Opinion ID: 163093
Heading Depth: 2
Heading Rank: 3

Heading: Effective Date of Reformation

Text: 23 Although Clark is entitled to reformation under Brennan, the district court must also determine, through the exercise of its equitable powers, the effective date of reformation. The Colorado Court of Appeals in Brennan affirmed the award of extended PIP benefits, but it nevertheless emphasized that the effective date of reformation was the date the district court ordered reformation. See, e.g., id. at 556 ([U]ntil the contract was reformed, there was no policy in existence which granted plaintiffs rights for additional PIP benefits.). This decision was based on the court's conclusion that the trial court properly exercised its equitable powers: 24 [I]n fashioning its equitable remedy, the trial court ascertained that Farmers should not necessarily have anticipated that it would be obligated to pay [extended PIP] benefits and ruled, therefore, that Farmers' contractual obligation to pay additional PIP benefits to Joshua Brennan did not arise until the insurance policy was judicially reformed. 25 Id. (emphasis added). The Colorado Court of Appeals ha[d] no reason to quarrel with this exercise of discretion. Id. It further explained that the insurer in Brennan had used a standard industry form endorsement, CAARA was unclear on this issue[,] and no appellate court had yet determined whether § 10-4-710 ... applied to pedestrians. Id.  [U]nder such circumstances, it is not inappropriate to apply such interpretation prospectively. Id. (citing Ground Water Comm'n v. Shanks, 658 P.2d 847 (Colo.1983) (en banc)) (emphasis added). The trial court in Brennan thus made an equitable determination that, based on the particular circumstances in that case, its reformation of the policy applied only from the time that it reformed the contract. Because the duty to pay additional PIP benefits did not arise until the date of reformation, the insurer in Brennan did not breach any contractual, tort, or statutory duties. See id. at 556-57. 26 This court holds that, pursuant to Brennan, the effective date of reformation is an equitable decision to be determined by the trial court based on the particular circumstances of each case. On remand, the district court should decide as an initial matter the effective date of reformation. Possible effective dates of reformation include, but are not necessarily limited to, the following: (1) the date the Madrid policy was issued; 5 (2) the date the trial court in Brennan reformed the policy; (3) the date of the Brennan decision; and (4) the date the district court on remand reforms the contract. 27 In exercising its equitable power, the district court should consider all appropriate factors, including the following: (1) the degree to which reformation from a particular effective date would upset past practices on which the parties may have relied and whether State Farm anticipated the rule in Brennan; (2) how reformation from a particular effective date would further or retard the purpose of the rule in Brennan; and (3) the degree of injustice or hardship reformation from a particular effective date would cause the parties. Cf. Martin Marietta Corp. v. Lorenz, 823 P.2d 100, 112 (Colo.1992) (en banc). 6 These factors do not necessarily have equal weight but are to be evaluated on the basis of the strength of the equitable and policy considerations underlying each. Marinez v. Indus. Comm'n, 746 P.2d 552, 557 (Colo. 1987) (en banc). Relevant evidence might include, for example, whether State Farm anticipated the Brennan decision, compiled information of Brennan 's effect on claims processing, relied on the interpretation of CAARA rejected in Brennan, or had the ability to notify or considered notification of insureds and third-party beneficiaries about the Brennan decision.