Opinion ID: 163093
Heading Depth: 2
Heading Rank: 2

Heading: Entitlement to Extended PIP Benefits

Text: 15 Reformation of an insurance contract usually occurs to make the policy express the true intent of the parties. See Thompson, 940 P.2d at 990. When a party alleges that a policy violates a statute, however, reformation may be required to ensure that coverage meets the statutory requirements. See id. In Colorado, a pedestrian to whom PIP benefits are payable is a third-party beneficiary of the policy and has standing to bring reformation and contract claims against the insurer. See id. at 989; see also Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 26:1 (3d ed. 1995 & Dec. 2001 Update) [hereinafter Couch ] ([W]hile it is the agreement of the insured and the insurer that is the focal point of reformation, third-party beneficiaries to the insurance contract can also seek reformation of the provisions.). 16 In Brennan, the Colorado Court of Appeals concluded that when ... an insurer fails to offer the insured optional coverage that satisfies [CAARA], additional coverage in conformity with the offer mandated by statute will be incorporated into the policy. Brennan, 961 P.2d at 554 (emphasis added). It is undisputed that State Farm did not offer Hortencia Madrid the option of purchasing extended PIP benefits which covered injured pedestrians. Therefore, under Brennan, Clark is entitled as a matter of law to reformation of the Madrid policy to include extended PIP benefits. See id. On remand, the district court must determine the amount of extended PIP benefits, if any, to which Clark is entitled. 17 State Farm advances two arguments why Clark is not entitled to extended PIP benefits. First, State Farm contends that Brennan explicitly states that its decision applies prospectively. Although Brennan included language that it was not inappropriate to apply [the trial court's] interpretation [of CAARA] prospectively, this statement occurs in Brennan 's discussion of the contract, tort, and statutory claims, and not the reformation claim, which the Colorado Court of Appeals authorized. See id. at 554. Discussions in judicial decisions should be considered in context. See, e.g., Lujan v. Colo. State Bd. of Educ., 649 P.2d 1005, 1018 n. 13 (Colo.1982) (en banc); People v. St. John, 934 P.2d 865, 866 (Colo.Ct.App. 1996). The Brennan court addressed the plaintiffs' reformation claim by explaining that the insurer did not offer extended PIP benefits as required by CAARA. See Brennan, 961 P.2d at 554. In such circumstances, additional coverage in conformity with the offer mandated by statute will be incorporated into the policy. Thus, the trial court's judicial reformation of the policy to reflect coverage of Joshua Brennan was correct. Id. (citations omitted). If Brennan had stated a purely prospective rule, the plaintiff in that case would not have been awarded extended PIP benefits. See People ex rel. C.A.K., 652 P.2d 603, 607 (Colo.1982) (en banc) (A purely prospective rule does not apply even to the parties in the case where the rule was announced.). State Farm's reliance on language in a different part of the Brennan decision is therefore misplaced, and the district court erred by relying on this statement in concluding that Brennan should be applied only prospectively. 18 State Farm next argues that Brennan should not be applied retroactively in this case because Brennan does not satisfy Colorado's test for retroactivity. In Brennan, however, the Colorado Court of Appeals did not announce a new rule of procedure or substantive law. Rather, the court construed CAARA to require that extended PIP benefits be payable to pedestrians. Because that coverage was not offered to the insured, the court applied the rule established in Thompson to conclude that the insurance contract must be reformed to include extended PIP benefits for pedestrians. See Brennan, 961 P.2d at 554-56. 19 In People ex rel. C.A.K., the Colorado Supreme Court adopted and applied the retroactivity standards for civil cases set out in Chevron Oil Co. v. Huson, 404 U.S. 97, 106-07, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971). See 652 P.2d at 607. In Chevron, the Court outlined three factors applicable to the determination of whether a ruling should be applied prospectively only. See 404 U.S. at 106-07, 92 S.Ct. 349. First, the decision to be applied nonretroactively must establish a new principle of law, either by overruling clear past precedent on which litigants may have relied or by deciding an issue of first impression whose resolution was not clearly foreshadowed. Id. (citations omitted). State Farm argues that Brennan announced a new rule of law because, prior to Brennan, no court had decided whether section 710 applied to pedestrians. State Farm's argument must fail in light of the Colorado Supreme Court's decision in Broyles v. Fort Lyon Canal Co. In Broyles, the Colorado Supreme Court rejected the appellant's argument that a judicial decision should not be applied retroactively stating: 20 In De Beque, however, we did not establish a new principle of law. Rather, we merely interpreted and applied a statute that was enacted prior to the time Broyles was required to file his application. Accordingly, any contention that De Beque ... is inapplicable to this case is erroneous. 21 695 P.2d 1136, 1144 (Colo.1985). Because Brennan involved the interpretation of a statute enacted prior to the time the Madrid policy was issued, it did not establish a new principle of law. Thus, it does not satisfy the first factor and the interpretation of section 710 contained in Brennan must be applied retroactively. See Broyles, 695 P.2d at 1144. 22 The holdings in Brennan and Thompson mandate that the Madrid policy be reformed to include extended PIP benefits and that pedestrians, like Clark, must be included in the class of beneficiaries eligible to receive those benefits. See Brennan, 961 P.2d at 554; Thompson, 940 P.2d at 990. The Brennan court, however, also concluded that the trial court has the discretion to ascertain the date of reformation because reformation is an equitable remedy. See 961 P.2d at 556. The Brennan court then concluded that, under the particular circumstances presented in that case, the district court did not abuse its discretion when it reformed the contract from the date the trial court issued its decision. See id. As explained in Section III.C., infra, the determination of the effective date of reformation affects the viability of a plaintiff's contract, tort, and statutory claims, but not the reformation of the policy, which was mandated by Brennan. As in Brennan, the district court in this case must determine, based on the particular circumstances presented here, the effective date of reformation for the Madrid policy.