Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-15-01381/USCOURTS-ca10-15-01381-0/pdf.json

Parties Involved:
Wendy L. Peden
Appellant
State Farm Mutual Automobile Insurance Company
Appellee

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

_________________________________ 

WENDY L. PEDEN, 

 Plaintiff - Appellant, 

v. 

STATE FARM MUTUAL 

AUTOMOBILE INSURANCE 

COMPANY, 

 Defendant - Appellee. 

No. 15-1381 

_________________________________ 

Appeal from the United States District Court 

For the District of Colorado 

(D.C. No. 1:14-CV-00982-LTB-KLM)

_________________________________ 

Bradley A. Levin, Levin Sitcoff PC, Denver, Colorado (Nelson A. Waneka, 

Levin Sitocoff PC, Denver, Colorado, Gary Doehling and Keller 

Caubarreaux, Gary Doehling, P.C., Grand Junction, Colorado, with him on 

the briefs), for Plaintiff-Appellant. 

Heather A. Salg, Harris, Karstaedt, Jamison & Powers, P.C., Englewood, 

Colorado, for Defendant-Appellee. 

_________________________________ 

Before LUCERO, BALDOCK, and BACHARACH, Circuit Judges. 

_________________________________ 

BACHARACH, Circuit Judge. 

_________________________________ 

 This case involves the handling of a claim under policies providing 

underinsured-motorist coverage. The tortfeasor, Mr. Terrill Graf, bought 

FILED 

United States Court of 

Appeals 

Tenth Circuit 

November 15, 2016

Elisabeth A. Shumaker 

Clerk of Court

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his fiancée a van for her 50th birthday. Celebrating the birthday and new 

purchase, Mr. Graf drank liquor and then gathered four friends in the van. 

The plaintiff, Ms. Wendy Peden, was one of those friends. She says that 

she expected Mr. Graf only to show off the van and to photograph the 

group. But Mr. Graf drove away with his friends in the van. He crashed, 

causing serious injuries to Ms. Peden. She obtained $240,000 in insurance 

benefits. But Ms. Peden claimed more under her coverage for 

underinsured-motorist benefits. 

The insurer (State Farm) initially denied the claim, but ultimately 

paid her an additional $350,000, the maximum amount that she could 

receive under the underinsured-motorist coverage. Ms. Peden sued State 

Farm under Colorado’s common law and statutory law, claiming an 

unreasonable denial or delay in paying benefits. We must decide whether a 

reasonable fact-finder could conclude that State Farm unreasonably denied 

or delayed payment of benefits. The district court answered “no.” We 

disagree and reverse. 

1. Ms. Peden sought two payments from State Farm: one from Mr. 

Graf’s liability coverage and one from Ms. Peden’s underinsuredmotorist coverage. 

 Ms. Peden’s injuries triggered Mr. Graf’s liability coverage and Ms. 

Peden’s underinsured-motorist coverage. State Farm, coincidentally, 

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insured both Mr. Graf for his liability1

 and Ms. Peden for underinsuredmotorist coverage. Thus, State Farm bore dual responsibilities: 

 to indemnify Mr. Graf for liability to his passengers, including 

Ms. Peden, and 

 to pay Ms. Peden the amount that she was unable to recoup 

from Mr. Graf because of his lack of adequate liability 

coverage. 

 Mr. Graf’s liability coverage had a cap of $500,000 for the accident. 

After investigating, State Farm recognized that Mr. Graf would likely incur 

liability to the four passengers for at least $500,000; thus, State Farm 

allocated the $500,000 among the four passengers in the van. Out of this 

$500,000, Ms. Peden obtained $210,000. She also obtained another 

$30,000 in medical payment benefits. 

 But she claimed that Mr. Graf owed more. If Ms. Peden were right, 

Mr. Graf would be considered “underinsured,” triggering coverage for 

underinsured-motorist benefits. These benefits totaled $350,000 from two 

separate policies: 

1. Mr. Graf’s fiancée, who owned the van, had $250,000 in 

underinsured-motorist coverage under a State Farm policy. This 

coverage extended to Ms. Peden as a passenger. 

2. Ms. Peden had her own State Farm policy with $100,000 in 

underinsured-motorist coverage. 

 

1

 Mr. Graf obtained liability coverage through his fiancée’s insurance 

policy. 

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 Ms. Peden demanded the full $350,000 from State Farm, which would 

have brought her total payments to $590,000. To justify this amount, Ms. 

Peden stated that she had seven forms of injury, totaling more than 

$647,484.76 to $1,115,504.76: 

 Nature of Injury Amount Demanded 

 1. Past medical bills $ 114,352.55 

 2. Past wage losses $ 7,500.00 

 3. Future wage losses “substantial” 

 4. College tuition that $ 7,622.21 

 Ms. Peden had to forfeit 

 5. Noneconomic damages $ 468,010 to $936,030 

 6. Prejudgment interest Unspecified 

 7. Costs $ 50,000 (at minimum) 

 TOTAL: $ 647,484.76 to 

 $ 1,115,504.76 

 (plus a “substantial” amount for future wage loss 

 and an unspecified amount for prejudgment interest) 

 

State Farm denied the claim, stating that the prior payment of $240,000 

had fairly compensated Ms. Peden for the amount that Mr. Graf owed. 

2. Ms. Peden sued, and the district court granted summary 

judgment to State Farm. 

 Dissatisfied, Ms. Peden sued State Farm, invoking Colorado common 

law and statutory law and alleging an unreasonable denial or delay in 

paying benefits. During the litigation, State Farm obtained additional 

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information and ultimately paid Ms. Peden the complete $350,000 in 

underinsured-motorist coverage. 

Though Ms. Peden had now received the most she could recoup under 

the policies, she claimed that State Farm had unreasonably denied or 

delayed payment. State Farm moved for summary judgment, arguing that 

the handling of the claim was reasonable as a matter of law; Ms. Peden 

moved for partial summary judgment on her statutory claim.2

 The district 

court granted State Farm’s motion, which led the court to deny Ms. 

Peden’s motion as moot. 

3. Engaging in de novo review, we apply Colorado substantive law. 

We engage in de novo review, viewing the evidence and drawing all 

reasonable inferences in favor of Ms. Peden. Birch v. Polaris Indus., Inc., 

812 F.3d 1238, 1251 (10th Cir. 2015). In this manner, we consider whether 

State Farm has shown the absence of a genuine dispute of material fact. 

Fed. R. Civ. P. 56(a). 

We assess Ms. Peden’s claims under Colorado law. See Etherton v. 

Owners Ins. Co., 829 F.3d 1209, 1223 (10th Cir. 2016) (“When jurisdiction 

is based on the parties’ diverse citizenship, a federal court must assess 

 

2

 In her motion, Ms. Peden sought a legal determination that the 

“covered benefit” on her statutory claim consisted of “the $350,000 

[underinsured-motorist] policy limit which ha[d] now been paid to [Ms. 

Peden].” Pl.’s Mot. for Partial Summary Judgment at 2, Peden v. State 

Farm Mut. Auto. Ins. Co., No. 14-cv-00982-LTB-KLM, 2015 WL 5244934 

(D. Colo. Sept. 9, 2015), ECF No. 47, Appellant’s App. at 27. 

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state law claims based on the substantive law of the state.”). In this 

context, we defer to the decisions of the Colorado Supreme Court, id., and 

“follow the Colorado Court of Appeals’ reasoning . . . unless we are 

convinced that reasoning is incorrect.” Home Loan Inv. Co. v. St. Paul 

Mercury Ins. Co., 827 F.3d 1256, 1263 (10th Cir. 2016). 

4. State Farm owed Ms. Peden a duty of good faith.

In Colorado, all contracts contain an implied duty of good faith and 

fair dealing. Goodson v. Am. Standard Ins. Co. of Wis., 89 P.3d 409, 414 

(Colo. 2004). For insurance contracts, a breach of this implied duty can 

create liability under Colorado’s common law and statutory law. 

For a common-law claim involving the breach of an underinsuredmotorist policy, the insured must prove that the insurer (1) acted 

“unreasonably under the circumstances” and (2) “knowingly or recklessly 

disregarded the validity of the insured’s claim.” See id. at 415 (standard 

for “first-party” claims); see also Sunahara v. State Farm Mut. Auto. Ins. 

Co., 280 P.3d 649, 657 (Colo. 2012) (noting that uninsured-motorist claims 

are “first-party” claims because the insured “is suing his own insurance 

company”). 

Colorado also provides insureds with a similar statutory cause of 

action. Col. Rev. Stat. §§ 10-3-1101 to -1116 (2016). By statute, an insurer 

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cannot “unreasonably delay or deny payment of a claim” to a first-party 

claimant. Id. § 10-3-1115(1)(a).3

5. Industry standards govern the reasonableness of State Farm’s 

investigation.

The duty of good faith requires the insurer to reasonably investigate 

an insured’s claim. See State Farm Mut. Auto. Ins. Co. v. Brekke, 105 P.3d 

177, 189 (Colo. 2004). The reasonableness of an investigation is 

determined objectively under industry standards. Goodson v. Am. Standard 

Ins. Co. of Wis., 89 P.3d 409, 415 (Colo. 2004). These standards may be 

established through expert opinions or state law. Id.; Am. Family Mut. Ins. 

Co. v. Allen, 102 P.3d 333, 343 (Colo. 2004). Here the industry standards 

are proven through both sources: an expert opinion and a Colorado statute. 

Colorado law creates standards for insurers’ practices. Allen, 102 

P.3d at 344. Under these standards, an insurer may not deny or delay a 

claim without “conducting a reasonable investigation based upon all 

available information.” Colo. Rev. Stat. § 10-3-1104(1)(h)(IV). In 

conducting this investigation, the insurer must “promptly and effectively 

communicate with anyone it was reasonably aware had . . . information 

 

3

 Under both the statute and the common law, Ms. Peden must prove 

that State Farm acted unreasonably. The common-law claim includes a 

second element: the insurer’s knowing or reckless disregard for the 

validity of Ms. Peden’s claim. State Farm does not develop an argument on 

this additional element of the common-law claim. Instead, State Farm 

devotes only one sentence to this argument, stating that Ms. Peden failed 

“to address what State Farm knew, when, and what it did in response to 

receipt of additional information.” Appellee’s Response Br. at 19. 

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pertaining to the handling of [a plaintiff’s] claim.” Dunn v. Am. Family 

Ins., 251 P.3d 1232, 1238 (Colo. App. 2010). 

Ms. Peden’s expert witness also detailed the applicable industry 

standards. Two of these standards are: 

1. “An insurer, in conducting its investigation, should look for 

facts which support coverage with at least as much diligence as 

the insurer expends in any attempt to deny or limit coverage.” 

2. “A reasonable insurer should try to find all facts essential to an 

understanding of claimant medical conditions including . . . the 

injury[’s] effects upon employment and future earning 

capacity.” 

Thomas J. Corridan, Expert Witness Report at 2, 5 (Apr. 27, 2015), 

Appellant’s App. at 125, 128 (providing an expert opinion based on “the 

custom and practice in the industry”). 

 With proof of these industry standards, the question is whether a 

reasonable fact-finder could conclude that State Farm breached its duty of 

good faith. 

6. A reasonable fact-finder could infer that State Farm breached 

this duty by failing to reasonably investigate Ms. Peden’s 

underinsured-motorist claim.

State Farm’s adjuster acknowledged a duty to investigate the claim. 

In considering this duty, a reasonable fact-finder could conclude that the 

investigation was unreasonably deficient in two respects: 

1. Further investigation was needed to determine whether Ms. 

Peden assumed the risk for the accident. 

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2. Further investigation was needed to determine whether Ms. 

Peden was entitled to greater damages from the tortfeasor (Mr. 

Graf). 

A. The fact-finder could rationally infer that further 

investigation was needed to reasonably determine whether 

Ms. Peden had assumed the risk for the accident. 

State Farm discounted the claim by 15%, reasoning that Ms. Peden 

had assumed the risk by going for a ride with a drunk driver. This 

reasoning was based on three alleged facts: 

1. The driver, Mr. Graf, had been drunk. 

2. Ms. Peden and three other passengers had entered the van. 

3. Ms. Peden had known that Mr. Graf was drunk and was going 

to drive the van. 

Ms. Peden disputes the third alleged “fact,” contending that she did not 

know that Mr. Graf was drunk or that he was going to drive the van; Ms. 

Peden insists that she thought that Mr. Graf was simply going to 

photograph the group in the van. 

Did Ms. Peden know that they were going for a ride? When initially 

denying the underinsured-motorist claim, State Farm relied on its 

investigation of Mr. Graf’s claim under the liability policy. In 

investigating Mr. Graf’s claim under the liability policy, State Farm was 

adverse to Ms. Peden because she had a tort claim against State Farm’s 

insured (Mr. Graf). 

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 During that investigation, State Farm obtained Mr. Graf’s account of 

the incident, a questionnaire completed by Ms. Peden, and part of the 

police report.4

 Mr. Graf told State Farm that the passengers had known that 

he was going to drive the van. And in the questionnaire, Ms. Peden 

characterized the drive as a joyride for pleasure. As a result, State Farm 

concluded that Ms. Peden had known that Mr. Graf was going to drive 

drunk. Based on this conclusion, State Farm applied a 15% reduction to 

Ms. Peden’s benefits under her underinsured-motorist claim. 

 Ms. Peden argues that State Farm jumped to this conclusion without 

adequate investigation. For example, Ms. Peden complains that in 

investigating the claim for underinsured-motorist coverage, State Farm 

should have asked to speak to the passengers. 

 Accompanying Ms. Peden in the van were three others: Alice Shope, 

Tod Conard, and Denise Conard. Ms. Peden, Mr. Conard, and Ms. Conard 

insist that they did not know that Mr. Graf was going to drive the van; 

instead, they say that they thought that someone was simply going to take a 

photograph.

 

4

 State Farm unsuccessfully attempted to speak with Ms. Peden as part 

of its liability investigation. At that stage, however, Ms. Peden had no 

obligation to speak with State Farm. In investigating the liability claim, 

State Farm owed a duty only to Mr. Graf as the covered party. Later, when 

investigating Ms. Peden’s claim for underinsured-motorist coverage in the 

run-up to litigation, State Farm never asked to speak with Ms. Peden. 

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State Farm had Ms. Peden’s questionnaire, but it was not conclusive. 

In the questionnaire, Ms. Peden was asked: “Was the purpose of your trip 

business or personal? Where were you going?” Appellee’s Response Br. at 

6. The questions apparently assume that Ms. Peden knew that she was 

going for a ride. Her attorney’s claims manager completed the 

questionnaire and states under oath that he described the trip as a personal 

joyride only to clarify that the trip was not related to business; he denies 

suggesting that Ms. Peden knew that Mr. Graf was going to drive the van. 

Viewing the form in a light favorable to Ms. Peden, we conclude that a 

fact-finder could fault State Farm for reading too much into the 

questionnaire without investigating further. 

 State Farm eventually paid the policy limits on Ms. Peden’s 

underinsured-motorist coverage. But should State Farm have paid these 

benefits earlier? That depends in part on whether State Farm should have 

waited to reach a decision until after it had interviewed Ms. Peden, Mr. 

Conard, or Ms. Conard. Viewing the evidence favorably to Ms. Peden, a 

rational trier of fact could find that State Farm acted unreasonably when 

determining without adequate investigation that Ms. Peden had known that 

Mr. Graf would drive away.5

 

5

 State Farm also argues that the complete police report showed that 

all of the passengers reported that they had decided to go for a drive. 

Appellee’s Response Br. at 12. But State Farm did not have this part of the 

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Did Ms. Peden know that Mr. Graf was drunk? The same is true 

about Ms. Peden’s knowledge of Mr. Graf’s drunkenness. State Farm 

discounted Ms. Peden’s claim based partly on a belief that Ms. Peden had 

known that Mr. Graf was drunk. Ms. Peden and two other passengers 

testified that they had not known that Mr. Graf was drunk. 

 Again, a fact-finder could reasonably conclude that State Farm did 

not perform an adequate investigation. State Farm did not try to speak with 

the passengers even though they could have shed light on whether they 

knew that Mr. Graf had been intoxicated.6

B. A rational fact-finder could also infer that State Farm 

unreasonably investigated the damages that Ms. Peden could 

obtain against Mr. Graf. 

State Farm valued Ms. Peden’s claim against Mr. Graf at $272,474.76 

(before deducting 15% for assumption of the risk). But this was less than 

43% of the damages itemized in Ms. Peden’s demand letter ($647,484.76 to 

$1,115,504.76). 

 

police report when denying the claim. State Farm acknowledges that it 

obtained the full report after the litigation had already begun. 

6

 State Farm relies in part on a photograph showing Mr. Graf and his 

fiancée drinking tequila from a bottle. Appellee’s Response Br. at 10. But 

State Farm obtained this photograph after denying the claim. In any event, 

Ms. Peden testified that she had not seen Mr. Graf drinking from the 

bottle. 

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We do not know why State Farm discounted the claim so severely. All we 

know is that 

 State Farm discounted the claim by 15% based on Ms. Peden’s 

assumption of the risk and 

 the valuation of $272,474.76 did not include anything for 

future noneconomic damages, prejudgment interest, or future 

wage loss. 

 A reasonable fact-finder could justifiably infer that State Farm 

inadequately investigated the damages that would have been available to 

Ms. Peden if she had sued Mr. Graf. Ms. Peden had alleged between 

$468,010 and $936,030 for noneconomic damages. See pp. 3-4, above. To 

support this allegation, Ms. Peden submitted documents including medical 

records, a photograph following surgery, and a college transcript. With this 

evidence, Ms. Peden stated that her injury had prevented her from 

graduating college, sapped her of energy, caused her to avoid people, 

diminished her memory, and hurt her concentration. 

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 State Farm may have been able to reasonably discount Ms. Peden’s 

dollar range for noneconomic damages. But why would State Farm decline 

to pay anything for future noneconomic damages or future wage loss? State 

Farm could have consulted with a physician, asked Ms. Peden to submit to 

a physical examination, or interviewed her. State Farm did none of these 

things. If it had, it could have been better equipped to assess Ms. Peden’s 

future damages. Thus, a fact-finder could justifiably question the 

reasonableness of State Farm’s investigation.7

* * * 

 Even if State Farm had adequately investigated Mr. Graf’s liability to 

Ms. Peden, a genuine issue of material fact would exist on the 

 

7

 In her reply brief, Ms. Peden also argues that State Farm should have 

added at least some amount for prejudgment interest. Appellant’s Response 

Br. at 21. This argument bears potential merit, for the Colorado Supreme 

Court has held that prejudgment interest constitutes an element of damages 

for purposes of a similarly worded provision. USAA v. Parker, 200 P.3d 

350, 358-59 (Colo. 2009). But this argument was not adequately developed 

in Ms. Peden’s opening brief. There, Ms. Peden addressed prejudgment 

interest in only a single sentence in the “Statement of the Case.” 

Appellant’s Opening Br. at 9-10. This sentence was inadequate for 

meaningful appellate review. See Colo. Outfitters Ass’n v. Hickenlooper, 

823 F.3d 537, 546 n.8 (10th Cir. 2016) (“A mere suggestion that the 

district court erred—made solely in the ‘Statement of the Case’ section of 

an appellant’s brief and not subsequently developed in the ‘Argument’ 

section—is insufficient to adequately brief an issue for consideration on 

appeal.”). It was too late for Ms. Peden to develop this argument in her 

reply brief. Reedy v. Werholtz, 660 F.3d 1270, 1274 (10th Cir. 2011). Thus, 

Ms. Peden has waived her appellate challenge involving State Farm’s 

failure to consider prejudgment interest in the initial claims decision. See 

Aviva Life & Annuity Co. v. FDIC, 654 F.3d 1129, 1136 n.6 (10th Cir. 

2011) (“Plaintiffs raised this contention for the first time in their reply 

brief and the issue is therefore waived.”). 

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reasonableness of State Farm’s initial refusal to pay anything for future 

noneconomic damages or future wage loss. As noted above, Ms. Peden 

provided State Farm with her college transcript, medical records, and 

photographic evidence to demonstrate future noneconomic damages and 

wage loss. A fact-finder could reasonably conclude that State Farm acted 

unreasonably in discounting that evidence. 

7. State Farm’s alleged compliance with regulations does not 

preclude summary judgment.

 State Farm argues that a Colorado regulation shows that the 

investigation was reasonable. Appellee’s Response Br. at 24-26.8

 But 

compliance with this regulation does not mean that the insurer acted 

reasonably. See Etherton v. Owners Ins. Co., 829 F.3d 1209, 1228 n.7 

(10th Cir. 2016) (stating that compliance with this regulatory provision on 

timely claims decisions does not preclude a finding that the insurer acted 

unreasonably). 

8. State Farm waived its new estoppel theory. 

 At oral argument, State Farm asserted an estoppel theory. See Oral 

Argument at 26:40 (“When the demand was given to State Farm from 

plaintiff’s counsel, it said you have all the information that you need to 

conduct your evaluation.”); see also Appellee’s Response Br. at 8 

 

8

 The regulation requires Colorado property- and casualty-insurers to 

make a decision on claims within 60 days (in the absence of a reasonable 

dispute or a failure by the insured to comply with the policy’s terms and 

conditions). 3 Colo. Code Regs. § 702-5:5-1-14, Rule 4(A)(1)(a). 

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(Statement of the Case) (“[Y]ou have permission to review and rely on any 

information in the State Farm file . . . .” (quoting Letter from Gary 

Doehling, Plaintiff’s counsel, to Kristine Krist, Adjuster (Jan. 31, 2014), 2 

Appellee’s Supp. App. at 52). Under this theory, State Farm contends that 

it could rely solely on what Ms. Peden provided because she had given 

permission for State Farm to decline further investigation. But State Farm 

did not argue estoppel in its answer or appellate brief; therefore, this 

argument is waived. See Bentley v. Cleveland Cty. Bd. of Cty. Comm’rs, 41 

F.3d 600, 604 (10th Cir. 1994) (“Failure to plead an affirmative defense 

results in a waiver of that defense.” (citing Fed. R. Civ. P. 8(c))); Fed. Ins. 

Co. v. Tri-State Ins. Co., 157 F.3d 800, 805 (10th Cir. 1998) (“Issues 

raised for the first time at oral argument are considered waived.”). 

9. Ms. Peden’s motion for partial summary judgment can no longer 

be considered moot. 

 Ms. Peden moved for partial summary judgment on her statutory 

claim. See p. 5 & note 2, above. Upon granting summary judgment to State 

Farm, the district court denied Ms. Peden’s motion as moot. Because we 

reverse the award of summary judgment to State Farm, Ms. Peden’s motion 

can no longer be considered moot. The district court should address this 

motion on remand. 

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10. Disposition 

We reverse the award of summary judgment to State Farm and vacate 

the denial of Ms. Peden’s motion for partial summary judgment. In 

addition, we remand to the district court for proceedings consistent with 

this opinion.

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