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Fincher v. Prudential Property and Casualty Insurance Co.

February 28, 2006


The opinion of the court was delivered by: Blackburn, J.


On April 4, 2005, this matter came before me for trial to the court on the plaintiff's claim for reformation of an insurance contract. Previously, I dismissed this case after granting the defendant's motion for summary judgment. The plaintiff appealed to the United States Court of Appeals for the Tenth Circuit, and the Tenth Circuit reversed. Fincher v. Prudential Prop. & Cas. Ins. Co., 76 Fed. Appx. 917 (10th Cir. 2003) (unpublished). The Tenth Circuit held in Fincher that the plaintiff is entitled to reformation of the auto insurance policy that is at the heart of this lawsuit. The Tenth Circuit's remand requires that I establish a date of reformation for the policy, and the terms of the reformation. Once those issues are resolved, additional issues may remain. The April 4, 2005, trial concerned only the reformation issues.*fn1

Having judicially noticed all relevant adjudicative facts in the file and record of this action; having considered the stipulations of the parties; having considered the evidence educed at trial; and having considered the arguments advanced and the authorities cited by the parties during pretrial proceedings and at trial, I enter the following statement of jurisdiction, findings of fact -- which are supported by a preponderance of the evidence -- conclusions of law, and orders.


This Court has jurisdiction over this case under 28 U.S.C. § 1332. This case involves a controversy between citizens of different states, and the amount in controversy exceeds 75,000 dollars, exclusive of costs and interest. Colorado law controls the resolution of the substantive issues in this diversity case. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78 (1938); Royal Maccabees Life Insurance Co. v. Choren, 393 F.3d 1175, 1180 (10th Cir. 2005).


The parties to this case are plaintiff, Kelly Fincher, by her father and next friend, James Fincher, and defendant, Prudential Property and Casualty Insurance Company. At trial the parties presented 74 stipulated exhibits, to which I will refer by their exhibit number. In addition I heard testimony from live witnesses, and I have reviewed the deposition testimony of four additional witnesses. In assessing the credibility of each witness who testified at trial or by deposition, I have considered all facts and circumstances shown by the evidence that affect the credibility of the witness, including the following factors: the witness's means of knowledge, ability to observe, and strength of memory; the manner in which the witness might be affected by the outcome of the litigation; the relationship the witness has to either side in the case; and the extent to which the witness is either supported or contradicted by other witnesses or evidence presented at trial. To the extent necessary, I approve, adopt, reiterate, and incorporate my conclusions of law as findings of fact.

A. Summary of Fincher's Claim

This case concerns benefits under an auto insurance policy. The plaintiff, Kelly Fincher, was severely injured when she was struck by a car while riding her bicycle. The accident occurred on May 8, 1994, when Kelly Fincher was 11 years old. Fincher suffered a permanent brain injury and will have to live in an assisted living milieu for the remainder of her life. The car that struck Kelly Fincher was driven by Anthony Bekeshkas, who was insured under an auto insurance policy issued by defendant, Prudential Property and Casualty Insurance Company. Prudential has paid Fincher some benefits under the Bekeshkas policy. In this lawsuit Fincher claims she is entitled to additional benefits known as additional Personal Injury Protection (APIP) benefits.

When the Bekeshkas policy was issued on April 23, 1992, and at the time of the accident on May 8, 1994, Colorado law required all Colorado auto insurance policies to provide a certain minimum level of personal injury protection (PIP) benefits. The PIP benefits in the Bekeshkas policy are not at issue here. Prudential has paid Fincher the required minimum PIP benefits under the Bekeshkas policy. In addition, at the time the Bekeshkas policy was issued and at the time of the accident, Colorado law required insurers to offer certain optional APIP benefits to their customers. Bekeshkas was offered APIP benefits when he purchased his Prudential policy, but that offer provided for a $150,000 cap on APIP benefits. At the relevant times, Colorado law provided that APIP benefits could not be capped at an amount lower than $200,000. §10-4-710, C.R.S. (1990). Bekeshkas declined Prudential's offer of APIP benefits with the $150,000 cap. In Fincher, the Tenth Circuit held that Fincher is entitled to reformation of the Bekeshkas policy because Prudential's offer of APIP benefits to Bekeshkas did not comply with the requirements of Colorado law concerning the permissible level of the cap on APIP benefits. 76 Fed. Appx. at 922 - 923.

B. Development of APIP Statutory Requirements

The Colorado statutes outlining the requirements for PIP and APIP benefits are part of the Colorado Auto Accident Reparations Act, part 7 of article 4 of title 10, C.R.S. (CAARA), repealed by §10-4-726, C.R.S. (2002), effective July 1, 2003. Although the CAARA now has been repealed, the provisions of the CAARA control Fincher's claims against Prudential.

The CAARA required motor vehicle owners to maintain minimum insurance coverage on their vehicle, including no-fault personal injury protection (PIP). §10-4-705, C.R.S. (1994). PIP coverage provided payments for medical expenses, rehabilitation, lost wages, and death benefits. §10-4-706(1)(b)-(e), C.R.S. (1994). At the time of Fincher's accident, the minimum coverages included $50,000 per person per accident for medical expenses for bodily injury, $50,000 for rehabilitation expenses, and a maximum of $400 per week for wage loss for 52 weeks following the accident. §10-4-706 (1), C.R.S. (1994). Again, it is undisputed that Prudential paid Fincher the minimum PIP benefits provided under §10-4-706, C.R.S. in a timely fashion.

Beginning in 1987, Colorado law required insurance companies to offer additional PIP benefits, or APIP, with each auto insurance policy. §10-4-710, C.R.S.

At the time Bekeshkas purchased his policy, and at the time of the accident involving Fincher, § 10-4-710 required Colorado auto insurers to offer APIP benefits that covered medical expenses and wage losses. Insurers were permitted, but not required, to put a monetary cap on APIP benefits. At the times relevant to this case, any cap on APIP benefits could not be lower than 200,000 dollars. §10-4-710(2)(b), C.R.S. Again, Prudential offered Bekeshkas APIP benefits when he purchased the Prudential policy, but the offer provided for a 150,000 dollar cap on such benefits.

Prior to January 1, 1990, the CAARA provided that any cap on APIP benefits cold not be lower than 100,000 dollars. Legislation passed in 1989 amended the CARA. Effective January 1, 1990, the lowest permissible cap on APIP benefits was increased from 100,000 dollars to 200,000 dollars. See §10-4-710, C.R.S. (1990) (historical note - "The 1989 amendment added subsec. (2)(a)(III), and changed the dollar amount in subsec. (2)(b) from one to two hundred thousand dollars.").

C. Prudential's Reaction to the 1990 Change in the APIP Cap

In 1989, Prudential began the project of modifying its policy forms, rules, and rates to comply with the new 200,000 dollar APIP cap, as well as multiple other requirements. Prudential notified its employees and agents to convey orally these new coverage limits to policyholders both before and after the statute's effective date. In an effort to comply with the new requirements, Prudential submitted forms, rules, and rates to the Colorado Department of Insurance (CDOI) on November 13, 1989, and January 16, 1990. Ex. 19; Ex. 56, pp. 2, 61.

The policy forms were disapproved by the CDOI on January 24, 1990, not because the policy coverages or the $200,000 statutory aggregate cap were deficient, but because the CDOI examiner felt the proposed coverages should be set out separately or unbundled. Ex. 100, Gibboney Deposition, p. 120; Ex. 9. After considering whether or not to contest the CDOI examiner's determination, Prudential decided to accept the determination. In November and December, 1991, Prudential submitted a revised policy form, and revised rules and accompanying rates, including the $200,000 cap. Ex. 56, pp. 50, 56, 61. The revised rules were approved, but the revised forms and rates were disapproved for reasons unrelated to the 200,000 dollar cap. Ex. 56, pp. 58 - 59; Ex. 100, Gibboney Depo., pp. 116 - 119.

While Prudential was finalizing its revised submission to the CDOI, new PIP legislation in 1992 implemented additional changes, once again requiring Prudential to file revised forms, rules, and rates with the CDOI. While awaiting formal approval of the policy forms and rates, Prudential treated all policies which included APIP benefits as having an aggregate limit of 200,000 dollars in APIP benefits.

Bekeshkas applied for his Prudential policy on April 23, 1992, more than two years after the effective date of the statute prohibiting a cap on APIP benefits of less than 200,000 dollars. Again, Bekeshkas rejected Prudential's offer of APIP benefits capped at 150,000 dollars, and his policy thus was not treated as an APIP policy when Fincher sought coverage under the policy in May, 1994.


To the extent necessary, I approve, adopt, reiterate, and incorporate my findings of fact as conclusions of law.

A. Colorado Law Concerning Insurance Policy Reformation Under the CAARA

The Colorado Court of Appeals and the Tenth Circuit have held that an insurance policy regulated by the CAARA must be reformed when an insurer fails to offer optional APIP coverages, as required by the CAARA. Clark v. State Farm Mutual Automobile Insurance Co., 319 F.3d 1234, 1242 (10th Cir. 2003); Brennan v. Farmers Alliance Mutual Insurance Co, 961 P.2d 550, 553 (Colo. App. 1998); Thompson v. Budget Rent-A-Car Sys., Inc., 940 P.2d 987, 990 (Colo. App. 1996). The holdings in these cases are instructive here.

In Thompson, an individual was injured seriously while a passenger in a car rented from Budget. Budget was a self-insurer under Colorado law. The insurance portion of the rental agreement provided that the renter waived supplemental no fault and other optional coverages. Thompson, 940 P.2d at 989. In other words, Budget, as an insurer, did not offer APIP benefits, as required by §10-4-710, C.R.S. The driver who had rented the car said that he would have refused the supplemental coverage if it had been offered by Budget.

The Colorado Court of Appeals held that the policy must be reformed to comply with the requirements of Colorado law.

When an insurer fails to offer the insured optional coverage that it is statutorily required to offer, additional coverage in conformity with the required offer is incorporated into the agreement by operation of law.

Here, because Budget did not offer supplemental no-fault coverage as required by § 10-4-710(2)(a), we conclude that such coverage was automatically incorporated into the agreement. We further conclude that the driver's after-the-fact statement that he would have refused the additional coverage if it had been offered does not require a different result.

Thompson, 940 P.2d at 990. The Thompson court upheld the trial court's reformation of the insurance contract to include APIP benefits. Thompson's holding concerning the reformation of insurance contracts is " applicable to any situation where an insurer has failed to comply with the [CAARA] and offer an insured the extended PIP coverage set forth therein." Fincher, 76 Fed. Appx. at 922.

The Thompson court held also that the permissible 200,000 dollar cap on APIP benefits was not applicable to the reformed contract.

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' ...

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