Opinion
Civil Action No. 21-cv-01074-DDD-MEH
2022-06-03
DEPOSITORS INSURANCE COMPANY, Plaintiff, v. Melanie MURPHY, Defendant.
Christine Marie Kroupa, Edward J. Hafer, Stuart Joseph Dong, Quintairos Prieto Wood & Boyer P.A., Denver, CO, Katelyn Shea Werner, Gordon & Rees LLP, Denver, CO, for Plaintiff. Marc R. Levy, Matthew W. Hall, Ryan Earl Nichols, Levy Law, P.C., Englewood, CO, for Defendant.
Christine Marie Kroupa, Edward J. Hafer, Stuart Joseph Dong, Quintairos Prieto Wood & Boyer P.A., Denver, CO, Katelyn Shea Werner, Gordon & Rees LLP, Denver, CO, for Plaintiff. Marc R. Levy, Matthew W. Hall, Ryan Earl Nichols, Levy Law, P.C., Englewood, CO, for Defendant.
ORDER ON SUMMARY JUDGMENT AND JUDGMENT ON THE PLEADINGS
Daniel D. Domenico, United States District Judge
Before the Court are the Motion for Summary filed by Depositors Insurance Company ("Depositors") and the Motion for Judgment on the Pleadings filed by Melanie Murphy ("Ms. Murphy"). These are cross-motions that the Court permitted for early resolution of an insurance coverage dispute before the start of litigation activity. The Motions are fully briefed, and the parties presented oral argument on January 13, 2022, before Judge Hagerty. Based on the record and for the reasons that follow, the Court grants Depositors' Motion for Summary Judgment (Doc. 30) and denies Murphy's Motion for Judgment on the Pleadings (Doc. 31).
BACKGROUND
I. Depositors' Claim
Ms. Murphy had an automobile accident with Morgan Grey. Grey was the at fault driver. At the time, Grey was in the course and scope of her employment with The Vanguard School, a government entity subject to the Colorado's Governmental Immunity Act (CGIA) that was covered by a liability policy. Ms. Murphy and/or her counsel failed to provide timely notice to The Vanguard School of her claim, which barred her claim under the CGIA. Because of the unavailability of any underlying compensation, Ms. Murphy claims entitlement to uninsured (UM) motorist benefits under her automobile insurance contract with Depositors. Incidentally, Ms. Murphy brought a lawsuit against the attorney who represented her at the time of the failure of the CGIA notice, and that lawsuit was settled.
Asserting the tortfeasor's vehicle was insured at the time of the accident, Depositors contends that Murphy's claim instead is a matter of underinsured (UIM) coverage. Depositors brought this action for declaratory judgment that Ms. Murphy is not entitled to uninsured motorist benefits, but rather underinsured benefits. It seeks summary judgment in its favor. For her part, Ms. Murphy seeks judgment on the pleadings in her favor, that she is entitled to her insurance policy's $500,000 limit without offset of any kind.
Ms. Murphy's policy includes uninsured and underinsured motorist benefits under the same terms. What the policy lacks is an explicit offset provision to address the effect of a tortfeasor's insurance coverage. Colorado law looks to trade usage to address such contractual gaps. Here, trade usage, as guided by Colorado statutory and case law, includes an offset for uninsured and underinsured motorist benefits. This offset prevents Ms. Murphy from recovering damages for which the tortfeasor had insurance coverage.
II. Undisputed Material Facts
The Court draws the below statement of undisputed material facts from both the pleadings (the Complaint and Answer) and the briefing of Depositors' Motion for Summary Judgment. The Court provides no record citation to those fact assertions that come from the pleadings and which Murphy does not dispute. For those assertions that rely on evidence outside the pleadings, the Court cites where in the docket sheet supporting evidence is located.
1. Ms. Murphy was involved in a motor vehicle accident with another motorist on April 7, 2017.
2. The other motorist, Morgan Grey, was driving a van while in the course and scope of her employment with The Vanguard School, a state charter school. For purposes of this ruling, the Court refers to Ms. Grey as the "tortfeasor" to make the discussion of the parties' legal relationship clearer.
3. Ms. Murphy had an automobile liability insurance policy ("the Policy") sold by Depositors. The Policy is found in the record at Doc. 30-1 and was in force at the time of the accident. The Policy includes "Uninsured Motorist Bodily Injury" coverage with a $500,000 limit. (Doc. 30-1 at 7.) Its terms are set forth at pages U1-U3 of the Policy (found in the record at Doc. 30-1 at 40-43). The Court quotes the Policy's relevant provisions below.
4. In the Definitions section, paragraph (1)(a), the Policy defines an uninsured motor vehicle as "one for which there is no bodily injury liability insurance applicable to the vehicle owner." It further defines an uninsured motor vehicle in paragraph (1)(b) as "one which is underinsured. This is a motor vehicle for which bodily injury liability coverage is in effect; however, the total amount is less than the limits of this coverage."
5. Through her attorney, Peter Anderson, Ms. Murphy notified Depositors by letter dated June 13, 2017, of the car accident and her resulting injuries. (Doc. 35-1). In her later lawsuit against Depositors, Murphy averred that the letter gave "notice of her underinsured motorist claim." (Doc. 30-4 at ¶ 17.)
6. The charter school for which the tortfeasor worked is a government entity subject to CGIA, Colo. Rev. Stat. § 24-10-101, et seq. Its legal liability limit under the CGIA is $350,000.
7. Further, the charter school had a Commercial Automobile Policy sold by Wright Specialty Insurance. (Doc. 30-2.) Thus, the tortfeasor's vehicle was in fact insured.
8. On May 1, 2019, Depositors wrote Mr. Anderson regarding Ms. Murphy's submission of "this Underinsured Motorist claim." Depositors stated that the tortfeasor's "insurance carrier, Wright Risk Management, has a 1 million dollar liability policy limit." In that letter, Depositors noted Murphy's representation "that the liability limit with Wright Risk Management will be reduced to $350,000 because the at-fault tortfeasor was a school and is therefore subject to the [CGIA] cap." Depositors calculated Ms. Murphy's damages to be less than $350,000, and consequently, it declined to make an underinsured motorist benefit payment. (Doc. 30-2.)
9. Ms. Murphy retained Mr. Anderson to pursue her claim against Depositors for insurance coverage.
10. On July 2, 2019, Ms. Murphy (through her attorney, Mr. Anderson) filed suit against Depositors. (Doc. 30-4.)
11. In that lawsuit, Ms. Murphy alleged that the Policy provided her both uninsured and underinsured coverage, and she sought to recover the underinsured benefit. (Id. at ¶¶ 13-15, 17, 31, 42, 47-48, 54, 62-63, 66, 70-71, 78, and 80.) Regarding Depositors' handling of her underinsured claim, Ms. Murphy asserted the causes of action for breach of contract and bad faith. Ms. Murphy does not dispute the content of her complaint. Rather, she characterizes the pleading's focus on underinsured benefits as inaccurate. In her later-filed legal malpractice lawsuit, the Court notes that Ms. Murphy herself referred to the "filing of an underinsured motorist claim based on her injuries and inability to settle the underlying claim." (Doc. 30-8 at ¶ 28.)
12. Depositors removed the insurance lawsuit to federal court on August 2, 2019, and it was renumbered as 19-cv-02202-REB-MEH. Shortly thereafter, on September 24, 2019, the parties filed a Stipulation for Dismissal Without Prejudice, and the case was closed. (Doc. 30-5.)
13. Ms. Murphy also had retained Mr. Anderson to pursue a personal injury claim against the tortfeasor and her employer.
14. Mr. Anderson failed to give timely, jurisdictional CGIA notice of her personal injury claim to the State of Colorado as required by Colo. Rev. Stat. § 24-10-109(1). (Doc. 30-10.)
15. On November 11, 2019, after the insurance lawsuit's dismissal, Ms. Murphy filed her personal injury lawsuit against the tortfeasor and her employing school. The law firm of Levy Law, PC (the same law firm who represents Ms. Murphy in the instant federal lawsuit) filed that complaint. She brought a claim of negligence against the tortfeasor driver and a respondeat superior claim against the charter school. (Doc. 30-6.)
16. The tortfeasor and school asserted the defense of lack of subject matter jurisdiction under Colo. Rev. Stat. § 24-10-109(1). (Doc. 30-8 at ¶ 32.)
17. Ms. Murphy responded on December 11, 2019, voluntarily dismissing her personal injury lawsuit with prejudice. She did so to avoid paying the defendants' attorney fees (because, under Colorado law, dismissal of a tort claim on a Rule 12(b) motion entitles the defendant to its attorney fees). (Id. at ¶ 33.)
18. On May 14, 2020, Ms. Murphy sued Mr. Anderson for legal malpractice for his failure to give timely CGIA notice of her personal injury claim. Doc. 30-8. In that legal malpractice lawsuit, Ms. Murphy alleged that Mr. Anderson was negligent in failing to properly preserve her claim against the tortfeasor's school. (Id.)
19. As a result of Mr. Anderson's negligence, Ms. Murphy alleged damages from what "she could have sought against [the tortfeasor and school] as well as any damages that may have occurred due to the untimely notice and premature filing of her underinsured motorist claim." Id. at ¶ 41.
20. Ms. Murphy settled the legal malpractice lawsuit for an undisclosed amount, and the parties filed a Stipulation for Dismissal with Prejudice. Doc. 30-9.
21. On November 30, 2020, Ms. Murphy (now represented by the Levy Law PC law firm) wrote another demand letter to Depositors. In it she explained that she is "now seeking uninsured motorist benefits" in light of the tortfeasor's CGIA immunity. Doc. 30-10. This action ensued.
LEGAL STANDARD
I. Fed. R. Civ. P. 56(c)
A motion for summary judgment serves the purpose of testing whether a trial is required. Heideman v. S. Salt Lake City, 348 F.3d 1182, 1185 (10th Cir. 2003). "Summary judgment is not a disfavored procedural shortcut. Instead, it is an important procedure designed to secure the just, speedy and inexpensive determination of every action." Evans v. Cawthorn, No. 16-3095-DDC-ADM, 2019 WL 5787952, at *3 (D. Kan. Sept. 6, 2019) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).
A court shall grant summary judgment if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). A fact is material if it might affect the outcome of the suit under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The moving party bears the initial responsibility of providing to the court the factual basis for its motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "The moving party may carry its initial burden either by producing affirmative evidence negating an essential element of the nonmoving party's claim, or by showing that the nonmoving party does not have enough evidence to carry its burden of persuasion at trial." Trainor v. Apollo Metal Specialties, Inc., 318 F.3d 976, 979 (10th Cir. 2002).
If the movant properly supports a motion for summary judgment, the nonmoving party has the burden of showing there are issues of material fact to be determined. Celotex, 477 U.S. at 322, 106 S.Ct. 2548. That is, the opposing party must assert a set of facts, that if could be found to be true, would enable it to prevail on the claim. To meet that burden, the opposing party may not rest on the allegations contained in the complaint but must respond with specific facts showing a genuine factual issue for trial. Fed. R. Civ. P. 56(e); Anderson, 477 U.S. at 247-48, 106 S.Ct. 2505 ("[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact."). These specific facts may be shown "by any of the kinds of evidentiary materials listed in Rule 56(c), except the mere pleadings themselves." Pietrowski v. Town of Dibble, 134 F.3d 1006, 1008 (10th Cir. 1998) (quoting Celotex, 477 U.S. at 324, 106 S.Ct. 2548). In other words, the opposing party must do more than make a conclusory denial of an asserted material fact but explain the reason for the denial with an accompanying specific reference to the evidentiary record. Am. Auto. Ins. Co. v. Marlow, 666 F. Supp. 2d 1209, 1212 (D. Colo. 2009); Section III(F) of the undersigned's Practice Standards---Civil Actions. If the parties tell two different stories, one of which is blatantly contradicted by the record so that no reasonable jury could believe it, the court should not adopt that version. Pierson v. Bassett, 534 Fed.Appx. 768, 771 (10th Cir. 2013).
"[T]he content of summary judgment evidence must be generally admissible and . . . if that evidence is presented in the form of an affidavit, the Rules of Civil Procedure specifically require a certain type of admissibility, i.e., the evidence must be based on personal knowledge." Bryant v. Farmers Ins. Exch., 432 F.3d 1114, 1122 (10th Cir. 2005). "The court views the record and draws all inferences in the light most favorable to the nonmoving party." Pepsi-Cola Bottling Co. of Pittsburg, Inc. v. Pepsico, Inc., 431 F.3d 1241, 1255 (10th Cir. 2005).
II. Fed. R. Civ. P. 12(c)
The standard for determining whether to grant a motion for judgment on the pleadings under Fed. R. Civ. P. 12(c) is the same as for a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Williams v. Genesis Fin. Techs., Inc., 790 F. App'x 161, 164 (10th Cir. 2019) (citing Corder v. Lewis Palmer Sch. Dist. No. 38, 566 F.3d 1219, 1223 (10th Cir. 2009)). A motion to dismiss under Fed. R. Civ. P. 12(b)(6) in turn tests the sufficiency of the pleading and whether it states a plausible claim for relief. MSC Safety Sols., LLC v. Trivent Safety Consulting, LLC, No. 19-cv-00938-MEH, 2020 WL 4271703, at *6 (D. Colo. July 24, 2020). As such, a court accepts all well-pleaded allegations as true and views them (and any inferences reasonably drawn therefrom) in the light most favorable to the non-movant. Sanders v. Mountain Am. Fed. Credit Union, 689 F.3d 1138, 1141 (10th Cir. 2012).
A court is not limited to the pleadings alone but may take into consideration the broader factual record. Not only are the allegations in the complaint relevant but so are the answer, any written documents attached to those pleadings, and matters of judicial notice informative of the case's factual background. Judgment on the pleadings under Fed. R. Civ. P. 12(c) is appropriate if no material issue of fact remains to be resolved, and the movant is entitled to judgment as a matter of law. Tuttle v. Nationwide Affinity Ins. Co. of Am., No. 19-cv-00526-NYW, 2019 WL 2208513, at *2 (D. Colo. May 22, 2019). A Rule 12(c) motion "only has utility when all material allegations are admitted or not controverted in the pleadings and only questions of law remain to be decided." Id.
DISCUSSION
The sole claim for declaratory relief that Depositors raises in its Complaint is whether the uninsured or underinsured coverage provisions of the Policy applies to Ms. Murphy's claim. Under its interpretation of the contract and Colorado law, Depositors is liable to cover Ms. Murphy's damages that exceed $350,000, up to the Policy's $500,000 limit in additional compensation. Ms. Murphy contends that under the contract, she is entitled to whatever damages the jury awards her in this case, up to the policy limit of $500,000 with no offset for anything she did or did not receive from the tortfeasor and without regard for either the CGIA's $350,000 cap or any amount she received in the legal malpractice lawsuit.
I. Uninsured or Underinsured
Ms. Murphy first contends that the "uninsured" versus "underinsured" coverage dispute is a moot point. The Policy's plain language, as Ms. Murphy construes it, gives her the same coverage regardless of whether the tortfeasor's vehicle is uninsured or underinsured. The Policy obligates Depositors to pay "damages . . . which are due by law to [her as the tort victim] from the [tortfeasor] owner or driver of an uninsured motor vehicle," for "[d]amages [that] result from an accident arising out of the . . . use . . . of the uninsured motor vehicle." Doc. 30-1 at 40. As noted above, the Policy defines an "uninsured motor vehicle" to include both an uninsured vehicle and an underinsured vehicle. Id. The Policy does not explain how, in the underinsured situation, Depositors will account for the tortfeasor's insurance benefit (collected or not) when calculating Ms. Murphy's payment. For example, the Policy does not say that Depositors will offset the tortfeasor's insurance payment against hers or will pay only the difference between the two policies.
The facts here establish the tortfeasor not as an uninsured motorist but, at best, an underinsured motorist, because (1) the charter school had liability insurance that was a source of $350,000 in compensation, and (2) if Murphy's ultimate damages award exceeds that amount, then the legal liability coverage is insufficient. Under the Policy, Depositors agreed to pay Murphy "compensatory damages . . . which are due by law" in the underinsured situation. Under Colo. Rev. Stat. § 10-4-609(1)(c), Depositors must pay Murphy, at a minimum, "the difference, if any, between the amount of the limits of any legal liability coverage and the amount of the damages sustained . . . up to the maximum amount of the coverage obtained." However, because the Policy's definition of an uninsured motorist includes those motorists who are underinsured, the Court agrees with Ms. Murphy that the same contractual rights apply to Ms. Murphy regardless of the technical classification.
II. Due by Law
Ms. Murphy relies on the provision's "due by law" term to support her position that Depositors must pay her full damages (as awarded by a jury) without any offset. As a general matter, the law obligates a tortfeasor to compensate a tort victim for all damages that the tort caused. That obligation exists independently of insurance coverage. A tort victim may not sue the tortfeasor's insurer directly to recover tort damages. Synan v. Haya, 15 P.3d 1117, 1119 (Colo. App. 2000).
Colorado law requires automobile liability insurers to offer coverage to protect insureds "who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury [etc.] resulting therefrom." Colo. Rev. Stat. § 10-4-609(1)(a). If the Policy's use of the term, "due by law," means the same as the statute's phrase, "legally entitled to recover damages," then it further supports her position, she argues. As applied, the statute does not limit coverage to the amount of damages had the insured tort victim litigated the matter to final judgment and against any legal bars or defenses (such as immunity) that the tortfeasor may have had. Colorado law instead construes the phrase in an insured-friendly way. The insured need only establish "that the fault of the uninsured motorist gave rise to the damages and the extent of those damages." Borjas v. State Farm Mut. Auto. Ins. Co., 33 P.3d 1265, 1269 (Colo. App. 2001). So long as the insured tort victim can establish fault and quantify damages, then the insurer must pay the claim even if the tortfeasor has full liability immunity. The case of Nationwide Mut. Ins. Co. v. Hatfield, 122 S.W.3d 36, 52-59 (Ky. 2003)—cited by Depositors—regards the terms "due by law" and "legal right to recover" as equivalent ways of expressing the principle of how an insured can establish damages without need to litigate a tort cause of action to final judgment.
The Court assumes for present purposes that Ms. Murphy could establish the tortfeasor's fault and quantify the amount of damages resulting from the car accident, and thus Ms. Murphy has a claim for damages "which are due by law" under the Policy or which she is "legally entitled to recover" under Colo. Rev. Stat. § 10-4-609(1)(a). Although she did bring a tort cause of action directly against the tortfeasor, the "due by law" provision of the Policy, as construed by Borjas, means it was unnecessary to litigate it to final judgment. Nor did tortfeasor immunity play any role. Even though the tortfeasor was a public employee, state sovereign immunity was waived for this situation up to the CGIA limit of $350,000. Colo. Rev. Stat. §§ 24-10-106(1)(a) & -106.3(4).
As noted above, the Policy itself makes no express offset provision to account for the tortfeasor's insurance. Instead, Depositors attempts to graft the statutory offset language of Colo. Rev. Stat. § 10-4-609 onto the Policy through the "due by law" term. Depositors' argument is that when the Policy obligates payment for "damages . . . which are due by law to [Murphy] from the [tortfeasor] owner or driver of an uninsured [or underinsured] motor vehicle," (Doc. 30-1 at 40), the Policy means only an underinsured claim that the relevant state statute would require.
Colorado requires an automobile liability insurer to offer insurance protection against underinsured motor vehicles. Colo. Rev. Stat. § 10-4-609(1)(a). This kind of insurance "shall cover the difference, if any, between the amount of the limits of any legal liability coverage and the amount of the damages sustained . . . up to the maximum amount of the coverage obtained pursuant to this section." Colo. Rev. Stat. § 10-4-609(1)(c). In practical effect the statute thereby permits an offset to account for how much insurance the tortfeasor has. If the tortfeasor is uninsured either as a matter of fact or because of some legal bar to liability, then the offset amount is $0. However, if the tortfeasor has some insurance, then the offset is the tortfeasor's insurance coverage limit. The case law refers to Colo. Rev. Stat. § 10-4-609(1)(c) as the "excess approach" whereby the underinsured coverage provider pays for those damages that exceed the maximum benefit of the tortfeasor's insurance. Not relevant to the offset calculation is how much the insured actually obtains from the tortfeasor. Tubbs v. Farmers Ins. Exch., 353 P.3d 924 (Colo. App. 2015); Jordan, 348 P.3d at 449-51. The statute's excess approach to calculating the amount of underinsured coverage furthers the public policy goal of incentivizing an optimal settlement of the underlying tort claim. Jordan, 348 P.3d at 450.
Of course, Colo. Rev. Stat. § 10-4-609 is "law," but Depositors' argument misconstrues the "due by law" qualifier. First and foremost, the term "compensatory damages . . . which are due by law to [the victim]" defines a tort victim's entitlement to damages, not the scope of any insurance coverage. These are completely different concepts. Depositors seeks to interpret the Policy as (1) grafting in an offset not expressly included in the contract language, and (2) incorporating Section 10-4-609's legal obligation on insurers to provide the prescribed level of underinsured motorist coverage as what is "due by law" to the insured. This does not comport with the contract's language.
Dealing with the latter point, the Policy's "due by law" language expressly refers to compensatory damages owed to its insured from the tortfeasor, because of bodily injury suffered by its insured. See Nationwide Mut. Fire Ins. Co. v. Austin, 34 So. 3d 1238, 1245 (Ala. 2009) ("[T]he only actual measure of 'damages . . . due by law' from Horton to the Austins that has been established in this case is the measure that the jury actually awarded. It is necessarily with respect to such ascertained 'damages' that the policy provisions at issue must operate."). Because the accident in this case occurred in Colorado, it is "Colorado's scheme for compensating tort victims" that defines what is "due by law" to Ms. Murphy. Mountain Mobile Mix, Inc. v. Gifford, 660 P.2d 883, 887 (Colo. 1983). Depositors' interpretation of "due by law" would give a court the obligation to search all manner of potential sources of "law" to supplement its contract. That cannot be the reasonable interpretation of the Policy.
Second, the term "due by law" cannot incorporate any and all potential sources of law into the Policy. Rather, it, like the equivalent phrase "legally entitled to recover damages," is a term of art that defines how an insured establishes damages for the insurance claim. Borjas, 33 P.3d at 1269.
Third, if the "due by law" term incorporates into the Policy all law generally, including Colo. Rev. Stat. § 10-4-609, the statute would have no practical effect. That statute sets the minimum for uninsured and underinsured coverage. The statute does not define what tort damages the tortfeasor owes to Murphy. Consequently, Depositors does not persuade the Court that the "due by law" term imports Colo. Rev. Stat. § 10-4-609 and its "excess approach" for calculating underinsured coverage as an express additional Policy provision.
III. Interpretation of the Policy
Based on a plain reading of the contract, Ms. Murphy concludes that Depositors is liable for the full amount (up to her Policy's $500,000 maximum benefit) regardless of any potential coverage from the tortfeasor's insurer. Ms. Murphy argues that the Policy's plain language supports that outcome, because it has no express offset provision. That is an accurate literal reading of page U1 of the Policy (found at Doc. 30-1 at 40 of the docket sheet), and Depositors does not disagree. Ms. Murphy furthers that it is the only reading of the coverage agreement that is reasonable. If "a contractual term unambiguously resolves the parties' dispute, the interpreting court's task is over, and her interpretation should control." SolidFX, LLC v. Jeppesen Sanderson, Inc., 935 F. Supp. 2d 1069, 1085-86 (D. Colo. 2013). Therefore, Ms. Murphy argues that her interpretation fully resolves the dispute. Even though it departs from the way in which underinsured coverage usually works, in which an insurer such as Depositors gets an offset for any compensation received from the underinsured driver, she contends she should get the Policy's full benefit as written. For the sake of argument, if Depositors could offer a competing interpretation of the Policy language, then Ms. Murphy asks the Court to defer to the construction that favors her as the insured. "When policy language is ambiguous—i.e., when it is reasonably susceptible on its face to more than one interpretation upon evaluation of the policy as a whole—it must be construed against the insurer . . . and in favor of the insured." TBL Collectibles, Inc. v. Owners Ins. Co., 285 F. Supp. 3d 1170, 1199 (D. Colo. 2018) (internal citations omitted).
As noted, Depositors does not disagree with this interpretation of the contract but argues that the inquiry does not end there. A court must examine a contract as a whole and reach an interpretation that is consistent with the contract's purpose. Moreover, "[t]he Court must construe a contract in a manner that avoids an absurd result and should avoid any interpretation that would be inconsistent with the purpose of the contract." SolidFX, 935 F. Supp. 2d at 1085; see FD Ints., LLC v. Fairways at Buffalo Run Homeowners Ass'n, Inc., 490 P.3d 496, 503 n.3 (Colo. App. 2019) (same). Depositors states that Ms. Murphy's reading of the Policy is untenable because it would yield that absurd result. It is true that, under Ms. Murphy's interpretation, Depositors must cover her full damages (up to the coverage limit) even if the tortfeasor's insurer already paid all or part of those damages. In practical effect, this interpretation makes the Policy's underinsured motorist coverage a double indemnity benefit.
It is certainly unusual that an insurer would provide "underinsured" coverage up to its policy limit, regardless of what the insured received from a tortfeasor, as long as the tortfeasor's coverage was less than the insurer's policy limit. For example, under Ms. Murphy's literal reading of the Policy, if the underinsured motorist had $499,500 in coverage, that "total amount is less than the limits of this coverage [of $500,000]," and, thus, Depositors would still have to make available the full amount of its coverage. Thus, adopting Ms. Murphy's interpretation, if she recovered in a settlement or lawsuit the policy limit of $499,500 from the tortfeasor, sued Depositors for underinsured motorist benefits, and the jury found Murphy's total damages to be $500,000, Depositors would owe the full amount of its coverage, and the total recovery could be $999,500, when damages "due by law" would be $500,000. Certainly, no Colorado statutory law mandates this level of coverage, yet neither does it prohibit an insurer from offering it.
Depositor's argues double recovery is not the purpose of underinsured motorist coverage. It is meant to protect the tort victim when the tortfeasor is unable to pay compensation. In Jordan v. Safeco Ins. Co. of Am., Inc., 348 P.3d 443, 445, n.1 (Colo. App. 2013), the Colorado Court of Appeals noted how Colo. Rev. Stat. § 10-4-609, which concerns both uninsured and underinsured motorist coverage types, is meant "to ensure the widespread availability of protection to persons against financial losses caused by financially irresponsible motorists." However, the statute does not go so far as "to require full indemnification of losses suffered at the hands of . . . underinsured motorists under all circumstances." Id. at 447-48 (internal citations omitted). Depositors argues that Murphy indeed has been paid for her damages, albeit indirectly through her legal malpractice claim. If her damages already have been redressed, then Murphy has no need for the underinsured benefit.
The Colorado Court of Appeals has noted that Section 10-4-609(1)(c) "suggests that the legislature did not intend to allow a plaintiff to recover UIM benefits in excess of the total amount of actual damages." Bailey v. State Farm Mut. Auto. Ins. Co., 429 P.3d 109, 114 (Colo. App. 2018). "The statute provides that UIM benefits are intended to cover 'the difference' between the negligent driver's liability limits and the damages." Id. In Bailey, the automobile accident victim sued the tortfeasor for damages and his own insurer for underinsured benefits. The tortfeasor had $100,000 in liability coverage, and the victim's UIM policy provided an additional $100,000. Before trial, the tortfeasor's insurance company agreed to pay any judgment. The jury came back with an award of $300,000, which the tortfeasor's insurer agreed to pay. However, because the tortfeasor's written policy provided only $100,000, and the damages were more than that, the victim believed his insurer was obligated to pay him the additional $100,000, resulting in a total recovery of $400,000 despite the damage award of $300,000. The court disagreed, stating: "If we adopted plaintiff's reading of the statute, it would create a windfall for a plaintiff, allowing him or her to recover UIM benefits in excess of his or her damages. We conclude that the legislature could not have intended that result." Id. However, Bailey was a statutory interpretation case; it neither cited to nor relied upon the contract.
On the other hand, in the principal case relied upon by Depositors, Jordan, the court found that "Safeco's denial of coverage was legally permissible under both the clear language of the policy and the unambiguous terms of section 10-4-609." 348 P.3d at 446. The court applied Colorado case law in construing "the plain language of the contract to fulfill the intent of the insured and the insurer, and . . . resolv[ing] ambiguities in favor of the insured." Id. at 445. In Jordan, the policy had an express UIM offset for underlying coverage. That is not the case here. Furthermore, neither party in their briefs even addressed the concept of the parties' intent.
The Court is guided by Alden Sign Co. v. Roblee, 436, 121 Colo. 432, 217 P.2d 867 (1950), for the principle that "under certain circumstances, where a contract contains no specific provision with regard to a situation which may arise, trade usages and customs may be shown to arrive at the intent of the parties in entering into the contract." Id. at 870. Here, the contract does not contain a specific provision on how to deal with the underlying tortfeasor's coverage in the underinsured context. The court stated that for this contract interpretation rule to apply, it must meet these elements:
Briefly, a custom or usage to affect the rights of parties to a contract must be an ancient one, or at least one that has existed for such length of time as to become generally known; it must be one certain, continuous, and uniform in its operation, and so general and universal in character that knowledge essential to the binding effect upon the party to be charged may be presumed, and it must be one that has been peaceably acquiesced in by those whose rights naturally are to be affected by it. It must also be reasonable and not opposed to or in conflict with established rules of law, whether defined by statute or by the common law, and not inconsistent with good morals or public policy or with the terms of the contract itself.Id. (citing 55 Am. Jur. P. 267). As the Court interprets the well-established concept of UM and UIM benefits under Colorado statutory and case law, they have existed the requisite time; they are certain, continuous and uniform in operation; they are universal in character; and they are not inconsistent with public policy or the terms of the contract itself.
In addition, interpreting the Policy in this manner avoids the "absurd result" (as that term in used in case law) of UIM that completely overlaps underlying coverage, a concept contrary to industry norms and to the very meaning of what "underinsured motorist" coverage is designed to address. Moreover, it avoids an obvious windfall to Ms. Murphy, affording her the insurance coverage she must have expected while avoiding compensation that has little relationship to her actual damages. Kral v. Am. Hardware Mut. Ins. Co., 784 P.2d 759, 766 (Colo. 1989) (in adopting a scheme of uninsured motorist coverage, the "General Assembly did not intend to grant windfall profits to insureds by authorizing them to obtain double recovery for the same loss."). Finally, in review Colorado statutory and case law authority, the Court is confident this is the outcome that those courts would reach.
IV. Ms. Murphy's "Uninsured" Argument
If her plain language argument does not resolve the dispute, then Ms. Murphy raises an alternative reason why Depositors should pay the claim in full. She contends that the tortfeasor should be deemed uninsured because the tortfeasor now is immune from tort liability. Ms. Murphy is correct that Colorado law deems a tortfeasor who cannot be sued (either because of absolute immunity or other legal bar) "uninsured" even if the tortfeasor has insurance. There is nothing for the tortfeasor's insurer to cover if the law shields the tortfeasor from liability. From the tort victim's perspective, it creates the functional equivalent of an uninsured tortfeasor, and providing the tort victim coverage furthers the public policy goal of such insurance. Borjas, 33 P.3d at 1268.
However, Borjas' reasoning does not extend as far as Murphy's situation. For present purposes, the Court assumes that the tortfeasor was insured at the time of the accident and that Murphy could have sued her had she provided timely notice under Colo. Rev. Stat. § 24-10-109(1). Had she provided timely notice, her claim would have been handled under the underinsured rubric, and indeed, Depositors argues that Murphy initially pursued her claim as one for underinsured coverage (until she lost the benefit of the CGIA waiver). What caused the tortfeasor to become immune was Murphy's own omission in maintaining her tort claim. This is a materially different circumstance than Borjas which concerned a tortfeasor for whom Colorado did not waive sovereign immunity at all pursuant to Colo. Rev. Stat. § 42-4-108(2).
CONCLUSION
The parties dispute what kind of coverage the Policy provides Ms. Murphy. Depositors concedes coverage for damages up to the Policy's $500,000 maximum benefit. However, it will pay only for damages that exceed the $350,000 immunity waiver cap that it imputes on the tortfeasor as her de facto insurance coverage limit. Depositors' approach is consistent with governing Colorado insurance law. Moreover, it is a construction of the Policy that avoids an absurd result and yields an outcome that provides justice to both sides.
The existing record establishes the facts and circumstances of Murphy's claim against the Policy. What remains is the question of how the Policy covers that claim. Whether viewed under the Fed. R. Civ. P. 56(c) or Fed. R. Civ. P. 12(c) standard, there is no genuine dispute of material fact that precludes the Court's ability to resolve the coverage dispute as a matter of law.
However, because this ruling leaves unresolved Murphy's counterclaims, final judgment should not be entered yet nor the case closed. Within five business days of this order, the parties shall file a motion to reset the Scheduling Conference.
Accordingly, Depositors' Motion for Summary Judgment (Doc. 30) is granted and Murphy's Motion for Judgment on the Pleadings (Doc. 31) is denied.