Warren v. Liberty Mutual Fire Insurance

FILED
United States Court of Appeals
Tenth Circuit

February 11, 2009
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

KIRK WARREN and KURT
WARREN,

Plaintiffs - Appellants,
No. 07-1482
v.

LIBERTY MUTUAL FIRE
INSURANCE COMPANY, a
Massachusetts insurance company,

Defendant - Appellee.

Appeal from the United States District Court
for the District of Colorado
(D.C. No. 05-cv-01891-EWN-MEH)

Robert B. Carey (Julie B. Cliff with him on the briefs) The Carey Law Firm,
Colorado Springs, Colorado, for Plaintiffs-Appellants.

Stephen E. Csajaghy (Brian J. Spano with him on the briefs) Rothgerber Johnson
& Lyons LLP, Denver, Colorado, for Defendant-Appellee.

Before KELLY, BALDOCK and O’BRIEN, Circuit Judges.

O’BRIEN, Circuit Judge.
 Kirk and Kurt Warren (collectively “Appellants”), twin brothers injured in

an automobile accident, appeal from the district court’s entry of summary

judgment in favor of Liberty Mutual Fire Insurance Company (“Liberty Mutual”).

They allege they are entitled to reformation of the insurance policy purchased by

Kurt Warren and his purported wife, Deborah Bannister (n/k/a Deborah Warren),

because Liberty Mutual’s offer of extended or additional personal injury

protection (“extended PIP” or “APIP”) benefits violated the Colorado Auto

Accident Reparations Act (“CAARA”), Colo. Rev. Stat. §§ 10-4-701 to -726

(2002). 1 The district court held Liberty Mutual’s offer of APIP benefits violated

CAARA but reformation was not warranted. We affirm in part and reverse in

part.

I. BACKGROUND

On September 29, 2002, Kurt was driving a 1983 Chevrolet Suburban in

which Kirk was a passenger. 2 Kurt lost control of the vehicle, causing it to roll

over. Kirk suffered a broken neck in the accident and was rendered a

1
Prior to its repeal in 2003, CAARA was Colorado’s no-fault insurance act,
requiring motor vehicle owners to maintain minimum insurance coverage on their
vehicles, including no-fault personal injury protection (“PIP”) coverage. Colo. Rev. Stat.
§ 10-4-706(1). The mandatory minimum PIP coverage provided for reasonable and
necessary medical care, rehabilitative care, lost wages and death benefits in the event of
an accident without regard to fault. See id. CAARA also required insurers to provide and
offer APIP coverage in exchange for higher premiums. Colo. Rev. Stat. § 10-4-710(2)(a).
Except where otherwise indicated, all references to the Colorado Revised Statutes are to
the version in effect in 2002.
2
Kurt and Kirk are adult brothers who do not reside in the same household.

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quadriplegic. Kurt sustained a broken wrist.

At the time of the accident, Kurt and the Suburban were insured under an

automobile liability insurance policy issued by Liberty Mutual, Policy No. A02-

291-804115 (“the Policy”). The Policy provided state minimum liability limits

and basic PIP coverage. Bannister purchased the Policy after meeting with Doug

Maxey, a Liberty Mutual Sales Representative, on March 5, 1996. Bannister and

Maxey met for approximately thirty minutes at Bannister’s workplace. During

the course of the meeting, Bannister completed an automobile policy application

and the fourth page of a Colorado PIP Coverage Options Disclosure Form 146 R3

(“1996 PIP Disclosure Form”). The latter form states in pertinent part:

You may elect to purchase an Added PIP Medical Expenses option,
and [sic] Added PIP Work Loss Option, or a combination of these
two options applying to you and any family member for a reasonable
increase in premium. If you elect either of the following, the
$50,000 per person limit of benefits is increased to $200,000 per
person for any one accident.

(Appellants’ App. at 153.) Bannister declined each of the APIP options and

signed at the bottom of the page.

At the end of the meeting, Maxey gave Bannister a thick folder of

documents for her review. At her deposition, Bannister testified she could not

recall what specific documents were contained in the folder. At his deposition,

Maxey testified he could not recall Bannister’s folder specifically but always

provided applicants with the four-page 1996 PIP Disclosure Form, not just the

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signature page, and the Colorado Automobile Insurance Summary Disclosure

Form (“Summary Disclosure Form”).

Following Brennan v. Farmers Alliance Mutual Insurance Company, 961

P.2d 550 (Colo. App. 1998), 3 Liberty Mutual issued its 2001 PIP Endorsement,

which specified the APIP benefits available for purchase extended to pedestrians

and guest occupants. Liberty Mutual claims it sent the 2001 PIP Endorsement to

Kurt and Bannister in February or March 2002 along with the renewal documents

for the Policy, but did not submit evidence to the district court to establish the

fact of mailing. 4

On September 29, 2005, Appellants filed a complaint against Liberty

Mutual seeking declaratory relief and reformation on the ground its offer of APIP

benefits violated CAARA. They also alleged breach of contract, statutory and

common law bad faith breach of contract and breach of the implied covenant of

good faith and fair dealing.

Liberty Mutual filed a motion for summary judgment arguing Appellants

were not entitled to reformation because it made a statutorily compliant offer of

3
In Brennan, the Colorado Court of Appeals held the offer of enhanced PIP
benefits was required to extend to “1) the named insured, 2) resident relatives of the
named insured, 3) passengers occupying the insured’s vehicle with the consent of the
insured, and 4) pedestrians who are injured by the covered vehicle.” 961 P.2d at 553.
4
The court explained: “While the law presumes receipt of a properly addressed
piece of mail there is no evidence on record permitting any inference that the 2001 PIP
Endorsement was actually mailed to the Insureds.” Warren v. Liberty Mut. Fire Ins. Co.,
505 F. Supp. 2d 770, 779 (D. Colo. 2007) (citation and alterations omitted).

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APIP benefits. It argued if Appellants were entitled to reformation, the APIP

benefits should be subject to a $200,000 aggregate cap.

Appellants filed a motion for partial summary judgment arguing they were

entitled to reformation because Liberty Mutual’s offer of APIP benefits violated

three provisions of CAARA: (1) Colo. Rev. Stat. § 10-4-706(4)(a) (2001)

(repealed effective July 1, 2002), which states the insurer must provide a written

explanation of all available PIP coverage prior to issuing a policy; (2) Colo. Rev.

Stat. § 10-4-111(3), which states the insurer must provide a summary disclosure

form to the insured at the point of sale; and (3) Colo. Rev. Stat. § 10-4-710(2)(a),

which requires every insurer to offer “enhanced benefits for inclusion in a

complying policy, in addition to the basic coverages . . . at the option of the

named insured.” They also claimed the offer was insufficient under Allstate

Insurance Company v. Parfrey, 830 P.2d 905 (Colo. 1992). 5

The district court granted Liberty Mutual’s motion for summary judgment

and denied Appellants’ motion for partial summary judgment. Warren v. Liberty

Mut. Fire Ins. Co., 505 F. Supp. 2d 770 (D. Colo. 2007). The court held Liberty

Mutual’s offer of APIP benefits did not violate § 10-4-706(4)(a) or § 10-4-111

5
In Parfrey, the Colorado Supreme Court held “an insurer’s duty of notification
and offer must be performed in a manner reasonably calculated to permit the potential
purchaser to make an informed decision on whether to purchase . . . coverage higher than
the minimum statutory liability limits . . . .” 830 P.2d at 913. Parfrey involved an offer
of UM/UIM coverage. Because no statutory guidance exists, this Court has used the
Parfrey analysis to determine what constitutes a sufficient offer of APIP coverage. See
Padhiar v. State Farm Mut. Auto. Ins. Co., 479 F.3d 727, 733 (10th Cir. 2007).

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because Bannister received the 1996 PIP Disclosure Form and the Summary

Disclosure Form at the point of sale. It also determined the offer did not violate

Parfrey because “under the totality of the circumstances, Defendant’s offer was

reasonably calculated to permit [Bannister] to make an informed decision.” Id. at

782 (quotations omitted).

The court did, however, hold Liberty Mutual’s offer violated § 10-4-

710(2)(a) because the 1996 PIP Disclosure Form did not offer APIP benefits to

guest occupants and pedestrians and there was insufficient evidence to establish

Kurt and Bannister received the CAARA-compliant 2001 PIP Endorsement prior

to the accident. Nevertheless, it concluded Appellants were not entitled to

reformation because Bannister was offered (and declined) APIP benefits that

would have covered both Kirk and Kurt. Because Appellants were not entitled to

reformation, the court granted summary judgment in favor of Liberty Mutual on

Appellants’ remaining claims. The court explained: “In the absence of a viable

ground for reformation of the Policy to incorporate a higher level of benefits,

[Appellants] have no valid basis for [their remaining] claims.” Id. at 783.

II. DISCUSSION

Appellants contend the court erred in granting summary judgment in favor

of Liberty Mutual on their § 10-4-706(4)(a), § 10-4-111 and Parfrey claims, and

denying reformation. Liberty Mutual contends we should affirm the district

court’s denial of reformation because Bannister was offered APIP benefits that

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would have covered both Kirk and Kurt. In the alternative, Liberty Mutual argues

we should affirm because it did not violate § 10-4-710(2)(a). It claims it was not

required to identify the specific categories of persons eligible for APIP benefits

under Hill v. Allstate Ins. Co., 479 F.3d 735 (10th Cir. 2007). It also argues it did

not violate § 10-4-710(2)(a) because any defect in the 1996 PIP Disclosure Form

was remedied by the 2001 PIP Endorsement. Appellants argue if the Policy is

reformed, the reformed policy should not be subject to a $200,000 aggregate cap

and their claims for breach of contract, willful and wanton statutory bad faith,

breach of the implied covenant of good faith and fair dealing, and common law

bad faith should be reinstated.

We review an award of summary judgment de novo, viewing the record “in

the light most favorable to . . . the non-moving party.” Reid v. Geico Gen. Ins.

Co., 499 F.3d 1163, 1167 (10th Cir. 2007). Summary judgment is appropriate

only “if the pleadings, the discovery and disclosure materials on file, and any

affidavits show that there is no genuine issue as to any material fact and that the

movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). If there

is no genuine issue of material fact in dispute, we then determine if the

substantive law was correctly applied by the district court. Osgood v. State Farm

Mut. Auto. Ins. Co., 484 F.2d 141, 143 (10th Cir. 1988). Since this case is

grounded on diversity jurisdiction, the substantive law of Colorado governs.

Blanke v. Alexander, 152 F.3d 1224, 1228 (10th Cir. 1998).

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A. § 10-4-706(4)(a), § 10-4-111 and Parfrey

Appellants contend there was a material issue of fact regarding whether

Bannister received the 1996 PIP Disclosure Form and the Summary Disclosure

Form at the point of sale, precluding summary judgment on their § 10-4-

706(4)(a), § 10-4-111 and Parfrey claims. We disagree. Maxey testified he

routinely provided insurance applicants with the four-page 1996 PIP Disclosure

Form and the Summary Disclosure Form. Testimony from an insurance agent that

it was his usual practice to provide certain documents to insurance applicants

“constitutes relevant evidence that his conduct on the occasion he met with the

insured was in conformity with that routine practice.” Morris v. Travelers Indem.

Co. of Am., 518 F.3d 755, 761 (10th Cir. 2008). Maxey’s testimony was

uncontroverted by Bannister’s testimony that she could not recall what documents

she received.

Even if the court had found an issue of fact regarding Bannister’s receipt of

the 1996 PIP Disclosure Form and the Summary Disclosure Form, Liberty Mutual

would still have been entitled to summary judgment on Appellants’ claim the

offer of APIP benefits violated § 10-4-706(4)(a) because “the § 10-4-706(4)(a)

requirement is inapplicable to an offer of enhanced PIP benefits under § 10-4-

710(2)(a).” Munger v. Farmers Ins. Exch., 174 P.3d 832, 836 (Colo. App. 2007),

cert. denied, 2008 WL 17160 (2008); see also Stickley v. State Farm Mut. Auto.

Ins. Co., 505 F.3d 1070, 1077 (10th Cir. 2007).

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B. § 10-4-710(2)(a)

Liberty Mutual contends the district court erred in holding it violated § 10-

4-710(2)(a) because the 1996 PIP Disclosure Form did not offer APIP benefits to

guest occupants and pedestrians and there was insufficient evidence to establish

Kurt and Bannister received the CAARA-compliant 2001 PIP Endorsement prior

to the accident.

Liberty Mutual cites Hill in support of its argument that it was not required

to identify the specific categories of persons eligible for APIP benefits. We

disagree with Liberty Mutual’s reading of Hill. In Hill, we held the insurer’s

offer of APIP benefits did not violate CAARA where it covered all persons

eligible to receive benefits under the Act. 479 F.3d at 741. Here, Liberty Mutual

did not define its offer in terms of CAARA, instead offering APIP benefits to

“you and any family member.” (Appellants’ App. at 153.) We agree with the

district court that “although it may be true that an insurer’s silence in referencing

the persons covered by APIP does not permit an inference of exclusion, it is

certainly true that when an insurer lists some persons covered by APIP coverage,

those not included on the list are considered excluded.” Warren, 505 F. Supp. 2d

at 779.

Liberty Mutual also argues it did not violate § 10-4-710(2)(a) because any

defect in the 1996 PIP Disclosure Form was remedied by the 2001 PIP

Endorsement. The district court found Liberty Mutual did not present any

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evidence it mailed the 2001 PIP Endorsement to the insureds prior to the accident.

The court explained: “While the law presumes receipt of a properly addressed

piece of mail there is no evidence on record permitting any inference that the

2001 PIP Endorsement was actually mailed to the Insureds.” Id. (quotations and

alterations omitted). On a motion for summary judgment, the court must view the

facts in the light most favorable to the non-moving party. Reid, 499 F.3d at 1167.

Viewing the facts in the light most favorable to Appellants, the district court

correctly concluded Liberty Mutual violated § 10-4-710(2)(a) and the evidence

was insufficient evidence to establish Appellants received the 2001 PIP

Endorsement.

C. Reformation as to Kirk Warren

Though it concluded Liberty Mutual violated § 10-4-710(2)(a) , the district

court held Appellants were not entitled to reformation because Liberty Mutual’s

offer of APIP benefits covered both Kirk and Kurt. In arriving at this result, the

court interpreted the offer of APIP coverage contained in the 1996 PIP Disclosure

Form to “you and any family member” to include Kirk, an adult family member

not residing in the same household as the named insureds. (Appellants’ App. at

153.) The term “family member” is not defined in the Policy and is not used in

CAARA. Appellants argue the term is synonymous with “resident relative” which

is defined in CAARA as a relative of the named insured, if the relative is a

resident in the household of the named insured at the time of the accident. See

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Colo. Rev. Stat. § 10-4-707(1)(b); § 10-4-703(12). They argue Kirk was not a

resident relative but a guest occupant, defined in CAARA as “any other person . .

. occupying the described motor vehicle with the consent of the insured.” Colo.

Rev. Stat. § 10-4-707(1)(c). The district court concluded the term “family

member” was not limited to resident relatives. In denying Appellants’ motion for

reconsideration the court explained:

I see no reason to graft CAARA’s statutory “resident relative”
definition onto Defendant’s offer of APIP benefits to cover “any
family member.” Indeed, it strains credulity to believe . . . that
Defendants simultaneously ignored the strictures of CAARA
regarding required coverage while at [t]he same time implicitly
adopting its definitional language.

Warren v. Liberty Mut. Fire Ins. Co., No. 05-cv-01891, 2007 WL 3342687, at *3

(D. Colo., Nov. 8, 2007). 6

At oral argument before this Court, counsel for Liberty Mutual conceded

Kirk was not a family member within the meaning of the Policy. Thus, he was

not within the scope of the offer of APIP benefits and is entitled to reformation.

See Brennan, 961 P.2d at 554 (“[W]hen . . . an insurer fails to offer the insured

optional coverage that satisfies the No-Fault Act, additional coverage in

6
The district court stated: “In a recent case with analogous facts and the same
Defendant, Judge Lewis T. Babcock expressly adopted my reasoning here.” Warren,
2007 WL 3342687, at *3 n.2. In Weber v. Liberty Mutual Fire Insurance Company,
Judge Babcock denied reformation to a plaintiff who was the named insured because she
had been offered APIP benefits covering “you and any family member.” No. 06-00104,
2007 WL 1106106, at *5 (D. Colo., Apr. 12, 2007). Judge Babcock did not consider
whether an adult relative not residing with the named insured was a “family member”
within the meaning of the 1996 PIP Disclosure Form.

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conformity with the offer mandated by statute will be incorporated into the

policy.”); see also Thompson v. Budget Rent-A-Car Sys., Inc., 940 P.2d 987, 990

(Colo. App. 1996) (“[W]hen a policy is violative of a statute, reformation is . . .

required to assure that coverage will meet the statutory minimums.”). The

subjective intent of the insureds is not relevant to the analysis; that is, we need

not consider whether Bannister would have purchased APIP coverage covering

Kirk if it had been offered. See Thompson, 940 P.2d at 990.

D. Reformation as to Kurt Warren

Appellants concede Kurt was within the scope of Liberty Mutual’s offer of

APIP benefits but argue the Policy should be reformed to provide the full extent

of APIP benefits, including APIP benefits to the named insured. This position is

flatly contradicted by our precedent.

In Stickley v. State Farm Mutual Automobile Insurance Company, we held

“when an insurance policy is found to violate CAARA, only the defective portion

of the policy is reformed to comply with CAARA. It does not wipe the slate

clean and give the insured the fullest amount of benefits available for every

category possible.” 505 F.3d at 1080. Thus, we denied reformation to Stickley

based on State Farm’s failure to offer enhanced PIP benefits to pedestrians

because Stickley “was not a pedestrian and therefore would not receive additional

benefits as a result of reformation based on that pedestrian limitation.” Id. See

also Wilson v. Titan Indem. Co., 508 F.3d 971, 974 (10th Cir. 2007) (“Based on

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Stickley, we conclude that reformation of Plaintiff’s policy would not entitle him

to enhanced PIP benefits for his own injuries as the named insured because the

alleged defect in Defendant’s offer of coverage concerned only passengers and

pedestrians.”). Stickley and Wilson make clear Liberty Mutual’s failure to offer

APIP benefits for guest occupants and pedestrians does not warrant reformation in

favor of the named insured. 7

E. Aggregate Cap

Liberty Mutual argues if this Court determines Kirk and/or Kurt are entitled

to reformation, the reformed policy should be subject to an aggregate cap of

$200,000. Appellants argue the reformed policy should not be capped. CAARA

authorizes an aggregate gap of $200,000 per person, per accident. Colo. Rev.

Stat. § 10-4-710(2)(b). Where an insurance policy is reformed by the court, the

reformed policy will be subject to an aggregate cap if the original policy included

an aggregate cap. See Brennan, 961 P.2d at 555. If the original policy did not

include an aggregate cap, the reformed policy will likewise not be capped. See

Thompson, 940 P.2d at 991 (“Budget could have included in its rental agreement a

provision for a $ 200,000 cap for all benefits. It did not do so, however, and

therefore, plaintiffs’ benefits are not subject to such a limitation.”). 8
7
Because we conclude Kurt is not entitled to reformation, we need not consider
Liberty Mutual’s argument that Kurt is not entitled to reformation on account of his
bankruptcy filing.
8
A reformed policy will also be subject to an aggregate cap if the original
coverage could never have reached $200,000 given its payment limits. See Clark v. State

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 Appellants argue the reformed policy should not be capped because the

Policy did not include a $200,000 cap. Liberty Mutual claims the Policy would

have included a cap of $200,000 on the declarations page if the insureds had

purchased APIP coverage. 9 The district court did not reach the issue because it

concluded reformation was not warranted. We leave it to the district court to

determine in the first instance whether the reformed policy should be capped. See

Habecker v. Town of Estes Park, 518 F.3d 1217, 1227 (10th Cir. 2008) (“We do

not typically decide issues not passed upon below.”) (quotations omitted).

F. Remaining Claims

Appellants contend if we determine reformation is warranted, we should

reinstate their claims for breach of contract, willful and wanton statutory bad

faith, breach of the implied covenant of good faith and fair dealing and common

law bad faith. Because Kurt is not entitled to reformation, summary judgment

was properly entered in favor of Liberty Mutual on all of his claims. Whether

Kirk can pursue his secondary claims depends on the effective date of

reformation. See Clark v. State Farm Mut. Auto. Ins. Co., 319 F.3d 1234, 1243-

44 (10th Cir. 2003) (“Clark I”). As we explained in Clark I:

These contract, tort, and statutory claims . . . will remain viable only

Farm Mut. Auto. Ins. Co., 433 F.3d 703, 711 (10th Cir. 2005) (“Clark II”) (“State Farm
need not specifically include a $ 200,000 aggregate limit under the P1 coverage symbol
when such basic coverage cannot possibly provide PIP benefits exceeding that amount.”).
9
Liberty Mutual also points out it never sold uncapped APIP coverage in
Colorado.

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 if the district court in the exercise of its equitable power determines
that reformation should occur as of a date preceding its order of
reformation. Only under those circumstances would there be an
extant contract, tort, or statutory duty to be breached. Conversely, if
reformation is ordered to correspond to the date of entry of the order
of reformation, there would be no pre-existing duty to pay extended
PIP benefits.

Id. at 1244.

“[T]he effective date of reformation is an equitable decision to be

determined by the trial court based on the particular circumstances of each case.”

Id. at 1243. Thus, on remand, the district court must first decide the effective

date of reformation. Possible dates include: (1) the date the Policy was issued;

(2) the date the trial court in Brennan reformed the policy; (3) the date of the

Brennan decision; and (4) the date the district court on remand reforms the Policy

in favor of Kirk. See id.

In exercising its equitable power, the district court should consider
all appropriate factors, including the following: (1) the degree to
which reformation from a particular effective date would upset past
practices on which the parties may have relied and whether [Liberty
Mutual] anticipated the rule in Brennan; (2) how reformation from a
particular effective date would further or retard the purpose of the
rule in Brennan; and (3) the degree of injustice or hardship
reformation from a particular effective date would cause the parties.
These factors do not necessarily have equal weight but are to be
evaluated on the basis of the strength of the equitable and policy
considerations underlying each.

Id. at 1243-44 (quotations and citations omitted). Upon deciding the effective

date of reformation, the district court can determine in the exercise of its

discretion whether Kirk’s secondary claims should be reinstated.

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 We AFFIRM the grant of summary judgment in favor of Liberty Mutual on

all of Kurt Warren’s claims but REVERSE the grant of summary judgment in

favor of Liberty Mutual on Kirk Warren’s reformation claim. We REMAND to

the district court for further proceedings consistent with this opinion. We leave it

to the district court to determine whether the reformed policy should be subject to

an aggregate cap, the date of reformation, and the viability of Kirk Warren’s

claims for breach of contract, willful and wanton statutory bad faith, breach of the

implied covenant of good faith and fair dealing, and common law bad faith. We

DENY Kirk and Kurt Warren’s motion for an order certifying a question of state

law to the Colorado Supreme Court.

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