Free Amended Answer to Complaint - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO
Civil Action No. 04-cv- 0865- REB- CBS
ESTATE OF APRil Hill

SCOTT Hill , personal representative; SCOTT Hill , as Conservator of the Estate of Katelyn Hill; and SCOTT Hill , individually
Plaintiffs

AllSTATE INSURANCE COMPANY; MERASTAR INSURANCE COMPANY; and PRUDENTIAL INSURANCE COMPANY OF AMERICA

Defendants.

AllSTATE INSURANCE COMPANY
Counterclaim Plaintiff

SCOTT Hill , as Conservator of the Estate of Katelyn Hill
Counterclaim Defendant.

DEFENDANT ALLSTATE INSURANCE COMPANY' AMENDED ANSWER AND COUNTERCLAIM

Defendant Allstate Insurance Company ("Allstate " or " Defendant" ) through its
undersigned counsel ,

answers the First Amended Complaint and Jury Demand ("First

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Amended Complaint" ) to the extent required in light of the Court' s Order granting

Defendants ' Motion to Dismiss dated December 13 , 2004:
CLAIMS AGAINST DEFENDANT ALLSTATE INSURANCE COMPANY

Parties , Jurisdiction , and Venue
Defendant admits that a complaint in Case No. 2004 CV 41 was filed on
March 15 , 2004 in the Archuleta County District Court ,

State of Colorado. Defendant

further admits that the complaint filed in Case No. 2004 CV 41 related to an accident on

July 25 , 2002 in Utah. Defendant asserts that Plaintiffs ' Motion for Remand has been

denied and is no longer pending before this Court. Defendant denies any remaining
allegations contained in Paragraph 1 of the First Amended Complaint.
Defendant admits that April Hill was injured and died immediately as a
result of the accident on July 25 , 2002. Defendant admits that at the time of the

accident , April Hill was married to Scott Hill and that prior to her marriage to Scott , April
was married to John Paul. Defendant lacks knowledge or information sufficient to form
a belief as to the remaining allegations contained in Paragraph 2 of the First Amended

Complaint , and on that basis denies the same.
Defendant admits that Scott Hill appears as the Conservator of the Estate

of Katelyn Hill and that Katelyn Hill sustained injuries as a result of the accident on

July 25 , 2002. Defendant lacks knowledge or information sufficient to form a belief as to
the remaining allegations contained in Paragraph 3 of the First Amended Complaint

and on that basis denies the same.

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Defendant lacks knowledge or information sufficient to form a belief as to
whether Scott Hill is and " at all relevant times has been " a resident of Archuleta County,

Colorado , and on that basis denies the same. Defendant denies the remaining
allegations contained in Paragraph 4 of the First Amended Complaint.

Defendant admits that it is an insurance company incorporated in the

State of Illinois and that it is licensed to do business in the State of Colorado , including

Archuleta County. Defendant admits that the Division of Insurance , 1560 Broadway,
Denver , CO 80202 , is a registered agent for Defendant. Defendant admits that April Hill
was a named insured under Allstate Policy No. 064624124 ("he Allstate Policy ) on July

, 2002. Defendant denies any remaining allegations contained in Paragraph 5 of the
First Amended Complaint.

Defendant admits that Liz Marchand was an agent for Allstate and her

principal place of business was in Archuleta County, Colorado. Defendant denies any
remaining allegations contained in Paragraph 6 of the First Amended Complaint. Defendant admits that it is registered to do and does business in
Colorado. Defendant admits

that Liz Marchand is a Colorado resident. Defendant

denies any remaining allegations contained in Paragraph 7 of the First Amended

Complaint.
Defendant denies the allegations contained in Paragraph 8 of the First
Amended Complaint.

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Background
Defendant admits that Allstate policy documentation was attached to
Defendants Allstate s and Liz Marchand' s Motion to Dismiss as Exhibit 1. Defendant

denies any remaining allegations contained in Paragraph 9 of the First Amended

Complaint.
10.
extended PIP

Defendant admits that under the No- Fault Act , it was required to offer

coverage on automobile insurance policies issued in Colorado. The

allegations contained in the last sentence of Paragraph 10 are comprised of legal

conclusions , and on that basis no answer is required. Defendant denies any remaining
allegations contained in Paragraph 10 of the First Amended Complaint.
11.
extended PIP

Defendant admits that under the No- Fault Act , it was required to offer

coverage to John or April Paul as part of the Allstate Policy. Defendant

denies any remaining allegations contained in Paragraph 11 of the First Amended

Complaint.
12.

Defendant denies the allegations contained in Paragraph 12 of the First

Amended Complaint.
13.

Defendant denies the allegations contained in Paragraph 13 of the First

Amended Complaint.
14.

Defendant denies the allegations contained in Paragraph 14 of the First

Amended Complaint.
15.

Defendant denies the allegations contained in Paragraph 15 of the First

Amended Complaint.

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16.

Defendant denies the allegations contained in Paragraph 16 of the First

Amended Complaint.
17.

Defendant admits that the Allstate Policy initially covered two vehicles

and Defendant admits that April Hill continued to be a named insured under the Allstate

Policy thereafter. Defendant denies any remaining allegations contained in Paragraph
17 of the First Amended Complaint.
18.

Defendant admits that April Hill and Katelyn Hill were in a vehicle at the

time of the accident on July 25 , 2002. Defendant lacks knowledge or information

sufficient to form a belief as to the remaining allegations contained in Paragraph 18 of
the First Amended Complaint , and on that basis denies the same.

FIRST CLAIM FOR RELIEF - REFORMATION OF THE POLICY TO PROVIDE ESSENTIAL SERVICES WITHOUT LIMITATION AS TO DATE OF DEATH OF APRIL
19.

Defendant incorporates its admissions and denials to Paragraphs

through 18 as if fully set forth herein.

20.

The allegations in Paragraph 20 are comprised of legal conclusions , and

on that basis no answer is required. Defendant denies any remaining allegations
contained in Paragraph 20 of the First Amended Complaint.

21.

Defendant denies the allegations contained in Paragraph 21 of the First

Amended Complaint.

22.

Defendant denies the allegations contained in Paragraph 22 of the First

Amended Complaint.

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SECOND CLAIM FOR RELIEF BREACH OF CONTRACT AGAINST ALLSTATE (BY THE CONSERVATOR FOR ESSENTIAL SERVICES BENEFITS UNDER THE REFORMED POLICY)
23.
Defendant incorporates its admissions and denials to Paragraphs

through 22 as if fully set forth herein.

24.

Defendant admits that it has not paid extended

PIP

benefits for essential

services under a reformed insurance policy to Plaintiffs. Defendant denies the
remaining allegations contained in Paragraph 24 of the First Amended Complaint.

25.

Defendant denies the allegations contained in Paragraph 25 of the First

Amended Complaint.

26.

Defendant denies the allegations contained in Paragraph 26 of the First

Amended Complaint.

27.

Defendant denies the allegations contained in Paragraph 27 of the First

Amended Complaint.

THIRD CLAIM FOR RELIEF BAD FAITH BREACH OF AN INSURANCE CONTRACT AGAINST ALLSTATE (BY THE CONSERVATOR REGARDING ESSENTIAL SERVICES BENEFITS UNDER THE REFORMED POLICY) 28.
Defendant incorporates its admissions and denials to Paragraphs

through 27 as if fully set forth herein.

29.

Defendant admits that under Colorado law , it is subject to a duty of good

faith and fair dealing in handling its insurance contracts. Defendant denies the
remaining allegations contained in Paragraph 29 of the First Amended Complaint.
30.

Defendant denies the allegations contained in Paragraph 30 of the First

Amended Complaint.

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31.

Defendant denies the allegations contained in Paragraph 31 of the First

Amended Complaint.

32.

Defendant denies the allegations contained in Paragraph 32 of the First

Amended Complaint.

FOURTH CLAIM FOR RELIEF AGAINST ALLSTATE REFORMATION OF THE POLICY TO PROVIDE ENHANCED BENEFITS WITHOUT LIMITATIONS AS TO TIME OR DOLLAR AMOUNT (BY THE CONSERVATOR)
33.

Defendant incorporates its admissions and denials to Paragraphs

through 32 as if fully set forth herein. 34.

Defendant denies the allegations contained in Paragraph 34 of the First

Amended Complaint.

35.

Defendant denies the allegations contained in Paragraph 35 of the First

Amended Complaint.

36.

Defendant admits that Katelyn Hill was a passenger in the vehicle at issue

during the accident on July 25 , 2002. Defendant lacks knowledge or information

sufficient to form a belief as to whether Katelyn Hill was a member of April' s household
on July 25 , 2002 , and on that basis denies the same. Defendant denies the remaining

allegations contained in Paragraph 36 of the First Amended Complaint.

FIFTH CLAIM FOR RELIEF - BREACH OF CONTRACT AGAINST ALLSTATE (BY THE CONSERVATOR FOR ENHANCED BENEFITS REGARDING APRIL HILL' S LOST WAGES OR INCOME UNDER THE REFORMED POLICY)
37.

Defendant incorporates its admissions and denials to Paragraphs

through 36 as if fully set forth herein.

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38.

Defendant admits that it has not paid extended

PIP

benefits for lost wages

or income under a reformed insurance policy to Plaintiffs. Defendant denies the
remaining allegations contained in Paragraph 38 of the First Amended Complaint.
39.

Defendant denies the allegations contained in Paragraph 39 of the First

Amended Complaint.

40.

Defendant denies the allegations contained in Paragraph 40 of the First

Amended Complaint.

41.

Defendant denies the allegations contained in Paragraph 41 of the First

Amended Complaint.
SIXTH CLAIM FOR RELIEF - BAD FAITH BREACH OF AN INSURANCE

CONTRACT AGAINST ALLSTATE (BY THE CONSERVATOR REGARDING ENHANCED BENEFITS FOR APRIL HILL' S LOST WAGES OR INCOME UNDER THE REFORMED POLICY)
42.
Defendant incorporates its admissions and denials to Paragraphs

through 41 as if fully set forth herein.

43.

Defendant admits that under Colorado law , it is subject to a duty of good

faith and fair dealing in handling its insurance contracts. Defendant denies the
remaining allegations contained in Paragraph 43 of the First Amended Complaint.

44.

Defendant denies the allegations contained in Paragraph 44 of the First

Amended Complaint.

45.

Defendant denies the allegations contained in Paragraph 45 of the First

Amended Complaint.

46.

Defendant denies the allegations contained in Paragraph 46 of the First

Amended Complaint.

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47.

Defendant denies the allegations contained in Paragraph 47 of the First

Amended Complaint.

SEVENTH CLAIM FOR RELIEF - BREACH OF CONTRACT AGAINST ALLSTATE (BY THE CONSERVATOR FOR ENHANCED BENEFITS REGARDING KATELYN HILL' S MEDICAL AND REHABILITATION EXPENSES, AND LOST INCOME OR WAGES, UNDER THE REFORMED
POLICY)

48.

Defendant incorporates its admissions and denials to Paragraphs

through 47 as if fully set forth herein.

49.

Defendant admits that it has not paid extended

PIP

benefits for medical or

rehabilitation expenses under a reformed policy to Plaintiffs. Defendant denies the
remaining allegations contained in Paragraph 49 of the First Amended Complaint.
50.

Defendant denies the allegations contained in Paragraph 50 of the First

Amended Complaint.

51.

Defendant denies the allegations contained in Paragraph 51 of the First

Amended Complaint.

52.

Defendant denies the allegations contained in Paragraph 52 of the First

Amended Complaint.

EIGHTH CLAIM FOR RELIEF BAD FAITH BREACH OF AN INSURANCE CONTRACT AGAINST ALLSTATE (BY THE CONSERVATOR REGARDING ENHANCED BENEFITS FOR MEDICAL AND REHABILITATION EXPENSES, AND LOST INCOME OR WAGES, UNDER THE REFORMED POLICY)
53.

Defendant incorporates its admissions and denials to Paragraphs

through 52 as if fully set forth herein.

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54.

Defendant admits that under Colorado law , it is subject to a duty of good

faith and fair dealing in handling its insurance contracts. Defendant denies the
remaining allegations contained in Paragraph 54 of the First Amended Complaint.
55.

Defendant denies the allegations contained in Paragraph 55 of the First

Amended Complaint.

56.

Defendant denies the allegations contained in Paragraph 56 of the First

Amended Complaint.

57.

Defendant denies the allegations contained in Paragraph 57 of the First

Amended Complaint.

58- 97. The claims asserted in these paragraphs have been dismissed by Court

Order of December 13 , 2004 and no answer is required.
AFFIRMATIVE DEFENSES

First Affirmative Defense
The First Amended Complaint fails to state a claim upon which relief may be

granted.

Second Affirmative Defense
Plaintiffs have failed to mitigate damages , if any.

Third Affirmative Defense
Plaintiffs ' claims are barred , in whole or in part , by the applicable statutes of
limitation.

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Fourth Affirmative Defense
Plaintiffs ' claims are barred , in whole or in part , for lack of standing.

Fifth Affirmative Defense
Plaintiffs are not entitled to exemplary or punitive damages pursuant to C. R.S.

13- 21- 102.

Sixth Affirmative Defense
Plaintiffs have not suffered injury in fact as a result of any alleged act or omission

of Defendant.

Seventh Affirmative Defense
Plaintiffs ' equitable claims are barred , in whole or in part , by the doctrine of

laches.

EiQhth Affirmative Defense
Plaintiffs ' claims are barred , in whole or in part , by the doctrines of waiver and

estoppel and/or equitable estoppel.

Ninth Affirmative Defense
Plaintiffs ' claims for punitive or exemplary damages and/or other penalties cannot
be maintained because an award of such damages would violate Defendant' s due

process rights guaranteed by the United States Constitution and the Constitution of the
State of Colorado.

Tenth Affirmative Defense
This Court lacks subject matter jurisdiction.

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Eleventh Affirmative Defense
Plaintiffs have no private right of action to assert the claims stated in their First
Amended Complaint.

Twelfth Affirmative Defense
Plaintiffs seek unconstitutional penalties , rather than damages.

Thirteenth Affirmative Defense
Plaintiffs ' claims are preempted by the Colorado Division of Insurance.

Fourteenth Affirmative Defense
Plaintiffs ' claims are barred by collateral estoppel , res judicata , and unclean

hands.

Fifteenth Affirmative Defense
Plaintiffs ' damages , if any, are the result of the acts or omissions of other parties

entities , or other non- parties at fault.

Sixteenth Affirmative Defense
If Plaintiffs are awarded extended PIP

benefits , Defendant is entitled to offset the

cost of reasonable premiums for any extended coverage against any such award.

Seventeenth Affirmative Defense
Plaintiffs ' claims for punitive damages must be limited by the law as articulated
by the United States Supreme Court in

State Farm v. Campbell

538 U. S.

408 (2003).

EiQhteenth Affirmative Defense
Plaintiffs ' claims are premature and not ripe for adjudication.

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Nineteenth Affirmative Defense
Plaintiffs ' claims are barred by Plaintiffs ' own breaches of contract.

Twentieth Affirmative Defense
Plaintiffs ' claims are barred , because even if Plaintiffs are entitled to reformation
which Defendant denies ,

Defendant is not obligated to conform to any such " reformed"

policy until such time , if any, as the policy is ordered reformed by the Court.

Twenty- First Affirmative Defense
Plaintiffs ' clams are barred in whole or in part by the terms of the insurance
policy, including by not limited to the " Duty to Report Policy Changes " and the
Subrogation Rights " sections of the policy.

Twenty- Second Affirmative Defense
Plaintiffs ' clams are barred in whole or in part by the terms of the No- Fault
Act.

Twenty- Third Affirmative Defense
Plaintiffs ' claims are barred by the fraud and concealment committed by the

policyholders , John Paul and April Paul , in the course of applying for and renewing the
Allstate policy of insurance. The factual bases for this affirmative defense are more fully
set forth in the Counterclaim stated below.

Twenty- Fourth Affirmative Defense
Plaintiffs ' claims are barred by the breach of insurance contract committed by the

policyholders , John Paul and April Paul , based on concealment and nondisclosure of
facts required to be disclosed to Allstate , according to the terms of the policy, during the

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renewal periods. The factual bases for this affirmative defense are more fully set forth
in the Counterclaim stated below.
Except as expressly admitted herein ,

Defendant denies each and every

allegation in Plaintiffs ' First Amended Complaint.

Defendant reserves the right to amend its defenses as discovery proceeds in this

case.
WHEREFORE , Defendant requests that the Court enter judgment in its favor
dismiss the First Amended Complaint with prejudice , award Defendant its costs and

attorneys ' fees , and grant such further relief as the Court deems proper.

COUNTERCLAIM
Defendant/Counterclaim Plaintiff Allstate Insurance Company ("Allstate ) makes

the following Counterclaim against Scott Hill , individually and in his capacities as

Conservator of the Estate of Katelyn Hill and Personal Representative of the Estate of
April Hill (hereinafter " Plaintiff" or " Counterclaim Defendant" ).
In

support of its

Counterclaims , Allstate alleges and avers as follows:
PARTIES
Counterclaim Plaintiff Allstate is an Illinois corporation , authorized to sell
insurance in the State of Colorado.

Counterclaim Defendant is a resident of Archuleta County, Colorado.

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JURISDICTION AND VENUE
The Court has jurisdiction over this Counterclaim under 28 U.

C. ~ 1332.

There is diversity of citizenship between the parties and the amount in controversy
exceeds $75 000 exclusive of interests and costs. In addition , jurisdiction is also proper
under 28 U.
C. ~ 1367.

Venue is proper under 28 U.

C. ~ 1391.

FACTUAL ALLEGATIONS
Plaintiff is suing Allstate and the other defendants on the theory that the
named insureds were not offered extended personal injury protection benefits ("APIP"

pursuant to the now-sunsetted Colorado No- Fault Act , in connection with the purchase

of automobile insurance from Allstate. See ,

e.

, Am. Compl.

15. Plaintiff is

seeking in this lawsuit APIP benefits in connection with the automobile accident that
occurred on July 25 , 2002 (the " Accident"

Allstate has paid $100 000 in basic PIP benefits to Plaintiff , for the benefit
of Katelyn Hill , as a result of the Accident. Allstate has also paid a total of at least

$270 000 in UM/UIM benefits to persons injured in the Accident , including $59 167 , for
the benefit of Katelyn Hill.
John Paul ,

April Paul , and Counterclaim Defendant committed fraud on

Allstate in the application process and by concealment of certain facts during the
renewal terms. John Paul and

April Paul breached the provisions of the insurance

policy by their fraudulent concealment. In particular , Allstate has recently discovered
the following:

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In the course of the application process and in the application itself , John Paul
concealed that he was separated from April Paul , and that , in fact , he was soon to be

officially divorced from her. Rather , John Paul knowingly made a false and fraudulent
misrepresentation to Allstate that he and April were married and were members of the

same household. In truth and in fact , at the time of the application , John Paul was
officially separated from April Paul , and he had no hope of reconciliation. At the time
John Paul ,

April Paul , and Counterclaim Defendant knew that John Paul was officially

separated from April Paul , and he had no hope of reconciliation. Further , John Paul

knowingly misrepresented his employment status on the application , reporting that he

was employed as a manager when in fact he was unemployed and knew that he was

unemployed.
At no time prior to the Accident on July 25 2002 , did John Paul , April

Paul , or Counterclaim Defendant disclose to Allstate that John Paul and April Paul had
separated and divorced. Neither John Paul ,

April Paul , nor Counterclaim Defendant

disclosed to Allstate that the couple s divorce was finalized on November 16 , 2000 -just three months after the application.
In reasonable reliance on the false representations and concealment in

the application process , Allstate issued a single policy of automobile insurance , policy
number 064624124 (the " Allstate
Policy

), which provided for the insurance of John Paul

and April Paul as a single household. Allstate charged a premium for the policy based
on the actuarial risk associated with a one- household policy.

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10.

The Allstate Policy listed as insured vehicles a Nissan Sentra and a

Dodge Stratus. The Dodge Stratus was involved in the Accident.
11.

Allstate continued to renew the Allstate Policy because neither John Paul

April Paul , nor Counterclaim Defendant disclosed that John Paul and April Paul had
divorced and were residing in separate households. In fact , unbeknownst to Allstate
April Paul was living in a separate household , with at least one additional resident
relative entitled to coverage under the policy;

her undisclosed new husband , Scott

Hill.

12.

Despite ample opportunity, at no time prior to the Accident did John Paul

April Paul , or Counterclaim Defendant ever inform Allstate that the couple had changed

addresses , that they were separated , or that they actually divorced shortly after
procuring the Allstate Policy.
13.

Between the time of the application (August 17 , 2000) and the time of the

Accident (July 25 , 2002), both John Paul and April Paul remained listed together on the
Allstate Policy.

14.

The policy expressly provides that: " Your policy was issued in reliance on

the information you provided concerning autos , persons insured by the policy and your

place of residence. To properly insure your auto , you must promptly notify us when you
change your address or whenever any resident operators insured by your policy are
added or deleted.
15.

If Allstate had known the truth about the fraud of John Paul , April Paul

and Counterclaim Defendant , it would not have acted as it did in issuing and renewing

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the policy. As a direct consequence of the misrepresentations and concealment by
John Paul ,

April Paul , and Counterclaim Defendant , and in reliance thereon , Allstate

issued and renewed a policy that it otherwise would not have issued and renewed , and
ultimately paid at least $370 000 in PIP and UM/UIM benefits under that policy. FIRST COUNTERCLAIM (DECLARATORY JUDGMENT)
16.

Allstate repeats and realleges Paragraphs 1 through 15 of its

Counterclaim as if fully set forth herein.
17.
John Paul ,

April Paul , and Counterclaim Defendant committed fraud on

Allstate in the application process and by concealment of certain facts in connection
with the renewal of the policy.
18.

John Paul and April Paul breached the disclosure provisions of the Allstate

Policy. This fraud and breach of the policy entitles Allstate to relief consisting of a
declaration that Allstate is not obligated to pay any further or additional PIP benefits , to

anyone , under the Allstate Policy.
SECOND COUNTERCLAIM (FRAU D/CONCEALM ENT)
19.

Allstate repeats and realleges Paragraphs 1 through 18 of its

Counterclaim as if fully set forth herein.

20.

The fraud and concealment committed by John Paul and April Paul during

the application process and renewal periods entitles Allstate to rescind the policy of
insurance and to a return of all benefits , including basic PIP and UM/UIM benefits , paid
to or on behalf of the named Plaintiffs.

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THIRD COUNTERCLAIM (UNJUST ENRICHMENT)

21.

Allstate repeats and realleges Paragraphs 1 through 20 of its

Counterclaim as if fully set forth herein.

22.

Benefits were paid to Plaintiff under a policy that was procured and

maintained through fraud.

23.
said benefits.

It would be unfair and inequitable for Counterclaim Defendant to retain

24.

Counterclaim Defendant should be required to return to Allstate all

benefits it has received under the Allstate Policy.

PRAYER FOR RELIEF

WHEREFORE , Allstate prays for judgment against Plaintiff/Counterclaim
Defendant and requests the following relief:

A declaration that Allstate is not obligated to pay, and is not liable or
responsible for , any further benefits under the Allstate Policy;
Rescission of the Allstate Policy ab initio

and a declaration that the policy

is so rescinded;

Return to Allstate of all benefits paid to Plaintiff or for the benefit of Katelyn
Hill under the Allstate Policy, net of premiums paid to Allstate under the policy;
For an award of attorneys ' fees and costs;

For prejudgment interest on the amount of benefits paid under the policy
to Plaintiff for the benefit of Katelyn Hill;

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For such other and/or further relief as the Court may deem appropriate

under the circumstances.
DEFENDANT/COUNTERCLAIM PLAINTIFF REQUESTS A TRIAL BY JURY
ON ALL ISSUES SO TRIABLE.

Respectfully submitted this 21 st day of July, 2005.

s/ Michael D. Alper John M. Vaught Terence M. Ridley Michael D. Alper
Wheeler Trigg Kennedy

LLP

1801 California Street , Suite 3600

Denver , CO 80202
Telephone: (303) 292-2525
Facsimile: (303) 294- 1879

Mail: vaught wtklaw. com
ridley
wtklaw. com

alper wtklaw. com
Attorneys for Defendant/Counterclaim Plaintiff

Allstate Insurance Company

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