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State Farm Mutual Automobile Insurance Co. v. Brekke1/31/2005
Consolidated Cases
JUDGMENTS AFFIRMED IN PART, REVERSED IN PART, AND REMANDED WITH DIRECTIONS
EN BANC
December 6, 2004
Opinion modified, and as modified, Petition for Rehearing DENIED. EN BANC.
JUSTICE KOURLIS dissents, and JUSTICE COATS joins in the dissent.
In this opinion, we consolidate and address the appeals from two court of appeals' decisions, Brekke v. State Farm Mut. Auto. Ins. Co., 81 P.3d 1101 (Colo. App. 2003), and an unpublished case, Shaffer v. State Farm Mut. Auto. Ins. Co., No. 02CA2274, 2003 WL 22113741 (Colo. App. Sept. 11, 2003). We consider how an insurance provider may participate in tort litigation between its insureds and uninsured motorists who injured the insureds.
In these cases, two individuals purchased uninsured motorist coverage (UM coverage) from State Farm Mutual Automobile Insurance Company (State Farm). They were injured in accidents with uninsured motorists and sued both State Farm and the uninsured motorists who had caused their injuries. The uninsured motorists failed to appear or answer the complaints, but State Farm appeared and demanded a jury trial both on the insureds' claim that State Farm should have paid under their UM coverage and also on the insureds' claim that the uninsured motorists had negligently caused injury to them.
The district courts conducted default judgment hearings on the negligence claims to determine the liability and damages of the uninsured motorists and allowed State Farm to participate as a party adverse to its insureds. State Farm appealed.
In its appeals, State Farm challenged the district courts' decisions to deny jury trials on the negligence claims against the uninsured motorists. State Farm claimed that its contractual provision that the liability of the uninsured motorist must be determined in an "actual trial," and its request for a jury trial under C.R.C.P. 38, required the district courts to hold a jury trial on the negligence claims against the uninsured motorists. The court of appeals affirmed the actions of the trial courts. State Farm successfully petitioned for certiorari.
We determine that the "actual trial" clauses in the insureds' UM contracts, which attempt to preclude default judgment against uninsured motorists from effectively establishing liability, violate public policy. As we explain in the body of the opinion, UM coverage mandated by section 10-4-609, C.R.S. (2004) is diluted if an insurance company contractually prohibits a default judgment from establishing the liability of an uninsured motorist.
We next consider State Farm's role in the negligence claims filed by the insureds against the uninsured motorists. We first distinguish the negligence claims against the uninsured motorists from the contract claims against State Farm and hold that State Farm had the right to a jury trial on its contract claims.
Regarding the negligence claims, we examine the reciprocal duties owed by State Farm and its insureds, and how the litigation is affected by the public policy underlying UM coverage in Colorado. We determine that the district court must take into consideration the unique relationship between the insured and insurance provider and balance the insurance provider's duties to the insured and the insured's right to undiluted UM recovery against the interest of the insurance provider in receiving a fair hearing on its legitimate defenses. While the insurance provider may participate in the tort litigation, its participation must be no more extensive than necessary to preserve that balance.
Balancing the duties and rights in these cases, we conclude
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