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Parties Involved:
Claire Ayraud
Appellant
Tamara Ayraud
Appellant
Thomas Ayraud
Appellant
National Casualty Company
Appellee

Document Text:

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UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

.FILED 

United S,tates Co~rt of Appeals renth Circuit 

TAMARA AYRAUD, a minor, by 

and through her parents and 

next friends, THOMAS AYRAUD 

and CLAIRE AYRAUD; and 

THOMAS AYRAUD and CLAIRE 

AYRAUD, individually, 

Plaintiffs-Appellants, 

v. 

NATIONAL CASUALTY COMPANY, 

Defendant-Appellee. 

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APR O 31989 

ROBERT L. HOECKER 

Clerk 

No. 87-1465 

(D.C. No. 87 M 46) 

(D. Colorado) 

ORDER AND JUDGMENT* 

Before MOORE, BALDOCK, and MCWILLIAMS, Circuit Judges. 

Thomas and Claire Ayraud, on behalf of themselves and their 

minor daughter, Tamara Ayraud, brought the present action against 

National Casualty Company in the United States District Court for 

the District of Colorado. Jurisdiction was based on diversity of 

citizenship. 28 u.s.c. § 1332. 

* This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

Appellate Case: 87-1465 Document: 010110035019 Date Filed: 04/03/1989 Page: 1 
From the complaint we learn that Tamara, age 4, was entrusted 

by her parents to the custody and supervision of Crested Butte 

Nursery School in Crested Butte, Colorado. While in the custody 

of the school, Tamara wandered into a group of horses and was 

kicked in the head causing a skull fracture which required surgery 

and medical treatment. It was further alleged that at the time of 

Tamara's injury the school had an insurance policy with the 

defendant, National Casualty Company, under which the latter 

agreed to pay all sums which the school became legally obligated 

to pay for medical services required by children under the 

school's care. 

The first claim for relief was, in essence, that the 

defendant company, after an investigation, initially refused to 

negotiate a settlement even though it knew that the school was 

negligent. Defendant's refusal was based on its belief that 

"there were two other potentially negligent parties," that is, the 

owner of the horse which kicked Tamara and the owner of the land 

where this unfortunate incident occurred. It was further alleged 

that when the defendant later became aware that Tamara's parents 

were in financial distress caused by their inability to pay 

Tamara's hospital and medical expenses, the defendant then offered 

to settle the entire claim for $9,500.00, which sum was less than 

the hospital and medical expense incurred by Tamara's parents, 

which offer was refused. 

The gist of the first claim was that the defendant had "a 

duty of good faith and fair dealing in paying benefits due under 

its policy" and that it breached that duty. As a result of that 

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Appellate Case: 87-1465 Document: 010110035019 Date Filed: 04/03/1989 Page: 2 
breach, plaintiffs1 alleged that they suffered mental and 

emotional distress, and loss of enjoyment of life for which they 

sought $1,000,000.00. They also asked for punitive damages in the 

sum of $5,000,000.00. 

A second claim for relief was based on the same events as 

above outlined and was couched in terms of outrageous conduct. As 

a result of such outrageous conduct, plaintiffs claimed to have 

suffered emotional distress for which injury they sought 

$1,000,000.00 and an additional $5,000,000.00 as punitive damages. 

In response to the complaint, the defendant filed a motion to 

dismiss under Fed. R. Civ. P. 12(b}(6), asserting inter alia, that 

although an insurance company under Colorado law has a duty to act 

in good faith and deal fairly with its insured, it has no such 

duty to act in good faith and deal fairly with a third party who 

may have a claim against its insured. Accordingly, defendant 

argued that plaintiffs' first claim for relief should be 

dismissed. Defendant also moved to dismiss plaintiffs' second 

claim for relief based on outrageous conduct, because of the same 

lack of any duty owed plaintiffs by defendant. 

The plaintiffs filed a memorandum in opposition to 

defendant's motion to dismiss. In that memorandum the plaintiffs 

stated that their evidence would show and, if necessary, that they 

were prepared to plead the following: (1) The insurance policy in 

question was purchased by the school to protect it in its 

operation as a child care center; (2) that under C.R.S. § 26-6-101 

to 112 (1982), which regulates child care centers, and, more 

1 Presumably the parents, but not Tamara. 

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Appellate Case: 87-1465 Document: 010110035019 Date Filed: 04/03/1989 Page: 3 
particularly, under C.R.S. § 26-6-108(j) (1982), the school was 

required to "maintain financial resources adequate for the 

satisfactory care of children served in regard to • medical 

services • "; and (3) that the policy purchased from the 

defendant by the school was for the purpose of complying with the 

statutory requirement that it maintain such ''financial resources." 

It was plaintiffs' position that they were not a mere "third 

party" to the insurance contract between the school and the 

defendant, but rather that they were a "third party beneficiary" 

under the policy, and that in such circumstance the defendant did 

owe them the duty of good faith and fair dealing. 

The district court granted defendant's motion to dismiss both 

claims and this appeal follows. In granting the motion to dismiss 

the plaintiffs' first claim, the district court held that since 

the plaintiffs were "third parties" to the insurance issued the 

school by the defendant, the defendant had no contractual duty to 

the plaintiffs and, therefore, could not be found to have violated 

any implied covenant of good faith and fair dealing. Apparently, 

the district court dismissed the second claim for relief on the 

same basis, commenting that the "allegations of the complaint are 

simply insufficient." 

In its order of dismissal, the district court made no mention 

of the position taken by the plaintiffs, in their memorandum in 

opposition to the motion to dismiss, that the insurance taken out 

by the school with the defendant was for the purpose of complying 

with C.R.S. § 26-6-108(j) (1982), and that plaintiffs, therefore, 

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Appellate Case: 87-1465 Document: 010110035019 Date Filed: 04/03/1989 Page: 4 
were not third parties to the insurance contract, but instead were 

third party beneficiaries. 

On appeal, defendant states that in order for it to prevail 

on its 12(b)(6) motion to dismiss, it must appear beyond doubt 

that the plaintiffs could prove no set of facts in support of 

their claim which would entitle them to relief. 2 And, on appeal, 

plaintiffs apparently concede that if they were merely "third parties" to the insurance contract purchased by the school from the 

defendant, they would have no cause of action against the 

defendant. However, in this connection it is the plaintiffs' 

position here, as it was in the district court, that by virtue of 

C.R.S. § 26-6- 108(j) (1982), they were third party beneficiaries 

under the policy of insurance issued the school by the defendant, 

and that in such circumstance the defendant owed them a duty. 3 

In their complaint, although the plaintiffs made no mention 

of the Colorado statute regarding child care centers, as above 

mentioned, the plaintiffs in their memorandum in opposition to 

defendant's 12(b)(6) motion clearly indicated that they were r elying on that Colorado statute. In fact, they offered to replead 

and incorporate the statute into their complaint if it was necessary to establish the sufficiency of their claim. The district 

court in granting defendant's 12(b)(6) motion, however, deemed the 

2 Defendants cited such cases as Hiatt v. Schreiber, 599 F. Supp. 

1142 (D. Colo. 1984), and Brady v. Hopper, 570 F. Supp. 1333 (D. 

Colo. 1983). 

3 In thus arguing plaintiffs relied in part on Savio v. Traveler's 

Ins. Co., 678 P.2d 549, 552 (Colo. App. 1983), which held that an 

employee can bring a "first party" bad faith action on the basis 

of an insurance contract between his employer and the compensation 

carrier. 

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Appellate Case: 87-1465 Document: 010110035019 Date Filed: 04/03/1989 Page: 5 
plaintiffs to be only third parties and did not consider, so far 

as we can tell from its order of dismissal, the Colorado statute. 

Under the described circumstances, we believe the Colorado statute 

regulating child care centers was before the district court, and 

that defendant's motion to dismiss must be considered by the 

district court, in the first instance, in light of that statute. 

We note that in this court the defendant in its answer brief 

makes no mention of the Colorado statute, even though plaintiffs 

in their opening brief argue that by virtue of the statute and the 

policy of insurance4 issued the school by the defendant, they are 

third party beneficiaries and not just third parties, and that in 

such circumstance defendant did owe them a duty. 

In any event, we reverse and remand with directions that the 

district court reconsider defendant's motion to dismiss in light 

of C.R.S. § 26-6-lOS(j) (1982), and indicate the effect of that 

statute, if any, on the present controversy. We do not indicate 

that the motion to dismiss should, or should not, be granted. 

Judgment reversed and case remanded for further proceedings. 

Entered for the Court 

Robert H. Mcwilliams 

Circuit Judge 

4 The policy issued the school by the defendant is not a part of 

the record on appeal. 

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Appellate Case: 87-1465 Document: 010110035019 Date Filed: 04/03/1989 Page: 6 
No. 87-1465 TAMARA AYRAUD, etc. v. NATIONAL CASUALTY co. 

MOORE, Circuit Judge, dissenting: 

I respectfully dissent. In my judgment it is unnecessary to 

return this case to the district court to decide whether C.R.S. 

§ 26-6-108(j) (1988) provides plaintiffs with a claim for relief. 

That claim is predicated upon the holding in Travelers Ins. Co. v. 

Savio, 706 P.2d 1258 (Colo. 1985), that a workman could bring an 

action against his employer's workman's compensation insurance 

carrier. Savio is an exception to the general rule that only 

parties to a contract can sue for a bad faith breach. 

The holding in Savio was grounded upon a portion of the 

workman's compensation statute which is unique. Under C.R.S. 

§ 8-44-105 (1977), every contract of workman's compensation 

insurance must contain "a clause to the effect that the insurance 

carrier shall be directly and primarily liable to the employee." 

Because of this statute, the Savio court reasoned that the 

employee "stands in the same position as an insured in a private 

insurance contract." Savio, 706 P.2d at 1272. That situation 

remarkably differs from this. 

There are two basic reasons why the statute relied upon by 

plaintiffs must be distinguished from the statu te followed in 

Savio. First, § 26-6-108(j) contains no provision requiring child 

care centers to carry liability insurance. The statute merely 

reads that the license of a child care center can be revoked if 

the facility "[fails] to maintain financial resources adequate for 

t he satisfactory care of children served in regard to upkeep of 

Appellate Case: 87-1465 Document: 010110035019 Date Filed: 04/03/1989 Page: 7 
premises 

clothing, 

C.R.S. § 

and provision for personal care, medical services, 

and other essentials in the proper care of children." 

26-6-108 ( j) ( 1988). Only plaintiffs' imaginative 

argument suggests that the words "financial resources" equate with 

"insurance." 

The second reason for 

statute in this case and 

distinction between the operative 

that in Savio is the absence of a 

provision making the center's insurance carrier (if any) primarily 

liable to children or their parents. It was the presence of a 

similar provision in the workman's compensation statute which 

motivated the Savio court to conclude a worker was a "first party'' 

beneficiary of a workman's compensation policy. 

I believe in remanding this case for consideration whether § 

26-6-108(j) provides plaintiffs a claim for relief, this court 

reads too much in the statute. If the Colorado General Assembly 

had intended first to require child care facilities to carry 

liability insurance, and second to make children and their parents 

first party beneficiaries of such policies, the General Assembly 

would have followed the example already set in the workman's 

compensation act and done so directly. In my opinion, there is no 

room for a contrary inference. The trial court's failure to cite 

§ 26-6-l0B(j) is inconsequential. I would affirm. 

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