State Farm Mutual Automobile Insurance Co. v. Brekke

FARM MUTUAL STATE AUTOMOBILE COMPANY,

INSURANCE Petitioner, BREKKE, Respondent. Gloria J. Farm Mutual Automobile Company, Insurance Petitioner, Clinton Shaffer Laura

Shaffer, Respondents. 03SC585, No. 03SC719. Colorado, Supreme Court of En Banc. 6, 2004. Dec. Rehearing As Modified on Denial of Jan.

MARTINEZ, Justice. opinion, we consolidate address this appeals appeals’ deci- from two court Auto. Ins. sions, Brekke v. State Farm Mut. Co., (Colo.App.2003), and an 81 P.3d 1101 case, unpublished Shaffer 02CA2274, Ins. Mut. Auto. No. 2003 WL 2003). (Colo.App. Sept. par- how an insurance consider its insureds ticipate in tort between injured who and uninsured motorists sureds. purchased two individuals (UM coverage coverage)

uninsured motorist Farm Mutual Automobile Insur- from State Farm). (State They Company were ance injured in with uninsured motorists accidents both Farm the uninsured sued

injuries. who had their motorists caused appear failed

The uninsured motorists ap- Farm complaints, answer the but State jury trial on the peared and demanded a both Farm have insureds’ claim that State should coverage their and also on paid under UM the insureds’ claim that the uninsured motor- negligently injury to ists had caused them. judg- The district courts conducted default hearings negligence claims to ment on liability determine

Farm uninsured motorists and allowed State party adverse to its appealed. State Farm

sureds. challenged the appeals, State Farm Faegre & Benson, LLP, Michael S. deny jury trials courts’ decisions to district Williams, Denver, McCarthy, E. for Marie negligence against the unin- claims on Farm Automobile Insurance Mutual sured motorists. State claimed Company. liability provision that the its contractual Trechter, Gradisar, Ripperger, Roth & determined the uninsured motorist must be Croshal, Pueblo, Croshal, M. for Glo- James trial,” request for a in an “actual ria Brekke. 38, required the district trial under C.R.C.P. Muhr, Muhr, LLP, William William David negligence on courts to hold a trial Springs, A. Clinton & Harper, Colorado for against motorists. The claims the uninsured Laura Shaffer. appeals affirmed the actions of the court of successfully peti- P.C., trial courts. Seaman, Murphy, Grego- & Giometti Cantor, tioned for certiorari. Giometti, Denver, ry R. David S. Littleton, Esq., for Amicus Curiae Colorado “actual trial” claus- We determine Lawyers Association.

Defense contracts, in the UM which at- es insureds’ Roberts, Patterson, P.C., Bradley tempt preclude default Levin & effectively Levin, Schwartz, Denver, A. E. uninsured motorists from estab- Laura policy. lishing liability, As we Lawyers violate Amicus Curiae Colorado Trial Asso- opinion, explain body UM cover- ciation. 10-4-609, age by run accident with a vehicle mandated section C.R.S. owned unin- (2004) company if an is diluted (Garcia) sured motorist Garfield Gus Garcia contractually prohibits September, establishing from 1998, however, Between Brekke motorist. and State Farm could not reach settlement next consider State Farm’s role in the September on the UM claim. Therefore

negligence by the claims filed insureds years later, almost three Brekke the uninsured motorists. firstWe filed suit Garcia and State distinguish negligence Farm. claims contract uninsured motorists claims complaint initially Brekke’s included two Farm and hold that State Farm action, negli- causes of first alleging had the to a trial its contract Garcia, gence of and the second alleging that claims. Defendant paid State Farm should have un- claims, Regarding we exam- injury der its UM caused reciprocal

ine the duties owed negligence. Garcia’s insureds, and its and how the public policy underlying affected Although Garcia was served the sum- coverage in Colorado. We determine that complaint, mons appeared and he or never the district court must take into consider- an filed Farm answer. State filed an answer unique relationship ation the between jury and demanded a trial on all issues. and balance provider’s duties the insured a judgment Brekke moved for right and the insured’s to undiluted re- against year Garcia a after the suit was covery against the interest of the insurance initiated, requesting punitive actual and dam- receiving hearing a fair on its ages. legitimate defenses. While the insurance provider may participate litiga- in the tort days A few after district had court tion, participation must no be more exten- a liability, entered default on Garcia’s State necessary preserve sive than that balance. Farm a response conceding filed that it was Balancing rights duties and only challenging damages contending cases we conclude that Farm State did against that the default entered Garcia did allege justify greater that facts a role than not bind State Farm. the role was it allowed the district courts damages hearings. in the default Conse- The district court denied re- State Farm’s quently, the district courts did not abuse quest judgment against that the default Gar- their discretion when the courts denied State it, cia not bind but allowed Farm to State jury negligence Farm a trial on the claims damages contest amount of it would be However, either case. because the district awarding against Garcia.1 against Brekke entered negligence against State Farm on the claim argued State next Farm that its contract motorist, effectively treating prohibited the default Gar- claim, Farm as a State defendant on binding cia from Farm. State Farm State conclude the district court abused its discre- pointed language re- contract that tion. liability quired damages issues of to be as “the final result of an determined actual I. Facts Procedure if appeal, appeal trial and an is taken.” A. Brekke Farm lan- State contended this contract jury insured, guage required damages. a trial on It respondent The first Gloria (Brekke), injured Brekke was a hit-and- therefore asked the court to reconsider right eluding good 1. Soon after the in a contest breach of the covenant of faith hearing granted, was Brekke asked for and re- dealing fair State wan- Farm and willful and complaint against ceived the to amend her damages. ton breach contract with treble by adding new causes of action in- expensive way possible. inefficient and the default most determination Id. State Farm. against would bind Garcia granted certiorari.

Alternately, Farm contended State under C.R.C.P. 38 a demand since it made B. Shaffer jury it was a co-defendant for a trial and insured, respondent Clinton The second Garcia, request of its de- denial court’s (Shaffer), in an was involved auto Shaffer statutory of its a prived Farm motorist Jordan accident with uninsured jury trial. Rodriguez (Rodriguez) August 1996. Af- years, during ter three which Shaffer denied State Farm’s re- The district court agreement, State Farm could not reach Fust, jury trial. held that quest for Shaffer suit in October filed jury for a had made demand Garcia never Rodriguez and State Farm. negligence of his and State trial on the issue negligence filed claims Shaffer trial on waived had Rodriguez and claims based on the UM con- of Garcia’s issue Farm. tract Second, prior pleadings. on the through its case, As in Brekke’s the uninsured motor- court held that damages, the district issue of answered Rodriguez appeared ist never language contractual did not answered, deny- complaint. noting After trial require claims, affirmative pleading all Shaffer’s constitutionally required in jury was not all requesting defenses and trial on civil district court deter- Colorado Subsequently, moved for de- issues.2 Shaffer hearing that a to the court would mined judgment against Rodriguez fault and re- protect adequately State Farm’s interests $450,000. quested damages of damages to be assessed Garcia. opposed judgment Farm the default State judgment damages hearing The default jury reiterated demand for a trial. its February place in of 2001. State Farm took alternative, requested Farm that In the State calling own damages, its witnesses contested only judgment against the default entered cross-examining Brekke’s witnesses. Rodriguez damages and that be determined hearing, Following the district court en- jury in a trial. against judgment both defendants for tered request to The court denied State Farm’s $288,652. totaling damages and interest stay judgment. The court held default timely appealed. Farm State potential in the that State Farm’s interest judgment against Rodriguez did not default opinion, appeals the court of held its preclude judgment against Rodri- default language contractual im State guez, but State Farm to allowed plicitly right jury to a trial on waived damages hearing. in the against negligence claim Garcia and for Farm filed motion reconsidera- State adequate Farm received fair State tion, raising language the same “actual trial” opportunity through protect its interests ease, argued it raised in Brekke’s damages phase participation contractually State Farm not be bound could v. State hearing. Brekke judgment default against Rodriguez. a default Co., Mut. Auto. Ins. Farm 81 P.3d (Colo.App.2003). ap The court of 1102-03 After district court had denied State interpreted that if it the con peals reasoned hearing case Farm’s motion and set the trial, require jury language tractual such it damages, argued on Farm had a State public interpretation policy statutory would violate right to a district dispute disagreed.3 court because would resolve the August unsuccessfully 3. also that State Farm cross-claimed of State Farm We note against Rodriguez, indicating State pursuant Farm be- petitioned this court to C.A.R. 21 against lieved Rodriguez had a claim it also stay entry Rodri- allegations based made on guez. complaint. Shaffer in his hearing damages, on Farm

At the State whether trials under these eircum- damages public contested the and cross-examined stances policy.5 would violate on witnesses the extent of Shaffer’s Shaffer’s apply We novo de standard re injury. hearing damages, After the on view to examine whether the “actual trial” district determined contrary clause the UM contracts are $537,- against Rodriguez the amount of policy. public ex State rel. Salazar v. The 0004 and reaffirmed that the contract claims Store, Inc., 161, 164 (Colo, Now Cash against Farm were later State reserved for 2001). jury trial. We conclude that the “actual trial” clause

The court determined that is unenforceable because it violates against Rodriguez was final for purposes policy in the same manner did “trial appeal and held that the claims State de novo” clause in Huizar v. Allstate Ins. sufficiently Farm from different facts arose Co., (Colo.1998), and the independent the order Rodri- “consent to sue” clause in guez Peterman v. appealable. was Co., Farm Mut. Auto. Ins. filed first a C.R.C.P. 60 motion (Colo.1998). judgment. from a relief When the mo- denied, Turning to the appealed. tion issue whether ac- was other tions taken State Farm unpublished opinion, In an the Court of might trial, have invoked the to a Appeals relied on its Brekke decision and examine the role provid- insurance reasoning used the same to affirm trial in litigation by er disposition involving court’s of the case uninsured motorist. We determine that dis- Farm and Shaffer. Shaffer trict pro- courts must balance the insurance 02CA2274, Mut. Auto. Ins. No. 2003 WL vider’s duties and the of the insured to 11, 2003). (Colo.App. Sept. undiluted the interest granted receiving certiorari. a fair hearing legitimate such, defenses. As the trial court must determine extent of Legal Analysis II. participation by an granted basis, certiorari in these two litigation case-by-case subject cases to tort on a consider of the effect the “actual trial” clause to review for of abuse discretion. Bree- Cf. Stone, 1167, Brekke’s and (Colo.2000); Shaffer’s UM contracts and v. den 992 P.2d 1176 $35,000 damages 4. public policy These company included: in loss of violate for an insurance Shaffer, $150,000 jury consortium for brought by Mrs. in non- receive a trial in an action its Shaffer, $177,000 damages policy economic to Mr. insured a under for uninsured motorist Shaffer, $175,000 damages to economic Mr. benefits. physical impairment plus for Shaffer, Mr. Shaffer costs In State Farm Mut. Auto. Co. Ins. pre- (Colo. 17, 2004), post-judgment and both grant- interest. 2004 WL 296969 Feb. we following ed certiorari to consider the two issues: appeals rely- 1. by Whether the court of erred Brekke, 5. In State Farm Mut. Auto. Ins. Co. v. ing on the decision in Brekke v. State Mut. (Colo. Jan.12, 2004), 2004 WL 1152789 we Co., (Colo.App.2003), Auto. 81 Ins. P.3d 1101 granted following certiorari to consider the two holding implicitly that State Farm waived its issues: right jury upon to a trial based an inference appeals by 1. Whether the court of any language erred drawn from the absence of in Stale holding that implicitly State Farm policy guaranteeing waived its expressly Farm's insurance a right jury insured, upon a jury trial based an inference trial in with its not- any language withstanding policy language drawn from the absence of requiring in State con- that policy expressly guaranteeing disputes Farm’s insurance a tract benefit resolved on the basis of insured, trial in with its and not- "an actual trial.” withstanding policy language requiring by appeals that con- 2. Whether the court of erred disputes tract holding benefit be resolved on the basis of that an uninsured motorist's default “an actual trial.” State eliminates trial appeals damages Whether the court of misconstrued the issue of caused ato State Farm applicable precedent opining policyholder by it would the uninsured motorist. 216, 1, and forms the for this court’s Dist. No. 175 Colo. torists basis

Draper v. School (1971). 1048, 1049 coverage: 218, jurisprudence on UM 486 P.2d policy is the of this state induce and [I]t and Shaffer’s neither In Brekke’s encourage provide all motorists to for their only al- when it court abused discretion protection responsibility financial for the Farm to contest lowed State others, widespread and to assure avail- judgment pro- party in the adverse insuring public ability to the of insurance by ceeding Brekke Garcia and protection against financial loss caused Rodriguez. In Brekke’s Shaffer negligent financially irresponsible motor- case, however, court did abuse district ists. it entered discretion when claim State Farm on the (codified 1, Id. at 333 as amended at sec. Garcia. 42-7-102, (2004)); section C.R.S. see also Co.,

Passamano v. Indem. Travelers (Colo.1994) 1312, (discussing 1319-22 A. Clause “Actual Trial” legislative history public policy be argues that its UM con coverage). hind UM require that tracts with Brekke and Shaffer coverage protects motorists against an uninsured mo for irresponsibility from the financial of those Farm, it must be ob torist bind State mandatory purchase who do not motor vehi tained in full trial and not default. cle insurance. Alliance Mut. Cas. Co. v. provide if contracts both Duerson, 117, 124, 1177, 184 Colo. 518 P.2d agree Farm and insured cannot reach (1974). Insured motorists have the claim, insured is

ment on compensation (a) recover loss caused mo file a lawsuit the uninsured by an uninsured motorist in the same man Farm, (b) copy send a torist and State recovery permitted ner (c) would be Farm, summons to secure Duerson, loss due to an motorist. “the final action is 184 Colo. 518 P.2d at 1181. We have appeal, actual trial and an if an result regularly understanding reaffirmed this appeal determining whether taken.” coverage required extent public poli this trial” clause violates “actual See, policy e.g., section 10-4-609. behind cy, general public policy first examine the Nissen, State Farm Mut. Auto. Ins. Co. v. prevents it and how con section 10-4-609 (Colo.1993); Cung 851 P.2d La v. language restricting tractual the effect Co., Farm Auto. Ins. judgments and arbitration orders. We (Colo.1992); Terranova un conclude that the “actual trial” clause is (Colo. Mut. Auto. Ins. public policy. enforceable because violates 1990). mandating Colorado’s statute insurance protection against public policy was The section 10-4-609 motorists behind by Assembly in has adopted preventing 1965. established a foundation for General Act, Responsibility including: the dilution coverage, pro- Motor Vehicle Financial of UM 91, 333, 2, against ch. 1965 Laws 334 tection certain from other sec. Colo. Sess. setoffs (codified 10-4-609, payment,6 protection against as amended at section sources (2004)). scope coverage narrower than of the C.R.S. The statute addresses availability protection against liability policy,7 protection if an of insurance related by financially irresponsible loss mo- unin- caused otherwise-insured vehicle is rendered Co., provided persons 6. Newton v. Fire 197 must be Nationwide Mut. Ins. lo the same class of 462, 468, 1042, (1979) (PIP Colo. 594 P.2d 1046 liability provision poli- covered under the of the Co., setoff); Family Barnett v. Mut. American Ins. 167, cy); Sentry DeHerrera v. Ins. 30 P.3d 1302, (social (Colo.1993) security 843 P.2d 1305 175-76, (Colo.2001) covered, (class persons setoff). disability payment occupied injury than vehicle at the time of rather controlling coverage purposes). UMfor McMichael, Surety 7. Aetna v. 906 Cas. Co. 92, (Colo.1995) (UM/UIM coverage P.2d 104

185 coverage factual circumstances.8 Most rele- sured UM is diluted because the vant to our current consideration of section insured judgment. not obtain a default policy is public application 10-4^609’s to rule, general As a judgment a default has the pre- attempted contract clauses that UM judgment same effect as final after a formal judgments vent or arbitration orders from (2004); trial. 46 Judgments § Am.Jur.2d 265 provid- being enforced D’Alessandro, 117, v. Werb 606 A.2d 119 ers. (Del.1992); C.R.C.P. 54 and 55. C.R.C.P. cf. final judgment particular A ends the action Huizar, In policy the insurance included a entered, leaving in which it nothing further provided “trial de novo” clause which that if for the court pronouncing to do in order to greater an arbitration was than award completely $25,000, par determine the party of the either could to re- demand ties proceeding. involved in the litigate regular Moore & Co. the matter trial. 952 Williams, 999, (Colo.1983); 1002 P.2d at 344. We held that this clause was Huizar, Jones, Harding 1123, against public Glass Co. v. 640 policy. void as 952 P.2d (Colo.1982); n. forcing P.2d at 350. We reasoned that D.H. v. People, 542, 544, (1977); re-litigate insured Colo. Stillings a matter that had al- Davis, ready been determined via arbitration violat- 158 Colo. (1965). public policy by diluting

ed judgment legally the insured’s A final entitles ability speedy plaintiff have resolution her money damages to collect from an undermining claim and UM state’s uninsured motorist. 58. C.R.C.P. policy in favor arbitration as a form of Section requires 10-4-609 that an insured dispute resolution. Id. at 348-49. The “trial “legally be entitled to recover from novo” de clause reduced the value settle- operators owners of uninsured motor vehi- policy ments and recoveries under the UM cles” in order invoke UM coverage. by adding expense litigation. of a second Peterman, rejected argument that a Id. at 348. clause in policy prevented the insurance Peterman, a “consent to sue” clause using judgment insured from a default specified that the insurance did not against the uninsured motorist as a basis agree to contractually judg- bound claim provider. ment an uninsured motorist unless The appear “failure of the defendant no had in writing consented to the way validity undermines the filing suit the uninsured mo- or the nature of the issues resolved Peterman, torist.9 961 P.2d at The Peterman, judgment.” 961 P.2d at 494. “consent to sue” clause was unenforceable prej- Otherwise the insured would have been re-litigate because it forced the insured to complete if udiced forced commence and matters that had been determined yet proceeding prove liability another court and therefore diluted insured’s damages. Id. coverage. Id. at 492-93. Likewise, reasoning although

Our in these both Huizar Peter- litigation, participated man “actu- focused the dilution of re- sulting trial” forcing al clause would Brekke insureds to traverse have procedural undue re-litigate re-litigate and Shaffer hurdles and same issues matters in order to recover under their UM decided the default or would coverage. prevented obtaining “actual trial” clause in these have them from the de- cases coverage. also dilutes UM judgment. They fault would be forced to Morgan Exchange, v. Farmers Ins. Colo. 182 to drive her vehicle and was mission therefore 201, 205, 902, (1973) (UM coverage 511 P.2d insurance). 905 by covered her properly invoked when the tortfeasor was ren- by insurer); insolvency dered uninsured of its by any 9. The clause stated: "We are not bound Nissen, State Farm Mut. Ins. Co. v. 851 P.2d person organization ob (Colo.1993) (UM coverage properly 169-70 Peterman, tained without our consent.” written by injured voked when the insured was who her 961 P.2d at 489. own being insured vehicle it while was stolen— policy per- since under her the car thief lacked proper in the inquire into State Farm’s role expenses, such as witness

incur additional its and the fees, pre- of tort between insureds fees, attorney and costs other injured who them. case, uninsured motorists unquantifiable as an senting as well a final of hardship prolonging a resolution of Huizar, 952 P.2d 348. Such contract We determine first that the

the case. See Farm to need- in allow State and the tort claims are an outcome would claims a full trial be held on Farm has lessly that distinct and hold that State legally demand in respect to could have been decided trial with claims that violating sec- judgment proceeding, contract claims. public policy. See id. 10-4-609’s tion in then Farm’s role look State We litigation. reciprocal tort claim duties conclusion, clause the “actual trial” good in faith in provider to act the insurance UM contracts di and in Brekke’s Shaffer’s by insured investigating claims made conditions, statutorily-man lutes, and limits cooperate provide the insured to coverage as the “consent to did dated provider con- information to the insurance “trial de in Peterman sue” clause parties ordinary in with the trast Enforcing in Huizar. this clause novo” litigation. that the insur- civil We conclude jury trial either case require clause unique may provider occupies ance role just the in prejudice the insureds as would litiga- as not act a co-defendant tort possibility of re- prejudiced sured was tion, partic- allowed limited but should be 961 P.2d at 494. Ac litigation in Peterman. suggested by ipation litigation, the tort cordingly, the “actual trial” clause is we hold courts that have addressed the other state polic it violates unenforceable because case-by-case analysis adopt a issue. We y.10 provid- determining the role of insurance principles er which we use Clementi Litigation Farm’s Role in B. State Co., Mut. Fire Ins. Nationwide (Colo.2001), to balance demand argues provider’s duties to the insured and granted have been under C.R.C.P. 38 should to undiluted UM regard to determina- by the trial court with provider the interest of the unin- tion hearing legitimate a fair on its defenses. Whaley v. Farm cites sured motorists. State involved Both Brekke’s and Shaffer’s cases Keystone Ins. Life First, legally types argue a Rule two distinct of claims. (Colo.App.1989), that once made, claims, alleged only grounds found in tort Brekke and Shaffer each request is negli- denying respective that the uninsured motorist be cited C.R.C.P. 39 gently argument this is caused motor vehicle accident request. Implicit in Second, they injured. Brekke position on which were that was co-defendant Farm, alleged them the uninsured and Shaffer claims insurance, issue, its con- we of UM breached To resolve this must motorists. Ambiguous provisions are rea- Farm ex- contractual 10. that in these note sonably susceptible meanings are to different "jury pressly argues "actual trial” means provider and in construed trial.” providing coverage the insured. favor Com- by considering began analysis trial,” we If our own Littleton, City pass Ins. Co. likely meaning we of "actual would (Colo.1999). we Thus would ambiguous As that it term. an conclude against State Farm and in construe "actual trial” observed, interpret Indiana court could "[o]ne favor of Brekke and Shaffer. require 'actual to ... a contested and ad- trial' begun interpreting the “actual we tri- Had However, versary interpret clause, could one also nonetheless find it neces- al” would require analyze [this that the amount obli- sary term] to continue these cases consid- gation public policy when the ering be determined whether term violated litigants company proper and insurance cannot reach of the insurance role Mettert, agreement." by against litigation the uninsured Smithers 513 N.E.2d its insured (Ind.App.1987). motorist. by failing pay damages dispute to tract with them that much of the motor- uninsured litigation required litigation as under section 10-4^609. ists turns on the tort with motorist there and is little left are These tort and contract claims both litigate part to of the contract claim once uniquely legally related and distinct. The liability the uninsured motorist’s has been negligence related if claims are because determined in the proceeding, State successfully brought judgment to claims are right jury nevertheless has to a insured, by liability established whether, respect trial with under its insur- against Rodriguez and Garcia makes Brekke contract, ance pay was claims “legally damages, and Shaffer entitled” to made Brekke and Shaffer. major contract claim element Nonetheless, State Farm. an examination of litiga- Farm’s role the tort claim the nature of each these claims makes is problematic. tion more point clear are in claims fact argues its C.R.C.P. legally distinct. request for a trial should have been claims, Regarding negligence Garcia’s granted respect tort claims liability Rodriguez’s and flows from the alle- Rodriguez, relying Garcia and gations injured in tort that Garcia Brekke Whaley and the in a civil defendant’s Rodriguez injured and Shaffer in the course action to demand trial. State Farm respective negligent their Once behavior. implicitly as a assumes role defendant was entered and Garcia litigation the contract claim also extends Rodriguez, Brekke Shaffer had role litiga- as a co-defendant in tort claim execute collect however, participation, tion. State Farm’s §§ two defendants. See 13-52- easily not so determined. 13-52-107, (2004). Nothing 102 and C.R.S. Colorado, partic the role extent of legal Brekke’s Shaffer’s ipation by tort Rodriguez upon judgment Garcia and would litigation unin between insured and an change if Brekke and Shaffer not been had directly sured has motorist not been ad insured State Farm. appellate dressed court. The issue claims, Regarding the contract directly was raised but not in both resolved Farm’s flows from its contract with Briggs Family v. American Mut. Ins. Although Brekke and Shaffer. Garcia’s and 859, 863 (Colo.App.1992) and Peter Rodriguez’s liability major ais element of man, at In both liability, this contractual other elements participated had not claim, part of this such as Brekke whether litigation sought escape the tort policy, are Shaffer “insureds” under the resulting judgment. at Briggs, 833 P.2d policies whether their were in effect at the 863-64; Peterman, 961 P.2d at 490. Conse accident, time of the and whether other ex- quently, appeals the court both and this emptions policy ap- or exclusions under the court were able resolve the cases focus plied. on the failure to and did legally Because the contract claims are proper need to role of insur consider claims, distinct from the provider if participated. Briggs, ance it had each role claims should be Peterman, 862-64; P.2d at separately. examined litigation, 490-95. Brekke’s and Shaffer’s however, question raises the of the insurance litigation, contract claim provider’s participation in tort be awas defendant. and Shaf Brekke’s and an tween uninsured motorist. complaints alleged fer’s that State Farm had duty pay under their provider participates contract UM When an insurance pay. insurance but failed to It is axiomatic between its insured and an unin- motorist, party that a defendant as a participation to a civil action sured creates a 13-2-108, may request § C.R.S. real and inherent conflict of interest between (2004); First, Although parties. C.R.C.P. 38. we realize the two 10-4-609 and section

188 high contracts are unlike ordi impose a standard of Insurance public policy nary in its inter- v. Ameri provider an insurance bilateral contracts. Goodson conduct on Wisconsin, However, 10- P.3d section Ins. Co. 89 its insured. can Standard with action of 4-609 n (Colo.2004); only 409, Cary if the insured is coverage applies 414 Oma United of (Colo.2003); Consequently Co., 462, damages. Ins. 68 466 ha P.3d “legally entitled” Life liability damages Huizar, or of limited for finding no at 344. motivation of 952 P.2d a of uninsured motorist will part entering into an insurance contract is differ on Goodson, claim under the insurance limit a is 89 eliminate ent than it other contracts. Thus, coverage. it is 414; provider’s Group, UM Inc. v. Trim P.3d at Farmers advantage (Colo.1984). to advocate provider’s ble, insurance In P.2d 1141 uninsured motorist in of the the interests for the sureds enter into insurance contracts Peterman, litigation.11 recognized we tort by protecting security financial obtained adversary almost that “the insurer becomes calamities and themselves from unforeseen own the context of uninsured to its insured mind, peace of to secure rather than Peterman, 961 P.2d at coverage.” motorist Goodson, advantage. 89 P.3d at commercial conflicting provider’s The insurance 494. Trimble, 414; 467; Cary, 68 P.3d at in de- duty to insured and its interest Additionally, disparity at 1141. there is a of fending motorist creates the uninsured power bargaining between the insurer legal obligations strong tension between insured; the insured cannot ob because interests. This tension business elsewhere, materially tain different well resulting conflict of interest are policies generally are not the re insurance Dougherty, An- recognized. Francis M. See 414; Goodson, bargaining. of 89 P.3d at sult notation, Issuing Right Insurer “Unin- Huizar, of 952 P.2d at 344. Unlike the breach Coverage To Intervene sured Motorist” duty implied good faith fair of of Against By Insured Uninsured Mo- Action contract, ordinary in an dealing in breach torist, A.L.R.4th 1985 WL 287268 gives separate to a insurance contract rise (1985). Goodson, at cause of action in tort. 414; Cary, 68 at P.3d 466. The standard of conduct provider insurance as a result of conflict interest, together special of the nature of with the insured’s con- Because cooperation, coverage, reporting and uninsured motorists we have held

tractual duties of relationship relationship distinguish the between these the contract creates a between ad- have parties from that found between other the insurer and we Peterman, parties. quasi-fiduciary.12 verse described protection. a "[T]he has distinct interest in the sured We note that other insurer motorist insured, party being jurisdictions recognized pro- not liable to the insurance third found have quasi-fiduciary with unin- insured['s] which is in direct conflict vider’s' duties establishing party interest that the third is motorist context to decide sured/undermsured result, legally appropriate there con- standard of care in bad-faith liable them. As Ins., recognition litigation. siderable that the UM insured See Danner Auto-Owners (Wis.2001) (with primarily respect to have a adversarial relation- N.W.2d insurer 169-70 ship Lee R. Russ & under UM contract.” bad-faith claim insured pay claim, § Segalla, provider on Insurance 124:1 Thomas F. Couch failure underinsurance (3d ed.2004). recognized relationship between insur- provider "fiduciary ance and insured as a rela- good recognized quasi-fiduciary tionship” encompassing duly we rela- 12. While faith tionship dealing); insurance in Pe- and fair Zilisch v. State Farm Mut. Auto. uninsured motorist terman, (Ariz.2000) (insur- deciding appropriate Ins. when standard P.2d fiduciary of care ance, insur- ance has "some duties of in bad-faith quasi-fiduciary duty' respect first-party underinsured we found no in Good- nature” Goodson, However, claim). son. See 414. Without motorist need not address today. Regardless discussing questions Peterman and uninsured motorist cov- the stan- insurance, erage, quasi-fiduciary we stated is no dard care motorist hat there in uninsured duty aspects relationship first-party recognize between the context. Id. accurately de- that inconsistent, be viewed as and the insured are Peterman and Goodson could quasi-fiduciary. Significant questions concerning to us to- and raise scribed as aspects relationship day particular are standard of care in bad-faith on unin-

189 quasi- assisting aspect hearings of this and witnesses to attend 961 P.2d 494. relationship significant today to

fiduciary us impose and trials. The contracts also in the uninsured motorist context is the additional list of duties Brekke and Shaf- provider’s duty investigate and surance to designed to fer assure State Farm had adjust Riggs, good claim in faith. Lazar v. the all information the nature of the about (Colo.2003); Trimble, 105, 691 79 107 P.3d paid claim before it the claim.13 If UM these provider at 1142. If an insurance does P.2d fulfilled, provide are the duties insured will investigate process not and the insured’s to pro- extensive information the insurance faith, claim in it has good uninsured motorist it may vider that use to determine what relationship with to the acted inconsistent in the underlying occurred accident the UM Cary, See 68 at 466. There- insured. reporting coop- claim.14 These duties and fore, prior litigation to an insurance between required by provider eration the insurance provider’s insured and an uninsured motor- exceptionally from its insured create an close ist, duty provider the insurance is under a to relationship parties. between the two good-faith investigation of acci- conduct a injury. dent that caused insured’s Thus, surveying reciprocal duties of nothing Peterman we also stated that in UM parties, duty the two provider’s underlying litigation vitiated the contractual investigate to its insured to the accident is duty quasifiduciary and .owes that the insurer by the insured’s duty balanced contractual to Peterman, 961 P.2d at 494. insured. provide cooperation information and to the duty investigate to the to owed addition about the accident. If insured, company the insurance to duties, parties fulfill reciprocal both their coopera- owes contractual duties of virtually likely all relevant facts and issues to tion to reporting provider. and arise in tort will be known required example, For their contracts both the insurance and its insured cooperate and to and Brekke Shaffer with long any before suit is filed.15 process assist Farm when asked settlements, litiga- negotiating securing giv- guide Huizar and Peterman what and evidence, trials, hearings attending procedures comply tion policy and (8)send generally quasi-fiduciary copies papers refer to as without all Farm suit addressing party the standard of care that is when the liable for the accident is sued litigation. purposes damages. for the bad-faith these example, 14. For in these State Farm's specifically provide 13.Their contracts insureds, among rights, contracts with its other Brekke and Shaffer must: gave compel State Farm the its insureds examinations, (1) physical Give State Farm notice the accident as submit answer oath, questions reasonably possible, as about the facts under and to soon and the notice name, reports prepared obtain all in connection with must include the insured’s the names involved, represent These that an persons accidents. and addresses of all date, accident, hour, ordinaiy only by filing parly suit place could obtain facts of invoking procedures. witnesses; discovery See C.R.C.P. addresses names and (2) records, 26-37. provide receipts all and invoices relating damages; to the (3) contrast, questions damages to By ordinaiy answer about the typical parties in an reciprocal vehicle under oath as often reasonably civil are under asks; investigate duties to disclose information and (4) give parties State Farm "all the details” about claims. Since one or more of the must death, injury, anything knowledge re- treatment and else institute the civil action with limited possessed by quired (5) payable; opposing to determine the amount of what information by physicians party, typical litigant discovery cho- uses submit examinations civil paid by through process surprises, sen and as often as State the trial to eliminate Farm evidence, issues, reasonably requires; simplify discover relevant (6) questions inju- promote just personal answer about fair and settlements of cases. Court, 33, as often See v. Dist. 682 P.2d 36-37 ries under oath as State Farm reason- Bond asks; Court, (Colo.1984); ably (7) v. Hawkins Dist. 638 P.2d 1372, (Colo.1982); report a v. "hit and run” accident 1375-78 Cameron Dist. accident, Court, 289, 925, 286, police within 24 hours Colo. 928 after 193 (1977). days; to State Farm within 30 942, 117 (1974); Cal.Rptr. being Heisner forced the insured protects 602, 608, Jones, procedural and re- hurdles Neb. N.W.2d undue traverse (1969); prior recovery under a Mut. Dominici litigate matters Huizar, 348; 952 P.2d at Peter Auto. Mont. policy. Ins. (1964). 806, As'such, If an man, provide at-493. insured must these 810 cases procedures expenses and of the guidance to all-the little the extent of insurance submit parties both have discovery and trial when be provider’s participation in the duties, reciprocal the already their fulfilled an uninsured tween its insured and motorist. system procedures has redundant created stringently limited the Some courts have procedural like undue hurdles dis much the provider of in tort participation the insurance Peterman, See by Huizar and approved courts, litigation. in These led courts Huizar, 348; Peterman, 952 P.2d at Texas, by prohibiting or resolved the issues allow such policy does not 494. Public part severely restricting intervention on the procedures to dilute in redundant in provider of an insurance tort action a. context. the UM against an uninsured motorist. See Allstate Therefore, reciprocal because (Tex.Civ.App.1970), Hunt, 668, Ins. v. 450 Co. S.W.2d 671 outlined, following Hui- we have duties (Tex. 469 S.W.2d 151 aff 'd Peterman, role we hold that the zar and 1971); Riley v. Farm Mut. Ins. Auto. litiga in its insured’s provider insurance (6th 1372, Cir.1970); F.2d 420 1376-77 unique motorist tion with uninsured Bradshaw, 95, 245 MFA Mut. Ins. v. Ark. co-defendant16 with the unin is not that of a (1968). 252, 431 255 S.W.2d pano may invoke the full sured motorist who states taken Texas Other have not including procedures, ply of trial stringent highly ap- restrictive courts’ Although provid jury the insurance intervention, pro- proach to but nonetheless prevents participat it from unique er’s role providers vide a limited role for insurance that can demand a ing as a co-defendant litigation. example, For Illinois tort trial, may participation limited be Appeals pro- Court of allowed an insurance permit provider present le the insurance litigation, vider in the limit- to intervene but gitimate that the uninsured motor defenses (a) following ways: ed its intervention cases, In such the interest ist fails to raise. was informed that the uninsured provider presenting of the insurance (b) insurance, motorist lacked insurance sufficiently may not be legitimate defenses provider acknowledge had to to the protected participation without some by judgment it would be bound provider. insurance (c) motorist, provid- the insurance have indicat- courts other states Several accept already er the facts as tried had provider ed that the insurance be al- parties, specific it make unless could proceedings in the tort lowed to showing proof to the trial court that had the insured and the uninsured mo- between reality or facts differed that another See, Stuart, v. 'g., torist. e. Phoenix Ins. Co. raised, (d) issue be could insurance (1972); 792, 657, 799 Ver- 289 Ala. 270 So.2d provider had condi- to submit to other Matney, v. non Fire & Ins. Co. 170 Cas. might impose. tions trial court Wert 45, 60, (1976). Ind.App. 67 351 N.E.2d Burke, 453, 717, Ill.App.2d N.E.2d cases, several as Peterman (1964). provid-

Briggs, held that the insurance courts however, observed, Kentucky’s er participate; highest “[w]ith could court .courts requiring concept not confronted with issues advent the uninsured-motorist were pa- procedural prob- them to determine the exact nature numerous and substantive arisen, provider’s partic- seemingly lems have with no ade- rameters the insurance ipation litigation. quate in the common law or in the tort See Terzian v. answers statuto- Keith, Exch., Cal.App.3d ry Barry Indem. law.” 474 S.W.2d Cas. California (5th Dictionary party.” co-party See Black's Law "A co-defendant'is the uninsured another added). motorist, ed.1979) (emphasis meaning he or has like status with she

IQI (Ky.1971). similarly required court that no providers observed clear pay insurance emerged independent trend from the courts that ad- they had when counsel intervene Keith, problem. dressed the Id. In the Ken- on the side of the uninsured motorist tucky imposed the adversely same conditions tort to their own insured. Wert, imposed (N.D. Quam,

the Illinois court but added Fetch v. 530 N.W.2d (a) respective parties several 1995); more: Webb, Nationwide Mut. Ins. v.Co. attorneys’ must (1981). their affiliations be revealed 291 Md. 436 A.2d 476-77 (b) jury, provider to the the insurance had to In each of these the court might disclose to its insured interests participation pro allowed in- conflict with the interests of the in a vider manner that also balanced the (c) sured, had to duties and the in form its that not he she was to recovery sured’s undiluted UM required cooperate pro- insurance provider the interest of the insurance vider, (d) any gained by information hearing legitimate in a fair its on defenses. provider intervenor insurance in- from the Fetch, Webb, 341; See 530 at N.W.2d 436 by sured reason the insurer-insured rela- 476-77; Walker, 255; A.2d at 938 P.2d at tionship not in- could be used Keith, 878; Wert, 474 S.W.2d at 197 N.E.2d sured. Id. at 878. at 720. With among no consensus the states Utah, Supreme The Court of while allow- proper as to the an provider role of insurance provider a insurance as litigation,17 we tort seek a solution that party, impact ruling limited the adverse its provider balances duties of insurance by on requiring the insured the insurance and the insured’s to an undiluted UM provider pay independent legal for counsel recovery against the interest of the insurance Walker, for the insured. 938 Chatterton provider in a fair receiving hearing on its (Utah 1997). noting 262 After legitimate defenses. “the generated by conflict interest unin- solution, shaping In unwilling this we are protection proble- sured motorist is indeed provid- to restrict the of the insurance matic,” analogized the court to eases where strictly er by as as have those led courts provider an insurance must defend two itsof Texas, because no forum other exists hear other, suing own who insureds are each provider’s legitimate the insurance defenses. provider where the insurance Excessively stringent partic- limitations on provide independent parties counsel both ipation provide protection insufficient for the Likewise, at trial. at Id. 261. the Utah insurance provider. provider if an held that insurance inter- Instead, venes on side of an uninsured motorist provider’s the insurance insured, a brought suit participation litigation its own it must in tort between its pay independent for counsel its own insured and an uninsured motorist18 must be sured to temptation prolong protect provid counter the structured to the insurance litigation hopes forcing receiving hearing settlement. er’s interests in a fair such Id. at At legitimate 261-62. least two other courts have that it raise defenses.19 Ordi- opinion, 17. At participation least one has observed that commentator amine in this discussed the conflict inherent of interest in UM provider the insurance terms of Colorado’s garbage.” creates a "24K mess of 8C 18; Peterman, joinder liberal rule. C.R.C.P. See Appleman Appleman, John Alan & Jean Insur- 5; Briggs, at 494 n. 833 P.2d at 863. In (1981). ance Law and Practice 5089.55 % bar, State, at cases was named as Shaffer, defendant Brekke and as was re- relationship 18. courts have Indiana labeled the however, see, quired their no contract. "party as one of defendants” rather than co- meaningful distinction in this difference. For Brown, Allstate defendants. Indemn. Co. v. examined, just the reasons we have the essential (Ind.App.1998); N.E.2d Ind. Ins. Co. dynamics litigation against of the tort unin- Noble, Ind.App. N.E.2d virtually sured motorist remain identical whether (1970). provider litiga- intervenes the insurance therefore, defendant, prior Briggs is named The Colorado tion or cases and Peter- man, jurisprudence as with much of ex- we no we draw distinction between an insurance only motorist to the extent provider would not be the uninsured insurance narily, the many necessary protect interest in a fair and in its jury trial cases allowed hearing legitimate on to the dam- defenses. be limited participation would hearing judgment, howev- ages dementi, Further, we rea er, the insurance nature extent of in a provider was soned participation tort provider’s easily prejudice than position to more show case-by-case on a basis. be handled should and, prejudice for an insured to show no determining case-by-ease basis how on therefore, policy also held provider should be the role of required that the insurance bear structured, principles first to look proof showing burden of had been Clementi,Huizar, and Peterman. Id. prejudiced by late notification. the insured did not inform his dementi Similarly, partic the case of 232-33. involving of an company accident ipation litigation, insur in the tort claim limits motorist within the time easily more how its ance can show Id. at 224-25. specified policy. his hearing legitimate in a fair interest delay district court found the insured’s deprived partic would be without defenses did find that the

was unreasonable but ipation; conversely, it is more difficult provider must it was insurance show rights or her to the insured to show his by delay deny in to the prejudiced the order recovery undiluted would not be ad UM claim. Id. at 225. When we exam- insured’s versely by greater participation affected case, strong public held ined the we that the Therefore, in provider. insurance the in policy underlying coverage UM Colorado on the the burden falls insurance dementi provider required that the insurance show provider tó interest in a fair show its prejudice, untimely it were notified of even if legitimate hearing on defenses will be its accident. Id. at 230. greater in unprotected participation without permit proceedings. To the court dementi, recognized in Thus provid determine the extent the insurance strong policy coverage of UM participation, provider the insurance er’s provider did allow an to assert insurance specifically legitimate must set forth the def deny breach of contract as mechanism to Regardless of it intends to raise. enses20 coverage showing also it had without provider is in whether insurance named the breach. See id. at prejudiced been original complaint, making or is a motion 223-24, Similarly, 226-27. in the uninsured intervene, particular allegations these here, litigation presented motorist tort in the tort as soon as must be made public policy underlying coverage strong UM practicable. provider allow the to as does not insurance provider has procedural of a defendant Once the insurance sert all pled specific particular allegations, hearing it will denied a fair on these unless legitimate may good- specific regarding claims the UM the trial court consider whether coverage. provider grounds in this exist to believe that the inter The insurance faith provider presenting in protect must be allowed to its inter ests of insurance context hearing legitimate legitimate require partic est fair on its defenses limited in a defens tort interfering provider in ipation es without with the insured’s of the insurance unnecessary litigation. trial court hold a hear to avoid dilution its UM if procedural provider hurdles. to determine the insurance excessive Peterman, Huizar, 349; grounds partic 952 P.2d at 961 P.2d has sufficient to entitle such, litigation. provider ipation in tort It should con 494-95. As may participate litigation against in the in each case the duties of the insurance tort sider provider's termining provider plead party role as an or a named that the insurance must intervenor litigation. particularity. in tire legitimate tort See defenses with 9; Gunther, C.R.C.P. Henderson v. 931 P.2d holdings pleading special 20. We find on mat- our 1150, (Colo.1997). 1168 involving applicable de- ters fraud or mistake in provider provider, the insured’s undiluted falls within the recovery, the interest the insur- sound discretion of the district court. See receiving hearing a fair provider ance Court, 225, v. District 165 Colo. Sutterfield legitimate defenses. The should 236, 231, (1968); Moseley 438 P.2d v. of the insurance structure role Lamirato, 440, 447-48, 149 Colo. 370 P.2d litigation narrowly reflect the tort these 450, (1962); Willy Atchison, T. & S.F. legitimate protect considerations and 306, Ry. 115 Colo. parties.21 terests of all (1946). Sutterfield, As we noted an abuse recognize We of discretion here occurs where the court’s usually fully will participate be allowed to properly failure order vir proceedings damages phase of a default tually prejudice a party. assures liability hearing, participation but its Colo. at 438 P.2d at 240. determination will be more limited. In ei case, however, ther in the absence of an Application C. appearance by motorist, procedural setting of a remains that now examine the actions of the judgment, ordinarily where estab district courts cases two to deter damages lished default but are resolved in they mine whether abused their discretion 55; a hearing. Way Kwik C.R.C.P. cf. they when requests denied State Farm’s Stores, Caldwell, Inc. only trials and allowed State Farm to (Colo.1987). hearing a damages Because will hearings. With regardless participation be held of the claims, respect although provider, participation the district courts in these damages hearing impact eases did not have has lesser on the opinion, dilution of UM under 10—4— the benefit of our section both courts treat contrast, By permitting the insurance substantially ed the issues as we in direct provider liability to contest issues of or cau opinion. respect this With to the uninsured require separate hearing sation would a claims, motorist contract the court in Shaf hearing such circumstances where a is not properly sepa fer’s case treated the claim required. holding otherwise Because an ad rately permitted jury and State Farm a hearing greater impacts ditional to a extent case, however, In Brekke’s the court abused the coverage, hearing dilution of UM such it discretion when entered liability on or granted only causation will be against State Farm and denied State Farm clearly appears legitimate when it the jury opportunity the for trial on unin the provider defenses of the will insurance not be sured motorists contract claim. presented to the court without such addi hearing. tional September Brekke filed suit in years about three after the accident that determinations, making When injured allege her. Farm not State did ability the district courts have the to struc Brekke failed to fulfill her contractual obli- provider appro ture the of the role insurance gations to cooperate or in the claim assist priately power based on courts’ broad process. importantly, More State Farm con- claims, joinder, consolidate determine liability it challenging ceded that was not 18, 19, misjoinder. determine See C.R.C.P. of the uninsured motorist. State Farm had questions and 21. As in similar on the ample opportunity legitimate to raise

permissive joinder defens- parties court deter liability, joint trials, es to Garcia’s but separate minations as to or asked to contest proper only decision on the role for the damages. the amount of Brekke’s If, hand, parties depend- 21. The interests of the differ will on other there evidence is colluding facts each case. If the events insured is with the uninsured motorist causing liability cooperate are the accident clear and failed had with its insurance established, easily provider, allowing partic- then the interests then the interests in weigh heavily partic- ipation by weigh sured will more will ipation heavily. will be limited. more judg- hearing, moved for a default damages the court When Shaffer theAt claims, against Rodriguez challenge ment on the tort Farm to Brekke’s State allowed witnesses, alleged evidence, opposition Brekke’s State Farm’s motion cross-examine such, “potential” Farm As that State had interest own evidence. offer its liability that would be determined Farm issues properly allowed State district Rodriguez. ap a default damages contest opportunity “potential” court ruled that on The State denied Farm a trial State propriately liability not issues was sufficient interest negligence against claim Garcia. dam- grant participation other than short, case court in Brekke’s the district hearing. ages When the trial court held provided protection of State precisely the liability “potential” was interest against claims in the tort Farm’s interests greater participation to allow sufficient anticipate that we the uninsured motorist liability Farm determination provide will courts district Rodriguez, responded State Farm principles on the provider based an insurance arguments, make with further but did not opinion. Specifically, the explained in this any specific allegations identifying legitimate only Farm to court allowed State defenses. portion judg- damages the default damages hearing par- At the Farm against Garcia because State ment liability party. ticipated as a The issue of damages. challenged the amount of only only Farm in was mentioned once when State However, court failed to the district opening noted accident occurred the contract make a distinction between Rodriguez had ran the “apparently because against State Farm and the claim light.” testimony at red evidence judg when it claim Garcia entered exclusively hearing subsequently focused during the de ment both defendants injury. on the nature and extent of Shaffer’s Although little left to proceedings. fault was entered, judgment had been Once in the contract claim decide sought Farm relief which liability once Garcia’s tort had been passing but made reference proceeding, in the default established argued great that a specificity detail and opportunity was entitled to the still required to determine the new trial was remaining trial on elements of Rodriguez. caused against them. Because contract claim State practice that it common While we realize is right jury a Farm has a trial on answers, general for defendants to file claim, contract the dis uninsured motorists holding put have district court’s should State trict court abused its discretion when it de Farm on notice that it was to more right. State Farm that nied specifically legitimate it had indicate whether Accordingly, judgment we reverse the liability. Rodriguez’s defenses Under against State Farm and affirm the circumstances, purpose little would serve and, The case against Garcia. is remanded remand case consider whether Shaffer’s opinion, with this State Farm consistent had legitimate Farm defenses to Rodri- State a trial on the entitled to uninsured guez’s liability. consequently hold it, against claim but motorists contract State in the district court Shaffer’s ease did right has no further Farm contest Garcia’s by allowing abuse its discretion State damages liability against him. entered only damages hearing in the of proceeding against case, the court bifurcated con- In Shaffer’s Rodriguez. contract claims sideration negligence farm claims III. Conclusion Rodriguez. It Farm’s reserved State in later We reach same conclusions both contract claim for Unlike case, respect claims Farm did not for- cases with Brekke’s here State First, the uninsured motorists. mally Rodriguez’s to contest both waive in “actual trial” clauses Brekke’s and Shaf- liability. by policies prejudiced unenforceable because the it would be fer’s are trial to the court Second, coverage. damages on the clauses dilute UM issue rather than a trial to compet- properly weighed jury.1 district courts correctly allowed State interests majority support The finds this conclu participation damages hearing in legislative sion in underlying intent jury. without uninsured motorist statute and our deci respect Co.,

With to the uninsured motorist sions Huizar Allstate Ins. Farm, (Colo.1998), contract claims Shaf- Peterman v. State Farm correctly Ins., fer’s case court bifurcated its (Colo.1998), Mut. 961 P.2d 487 treatment the tort and contract claims Clementi Nationwide Mut. Fire Ins. (Colo.2001).

thereby recognizing view, State Farm’s In my neither jury trial on the contract claims. In nor the statute the cases suggest case, however, Brekke’s district portion court policy “actual trial” language is judg- when it Hence, abused its discretion entered public policy. contravention of I gains permit- ment State farm without first respectfully dissent.

ting opportunity for a trial on the uninsured motorist contract claim II. Facts asserted Brekke. In appeal, this consolidated judgments We therefore affirm the challenges ap- two decisions of Brekke, appeals court of Shaffer. peals concerning en- part, part, affirm reverse and remand tered on default two unin- proceed- with directions to conduct further plaintiffs sured motorists. two The ings opinion. consistent with this cases, underlying J. Gloria Brekke and Clin- Shaffer, policies ton had auto insurance dissents, Justice KOURLIS and Justice Farm, policies which included unin- joins in COATS the dissent. (“UM”) coverage. sured motorist Both Brekke and Shaffer were hit dissenting. Justice KOURLIS sought coverage. motorists and later I. Introduction September Brekke was involved in a regis- hit-and-run accident with a vehicle In these both the terms of the insur- tered the name of Garfield Gus Garcia. applicable ance contract at issue and the August Shaffer’s accident occurred in court rules would have allowed State Farm when he was hit a car driven Jordan Company Mutual Automobile Insurance Rodriguez. (“State Farm”) to demand and receive a damages. majority years accident, trial on issue Three after Brekke’s she personal injury naming overturns both the contracts and the rules on filed action Garcia grounds the that a within the term and State Farm as defendants. She asserted contract that limits against uninsured motorist cover- a contract claim State Farm under age judgments resulting to tri- negli- from “actual her UM and sued Garcia for repugnant public policy. gence. als” is to In years reach- Shaffer sued more then four conclusion, accident, majority rejects the the asserting after his and insurer, simultaneously against Rodriguez notion that sued loss consortium insured, with an uninsured motorist its against breach contract State Farm. State a not co-defendant in the promptly traditional sense— Farm filed an answer and demand- jury in which case the insurer be would entitled ed trials both Brekke’s and Shaffer’s Rather, right jury invoke Rodriguez its to a trial. the cases and cross-claimed in Shaf- special court a Rodriguez ap- creates rule for this circum- fer’s suit. Neither Garcia nor stance, pursuant peared to which must the insurer to defend the claims them. why demonstrating consequence,

bear the added a burden As default entered Potentially, very group this a burden will be difficult fact-finder that of fact-finders would be satisfy convincing judge hj'pothetically preferable. since involves as in- financially irresponsible Farm motorists has In State both both individuals. decisions, delay broadly which asking trial court formed this court’s filed motions interpret underlying after trial intent judgment until the statute’s entry default of the issues, alternatively, ask- damages or To preventing dilution of benefits. on the judgment points support proposition, majority entered default ing that Rodriguez binding be to the that individuals “le- statute’s direction against Garcia damages” from gally entitled to recover own- on Farm. State operators or of uninsured vehicles ers Brekke, only trial court ruled policy. recover under the Garcia entry of default challenging insurer did not bar the purpose do I not view the direction later denied State damages. The having implications. statute as broad such to reconsider default motion Farm’s certainly Although pro- intends to statute trial, jury request its judgment issue and injuries as a tect motorists who suffer result policy encompass did not concluding that the drivers, no- of accidents with non-insured by jury State right to trial provide where does statute that the adequately protected right would Farm’s companies right litigate lose surance Following damages hearing. the sub- in the damages. fully the amount of those damages a hearing, the trial entered sequent majority heavily The also relies on our judgment in Brekke’s favor. statements three cases: Huizar v. Allstate appeals trial affirmed the court of Ins., (Colo.1998), Peterman decision, concluding that court’s Co., State Farm Mut. Auto. Ins. 961 P.2d 487 right trial its implicitly had waived (Colo.1998), v. Nationwide and Clementi only policy requires an “actual because (Colo.2001), Mut. Fire Ins. 16 P.3d 223 addition, that if the the court held trial.” In supporting proposition that as waiver, the “ac- policy not effectuated had Farm’s “actual trial” clause violates would be void tual trial” clause policy. public policy. long- had our Huizar foundation Shaffer, the trial court found standing recognition policy favoring Rodriguez binding on disputes by settlements arbitration. We Farm, that, Farm has a reasoning “State policy’s that an de were concerned opportunity protect its interest reasonable permitting novo trial clause the insurer evidentiary participation suit following avoid final entered hearing damages.” The court entered complete proceeding ren- arbitration would damages following hearing, award of proceeding meaningless. der the arbitration Brekke, appealed. As Huizar, emphasized 952 P.2d at 347. We affirmed, appeals concluding that court of require de novo trial would the retrial language only spoke of because State already of matters that had been determined trial,” company “actual had waived importantly, the arbiter. Id. Most Moreover, the court con- trial. proceeding, noted that in arbitration automatically Rodriguez’s default cluded that arbiter had determined both the issues to a Farm of divested State had awarded costs. pointed public poli- Id. We to the established cy favoring an and arbitration as economic

III. Discussion reducing means and efficient costs resolv- underly- purpose ing disputes out of court. Id. at 346. A trial Using the declaration of (2004) 10-4-609, pro- as a de novo would have constituted a new C.R.S. section (since ceeding nothing survive majority the that State would arbitra- backdrop, decides tion) forum, thereby rendering pub- separate in a “actual trial” clause contravenes guide it, preceding nonbinding to majority explains our that “a evalu- policy. lic As the ating purposes.” claim for Id. longstanding recognition of role of UM settlement at 348. coverage protecting against loss caused Peterman, 491-93,

In at inval- Farm’s “actual trial” clause violates Huizar, policy. Unlike the idated an insurer's “consent to sue” clause in de novo clause in “actual by compar- which State Farm’s trial” clause a context in the insurer knew of a ison, does not offer an avenue for circum- against unin- pending lawsuit the insured venting a motorists, complete entered on a but inter- sured had refused to proceeding in which parties had Later, have sought challenge vene. to insurer opportunity litigate to relating issues to both the default insured obtained Instead, liability. the clause appear. after the uninsured motorist failed to possible fraud, counterbalances issues of ille- Id. at to 490. contractual consent sue gality misrepresentations dam- about “any judgment against any per- clause made ages. Lyn- See Nat’l Union Fire Ins. Co. organization” nonbinding or son C., Cal.App.4th Cal.Rptr.2d ette insurer without its consent. Id. 489. (1994) 496, 497 (holding that trial” “actual Therefore, the insurer could the in- force insured, requires independent adjudi- re-litigate liability completely. sured to In evidentiary cation of facts based on showing addition, sought the insurer to enforce its process potential that does not create arbitration clause had al- after insured abuse, collusion). fraud, or majority As the ready unin- obtained acknowledges, such are issues not an anoma- sured motorist. Id. at The thrust of ly in Similarly, these eases. the consent to ease an the Peterman was that insurer can- broadly sue clause in Peterman authorized sit on not and force the insured to the insurer arising to refuse to honor a claim litigate re-litigate its It claims. was “any judicial proceeding,” under even presumably because Peterman case in which circumstances the insurer had no- that such as the cases before the tice and to refused intervene. both today court now includes the as a insurer compelled insurers’ contractual terms party,2 procedure by of a instead which the unnecessary insured to suffer costs and du- insured would sue Farm separately So, too, plicative proceedings. in Clementi: litigation. after conclusion the tortfeasor provision we viewed the notice that as one Clementi, adopted this court the notice- deprive the of coverage could insured on the prejudice rule an uninsured motorist ease Here, technicality. basis of a we are not notify in which the insured did not the insur- dealing duplicative proceedings tech- or company ance claim UM until seven- dealing nicalities. We are with the of a teen months after the accident. The contract party to a lawsuit to demand and receive one required practicable” notice “as soon as trial, trial rather than a to court. sought liability insurer to on the avoid acknowledged coverage have grounds contract clause been had completely replicate coverage cannot Clementi, violated. 16 P.3d at 224. This injured be party would available to an concluded the insurer not tortfeasor, every and that “not devia- escape on the of a basis “technicali- coverage tion uninsured motorist ... con- ty,” required but would rather demon- be impermissible attempt stitutes dilute preju- strate that the late had notice caused coverage] public policy.” [such violation ability investigate dice defend Huizar, 952 See P.2d at 348. The “actual majority applies claim. Id. at 232. The clause, my view, impermis- trial” is not an today Clementi to the cases us before impediment coverage. sible provider may concludes that was both lawsuits procedural rights assert not all a de- here, opportunity but not was offered fendant unless can it will demonstrate that litigate the issues manner as the same prejudiced if permitted to do so. plaintiffs. By its restriction of Huizar, I agree recover,” do not persons “legally Peterman and entitled to the stat- us to Clementi lead the conclusion that State was such ute never intended create tortfeasor, 2. This can occur either virtue of a clause with the virtue of intervention. demanding company that insured sue the participate in with rants the insured Accordingly, disagree I that sweeping bar. litigation. that State Farm’s majority’s conclusion public policy. trial” clause violates

“actual relationship be- Because of adversarial a distinction be- majority also creates The the insurer the UM tween the insured and rights in the contract tween the insurer’s context, capacity serves in the of the insurer action, portion tort portion of joined litiga- in the tort a co-defendant when agree not that such a I do of the action. The insurer tion uninsured. necessary. Certainly, rela- is distinction any judg- for potential responsibility bears and the insurer the insured tionship between I litigation. ment in that do entered when with uncomfortable tension fraught is agree unique litigation of UM nature tort- injured is an uninsured the insured deprives company, as a matter company has an feasor because public policy, the.right full attempting to minimize interest economic any than trial on the issue of more interest liability of tortfeasor. That right, deprive as a it would it such however, sufficiently not, my differ- view is public policy, matter faith or con- bad adversary position the insurer’s ent from litigation. tract respect breach of contract claims with justify wholly procedures. different IV. Conclusion struggled appropri with the have Courts nor this court’s Neither UM statute litiga for uninsured motorist procedures ate compel an precedent us conclude that example, the insured is tion. while As insurer’s “actual trial” clause contravenes third-party in cooperate in the public policy. Although an insured is enti- context, it has held litigation been surance coverage tled to the benefit of uninsured context, the insured that in the UM necessary, inap- when such is not with the insurer. See cooperate need not if it propriately diluted includes demand Creekmore, 559, v. 469 S.W.2d Wheeler fully necessary. if litigated matter be (Ky.1971); see also Guthrie I Accordingly, respectfully dissent and would F.Supp. Mut. Auto. Ins. appeals’ the court of decisions reverse (D.S.C.1968) (holding that “there is no need these cases. cooperation the insurer between mo connection I am to state that authorized Justice are, prac they in effect and torist because joins in this dissent. COATS adversaries”). court in tically speaking, One es particular, except has observed only prerequisite

tablishing liability, “the interpretation judicial which has survived process served on the service of against an unin when is initiated insurer suit BOARD OF ASSESSMENT process offers sured.” Id. The service of APPEALS, Petitioner, right pleadings file and defend insurer the fact, Id. unlike uninsured motorist. County F. and Teller Texas, Richard SAMPSON most have determined that the states Equalization, Respondents. matter Board insurer has a to intervene as a motorist, of law to defend the uninsured No. 03SC451. join fail insurer. should the insured Ins., Supreme Court Colorado. Risk See Milton v. Preferred (Tex.App.1974). S.W.2d Jan. 2005. contrary, majority’s assertion to the Rehearing As Denial of Modified on “unique” in tort is not the insurer’s role Jan. generally that determines its has anything, If the insurer “unique” role in war- the UM context that

Case Details

Case Name: State Farm Mutual Automobile Insurance Co. v. Brekke

Court Name: Supreme Court of Colorado

Date Published: Jan 31, 2005

Citation: 105 P.3d 177

Docket Number: 03SC585, 03SC719

Court Abbreviation: Colo.