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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge Robert E. Blackburn Civil Case No. 00-cv-2098-REB-MJW KELLY FINCHER, by her natural father and next friend, JAMES FINCHER, Plaintiffs, v. PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant.

ORDER CONCERNING MOTION FOR SUMMARY JUDGMENT Blackburn, J. This matter is before me on the Defendant's Motion for Partial Summary Judgment [#211], filed March 9, 2007. The plaintiff has filed a response [#239], filed August 23, 2007, and the defendant has filed a reply [#246], filed September 10, 2007. I grant the motion in part, and deny it in part.1 I. JURISDICTION I have jurisdiction over this matter pursuant to 28 U.S.C. §§ 1332 (diversity). II. STANDARD OF REVIEW Summary judgment is proper when there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c); Celotex

The issues raised by and inherent to the motion for summary judgment are fully briefed, obviating the necessity for evidentiary hearing or oral argument. Thus, the motion stands submitted on the briefs. Cf. FED. R. CIV. P. 56(c) and (d). Geear v. Boulder Cmty. Hosp., 844 F.2d 764, 766 (10th Cir.1988) (holding that the hearing requirement for summary judgment motions is satisfied by court's review of documents submitted by parties).

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Corp. v. Catrett, 477 U.S. 317, 322 (1986). A dispute is "genuine" if the issue could be resolved in favor of either party. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); Farthing v. City of Shawnee, 39 F.3d 1131, 1135 (10th Cir. 1994). A fact is "material" if it might reasonably affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Farthing, 39 F.3d at 1134. A party who does not have the burden of proof at trial must show the absence of a genuine fact issue. Concrete Works, Inc. v. City & County of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994), cert. denied, 115 S.Ct. 1315 (1995). Once the motion has been properly supported, the burden shifts to the nonmovant to show, by tendering depositions, affidavits, and other competent evidence, that summary judgment is not proper. Concrete Works, 36 F.3d at 1518. All the evidence must be viewed in the light most favorable to the party opposing the motion. Simms v. Oklahoma ex rel Department of Mental Health and Substance Abuse Services, 165 F.3d 1321, 1326 (10th Cir.), cert. denied, 120 S.Ct. 53 (1999). However, conclusory statements and testimony based merely on conjecture or subjective belief are not competent summary judgment evidence. Rice v. United States, 166 F.3d 1088, 1092 (10th Cir.), cert. denied, 528 U.S. 933 (1999). III. FACTS & PROCEDURAL BACKGROUND 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

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insured under an auto insurance policy issued by the 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. Within a relatively brief time after the accident, Prudential 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. 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 has been repealed, the provisions of the CAARA control Fincher's claims against Prudential. I will refer to sections of the CAARA in this order without further noting their repeal. Fincher filed this lawsuit seeking to recover APIP coverage under the Bekeshkas policy and under the CAARA. Fincher asserts that she is entitled to APIP benefits under the Bekeshkas policy because Prudential did not properly offer to Bekeshkas the APIP 3

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benefits required by Colorado law. On June 10, 2002, I entered an order [#91] granting Prudential's motion for summary judgment. In that order, I concluded that under Colorado law as it stood at the time of Fincher's accident, Prudential was not required by Colorado law to offer APIP benefits that covered pedestrians. Prior to 1998, some Colordo insurers had concluded that the CAARA did not require them to offer APIP coverage that included pedestrians. In Brennan v. Famrers Alliance Mutual Insurance Co., the Colorado Court of Appeals held that the CAARA required Colorado auto insurers to offer APIP coverage that included pedestrians. 961 P.2d 550, 553 (Colo.App. 1998). Fincher is deemed to be a pedestrian under the CAARA because she was riding a bicycle at the time of the accident. §10-4-703 (9). I concluded in my June 10, 2002, summary judgment order that the rule in Brennan was not applicable retrospectively. In light of the fact that the court has determined that the Brennan rule should not be applied retroactively, there is no basis for Fincher to claim entitlement to APIP benefits. In turn, absent some demonstration that Fincher is entitled to APIP benefits under Colorado law, she has no basis to assert contract claims against Prudential under §10-4-708(1). Fincher appealed my summary judgment order to the United States Court of Appeals for the Tenth Circuit, and the Tenth Circuit reversed and remanded. Fincher v. Prudential Property and Casualty Ins. Co., 76 Fed.Appx. 917 (10th Cir. 2003). 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. The Tenth Circuit concluded that the rule in Brennan, requiring an offer of APIP coverage that included pedestrians, was applicable retroactively because Brennan did not establish a new principle of law, and instead merely 4

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construed [C.R.S. §104-4-710] of the [CAARA] to encompass pedestrians. Thus, we conclude that Prudential was generally obligated at the time of Fincher's accident to offer extended PIP benefits for pedestrians in the amounts set forth in the [CAARA]. Id. at 921. The Tenth Circuit remanded the case for judicial reformation of the Bekeshkas policy to include APIP benefits and, following reformation, resolution of Fincher's other claims. Id. at 922 - 923. Following the Tenth Circuit's remand, I conducted a trial to the court to determine the effective date of reformation of the Prudential policy and the other terms of reformation. On February 28, 2006, I issued Findings of Fact, Conclusions of Law, & Orders [#158] reforming the Bekeshkas policy as it applies to Fincher. I will refer to this order as the Reformation Order. I analyzed the factors relevant to a determination of a date of reformation, and concluded that the Prudential policy should be reformed as of the date of Fincher's accident on May 8, 1994. I concluded also that the 200,000 dollar cap on APIP benefits permitted by the CAARA is applicable to the reformed contract. My Reformation Order resolved Fincher's first cause of action, a claim for reformation of the Prudential policy. On April 12, 2006, Prudential tendered to Fincher a payment of 92,500 dollars. With this payment, Prudential has paid to Fincher a total of 200,000 dollars in PIP and APIP benefits. On May 31, 2006, Prudential tendered to Fincher an additional payment of 202,000 dollars. Prudential made this payment as payment of the statutory interest due to Fincher under §10-4-708(1.8). That section provides for payment of interest at 18 percent per annum when payment of PIP or APIP benefits is delayed and those delayed payments are recovered later. §10-4-708(1.8). Prudential's interest calculation was based on the following undisputed facts. As of 5

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September 3, 1994, Fincher's basic PIP benefits of just over 100,000 dollars were exhausted. Plaintiff's response, p. 5. After September, 1994, Prudential refused to pay additional expenses submitted by Fincher, based on Prudential's position that Fincher was entitled only to 100,000 dollars in PIP benefits, and was not entitled to APIP benefits. In my Reformation Order, I reformed the Bekeshkas insurance policy, as applicable to Fincher, as of the date of Fincher's accident on May 8, 1994. Under the CAARA, an insurer must pay benefits to an insured "within thirty days after the insurer receives reasonable proof of the fact and amount of expenses incurred during that period." §10-4708(1), C.R.S. Under the terms of the Reformation Order, Prudential was not timely in paying additional benefits to Fincher, up to the applicable 200,000 dollar cap, to the extent Fincher submitted claims for additional expenses covered by APIP benefits. Prudential examined bills submitted by Fincher in this litigation and calculated interest on those bills from 30 days after the actual treatment dates and/or original billing dates. Brief in support of motion for summary judgment [#212], filed March 9, 2007, Exhibit A-6, p. 2. Currently, Fincher has three claims that have not been resolved: 1) breach of contract based on Prudential's failure to pay her APIP benefits in a timely fashion; 2) violation of the covenant of good faith and fair dealing by Prudential; and 3) willful and wanton breach of contract by Prudential. In its motion for summary judgment, Prudential seeks summary judgment on these three claims. IV. BREACH OF CONTRACT Prudential seeks summary judgment on Fincher's breach of contract claim, arguing that the claim now is moot because Prudential has paid to Fincher all amounts due under the insurance policy in question. Again, following the Tenth Circuit's remand and my

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Reformation Order, Prudential made payments to Fincher for the balance of APIP benefits due to her, and for statutory interest on the delayed payment of APIP benefits. Prudential argues that these amounts are the only relief Fincher could obtain on her breach of contract claim. Fincher argues that Prudential's payments do not moot her breach of contract claim because she is entitled to additional relief on this claim. First, Fincher argues that Prudential has not paid to her the full amount of interest due to her under §10-4-708(1.8). That section provides, in relevant part: The insurer shall pay interest to the insured on the benefits recovered [in an arbitration or a lawsuit] at a rate of eighteen percent per annum, with interest commencing from the date the benefits recovered were due. §10-4-708(1.8). Fincher argues that she is entitled to compound interest under the statute. Prudential's interest calculation was made on a non-compounding per annum basis. Section 10-4-708(1.8) does not provide for compound interest. Rather, it provides for interest "at a rate of eighteen percent per annum, with interest commencing from the date the benefits recovered were due." It would not be proper for me to read a compound interest requirement into §10-4-708(1.8) when the Colorado legislature did not provide for such a requirement. This is particularly true when, as here, the legislature has chosen to provide for compound interest in other statutes. §5-12-102(2), C.R.S. (Authorizing statutory interest at "eight percent per annum compounded annually"); §13-21-101(1), C.R.S. (providing for prejudgment interest to include compounding of interest annually, and distinguishing between compounding interest rates and non-compounding interest rates). I conclude, as a matter of law, that Fincher is not entitled to compounding interest under §10-4-708(1.8). Fincher does not dispute otherwise the accuracy of Prudential's 7

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interest calculations or the adequacy of Prudential's interest payment, as calculated on a non-compounding basis under §10-4-708. In the Fourth Amended Pretrial Order [#238], filed August 14, 2007, Fincher asserts that she also is entitled to an award of interest under §5-12-102(1)(b), C.R.S. This section applies to claims for unpaid PIP or APIP benefits only as the interest rate applicable to the payment of post-judgment interest. Loza v. State Farm Mut. Auto. Ins. Co., 971 P.2d 251, 252 (Colo. App. 1998). To the extent an award of post-judgment interest is available to Fincher in this case, Prudential has paid her at the 18 percent noncompounding rate provided in 10-4-708(1.8) rather than at the eight percent rate, with annual compounding, provided in §5-12-102(1)(b). A final judgment based on my Reformation Order has not yet entered, so it is debatable whether or not a post-judgment interest rate is applicable to the amounts Prudential owes to Fincher. However, the earliest conceivable date after which the post-judgment rate arguably is applicable is the date of my Reformation Order. Shortly after I issued my Reformation Order, Prudential paid to Fincher the balance of APIP benefits due and interest at the statutory prejudgment rate of 18 percent per annum. Under these circumstances, there is no basis to argue that Fincher may be entitled to payment of additional interest under the postjudgment rate specified in §5-12-102(1)(b). Fincher argues also that she is entitled to the entry of judgment on her breach of contract claim because such a judgment would support her claim for attorney fees under §10-4-708(1.7). That subsection provides for an award of attorney fees to an insured based on a claim that an insurer improperly denied or did not timely pay a claim submitted by the insured. Such an award is to be made by the arbitrator or court who hears the

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insured's claim. §10-4-708(1.7)(c). Fincher is entitled to a judicial determination of the amount of attorney fees, if any, to be awarded to her under this section. Finally, Fincher argues that she is entitled to other relief on her breach of contract claim, although she does not specify the nature of this relief. Plaintiff's response, p. 8. She notes statements by the Colorado courts indicating that relief in addition to payment of a claim and interest is available when an insurer fails to pay a claim on time. Goodson v. American Standard Ins. Co. of Wisconsin, 89 P.3d 409, 414 (Colo. 2004) (fact that insurer eventually pays insured's claims does not prevent insured from filing suit against insurer based on insurer's conduct prior to time of payment); Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 468 (Colo. 2003) (if only damages an insurer will have to pay on a judgment of breach are amounts owed under policy plus interest, then insurer has little motivation not to breach contract) (quoting Dodge v. Fidelity & Deposit Co., 788 P.2d 1240, 1242 - 1243 (1989)). In both of these cases, the court was not referring to damages available under a breach of contract claim, but to relief available on a claim for bad faith breach of an insurance contract. Goodson, 83 P.3d at 414; Cary, 68 P.3d at 468. These authorities do not establish that Fincher is entitled to relief other than payment of her APIP claims, payment of statutory interest, and payment of any award of attorney fees by the court based on her breach of contract claim. My Reformation Order, the undisputed facts in the record, and Prudential's argument in its motion for summary judgment all demonstrate that Prudential concedes that, under the terms of the Reformation Order, Prudential breached its contract of insurance with Fincher. A sua sponte grant of summary judgment is permissible when the losing party was on notice that it had to come forward with all of its evidence on the issue, and the losing party will not be prejudiced by the grant of summary judgment. See, e.g., 9

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Holmes v. Utah, Dept. of Workforce Services, 483 F.3d 1057, 1067 (10th Cir. 2007). Here, Prudential is aware of the terms of the Tenth Circuit's ruling in this case and the terms of the Reformation Order. Prudential effectively has conceded that, given these rulings, the unavoidable conclusion is that Prudential breached its contract of insurance with Fincher. Given this context, Prudential has come forward with its evidence and argument on the contract claim. In these circumstances, I conclude that it is appropriate to grant Fincher summary judgment on the issue of Prudential's liability on Fincher's breach of contract claim. The undisputed facts in the record and the argument of the parties support the grant of summary judgment on this issue. Based on this breach of contract, Prudential has paid to Fincher all of the APIP benefits to which she is entitled under the terms of the Reformation Order. Prudential also has paid to Fincher all of the interest to which Fincher is entitled, based on the tardy payment of APIP benefits, under §10-4-708(1.8). Therefore, except for a determination by the court of the amount of attorney fees, if any, due to Fincher on this claim, Fincher is not entitled to any additional relief on her breach of contract claim. On the current record, Fincher's breach of contract claim does not present any disputed factual issues for determination by a jury. Fincher is entitled to the entry of a judgment of liability on her breach of contract claim. In addition, she is entitled to the entry of judgment requiring Prudential to pay to her 92,500 dollars as the balance of APIP benefits due to Fincher, and 202,000 dollars as payment for the statutory interest due to Fincher under §10-4-708(1.8). Again, Prudential already has paid these amounts to Fincher. To the extent Fincher seeks any additional relief on her breach of contract claim, other than a judicial determination of the amount attorney fees due her under §10-4708(1.7)(c), there is no basis in law for these claims to additional relief. Prudential is 10

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entitled to judgment as a matter of law on Fincher's claims for additional relief based on her breach of contract claim. V. VIOLATION OF COVENANT OF GOOD FAITH & FAIR DEALING AND WILLFUL AND WANTON BREACH OF CONTRACT In addition to her breach of contract claim, Fincher asserts claims for violation of the covenant of good faith and fair dealing and for willful and wanton breach of an insurance contract. The elements of these two claims differ significantly, but there also are substantial similarities between the two claims. Based on the considerable similarities, I consider these claims together. A. Elements Under Colorado law, every insurance contract contains an implied covenant of good faith and fair dealing that imposes on insurers a duty to act in good faith in their dealings with their insureds. Farmers Group, Inc. v. Trimble, 691 P.2d 1138, 1141 (Colo. 1984). The Colorado courts distinguish between first-party and third-party bad faith claims. American Family Mutual Ins. Co. v. Allen, 102P.3d 333, 342 (Colo. 2004). A third-party claim involves a claim by an insured against an insurer for the insurer's misconduct with third-parties asserting claims against the insured. Id. A first-party claim concerns a claim against an insurer for its misconduct with its own insured. Id. Fincher's bad faith claim is a first-party claim because she is asserting a direct contractual action against Prudential for APIP benefits. Krieg v. Prudential Property and Cas. Ins. Co., 686 P.2d 1331, 1334 (Colo.1984) (CAARA vests accident victims to whom PIP benefits are payable with third party beneficiary status, thereby creating a direct contractual action against the PIP insurer). To establish the tort of bad faith breach of an insurance contract, Fincher must 11

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show that 1) the insurer has a duty to act in good faith and to deal fairly with an insured; 2) the insurer acted unreasonably under the circumstances; 3) the insurer knew its position was unreasonable, or recklessly disregarded the fact that its position was unreasonable; and 4) the insurer's unreasonable position was a cause of the Fincher's damages. See CJI-Civ. 4th 25:2; Daugherty v. Allstate Insurance Co., 55 P.3d 224, 228 (Colo. App.2002). "(A)n insurer may challenge claims which are fairly debatable and will be found to have acted in bad faith only if it has intentionally denied (or failed to process or pay) a claim without a reasonable basis." Brandon v. Sterling Colorado Beef Co., 827 P.2d 559, 561 (Colo. App. 1991) (citing Travelers Insurance Co. v. Savio, 706 P.2d 1258, 1274-1275 (Colo. 1985)). Under §10-4-708(1.8), an insured is entitled to an award of treble damages if an insurer wilfully and wantonly fails to pay PIP or APIP benefits when due. Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550, 557 (Colo.App. 1998), cert. denied (August 24, 1998). To establish a wilful and wanton failure to pay benefits, Fincher must show that Prudential acted without justification and in disregard of Fincher's rights. Dale v. Guaranty National Insurance Co., 948 P.2d 545, 551 (Colo.1997). Wilful and wanton conduct under the CAARA is a subset of insurance bad faith. Id. Proof of wilful and wanton conduct in this context also will establish an insurance bad faith claim ­ a claim that an insurer knowingly or recklessly acted unreasonably toward its insured. Id. However, a finding that an insurer's conduct was not wilful and wanton does not necessarily show that the insurer did not act in bad faith. Id. By the same token, if a plaintiff cannot prove than an insurer acted in bad faith when denying insurance benefits, then that plaintiff cannot establish that the failure to pay benefits was wilful and wanton. In short, a claim of wilful and wanton failure to pay benefits requires a showing of more 12

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egregious action by the insurer than does a claim of bad faith breach of insurance contract. B. Basis of Fincher's Claims In her complaint Fincher makes the following allegations in support of her bad faith breach of insurance contract claim: 45. From the effective date of the statute requiring that auto insurers offer extended benefits to [their] insureds until the present, Prudential, through its agents and representatives, has made a minimal effort, if any, to advise its insureds of the availability of the extended PIP benefits, including failing to make any effort to ascertain the identity of all insureds who are entitled to extended PIP benefits under Brennan and Thompson. 46. Upon information and belief, Prudential continued to prematurely terminate benefit payments to insureds eligible for extended benefits despite its knowledge of Brennan and Thompson, and such conduct constituted a breach of the covenant of good faith and fair dealing. Incorporating the above allegations, Fincher adds the following allegations in support of her wilful and wanton breach of contract claim: 49. Upon information and belief, sometime after August 24, 1998, but not later than August 1999, Prudential was aware that its offer of extended benefits did not comply with the Colorado Auto Accident Reparations Act, and that reformation was the appropriate remedy for those who did not receive a sufficient offer of extended benefits. * * * * 51. Despite this knowledge, Prudential did not reform the contracts as required by law, and never paid extended benefits as required by the Colorado Auto Accident Reparations Act. August 24, 1998, is the date that the Colorado Supreme Court denied certiorari in Brennan. C. Analysis In essence Fincher alleges that Prudential acted in bad faith when it refused to pay her APIP benefits, despite its knowledge of the law established in Brennan and 13

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Thompson. Although stated differently, she asserts essentially the same basis for her claim of wilful and wanton breach of contract: she alleges that following the denial of certiorari in Brennan on August 24, 1998, Prudential acted wilfully and wantonly in failing to reform the Bekeshkas policy to provide her with APIP benefits. As Fincher notes, Prudential argues that it has not acted in bad faith because it relied on reasonable legal positions when applying Thompson and Brennan to Fincher's claims for APIP benefits. Plaintiff's response, p. 18. Fincher notes that the reasonableness of Prudential's legal positions "is disputed and is at the core of the Plaintiff's bad faith claim, and is fact-based." Id. I agree that the reasonableness of Prudential's legal positions is "at the core" of Fincher's bad faith claim. When the rationale for not paying insurance benefits is based on an insurer's interpretation of the applicable law, the application of the standards for bad faith and wilful and wanton breach of contract is a matter of law for the court, and not a question of fact for a jury. See Tozer v. Scott Wetzel Services, Inc., 883 P.2d 496, 499 (Colo. App. 1994). I conclude, as a matter of law, that Prudential's interpretation and application of the law established in Thompson and Brennan were, at minimum, fairly debatable and, thus, were reasonable. From the inception of this case, Prudential argued that the holding in Brennan v. Farmers Alliance Mutual Insurance Co., 961 P.2d 550, 552 (Colo. App. 1998) was not retroactive. Again, the Brennan court held that §10-4-710, C.R.S. required insurers to offer APIP coverage that included pedestrians. 961 P.2d at 554. Prior to Brennan it was unclear whether or not pedestrian coverage was required under §10-4710. In Clark v. State Farm Mutual Automobile Insurance Co., the Honorable Lewis T. Babcock, a United States District Judge for the District of Colorado, examined the retroactive application of the Brennan rule and concluded that the Brennan rule was not 14

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retroactive. Case No. 00-cv-01841 (D. Colo. June 20, 2001), rev'd, Clark v. State Farm Mutual Automobile Insurance Co., 319 F.3d 1234, 1242 (10th Cir. 2003). I adopted Judge Babcock's analysis when I granted summary judgment in favor of Prudential in this case. Order Concerning Motion for Summary Judgment [#91], filed June 10, 2002. The Tenth Circuit reversed Judge Babcock's decision on the retroactivity of the Brennan rule in Clark v. State Farm Mutual Automobile Insurance Co., 319 F.3d 1234, 1242 (10th Cir. 2003). Based on Clark, the Tenth Circuit reversed my order in this case, in which I concluded that the holding that Brennan was not retroactive. Fincher v. Prudential Property and Casualty Ins. Co., 76 Fed.Appx. 917 (10th Cir. 2003). The question of whether or not Brennan was applicable retroactively was fairly debatable, at least until the Tenth Circuit issued its rulings in Clark and in the present case. The fact that the position taken by Prudential, Judge Babcock, and myself ultimately was rejected by the Tenth Circuit does not demonstrate that this position was unreasonable. Brandon v. Sterling Colorado Beef Co., 827 P.2d 559, 561 (Colo. App. 1991) (resort to judicial forum not per se bad faith or unfair dealing by insurer regardless of the outcome of suit; insurer may challenge claims that are fairly debatable). Fincher argues also that Prudential acted in bad faith following the ruling of the Colorado Court of Appeals in Thompson v. Budget Rent-A-Car Sys., Inc., 940 P.2d 987 (Colo. App. 1996). 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. 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 15

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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. 940 P.2d at 990. The Thompson court upheld the trial court's reformation of the insurance contract to include APIP benefits. Thompson was issued in 1996, two years before Brennan. After Thompson, Colorado law remained unclear on the question of whether or not pedestrians were required to be included in an offer of APIP benefits. In support of her argument that Prudential acted in bad faith following Thompson, Fincher cites the following language from my Reformation Order. After Thompson, Prudential was or should have been aware that reformation of an insurance policy was the appropriate remedy when an insured was not offered the optional APIP coverages required by the CAARA. As of September, 1996, Prudential was aware that its offer to Bekeshkas was not compliant with the APIP provisions of the CAARA, and that reformation of the policy to provide APIP coverage was the proper remedy. Reformation Order [#158], filed February 28, 2006, pp. 15-16. Prudential argues that it acted reasonably following Thompson because it reasonably viewed Thompson as distinguishable from Fincher's circumstance. In the earlier appeal of this case to the Tenth Circuit, Prudential argued that Thompson was distinguishable because 1) Thompson did not establish a pedestrian's right to APIP benefits; 2) Thompson did not indicate that the later ruling in Brennan was 16

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applicable retroactively; and 3) Thompson is factually distinguishable because the insurer in Thompson made no offer of APIP benefits, while Prudential offered Bekeshkas APIP benefits, although the allowable cap on those benefits was understated in the offer. Fincher v. Prudential Property and Casualty Ins. Co., 76 Fed.Appx. 917, 922 (10th Cir. 2003). The Tenth Circuit rejected each of these arguments. Id. However, I find as a matter of law that each of these three legal arguments distinguishing Thompson from the present case was fairly debatable and had a reasonable basis. If Prudential's legal arguments in support of its refusal to provide APIP benefits to Fincher were fairly debatable and had a reasonable basis, then Prudential cannot be found to have denied Fincher APIP benefits in bad faith to the extent Prudential relied on such legal arguments in support of its decision. Travelers Ins. Co. v. Savio, 706 P.2d 1258, 1275 (Colo.1985); Brandon v. Sterling Colorado Beef Co., 827 P.2d 559, 561 (Colo. App. 1991). Fincher appears to argue that my conclusion in the Reformation Order, quoted above, conclusively supports her bad faith claim. I disagree. As detailed in my Reformation Order, Prudential was aware for a long period of time that its written offers of APIP coverage were not in compliance with the CAARA because those offers provided for a 150,000 dollar cap on such benefits, rather than the 200,000 dollar minimum cap required by Colorado law. However, even with this knowledge, the legal remedies available to Fincher based on this flaw remained somewhat uncertain following Fincher's accident, following the ruling in Thompson, and following the ruling in Brennan. Again, as outlined above, it was reasonable both legally and factually for Prudential to argue that Thompson was distinguishable from Fincher's circumstances, and that Brennan was not applicable retroactively. Arguably, the conclusion stated above is contrary to my statement in the final 17

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phrase of this sentence in my Reformation Order: As of September, 1996, Prudential was aware that its offer to Bekeshkas was not compliant with the APIP provisions of the CAARA, and that reformation of the policy to provide APIP coverage was the proper remedy. Reformation Order [#158], filed February 28, 2006, pp. 15-16 (emphasis added). Having reviewed this matter again in great detail , I conclude that my Reformation Order [#158] should be amended to provide as follows: "As of September, 1996, Prudential was aware that its offer to Bekeshkas was not compliant with the APIP provisions of the CAARA, and that reformation of the policy to provide APIP coverage may be the proper remedy." This amendment substitutes the words "may be" for the word "was" in the subject sentence. As discussed above, following Thompson, there were reasonable factual and legal arguments in support of Prudential's position that reformation was not required in Fincher's case. In the phrase quoted above, the words "may be" more accurately describe the legal landscape faced by Prudential following the Thompson ruling than does the word "was." I conclude also that the amendment of this phrase in the Reformation Order does not significantly alter my analysis of the applicable reformation factors, or the ultimate conclusion that I reached in the Reformation Order. In sum, I conclude that Fincher's claims of bad faith breach of insurance contract and wilful and wanton breach of insurance contract, as pled in her complaint, are based on her claim that Prudential knowingly and unreasonably denied her claim for APIP benefits following the rulings of the Colorado Court of appeals in Thompson and Brennan. A determination of whether Prudential adopted reasonable interpretations of these legal rulings as applied to Fincher's claims is a matter of law to be determined by the court, and not by a jury. I conclude that Prudential's interpretations of these rulings, as applied to Fincher, were reasonable, even though Prudential's interpretations later were rejected by 18

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the Tenth Circuit. If Prudential's legal interpretations had a reasonable basis, then it is not possible for Fincher to prove that Prudential acted in bad faith in denying her APIP claim following the rulings in Thompson and Brennan. "(A)n insurer may challenge claims which are fairly debatable and will be found to have acted in bad faith only if it has intentionally denied (or failed to process or pay) a claim without a reasonable basis." Brandon v. Sterling Colorado Beef Co., 827 P.2d 559, 561 (Colo. App. 1991) (citing Travelers Insurance Co. v. Savio, 706 P.2d 1258, 1274-1275 (Colo. 1985)). If Prudential's legal interpretations were reasonable, then Fincher cannot establish that Prudential acted without justification and in disregard of Fincher's rights. Without such a showing, Fincher cannot establish her claim of wilful and wanton failure to pay insurance benefits. Dale v. Guaranty National Insurance Co., 948 P.2d 545, 551 (Colo.1997). In her response to Prudential's motion for summary judgment, Fincher argues that Prudential's conduct following the Tenth Circuit's ruling in this case also provides a factual basis for her bad faith breach and wilful and wanton breach claims. Plaintiff's response, pp. 13-16. Fincher never has sought to amend her complaint to include such factual allegations in support of her these claims. Fincher may not properly amend the factual allegations that support her claim by reciting such allegations for the first time in her response to the motion for summary judgment. As Fincher notes, at least one Colorado court has found an insurer's conduct after a suit was filed to be relevant to an insurance bad faith claim. Dale v. Guaranty Nat. Ins. Co., 948 P.2d 545, 553-554 (Colo. 1997). The fact that such conduct may be relevant to a bad faith claim does not eliminate the requirement that a defendant be given notice in the complaint of the general factual basis for the claim against it. Here, Prudential has not been given proper notice that its conduct following the Tenth Circuit's ruling is alleged to form an additional factual basis for 19

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Fincher's bad faith and wilful and wanton breach of contract claims. Similarly, Fincher's summary of her claims in the Fourth Amended Pretrial Order [#238], filed August 14, 2007, asserts for the first time another new factual basis for her claims. On page four of the Fourth Amended Pretrial Order, Fincher asserts that Prudential knew that Fincher was entitled to APIP benefits when her basic PIP benefits were exhausted. Fincher's basic PIP benefits were exhausted in about September, 1994. This factual basis for Fincher's claims goes well beyond the factual basis alleged in Fincher's complaint, quoted in Section V.B. of this order. Prudential objected to this expansion of Fincher's claims in the Fourth Amended Pretrial Order. Prudential has not fairly been put on notice that its conduct prior to the issuance of the Brennan and Thompson decisions is asserted as a basis for Fincher's claims. Therefore, I will not permit Fincher to assert this new factual basis for her claims at this late date. D. Conclusion Fincher has not cited any evidence in the record that demonstrates the existence of a genuine issue of material fact related to her claims of bad faith breach of insurance contract, and wilful and wanton breach of insurance contract. As Fincher herself notes, the core of these claims is the question of whether or not Prudential relied on reasonable legal positions when it denied Fincher claims for APIP benefits. I conclude, as a matter of law, that Prudential's legal positions were reasonable as those positions related to Fincher's claims for APIP benefits. This is true even though those legal positions ultimately were rejected by the Tenth Circuit. Viewing the undisputed facts in the record in the light most favorable to Fincher, I conclude that Prudential is entitled to judgment as a matter of law on Fincher's third cause of action, breach of the covenant of good faith and

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fair dealing, and her fourth cause of action, wilful and wanton breach of contract. VI. ORDERS THEREFORE, IT IS ORDERED as follows: 1. That summary judgment is GRANTED sua sponte in favor of the plaintiff, Kelly Fincher, by her natural father and next friend, James Fincher, and against defendant, Prudential Property and Casualty Insurance Company, on the issue of liability in the plaintiff's second cause of action, alleging breach of contract; 2. That the Defendant's Motion for Partial Summary Judgment [#211], filed March 9, 2007, is GRANTED to the extent the defendant seeks a determination that the damages due to the plaintiff on her second cause of action, alleging beach of contract, are limited to 92,500 dollars as the balance of APIP benefits due to Fincher, and for 202,000 dollars as payment for the statutory interest due to Fincher under §10-4-708(1.8), C.R.S.; 3. That the plaintiff is AWARDED damages on her second cause of action, alleging beach of contract, in the amount of 92,500 dollars as the balance of APIP benefits due to the plaintiff, and in the amount of 202,000 dollars as payment for the statutory interest due to the plaintiff under §10-4-708(1.8), C.R.S.; 4. That Fincher is entitled to a determination by the court of the amount of attorney fees, if any, due her under §10-4-708(1.7)(c), C.R.S.; 5. That the Defendant's Motion for Partial Summary Judgment [#211], filed March 9, 2007, is GRANTED as to the defendant's request for a determination that the plaintiff's second cause of action, alleging breach of contract, is moot to the extent that further litigation to determine liability, damages, or interest due to the plaintiff now is unnecessary;

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6. That the Defendant's Motion for Partial Summary Judgment [#211], filed March 9, 2007, is GRANTED as to any claim for additional relief asserted by the plaintiff based on her second cause of action, breach of contract; 7. That the Defendant's Motion for Partial Summary Judgment [#211], filed March 9, 2007, is GRANTED as to the plaintiff's third cause of action, breach of the covenant of good faith and fair dealing, and her fourth cause of action, wilful and wanton breach of contract; 8. That the plaintiff's third cause of action, breach of the covenant of good faith and fair dealing, and her fourth cause of action, wilful and wanton breach of contract, are DISMISSED with prejudice; 9. That the Defendant's Motion for Partial Summary Judgment [#211], filed March 9, 2007, is DENIED otherwise; 10. That my Findings of Fact, Conclusions of Law, & Orders [#158], filed February 28, 2006, (Reformation Order) are AMENDED to provide as follows: "As of September, 1996, Prudential was aware that its offer to Bekeshkas was not compliant with the APIP provisions of the CAARA, and that reformation of the policy to provide APIP coverage may be the proper remedy."; 11. That on or before November 15, 2007, the plaintiff MAY FILE a brief in support of her claim for an award of attorney fees by the court under §10-4-708(1.7)(c), C.R.S.; 12. That any response and reply shall be marshaled under D.C.COLO.LCivR 7.1C; 13. That absent the timely filing of a brief in support of the plaintiff's claim for an award of attorney fees under §10-4-708(1.7)(c), C.R.S., that claim SHALL BE FORFEITED;

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14. That the jury trial set to begin on Monday, October 15, 2007, at 8:30 a.m., is VACATED; 15. That all other pending motions are DENIED as moot; 16. That following the resolution of the plaintiff's claim for an award of attorney fees under §10-4-708(1.7)(c), C.R.S., the court shall direct the entry of final judgment in this case. Dated October 9, 2007, at Denver, Colorado. BY THE COURT: s/ Robert E. Blackburn Robert E. Blackburn United States District Judge

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge Robert E. Blackburn Civil Case No. 00-cv-2098-REB-MJW KELLY FINCHER, by her natural father and next friend, JAMES FINCHER, Plaintiffs, v. PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant.

ORDER DENYING PLAINTIFF'S MOTION FOR ATTORNEY FEES & DIRECTING THE ENTRY OF JUDGMENT Blackburn, J. This matter is before me on the Plaintiff's Motion for Attorney Fees [#278], filed November 15, 2007. The defendant filed a response [#279] and the plaintiff filed a reply [#282]. I deny the motion. This case concerns the plaintiff's claim for recovery of benefits under an auto insurance policy. The plaintiff, Kelly Fincher, was injured in an auto accident on May 8, 1994. An auto insurance policy issued by the defendant, Prudential Property and Casualty Insurance Company, provided coverage for Fincher's injuries. The Prudential policy at issue is regulated by 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. At the time of the accident in question, the CAARA required insurers to provide a minimum level of benefits known as personal injury protection or PIP benefits. Basic PIP benefits are defined in §10-4-706, C.R.S. After the accident, Prudential promptly paid to

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Fincher the basic PIP benefits that were due to her. Basic PIP benefits are not at issue in this case. In this case, Fincher claims that she is entitled also to additional PIP benefits known as APIP benefits. In the course of this case, the Prudential policy was reformed judicially to provide APIP coverage to Fincher. In my Order Concerning Motions for Summary Judgment [#277], filed

October 9, 2007, I granted summary judgment in favor of Fincher on the issue of the defendant's liability on Fincher's second cause of action for breach of contract. In essence, I concluded that Prudential had breached its insurance contract by failing to provide Fincher with APIP benefits as required by the reformed insurance contract. Prudential has paid to Fincher 92,500 dollars, the balance of APIP benefits due to Fincher. In her motion for attorney fees, Fincher seeks an award of attorney fees under §104-708 (1.7), C.R.S. In response to Fincher's motion the defendant argues that the attorney fees provisions of §10-4-708 are not applicable to Fincher's claim in this case because Fincher's claim concerns only APIP benefits, and does not concern basic PIP benefits. I agree. Section 10-4-708, C.R.S., provides procedures and remedies for the recovery of "benefits under the coverages enumerated in section 10-4-706(1)(b) to (1)(e) or alternatively, as applicable, section 10-4-706(2) or (3) . . . ." §10-4-708(1), C.R.S. Again, §10-4-706 defines basic PIP benefits, but does not define or includeo APIP benefits. Rather, APIP benefits are defined in §10-4-710, C.R.S. That statute provides, inter alia, that every insurer shall offer certain "enhanced benefits for inclusion in a complying policy, in addition to the basic coverages described in section 10-4-706 . . . ." §10-4-710(2)(a),

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C.R.S. The benefits recovered by Fincher in this case are APIP benefits defined in §10-4710. Fincher did not recover in this case any basic PIP benefits as defined in §10-4-706. Prudential argues cogently that the provisions of §10-4-708 are not applicable to a case in which only APIP benefits were recovered, because §10-4-708 does not mention the statute that defines APIP benefits, and does not mention APIP benefits in any other way. Interpreting §10-4-708, my task is to "determine and give effect to the legislature's intent." Comcast of California/Colorado, L.L.C. v. Express Concrete, Inc. L .L.C., ___ P.3d ___, ___, 2007 WL 4531717, *1 (Colo. App. 2007) (citation omitted). I must look first to the language of the statute, giving words and phrases their plain and ordinary meaning. Id. I must interpret the statute in a way that best effectuates the purpose of the legislative scheme. Id. If the words of the statute are unambiguous, I need not and may not seek additional aids to my interpretation. Id. I conclude that the provisions of §10-4-708, C.R.S., are unambiguous on the question presented by Fincher and Prudential. Section10-4-708 unambiguously provides that the procedures and remedies defined in that section are applicable to disputes concerning the prompt payment of "benefits under the coverages enumerated in section 10-4-706(1)(b) to (1)(e) or alternatively, as applicable, section 10-4-706(2) or (3) . . . ." §10-4-708(1), C.R.S. Nothing in this section indicates that these procedures and remedies are applicable to claims for other kinds of benefits, including the APIP benefits, which are defined elsewhere in §10-4-710. Giving the words of this statute their plain and ordinary meaning, I must conclude that the attorney fees provisions of §10-4-708 are not applicable to a claim for benefits, like Fincher's, under §10-4-710. On the current record, there is no other basis for an award of attorney fees to Fincher. I note that the issue of attorney fees is the last remaining issue in this case. 3

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Because all issues have been resolved, I direct that judgment shall enter consistent with my ruling in this order, and my previous rulings resolving the plaintiff's claims. THEREFORE, IT IS ORDERED as follows: 1. That Plaintiff's Motion for Attorney Fees [#278], filed November 15, 2007, is DENIED; 2. That consistent with my order [#158], filed February 28, 2006, JUDGMENT SHALL ENTER for the plaintiff, Kelly Fincher, by her natural father and next friend, James Fincher, against the defendant, Prudential Property and Casualty Insurance Company, on the plaintiff's first cause of action, seeking reformation of contract; 3. That the Prudential insurance policy under which the plaintiff is entitled to benefits is REFORMED to provide APIP benefits as of the date of the plaintiff's accident, May 8, 1994; 4. That the Prudential insurance policy under which the plaintiff is entitled to APIP benefits is REFORMED to include the permissible cap on APIP benefits of 200,000 dollars; 5. That JUDGMENT SHALL ENTER in favor of the plaintiff, Kelly Fincher, by her natural father and next friend, James Fincher, and against the defendant, Prudential Property and Casualty Insurance Company, on the plaintiff's second cause of action for beach of contract; 6. That the plaintiff is AWARDED 92,500 dollars as the balance of benefits due to the plaintiff under the reformed insurance policy at issue here; 7. That JUDGMENT SHALL ENTER for the defendant, Prudential Property and Casualty Insurance Company, against the plaintiff, Kelly Fincher, by her natural father and

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next friend, James Fincher, on the plaintiff's third and fourth causes of action; and 8. That the plaintiff is AWARDED her costs, to be taxed by the Clerk of the Court pursuant to Fed.R.Civ.P. 54(d)(1) and D.C.COLO.LCivR 54.1. Dated March 31, 2008, at Denver, Colorado. BY THE COURT: s/ Robert E. Blackburn Robert E. Blackburn United States District Judge

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Case No. 00-cv-2098-REB-MJW KELLY FINCHER, by her natural father and next friend, JAMES FINCHER, Plaintiffs, v. PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY, Defendant.

JUDGMENT

Pursuant to and in accordance with the following orders entered by Judge Robert E. Blackburn 1) Findings of Fact, Conclusions of Law, & Orders [#158], filed February 28, 2006; 2) Order Concerning Motion for Summary Judgment [#277], filed October 9, 2007; and 3) Order Denying Plaintiff's Motion for Attorney Fees & Directing the Entry of Judgment [#286], filed March 31, 2008, each of which are incorporated herein by reference as if fully set forth, IT IS ORDERED as follows: 1. That JUDGMENT SHALL ENTER for the plaintiff, Kelly Fincher, by her natural father and next friend, James Fincher, against the defendant, Prudential Property and Casualty Insurance Company, on the plaintiff's first cause of action for reformation of contract; 2. That the Prudential insurance policy under which the plaintiff is entitled to benefits is REFORMED to provide APIP benefits as of the date of the plaintiff's

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Civil Case No. 00-cv-2098-REB-MJW Judgment accident on May 8, 1994; 3. That the Prudential insurance policy under which the plaintiff is entitled to APIP benefits is REFORMED to include the permissible cap on APIP benefits of 200,000 dollars; 4. That JUDGMENT SHALL ENTER for the plaintiff, Kelly Fincher, by her natural father and next friend, James Fincher, against the defendant, Prudential Property and Casualty Insurance Company, on the plaintiff's second cause of action for beach of contract; 5. That the plaintiff is AWARDED 92,500 dollars as the balance of benefits due to the plaintiff under the reformed insurance policy at issue in this action; 6. That JUDGMENT SHALL ENTER for the defendant, Prudential Property and Casualty Insurance Company, against the plaintiff, Kelly Fincher, by her natural father and next friend, James Fincher, on the plaintiff's third and fourth causes of action; and 7. That the plaintiff is AWARDED her costs, to be taxed by the Clerk of the Court pursuant to Fed.R.Civ.P. 54(d)(1) and D.C.COLO.LCivR 54.1.

Dated March 31, 2008.

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Civil Case No. 00-cv-2098-REB-MJW Judgment FOR THE COURT: Gregory C. Langham

By:

s/ Edward P. Butler Edward P. Butler Deputy Clerk

APPROVED: s/ Robert E. Blackburn Robert E. Blackburn United States District Judge

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 00-cv-02098-REB-MJW KELLY FINCHER, by her guardian, JAMES FINCHER, on behalf of herself and all others similarly situated, Plaintiffs, v. PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY, a New Jersey Corporation, Defendant.

NOTICE OF APPEAL

Notice is hereby given that KELLY FINCHER, by her guardian, JAMES FINCHER, on behalf of herself and all others similarly situated, hereby appeals to the United States Court of Appeals for the 10th Circuit from the Order Concerning Motion for Summary Judgment (Doc. 277) entered in this matter October 9, 2007, the Order Denying Plaintiff's Motion For Attorney Fees & Directing The Entry Of Judgment (Doc. 286) entered March 31, 2008, and the Judgment (Doc. 287) entered March 31, 2008. Respectfully submitted this April 1, 2008. s/Leif Garrison____ Robert B. Carey Leif Garrison The Carey Law Firm 2301 East Pikes Peak Avenue Colorado Springs, CO 80909

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L. Dan Rector Franklin D. Azar and Associates 5536 Library Lane Colorado Springs, CO 80918

CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on April 1, 2008, the foregoing was electronically filed with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: [email protected] s/Leif Garrison____ Leif Garrison The Carey Law Firm 2301 East Pikes Peak Avenue Colorado Springs, CO 80909

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