Free Response - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT 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.

STATE FARM' RESPONSE BRIEF REGARDING S PLAINTIFF' PROPOSED AMENDED CLASS DEFINITION S

Defendant State Farm Mutual Automobile Insurance Company submits the following brief in response to " Plaintiff' Brief in Support of his Amended Proposed Class Definition," s filed with the Court on October 27, 2006. I. INTRODUCTION Plaintiff' proposed amended class definition is improper for at least six reasons: s (1) (2) (3) (4) (5) (6) it is ambiguous; it includes non-pedestrians, who do not have standing to bring the asserted claims; it includes individuals who did not exhaust the basic PIP benefits available to them, so that they have no claim for damages; it includes individuals whose claims are barred by the statute of limitations; it includes individuals whose accidents occurred after State Farm corrected the alleged wrongful conduct; and the class representative has no remaining viable claims.

For all of these reasons, the amended class definition proposed by Clark should be rejected by the Court. State Farm does not, however, concede that class certification would be appropriate in

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this case even if the specified flaws in the class definition were corrected. Rather, State Farm explicitly reserves the right to later challenge certification under Federal Rule of Civil Procedure 23, regardless of the form of the class definition that is utilized. II. ARGUMENT A. Background and Development of Relevant Case Law. In resolving the question of whether Clark' proposed class definition is proper, it is s critical to examine in detail the case law leading to this point in the litigation. Indeed, Clark' s brief is replete with selective quotations from five primary cases: Thompson, Brennan, Clark I, Clark II, and Clark III. A more comprehensive review of the cases will illuminate several flaws in Clark' arguments. s 1. Thompson v. Budget Rent-a-Car Systems, Inc.

In the 1996 Thompson decision, the Colorado Court of Appeals first introduced the concept of reformation of a contract where an insurer fails to offer PIP coverages required by the No-Fault Act. Thompson v. Budget Rent-a-Car Systems, Inc., 940 P.2d 987 (Colo. Ct. App. 1996). In that case, Budget' rental contract with its customers included language waiving all s uninsured, underinsured, supplemental No-Fault, and " other optional coverages"on behalf of the customers. Thompson, 940 P.2d at 989. It was uncontested that, on the facts of the case, Budget was an " insurer"under the No-Fault Act, and Budget' customers were also its insureds. Despite s its status as an insurer, Budget failed to offer any extended PIP benefits as required by Colorado Revised Statutes § 10-4-710(2)(a) of the Colorado Revised Statutes. The court of appeals ultimately concluded that, as a result, the injured customer should be awarded PIP benefits unlimited in time and amount under a reformed contract. The court first noted that:

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Generally, the purpose of reformation of an insurance contract is to make the policy express the true intent of the parties. However, when a policy is violative of a statute, reformation is also required to assure that coverage will meet the statutory minimums. 940 P.2d at 990 (emphasis added). Further, the court held that: 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. Id. Significant for purposes of the issue now before this Court, Thompson did not hold that " [t]he remedy is the same regardless of the nature of the flaw and extends to all injured persons." s But see Plaintiff' Brief at 5. Indeed, the nature of the flaw in Thompson was very different from the alleged flaw in this case. In Thompson, Budget wholly failed to make an offer of extended PIP benefits, and further included an assumed waiver of extended PIP benefits in the language of its contract. 940 P.2d at 989. Here, on the other hand, State Farm agents offered extended PIP benefits to all of its policyholders, but the policy limited the benefits recoverable by pedestrians to the basic P1 level. Moreover, the remedy awarded in Thompson ­ benefits unlimited in time and amount ­ does not apply in this case, as the Tenth Circuit already has concluded. See Clark v. State Farm Mut. Auto. Ins. Co., 433 F.3d 703, 710 (10th Cir. 2006) (" Clark III" Thus, in considering the Thompson case it is important not to construe it too ). broadly, as its facts are distinguishable from this case for a number of reasons. 2. Brennan v. Farmers Alliance Mutual Insurance Co.

In the 1998 Brennan decision, the Colorado Court of Appeals held that an insurer is obligated to make enhanced PIP coverage, as described in section 710, payable to all categories of individuals identified in section 707, including pedestrians who are injured in PIP-covered

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accidents. Brennan v. Farmers Alliance Mut. Ins. Co., 961 P.2d 550 (Colo. Ct. App. 1998), cert. denied (Colo. Aug. 24, 1998). After invalidating a policy provision similar to State Farm' s Pedestrian Limitation, the court reformed Brennan' policy so that as a pedestrian he was entitled s to receive enhanced PIP benefits, with a $200,000 aggregate limit. Brennan, however, was not permitted to pursue any breach of contract or bad faith claims because the court found that, until the insurance policy was actually reformed during the course of the litigation to provide enhanced PIP benefits, the insurer could not have breached the contract. 961 P.2d at 556-57. reformation by its Plaintiff argues that the Brennan case stands for the proposition that " terms extends to all categories of eligible injured persons . . . and is not limited to addressing a specific flaw in the offer." Plaintiff' Brief at 6. Nowhere does Brennan so hold. Rather, Clark s overlooks a significant factual aspect of Brennan ­ the plaintiff was a pedestrian, and the policyholder had purchased enhanced PIP benefits. Thus, the case has no precedential value for purposes of determining whether a non-pedestrian should be entitled to reformation of an insurance policy where the only error by the insurer was limiting the extended PIP benefits payable to pedestrians. As with Thompson, the Brennan decision cannot be read too broadly. This case is, and always has been, one of first impression under Colorado law. State Farm is aware of no authority that binds this Court with respect to its rulings in this case, other than the prior Clark decisions. 3. Clark I

In July 2001, this Court dismissed Clark' claims in their entirety, based on State Farm' s s argument that Brennan could not be applied retroactively to permit Clark to bring his claims. Clark appealed that decision to the Tenth Circuit Court of Appeals. The Tenth Circuit reversed

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in the Clark I decision in 2003. See Clark v. State Farm Mut. Auto. Ins. Co., 319 F.3d 1234 (10th Cir. 2003) (" Clark I" Significantly, the only issue before the Tenth Circuit in Clark I was ). whether Brennan should be applied retroactively in order to allow Clark to go forward with his claims. The Tenth Circuit, however, went beyond the issue presented to it and held that, as a matter of law, Clark was entitled to reformation of the insurance policy at issue. 319 F.3d at 1242. The Tenth Circuit made no findings regarding whether anyone else might be entitled to reformation of an insurance policy. The court then remanded the case to this Court for further proceedings to determine the effective date of reformation. Id. at 1243-44. Clark argues that the Clark I decision " recogniz[ed] that the group of those [claimants] who could benefit [from reformation] was bigger than just pedestrians." Plaintiff' Brief at 8. s This is nothing more than an unduly optimistic and overbroad reading of a single sentence from the decision. The specific language that Clark relies on indicates that " pedestrians, like Clark, must be included in the class of beneficiaries eligible to receive those [extended PIP] benefits." Clark I, 319 F.3d at 1241. Clark ignores, however, the limited issue presented to the Tenth Circuit on appeal ­ whether Brennan would be applied retroactively. The Tenth Circuit

considered no issues of class certification or the appropriateness of a class definition in its Clark I decision. The mere use of the word " class"in a single sentence of the opinion has no bearing on the issue of class definition now before this Court. Moreover, reading the rest of the Clark I opinion and taking the sentence in context, it is clear that the Tenth Circuit intended only to explain that Clark, as a member of the group of pedestrian insureds under section 707, should have been included ­ like the groups or " classes" of named insureds, resident relatives, and permissive occupants ­ in the group of injured persons to whom extended PIP benefits could be

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payable. Clark overstates the significance of the Clark I decision which did not, and could not, contain any holdings addressing issues of class definition or class certification. Indeed, as recently as the Clark III decision, the Tenth Circuit has recognized that class certification proceedings have not yet occurred. Clark III, 433 F.3d at 714. 4. Clark II

On remand from Clark I, this Court conducted a three-day hearing regarding the effective date of reformation. Following that hearing, by an Order entered December 19, 2003, the Court concluded: (1) the effective date of reformation was the date of the Order; (2) Clark was entitled to the P4 level of PIP benefits; and (3) the statutorily-authorized aggregate limit of $200,000 on PIP benefits would be imposed on Clark' damages. Clark v. State Farm Mut. Auto. Ins. Co., s 292 F. Supp. 2d 1252 (D. Colo. 2003) (" Clark II" The order specifically declined to address ). any issues of class certification until appeals were taken from the December 19 Order. Clark II, 292 F. Supp. 2d at 1270. Clark appealed issues (1) and (3) to the Tenth Circuit, and also argued that the District Court' Order should have been broader ­ declaring that reformation would be s available to all classes of insureds, not just pedestrians. State Farm appealed issue (2). 5. Clark III

In the Clark III decision, issued on December 30, 2005, the Tenth Circuit resolved the issues that were appealed from the Clark II order. The appeals court affirmed this Court in all respects, holding that the Court did not abuse its discretion in setting the effective date of reformation as December 19, 2003; in awarding Clark enhanced PIP benefits at the P4 level; or in applying a $200,000 aggregate limit on the benefits that Clark would receive. In connection

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with its affirmance of the effective date of reformation, the Tenth Circuit also upheld this Court' s ruling that Clark has no viable claims for breach of contract or bad faith. Finally, the Tenth Circuit affirmed this Court' decision to afford reformation to s pedestrians only. 433 F.3d at 714. Clark argued on appeal that the reformation awarded to him by this Court should apply to all eligible insureds under section 707. however, disagreed. The Tenth Circuit,

It first noted that, in its prior decision in Clark I, the remand order

" concerned the benefits sought by Mr. Clark as a pedestrian." Id. at 713. The court specifically found that " neither our decision in Clark I nor the district court' order in Clark II determined the s benefits to which non-pedestrians are entitled." Id. at 714. Accordingly, the court held that reformation of the Madrid policy has no bearing on the reformation of other State Farm policies to provide enhanced PIP benefits for eligible insureds other than pedestrians. The court

specifically declined to " address Mr. Clark' standing to raise claims for other injured persons." s Id. In his brief regarding the proposed amended class definition, Clark once again employs an overbroad and unduly optimistic reading of the Clark III decision. He argues that the opinion " explicitly stated that the class in this case is not limited to pedestrians." Plaintiff' Brief at 8. s To the contrary, reading the entire Clark III opinion in context, it is clear that issues relating to the scope of the class were not before the Tenth Circuit, nor did the Tenth Circuit rule on any class issues in Clark III. There is no authority from any jurisdiction that binds this Court to resolve the question of the class definition in a particular manner. Nor can any of the prior case law be read so broadly as to compel this Court to reach a particular result. The Court' decision s regarding the appropriateness of Clark' proposed amended class definition should, instead, be s

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guided by established principles governing class action adjudication. Under those standards, the Court should conclude that Clark' newly proposed definition is not permitted. s B. The Proposed Amended Class Definition is Improper and Should Not be Permitted by the Court. Clark' proposed amended class definition reads as follows: s All persons who received No-Fault benefits under a Colorado State Farm Mutual Automobile Insurance Company policy and were involved in an automobile accident occurring before the date of the first renewal of the policy under which they were insured happening on or after January 1, 1999.1 This proposed definition is flawed because it is ambiguous and self-defeating, because it is overbroad in scope, and because Clark has no remaining viable claims. The Court, therefore, should strike this proposed definition. 1. The Proposed Amended Class Definition is Improper because it is Facially Ambiguous and Self-Defeating.

As an initial matter, a class definition must be adequately defined so that the Court can determine whether a particular individual is a member of the putative class from the plain language of the definition. The existence of an adequately defined class that allows for identification of potential class members is an " essential prerequisite" to a class action under Rule 23 of the Federal Rules of Civil Procedure. Colorado Cross-Disability Coal. v. Taco Bell Corp., 184 F.R.D. 354, 356 (D. Colo. 1999) (Babcock, C.J.). " [T]his fundamental consideration of class existence is the most basic consideration of all and the one that unifies and relates the narrower, more technical requirements of class certification." Vaszlavik v. Storage Tech. Corp., 175 F.R.D. 672, 683 (D. Colo. 1997) (Babcock, C.J.). A clear class definition is "of critical `

Excluded from the class are all State Farm executives, their legal counsel and their immediate family members, the Court and its staff, and all employees of proposed class counsel.

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importance' because it identifies those persons "(1) entitled to relief, (2) bound by the " ` judgment, and (3) entitled to notice in a Rule 23(b)(3) action.' Vickers v. General Motors " Corp., 204 F.R.D. 476, 478 (D. Kan. 2001) (quoting Zapata v. IBP, Inc., 167 F.R.D. 147, 156 (D. Kan. 1996)); see also Alliance to End Repression v. Rochford, 565 F.2d 975, 978 & fn. 6 (7th Cir. 1977) (calling a clear definition " crucial"because of the res judicata effect of the outcome of a class action suit on all unnamed class members). " class is sufficiently defined if it is A ` administratively feasible for the court to determine whether a particular individual is a member.' Colorado Cross-Disability Coal., 184 F.R.D. at 357 (quoting Davoll v. Webb, 160 " F.R.D. 142, 143 (D. Colo. 1995)). There are at least two ways in which Clark' proposed definition is not adequately s defined. First, the language of the proposed definition is ambiguous. Specifically, it is unclear whether the term " happening"relates to the " automobile accident"or the " first renewal of the policy," two radically different interpretations. The former interpretation would limit class members to individuals receiving No-Fault benefits, who were involved in automobile accidents that occurred between January 1, 1999 and the present. The latter would define the class to include individuals receiving No-Fault benefits, who were involved in an automobile accident at any time prior to receipt of their first policy renewal on or after January 1, 1999. Furthermore, the definition does not link the receipt of No-Fault benefits to the referenced automobile accident. The class might arguably include individuals who received No-Fault benefits after receipt of a complying policy renewal, who were involved in an unrelated automobile accident many years prior. This is the type of "vague class definition' that "portends significant ` " `

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manageability problems for the court' and may be rejected on that basis. See, e.g., Perez v. " Metabolife Int' Inc., 218 F.R.D. 262, 266 (S. D. Fla. 2003) (citation omitted). l In addition to its inherent ambiguity, the proposed amended definition is self-defeating, in that the Court cannot determine whether a particular individual is a member of the putative class without making certain findings of fact about that individual. A class definition that requires a court " consider the merits of the controversy before certifying the class" is not " to clearly ascertainable" and is therefore self-defeating. Morris v. Travelers Indemnity Co., No. 05-cv00727-EWN-BNB, 2006 WL 166597, *8 (D. Colo. July 10, 2006), attached as Exh. A (citing Kenro v. Fax Daily, Inc., 962 F. Supp. 1162, 1169 (S. D. Ind. 1997); Armstrong v. Chicago Park Dist., 117 F.R.D. 623, 626-27 (N. D. Ill. 1987)). Here, because the definition is not limited to individuals who were actually deprived of extended PIP benefits due to the Pedestrian Limitation, the Court will be required to identify such individuals on " case-by-case analysis of a each insured' claims." Id. s For example, a policyholder who received a compliant offer might have received PIP benefits under a policy that contained the Pedestrian Limitation, but such a person could not be included in the class because he or she would not be entitled to reformation. See infra § B.2.a. & b. Alternatively, a pedestrian whose claims did not reach the limits of basic PIP was not deprived of any extended PIP benefits, and therefore would not be entitled to additional coverage s as a result of reformation. See infra § B.2.c. If Clark' proposed definition is accepted, this Court will have to engage in an individualized analysis to determine which members of the class actually suffered an injury prior to certification. Such a process would be too burdensome and

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would defeat the purpose of class action litigation because it would not benefit judicial economy. Accordingly, the proposed class definition is not clearly ascertainable and must be rejected. 2. The Proposed Amended Class Definition is Overbroad.

In addition to being ambiguous and self-defeating, Clark' proposed class definition also s is overbroad. A class definition that is overbroad is not sufficiently definite to go forward. See, e.g., Vaszlavik, 175 F.R.D. at 683-85. To avoid overbreadth, the scope of a class must be "defined by the [challenged] activities of the defendants.' Daigle v. Shell Oil Co., 133 F.R.D. ` " 600, 602 (D. Colo. 1990) (quoting Alliance to End Repression, 565 F.2d at 978). A class that is defined to include individuals who were not affected by the defendant' challenged practices is s overinclusive and thus inadequately defined. See, e.g., Vaszlavik, 175 F.R.D. at 684 (rejecting a proposed class definition that was not limited to individuals potentially affected by the alleged discriminatory practices); see also DeBremaecker v. Short, 433 F.2d 733, 734 (5th Cir. 1970) (rejecting as overbroad a proposed class definition that included nonresidents of City of Houston, where the challenged conduct was harassment by City of Houston police force); Vickers, 204 F.R.D. at 477-78 (rejecting as " unreasonable" a class definition that included property owners whose property was not damaged by the alleged contamination). A class definition that is not temporally limited may also be overbroad. See, e.g., Vickers, 204 F.R.D. at 477-78 (rejecting class definition that contained no temporal limitation). Clark' proposed definition suffers from s all of these flaws ­ it contains individuals who lack standing, who did not suffer damages as a result of any acts by State Farm, and it does not contain an appropriate commencement date or end date. For all of these reasons, the proposed definition should be rejected.

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a.

The proposed definition contains persons who are not entitled to reformation because they were not injured as pedestrians.

Even accepting the most favorable interpretation of Clark' ambiguous class definition ­ s which would define the class to include all individuals receiving No-Fault benefits in connection with an automobile accident happening prior to the first renewal of their policy that occurred on or after January 1, 1999 ­ the proposed definition is overbroad. The definition necessarily includes individuals not affected by the challenged conduct ­ i.e., State Farm' use of a s " Pedestrian Limitation." State Farm' conduct affected only those pedestrian claimants who did s not receive extended PIP benefits as a result of the Pedestrian Limitation. Clark' class s

definition, however, includes all PIP claimants, regardless of whether they are entitled to receive additional benefits and regardless of whether they were injured as pedestrians. Clark' rationale for including non-pedestrians in the proposed class rests on a flawed s premise: " is not the policy flaw ­ here, the so-called " [I]t pedestrian exclusion"­ that defines the extent of the reformation; the policy as a whole is reformed because the offer was necessarily inadequate by virtue of the impermissible restriction imposed by State Farm." Plaintiff' Brief at s 5. Clark contends that " [t]he sole question is whether the insurer violated the statute"and if so, then " every person insured under a policy issued during that time was deprived of the opportunity to receive the extended coverage that the policyholder might have purchased if a compliant offer were made." Plaintiff' Brief at 6-7. Under Clark' theory, a non-pedestrian s s would be entitled to reformation of an insurance policy despite the fact that the Pedestrian Limitation resulted in no change in the amount of benefits they would have received under their policy. The necessary consequence of this argument would be to confer a windfall on

individuals who were not deprived of any benefits as a result of the Pedestrian Limitation.

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Clark' position reflects a fundamental misunderstanding of the purpose of reformation in s this context. As the Brennan court explained, when an insurer fails to offer a policy that provides for extended PIP benefits payable to pedestrians, the policy should be reformed " to include such coverage." Brennan, 961 P.2d at 552. That is, the purpose of reformation is to read into the policy the coverage that is required by law but was not offered ­ here, extended PIP benefits payable to injured pedestrians. Other courts addressing reformation have similarly recognized the tailored scope of its remedial purpose. " 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." Thompson, 940 P.2d at 990 (emphasis added). " [W]hen an insurer fails to offer the insured APIP coverage that satisfies the No Fault Act, the policy will be reformed to include ` additional coverage in conformity with the offer mandated by statute. . . .' Sigala v. Hartford Underwriters Ins. Co., No. 04-cv-00196-REB" MJW, 2005 WL 2098141, *6 (D. Colo. Aug. 29, 2005), attached as Exh. B (citing Brennan, 961 P.2d at 554) (emphasis added). In this case, the Tenth Circuit has recognized that reformation is When a intended to cure only the deficiency in the original offer. Clark I, 319 F.3d at 1241 (" party alleges that a policy violates a statute, . . . reformation may be required to ensure that coverage meets the statutory requirements." ) More specifically, other judges in this District repeatedly have held that only pedestrian claimants who were denied extended PIP benefits as a result of provisions similar to the Pedestrian Limitation have claims for reformation. In Sigala v. Hartford Underwriters Insurance Co., Judge Blackburn rejected a claim for reformation brought by a policyholder, Johnson, who

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was offered but declined APIP coverage. 2005 WL 2098141, *1. Johnson was subsequently involved in an automobile accident with an uninsured motorist and was paid medical benefits under the basic PIP provisions of her policy. Id. Because the policy offered to Johnson excluded APIP benefits for non-family occupants and pedestrians, and therefore did not comply with the No-Fault Act, Johnson claimed she was entitled to reformation of her policy to include extended PIP benefits payable to her. Id. In denying her claim for reformation, Judge Blackburn noted that " [t]he fact that the policies issued to Johnson contained inaccurate descriptions of the APIP coverage that Johnson had been offered, and which she declined, does not support her claim for reformation." Id. at *6. In other words, the fact that the policies offered to Johnson incorrectly excluded coverage for pedestrians and non-family occupants did not entitle Johnson to reformation, since she was offered all the coverage required by law from which she, personally, could benefit. Judge Matsch reached the same conclusion in Reid v. GEICO General Ins. Co., where he rejected a policyholder' claim that reformation was mandated because she received an offer that s excluded passengers and pedestrians from coverage. No. 05-cv-01321-RPM, 2006 WL

2844381, *3-4 (D. Colo. Oct. 2, 2006), attached as Exh. C. Because those exclusions " would not have applied to [the policyholder' policy if she had selected APIP,"the policyholder could not s] seek reformation and obtain extended PIP coverage. Id. Judge Daniel also has rejected the argument made by a family member occupant who was covered under the policyholder' policy that she was entitled to reformation as a result of an s insurer' failure to properly extend APIP benefits to non-family-member occupants. May v. s Travelers Prop. Cas. Co., No. 05-cv-00214-WYD-CBS, Order of Sept. 26, 2006, attached as

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Exh. D. Because the plaintiff in May was " neither a pedestrian nor a non-family member occupant"(and was therefore not affected by the exclusion of APIP benefits for those classes of persons), Judge Daniel held that the plaintiff was " entitled to seek reformation of the policy not based on [the defendant' failure to properly extend APIP to non-family member occupants and s] pedestrians. Id. Thus, at least three judges in this District have reached the conclusion that nonpedestrians cannot obtain reformation as a result of policy language that limited benefits payable to pedestrians. Contrary to Clark' construction, the Breaux case provides no support for the notion that s reformation is available to supply extended benefits to an insured to whom they were offered for their own benefit. See Breaux v. American Family Mutual Ins. Co., 387 F. Supp. 2d 1154 (D. Colo. 2005). Breaux addressed the factually distinct circumstance in which the defendant

insurance company admitted that it did not comply with § 10-4-710(2)(a)(II), which required an insurer to offer extended PIP coverage providing unlimited medical expenses together with a higher level of wage loss benefits (subject to the allowable $200,000 statutory aggregate cap). Breaux, 387 F. Supp. 2d at 1162. Because the defendant admitted that it had failed to make a compliant offer to the plaintiff, the court granted reformation to incorporate into the plaintiff's policy the coverage that would personally benefit the plaintiff and which had not been properly offered. Id. at 1163-64, 1167. Breaux is therefore consistent with other law in this jurisdiction that allows reformation only to the extent that a plaintiff was actually harmed by the defendant' s alleged wrongful conduct. See also Morris, 2006 WL 166597, attached as Exh. A (rejecting as overbroad a class definition similar to the one here " because it necessarily includes members who ` received PIP' benefits but are not entitled to extended PIP benefits" Vaszlavik, 175 );

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F.R.D. at 684 (rejecting an ERISA class definition that did not " define the precise class that the pattern and practice of discrimination is alleged to have affected" Thus, Colorado courts have ). unanimously rejected the notion that individuals who were not affected by a defect in an insurance policy may seek reformation. Plaintiff' proposed class definition, which includes s many such individuals, must therefore be rejected as overbroad. b. The proposed definition includes individuals who lack standing.

The overbreadth of the proposed class is not only improper under the requirements of Rule 23, it also deprives the Court of jurisdiction because it includes individuals who lack standing. It is elementary that " [t]he definition of a class cannot be so broad as to include individuals who are without standing to maintain an action on their own behalf." McElhaney v. Eli Lilly & Co., 93 F.R.D. 875, 878 (D.S.D. 1982) (citing, inter alia, Kister v. Ohio Bd. of Regents, 365 F. Supp. 27 (S.D. Ohio 1973), aff' 414 U.S. 1117, 94 S. Ct. 855, 38 L. Ed. 2d 747 d, (1974)). Rather, the class representative and each putative class member " must have standing to bring the suit in his own right." Johnson v. Gross, 125 F.R.D. 169, 171 (W.D. Okla. 1989); see also McElhaney, 93 F.R.D. at 878. The doctrine of standing arises directly from the Article III limitation on the jurisdiction of federal courts to live cases and controversies. Pettit v. New Mexico, 375 F. Supp. 2d 1140, 1147 (D.N.M. 2004) (citations omitted). As such, it can be considered by the court at any time. McAlester v. United Airlines, Inc., 851 F.2d 1249, 1252 (10th Cir. 1988). Standing "is perhaps the most important of [the jurisdictional] doctrines.' In ` " re Integra Realty Resources, Inc., 262 F.3d 1089, 1101 (10th Cir. 2001). "Injury-in-fact'is the touchstone of standing. . . ." Wooden v. Board of Regents, 247 ` F.3d 1262 (11th Cir. 2001) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S. Ct.

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2130, 2136, 119 L. Ed. 2d 351 (1992)). An individual who has not suffered an injury as a result of the challenged conduct lacks standing and cannot be a member or a representative of a putative class. Clark' class definition includes individuals such as policyholders and their s relatives who were not denied coverage as a result of the Pedestrian Limitation. Courts in this District have recognized that only certain insureds have standing to seek reformation of a defective insurance policy. " accident victim to whom PIP benefits are An payable is a third-party beneficiary of an insurance contract under the No-Fault Act and, as such, has standing to bring an action in contract against the insurer to recover benefits." Thompson, 940 P.2d at 989 (citing Krieg v. Prudential Prop. & Cas. Ins. Co., 686 P.2d 1331 (Colo. 1984) In and M. Rhodes, Couch on Insurance § 66:128 (2d ed. 1984)). " Colorado, a pedestrian to whom PIP benefits are payable . . . has standing to bring reformation and contract claims against the insurer." Clark I, 319 F.3d at 1241 (citing Thompson, 940 P.2d at 989). Other insureds lack standing. Moreover, a named insured lacks standing to complain about the failure to offer extended PIP payable to pedestrians and non-family member occupants. May, Exh. D at 5-6. In analogous cases outside the insurance context, courts have rejected overly broad class definitions because they included individuals who lacked standing. See, e.g., Johnson, 125 F.R.D. at 170 (rejecting as overly broad a class definition that included individuals who had been considered under, but not harmed by a discriminatory policy, and therefore lacked standing); McElhaney, 93 F.R.D. at 878 (finding plaintiff failed to establish existence of a class where the definition included individuals who were not harmed by exposure to toxins released by plaintiff, and therefore lacked standing); Wooden v. Bd. of Regents, 247 F.3d 1262 (11th Cir. 2001) (affirming dismissal for lack of standing of claims of individuals who were not exposed to

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unequal treatment under race-conscious admissions policy). In each of these cases, the fact that these individuals were exposed to wrongful conduct, without an accompanying concrete and particularized injury, was insufficient to confer standing. Likewise, Clark' proposed class s includes individuals who were, in some sense, " exposed"to the Pedestrian Limitation, but who were not deprived of benefits as a result. By defining the class so broadly as to include

individuals lacking an injury-in-fact, Clark has framed an invalid class. c. The proposed definition contains persons who suffered no damages because they did not exhaust the benefits made available to them.

Not all injured pedestrians who received PIP benefits necessarily have standing to seek reformation. Only those pedestrians deprived of benefits they would have received under a policy providing them extended PIP (APIP) coverage sustained an injury as a result of the Pedestrian Limitation. The minimum coverage required under Basic PIP policies was $50,000 in medical costs, $50,000 in rehabilitation costs, and payment for wage loss for up to 52 weeks in an amount computed by the formula set forth in the No-Fault Act. The extended PIP benefits provided under State Farm policies containing the Pedestrian Limitation capped claims for medical costs, rehabilitation expenses, and wage loss at an aggregate of $200,000. The formula for computing wage loss claims was different under policies with APIP coverage. Thus, any pedestrian who did not have a wage loss claim and whose medical and rehabilitation claims were less than $50,000 each would not be entitled to recover any additional benefits under a reformed policy. Only those pedestrians who received the maximum amount of P1 medical and/or rehabilitation cost benefits would be entitled to claim the difference between the benefits received and the aggregate limit of $200,000 available under APIP policies. In addition, any pedestrian who

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made a wage claim would likely be entitled to some additional coverage because the formula used to compute wage loss under APIP policies was different from the formula used under basic PIP policies. As now stated, the proposed class includes pedestrians whose claims did not reach the limits of basic PIP and did not receive any wage loss payments. These individuals would not have standing to seek reformation because they were not deprived of any benefits as a result of the Pedestrian Exclusion. Their inclusion in the putative class renders the proposed definition overbroad and jurisdictionally infirm. d. The proposed definition contains persons whose claims are barred by the statute of limitations.

The class definition proposed by Clark further is flawed because it contains individuals whose claims are barred by the statute of limitations. The proposed class definition contains no commencement date, as admitted by Plaintiff. Plaintiff' Brief at 2-3. Contrary to Plaintiff' s s assertion, however, it is not necessary for the Court to take evidence before determining that application of the statute of limitations renders the class overbroad. Clark' failure to include a s proposed commencement date is fatal. See Vickers, 204 F.R.D. at 477-78 (rejecting a class definition that contained no temporal limitation). It is factually undisputed that the No-Fault Act was first enacted, and State Farm first sold a policy with No-Fault benefits, in 1973. Under Plaintiff' definition, therefore, if an individual s had an accident in 1973, before their first renewal " happening"on or after January 1, 1999, and received No-Fault benefits, they would be a member of the class. This is inappropriate because Clark ignores that the purported claims of many individuals within the proposed class definition are barred by applicable statutes of limitation and/or the doctrine of laches. This precise issue

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has been ruled on by Judge Nottingham in the Roberta Folks and Kim Nguyen case. There, Judge Nottingham granted summary judgment in favor of State Farm and concluded that Folks' claims were barred because she did not bring them within three years of learning that she would receive only the P1 level of PIP benefits. See Folks & Nguyen v. State Farm Mut. Auto. Ins. Co., No. 04-cv-00243-EWN-BNB, Order of June 30, 2005, attached as Exh. E. The case is currently on appeal to the Tenth Circuit, was argued in September 2006, and is awaiting decision. See Folks v. State Farm Mut. Auto. Ins. Co., United States Court of Appeals for the Tenth Circuit Case No. 05-1356. Similarly, the claims of many of the putative class members are time-barred. All of the claims of the putative class members arise out of the No-Fault Act. When the No-Fault Act was in effect in Colorado, the statute of limitations was three years for all claims relating to the Act. See Colo. Rev. Stat. § 13-80-101(1)(j) (2002) (indicating a three-year statute of limitations for " [a]ll actions under the ` Colorado Auto Accident Reparations Act' part 7 of article 4 of title 10, , C.R.S." This is the standard for determining whether an individual' claims are timely filed. In ). s re Estate of Scott, 735 P.2d 924, 926 (Colo. Ct. App. 1987). Indeed, in Nelson v. State Farm Mut. Auto. Ins. Co., 419 F.3d 1117 (10th Cir. 2005), the Tenth Circuit acknowledged that a statute of limitations analysis applies to claims such as those presented here. The court held that " district court properly applied CAARA' statute of the s limitations to Mr. Nelson' claim for reformation because his lawsuit was based on an alleged s violation of CAARA and requested benefits." Nelson, 419 F.3d at 1120. Nelson, like Clark, asserted a claim for reformation alleging a violation of the No-Fault Act on behalf of a putative class, and sought to recover additional benefits under the No-Fault Act. Under the rule

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established by the Tenth Circuit in Nelson, the three-year statute of limitations contained in the No-Fault Act applies to all of the claims, including the claims for reformation, brought by litigants such as Clark, Folks, and all individuals within Clark' proposed class. s The question, therefore, is when the putative class members'claims arose. In Colorado, a cause of action accrues " when litigation could first have been successfully maintained." Daugherty v. Allstate Ins. Co., 55 P.3d 224, 226 (Colo. Ct. App. 2002) (quoting Flatiron Paving Co. v. Great Sw. Fire Ins. Co., 812 P.2d 668, 670 (Colo. Ct. App. 1990)). All of the putative class claims ­ and specifically the claim for reformation ­ are based on the allegation that State Farm failed to comply with the No-Fault Act by including the Pedestrian Limitation in its automobile insurance policies. The No-Fault Act itself does not contain language indicating when a cause of action under the No-Fault Act accrues. Instead, Colorado Revised Statutes § 1380-108(8) is applied in determining when the putative class members'claims accrued: A cause of action for losses or damages not otherwise enumerated in this article shall be deemed to accrue when the injury, loss, damage, or conduct giving rise to the cause of action is discovered or should have been discovered by the exercise of reasonable diligence. Colo. Rev. Stat. § 13-80-108(8) (emphasis added). In other words, the putative class members' claims accrued when they discovered, or should have discovered by the exercise of reasonable diligence, either the injury, loss, damage, or conduct giving rise to their claims. The record already developed in this case establishes that, shortly following an automobile accident, injured persons are sent a letter informing them what level of benefits they will receive. See Transcript of Hearing Re Date of Reformation, Vol. I (Nov. 3, 2003) at 111:15112:4, attached as Exh. F. Individuals within the proposed class definition know, on or about the date such a letter is sent to them, that they will not be receiving extended PIP benefits (those who

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did receive extended PIP benefits obviously have no viable claims because they have suffered no damage). The discovery record shows that those letters from State Farm further direct injured persons to consult the State Farm Policy (which contained the Pedestrian Limitation from 1975 to 1998) for more details regarding their benefits. The inclusion of the Pedestrian Limitation in State Farm' insurance policy is the basis s for all of the putative class members'claims. Thus, by the date an injured person received the initial benefits letter from State Farm, he or she knew or should have known all of the facts necessary to bring her claims against State Farm. This date will closely approximate the date of the accident, as the letters are sent out within 30 days. Each of the putative class members' claims for reformation therefore accrued no later than a month after the date of their accident, and that is the date from which the statute of limitations begins running. Because, as explained above, a three-year statute of limitation applies to the claims in this case, any putative class member whose claims arose more than three years prior to commencement of an action would be time-barred. The doctrine of class action tolling, however, extends the statute of limitations somewhat for the putative class members. Under the doctrine announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), the statute of limitations is tolled for putative members of a class action while class certification is pending. See Am. Pipe, 414 U.S. at 550-54. Accordingly, since the date this action was filed ­ August 24, 2000 ­ the claims of putative class members have been tolled. Any putative class member whose claims accrued within three years of the filing of this case ­that is, they received a PIP benefits letter on or after August 24, 1997 ­is not time-barred from bringing their claims. Every other person contained within the proposed class

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definition, however, is precluded from bringing their claims at this time. See also, e.g., Martin Marietta Corp. v. Lorenz, 823 P.2d 100, 102 (Colo. 1992) (noting that, even when a case is applied retroactively to allow claims to go forward, the statute of limitations still applies); Baker v. Aetna Cas. & Sur. Co., 454 A.2d 1092, 1094 (Pa. Super. Ct. 1982); Fairbanks v. Travelers Ins. Co., 486 A.2d 469, 470 (Pa. Super. Ct. 1984); Gurnee v. Aetna Life and Cas. Co., 433 N.E. 2d 128, 131 (N.Y. 1982). Clark' proposed definition therefore is fatally flawed in its significant s overbreadth, including many individuals for whom the statute of limitations has expired. e. The proposed definition contains persons whose accidents occurred after the alleged wrongful conduct was remedied by State Farm.

In addition to including individuals whose claims arose too early, the proposed class definition also is flawed because the " date"is improper. Specifically, the temporal duration end of the proposed class concludes once all State Farm insureds received a renewal notice on or after January 1, 1999. From Clark' brief, we presume that such a date was selected because of s Clark' belief that " defect was cured on the first issuance (renewal) after the [complying] s the coverage existed and was offered." Plaintiff' Brief at 3. s The factual record already developed in this case, however, demonstrates that State Farm eliminated the Pedestrian Limitation from all of its policies with the issuance of Endorsement 6850AJ in November 1998. See Transcript of Hearing Re Date of Reformation, Vol. II (Nov. 4, 2003) at 337:8-339:3, attached as Exh. G. Thus, even under Clark' theory of the case, the class s definition should be cut off after all State Farm policyholders received a renewal notice after November 30, 1998. Judge Nottingham, however, in a related case, has gone further. In the case of Virgil Stickley v. State Farm Mutual Automobile Insurance Co., No. 04-cv-01685-EWN-OES, Judge

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Nottingham held that the issuance of Endorsement 6850AJ in itself was sufficient to cure the defect in State Farm' policies. See Order & Memorandum of Decision (Nov. 18, 2005), s attached as Exh. H. This Court should likewise conclude that the class definition must be cut off for any individual whose claims accrued after November 30, 1998. Because the class definition proposed by Clark includes individuals whose claims accrued after the policy defect had been cured, it should not be allowed. 3. The Named Class Representative has No Remaining Viable Claims.

Finally, Clark himself lacks standing to assert the claims alleged against State Farm, and thus cannot allege the existence of a legally identifiable class. " claim cannot be asserted on [A] behalf of a class unless at least one named plaintiff has suffered the injury that gives rise to that claim." Wooden, 247 F.3d at 1288 (emphasis added); see also Pettit, 375 F. Supp. 2d at 1149. It is not enough to assert an injury at the outset of the litigation; rather, a named plaintiff must maintain the injury that provides him standing throughout the course of the litigation. Powder River Basin Resource Council v. Babbitt, 54 F.3d 1477, 1484-85 (10th Cir. 1995) (citing Gollust v. Mendell, 501 U.S. 115, 126 (1991)). A representative plaintiff who somehow loses his " personal stake" in the outcome of the litigation before its completion (i.e. a plaintiff whose injury is remedied) no longer has a " live case or controversy" capable of being heard by the federal courts. Id. In this case, Clark is the only named (or representative) plaintiff. Where a plaintiff' alleged injury at the time it filed suit was the state' refusal to s s reimburse the plaintiff for its attorney' fees, and the Wyoming Supreme Court thereafter s ordered the defendant to pay those fees, the plaintiff " the injury on which its standing was lost

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originally based." Powder River Basin, 54 F.3d at 1484-85. " When a plaintiff no longer has an injury, the Article III requirements of a case or controversy are no longer met." Id. at 1485. Here, Clark' alleged injury is the denial of extended PIP benefits. Those benefits now s have been paid to him. See Notice of Payment of Judgment; and Motion to Enter Order Regarding Supersedeas Bond (Mar. 23, 2006), attached as Exh. I Accordingly, Clark no longer has a " case or controversy"and lacks standing to pursue his claims against State Farm, both live in his individual and representative capacity. III. CONCLUSION Clark' class definition fails because it is overbroad and includes individuals who have s suffered no injury-in-fact as a result of the challenged conduct, and therefore lack standing to sue in their own right. The proposed definition also improperly contains individuals whose claims are not timely, because they either accrued too late or were filed too late. Moreover, Clark himself lacks standing to pursue the claims alleged. For all of these reasons, as explained above, State Farm requests that the Court: deny Clark' motion to amend the class definition; strike the s original class definition for the same reasons stated above, which are in large part applicable to the earlier class definition; and establish principles that would define an arguably valid class definition for further class certification proceedings. At a minimum, a class definition proper for further proceedings would include only individuals injured as pedestrians who exhausted the PIP benefits made available to them, and whose claims accrued between August 24, 1997 and November 30, 1998.

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Respectfully submitted this 20th day of November, 2006.

s/ Michael S. McCarthy Michael S. McCarthy Mark W. Fischer Marie E. Williams FAEGRE & BENSON LLP 1700 Lincoln Street, Suite 3200 Denver, Colorado 80203 Phone: (303) 607-3500 Fax: (303) 607-3600 E-mail: [email protected] [email protected] [email protected] ATTORNEYS FOR DEFENDANT STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

CERTIFICATE OF SERVICE I hereby certify that on this 20th day of November, 2006, I electronically filed the foregoing STATE FARM' RESPONSE BRIEF REGARDING PLAINTIFF' S S PROPOSED AMENDED CLASS DEFINITION with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses:
· · ·

Robert Bruce Carey [email protected],[email protected] Leif Garrison [email protected],[email protected] L. Daniel Rector [email protected],[email protected]

s/Colleen H. Russell Colleen H. Russell Legal Secretary
fb.us.1628606.05

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