Court Opinion

ID: 9786099
Source: CourtListenerOpinion
Date Created: 2023-08-30 23:47:26.323151+00
Date Added: 2024-06-11T07:36:41.769508
License: Public Domain

Justice KOURLIS
dissenting.
I. Introduction
In these cases, both the terms of the insurance contract at issue and the applicable court rules would have allowed State Farm Mutual Automobile Insurance Company (“State Farm”) to demand and receive a jury trial on the issue of damages. The majority overturns both the contracts and the rules on the grounds that a term within the insurance contract that limits uninsured motorist coverage to judgments resulting from “actual trials” is repugnant to public policy. In reaching that conclusion, the majority rejects the notion that an insurer, sued simultaneously with an uninsured motorist by its insured, is not a co-defendant in the traditional sense— in which case the insurer would be entitled to invoke its right to a jury trial. Rather, the court creates a special rule for this circumstance, pursuant to which the insurer must bear the added burden of demonstrating why it would be prejudiced by a trial to the court on the issue of damages rather than a trial to a jury.1
The majority finds support for this conclusion in the legislative intent underlying the uninsured motorist statute and in our decisions in Huizar v. Allstate Ins. Co., 952 P.2d 342 (Colo.1998), Peterman v. State Farm Mut. Ins., 961 P.2d 487 (Colo.1998), and Clementi v. Nationwide Mut. Fire Ins. Co., 16 P.3d 223 (Colo.2001). In my view, neither the statute nor the cases suggest that the “actual trial” portion of the policy language is in contravention of public policy. Hence, I respectfully dissent.
II. Facts
In this consolidated appeal, State Farm challenges two decisions of the court of appeals concerning its liability for damages entered on default judgment against two uninsured motorists. The two plaintiffs in the underlying cases, Gloria J. Brekke and Clinton Shaffer, had auto insurance policies with State Farm, which policies included uninsured motorist (“UM”) coverage. Both Brekke and Shaffer were hit by uninsured motorists and later sought coverage.
In September 1995, Brekke was involved in a hit-and-run accident with a vehicle registered in the name of Garfield Gus Garcia. Shaffer’s accident occurred in August 1996 when he was hit by a car driven by Jordan Rodriguez.
Three years after Brekke’s accident, she filed a personal injury action naming Garcia and State Farm as defendants. She asserted a contract claim against State Farm under her UM coverage and sued Garcia for negligence. Shaffer sued more then four years after his accident, asserting negligence and loss of consortium against Rodriguez and breach of contract against State Farm. State Farm promptly filed an answer and demanded jury trials in both Brekke’s and Shaffer’s cases and cross-claimed Rodriguez in Shaffer’s suit. Neither Garcia nor Rodriguez appeared to defend the claims against them. As a consequence, default entered against *196both individuals. In both cases, State Farm filed motions asking the trial court to delay entry of the default judgment until after trial on the damages issues, or alternatively, asking that any default judgment entered against Garcia and Rodriguez not be binding on State Farm.
In Brekke, the trial court ruled only that the entry of default judgment against Garcia did not bar the insurer from challenging damages. The court later denied State Farm’s motion to reconsider the default judgment issue and its request for jury trial, concluding that the policy did not encompass the right to trial by jury and that State Farm’s right would be adequately protected in the damages hearing. Following the subsequent hearing, the trial entered a damages judgment in Brekke’s favor.
The court of appeals affirmed the trial court’s decision, concluding that State Farm had implicitly waived its right to a jury trial because the policy requires only an “actual trial.” In addition, the court held that if the policy had not effectuated a waiver, the “actual trial” clause would be void as against public policy.
In Shaffer, the trial court found the default judgment against Rodriguez binding on State Farm, reasoning that, “State Farm has a reasonable opportunity to protect its interest in the suit by participation in the evidentiary hearing on damages.” The court entered an award of damages following a hearing, and State Farm appealed. As in Brekke, the court of appeals affirmed, concluding that because State Farm’s language only spoke of “actual trial,” the company had waived its right to jury trial. Moreover, the court concluded that Rodriguez’s default automatically divested State Farm of its right to a jury trial.
III. Discussion
Using the declaration of purpose underlying section 10-4-609, C.R.S. (2004) as a backdrop, the majority decides that State Farm’s “actual trial” clause contravenes public policy. As the majority explains it, our longstanding recognition of the role of UM coverage in protecting against loss caused by financially irresponsible motorists has informed this court’s decisions, which broadly interpret the statute’s underlying intent in preventing the dilution of UM benefits. To support that proposition, the majority points to the statute’s direction that individuals “legally entitled to recover damages” from owners or operators of uninsured vehicles may recover under the policy.
I do not view the purpose or direction of the statute as having such broad implications. Although the statute certainly intends to protect motorists who suffer injuries as a result of accidents with non-insured drivers, nowhere does the statute provide that the insurance companies lose the right to litigate fully the amount of those damages.
The majority also relies heavily on our statements in three cases: Huizar v. Allstate Ins., 952 P.2d 342 (Colo.1998), Peterman v. State Farm Mut. Auto. Ins. Co., 961 P.2d 487 (Colo.1998), and Clementi v. Nationwide Mut. Fire Ins. Co., 16 P.3d 223 (Colo.2001), as supporting the proposition that State Farm’s “actual trial” clause violates public policy.
Huizar had at its foundation our longstanding recognition of the policy favoring settlements of disputes by arbitration. We were concerned that an insurance policy’s de novo trial clause permitting the insurer to avoid final judgment entered following a complete arbitration proceeding would render the arbitration proceeding meaningless. Huizar, 952 P.2d at 347. We emphasized that a de novo trial would require the retrial of matters that had already been determined by the arbiter. Id. Most importantly, we noted that in the arbitration proceeding, the arbiter had determined both the issues of liability and damages and had awarded costs. Id. We pointed to the established public policy favoring arbitration as an economic and efficient means of reducing costs and resolving disputes out of court. Id. at 346. A trial de novo would have constituted a new proceeding (since nothing would survive arbitration) in a separate forum, thereby rendering that preceding “a nonbinding guide to evaluating the claim for settlement purposes.” Id. at 348.
*197In Peterman, 961 P.2d at 491-93, we invalidated an insurer's “consent to sue” clause in a context in which the insurer knew of a pending lawsuit by the insured against uninsured motorists, but had refused to intervene. Later, the insurer sought to challenge the default judgment obtained by the insured after the uninsured motorist failed to appear. Id. at 490. The contractual consent to sue clause made “any judgment against any person or organization” nonbinding against the insurer without its consent. Id. at 489. Therefore, the insurer could force the insured to re-litigate liability completely. In addition, the insurer sought to enforce its arbitration clause after the insured had already obtained a judgment against the uninsured motorist. Id. at 490. The thrust of the Peterman ease was that an insurer cannot sit on its rights and force the insured to litigate and re-litigate its claims. It was presumably because of the Peterman case that litigation such as the cases before the court today now includes the insurer as a party,2 instead of a procedure by which the insured would sue State Farm separately after conclusion of the tortfeasor litigation.
In Clementi, this court adopted the notice-prejudice rule in an uninsured motorist ease in which the insured did not notify the insurance company of the UM claim until seventeen months after the accident. The contract required notice “as soon as practicable” and the insurer sought to avoid liability on the grounds that the contract clause had been violated. Clementi, 16 P.3d at 224. This court concluded that the insurer may not escape liability on the basis of a “technicality,” but would rather be required to demonstrate that the late notice had caused prejudice in its ability to investigate or defend the claim. Id. at 232. The majority applies Clementi to the cases before us today and concludes that the insurance provider may not assert all the procedural rights of a defendant unless it can demonstrate that it will be prejudiced if not permitted to do so.
I do not agree that Huizar, Peterman and Clementi lead us to the conclusion that State Farm’s “actual trial” clause violates public policy. Unlike the de novo clause in Huizar, State Farm’s “actual trial” clause by comparison, does not offer an avenue for circumventing a judgment entered on a complete proceeding in which the parties have had the opportunity to litigate issues relating to both damages and liability. Instead, the clause counterbalances possible issues of fraud, illegality and misrepresentations about damages. See Nat’l Union Fire Ins. Co. v. Lynette C., 27 Cal.App.4th 1434, 33 Cal.Rptr.2d 496, 497 (1994) (holding that “actual trial” against insured, requires independent adjudication of facts based on evidentiary showing and process that does not create potential for abuse, fraud, or collusion). As the majority acknowledges, such issues are not an anomaly in these eases. Similarly, the consent to sue clause in Peterman broadly authorized the insurer to refuse to honor a claim arising from “any judicial proceeding,” even under circumstances in which the insurer had notice and refused to intervene. In both cases, the insurers’ contractual terms compelled the insured to suffer unnecessary costs and du-plicative proceedings. So, too, in Clementi: we viewed the notice provision as one that could deprive the insured of coverage on the basis of a technicality. Here, we are not dealing with duplicative proceedings or technicalities. We are dealing with the right of a party to a lawsuit to demand and receive one jury trial, rather than a trial to the court.
We have acknowledged that UM coverage cannot completely replicate the coverage that would be available to an injured party by an insured tortfeasor, and that “not every deviation in uninsured motorist coverage ... constitutes an impermissible attempt to dilute [such coverage] in violation of public policy.” See Huizar, 952 P.2d at 348. The “actual trial” clause, in my view, is not an impermissible impediment to coverage. State Farm was required to participate in both lawsuits here, but was not offered the opportunity to litigate the issues in the same manner as the plaintiffs. By its restriction of coverage to persons “legally entitled to recover,” the statute was never intended to create such a *198sweeping bar. Accordingly, I disagree with the majority’s conclusion that State Farm’s “actual trial” clause violates public policy.
The majority also creates a distinction between the insurer’s rights in the contract portion of the action, and in the tort portion of the action. I do not agree that such a distinction is necessary. Certainly, the relationship between the insured and the insurer is fraught with uncomfortable tension when the insured is injured by an uninsured tort-feasor because the insurance company has an economic interest in attempting to minimize the liability of that tortfeasor. That interest is not, however, in my view sufficiently different from the insurer’s adversary position with respect to any breach of contract claims to justify wholly different procedures.
Courts have struggled with the appropriate procedures for uninsured motorist litigation. As an example, while the insured is required to cooperate in the third-party insurance litigation context, it has been held that in the UM litigation context, the insured need not cooperate with the insurer. See Wheeler v. Creekmore, 469 S.W.2d 559, 563 (Ky.1971); see also Guthrie v. State Farm Mut. Auto. Ins. Co., 279 F.Supp. 837, 843 (D.S.C.1968) (holding that “there is no need for cooperation between the insurer and the insured in connection with an uninsured motorist because they are, in effect and practically speaking, adversaries”). One court in particular, has observed that except for establishing liability, “the only prerequisite which has survived judicial interpretation is that service of process be served on the insurer when suit is initiated against an uninsured.” Id. The service of process offers the insurer the right to file pleadings and defend the uninsured motorist. Id. In fact, unlike Texas, most states have determined that the insurer has a right to intervene as a matter of law to defend the uninsured motorist, should the insured fail to join the insurer. See Milton v. Preferred Risk Ins., 511 S.W.2d 83, 86 (Tex.App.1974).
The majority’s assertion to the contrary, it is not the insurer’s “unique” role in tort litigation generally that determines its right to jury trial. If anything, the insurer has a “unique” role in the UM context that warrants that the insured participate in UM litigation.
Because of the adversarial relationship between the insured and the insurer in the UM context, the insurer serves in the capacity of a co-defendant when joined in the tort litigation against the uninsured. The insurer bears potential responsibility for any judgment entered in that litigation. I do not agree that the unique nature of UM litigation deprives the insurance company, as a matter of public policy, of the.right to a full jury trial on the issue of damages any more than it would deprive it of such a right, as a matter of public policy, in bad faith or contract litigation.
IV. Conclusion
Neither the UM statute nor this court’s precedent compel us to conclude that an insurer’s “actual trial” clause contravenes public policy. Although an insured is entitled to the benefit of uninsured coverage when necessary, such coverage is not inappropriately diluted if it includes a demand that the matter be fully litigated if necessary. Accordingly, I respectfully dissent and would reverse the court of appeals’ decisions in these cases.
I am authorized to state that Justice COATS joins in this dissent.

. Potentially, this burden will be very difficult to satisfy since it involves convincing the judge as fact-finder that a group of fact-finders would be hj'pothetically preferable.

. This can occur either by virtue of a clause demanding that the insured sue the company with the tortfeasor, or by virtue of intervention.