Opinion ID: 2136
Heading Depth: 3
Heading Rank: 4

Heading: Cap on APIP Benefits

Text: After setting the reformation date, the court held the APIP benefits in the reformed policy should be capped at $200,000. It arrived at this determination by applying a modified version of the three-factor test from Clark I.12 The court explained its reasoning as follows: 12 The court considered: 1) the degree to which reformation with or without a cap on APIP benefits would upset past practices on which the parties have relied, and whether Prudential anticipated the applicability of the 200,000 dollar cap; 2) how reformation with or without a cap would further or retard the purposes of the CAARA; and 3) the degree of injustice or hardship reformation with or without a cap would cause the parties. (Appellants’ App. Vol. VII at 2265-66.) - 14 - On balance, I find that the relevant equitable factors weigh in favor of including a 200,000 dollar cap on APIP benefits . . . . Including this cap protects the parties’ reasonable reliance and past practices, serves the purposes of the CAARA, and balances the relevant injustices and hardships between the parties. Reforming the policy with no cap would substantially upset Prudential’s reliance on its ability to limit and control the liabilities to which it was exposed, and would provide an inequitable windfall to Fincher. Further, including a cap on APIP coverage provides the coverage mandated by the CAARA, and respects Prudential’s pellucid intent to include such a cap in its policy. (Appellants’ App. Vol. VII at 2270.) Fincher argues the decision whether to impose a cap should be guided by the language of the original policy which did not contain a $200,000 cap. Reformation of a contract is an equitable remedy and “[w]e review the district court’s exercise of its equitable powers for abuse of discretion.” Clark III, 433 F.3d at 709. “A district court abuses its discretion where it commits a legal error or relies on clearly erroneous factual findings, or where there is no rational basis in the evidence for its ruling.” Id. (quotations omitted). Because reformation is an equitable remedy, we are not troubled by the court’s use of the modified Clark I test. Nor do we perceive any abuse of discretion in the court’s imposition of a cap on the reformed policy. Where, as here, a policy violates a statute, the purpose of reformation is “to assure that coverage will meet the statutory minimums” and “to make the policy express the true intent of the parties.” Id. at 710 (quotations omitted). Imposing a $200,000 cap satisfies the statutory minimum and the court did not clearly err in finding the cap expresses the true intent of the contracting parties (Prudential and the insured). Among other things, the evidence at trial demonstrated - 15 - Prudential always capped APIP benefits; Prudential was seeking to amend its forms to provide a $200,000 cap at the time the policy was issued; the insured knew the APIP benefits offered by Prudential were subject to a cap; and, important in assessing the equities here, this insured declined all offered APIP benefits because he was retired, on a fixed income, and “did not want to purchase or pay any extra premiums for extended benefit coverages that we did not need.” (Appellants’ App. Vol. I at 301.) E. Fincher’s Bad Faith and Willful and Wanton Breach of Contract Claims Prudential refused to pay additional benefits to Fincher after she exhausted the basic PIP benefits available under the policy ($100,000) in September 1994. In her complaint, Fincher asserted claims for breach of the duty of good faith and fair dealing and willful and wanton breach of contract based on Prudential’s failure to pay APIP benefits following the Colorado Court of Appeals’ decision in Thompson (1996) and the Colorado Supreme Court’s denial of certiorari in Brennan (1998). To succeed on a claim for bad faith breach of an insurance contract, an insured must prove “that the insurer’s conduct was unreasonable and that the insurer either knew that its conduct was unreasonable or recklessly disregarded the fact that its conduct was unreasonable.” Burgess v. Mid-Century Ins. Co., 841 P.2d 325, 328 (Colo. Ct. App. 1992). CAARA required an insurer to pay treble damages if its failure to pay was willful and wanton. See Colo. Rev. Stat. § 10-4-708(1.8). “An insurer’s failure to pay benefits when due is deemed ‘willful and wanton’ under [CAARA] when it is without justification or in disregard of the insured’s rights.” Geiger v. Am. Standard Ins. Co., 192 P.3d 480, 483 (Colo. Ct. App. 2008) (quotations omitted). - 16 - In granting summary judgment in favor of Prudential, the district court concluded Prudential reasonably believed Brennan did not apply retroactively “at least until” this Court’s decision in Clark I (2003). (Appellants’ App. Vol. XII at 4015.) In addition, the court found Prudential reasonably believed Thompson was factually distinguishable until Fincher I (2003). It declined to consider Prudential’s actions following Fincher I because Fincher did not amend her complaint to include a claim based on those actions. Fincher quarrels with these holdings. In particular, she claims the court should have considered Prudential’s delay in paying her after Fincher I. She argues that, under Colorado law, her claims were cumulative and she did not need to amend her complaint to include Prudential’s continuing delay of payment. Though Colorado law governs our analysis of Fincher’s substantive claims, “we are governed by federal law in determining the propriety of the district court’s grant of summary judgment.” Eck v. Parke, Davis & Co., 256 F.3d 1013, 1016 (10th Cir. 2001). “We review the grant of summary judgment de novo, applying the same standard as the district court pursuant to Rule 56(c) of the Federal Rules of Civil Procedure.” Gwinn v. Awmiller, 354 F.3d 1211, 1215 (10th Cir. 2004). Summary judgment is appropriate “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). As an initial matter, we reject Fincher’s argument that the reasonableness of an insurer’s conduct can never be a question of law. We agree with the district court that “[w]hen the rationale for not paying insurance benefits is based on an insurer’s - 17 - interpretation of the applicable law, the application of the standards for bad faith and willful and wanton breach of contract is a matter of law for the court, and not a question of fact for a jury.” (Appellants’ App. Vol. XII at 4014.) See Lopez v. United Fire & Cas. Co., 318 Fed. Appx. 628, 637 (10th Cir. 2009) (unpublished) (“Under Colorado law, when an insurer delays paying insurance benefits to pursue legal arguments, the reasonableness of that party’s decision is a question of law.”) (citing Tozer v. Scott Wetzel Servs., Inc., 883 P.2d 496, 499 (Colo. Ct. App. 1994)). The real question, then, is whether the court erred in concluding Prudential’s conduct was reasonable as a matter of law. “Resort to a judicial forum is not per se bad faith . . . on the part of an insurer regardless of the outcome of the suit. Rather, an insurer may challenge claims which are fairly debatable and will be found to have acted in bad faith only if it has intentionally denied (or failed to process or pay) a claim without a reasonable basis.” Brandon v. Sterling Colo. Beef Co., 827 P.2d 559, 561 (Colo. Ct. App. 1991) (citation omitted); see also Brennan, 961 P.2d at 557 (“If . . . an insurer maintains a mistaken belief that the claim is not compensable, it may be within the scope of permissible challenge even if its belief is incorrect.”). Prudential claims that prior to our decision in Clark I and Fincher I, it reasonably believed Fincher, a pedestrian, was not entitled to APIP benefits because the insured did not select (and pay for) such benefits. Prior to Brennan, it was unclear whether APIP coverage had to include pedestrians. It would have been reasonable for Prudential to believe it did not have to offer APIP coverage which included pedestrians and thus, its offer of $150,000 in APIP coverage did not violate CAARA vis-à-vis pedestrians. In - 18 - other words, when Prudential offered coverage it was not required to offer (APIP coverage to pedestrians), it is immaterial that the coverage was capped at a lower amount than the statute permitted. However, in Brennan, the Colorado Court of Appeals held APIP coverage must include pedestrians. At that point, Prudential knew or should have known it had to offer APIP coverage to pedestrians and such coverage could not be capped below the statutory limit ($200,000). Still, until our decision in Clark I (2003), it was unclear whether Brennan applied retroactively. It was not until Clark I that Prudential knew or should have known the policy at issue here violated CAARA vis-à-vis pedestrians. Thus, Prudential’s refusal to pay APIP benefits to Fincher was reasonable as a matter of law at least until 2003. Fincher contends the court erred in refusing to consider Prudential’s conduct following our decision in Fincher I (2003) because her claims were continuing and encompassed Prudential’s entire course of conduct. Even assuming the district court erred, we agree with Prudential that it had no legal obligation to pay benefits in accordance with the reformed policy until the policy was actually reformed. See Brennan, 961 P.2d at 557 (holding insurance company “was not obligated to pay the additional PIP benefits until the policy was reformed”); see also 2 Couch on Insurance § 26.3 (3d ed. 1995 & Dec. 2001 Update) (“The fact that the insured may be entitled to obtain a reformation of the policy does not impose any obligation upon the insurer to conform to such ‘reformed’ policy before a court has made such reformation.”) (quoted in Clark I, 319 F.3d at 1244). The policy was reformed on February 28, 2006, and Prudential paid all the APIP benefits due ($92,500) within two months of that date. See - 19 - supra n.6. The gap between the effective reformation date (the date of Fincher’s accident) and the date the policy was reformed is accounted for, to a certain degree, by statutory interest in the amount of $202,000, which Prudential paid in a timely fashion. See id. F. Attorneys’ Fees Fincher sought attorneys’ fees pursuant to Colo. Rev. Stat. § 10-4-708 which, prior to its repeal, stated in pertinent part: (1) Payment of benefits under the coverages enumerated in section 10-4- 706(1)(b) to (1)(e) or alternatively, as applicable, section 10-4-706(2) or (3) shall be made on a monthly basis . . . . In the event that the insurer fails to pay such benefits when due, the person entitled to such benefits may bring an action in contract to recover the same. .... (1.7) (a) At least twenty days prior to the commencement of the proceeding the party claiming the benefits shall set forth the amount claimed and in controversy in a separate document entitled “Notice to insurer of amount claimed”, which shall include no more than those amounts the insured claims are denied or not timely paid by the insurer. The notice shall also specify the amount, if any, claimed for attorney fees. The notice shall be served on all parties no later than twenty days prior to the commencement of the arbitration hearing or trial . . . . If such notice is not timely served, there shall be no award of attorney fees to the person claiming benefits, unless the arbitrator or court determines that the failure was the result of excusable neglect, in which case the arbitration or trial shall be continued to a date at least twenty days after the notice is filed. .... (c) In determining the amount of attorney fees, if any, to be awarded to the insured the arbitrator or court shall consider the following: (I) The award of attorney fees to the insured shall be in direct proportion to the degree by which the insured was successful in the proceeding . . . . The court denied Fincher’s motion, concluding this provision applied only to a - 20 - claim for basic PIP benefits under Colo. Rev. Stat. § 10-4-706 and not to a claim for APIP benefits under Colo. Rev. Stat. § 10-4-710. Fincher contends the court erred in concluding § 10-4-708 does not apply to a claim for APIP benefits. She claims Colorado courts have held the provisions of § 10-4-708 apply to APIP benefits in the same way they apply to basic PIP benefits. “Although the ultimate decision to award fees rests within the district court’s discretion, any statutory interpretation or other legal conclusions that provide a basis for the award are reviewable de novo.” Phelps v. Hamilton, 120 F.3d 1126, 1129 (10th Cir. 1997). Normally, where a “statute is unambiguous and does not conflict with other statutory provisions, [the court need] look[ ] no further” than the statute’s plain language. See Frazier v. People, 90 P.3d 807, 810 (Colo. 2004). However, Fincher is correct that the Colorado Court of Appeals has applied provisions in CAARA which explicitly refer only to basic PIP benefits under § 10-4-706 to APIP benefits under § 10-4-710 as well. See Brennan, 961 P.2d at 553-54; see also Zahner v. Am. Family Mut. Ins. Co., 179 P.3d 98, 102-03 (Colo. Ct. App. 2007); DiCocco v. Nat’l Gen. Ins. Co., 140 P.3d 314, 318-19 (Colo. Ct. App. 2006). Given these cases, we are hesitant to predict whether the Colorado Supreme Court would adopt the analysis of the district court here. We need not decide the issue, however, because “[w]e are free to affirm the rulings of a district court on any ground that finds support in the record . . . .” Smith v. Ingersoll-Rand Co., 214 F.3d 1235, 1248 (10th Cir. 2000) (quotations omitted). Even if § 10-4-708 applies here, it only authorizes attorneys’ fees if the insured is “successful in the proceeding.” Colo. Rev. Stat. § 10-4-708(1.7)(c)(I). The term - 21 - “proceeding” is defined in the statute as an “arbitration hearing or trial.” See Colo. Rev. Stat. § 10-4-708(1.7)(a). Fincher was not “successful in the proceeding” because her claim for APIP benefits was not decided in an arbitration hearing or trial. Fincher contends “proceeding” should be interpreted more broadly to mean “a legal process that results in the insurer paying to the insured benefits due under the policy, whether before or after entry of judgment.” (Appellants’/Cross-Appellees’ Response & Reply Br. at 44.) She argues she was “successful in the proceeding” because she received payment of benefits from Prudential. If we were to adopt this argument (despite its obvious lack of statutory support), Fincher’s claim for attorneys’ fees would still fail. Under § 10-4-708(1.7)(a), the party seeking an award of attorneys’ fees must file a notice of claim “[a]t least twenty days prior to the commencement of the proceeding.” A party cannot recover attorneys’ fees if her notice of claim is untimely unless “the failure was the result of excusable neglect.” Colo. Rev. Stat. § 10-4- 708(1.7)(a). Fincher filed a notice of claim on September 21, 2007, which was 20 days prior to the scheduled start of trial. She does not claim excusable neglect for her failure to file her notice of claim at an earlier date and thus, her claim fails. G. Class Certification To succeed on a motion for class certification, a prospective class action plaintiff must satisfy the requirements of Rule 23(a) of the Federal Rules of Civil Procedure which requires, inter alia, that “the claims or defenses of the representative parties are typical of the claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3). In addition, a class action plaintiff must satisfy the requirements of at least one of the subsections of Rule 23(b). - 22 - Under Rule 23(b)(2), a class action may be maintained if “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Under Rule 23(b)(3), a class action may be maintained if: [T]he court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include: (A) the class members’ interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action. Fincher sought to certify a class of plaintiffs as to her reformation claim. She proposed a class defined as “[a]ll persons who received medical or wage-loss personal injury protection benefits under a Prudential Colorado Car insurance policy, and received those benefits no earlier than August 25, 1992.” (Appellants’ App. Vol. X at 3402.) The district court denied Fincher’s motion to certify concluding she failed to satisfy the requirements of Rules 23(a)(3), (b)(2) and (b)(3). Fincher contends she met all of the requirements of these Rules.13 13 We reject Prudential’s argument that we lack jurisdiction over Fincher’s appeal of the denial of her motion for class certification because she failed to identify that order in her notice of appeal. Fincher’s notice of appeal identified the final judgment which is - 23 - We review de novo whether the district court applied the correct legal standard in its decision to deny class certification. See Shook v. El Paso County, 386 F.3d 963, 967 (10th Cir. 2004) (Shook I). “When the district court has applied the proper standard in deciding whether to certify a class, we may reverse that decision only for abuse of discretion.” Adamson v. Bowen, 855 F.2d 668, 675 (10th Cir. 1988). “An abuse of discretion occurs where the district court misapplies the Rule 23 factors . . . .” Shook I, 386 F.3d at 968. The party seeking to certify a class bears the burden of proving that all the requirements of Rule 23 are met. See id.
The district court concluded Fincher failed to meet the typicality requirement of Rule 23(a)(3) because her proposed class included people who received personal injury protection under three different forms that were applicable in three different time periods and contained three different flaws. The court found that claims based on flaws other than that which infected the insurance policy at issue here “would differ significantly from Fincher’s claims.” (Appellants’ App. Vol. X at 3405.) Fincher acknowledges there are “some factual differences” in the forms but contends the proposed class members’ claims are typical because all of the policies violated CAARA. (Appellants’/CrossAppellees’ Opening Br. at 49.) The district court did not abuse its discretion in rejecting Fincher’s argument. While all the policy forms may have violated CAARA, Prudential may have a defense to claims regarding forms other than the one at issue here. sufficient to support review of all earlier orders. See Cole v. Ruidoso Mun. Sch., 43 F.3d 1373, 1382 n.7 (10th Cir. 1994). - 24 - Reformation is a fact-specific, equitable remedy that would vary based on the particular flaw as well as the particular injury. Tacitly recognizing the typicality problem, Fincher argues the court “should have created subclasses to address the differences [in the proposed class members’ claims], as suggested by Fincher in her reply in support of class certification.” (Appellants’/CrossAppellees’ Opening Br. at 50.) The district court did not abuse its discretion in failing to create subclasses. Rule 23(c)(5) provides: “When appropriate, a class may be divided into subclasses that are each treated as a class under this rule.” A district court may suggest subclassing, but it has no obligation to do so. See United States Parole Comm’n v. Geraghty, 445 U.S. 388, 408 (1980). Moreover, even if a court determines subclassing is appropriate, the party seeking class certification bears the burden of constructing subclasses and “is required to submit proposals to the court.” Id. Fincher did not meet that burden.
The district court concluded Fincher failed to satisfy Rule 23(b)(2) because, while “Fincher is careful to couch the claim of her proposed plaintiff class in terms of declaratory relief . . . [r]ealistically . . . monetary relief is the principal relief sought.” (Appellants’ App. Vol. X at 3406.) The court explained: “For each such insured, the issue of appropriate monetary relief is highly individualized, and is not appropriate for generalized resolution in a class action.” (Id.) Fincher contends the court erred because reformation is a form of declaratory relief to which all class members are entitled and even assuming the recovery of benefits is considered part of the reformation claim, such - 25 - benefits are “incidental” and “flow directly from the injunctive relief.” (Appellants’/Cross-Appellees’ Opening Br. at 53-54.) The district court did not abuse its discretion in finding Fincher failed to satisfy Rule 23(b)(2). “[W]e have interpreted the rule to require that a class must be amenable to uniform group remedies.” Shook v. Bd. of County Comm’rs of County of El Paso, 543 F.3d 597, 604 (10th Cir. 2008) (Shook II) (quotations omitted). In Shook II, we explained: [A] class action may not be certified under Rule 23(b)(2) if relief specifically tailored to each class member would be necessary to correct the allegedly wrongful conduct of the defendant. So, if redressing the class members’ injuries requires time-consuming inquiry into individual circumstances or characteristics of class members or groups of class members, the suit could become unmanageable and little value would be gained in proceeding as a class action . . . . In short, under Rule 23(b)(2) the class members’ injuries must be sufficiently similar that they can be addressed in an single injunction that need not differentiate between class members. Id. (quotations and citation omitted). Fincher’s reformation claim does not satisfy this standard because it involves, in addition to declaratory relief, damages which are likely to be highly individualized.
The district court found the proposed class did not meet the requirements of Rule 23(b)(3) because “the issues of benefits and damages are inherently individual, and cannot efficiently be resolved on a class-wide basis.” (Appellants’ App. Vol. X at 3407.) “Class certification under Rule 23(b)(3) is appropriate only if the questions of law or fact common to the members of the class predominate over any questions affecting only - 26 - individual members.” J.B. ex rel. Hart v. Valdez, 186 F.3d 1280, 1298 (10th Cir. 1999) (Briscoe, J., concurring and dissenting) (quotations omitted). Because of the number of individual issues that would necessarily arise, common questions of law or fact do not predominate and a class action would not be superior to individual suits. We DENY Appellants’ Motion to Dismiss Cross-Appeal for Lack of Appellate Jurisdiction and AFFIRM the judgment of the district court in all respects. Entered by the Court: Terrence L. O’Brien