Pham v. State Farm Automobile Insurance Co.

JUSTICE HOBBS,

dissenting.

127 I respectfully dissent. I would reverse the judgment of the court of appeals. The undisputed facts in this case lead to the conclusion that the Pham Parties were not required to bring an underinsured motorist claim against State Farm until the Hartford case became final in 2006, which commenced the two-year limitations period in section 18-80-107.5(1)(b). The Pham Parties filed their action within the applicable limitations period. The facts alleged by the Pham Parties support an action based on State Farm's duty to investigate and pursue the Pham Parties' claims in good faith pursuant to pub-lie policy and State Farm Mut. Auto. Ins. Co. v. Brekke, 105 P.3d 177 (Colo.2005).

*1047I.

128 On December 83, 1995, Erwin Guerra and a co-worker were returning to company-provided apartments after leaving a nightclub. Guerra, who was legally intoxicated, drove through a red light and collided with a vehicle driven by Diep Pham, injuring him and all five of his passengers. Pham died from his injuries four months later. Guerra was living in Aurora on a temporary assignment from Virginia, the base of his employer, OSP Consultants ("OSP"). Guerra's vehicle was insured for liability under two separate auto policies: (1) his own Allstate policy, providing liability coverage of $25,000 per person and $50,000 per accident, and (2) OSP's Hartford commercial auto policy, which provided coverage for "any auto" while used in either the "business or personal affairs" of OSP, up to $1 million dollars.

{29 Pham's automobile was owned by Pham Enterprises and insured by State Farm Insurance Company, which provided uninsured ("UM") and underinsured ("UIM") coverages with policy limits of $100,000 per person and $300,000 per accident. Three of the other passengers had UIM policies with State Farm, and two others had policies with Liberty Insurance.

30 In February 1996, Pham's estate and the five surviving passengers filed separate actions against Guerra, OSP, and State Farm to obtain individual awards on behalf of each of State Farm's and Liberty's insureds.1 At the end of March, State Farm paid $75,000 in UIM benefits to Pham's estate. Thereafter, the six individual cases were consolidated at the request of the insurance carriers in the Denver District Court.

131 In April 1998, after Hartford denied coverage and refused to provide Guerra with defense, Guerra's Allstate counsel offered its liability limit in the amount of $50,000 and requested an agreement where Guerra stipulated to judgment being entered against him in the amount of $1,558,707.78. State Farm and Liberty acquiesced to the settlement with Allstate, although State Farm did not agree to be bound by the judgment, and Allstate paid its $50,000 in liability coverage to the Pham Parties in May. As a condition of the settlement, the Pham Parties agreed not to enforce the judgment against Guerra in exchange for Guerra's assignment to them of any claims he might have against Hartford.

32 The Pham Parties then filed a lawsuit against Hartford in the federal district courts of Colorado and Virginia, seeking the full policy limit of $1 million based on several breach of contract theories. The Pham Parties also requested that State Farm and Liberty pay their UIM benefits and assert a subrogation lien against any liability recovery that Pham Parties might later obtain against Hartford. State Farm refused to pay, and Liberty followed suit. Significantly, State Farm claimed it was not required to pay UIM benefits until the Pham Parties exhausted their lability claims against Hartford.2 The Pham Parties then filed a second action against State Farm and Liberty in Colorado state court in December 1998, seeking UIM benefits and arbitration, claiming that State Farm owed additional UIM benefits because Guerra had additional liability insurance under Hartford, who was denying coverage. Pham Parties later amended this complaint to include bad faith and willful and wanton breach of contract claims for refusing to pay UIM benefits after acquiescing to Guerra's stipulated judgment. On April 9, 1999, the UIM claims of the passengers of the accident were dismissed because the court concluded they were already being adjudicated in the 1996 case. Pham's estate, each of his parents' bad faith and willful and wanton breach of contract claims against State Farm and Liberty remained in effect in the 1998 case, as did their UIM claim, which sought UIM benefits in addition to the $75k State Farm had earlier paid.

133 In November 2000, in light of the pending federal Hartford lawsuit, the Pham *1048parties requested a status conference to determine how the case should proceed against the insurance companies. In January 2001, the district court ordered a stay on both the 1996 and 1998 cases pending resolution of the federal case determining Hartford's liability, but allowed the insurance companies to file partial summary judgment motions on the bad faith and willful and wanton breach of contract claims. The insurance companies filed partial summary judgment motions, and the court granted them. After the summary judgment order, the only claim remaining against State Farm was a claim for UIM benefits by the three Pham parties. Subsequently, the Pham Parties appealed the summary judgment order.

34 In January 2003, the court of appeals released its decision, upholding the district court's grant of partial summary judgment. State Farm had argued to the court that its obligations to pay UIM benefits were unknown until the claims against Hartford were full resolved:

Defendants further contend that the total amount cannot be determined until the Hartford suit is resolved, because Hartford may be found liable. If Hartford is found liable and ordered to pay the unsatisfied judgment entered against Guerra, defendants will not have to pay any UIM benefits because their UIM liability is limited to the difference between the amount plaintiffs receive from Guerra's liability insurers and the UIM policy limits. Defendants do not refute that they may have to pay UIM benefits if Hartford is not found liable, they simply contend that, until the Hartford case is resolved, their obligation to pay UIM benefits remains unknown and unliquidated under § 10-4-609(5).

Pham v. State Farm Mut. Auto Ins. Co., 70 P.3d 567, 573 (Colo.App.2003) (emphasis added). The court of appeals concluded that State Farm's reliance on its interpretation of section 10-4-609(5), C.R.S. (2012), and existing case law was reasonable and State Farm did not act in bad faith in denying UIM benefits until the resolution of the Hartford case. Id. at 574-75. Thus, the only claim remaining in the 1998 case was the Pham parties' UIM claims against State Farm.

1 35 At this point, nearly eight years since the accident, it was still unclear whether State Farm would be required to pay UIM benefits because Guerra's liability coverage through Hartford had yet to be determined. However, as the court of appeals stated, State Farm was aware that it might be required to pay UIM benefits if Hartford was not found liable, and it did not refute this assertion. The Pham Parties then focused their efforts on the Hartford litigation over the next several years, and the Colorado cases remained stayed.

¶36 On April 4, 2006, the federal district court of Colorado dismissed the case against Hartford, and the stay on the state cases expired. State Farm attempted to contact the Pham Parties' counsel to determine how they planned to proceed, but their counsel had apparently moved and the letters did not reach them. State Farm then moved to dismiss the 1998 case for failure to prosecute, and the court dismissed the case with prejudice in February 2007. Likewise, State Farm moved to dismiss the 1996 case for failure to prosecute, and the court granted the motion in April 2007. However, the court dismissed the 1996 case without prejudice, stating that the case had been justifiably delayed for several reasons, including that the Pham Parties were required to exhaust all other claims before pursuing claims against State Farm per State Farm policy.

37 The Pham Parties requested payment of UIM benefits, and State Farm continued to refuse to pay. The Pham Parties filed this action on March 19, 2008, asserting a negli-genee claim and loss of consortium against Guerra, and claims of breach of contract and bad faith breach of contract for failure to pay UIM benefits against State Farm, the same claims raised in the 1996 and 1998 cases. Because the earlier cases had been dismissed, State Farm argued to the district court that the Pham Parties were statutorily barred from bringing their UIM claims under section 18-80-107(1)(a) and (b). The district court agreed, granting State Farm's motion to dismiss and concluding that the applicable statute of limitations had run as of *1049May 2000 and the doctrine of claim preclusion barred the claims. The court of appeals affirmed, concluding-as does the majority-that the two-year limitations period in section 18-80-107.5(1)(a) and (b) barred Pham Parties UIM claims after May 2000, two years after Pham Parties accepted payment from Allstate.

IL.

138 I respectfully dissent. I would reverse the judgment of the court of appeals. The undisputed facts in this case lead to the conclusion that the Pham Parties were not required to bring an underinsured motorist claim against State Farm until the Hartford case became final in 2006, which commenced the two-year limitations period in section 13-80-107.5(1)(b). The Pham Parties filed their action within the applicable limitations period. The facts alleged by the Pham Parties support an action based on State Farm's duty to investigate and pursue the Pham Parties' claims in good faith pursuant to pub-lie policy and State Farm Mut. Auto. Ins. Co. v. Brekke, 105 P.3d 177 (Colo.2005).

+~1 89 The majority's construction of the un-derinsured motorist limitations provision in section 13-80-107.5(1)(b) would unnecessarily force insured injured motorists to prematurely bring UIM claims as a matter of course. In this case, for example, the Pham Parties did not reliably know whether Guerra was an underinsured motorist until the resolution of the Hartford case in 2006, The majority views this crucial fact as inconsequential and would apply the two-year limitations period from the moment Allstate paid the Pham Parties liability benefits in May 1998, eight years before Guerra was determined to be underinsured. Forcing victims of an accident to bring premature UIM claims when it is unclear whether the tortfeasor is actually underinsured would promote piecemeal litigation, contrary to public policy. See State Farm Mut. Auto Ins. Co. v. Broadnax, 827 P.2d 531, 537 (Colo.1992) (concluding insurance statutes designed avoid piecemeal litigation).

140 As the majority acknowledges, State Farm's obligation under its UIM coverage was contingent upon more than just the extent to which Guerra was covered by liability insurance, but also the amount ultimately recovered by the plaintiffs from other liable parties and, if the lesser of the two, the damages sustained by the Pham Parties but not recovered. Maj. op. ¶ 18 (emphasis added). Thus, State Farm's Hability, if any, was conditioned on whether the Pham Parties could recover from Hartford, Guerra's other insurer. Appreciating this, it seems clear that the Pham Parties could not, and should not be forced, to bring an underinsured motorist claim until Guerra was actually determined to be underinsured, in April 2006.3 At this time, the limitations period began running, giving the Pham Parties until April 2008 to bring a timely claim against State Farm for UIM benefits, which they did, in March 2008.

{41 The Pham Parties' claim for UIM benefits could not accrue until it was determined that Guerra was underinsured, and the cause of action ripened. A cause of action is commonly understood to accrue when a suit may be maintained thereon. Melat, Pressman & Higbie, L.L.P. v. Hannon Law Firm, L.L.C,, 2012 CO 61, ¶ 21, 287 P.3d 842; Jones v. Cox, 828 P.2d 218, 224 (Colo.1992). Section 13-80-107.5(1)(b) states, "(aln action or arbitration of an 'un-derinsured motorist insurance claim shall be commenced or demanded by arbitration demand within three years after the cause of action acerues." (Emphasis added). The statute then specifies that a "cause of action accrues after both the existence of the death, injury, or damage giving rise to the claim and the cause of the death, injury, or damage are known or should have been known by the exercise of reasonable dili-genee." § 13-80-107.5(3), C.R.S. (2012). The language in this provision provides that both the "existence" and the "cause" of the injury or damage must be known before an UIM *1050action accrues. However, the victim must also know that the tortfeasor is underinsured before he can bring a UIM suit that he can maintain. Otherwise, there is no proper basis for the claim and a court can only stay the case, such as the district court did, pending the final resolution of coverage. Thus, a UIM claim cannot accrue until there was a proper basis for the claim, including a final determination that Guerra was underinsured through OSP's Harford coverage.4

42 Unlike the majority, I do not believe the Pham Parties' 2001 stipulation to stay the 1996 and 1998 cases while pursuing a federal court claim against Hartford-rather than continuing to litigate against State Farm in state court-should accrue to their detriment. Maj. op. ¶ 18. The Pham Parties followed a litigation course that State Farm contractually required them to follow. State Farm refused to pay until Hartford's liability was determined, a decision the court of appeals concluded was reasonable in 2003, and a decision this court subsequently denied cer-tiorari on. The Pham Parties should not be punished for attempting to work with State Farm and the courts to resolve their case; nor were the dismissals of the 1996 and 1998 cases dispositive, as the majority concludes. Because the statute of limitations could not run until Guerra was found underinsured, the Pham Parties claim was timely.

1 43 The majority's conclusion goes against good public policy in regards to UI/UIM claims. See Brekke, 105 P.3d at 188, 189-90 ("[P Jublic policy impose[s] a high standard of conduct on an insurance provider in its interaction with its insured;" "[Plublic policy ... protects the insured from being forced to traverse undue procedural hurdles and re-litigate matters prior to a recovery under a UM policy."); DeHerrera v. Sentry Ins. Co., 30 P.3d 167, 174 (Colo.2001) (citing the General Assembly's UM/UIM public policy "to assure the widespread availability to the insuring public of insurance protection against financial loss caused by negligent financially irresponsible motorists," and "[blecause of the important policy behind UM/UIM insurance to protect persons from the often-devastating consequences of motor vehicle accidents, we have concluded that great weight must be accorded this legislative intent"). In Brekke, we examined the relationship between an insurance carrier and its insured, describing it as a "quasi-fiduciary" relationship and unlike ordinary bilateral contracts. 105 P.3d at 189-90. Because an insurance carrier becomes an adversary to its insured in an UI/UIM context, public policy mandates a higher standard of conduct for the insurance carrier, as a conflict of interest arises. Id. at 188; Peterman v. State Farm Mut. Auto Ins. Co., 961 P.2d 487, 494 (Colo.1998) ("We recognize that the insurer becomes almost adversary to its own insured in the context of uninsured motorist coverage, but that conflict does not vitiate the underlying contractual and quasi-fiduciary duty that the insurer owes its insured."); see also Lazar v. Riggs, 79 P.3d 105, 107 (Colo.2003). As such, the insured has a contractual duty to cooperate and report to the insurance provider, while the insurance carrier has a duty to investigate and adjust a claim in good faith. Brekke, 105 P.3d at 189.

T 44 State Farm's conduct was inconsistent with the heightened standard we have applied in UI/UIM cases.5 State Farm denied UIM benefits while forcing the Pham Parties to pursue Hartford for settlement payments *1051until, finally, State Farm claimed that the Pham Parties were statutorily barred from bringing their UIM claims onee State Farm was the sole insurance carrier with potential liability. This is the classically unjust catch, 22 mousetrap triggered to defeat a victim's claim, no matter its merits.

1 45 In sum, the facts of this case support the conclusion that the Pham Parties filed a timely claim for UIM benefits against State Farm in March 2008. Reading section 18-80-107.5(1)(b) to apply in instances when it is unclear whether a motorist is underinsured may ultimately lead to victims of an automobile accident bringing premature UIM claims in every injured motorist action, and/or insurance companies extending litigation beyond the limitations period and injured motorists are unable to collect UIM benefits. Neither of these results is consistent with public policy ensuring compensation for individuals injured by underinsured motorists.

T 46 Accordingly, I respectfully dissent.

. The Pham Parties first requested arbitration, but State Farm claimed its UIM policy required them to secure a judgment against Guerra in order to receive payment of UIM benefits.

. The State Farm insurance contract staied, in pertinent part, "[Hhere is no coverage until the limits of all bodily injury ... policies that apply have been used up by payment of judgments or settlements." (Emphasis added).

. The true issue appears to be whether section 13-80-107.5(1)(b) even applied before 2006, when Guerra was found to be underinsured. The mere possibility, rather than fact, that Guerra was underinsured should not trigger the start of the statute's limitations period. I would conclude that section 13-80-107.5(1)(b) did not apply until April 2006.

. The unique circumstances in this case-where Guerra's car was covered through his employer's insurance company for both "business and personal affairs" while on temporary assignment in Denver, and that he was injured while driving back from dinner with a co-worker to company-provided housing-provide the basis for this claim because there was genuine uncertainty whether Guerra would be covered through his employer's coverage. Were the facts to clearly point to the Pham Parties for raising frivolous claims or sitting on their rights while Guerra's underinsured status was evident, then the majority's argument would be persuasive.

. State Farm's claim that it contacted the Pham Parties' counsel by sending two letters regarding future litigation actions subsequent to the 2006 dismissal of the Hartford case-which apparently were unanswered because Pham Parties' counsel had moved- is a minimal attempt that in my view, does not meet good-faith requirements. A phone call, email, web search, or any other simple investigative inquiry into a current address would have been appropriate, especially given the delay State Farm had caused in the litigation.