Court Opinion

ID: 9552154
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:05:35.846305+00
Date Added: 2024-06-11T15:25:42.176091
License: Public Domain

Justice SCOTT
dissenting:
Judicial restraint and the principles of freedom of contract dictate that courts give effect to the express terms of commonplace contracts, even under circumstances in which there may be a disparity of bargaining power, so long as the contract is not a contract of adhesion. The majority, however, refuses to enforce express provisions of a contract of insurance, not on the basis of any inexorable legislative enactment, but based upon a “public policy” it has judicially “derived from several sources.” Maj. op. at 345. Because the majority does not say how its process of deriving such a public policy is to be cabined or indicate any limitations upon the power it exercises, I cannot join its opinion nor its judgment and, consequently, I respectfully dissent.
Moreover, while the majority states its intention to “examine the effects created by the operation of the trial de novo clause” for “consistency” with Colorado public policy, maj. op. at 345, the majority acts without any evidence or factual findings in the record of such “effects” and assumes facts necessary as a predicate to its judgment. At the same time, the majority imports decisions from other jurisdictions, relying upon the work of courts in Arkansas, Delaware, Indiana, Iowa, Missouri, Minnesota, Nebraska, New Jersey, Ohio, and Vermont. While the decisions in those states are worthy of note, I believe policies not found in our constitution or expressly stated by the Colorado General Assembly do not constitute Colorado law. Therefore I disagree with the means employed by the majority to reach its judgment.
The majority has not identified an express provision in our statutes nor has it set forth a factual basis in the record for striking down the trial de novo clause in its entirety. The majority indicates it is “not only concerned with the fairness of the [trial de novo ] clause on its face, but also with the unfairness of its application,” maj. op. at 347. While such concern is appropriate, I am unable to find in the record before us any facts showing how Allstate has applied the clause. In light of the absence of a factual record before us,1 *351while it may be reasonable to be persuaded by the analysis of courts outside Colorado and the law of those jurisdictions, it is quite another matter to impute to parties before us facts and conduct that cannot be found in the record of this case and then to rely upon that conduct of others as a basis for our judgment. Surely such reliance by this court raises serious issues of due process.
Finally, I want to make clear that I share many of the majority’s concerns about the contract provision in this case. My concerns exist because of sympathy for the predicament of the insured and due respect for the plain language of our statute prohibiting the dilution of uninsured motorist coverage, as adopted by our General Assembly. See § 10-4-609, 3 C.R.S. (1997). Therefore, in my view, the better reasoned and more appropriate result here would be not to eviscerate the entire trial de novo clause, but rather to enforce the clause as permitted by Colorado law. I would hold that an insurer may choose to demand a trial de novo, but only conditionally. As a cost of the insurer’s choice to proceed to trial and in order to avoid diluting uninsured motorist coverage guaranteed by section 10-4-609, 3 C.R.S. (1997), I would further hold that the insurer must first pay the insured’s arbitration costs as a condition precedent to pursuing its right to a judicial resolution of the dispute between the insurer and its insured.
I.
A.
The majority’s recitation of the facts omits certain details that I consider important to the resolution of this ease. As the majority notes, the uninsured motorist provision of the policy provided a dispute resolution mechanism calling for arbitration at the request of either party. The policy goes on, however, to state that:
If either party objects, the following method of arbitration will be used instead. The
Mr. Muldoon: [T]here's no record and no development of statistics to actually support that. insured person will select one arbitrator. [Allstate] will select another. The two arbitrators will select a third. If they cannot agree on a third arbitrator within 30 days, the judge of a court of record in the county of jurisdiction where arbitration is pending will appoint the third arbitrator. The written decision of any two arbitrators will determine the issues. The insured person will pay the arbitrator that person selects. [Allstate] will pay the one [Allstate] se-leet[s]. The expense of the third arbitrator and all other expenses of arbitration will be shared equally. However, attorney fees and fees paid to medical and other expert witnesses are not considered arbitration expenses. These costs will be paid by the party incurring them.
Regardless of the method of arbitration, any award not exceeding the limits of the Financial Responsibility Law of Colorado [$25,000] will be binding and may be entered as a judgment in a proper court.
Regardless of the method of arbitration, when any arbitration award exceeds the financial Responsibility limits in the State of Colorado [$25,000], either party has a right to trial on all issues in a court of competent jurisdiction. This right must be exercised within 60 days of the award. Costs, including attorney fees, are to be paid by the party incurring them.
Although her claim for additional benefits exceeded the $25,000 Financial Responsibility limits anticipated by the trial de novo provision of the Allstate policy, it was Gloria Huizar and not Allstate, who demanded arbitration. Huizar elected to proceed to arbitration despite the fact that the third paragraph of the Allstate policy only made binding those awards of $25,000 and less. As the language quoted above indicates, the arbitration proceeding was subject to the rules of the American Arbitration Association (AAA). Under those rules, an arbitrator may award costs against either party.2
*352On December 9, 1994, after a two-day hearing, the arbitrator issued an order awarding Huizar “$30,000 plus interest from the date of the accident and appropriate costs.” On January 30, 1994, the arbitrator issued a second order awarding costs in “the sum of $3,319.88 plus statutory interest from the date of the accident.” The arbitrator’s orders confirmed that Allstate had paid all medical expenses and stated that Huizar “asserts no lost wage claim” and sought no compensation for “medical expenses.” During oral argument, neither attorney was able to answer questions about the arbitration proceedings in detail, other than to confirm that Huizar sought an award well in excess of $25,000.
In denying Allstate’s motion for a trial de novo, the district court ruled that “the policy provision limiting uninsured motorist coverage is void against public policy.” Finding the insurance provision “patently unfair” to Huizar because it “allows [Allstate] to litigate ... issues [of liability as well as damages] twice if it’s not satisfied with the first decision,” the court found the provision unenforceable.
B.
The majority correctly notes that “Allstate Insurance Company, Huizar’s insurer, paid her medical expenses” and that “Huizar also looked to Allstate for her additional claims.” Maj. op. at 343. In fact, Allstate paid all of Huizar’s medical expenses and costs of her injury, an amount in excess of $7,000. The basis of Huizar’s claim for additional damages is not entirely clear, although the arbitrator alluded to evidence indicating that Huizar suffers from ongoing pain as a result of her injuries.
II.
A public policy challenge to enforcement of a contractual term requires an examination of the various sources of public policy in the State of Colorado, such as the state or federal constitution, statutes, or administrative regulations and professional ethical codes that are “sufficiently concrete” to give notice of a public duty. See Rocky Mountain Hosp. & Med. Serv. v. Mariani, 916 P.2d 519, 525-26 (Colo.1996) (discussing potential sources). When a contract term contravenes, frustrates, or interferes with the goals of a clearly stated public policy of the State of Colorado, it is void. See Martin Marietta Corp. v. Lorenz, 823 P.2d 100, 109 (Colo.1992) (freedom of contract yields where public policy is “clearly expressed” or “specific statute” bars enforcement); Corbin v. Sinclair Mktg., Inc., 684 P.2d 265, 267 (Colo.App.1984) (conflict with “broad, general statement” of public policy insufficient to avoid enforcement) (citation omitted).
The majority contends that the trial de novo clause runs afoul of the public policy expressed in our constitution and insurance statutes, namely: (1) the policy against dilution of the uninsured motorist coverage evinced by the adoption of section 10-4-609, 3 C.R.S. (1997); (2) the policy against undue delay in access to the courts and in favor of speedy resolution of disputes contained in Colo. Const, art. II, § 6; and (3) the policy in favor of arbitration embodied in Colo. Const, art. XVIII, § 3. Instead of explaining how the trial de novo provision runs afoul of any of the identified policies, the majority simply alludes to “public policy derived from several sources” as a collective whole. See maj. op. at 345.
As to each arguably relevant public policy, I believe, we must analyze whether the trial de novo provision conflicts with the explicit purposes or objectives of the identified legislative enactment or constitutional policy. See maj. op. at 346.1 have no objection to considering how a contractual term might “oper-at[e]” to frustrate a specific public policy “in particular circumstances,” maj. op. at 345, but the majority’s approach is something entirely different. The majority can identify no direct conflict with any expressly stated public policy, yet proceeds to strike down the trial de novo clause based on an inquiry into *353the unarticulated values underlying — and purportedly unifying — a disparate set of legislative pronouncements and state constitutional provisions. I am persuaded that the trial de novo provision is in direct conflict with public policy, at least when it operates to force an insured to pay the costs of litigating a claim twice, and I think the court’s holding should be limited accordingly.
A.
By enacting section 10-4-609, the General Assembly established as public policy of Colorado that an insured who purchases uninsured motorist coverage and is injured by an uninsured driver is entitled to benefits to the same extent as the insured would be compensated if injured due to the negligence of an insured motorist. See Kral v. American Hardware Mut. Ins. Co., 784 P.2d 759, 763-64 (Colo.1989).
Auto insurers in Colorado are required by statute to offer their policyholders at least $25,000 in coverage for damages caused by accidents involving uninsured motorists. See § 10-4-609, 8 C.R.S. (1997); § 42-7-103(2), 11 C.R.S. (1997). The purpose — that is to say, the public policy — behind this statute is to ensure that victims of auto accidents will be able to look to their own insurers to recover for their injuries when the driver at fault cannot be located or is financially irresponsible. See Kral, 784 P.2d at 763. Any provision that attempts to dilute, condition, or unduly limit uninsured motorist coverage so that it provides less compensation than that available for injury at the hands of an insured negligent driver is void. See Terranova v. State Farm Mut. Auto. Ins. Co., 800 P.2d 58, 60-61 (Colo.1990). In other words, such provisions may not be enforced if they frustrate the public policy of ensuring that victims injured by uninsured motorists are able to recover to the same extent as if they had been injured by a driver covered by the required liability insurance. See id. Hence, to the extent a contract provision reduces the amount that an insured would otherwise recover, it has the effect of diluting or unduly limiting uninsured motorist (UIM) coverage, contrary to this state’s public policy.
I am convinced that allowing an insurer to force its insured to pay costs of arbitration that would otherwise be borne by the insurer by invoking the right to a trial de novo would have the effect of diluting UIM coverage. Therefore, I would hold that an insurer must pay the insured’s arbitration costs if it exercises the right to a trial de novo. This conclusion follows both ás a matter of contractual interpretation and as a logical requirement of the public policy against dilution of UIM coverage.
As noted previously, the rules of the AAA allow for the award of arbitration costs, and these rules are incorporated by reference into Allstate’s policy. In addition, while the trial de novo clause provides, “Costs, including attorney fees, are to be are to be paid by the party incurring them,” this language seems to refer only to the costs of trying the ease in court, not to the costs of arbitration. A contrary interpretation is possible, but in light of-the public policy against dilution of UIM coverage as well as the plain meaning of the language used, I would conclude that the Allstate policy entitles Huizar to recover the costs she incurred in arbitrating her claim without regard to whether Allstate demands a trial, and without regard to the result of such a trial.
Independently, even if Allstate had objected to the use of the AAA’s rules and invoked the contract language calling for the use of an arbitration procedure where each party would bear its own costs of arbitration, I would hold that public policy requires an insurer to pay its insured’s arbitration costs in the event the insurer exercises its right to a trial de novo. Otherwise, the insurer would be allowed to dilute UIM coverage, making the term requiring each side to bear its own costs of arbitration unenforceable once a trial de novo is demanded by the insurer.
By insisting on a trial, Allstate could force Huizar not only to bear the expenses of a second proceeding, but to pay costs of the first proceeding that Allstate would have had to pay in the absence of a trial.3 This is *354exactly the sort of hurdle that offends the public policy against dilution of UIM coverage recognized in Terranova, and I think this is the concern that underpins the majority opinion. I am not, however, prepared to take the additional step urged by Huizar and strike down the trial de novo clause as unenforceable.
The rationale and result I propose here would avoid extensive rewriting of the insurance contract. See Griffin v. United Bank of Denver, 198 Colo. 239, 242, 599 P.2d 866, 868 (1979). It also would prevent placing either party in a position not contemplated at the time the contract was made. By holding that the trial de novo provision does not violate the public policy underlying the uninsured motorist statute so long as the insurer does not force the insured to pay for an arbitration proceeding that is later rendered without effect, freedom of contract — and specifically the freedom to fashion a dispute resolution mechanism — would be preserved.
Just as importantly, this court should base its decision in an expressly stated public policy of Colorado. The role of the courts is to interpret and apply the law as adopted by the legislature, not to extrapolate from existing statutes to graft new principles onto the legislation actually approved by elected lawmakers or incorporated into the state constitution. See Golden Animal Hosp. v. Horton, 897 P.2d 833, 836 (Colo.1995); Scoggins v. Unigard Ins. Co., 869 P.2d 202, 205 (Colo.1994).
B.
I will not engage in an extended discussion of the reasons why I believe that the trial de novo provision does not violate the speedy justice or arbitration provisions of the Colorado Constitution. It is well-established that imposition of an arbitration requirement as a condition of suit does not violate the right of access to the courts, even when the requirement is imposed by statute. See State Farm Mut. Auto. Ins. Co. v. Broadnax, 827 P.2d 531, 535-37 (Colo.1992). If the state can compel arbitration, then the public policy of Colorado is certainly not offended where private parties agree to a contractual term requiring arbitration, especially when the term allows for a subsequent trial de novo. In fact, we have upheld compulsory arbitration imposed by statute precisely because the statute in question allowed for a trial de novo as a matter of right. See Firelock Inc. v. District Court, 776 P.2d 1090, 1095-96 (Colo.1989). The trial de novo clause is plainly consistent with our state’s policy of providing speedy access to the courts.
As for the arbitration provision of the Colorado Constitution, we have expressly recognized that the public policy of Colorado favors the submission of disputes to arbitration. See Dominion Ins. Co. Ltd. v. Hart, 178 Colo. 451, 454, 498 P.2d 1138, 1140 (1972); Red Carpet Armory Realty Co. v. Golden West Realty, 644 P.2d 93, 94 (Colo.App.1982). This policy in favor of arbitration is embodied in our state constitution. See Colo. Const, art. XVIII, § 3. Accordingly, the legislature has adopted the Uniform Arbitration Act, a statute that provides for judicial enforcement of arbitration awards. See §§ 13-22-201 to -223, 5 C.R.S. (1997).
It does not follow, however, that a trial de novo clause contravenes this public policy in favor of arbitration. The absence of any statutory provision requiring arbitration for UIM claims, as opposed to allowing for enforcement of voluntary arbitration agreements, indicates that the public policy of Colorado is to allow private parties to arrange for binding arbitration in such cases by contract, not to make arbitration binding in situations where the parties have not agreed to do so. Accord Cohen v. Allstate Ins. Co., 231 N.J.Super. 97, 555 A.2d 21, 23 (App.Div.1989).
C.
The majority alludes to the possibility that an insurance policy may bear certain similarities to a contract of adhesion. See maj. op. at 344r-345. Under Colorado ease law, however, insurance policies are not presumed to *355be adhesive. See Marez v. Dairyland, Ins. Co., 638 P.2d 286, 288-89 (Colo.1981); cf. Jones v. Dressel, 623 P.2d 370, 374-75 (Colo.1981). The terms of an insurance contract generally can be enforced where they are clear and unambiguous. See FDIC v. American Cas. Co., 843 P.2d 1285, 1290 (Colo.1992); Terranova, 800 P.2d at 60. A clause in an insurance contract is ambiguous if it is reasonably susceptible to more than one meaning. See Travelers Ins. Co. v. Jefferies-Eaves, Inc., 166 Colo. 220, 223, 442 P.2d 822, 824 (1968).
The meaning of the arbitration clause in Allstate’s policy is unmistakable; either party is entitled to demand a trial if more than $25,000 is awarded in arbitration. Therefore, the term is enforceable notwithstanding the fact that it appears in an insurance contract. We have never held, as a matter of law, that a contract of insurance, without more, is an adhesion contract. To do so, of course, would have ramifications well beyond the dispute before us and would necessarily raise implications of monumental proportions that this case does not possess.
III.
The analysis outlined above is reinforced by the absence of any factual basis in this record to determine, at this time, the practical effects of the trial de novo clause.
The UIM coverage provisions of the Allstate policy in this ease, like many insurance policies, provides that when the insured and the insurer cannot agree on whether or how much the insured is entitled to collect, the matter may be submitted to arbitration at the request of either party. Admittedly, the Allstate policy at issue here adds a twist to the conventional agreement to arbitrate. By including a provision that allows either party to demand a trial on all issues if the arbitration award exceeds Colorado’s financial responsibility limit, the policy allows the insurer, or insured to seek judicial review when arbitration produces an award in excess of $25,000.4 On the other hand, the policy confers no reciprocal right to go to court if the arbitration award is $25,000 or less.
In some situations, the insured might wish to take advantage of the trial de novo clause. For example, if the insurer demanded arbitration and the resulting award was less than what the insured had claimed but above the financial responsibility threshold, the insured .might well be relieved that a trial de novo remained available. In the instant case, the insured asked for arbitration despite the fact that she apparently knew the value of the claims she sought would entitle the insurer to demand a trial if she persuaded the arbitrators to award the amount she had requested.5
On the other hand, the trial de novo provision is likely to favor the insurer in most cases in which it is used. As one commentator has noted, “[i]t is difficult to envision a situation in which an insured would be willing to gamble away a favorable decision on both liability and damages ... where he could wind up a total loser at the end of a trial.”6 Huizar contends that an insurer can use the threat of a trial to coerce the insured to accept less than the amount of the arbitration, even if both parties know that the award is fair, because the insured can be forced to clear another set of hurdles to obtain an enforceable judgment.
On this record, though, I am not persuaded that the trial de novo clause will have a drastic impact on the bargaining position of the insured in settlement negotiations. If the arbitration award is large, the insured *356may gain leverage against the insurer in further settlement negotiations. If the insurer insists on litigating in the face of an obviously valid claim, the insured can add a cause of action for bad faith against the insurer when the parties go to court. See Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1272-76 (Colo.1985) (discussing standard applicable to “first-party” claims of bad faith delay or denial of benefits against insurers); Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo.1984) (recognizing the standard of conduct on the part of an insurer when dealing with claims arising under an insurance policy “must reflect [] the quasi-fiduciary relationship that exists between the insurer and the insured”); Flickinger v. Ninth Dist. Prod. Credit Ass’n of Wichita, 824 P.2d 19, 24 (Colo.App.1991) (“[A]n insurance carrier subjects itself to damages beyond the monetary payments called for by its policy, including punitive damages, if it fails in good faith to consider claims asserted under a policy issued by it. And this is true whether the claim is one asserted by the insured ... or by a third party against an insured ....”) (citations omitted); Bucholtz v. Safeco Ins. Co. of America, 773 P.2d 590, 592-93 (Colo.App.1988) (“an insurer acts in bad faith in denying ... a ... claim when ... [it] knows or recklessly disregards the fact that its conduct is unreasonable”). The insured also has the option of seeking costs and attorney fees if the insurer maintains a substantially groundless or vexatious defense. See §§ 13-17-102 & -202, 5 C.R.S. (1997) (providing for award of attorney fees where defense lacks “substantial justification” and actual costs when judgment exceeds plaintiffs settlement offer).
In any event, the record in this case is bereft of any evidence demonstrating actual abuse of the trial de novo clause. If Huizar were able to develop a record after remand that supports the view that insurers use the trial de novo clause simply in order to obtain undue leverage in post-arbitration settlement discussions, I might be inclined to reach the same conclusion as the majority. In the absence of such support in the record, however, I would decline any invitation to interfere with a dispute resolution mechanism created by contract to any greater extent than necessary to give effect to expressly stated public policy.
IV.
Accordingly, because the trial de novo provision of the Allstate policy at issue here is not wholly in conflict with express Colorado public policy as announced by our General Assembly, and with due deference to principles of freedom of contract, I respectfully dissent.
I am authorized to say that Chief Justice VOLLACK joins in this dissent.

. The absence of a factual record in this case was clarified during oral arguments by attorneys for both parties:
Justice Martinez: [Y]ou have relied on a lot of very good, well-reasoned arguments about the practical implications of this and how it really works out there. Is there any development of that below, do we have any factual record upon which we could rely to go beyond theoretical even-handedness here to look at the practical implications and how it is actually being used?
Mr. Kordick: I am not aware this was ever the subject of any kind of fact finding.
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Justice Bender: Mr. Muldoon, was there any factual development on this issue? I understand the legal argument you are making ... but in the trial court, ... are there any facts that established that this provision is used by your client in almost every case where the award is over $25,000?
Mr. Muldoon: Your honor, that was a point made by Justice Martinez, I believe just a moment ago, and the answer is, no, your honor. There was no record in this matter to substantiate a number of statements just made by counsel.... No, your honor, no record.
Justice Bender: Right. I think that was very clear. There is no record.... Have you made any representations or your client made any representations in the course of this proceeding which deal with [how Allstate uses or has used the provision], and if so, what are they?
Mr. Muldoon: No, your honor, there has been no investigation into that issue and no representations made to a court or to parties as to the frequency of the use. We don't know if it is the insureds that make more use of the right to trial or not.
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Justice Bender: Mr. Muldoon, in your brief you say that there are very few cases in which a trial de novo is requested.... Is there any evidentiary basis for that? Do we know anything about that? Did you know anything about that?

. The AAA rules provide:
The expenses of witnesses for either side shall be paid by the party producing such witnesses. All other expenses of the arbitration, including ... the expenses of any witness and the cost of any proof produced at the direct request of the arbitrator, shall be borne equally by the parties, unless they shall agree otherwise or unless the arbitrator in the award assesses such ex*352penses or any part thereof against any specified parly or parties.
American Arbitration Association, Accident Claims Arbitration Rules 14 (Jan. 1, 1994); see also American Arbitration Association, Dispute Resolution Procedures for Insurance Claims 10 (Jan. 1, 1994) (including parallel provision for award of costs).

. In my view, the insurer would not be entitled to recover its arbitration costs in the event the *354insured demanded a trial de novo. The public policy embodied in the UIM statute prevents insurers from diluting coverage, but it does not protect insurers from being forced to bear the burden of duplicative litigation at the instance of an insured.

.In this case, the base award — before the inclusion of interest and costs — exceeded the $25,000 threshold. In a case where the base award is $25,000 or less, but interest and costs push the total award above the financial responsibility limit, the award would likely be binding in its entirety. Cf. Ferrell v. Glenwood Brokers, Ltd., 848 P.2d 936, 940-41 (Colo.1993) (attorney fees and other costs not included in calculating amount in controversy for jurisdictional purposes).

. While neither party’s counsel could say how much Huizar had sought initially, the record implies that she asked for more than the financial responsibility limit, because despite the fact that some of Huizar’s claims were rejected by the arbitrator, the amount awarded exceeded $25,-000.

. Irvin E. Schermer, Automobile Liability Insurance 3d § 49.12 (1995).