, indeed, they track the guidance for avoiding duplicative recovery that this
court provided in Newton almost forty years ago. See Newton, 594 P.2d at 1046 (noting
that (1) the proper method for avoiding a double recovery of PIP-type losses under both
PIP and UIM coverages is “to eliminate PIP paid benefits from the uninsured motorist
Claim, then allow recovery of the uninsured motorist benefits to the extent non-PIP
benefits are proved, up to the policy limits,” and (2) such a procedure “would preclude
10
actual double recovery of no-fault benefits while allowing the insured the full
protection of the uninsured motorist coverage for which he paid a premium”).
¶43 In my view, the setoff provision in Calderon’s insurance policy parallels the
provision at issue in Newton and thus was a proper method to avoid the double
recovery of MedPay-type losses in cases like that at issue here.
¶44 I am not persuaded otherwise by the majority’s assertion that “there is no double
recovery problem here.” Maj. op. ¶ 13. It is undisputed that American Family
immediately paid $5,000 to Calderon’s medical providers, thereby exhausting his
MedPay coverage. Absent a setoff, American Family will pay the same $5,000—and
Calderon will recover the same $5,000—a second time, namely, under the UM/UIM
coverage, resulting in Calderon’s recovery of $5,000 more than the actual damages that
he proved at trial. In my view, such a windfall is not attributable to an “overlap” in
coverage, as the majority suggests. See id. Rather, it is attributable to an improper
duplicative payment.
¶45 Nor am I convinced by the majority’s conclusion that allowing the setoff
contravenes the principle that UM/UIM insurance should place an injured party having
such insurance in the same position as if the uninsured or underinsured motorist had
been fully insured. See id. at ¶ 11. Calderon asserts that if the driver who caused the
collision had carried enough liability insurance, then Calderon would have received the
full amount of his damages from the tortfeasor’s insurer plus $5,000 in MedPay benefits
from American Family (thus resulting in a $5,000 windfall to Calderon). In this
hypothetical scenario, however, American Family would have fully compensated
11
Calderon once, as public policy requires. Cf. Kral, 784 P.2d at 764 (explaining the
“strong public policy” in favor of enabling an insured who purchases UM protection to
receive the benefits of that coverage to the extent necessary for full compensation for
losses caused by financially irresponsible motorists). Requiring American Family to
pay some of Calderon’s medical expenses twice, however, furthers no public policy.
See Huizar, 952 P.2d at 348 (“Not every deviation in uninsured motorist coverage from
the protection an insured would be provided if the uninsured motorist was insured
constitutes an impermissible attempt to dilute uninsured motorist coverage in violation
of public policy.”).
¶46 Moreover, in the scenario that Calderon posits, in which the tortfeasor carried
sufficient liability insurance and the insured obtained MedPay benefits from his or her
own insurer, any windfall that the insured might obtain results from a different public
policy. Specifically, in that context, public policy precludes the tortfeasor from setting
off the MedPay benefits that the insured obtained from his or her own insurer because
granting the tortfeasor a setoff in those circumstances would improperly allow the
tortfeasor to take advantage of the fact that the insured purchased (and paid a premium
for) MedPay coverage. See Restatement (Second) of Torts § 920A cmt. b (Am. Law Inst.
1979) (“[I]t is the position of the law that a benefit that is directed to the injured party
should not be shifted so as to become a windfall for the tortfeasor. If the plaintiff was
himself responsible for the benefit, as by maintaining his own insurance . . . , the law
allows him to keep it for himself.”). Thus, in the scenario in which either the tortfeasor
or the insured will receive an advantage from the fact that the insured bought MedPay
12
coverage, public policy favors allocating the windfall to the insured. Id. In the present
case, in contrast, a setoff prevents either party from receiving a windfall, leaving us no
potential windfall to allocate.
¶47 For these reasons, I do not believe that either section 10-4-609 or the public
policies underlying that provision preclude the setoff at issue. I thus must proceed to
consider Calderon’s alternative argument that the statute governing MedPay coverage
prohibits such a setoff.
2. MedPay Coverage
¶48 Pursuant to section 10-4-635(1)(a), insurers must offer $5,000 of MedPay coverage
“for bodily injury, sickness, or disease resulting from the ownership, maintenance, or
use of [a] motor vehicle.”
¶49 Section 10-4-635(3), C.R.S. (2016), in turn, provides in pertinent part:
(a) An insurer providing benefits under medical payments coverage . . .
shall not have a right to recover against an owner, user, or operator of a
motor vehicle, or against any person or organization legally responsible
for the acts or omissions of such person, in any action for damages for
benefits paid under such medical payments coverage. An insurer shall
not have a direct cause of action against an alleged tortfeasor for benefits
paid under medical payments coverage.
(b) Nothing in this subsection (3) shall be construed to:
....
(II) Prevent a person to whom benefits are paid under medical payments
coverage from obtaining recovery of benefits available under uninsured
motorist coverage pursuant to section 10-4-609; or
(III) Afford an insurer a cause of action against a person to whom or for
whom the medical payments coverage benefits specified in this section
were paid except in a case where the benefits were paid by reason of
fraud.
13
¶50 According to Calderon, when read together, the foregoing provisions prevent
American Family from “claw[ing] back” MedPay benefits by reducing UM/UIM
benefits. Again, I am unpersuaded.
¶51 Although section 10-4-635(3) does not use the word “subrogation,” it is, on its
face, an anti-subrogation provision. “Subrogation is defined as the ‘substitution of one
person for another; that is, one person is allowed to stand in the shoes of another and
assert that person’s rights against the defendant.’” Am. Family Mut. Ins. Co. v. DeWitt,
218 P.3d 318, 323 (Colo. 2009) (quoting 1 Dan B. Dobbs, Law of Remedies, § 4.3(4), at 604
(2d ed. 1993)). As pertinent here, section 10-4-635(3)(a) limits an insurer’s right to
recover “against an owner, user, or operator of a motor vehicle, or against any person or
organization legally responsible for the acts or omissions of such person, in any action
for damages for benefits paid under [the insured’s MedPay] coverage.” Moreover, the
section expressly prohibits an insurer from bringing “a direct cause of action against an
alleged tortfeasor for benefits paid under [MedPay] coverage.” Id. Accordingly, section
10-4-635(3)(a) precludes an insurer from bringing either damages or subrogation claims
seeking to recover benefits paid under an insured’s MedPay coverage.
¶52 Here, American Family is not pursuing either a damages or a subrogation claim
against the uninsured driver (or anyone else). Accordingly, section 10-4-635(3) does not
apply, and it cannot “be construed to” prohibit the challenged setoff.
¶53 Even if section 10-4-635(3) could apply, however, it would not preclude the setoff
at issue because the setoff would not have prevented Calderon “from obtaining
recovery of benefits available under uninsured motorist coverage pursuant to section
14
10-4-609.” § 10-4-635(3)(b)(II). To the contrary, as explained above, the post-setoff
judgment fully compensated Calderon for the damages that he incurred, in accordance
with both applicable law and the terms of the UM/UIM endorsement of his insurance
policy. Cf. Kral, 784 P.2d at 765 (“[T]he statute requiring insurers to provide uninsured
motorist coverage in or supplemental to liability insurance contracts reflects a strong
legislative intent to permit insureds who purchase such coverage to receive the benefits
thereof to the extent necessary for full compensation for loss caused by the negligent
conduct of financially irresponsible motorists.”).
¶54 I am not persuaded otherwise by the majority’s conclusion, see maj. op. ¶ 15, that
by paying separate premiums for MedPay coverage and UM/UIM coverage, Calderon
was entitled to recover benefits pursuant to both coverages, irrespective of whether that
would lead to recovery in excess of his damages. See Newton, 594 P.2d at 1045 n.8
(“While duplicating benefits is not favored, neither is duplicating premiums.”).
¶55 In general, an insured who pays a separate premium to obtain additional
coverage deserves the protection of such additional coverage. See Barnett, 843 P.2d at
1308 (“An individual who pays for increased coverage should receive the additional
benefits which the insurer agreed to provide.”). Such additional protection, however,
does not support an insured’s obtaining a double recovery on facts like those present
here, particularly when Calderon’s coverages protected him against different risks.
¶56 Specifically, in this case, Calderon’s MedPay coverage allowed him to obtain
prompt reimbursement for his medical expenses without regard to fault. DeHerrera,
219 P.3d at 351. Accordingly, when American Family immediately reimbursed
15
Calderon’s medical providers after the collision, without considering who was at fault,
Calderon received the benefit of his MedPay coverage, and the post-verdict setoff did
not render that benefit illusory. Cf. Levy, 293 P.3d at 46 (opining that allowing the
insurer to reduce an arbitration award by the amount it had already paid for the
insured’s medical payments did not render the insured’s MedPay coverage illusory
because the benefits of prompt payment of the insured’s medical expenses regardless of
fault were valuable). Moreover, the UM/UIM endorsement to Calderon’s policy, which
stated that “[n]o one will be entitled to receive duplicate payments for the same
elements of loss,” expressly provided for a setoff. Accordingly, Calderon got precisely
the coverages for which he paid.
¶57 For the foregoing reasons, I believe that the challenged setoff is consistent both
with the statutes governing UM/UIM and MedPay coverages and with the public
policies underlying those statutes. I therefore respectfully disagree with the majority’s
contrary conclusion.
B. The Collateral Source Rule
¶58 Because I perceive no statutory or public policy prohibition on the setoff at issue,
I must proceed to address Calderon’s final arguments that (1) the contract exception to
the collateral source rule precludes a tortfeasor (here, the uninsured driver) from
reducing his or her liability by any insurance benefits that the insured had received and
(2) American Family, as Calderon’s UM/UIM insurer, effectively stands in the shoes of
the uninsured driver and should likewise be precluded from reducing its liability by the
MedPay benefits that Calderon had received. I am not persuaded.
16
¶59 At common law, the collateral source rule precluded a tortfeasor from reducing
his or her liability by the amount of compensation that the injured party received from a
third-party source. Volunteers of Am. Colo. Branch v. Gardenswartz, 242 P.3d 1080,
1083 (Colo. 2010). Under this rule, “making the injured plaintiff whole [was] solely the
tortfeasor’s responsibility,” and any third-party benefits paid to an injured plaintiff
were “collateral” and “irrelevant in fixing the amount of the tortfeasor’s liability.” Id. at
1082–83. Although such a rule could sometimes result in a windfall recovery for the
plaintiff, “it was considered more just that the benefit be realized by the plaintiff in the
form of double recovery rather than by the tortfeasor in the form of reduced liability.”
Van Waters & Rogers, Inc. v. Keelan, 840 P.2d 1070, 1074 (Colo. 1992).
¶60 In 1986, the General Assembly modified the common law collateral source rule
by enacting section 13-21-111.6 as part of a package of tort reforms. Gardenswartz,
242 P.3d at 1084. The first clause of section 13-21-111.6 partially negated the common
law collateral source rule by directing the trial court, following a damages verdict, to
adjust the plaintiff’s award by deducting the compensation or benefits received from
collateral sources (i.e., sources other than the tortfeasor). Id. The second clause,
however, established the so-called “contract exception” to the collateral source rule. Id.
This exception preserved the common law rule for certain benefits. Id. Specifically, the
exception provides that “the verdict shall not be reduced by the amount by which [a
plaintiff] . . . has been or will be wholly or partially indemnified or compensated by a
benefit paid as a result of a contract entered into and paid for by or on behalf of” the
plaintiff. § 13-21-111.6; see also Riss & Co. v. Anderson, 114 P.2d 278, 281 (Colo. 1941)
17
(refusing to subtract from the plaintiff’s damages the amount that he had received
under a benefit plan because “a tort-feasor may not plead his victim’s prudence and
foresight to relieve him from the consequences of his own wrong”).
¶61 The prototypical example of “a benefit paid as a result of a contract” is the
benefit paid pursuant to a private insurance contract. See Van Waters & Rogers,
840 P.2d at 1078 (noting that the exception clause in section 13-21-111.6 “clearly denies
the setoff of benefits that result from private insurance contracts for which someone
pays monetary premiums”). In these circumstances, any concern regarding a plaintiff’s
obtaining a double recovery is tempered by the fact that the plaintiff (or someone on his
or her behalf) has paid for the benefits received. See id. (noting that section 13-21-111.6
evinces an intent not to deny a plaintiff compensation to which he or she is entitled by
virtue of a contract that the plaintiff, or someone on the plaintiff’s behalf, entered into
and paid for); see also Gardenswartz, 242 P.3d at 1088 (“[I]t is more repugnant to shift
the benefits of the plaintiff’s insurance contract to the tortfeasor in the form of reduced
liability when the tortfeasor paid nothing toward the health insurance benefits.”). Thus,
the contract exception recognizes that plaintiffs should receive the benefits for which
they paid, and defendants should not be permitted to penalize plaintiffs for their
foresight in purchasing insurance. See Gardenswartz, 242 P.3d at 1087.
¶62 This reasoning does not apply, however, when the party liable for the damages
award and the “collateral source” are the same entity. See Colo. Permanente Med. Grp.,
P.C. v. Evans, 926 P.2d 1218, 1230–32 (Colo. 1996). In Evans, 926 P.2d at 1220–21, for
example, the plaintiff brought a wrongful death action against, among others, two
18
nurses who were employed by the Kaiser Foundation Health Plan (“Kaiser”), which
was also the decedent’s medical insurer. After judgment was entered against the
nurses, the trial court reduced the damages awarded against them by the amount of the
past medical expenses that Kaiser had already paid as the decedent’s insurer. Id. at
1230. On review, this court concluded that the nurses were entitled to an offset of the
damages awarded against them, but only to the extent of the medical expenses for
which Kaiser was liable on the nurses’ behalf. Id. at 1231. In so holding, we observed
that such a result prevented the plaintiff from obtaining a double recovery. See id. at
1232. In addition, we recognized that the collateral source rule does not apply in
situations in which a plaintiff’s compensation was attributable to the defendant. See id.
¶63 Here, like the insurer in Evans, American Family is both the party liable for the
judgment and the “collateral source” pursuant to the insurance contract. Accordingly,
for the reasons set forth in Evans, the contract exception to the collateral source rule
does not preclude a setoff here.
¶64 I am not persuaded otherwise by Calderon’s contention that Evans is
distinguishable because there, the insurer employed (and thus was vicariously liable for
the negligence of) two of the tortfeasors, see id. at 1222, whereas here, American Family
had no relationship with the uninsured driver. Evans did not turn on the relationship
between the insurer and the tortfeasors. Rather, it turned on the fact that the party
liable for the decedent’s medical expenses was also the decedent’s insurer. See id. at
1232.
19
¶65 In this regard, I note that Evans relied on the Tenth Circuit’s decision in
Quinones v. Pennsylvania General Insurance Co., 804 F.2d 1167 (10th Cir. 1986). The
court in Quinones, 804 F.2d at 1171–72, addressed an issue that was almost identical to
that presented in this case, namely, whether an injured plaintiff was entitled to recover
from his UM carrier medical expenses that the insurer had already paid under its
policy’s MedPay provisions. The court concluded that application of the collateral
source rule in those circumstances would be inappropriate. Id. at 1171. The court
observed that the case before it did not involve a tortfeasor who was seeking to reduce
his liability because of the “happenstance” that the plaintiff had the foresight to
purchase insurance. Id. To the contrary, the insurer was its own “collateral source.”
Id. In those circumstances, the court observed that requiring the insurer to pay the
plaintiff’s medical expenses twice would serve no public policy. Id. As the court
explained:
When the tortfeasor is the defendant, and a source sufficiently identifiable
with the tortfeasor pays the plaintiff, we are not “excusing” the defendant
from liability when we forego the collateral source rule and reduce his
liability by the amount he, in essence, has already paid. The goals
underlying the collateral source rule would not be served by its
application in that case. On the contrary, it would have the undesired
result of dissuading those identified with the tortfeasor from coming
forward and offering the victim compensation.
Similarly, we are not “excusing” [the insurer] from liability when we
forego the collateral source rule in this case; it has completely reimbursed
[the plaintiff’s] past medical expenses. Just as the rule’s goal is not to
reimburse plaintiffs twice, though oftentimes that is its effect, its goal is
not to charge defendants twice, either.
Id. at 1172.
20
¶66 I am persuaded by this reasoning and would follow it in this case.
¶67 Accordingly, I would conclude that the contract exception to the collateral source
rule does not apply and that the trial court properly offset the jury’s verdict by the
amount that American Family had already paid pursuant to the MedPay provision of
Calderon’s insurance contract.
III. Conclusion
¶68 The applicable statutory law discussed above reflects a careful balance between
the public policy favoring full compensation for injured insureds and the equally
important policy disfavoring double recovery for those who have been injured. In my
view, the majority opinion upsets this careful balance and unnecessarily invalidates
standard policy provisions that served to maintain that balance. I fear that in doing so,
the majority opinion will only lead to more litigation in what is already a complex and
heavily litigated area of law.
¶69 For these reasons, I respectfully dissent.
I am authorized to state that JUSTICE MÁRQUEZ and JUSTICE HOOD join in
this dissent.
21