FILED
United States Court of Appeals
Tenth Circuit
March 26, 2009
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
FOR THE TENTH CIRCUIT
WILLIAM LOPEZ,
Plaintiff-Counter-
Defendant-Appellant,
v. No. 07-1250
(D.C. No. 05-cv-2603-RPM)
UNITED FIRE AND CASUALTY (D. Colo.)
COMPANY, an Iowa corporation,
Defendant-Counter-
Claimant-Appellee,
and
AMERICAN FAMILY MUTUAL
INSURANCE COMPANY, a
Wisconsin corporation,
Defendant.
ORDER AND JUDGMENT *
Before MURPHY, McKAY, and GORSUCH, Circuit Judges.
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
William Lopez appeals the district court’s grant of summary judgment to
United Fire and Casualty Company (United Fire), on (1) his claim that United
Fire breached the implied covenant of good faith and fair dealing by failing to
promptly pay him basic and enhanced personal injury protection (PIP)
lost-income benefits; and (2) his claim that this failure also constituted a “willful
and wanton failure . . . to pay [those] benefits when due” under the Colorado
Auto Accident Reparations Act (CAARA), Colo. Rev. Stat. § 10-4-708(1.8)
(repealed July 1, 2003). Mr. Lopez also appeals the district court’s denial of
attorney fees under the CAARA, Colo. Rev. Stat. § 10-4-708(1.7) (repealed July
1, 2003). Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.
I. Factual and Procedural History
On September 17, 2002, Mr. Lopez fell from the back of a garbage truck
while working for Pueblo Sanitation, Inc., seriously injuring himself. He began
receiving workers’ compensation medical and lost-income benefits. Mr. Lopez
alleged that he also contacted American Family Mutual Insurance Co. (American
Family), the company that insured his personal automobile, but was told he could
not submit a claim for benefits because his own automobile was not involved and
workers’ compensation benefits were available to him. Neither Mr. Lopez nor
Pueblo Sanitation filed an insurance claim with United Fire, the company that
insured the garbage truck. Mr. Lopez eventually filed a complaint in Colorado
state court on September 15, 2005, which was later removed to federal court.
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A. The Complaint
1. Claim for Declaratory Relief and Reformation
The complaint’s first cause of action sought, among other things, a
declaration that United Fire failed to properly offer enhanced PIP benefits under
§ 10-4-710. 1 Before its repeal, the CAARA required that automobile insurance
policies include certain minimum or basic PIP benefits to compensate injured
persons for medical and rehabilitative expenses and lost wages resulting from
automobile accidents. See § 10-4-706(1)(a)-(e). The CAARA also required an
insurer to offer, in exchange for higher premiums, two types of added or enhanced
PIP coverage. The first type was enhanced PIP medical-expense coverage which
was essentially basic PIP medical-expense coverage without that coverage’s
dollar or time limitations. See § 10-4-710(2)(a)(I). The second type of enhanced
PIP coverage, and the type Mr. Lopez claimed should have been offered to Pueblo
Sanitation, consisted of the enhanced PIP medical-expense coverage plus an
enhanced PIP lost-income coverage. § 10-4-710(2)(a)(II).
1
All statutory cites are to Colorado Revised Statutes, unless otherwise
specified. This court has utilized the 2002 version of the CAARA,
Colo. Rev. Stat. §§ 10-4-701 through 726 (repealed July 1, 2003), because the
United Fire policy in question was issued in 2002 and Mr. Lopez’s accident
occurred that year. The CAARA, which prior to repeal governed the sale of
automobile insurance in Colorado, was enacted by the Colorado legislature in
1973 for the purpose of avoiding inadequate compensation to victims of
automobile accidents. See Reid v. Geico Gen. Ins. Co., 499 F.3d 1163, 1165
(10th Cir. 2007).
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Under Colorado law, when an insurance company has violated the CAARA
by failing to offer enhanced PIP coverage, the legal remedy is to reform the
policy to include that coverage. 2 Clark v. State Farm Mut. Auto. Ins. Co.,
319 F.3d 1234, 1241 (10th Cir. 2003) (“‘[W]hen . . . an insurer fails to offer the
insured optional coverage that satisfies [the CAARA], additional coverage in
conformity with the offer mandated by statute will be incorporated into the
policy.’”) (quoting Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550, 554
(Colo. App. 1998)) (ellipsis and emphasis in original). Mr. Lopez therefore asked
the district court to reform the policy to include the enhanced PIP coverage
described in § 10-4-710(2)(a)(II), from the date of issuance. 3
2. Breach of Contract Claim
The complaint’s second cause of action argued, as to United Fire, that once
the court reformed the insurance contract to include the enhanced PIP benefits
from the date of issuance, the court should then find that United Fire breached the
contract by failing to properly pay Mr. Lopez those benefits when due.
2
In diversity cases like this one, the substantive law of the forum state
governs the analysis of the underlying claims. Eck v. Parke, Davis & Co.,
256 F.3d 1013, 1016 (10th Cir. 2001).
3
The only benefits at issue were the lost-income benefits described under
§ 10-4-710(2)(a)(II).
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3. CAARA Claim For Willful and Wanton Failure to Pay
Benefits When Due
The complaint’s third cause of action alleged, as to United Fire, that not
only did it fail to pay Mr. Lopez the enhanced benefits when due under
§ 10-4-708(1), its failure was willful and wanton under § 10-4-708(1.8), and he
was therefore entitled to treble damages. Under § 10-4-708(1): “Payment of
benefits . . . shall be made on a monthly basis. Benefits for any period are
overdue if not paid within thirty days after the insurer receives reasonable proof
of the fact and amount of expenses incurred during that period . . . .” 4 Under
§ 10-4-708(1.8):
[I]n the event of willful and wanton failure of the insurer to pay such
benefits when due, the insurer shall pay to the insured, in addition to
any other amounts due to the insured under this subsection . . . , an
amount which is three times the amount of unpaid benefits recovered
in the proceeding.
In Dale v. Guaranty National Insurance Co., the Colorado Supreme Court held
that a “willful and wanton failure to pay benefits when due is established when an
4
We note at this point that an argument may be made that the plain language
of § 10-4-708 restricts its application to only the payment of basic PIP benefits in
§ 10-4-706. See also Colo. Div. of Ins. Am. Reg. 5-2-8(4)(B) (“Section
10-4-708(1), C.R.S., provides that benefits under the coverages enumerated in
§ 10-4-706, C.R.S. are overdue if not paid within 30 days after the insurer
receives reasonable proof of the fact and amount of the expenses incurred.”).
Nevertheless, because we affirm on other grounds we do not address this
question. For the purposes of this order and judgment only, we treat the section
as if it also applies to the payment of enhanced PIP benefits under § 10-4-710.
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insurer acts without justification and in disregard of [a] plaintiff’s rights.”
948 P.2d 545, 551 (Colo. 1997) (internal quotation marks omitted).
4. Claim for Breach of The Implied Covenant of Good Faith and
Fair Dealing
The complaint’s fourth cause of action alleged, as to United Fire, that its
failure to pay Mr. Lopez the enhanced PIP benefits when they were due
constituted a violation of the insurance contract’s implied covenant of good faith
and fair dealing. Under Colorado law, all insurance contracts contain an implied
covenant of good faith and fair dealing. Id. at 551 n.6. “For an insured to prevail
on a first-party tortious bad faith breach of contract claim against the insurer, 5 the
insured must establish that the insurer acted: (1) unreasonably and (2) with
knowledge of or reckless disregard of its unreasonableness.” Id. at 551.
B. Answer and Amended Answer
Following the filing of Mr. Lopez’s state court complaint, his counsel sent
a letter to United Fire on November 11, 2005, referencing the accident and asking
for a copy of the insurance policy and declarations. On November 21, 2005,
Ron Reihmann, a claims representative for United Fire, responded with a letter
5
Because Mr. Lopez was an insured under the contract, this was a first-party
breach claim. See Farmers Group, Inc. v. Williams, 805 P.2d 419, 429-30
(Colo. 1991) (Vollack, J., dissenting); see also Travelers Ins. Co. v. Savio,
706 P.2d 1258, 1274-76 (Colo. 1985).
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briefly describing the policy coverage and enclosing an application for PIP
benefits and medical and wage-loss information authorization forms.
The case was removed to federal district court on December 22, 2005. The
certificate of compliance accompanying the notice of removal asserted the
complaint had been served on American Family and United Fire on December 8,
2005. United Fire filed its answer in federal court on December 28, 2005,
generally denying the majority of the allegations therein and stating it had been
unable to complete its internal investigation because Mr. Lopez had not yet
submitted an insurance claim. United Fire also filed a counterclaim seeking a
declaration that its liability for PIP coverage was subject to a $200,000 cap under
the policy. On February 6, 2006, United Fire amended its answer to admit it
would not be able to prove that enhanced PIP coverage had been properly offered
and the insurance contract would have to be reformed to include that coverage.
C. Summary Judgment Motions
Although the parties agreed reformation was necessary, they disagreed as to
the effective date. In a February 20, 2006, letter to Mr. Lopez’s counsel, United
Fire voluntarily reformed the contract to include enhanced PIP coverage from
October 14, 2005, the date one of its claim representatives, while investigating a
different insurance claim, had incidentally become aware of Mr. Lopez’s potential
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claim. 6 It enclosed a lump-sum check for enhanced PIP benefits for income lost
from the proposed reformation date until February 20, 2006, the date of the letter;
it then paid enhanced PIP lost-income benefits every two weeks from that point
until final settlement was eventually reached. On March 20, 2006, Mr. Lopez
moved for partial summary judgment on his declaratory relief claim, seeking a
declaration that the policy should be reformed to include enhanced PIP
lost-income coverage from date of issuance, and a ruling that the contract had
been breached by failure to pay those benefits. United Fire opposed Mr. Lopez’s
motion and responded with its own summary judgment motion, seeking, among
other things, a dismissal of Mr. Lopez’s bad faith and willful and wanton failure
to pay benefits claims.
In its various motions, United Fire asserted the insurance contract had
already been reformed effective October 14, 2005, and argued that date was
proper because “it was shortly after that date that [United Fire] became informed
that there was even an issue of enhanced PIP.” Aplt. App. at 238.
In his various motions, responses, and replies regarding summary judgment,
Mr. Lopez argued first that United Fire’s selection of an October 2005
reformation date was unreasonable and it was therefore bad faith and willful and
wanton conduct for it to not have paid enhanced PIP benefits for income lost prior
6
The letter itself stated the effective date was October 15, 2005, but the
parties later apparently agreed benefits were paid from October 14, 2005. The
exact date is not integral to our ruling.
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to that time. In the alternative, he argued that even if the delay in payment of
enhanced benefits was reasonable, the company should at least have timely paid
basic PIP lost-income benefits–which the parties agreed were included in the
policy as written–and that it was bad faith and willful and wanton conduct for it
not to have done so. In response to this second argument, United Fire argued that
Mr. Lopez had not submitted a complete insurance claim for basic PIP
lost-income benefits until March 29, 2006, and that its April 13, 2006, payment of
those basic PIP benefits was therefore timely.
D. Summary Judgment Ruling
The district court entered its order on the parties’ motions for summary
judgment on November 27, 2006. It held: “Under the facts and circumstances of
this case, United Fire’s policy should be reformed to provide enhanced PIP
benefits as of the date of its issuance, and not October 14, 2005, the date [on]
which United Fire stated it first received notice of a claim.” Id. at 365. The court
held, “[a]lthough United Fire’s failure to pay enhanced PIP benefits from the date
of the accident is a breach of the insurance policy, [Mr.] Lopez has failed to show
support for a claim of bad faith,” and dismissed Mr. Lopez’s bad faith claim. Id.
On March 12, 2007, following a joint motion for clarification of the court’s order,
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the court entered another order summarily dismissing Mr. Lopez’s willful and
wanton failure to pay benefits claim. 7
E. Motion for and Ruling on Attorney Fees
Mr. Lopez then moved for an award of attorney fees under § 10-4-708(1.7).
United Fire argued to the district court, among other things, that fees should be
denied because Mr. Lopez had failed to provide a notice required under that
section. The court denied attorney fees, but for a different reason.
The court held that § 10-4-708(1.7) “provides for the recovery of attorney
fees where the insured successfully brings a proceeding based on the contention
that he or she properly submitted claims for payment but the insurer failed to
make prompt payment of such direct benefits claimed when they were due.”
Aplt. App. at 469. The court held that in the present case, however, the basis for
United Fire’s liability was its inability to establish that it had properly offered
enhanced PIP coverage in compliance with § 10-4-710. The court held:
In this case, [Mr. Lopez’s] claims against United Fire were premised
on its alleged failure to properly offer enhanced PIP benefits under
C.R.S. § 10-4-710 as it existed during the applicable time period,
thereby requiring a reformation of United Fire’s policy to include
such benefits and, consequently, the entitlement to payment of
enhanced PIP benefits.
7
The district court dismissed the claims against American Family, finding it
had no liability unless Mr. Lopez’s expenses exceeded the $200,000 aggregate
cap in the United Fire policy. Because Mr. Lopez agreed the cap would not be
exceeded, the court found his claims against American Family were not ripe.
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Id. at 469-70. The court finally stated that “[t]he statutory mechanism for the
payment of enhanced PIP benefits was not applicable until the policy was
reformed to include enhanced PIP benefits, the very purpose of this litigation.
There was no breach of the contract as the policy was written.” Id. at 470.
II. Analysis of Summary Judgment
Although, as noted above, Colorado law governs our analysis of the
underlying claims, “we are governed by federal law in determining the propriety
of the district court’s grant of summary judgment. Accordingly, we review the
grant of summary judgment de novo, applying the same standard as the district
court pursuant to Rule 56(c) of the Federal Rules of Civil Procedure.” Stickley v.
State Farm Mut. Auto. Ins. Co., 505 F.3d 1070, 1076 (10th Cir. 2007) (internal
quotations omitted). Summary judgment is appropriate when there is no genuine
issue of material fact and the moving party is entitled to judgment as a matter of
law. See Fed. R. Civ. P. 56(c). Further, as a general matter, “[t]he [CAARA] is
to be liberally construed to further its remedial and beneficent purposes.”
Brennan, 961 P.2d at 553.
A. Bad Faith and Willful and Wanton Claim Regarding Basic PIP
Benefits
Mr. Lopez first argues that by February 28, 2006, he had provided
reasonable proof of the fact and amount of his lost income under § 10-4-708(1),
and that basic PIP lost-income benefits were therefore fifteen days overdue when
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they were paid on April 13, 2006. His argument is based on Colorado Division of
Insurance Amended Regulation 5-2-8(4)(C)(2) (2004), 3 Colo. Code Regs.
§ 702-5, which addresses the documents usually sufficient to establish proof of
the fact and amount of wage loss when a claimant is pursuing PIP lost-income
benefits. 8 It reads in pertinent part:
In the usual case, if the claimant is pursuing covered PIP wage loss
benefits, the following documents are sufficient to establish proof of
the fact and amount of wage loss incurred:
a. A properly executed application for benefits from the
PIP claimant; and
b. Written verification by a health care provider that the
claimant is not able to perform his/her work as a result
of the injury; and
c. Written verification of employment and income[.]
8
In § 10-4-708(1.3), the Colorado legislature directed the commissioner of
insurance to promulgate a rule “establish[ing] guidelines for the timely payment
of personal injury protection benefits including the penalties for the failure to
timely pay such benefits or to otherwise comply with the rule.” The legislature
required that “[t]he guidelines for timely payment established by rule shall
include at the minimum a list of the items necessary, in addition to the
requirements set forth in section 10-4-706, to establish proof of the fact and
amount of expenses incurred . . . .” Id. The commissioner subsequently
promulgated Colo. Div. of Ins. Am. Reg. 5-2-8 pursuant to that statute.
See Colo. Div. of Ins. Am. Reg. 5-2-8(1). Further, § 3 of Am. Reg. 5-2-8 reads:
The Colorado Reparations (No-Fault) Act was repealed effective
July 1, 2003. Automobile insurance policies with personal injury
protection (PIP) benefits issued or renewed prior to July 1, 2003 will
continue to incur PIP claims until such benefits do not apply any
longer. This regulation applies to claims occurring under No-Fault
Policies issued prior to July 1, 2003.
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Mr. Lopez argues that he provided these documents by February 28, 2006, and the
regulation’s thirty-day clock started at that time.
In the usual case, these documents would show that an injured party was
employed at the time of the accident, the amount he or she earned through that
employment, and that the party was no longer able to work because of the injury.
But another factor comes into consideration when the insured is injured on the
job. Under § 10-4-707(5), an injured worker’s entitlement to PIP lost-income
benefits is reduced to the extent that worker receives lost income benefits under
the workers’ compensation statute. Tate v. Indus. Claim Appeals Office, 815 P.2d
15, 19 (Colo. 1991). Thus, in a case such as this, information regarding the
injured party’s employment and the severity of the party’s injury, standing alone,
is not sufficient to allow the insurer to determine the amount of benefits.
Nevertheless, even if we assume for the sake of argument that Mr. Lopez
had provided the documentation required by the regulation by February 28, 2006,
the regulation goes on to provide that
[i]f an insurer does not pay a claim for benefits under § 10-4-706,
C.R.S. within 30 days of receipt of the appropriate documents
described in this regulation and as set forth in § 10-4-708, C.R.S., the
insurer shall immediately notify the PIP claimant or the claimant’s
representative . . . of the reason(s) the claim has not been paid. If the
claim has not been paid because an investigation is underway, the
insurer shall document in the claim file the actions being taken to
investigate the claim and the efforts being made to promptly
conclude the investigation.
Am. Reg. 5-2-8(4)(D).
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The record reveals that United Fire informed Mr. Lopez that it was not
paying basic PIP lost-income benefits because the workers’ compensation
information was ambiguous and Mr. Lopez had made no specific claim as to the
amount of benefits owed. Thus, the issue is whether United Fire’s delay in
payment for these reasons constituted bad faith or a willful and wanton failure to
pay benefits when due.
As noted above, to show that United Fire acted in bad faith, Mr. Lopez had
to show that United Fire acted: “(1) unreasonably and (2) with knowledge of or
reckless disregard of its unreasonableness.” Dale, 948 P.2d at 551. To show that
United Fire’s actions in paying those basic PIP benefits constituted a willful and
wanton failure to pay benefits when due, Mr. Lopez had to establish that United
Fire “act[ed] without justification and in disregard of [his] rights.” Id. (quotation
omitted).
In Dale, the Colorado Supreme Court explained that a willful and wanton
failure to pay a claim is not identical to a claim of bad faith, holding that while
“[p]roof of willful and wanton conduct as we have defined it will also prove that
the insurer knowingly or recklessly acted unreasonably toward its insured . . . a
finding that the insurer’s conduct was not willful and wanton is not the equivalent
of a finding that the insurer did not act in bad faith.” Id. The court held this was
so “because willful and wanton conduct under the No-Fault Act is a subset of
insurance bad faith” in that “[w]hile a willful and wanton claim under the
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No-Fault Act is limited to the circumstances concerning the refusal to pay
insurance benefits when due, the tort of bad faith breach of an insurance contract
encompasses an entire course of conduct and is cumulative.” Id.
The Colorado Supreme Court thus held that although the “element of
reasonableness” in both claims could be considered equivalent, the claims
themselves could not be considered equivalent and “a finding on the element of
reasonableness in the willful and wanton claim may be preclusive with respect to
the same element in the bad faith claim” only if the evidence that supports the
common-law bad faith claim is identical to the evidence that supports the
statutory willful and wanton conduct claim. Id. at 552. In the present case, the
assertion under both claims is a failure to pay PIP benefits when due and the
evidence supporting both claims was identical. We therefore see no difference
between the burdens of proof required for each claim and, as explained below,
hold that United Fire’s actions were reasonable as a matter of law.
In his benefits application, Mr. Lopez claimed that he either was eligible
for or had received workers’ compensation in the amount of $213.33 per week.
To support this claim he provided an indemnity activity log from the workers’
compensation insurer, Pinnacol. After receiving notice of Mr. Lopez’s claim,
United Fire wrote a number of letters attempting to obtain an executed application
for PIP benefits, wage and medical authorizations, information regarding the
amount of workers’ compensation benefits Mr. Lopez had received, and the
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amount of PIP benefits he was claiming. United Fire’s correspondence
consistently reiterated that Mr. Lopez had failed to supply the information
necessary for a valid claim. The record shows no response to this correspondence
until February 27, 2006, when Mr. Lopez sent United Fire a letter disputing its
contention that he had not, at that point, properly submitted a claim. That letter
enclosed further documentation regarding his inability to work, but provided no
new information regarding workers’ compensation payments.
On March 23, 2006, Mr. Reihmann sent a letter to Mr. Lopez’s legal
counsel in which he reasserted United Fire’s position that a proper insurance
claim for lost income had not been filed by Mr. Lopez because the indemnity
activity log appeared to pay Mr. Lopez more than the basic PIP weekly benefit.
The letter asserted:
You have provided no assertion of what the amounts [owed by
United Fire] should be during the first year from the date of the
accident, and indeed admitted that neither you nor your client had
access to the Worker’s Compensation file or documentation of the
settlement of the Worker’s Compensation claim, for United Fire to
make a reasoned determination of what may be owed during the first
year.
Aplt. App. at 227. United Fire further claimed “the offset that United Fire is
entitled to is still unclear, since you have yet to provide us with a copy of any
release signed by your client outlining what the Pinnacol payments represented.”
Id. The letter complained that because “[t]he Pinnacol Indemnity Activity
document indicates that your client was paid $19,221.76 during the first year” and
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that the first year of PIP payments under either the enhanced or basic PIP formula
would be less than that amount, “it does not appear that you have provided
sufficient documentation as to any [wage] loss [as to the first year of disability]
at this time.” Id. at 227-28.
On appeal, Mr. Lopez argues that “the fact that United Fire came up with
an incorrect number in reading the figures on the Pinnacol Assurance log . . . does
not establish that, as a matter of law, it acted reasonably.” Aplt. Reply Br. at 5.
We believe that under the circumstance of this case no reasonable jury could find
that United Fire acted unreasonably in trying to obtain more information
regarding the amount of workers’ compensation payments. First, United Fire–not
Mr. Lopez–was the proactive party in trying to obtain the information necessary
to properly handle the claim. Second, the indemnity activity log provided by
Mr. Lopez is unclear as to the amount of workers’ compensation lost-income
payments he received. 9 Third, until March 23, 2006, Mr. Lopez never responded
9
Although it is not clear how United Fire arrived at its $19,221.76 figure,
the log shows a number of different payments being made. Under “Comp Code
PP,” the log shows $35,527.52 in payments consisting of two “Regular” payments
of $426.66, a “Regular” payment of $170.38, a “Lump Sum” payment of
$9,503.82, and a “Settlement” of $25,000. Aplt. App. at 230-31. Under “Comp
Code TT,” the log shows $9,264.62 in payments, consisting of one “Regular”
payment of $304.76, and twenty-one “Regular” payments of $426.66. Id. The
$426.66 regular payments, under both the PP and TT “Comp Code” sections are
all for two-week periods, which would be consistent with the application’s claim
that Mr. Lopez was entitled to $213.33 per week in workers’ compensation
benefits. Id. But there is nothing to explain the difference between the payments
under the PP and TT codes, what the lump sum and settlement payments were for,
(continued...)
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to United Fire’s inquiries regarding its inability to determine the amount of
workers’ compensation benefits received or the amount of benefits being claimed.
On that date, Mr. Lopez’s counsel sent American Family’s counsel a letter–and
forwarded a copy of this letter to United Fire’s counsel–which specifically set
forth Mr. Lopez’s calculations showing the amount of workers’ compensation
received and the amounts he claimed were owed by the insurers. Even this letter,
since it was addressed to American Family’s counsel, made no attempt to address
United Fire’s prior correspondence. Less than thirty days from its receipt of this
letter, United Fire acknowledged that a valid PIP lost-income claim had been
received and paid the basic PIP lost-income benefits, despite the fact that it “still
ha[d] questions regarding the income amounts already paid to [Mr. Lopez] as
reflected in the Pinnacol Indemnity Activity document.” Aplt. App. at 359.
Under these facts, no reasonable jury could determine that United Fire’s
fifteen-day delay in paying basic PIP benefits was unreasonable.
B. Bad Faith and a Willful and Wanton Claim Regarding Enhanced
PIP Benefits
As noted above, United Fire voluntarily reformed the insurance contract to
include enhanced PIP lost-income benefits from October 14, 2005, and began
paying Mr. Lopez for income lost after that date. It chose October 14 because
9
(...continued)
or what the remaining regular payments covered.
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its internal investigation had revealed that on that date one of its claim
representatives, while investigating a different insurance claim, had incidentally
become aware of Mr. Lopez’s potential claim.
United Fire advanced this same argument on summary judgment, asserting
the effective reformation date “should at best be to when United Fire was put on
notice that such an issue even exist[ed],” Aplt. App. at 113, and that it should
only have to pay Mr. Lopez for wages he lost after it became aware its policy
violated Colorado law. It argued “reformation should not make an insurer liable
for coverage it could not foresee during a time it reasonably did not know of such
exposure.” Id. at 351. Mr. Lopez disagreed, arguing that although United Fire
had reformed the insurance policy to include enhanced PIP coverage, its failure to
reform the policy to pay those benefits from the date the policy was issued
constituted bad faith and a willful and wanton failure to pay benefits when due
under § 10-4-708(1.8).
Resort to a judicial forum is not necessarily bad faith–or willful and wanton
conduct–because an insurer may legally challenge claims as long as the legal
questions presented by its arguments are fairly debatable. See Travelers Ins. Co.
v. Savio, 706 P.2d 1258, 1275 (Colo. 1985); Brennan, 961 P.2d at 557; Brandon
v. Sterling Colo. Beef Co., 827 P.2d 559, 561 (Colo. App. 1991). But Mr. Lopez
argued to the district court, and argues to this court on appeal, that a review of the
applicable case law shows that United Fire’s arguments were not fairly debatable.
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Under Colorado law, when an insurer delays paying insurance benefits to
pursue legal arguments, the reasonableness of that party’s decision is a question
of law. See Tozer v. Scott Wetzel Servs., Inc., 883 P.2d 496, 499 (Colo. App.
1994) (“To submit such a question to the jury would not only require the [lay]
jurors to assess the reasonableness of a legal argument, . . . it would require the
parties . . . to provide the jurors with legal advice through the guise of expert
testimony.”). In support of its legal arguments, United Fire cited to the Clark line
of decisions by the district court and this court. 10
We need not examine the Clark cases in detail, however, because United
Fire also relied on Breaux v. American Family Mutual Insurance Co.,
387 F. Supp. 2d 1154 (D. Colo. 2005). In Breaux, which was decided
approximately six months before United Fire’s summary judgment motion was
filed, the insured purchased an insurance policy from American Family in
February 2000. At that time, American Family offered several optional enhanced
PIP coverages but did not offer the enhanced PIP lost-income coverage required
by § 10-4-710(2)(a)(II). Evidence was presented that American Family amended
its general PIP endorsement in January 2001, to offer coverage complying with
§ 10-4-710(2)(a)(II), but made no change to the insured’s policy. The insured
10
These cases are Clark v. State Farm Mut. Auto. Ins. Co. (Clark I),
319 F.3d 1234, 1241 (10th Cir. 2003); Clark v. State Farm Mut. Auto. Ins. Co.
(Clark II), 292 F. Supp. 2d 1252, 1268 (D. Colo. 2003); and Clark v. State Farm
Mut. Auto. Ins. Co. (Clark III), 433 F.3d 703, 713 (10th Cir. 2005).
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was injured in an automobile accident in September 2001 and eventually sued
to have her policy reformed “to include enhanced PIP benefits [under
§ 10-4-710(2)(a)(II)] as of the issuance date of the policy.” Breaux,
387 F. Supp. 2d at 1164. The district court found that reformation was clearly
proper but exercised its discretion to set “the appropriate date of reformation [as]
the date that [American Family] became aware that it was not in compliance with
section 10-4-710(2)(a)(II) as to Plaintiff’s policy.” Id. (emphasis added). But the
district court did not pick the date of issuance of Ms. Breaux’s policy as the
reformation date, despite the fact that there is nothing in the opinion showing
American Family should not have been aware at the time of issuance of either
(1) what coverages it offered, or (2) what Colorado law required. The court
instead chose January 1, 2001, as the proper reformation date, which was the date
American Family amended its PIP endorsement to add § 10-4-710(2)(a)(II)
coverage. Thus, it appears the court chose the date that it was clear American
Family had realized its previous PIP coverage options violated Colorado law.
United Fire’s argument was essentially that the district court should follow
its ruling in Breaux and exercise its discretion to reform the insurance policy to
the date United Fire received notice that it had failed to offer the proper enhanced
PIP lost-income coverage in regard to the Pueblo Sanitation policy. 11 United Fire
11
More specifically, United Fire argued that the policy should be reformed to
the date it realized it could not prove it had made the required offer of coverage.
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argues this legal position was fairly debatable and we agree. Consequently, we
affirm the court’s decision that it was not bad faith or a willful and wanton failure
to pay benefits when due for United Fire to delay payment of enhanced PIP
lost-income benefits by relying on its previous decision in Breaux. 12
Mr. Lopez also complains that United Fire acted in bad faith and committed
willful and wanton conduct by delaying payment of enhanced PIP lost-income
benefits after the district court ordered that such benefits were due. He argues the
district court could not properly grant summary judgment because the benefits
had not been paid at the time of the court’s order and the court therefore had no
way of determining if future acts of bad faith or willful and wanton conduct
would occur.
We first note that Mr. Lopez’s response to United Fire’s summary judgment
motion did not argue that the court could not rule on the motion until the benefits
were paid. Kelly, 410 F.3d at 676 (holding we review issues not raised only for
12
Mr. Lopez also argues for the first time on appeal that the effective date
of reformation is irrelevant to the amount of enhanced PIP benefits owed to
Mr. Lopez. It appears Mr. Lopez is arguing that because United Fire admitted
that the reformation date was, at latest, the middle of October 2005, then
(1) enhanced PIP coverage–i.e., benefits equaling eighty-five percent of his lost
income from the day after the date of the accident–was at least incorporated as of
that date, and thus (2) once he had presented reasonable proof of his claim at the
end of February 2006, those benefits–i.e., lost-income from the day after the
accident–should have been paid within thirty days. Mr. Lopez never raised this
argument in the district court. We review issues not raised in the district court
only for plain error, which is not present here. Kelly v. Metallics W., Inc.,
410 F.3d 670, 676 (10th Cir. 2005).
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plain error). But even if the argument had been made it would clearly have
failed. Mr. Lopez’s bad faith and willful and wanton conduct claims necessarily
had to concern conduct by United Fire that occurred prior to the court’s order. In
this case the claims regarding the enhanced PIP lost-income benefits were based
on the reasonableness of the legal arguments regarding reformation put forth by
United Fire. Those arguments were properly settled by the court in its summary
judgment order. Mr. Lopez could not have brought a proper claim arguing that a
wrong might be committed at some point in the future. Even if a claim existed
for conduct by United Fire that occurred after the court’s order, it would be
a separate claim that is not properly reviewable in this appeal.
III. Analysis of Denial of Attorney Fees
Mr. Lopez’s final claim is that the district court erred in denying his
request for attorney fees. Mr. Lopez moved for an award of attorney fees under
§ 10-4-708(1.7). Subsection (a) of § 10-4-708(1.7) reads:
At least twenty days prior to the commencement of the proceeding
the party claiming the benefits shall set forth the amount claimed and
in controversy in a separate document entitled “Notice to insurer of
amount claimed”, which shall include no more than those amounts
the insured claims are denied or not timely paid by the insurer. The
notice shall also specify the amount, if any, claimed for attorney
fees. The notice shall be served on all parties no later than twenty
days prior to the commencement of the arbitration hearing or trial,
and shall be served in the manner set forth in rules promulgated by
the commissioner of insurance. If such notice is not timely served,
there shall be no award of attorney fees to the person claiming
benefits, unless the arbitrator or court determines that the failure was
the result of excusable neglect, in which case the arbitration or trial
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shall be continued to a date at least twenty days after the notice is
filed.
As noted above, United Fire argued that Mr. Lopez could not collect attorney fees
because he had failed to provide the notice referred to above and the district court
denied fees because “[t]here was no breach of the contract as the policy was
written.” Aplt. App. at 470. Mr. Lopez argues the court’s denial was inconsistent
with its previous holding that a breach of contract did occur. We affirm the
denial of attorney fees but for a different reason than that advanced by the district
court. See Proctor v. United Parcel Serv., 502 F.3d 1200, 1206 (10th Cir. 2007)
(internal quotation omitted) (“We may affirm the district court’s decision for any
reason supported by the record.”).
We review de novo “any statutory constructions or legal conclusions that
provide a basis for the award” of attorney fees, “[a]lthough the ultimate decision
to award fees rests within the district court’s discretion.” Phelps v. Hamilton,
120 F.3d 1126, 1129 (10th Cir. 1997). We note that “[i]n the absence of a statute,
court rule, or private contract to the contrary, attorney fees are not recoverable by
a prevailing party in either a contract or a tort action.” Adams v. Farmers Ins.
Group, 983 P.2d 797, 801 (Colo. 1999). Mr. Lopez is seeking attorney fees under
§ 10-4-108(1.7), which the Colorado Supreme Court has stated is the subsection
that “pertains to the availability and amount of attorney fee awards.” Id. at 803.
When interpreting the meaning of that statute, we look to Colorado’s
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rules of statutory construction. Finstuen v. Crutcher, 496 F.3d 1139, 1148
(10th Cir. 2007).
In construing a statute, our duty is to effectuate the intent and
purpose of the General Assembly. We read the statute as a whole,
giving sensible effect to all of its parts whenever possible.
If the statutory provisions are clear, we apply their plain and
ordinary meaning. If statutory provisions are in conflict, we adopt
the interpretation that best harmonizes the various provisions if
possible.
CLPF-Parkridge One, L.P., v. Harwell Invs., Inc., 105 P.3d 658, 660 (Colo. 2005)
(citations omitted).
Under § 10-4-708(1.7)(a):
At least twenty days prior to the commencement of the proceeding
the party claiming the benefits shall set forth the amount claimed and
in controversy in a separate document entitled “Notice to insurer of
amount claimed”, which shall include no more than those amounts
the insured claims are denied or not timely paid by the insurer.
§ 10-4-708(1.7)(a) (emphasis added). This notice must also include claimed
attorney fees. Id. Further, “[i]f such notice is not timely served, there shall be no
award of attorney fees to the person claiming benefits, unless the arbitrator or
court determines that the failure was the result of excusable neglect, in which
case the arbitration or trial shall be continued to a date at least twenty days after
the notice is filed.” Id.
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The parties agree no notice was served. Mr. Lopez argues on appeal, as he
did to the district court, that service of the notice was not required under the facts
of this case. Although the first sentence of subsection 1.7 states that the notice
must be served “[a]t least twenty days prior to the commencement of the
proceeding,” Mr. Lopez points out that the third sentence clarifies what is meant
by the phrase “the proceeding.” Id. That sentence reads: “The notice shall be
served on all parties no later than twenty days prior to the commencement of
the arbitration hearing or trial, and shall be served in the manner set forth in
rules promulgated by the commissioner of insurance.” Id. (emphasis added).
Mr. Lopez therefore argues that because the present case was never set for trial or
arbitration he was not required to serve the notice.
But the words “the proceeding” are used not just in subsection 1.7(a), they
are also used in subsection 1.7(c), which controls how the trial court is to
determine “the amount of attorney fees, if any, to be awarded.” Under
§ 10-4-708(1.7)(c)(I):
The award of attorney fees to the insured shall be in direct
proportion to the degree by which the insured was successful in the
proceeding. The determination of the degree of the insured’s success
shall be based upon a comparison of the amount of benefits set forth
in the notice of amount of benefits claimed and the amount of
benefits recovered in the proceeding. The percentage resulting from
this comparison shall be the degree by which the insured was
successful.
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Thus, an award of attorney fees is based on the degree to which the party seeking
the fees was “successful” in “the proceeding.” But, as pointed out by Mr. Lopez,
there was no arbitration hearing or trial in this case. Mr. Lopez therefore
implicitly reads the references to “the proceeding” in subsection 1.7(c)(I), as
references to something that did take place in this case, such as the contract
action in general or possibly just the summary judgment proceedings. He
therefore argues the monies he eventually received from United Fire were proof
of monetary success in “the proceeding.” But such conflicting interpretations of
the phrase “the proceeding” would not harmonize the various provisions.
Mr. Lopez argued in the district court that he “was successful in recovering
100% of the PIP benefits sought in the litigation.” Aplt. App. at 455. But such
an interpretation ignores the statutory authorization to award attorney fees. An
insured’s “success” in “the proceeding” is formulaic. § 10-4-708(1.7)(c)(I). It is
measured by a comparison of the claimed benefits set forth in the statutory notice
with the amount of benefits recovered in “the proceeding.” 13
At this time, we need not decide precisely what the Colorado legislature
intended with its reference to a “proceeding.” Here, if the phrase “the
proceeding” in subsection 1.7(a) and subsection 1.7(c)(I) is interpreted as a
reference to something that actually took place in this case, such as Mr. Lopez’s
13
In Adams, the Colorado Supreme Court stated that this “statutory definition
of who constitutes a ‘successful’ party in the substantive proceedings is in need of
no additional clarification.” 983 P.2d at 802.
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overall legal action or the summary judgment proceedings, then Mr. Lopez is
barred from collecting fees because he did not serve his notice at least twenty
days prior to “the commencement of the proceeding,” i.e., the filing of his
complaint or his motion for partial summary judgment. 14 If “the proceeding” is
interpreted in those subsections as a reference to an “arbitration hearing or trial”
then, although no notice was required, Mr. Lopez is still not entitled to attorney
fees because, since there was no trial, there were no “benefits recovered in the
proceeding” and he was therefore not “successful in the proceeding.” Under
either interpretation, affirmance is required.
IV. Conclusion
The judgment of the district court is AFFIRMED.
Entered for the Court
Michael R. Murphy
Circuit Judge
14
Further, this interpretation would appear to be in direct contrast to the plain
language of subsection 1.7(a), which references “the arbitration hearing or trial.”
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