Opinion ID: 166884
Heading Depth: 2
Heading Rank: 4

Heading: Selection of the reformation date

Text: 39 Mr. Clark contends that the district court abused its discretion when selecting the date of its order as the reformation date of the Madrid policy. [T]he 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.  Clark I, 319 F.3d at 1242. 40 Our circuit recognized in Clark I that the reformation date is an equitable decision to be determined by the trial court based on the particular circumstances of each case. Id. at 1243. We noted possible effective dates of reformation as (1) the date the Madrid policy was issued; (2) the date the Brennan trial court reformed the policy; (3) the date of the Brennan decision by the Colorado Court of Appeals; and (4) the date the district court on remand reformed the Madrid policy. Id. In selecting an effective date of reformation, we instructed the district court to 41 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. 42 Id.
43 The district court conclude[d] that the reformation of the Madrid policy should apply prospectively only and chose the date of its order—December 19, 2003—as the effective reformation date. Clark II, 292 F.Supp.2d at 1268. The district court provided a detailed equity analysis, which we briefly summarize here, of three appropriate factors from Clark I. See 319 F.3d at 1243. The three factors specifically noted in Clark I were adopted from Colorado's test to determine a decision's retroactivity. Id. at 1243 n. 6. As to the first factor, the district court noted that State Farm changed its practices after Brennan by (1) eliminating its Pedestrian Limitation, (2) treating new and ongoing pedestrian claims as if the Pedestrian Limitation was not in the insured's policy, and (3) failing to research inactive claims. After examining each post- Brennan response, the district court concluded that, on balance, the first factor favored a reformation date after Clark I. Clark II, 292 F.Supp.2d at 1261-65. 44 For the second Clark I factor, the district court recognized that Brennan's purpose arguably favors reformation beginning when Mrs. Madrid first signed her policy, but it also acknowledged that Brennan's rule must be counterbalanced by the insurer's ability to pay claims on an actuarially sound basis. Id. at 1266. This second factor, according to the district court, partially favors a pre- Brennan reformation date and partially favors a date after Clark I. Id. at 1266-67. As to the third factor, the district court determined that a pre- Clark I reformation date would create an inequitable result for State Farm, as the insurer would be liable for coverage it could not foresee during a time it reasonably did not know of such exposure. Id. at 1267. On balance, the district court concluded that the most equitable reformation date was the date of its order.
45 Mr. Clark maintains that the reformation date cannot be later than the date on which State Farm learned of Brennan. As to the first factor, Mr. Clark asserts that State Farm rather than pedestrian claimants should bear the consequences of the insurer's errant interpretation about Brennan's retroactivity. Regarding the second Clark I factor, he argues that the district court erred when it concluded that an early reformation date must be counterbalanced by State Farm's ability to determine insurance premiums on an actuarially sound basis. Mr. Clark maintains that the district court disregarded Clark I's ruling that Brennan applied retroactively by considering the unfairness of imposing liability on State Farm for thousands of pedestrian injuries for which it could not predict coverage risk and collect premiums. As to the third factor, Mr. Clark complains that the district court did not fully examine his possible hardships. 46 After examining the record and the district court's thorough equity analysis, we cannot conclude that the district court's effective date of reformation was arbitrary, capricious, whimsical, or manifestly unreasonable. Ralston v. Smith & Nephew Richards, Inc., 275 F.3d 965, 968 (10th Cir.2001) (internal quotation marks omitted) (defining when a district court abuses its discretion). We will not disturb the district court's selection of an effective reformation date unless our court has a definite and firm conviction that the [district] court has made a clear error in judgment or exceeded the bounds of permissible choice in the circumstances. Lantec, Inc. v. Novell, Inc., 306 F.3d 1003, 1016 (10th Cir.2002) (quotation marks omitted). Here, the district court selected a permissible choice. We specifically listed the date the district court on remand reforms the contract as a [p]ossible effective date of reformation in Clark I. 319 F.3d at 1243. The selected reformation date also accords with our acknowledgment that [t]he 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. Id. at 1244 (quoting 2 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON INSURANCE § 26:3 (3d ed.1997)). 47 Moreover, we find especially relevant the third factor noted in Clark I: the degree of injustice or hardship reformation from a particular date would cause the parties. Id. at 1243. The district court appropriately recognized the magnitude of State Farm's exposure to liability if every plaintiff like Mr. Clark could proceed with breach of contract and tort claims under an earlier reformation date. Admittedly, the district court did not explicitly discuss the countervailing hardships of Mr. Clark from particular reformation dates. However, based on the particular circumstances, the district court did not abuse its discretion when it selected the date of its order as the Madrid policy's effective date of reformation. Id.