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State Farm Mutual Automobile Insurance Co. v. Brekke12/6/2004
overage did not allow an insurance provider to assert breach of contract as a mechanism to deny coverage without also showing that it had been prejudiced by the breach. See id. at 223-24, 226-27. Similarly, in the uninsured motorist tort litigation presented here, the strong public policy underlying UM coverage does not allow the insurance provider to assert all the procedural rights of a defendant unless it will be denied a fair hearing on specific legitimate claims regarding the UM coverage. The insurance provider in this context must be allowed to protect its interest in a fair hearing on its legitimate defenses without interfering with the insured's right to avoid unnecessary dilution of its UM coverage by excessive procedural hurdles. Huizar, 952 P.2d at 349; Peterman, 961 P.2d at 494-95. As such, the insurance provider may participate in the tort litigation against the uninsured motorist only to the extent necessary to protect its interest in a fair hearing on its legitimate defenses.
Further, in Clementi, we reasoned that the insurance provider was in a position to more easily show prejudice than for an insured to show no prejudice and, therefore, held that the public policy also required that the insurance provider bear the burden of proof in showing that it had been prejudiced by the late notification. Id. at 232-33. Similarly, in the case of participation in the tort claim litigation, the insurance provider can more easily show how its interest in a fair hearing on its legitimate defenses would be deprived without participation; conversely, it is more difficult for the insured to show that his or her rights to an undiluted UM recovery would not be adversely affected by greater participation by the insurance provider. Therefore, as in Clementi, the burden falls on the insurance provider to show that its interest in a fair hearing on its legitimate defenses will be unprotected without greater participation in the proceedings. To permit the court to determine the extent of the insurance provider's participation, the insurance provider must specifically set forth the legitimate defenses it intends to raise. Regardless of whether the insurance provider is named in the original complaint, or is making a motion to intervene, these particular allegations must be made in the tort litigation as soon as practicable.
Once the insurance provider has pled these specific and particular allegations, the trial court may consider whether good-faith grounds exist to believe that the interests of the insurance provider in presenting legitimate defenses require limited participation of the insurance provider in the tort litigation. The trial court may hold a hearing to determine if the insurance provider has grounds sufficient to entitle it to participation in the tort litigation. It should consider in each case the quasi-fiduciary duty of the insurance provider, the insured's right to an undiluted UM recovery, and the interest of the insurance provider in receiving a fair hearing on its legitimate defenses. The court should structure the role of the insurance provider in the tort litigation narrowly to reflect these considerations and protect the legitimate interests of all parties.
We recognize the insurance provider will usually be allowed to fully participate in the damages phase of a default judgment hearing, but its participation in any liability determination will be more limited. In either case, however, in the absence of an appearance by the uninsured motorist, the procedural setting remains that of a default judgment, where liability is ordinarily established by default but damages are resolved in a hearing. C.R.C.P. 55; cf. Kwik Way Stores, Inc. v. Caldwell, 745 P.2d 672, 679 (Colo. 198
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