Free Reply - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE STATE OF COLORADO

Civil Action No. 00-cv-01841-LTB-PAC RICKY EUGENE CLARK, on behalf of himself and all others similarly situated, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Defendant.

PLAINTIFF'S REPLY IN SUPPORT OF PLAINTIFF'S PROPOSED AMENDED CLASS DEFINITION

COMES NOW Plaintiff Ricky Eugene Clark, by and through his attorneys of record, and for his Reply in Support of the Proposed Amended Class Definition, states as follows: I. INTRODUCTION In its Response brief, State Farm's attack on Clark's proposed class definition is, predictably enough, a "shotgun" approach that challenges eligibility in the proposed class for reasons that are either irrelevant or simply incorrect. In reply to those arguments, Clark will follow the same order in which they are presented to this Court in the State Farm Brief, including an initial critique of State Farm's characterization of the controlling case law on the issues of extended PIP and policy reformation. II. RELEVANT CASE LAW

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State Farm includes into its brief a précis' of its version of the significance of cases that bear upon the substantive issues in an extended PIP lawsuit, particular appellate decisions from this same lawsuit (Response brief, pp. 2-8). In general, it appears that State Farm simply wants to argue, yet one more time, that the courts are wrong about the rulings in this case, even though this case has been the subject of three reported decisions, two of them by the 10th Circuit Court of Appeals. Apparently, State Farm's assertion that it "is critical to examine in detail the case law leading to this point in the litigation" is designed somehow to argue that the remedy for the members of the proposed class members will vary, based upon alleged difference between the reported cases. However, that argument most certainly has been pre-empted by the three

decisions already establishing the law of the case herein. Nonetheless, to the extent that some response is needed to rebut how State Farm interprets other cases in order to bolster its arguments about the class definition, it is clear that State Farm misses the mark on each of the cases cited. Thompson v. Budge Rent-A-Car Systems, Inc., 940 P.2d 987, 990 (Colo. App. 1996), for example, has long been the subject of attempts by insurance companies to distinguish it (e.g. Fincher v. Prudential Prop. & Cas. Ins. Co., 76 Fed. Appx 917, 922 (10th Cir. 2003)) by arguing that the failure to offer any extended PIP coverages is different from those cases where some extended PIP, albeit erroneously and in non-compliance, was offered, as did State Farm to every member of this proposed class via its defective policy. Such an argument has been discounted in all the reported cases because reformation of the policy is the uniform remedy, and thus this argument has no bearing on the definition of this class.

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Similarly, Brennan, infra, which has served as something of a bellwether on extended PIP litigation, does indeed stand for the proposition that it is the entire policy that is reformed, not, as State Farm would have it, that the reformed coverage varies, based upon the status of the eligible injured persons. The Colorado Court of Appeals held in Brennan that "when . . . an insurer fails to offer the insured optional coverage that satisfied [the No-Fault Act], additional coverage in conformity with the offer mandated by statute will be incorporated into the policy." 961 P.2d at 554. State Farm then argues that Clark I (Clark v. State Farm Mut. Auto. Ins. Co., 319 F.3d 1234 (10th Cir. 2003)) is limited in its application, even though it has been followed and embraced by this Court in Clark II (Clark v. State Farm Mut. Auto. Ins. Co., 292 F. Supp. 2d 1252, 1270 (D. Colo. 2003)) and the 10th Circuit in Clark III (Clark v. State Farm Mut. Auto. Ins. Co., 433 F.3d 703). In Clark III, the court addressed the issue presently before this Court directly as follows:

Finally, Mr. Clark...contends that reformation instead should have applied to all categories of eligible insured persons under subsection 707(1), including the named insureds, resident relatives, passengers occupying the vehicle with the insured's consent, and pedestrians injured by the covered vehicle. Mr. Clark offers this argument as he intends to bring a class action on behalf of additional groups of claimants. In Clark I,...we explained that "the holdings in Brennan and Thompson mandate that the Madrid policy be reformed to include extended PIP benefits and that pedestrians, like Clark, must be included in the class of beneficiaries eligible to receive those benefits." Id. at 1242 (citing Brennan, 961 P.2d at 554; Thompson, 940 P.2d at 990). On remand, the district court followed our instructions, appropriately noting that "only Mr. Clark's case and the Madrid policy are presently before [it]." Clark II, 292 F. Supp. 2d at 1266. Significantly, the Colorado Court of Appeals reasoned in Brennan that an insurer

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must offer extended PIP coverage not only to pedestrians but to all categories of persons listed in subsection 707(1). 961 P.2d at 553. In addition, we stated in an unpublished opinion that "Thompson's holding regarding reformation of [a statutorily deficient] insurance contract is, in our view, applicable to any situation where an insurer has failed to comply with the [CAARA] and offer an insured the extended coverage set forth therein." Fincher v. Prudential Prop. & Cas. Ins. Co., 76 Fed. Appx 917, 922 (10th Cir. 2003). However, neither our decision in Clark I nor the district court's order in Clark II determined the benefits to which non-pedestrians are entitled. Reformation of the Madrid policy only "for pedestrians" neither restricts reformation of other State Farm policies to provide extended PIP benefits for eligible injured persons under subsection 707(1) nor limits the class of eligible injured persons for which Mr. Clark may be named class representative upon subsequent class certification proceedings. (emphasis added) Clark v. State Farm Mut. Auto. Ins. Co., 433 F.3d 703, at 713

State Farm dislikes the phrase "class of eligible injured persons for which Mr. Clark may be named class representative." to be certain, and with good reason: this is a class action case, and referencing a class of eligible injured persons implicates a term of art in the No-Fault Act. Not surprisingly, State Farm chooses to sidestep the language employed by the 10th Circuit in Clark III which forms the basis for the breadth of the class: that it is all eligible injured persons who are entitled to a reformed policy where the policy language is flawed. Moreover, since this Court in Clark II did not address the issue of class definition because it was not called upon to do so, it devolved to the 10th Circuit to discuss this issue, and it did so in clear terms: Brennan "significantly" contemplates the class of beneficiaries identified in C.R.S. § 10-4-707 who are eligible to receive benefits improperly denied. Ultimately, State Farm expends those six pages in an attempt to distance this case from the most significant language that this Court need consider when defining the class ­ those key paragraphs, as cited above, from Clark III. There, the 10th Circuit's comments clearly evinces

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its conclusion that all four categories of eligible injured persons belong in any class definition because the offense committed effects them equally, regardless of the nature of the policy defect that caused State Farm to fail to make the proper offer of extended PIP benefits. III. THE PROPOSED CLASS DEFINITION IS NOT AMBIGUOUS The argument that the proposed class definition is ambiguous is merely wishful thinking on the part of State Farm. Any logical reading of the proposed class definition would result in the conclusion that the class includes those who were in an accident prior to the receipt of the new endorsement between January 1 and June 30 of 1999, the six (6) month window during which State Farm disseminated a corrected document. State Farm trivializes this clear concept by creating straw men such as the argument that "the definition does not link the receipt of the No-Fault benefits to the referenced automobile accident," even though it is a given in this case that the policy restricting the pedestrian PIP coverage was the only policy ever used by State Farm until the new endorsement was created for use in 1999. Nor is this definition "self-defeating;" it is, in fact, as objective as possible. One is a class member if he had an accident while insured by State Farm at any time before his renewal date between January 1, 1999, and June 30, 1999. State Farm resubmits the argument that failed twice previously before the 10th Circuit (that an insured can receive a compliant offer while issued a policy containing the Pedestrian Limitation), and tries to create a controversy regarding whether a merits inquiry is necessary under the class definition. No "merits" or individualized inquiry is required; the only inquiry necessary is one that is not subjective to any degree, and is easily ascertainable through State Farm's records: whether the accident occurred before June 30, 1999, and, if it occurred within the six month window prior

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to that date, also whether the insured received his renewal notice prior to his accident. Ascertaining class members is simple, indeed. IV. ALL FOUR CATEGORIES OF ELIGIBLE INJURED PERSONS IDENTIFIED IN C.R.S. § 10-4-707 BELONG IN THE CLASS, NOT MERELY PEDESTRIANS This issue is at the heart of the definition of this class, and is addressed above in the discussion of the controlling case law. State Farm argues, as it must, that three of the four categories of eligible injured persons ­ named insureds, resident relatives, and non-family occupants ­ are not "affected by the challenged conduct." That argument presupposes that a State Farm applicant would chose a policy containing extended PIP for those three categories whether or not the pedestrians were included. Of course, that is a presumption that this Court cannot make because it is forbidden by the Brennan, Clark, and Fincher decisions. Each of those cases states that an insurance company cannot avoid its legal responsibility by arguing that the coverage otherwise would not have been selected by the applicant. As noted previously, the class should include all four categories of eligible injured persons if the coverage available for purchase was defective because the offer was by definition defective; and therefore the policy needs be reformed for all those covered under that policy, without regard to the sub-categories of eligible injured persons. If this Court limits the class to pedestrians only, the Court would be ignoring the focus in the case law upon the inadequacy of the offer, not the character of that flaw. Were it otherwise, as noted in the Opening Brief, then the American Family policy in Breaux that only lacked an offer of the highest amount of wage loss benefits would then be reformed to include increased wage loss benefits, but not increased medical benefits because those benefits were in the policy. No court has ever reformed a policy in such a manner; a policy is to be reformed to include the

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highest statutory benefits because the offer was defective, whether the policy flaw related to the eligible injured persons (Clark), the absence of higher wage loss benefits (Breaux), or an impermissibly low aggregate cap (Fincher). It does not matter if the non-compliance relates to the category of PIP claimant, or the amount of the benefits offered; the requirement is that the highest amount of benefits be included in the policy upon reformation, and by extension, all categories of eligible injured persons are equally aggrieved. To do otherwise would find this Court reforming a policy in a piecemeal fashion, which is contrary to the mandate of the case law. V. NONE OF THE CLASS MEMBERS COULD LACK STANDING BECAUSE, GIVEN THAT A REFORMED POLICY IS BY STATUTE WITHOUT TIME OR DOLLAR LIMITATION, IT IS IRRELEVANT WHETHER A PIP CLAIMANT HAS TO DATE "EXHAUSTED" HIS BASIC PIP BENEFITS The "lack of standing" argument has been rejected so often that it is odd that State Farm would float this theory one more time; it is well established that all four categories of eligible injured persons have standing to bring a suit for non-payment of PIP (not only are the named insureds and family members in direct contractual privity, but Thompson (passenger) and Fincher (pedestrian) had standing, too). More curious is an argument that ignores that clear nature of what is contained in a reformed policy. Once the policy is reformed to the highest amount of statutory benefits, as this Court has already done regarding the Madrid policy, any PIP claimant would have medical and wage loss benefits unlimited in time and amount. Therefore, any class member who had a PIP claim under basic PIP without reaching either a medical or wage loss threshold can submit claims at any time in the future.

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In fact, this argument provides another example of an insurance company violating the law, then complaining that the insured victimized by its violation has not sought additional benefits that would otherwise have been paid. The issue is not whether each PIP claimant has "exhausted" his benefits; a number of PIP claimants have foregone additional treatment upon approaching the medical benefits limit or have used health insurance unnecessarily after being misadvised by State Farm that they were out of benefits. The same is true of those who had lost wages in the second year after an accident; it is irrelevant if they failed to exhaust those benefits during the first year. This argument is also put to the lie by the fact that State Farm itself has recognized this dilemma by sending letters to some of the putative class members earlier this year (Ex. 1), notifying them, in a manner similar to American Family's approach, that they might be entitled to additional PIP benefits. VI. THE STATUTE OF LIMITATIONS ISSUE, EVEN IF HAVING SOME APPLICATION WHERE A JUDICIAL REFORMATION IS AN EQUITABLE MATTER, WOULD AT THE VERY LEAST DEPEND UPON THE TIME PARAMETERS IMPOSED BY THIS COURT; AND IS CONTRARY TO THE LOGIC THAT ONLY AFTER REFORMATION WOULD ADDITIONAL BENEFITS BE AVAILABLE TO CLASS MEMBERS FOR THE FIRST TIME A number of uncontroverted facts indicate why issues relating to the statute of limitations are not relevant at this point in time, if ever. First, as State Farm was eager to argue in Clark's individual case, until there is a reformation of the policy and a date of reformation established, the benefits are not owed, so the demand for those benefits cannot be untimely until a date of reformation is established (and, hence, no running of the statute of limitations). The Colorado Court of Appeals stated in Brennan that "until the contract was reformed, there was no policy in existence which granted plaintiffs rights for additional PIP benefits." 961 P.2d at 556. In fact,

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State Farm argues (see VII below) that Clark's benefits were timely paid, even though he had an accident in 1996, yet his benefits were not paid until 2006. Second, the State Farm policies must be judicially reformed, which is an equitable matter, and thus these cases are not subject to the statute of limitations, which is a legal defense (the reformation date "is an equitable decision to be determined by the trial court." Clark I, 319 F.3d at 1243.) Finally, the statute of limitations is an affirmative defense that does not and cannot affect the class definition at this stage of this proceeding, as courts routinely hold that the statute of limitations does not bar class certification. See, e.g., Cook v. Rockwell Int'l. Corp., 151 F.R.D. 378, 386 (D. Colo. 1993) (statute-of-limitations defense cannot bar class certification because it is impermissible to allow an argument based on the merits of an affirmative defense to preclude class certification under Rule 23); Cameron v. E.M. Adams & Co., 547 F.2d 473, 478 (9th Cir. 1976); Gruber v. Price Waterhouse, 117 F.R.D. 75, 80 (E.D. Pa. 1987) (statute-of-limitations defense goes to merits of plaintiffs' complaint, is beyond the scope of a motion for class certification); Rishcoff v. Commodity Fluctuations Sys., Inc., 111 F.R.D. 381, 382-33 (E.D. Pa. 1986) (statute of limitations should not be considered in determining certification); Fickinger v. C.I. Planning Corp., 103 F.R.D. 529, 532 (E.D. Pa. 1984) (statute-of-limitations defense improper consideration for class certification); In re Energy Systems Equip. Leasing Sec. Litig., 642 F. Supp. 718, 753 (E.D.N.Y. 1986) (citing cases). State Farm wants this Court to apply the statute of limitations of three years to restrict the class to those hurt less than three years prior to the filing of this lawsuit, even though Nelson v.

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State Farm provides for a four year period, and openly acknowledges in its text that Nelson did not properly raise related issues at the trial level. Moreover, this isn't a simply matter of applying a three year statute of limitations to the class. In its application of limiting statutes, the Colorado Supreme Court has continued to hold to the overriding principle that a cause of action does not begin to accrue under such a statute unless the plaintiff knows or should know of both the facts leading to his damage and that the damage was caused by some wrongful conduct. Cf. Owens v. Brochner, 474 P.2d 603, 606 (Colo. 1970) (citing its prior holding in Rosane, infra, via an Oregon Supreme Court opinion, Berry v. Braner, 421 P.2d 996 (Or. 1966), the Court explained that the term "accrue" when used in reference to the term "cause of action" means "when a cause of action may be maintained therein. It accrues whenever one person may sue another.") (emphasis added); Morris v. Geer, 720 P.2d 994 (Colo. App. 1986) (holding in a legal malpractice case that accrual begins when a plaintiff has knowledge of facts which would put a reasonable person on notice of the general nature of the damage and that the damage was caused by wrongful conduct.); and Mastro v. Brodie, 682 P.2d 1162 (Colo. 1984) (holding that a statute of limitation should only be applied if the plaintiff had or should have had knowledge not only of the conduct or injury, but that it was wrongful as well.). Therefore, for multiple reasons, the statute of limitations should have no bearing on the class definition. VII. BECAUSE THE PROPOSED DEFINITION HAS AN END DATE OF THE FIRST RENEWAL DATE FOR EACH INSURED FOLLOWING THE ISSUANCE OF THE REMEDIAL PIP ENDORSEMENT IN 1999, THE CLASS CANNOT INCLUDE PERSONS WHO ARE NOT COVERED BY THE DEFECTIVE POLICY

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This argument appears to be the same argument addressed above in section III. Ambiguity. State Farm used the Pedestrian Limitation during the No-Fault era until 1999. The class definition includes only those who were insured at the time of their accidents under the defective policy because they could not have received a remedial endorsement prior to the accident. VIII. BY ORDER OF THIS COURT, THE ISSUE OF MR. CLARK'S STANDING IS NOT PART OF THE ISSUE TO BE RESOLVE BY THIS COURT AT THIS TIME The last issue raised by State Farm is clearly one not before the Court: the standing (typicality) of Mr. Clark to be the class representative. It was State Farm that proposed that the singular issue to be presented to this Court initially was the resolution of the class definition. It now attempts to get ahead of the game by introducing an issue that would otherwise be an element of Rule 23(a)(3) under the heading of "typicality." While Clark is fully prepared to address the elements necessary for class certification at the appropriate time designated by the court following a ruling on this Motion, he was not called upon at this time to brief typicality or adequacy. It should also be noted that, in fact, State Farm did not pay the amounts due Clark within 30 days of the date they were due (waiting over two years after this Court entered judgment in December of 2003), and thus didn't extinguish Clark's C.R.S. § 10-4-708 claims. Furthermore, this argument is an attempt to "pick off" the Plaintiff in a case that has been pending for almost seven years. As to that approach, the Supreme Court in Deposit Guarantee Nat. Bank v. Roper, 445 U.S. 326, 333, 63 L. Ed. 2d 427, 100 S. Ct. 1166 (1980) stated: A district court's ruling on the certification issue is often the most significant decision rendered in these class-action proceedings. To deny the right to appeal

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simply because the defendant has sought to "buy off" the individual private claims of the named plaintiffs would be contrary to sound judicial administration. Requiring multiple plaintiffs to bring separate actions, which effectively could be "picked off" by a defendant's tender of judgment before an affirmative ruling on class certification could be obtained, obviously would frustrate the objectives of class actions; moreover, it would invite waste of judicial resources by stimulating successive suits brought by others claiming aggrievement. It would be in the interests of a class-action defendant to forestall any appeal of denial of class certification if that could be accomplished by tendering individual damages claimed by the named plaintiffs. Roper, 445 U.S. at 339. Clark has standing because he continues to be aggrieved by the behavior of State Farm, and should not be subject to being "picked off" by State Farm's delayed payment of benefits owed to him. IX. CONCLUSION For the reasons stated herein, the class definition should be approved by this Court. RESPECTFULLY SUBMITTED this 18th day of December, 2006. FRANKLIN D. AZAR & ASSOCIATES, P.C. By: s/L. Dan Rector L. Dan Rector 5536 Library Lane Colorado Springs, CO 80918 Telephone: (719) 527-8000 Telecopier: (719) 550-3926 Email: [email protected] Attorneys for Plaintiff

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CERTIFICATE OF SERVICE I hereby certify that on this 18th day of December, 2006, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: [email protected]; [email protected]; [email protected] [email protected]; [email protected] s/L. Dan Rector L. Dan Rector

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