November 20, 2014

Tenth Circuit: Damages Award on Default Judgment Upheld in Complex Litigation

The Tenth Circuit Court of Appeals issued its opinion in Niemi v. Lasshofer on Tuesday, November 4, 2014.

John Niemi, along with co-plaintiffs Robert Naegele, III, and Jesper Parnevik, was working on a large-scale development project in Breckenridge, Colorado, known as the Fairmont Breckenridge. Azco, LLC and Azco II, LLC, as well as Mesatex, LLC – companies run by Niemi, collectively known as the Azco entities – were the purchasers of the properties for the Fairmont. Based on the success of Phase I of the project, Niemi and the co-investors sought $200-$220 million in financing for Phase II. Defendants Lasshofer and Michael Burgess represented that they could provide financing for Phase II, but required the investors to agree to stop looking for other financing and to provide a $180,000 loan commitment fee. The investors agreed and wired the money. Following an extensive due diligence process, plaintiffs provided an additional $2 million “upfront collateral deposit” to Lasshofer and Burgess. The loan proceeds never materialized, despite repeated assurances from Burgess and Lasshofer that the funds were coming, and eventually Burgess was indicted on criminal fraud charges and sentenced to 180 months’ imprisonment. As part of his plea bargain, Burgess indicated that the funds from the investors were deposited in an account belonging to Innovatis Asset Management, SA (IAM), a company associated with Lasshofer. Burgess implicated Lasshofer as his co-defendant and stated that IAM was continuing to defraud investors. Even after Burgess’s arrest, Lasshofer continued to assure the investors that their funds were coming, but no money ever materialized.

The three investors met to discuss how they would recover from the fraud, and during the conversation Niemi, acting on behalf of the Azco entities, expressly assigned all causes of action and claims to Parnevik, Naegle, and himself. The three filed a Verified Complaint in April 2012, initiating the lawsuit and identifying the various parties and their relationships. The amended complaint filed in July 2012 alleged 17 claims for relief, including a claim under the Colorado Organized Crime Control Act (COCCA) against the Lasshofer defendants and a common law fraud claim against all defendants. In March 2012, the district court issued a TRO to guard against dissipation of the Lasshofer defendants’ assets, and in June 2012 the court issued a preliminary injunction, effectively freezing the worldwide assets of the Lasshofer defendants. After a hearing in March 2013, the court found the Lasshofer defendants to be in contempt of its June 2012 preliminary injunction. In a joint filing between the investors and the Lasshofer defendants, the Lasshofer defendants declared they would no longer devote resources to the case at the district court level, would not participate in discovery, and would not answer Plaintiffs’ amended complaint. The district court eventually entered default judgment against the Lasshofer defendants and awarded over $61 million to the plaintiffs, trebled to $185 million. Lasshofer appealed.

Prior to reaching the merits, the Tenth Circuit had to resolve issues related to its authority to decide the appeal. Plaintiffs had requested the Tenth Circuit to employ the “fugitive disentitlement doctrine” to dismiss the Lasshofer defendants’ appeal. The Tenth Circuit could find no circumstances that would warrant application of the doctrine. Plaintiffs also contend that the Lasshofer defendants must post a bond on the default judgment before appealing, but the Tenth Circuit disagreed, finding that would be sharply at odds with the rules of procedure. Since all issues were ripe due to the district court’s dismissal of claims with prejudice, the Tenth Circuit evaluated the merits of the appeal.

First, the Lasshofer defendants raised several issues related to the district court’s authority to hear the case. They contended (1) Plaintiffs lacked standing to bring their claims, and the district court thus lacked subject matter jurisdiction, (2) the court lacked personal jurisdiction over the Lasshofer defendants, and (3) venue was not proper in the District of Colorado. The Tenth Circuit first addressed the standing claim. Defendants argued that the plaintiffs were not proper parties, because the loan agreement listed Azco as the borrower. However, after reviewing the record, the Tenth Circuit was satisfied that plaintiffs possessed proper standing to bring their claims. The defendants argued that the Loan Agreement barred transfer of the right to sue, but the district court held, and the Tenth Circuit agreed, that the Loan Agreement was a tool of defendants’ broader fraudulent enterprise, and therefore its terms were void and unenforceable.

The Tenth Circuit likewise disposed of defendants’ arguments that the court lacked personal jurisdiction over them. Plaintiffs had many connections to Colorado, and although the Loan Agreement specified jurisdiction was proper in the District of New York, the defendants contended they would have disputed New York jurisdiction also. Therefore, the U.S. District Court for the District of Colorado was the proper venue for the claims. The court also concluded that sufficient minimum contacts existed to confer personal jurisdiction over Lasshofer.

Finally, defendants argued several errors in the determination of damages. The Tenth Circuit reviewed the record and found no error in the court’s calculation. After entry of default judgment, the court requested that plaintiffs present evidence regarding their damages. Plaintiffs presented two different damages calculations, based on two different methods of arriving at the damages amount, that were nearly identical in the total amount. The district court chose the actual damages and trebled it. There was no error in its decision.

The Tenth Circuit denied plaintiffs’ motion to dismiss based on the fugitive entitlement doctrine, denied defendants’ motion to file a surreply based on that motion, denied plaintiffs’ motion to require defendants to post a bond, and denied the requests to award fees and costs. The district court’s award of damages was affirmed, except to the extent it applied to one defendant that did not exist at the time of the controversy. The Tenth Circuit ordered the district court to vacate its order of contempt. The case was remanded for further proceedings.

Colorado Rules of Civil Procedure and Colorado Rules of Juvenile Procedure Amended

The Colorado Supreme Court announced Rule Change 2014(14), effective October 30, 2014, and 2014(15), effective November 1, 2014. Rule Change 2014(14) amends Rule 47, “Jurors,” of the Colorado Rules of Civil Procedure. Rule Change 2014(15) amends Rule 2.2, “Summons — Content and Service,” Rule 3, “Advisement,” and Rule 3.7, “Detention,” of the Colorado Rules of Juvenile Procedure, and it adds a new Rule 3.9, “Counsel.” The changes to the Rules of Juvenile Procedure coordinate with changes to the Colorado Revised Statutes pursuant to HB 14-1032.

C.R.C.P. 47(u), “Juror Questions,” was amended to clarify that juror questions will be reviewed with counsel for the parties outside the hearing of the jury, to permit jurors to ask follow up questions in writing, and to prohibit jurors from orally questioning any witness. The amendments specify that the court retains discretion to address juror questions or permit follow up questions. Click here for a redline of the changes to Rule 47.

The changes to the Rules of Juvenile Procedure are extensive. Rule 2.2 was amended to subdivide different types of juvenile proceedings and specify summons procedures for each type of proceeding. The changes to Rule 3 were relatively minor, adding language to clarify timing for the juvenile’s advisement and changing some wording. The changes to Rule 3.7 were much more extensive, detailing procedures for juvenile detention and court oversight of the detainer. New Rule 3.9, “Counsel,” deals with appointed counsel in juvenile delinquency proceedings, and includes provisions for appointment of counsel, waiver of counsel, and withdrawal of counsel. Click here for a redline of the changes to the Rules of Juvenile Procedure.

In addition to the rules changes, two Chief Justice Directives were amended to comply with HB 14-1032. The Colorado Supreme Court amended CJD 04-04 and added new CJD 14-01CJD 04-04 was amended to eliminate specified procedures related to the appointment of counsel in juvenile delinquency proceedings. CJD 14-01 was added to adopt new procedures for the appointment of defense counsel in juvenile delinquency proceedings. Both CJDs are effective November 1, 2014.

Tenth Circuit: When Both Parties to Contract Agree to Its Terms, Third Party Has No Standing to Object

The Tenth Circuit Court of Appeals issued its opinion in Security Service Federal Credit Union v. First American Mortgage Funding, LLC on Tuesday, November 4, 2014.

Security Service Federal Credit Union’s predecessor in interest, New Horizons Community Credit Union, entered into a funding service agreement with First American Mortgage Funding, LLC (FAM) and First American Mortgage, Inc. (together, FAM defendants), under which FAM originated 26 mortgage loans to individual borrowers for the purchase and construction of residential properties in Colorado and California. The closing agents performed closing procedures. Security Service (SSFCU) contended that the FAM defendants and closing agents wrongfully induced New Horizons to fund the loans to straw borrowers, and that the loan transactions were a vehicle to misappropriate $14 million in funds. SSFCU brought claims in district court, but FAM objected, contending that SSFCU was not a proper party in interest to pursue the claims. The district court found for FAM and dismissed SSFCU’s claims with prejudice.

The Tenth Circuit found this case easy to resolve, following 6th Circuit precedent in JP Morgan Chase Bank, N.A. v. First Am. Title Ins. Co., 750 F.3d 573 (6th Cir. 2014). When both parties to a contract agree to its terms, a third party cannot object. Here, both New Horizons and SSFCU entered into a Purchase and Assumption Agreement, where SSFCU had all rights to pursue claims on behalf of New Horizons. FAM, as a third party, had no right to object to SSFCU’s standing. The district court’s dismissal was reversed.

Tenth Circuit: Contract’s No Third-Party Beneficiary Provision Effectively Barred Claims of Third-Party Beneficiary Entities

The Tenth Circuit Court of Appeals issued its opinion in Gorsuch Ltd., B.C. v. Wells Fargo National Bank Association on Tuesday, November 4, 2014.

Renie and David Gorsuch founded Gorsuch, Ltd., a retail store, in 1962, and subsequently founded Gorsuch, Limited at Aspen and  Gorsuch, Limited at Keystone to operate additional retail stores. They founded Gorsuch Cooper to own the property from which Gorsuch, Ltd. at Aspen operates its business. The three child entities are collectively known as the Gorsuch Entities. In 2008, Gorsuch, Ltd. obtained a $14 million line of credit from Wells Fargo, and the credit agreement explicitly contained a no third-party beneficiary (NTPB) provision. When Gorsuch’s retail sales were lower than expected in 2009, Wells Fargo suspended the line of credit. Gorsuch Ltd. and the Gorsuch Entities brought suit against Wells Fargo for damages in state court, but Wells Fargo removed to federal court for diversity jurisdiction. Wells Fargo moved to dismiss the Gorsuch Entities’ third-party beneficiary claims due to the NTPB provision.

The district court determined the Gorsuch Entities were impermissible third-party beneficiaries and held the NTPB provision precluded them from seeking relief. The district court dismissed the Gorsuch Entities, granted Wells Fargo’s motion to dismiss the third-party claims, stayed the proceeding while Wells Fargo and Gorsuch, Ltd. proceeded to arbitration, and administratively closed the case without prejudice. Gorsuch, Ltd. moved to amend the complaint to include the Gorsuch Entities, but the district court denied the motion since the case was administratively closed and no one had petitioned to reopen it. Gorsuch, Ltd. eventually petitioned to reopen the case, but later withdrew the motion as it arbitrated its claims. After the district court’s deadline for reopening passed, it dismissed the case without prejudice. Gorsuch, Ltd. subsequently moved to reopen the case, which was granted, and moved for the court to confirm the arbitration award and file a third amended complaint along with the Gorsuch Entities. The district court affirmed the arbitration award, concluding Gorsuch, Ltd.’s involvement in the case. A magistrate judge filed a minute order clarifying that Gorsuch, Ltd. was the only proper plaintiff in the case, and the district court judge agreed, finding that the Gorsuch Entities had been dismissed from the litigation and had not shown good cause to file the third amended complaint. The Gorsuch Entities filed a timely appeal.

On appeal, the Tenth Circuit, applying Colorado law, found that (1) the district court correctly dismissed the Gorsuch Entities, and (2) properly denied their motion to amend. The Tenth Circuit found the Gorsuch Entities were not permissive assignees under the contract with Wells Fargo, and in fact were barred from bringing claims by the contract’s NTPB provision. Although Wells Fargo understood the business relationship between Gorsuch, Ltd. and the Gorsuch Entities, the contract expressly prohibited litigation from the Gorsuch Entities, therefore the district court’s dismissal of the Entities’ claims was correct. The Gorsuch Entities asserted that the district court gave improper weight to the NTPB provision, but there was no evidence in writing that the Entities were permissible third-party beneficiaries under the contract.

The Tenth Circuit also found that the district court correctly denied the Gorsuch Entities’ motion to amend the complaint. They were dismissed as parties in November 2011, and their July 2013 motion to amend was both untimely and showed no good cause to amend the complaint. Because the Gorsuch Entities lacked good cause for the delay in filing their amended complaint, the district court’s dismissal was proper.

The Tenth Circuit affirmed the district court’s dismissal of the Gorsuch Entities as parties and denial of their motion to amend.

Tenth Circuit: Issue of Federal Law Does Not Confer Federal Jurisdiction Over State Law Claims

The Tenth Circuit Court of Appeals issued its opinion in Becker v. Ute Indian Tribe of the Uintah and Ouray Reservation on Tuesday, October 21, 2014.

Plaintiff Lynn Becker contracted to provide services to the Ute Indian Tribe of the Uintah and Ouray Reservation related to its mineral and energy resource development. A dispute arose regarding Becker’s compensation under the contract, and he brought claims for breach of contract, breach of covenant of good faith and fair dealing, and accounting claims against the Tribe in the U.S. District Court for the District of Utah. The Tribe moved to dismiss for lack of subject matter jurisdiction and failure to state a claim. The district court granted the Tribe’s motion to dismiss, because all Becker’s claims were state law claims.

Becker appealed, asserting that although his claims were state law claims, the district court had federal question jurisdiction because the case raised substantial issues of federal law. The Tenth Circuit disagreed, finding instead that the mere question of a federal issue in a state cause of action does not automatically confer federal question jurisdiction. The district court’s dismissal was affirmed.

Colorado Court of Appeals: Failure to Exhaust Administrative Remedies Deprived Trial Court of Jurisdiction

The Colorado Court of Appeals issued its opinion in Liberty Bankers Life Insurance Co. v. First Citizens Bank & Trust Co. on Thursday, November 6, 2014.

Subject Matter Jurisdiction—Financial Institutions Reform, Recovery and Enforcement Act—Receiver—Proof of Claim—Doctrine of Administrative Exhaustion—Attorney Fees.

The underlying claims in this case relate to appellant’s (Liberty) participation in two loans with Colorado Capital Bank (CCB) for the purpose of funding the development of a townhome project. CCB was closed by the Colorado Division of Banking on July 8, 2011, and the Federal Deposit Insurance Corporation (FDIC) was named its receiver (FDIC-R). On the same day, First Citizens Bank & Trust Co. (FCBT) purchased the assets and assumed the liabilities of CCB in a purchase and assumption agreement. The FDIC later denied Liberty’s proof of claim, and Liberty thereafter filed suit against FCBT and the FDIC-R in federal court. In the state court proceedings, Liberty filed twelve counterclaims against FCBT, which were dismissed by the court.

On appeal, Liberty argued that the district court incorrectly dismissed its counts 1 through 3 for lack of subject matter jurisdiction. However, Liberty did not properly plead the claims found in its counterclaims in its original proof of claim. Therefore, the district court correctly dismissed those claims for lack of subject matter jurisdiction.

Liberty further argued that the doctrine of administrative exhaustion did not apply in this case. Liberty’s futility argument was based on (1) the transfer of assets and liabilities to FCBT and (2) the FDIC-R’s motion to dismiss in the federal litigation. The jurisdictional bar extends to successors in interest of the failed bank. Further, by failing to properly plead its claims in the proof of claim, Liberty had already failed to exhaust the process provided to it. FDIC-R’s actions in filing a motion to dismiss, therefore, had no bearing on futility. Accordingly, Liberty’s pursuit of relief is not futile “beyond a reasonable doubt,” and does not excuse its failure to exhaust its claims. The district court correctly dismissed those claims for lack of subject matter jurisdiction.

FCBT claimed that it was entitled to reasonable attorney fees incurred on appeal under CRS § 13-17-201. Although Liberty’s counterclaims facially alleged a tort claim of gross negligence and willful misconduct, the overall action was more accurately characterized as a contract action, because all of the counterclaims were based on acts or omissions relating to the alleged breach of the two participation agreements. The essence of Liberty’s action did not sound in tort, so FCBT was not entitled to attorney fees incurred on appeal under CRS § 13-17-201.

Summary and full case available here, courtesy of  The Colorado Lawyer.

Colorado Court of Appeals: Uniform Debt-Management Services Act Does Not Implicate Subject Matter Jurisdiction

The Colorado Court of Appeals issued its opinion in State of Colorado v. Johnson Law Group, PLLC on Thursday, November 6, 2014.

Uniform Debt-Management Services Act—Subject Matter Jurisdiction—Affirmative Defense—Waiver.

Plaintiff, the State of Colorado, appealed the district court’s order dismissing its complaint against defendants, Johnson Law Group, PLLC, a Florida private limited liability company, and Clint L. Johnson. Johnson is an attorney who, in 2006, was licensed to practice law in Florida. In 2008, he added a debt-management services practice that extended to approximately forty-two states. In 2011, plaintiff filed a complaint against defendants, asserting violations of the Uniform Debt-Management Services Act (UDMSA) and the Colorado Consumer Protection Act. The court dismissed the complaint, concluding that the legal services exception defense was jurisdictional and, therefore, defendants were not subject to UDMSA regulation.

On appeal, plaintiff contended that the district court erred in dismissing its complaint for lack of subject matter jurisdiction. Because the legal services exception in the UDMSA does not implicate subject matter jurisdiction, it can be waived if not timely asserted as an affirmative defense. Defendant did not assert this affirmative defense until the eve of trial. Therefore, defendant waived any legal services exception defense by failing to assert it in their responsive pleading. The order dismissing the action was reversed and the case was remanded to the district court for a determination of penalties to be assessed against defendants.

Summary and full case available here, courtesy of  The Colorado Lawyer.

Colorado Court of Appeals: Jurors Should Have Been Polled Regarding Exposure to News Report Prejudicial to Defense

The Colorado Court of Appeals issued its opinion in People v. Jacobson on Thursday, November 6, 2014.

Poll the Jury—Media—Prejudice.

A jury convicted Jacobson of vehicular homicide, driving under the influence (DUI), and other related charges, all arising from a collision between her truck and a taxi cab. Two passengers in the taxi were killed.

During trial, defense counsel told the court that a report about the case had appeared the preceding night on Channel 4 newscast and the local television station’s website. Defense counsel requested to poll the jury concerning exposure to mid-trial publicity that included inadmissible, prejudicial information. The court denied the request.

On appeal, Jacobson argued that the court abused its discretion when it declined to poll the jury. The news report referred to Jacobson’s prior DUI conviction and prior accidents involving injury, alleged that she was driving without a license, and included an interview with someone involved in her previous accident. Due to the nature of this content, the court abused its discretion in failing to determine whether this information was inherently prejudicial and thereafter declining to poll the jury. Because this error was not harmless beyond a reasonable doubt, Jacobson’s convictions were reversed and the case was remanded for a new trial on all charges.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Particular Circumstances Leading to Fall from Horse Should Be Analyzed for Liability Determination

The Tenth Circuit Court of Appeals issued its opinion in Kovnat v. Xanterra Parks & Resorts on Tuesday, October 21, 2014.

Corrine Kovnat and her husband vacationed in Yellowstone National Park in Wyoming in June 2012. While there, Kovnat and her husband went on a horseback ride at the Canyon Corral, operated by Xanterra Parks & Resorts. While on the trail, Kovnat’s saddle slipped and she fell, striking her back on the ground and fracturing three vertebrae. Kovnat filed a diversity action against Xanterra, claiming Xanterra negligently operated Canyon Corrals because Kovnat’s horse was improperly saddled, and that Xanterra negligently failed to maintain the saddle in a safe condition or warn Kovnat of its unsafe condition. Xanterra filed a motion for summary judgment, asserting that under the Wyoming Recreation Safety Act (WRSA), Xanterra owed no duty of care to protect Kovnat from the injuries alleged in her complaint. The district court granted summary judgment to Xanterra, and Kovnat appealed.

The Tenth Circuit first examined the WRSA, and found that in general, claims like Kovnat’s would not be allowed. The Tenth Circuit reviewed a similar case involving a Wyoming horseback rider injured in a saddle accident, where it ruled that the particular circumstances leading to the rider’s injury needed to be examined on a case-by-case basis. Turning to Kovnat’s claims, the Tenth Circuit found no error in the district court’s summary judgment regarding Kovnat’s claim that the saddle cinch was not tight enough, because there was a great deal of evidence that employees of Xanterra checked the cinch and it was too tight to slip the saddle back around after Kovnat’s fall, therefore any slipping of the cinch was an inherent risk of horseback riding. However, the Tenth Circuit evaluated Kovnat’s claim that her stirrups were uneven and determined that the uneven stirrups may not have been a result of the inherent risks of horseback riding. It remanded for further proceedings on this issue.

As to Kovnat’s negligent training and supervision claims, the Tenth Circuit affirmed the district court’s summary judgment as to the cinch issue and reversed as to the stirrup issue. The case was remanded for further findings regarding whether the uneven stirrups were an inherent risk of horseback riding or some extenuating circumstance in which Xanterra may have been liable.

Tenth Circuit: No Ambiguity in Insurance Policy Exclusions for Environmental Pollution

The Tenth Circuit Court of Appeals issued its opinion in Headwaters Resources, Inc. v. Illinois Union Insurance Co. on Monday, October 20, 2014.

Headwaters Resources, Inc., constructed a golf course at the Fentress site in Chesapeake, Virginia. Residents of neighborhoods surrounding the Fentress site sued Headwaters in Virginia state court, alleging property damage and bodily injury sustained due to pollution generated during the golf course construction. Plaintiffs in the Virginia case alleged that between 2002 and 2007 Headwaters used 1.5 million tons of toxic fly ash and byproducts, which contaminated its groundwater, surface water, and the air; diminished the property values of the surrounding homes; and exposed community members to serious bodily injury risks from the fly ash. Headwaters sought reimbursement of its litigation expenses from its two insurers, ACE Insurance Co. and Illinois Union Insurance Co. (collectively, ACE). ACE denied coverage under its environmental pollution exclusion, and Headwaters brought suit in Utah District Court to enforce coverage. ACE moved for summary judgment, arguing that the pollution exclusions expressly precluded coverage. Headwaters filed a cross-motion for summary judgment, but the district court agreed with ACE, finding the insurance policies unambiguously barred coverage for environmental pollution. Headwaters appealed.

The Tenth Circuit analyzed Headwaters’ claims, which contended the district court failed to appreciate ambiguities in coverage under the policies. According to Headwaters, those ambiguities precluded summary judgment in favor of ACE. Upon analysis of the pollution exclusions and the claims against Headwaters, however, the Tenth Circuit found no ambiguity. Applying Utah’s “eight corners rule” and contract law, the Tenth Circuit found the insurers had no duty to defend. Headwaters argued the language of the insurance policies’ exclusions impermissibly abolished all coverage, but the Tenth Circuit disagreed, finding instead multiple possible scenarios in which coverage would have been applicable. In the instant case, the allegations of pollution fell within the policies’ exclusions. The Tenth Circuit noted that Headwaters could have purchased additional coverage that would have provided a duty to defend against environmental claims.

The Tenth Circuit affirmed the district court’s grant of summary judgment in favor of ACE.

Colorado Appellate Rules Amended by Colorado Supreme Court

On October 17, 2014, the Colorado Supreme Court issued Rule Change 2014(13), amending the Colorado Appellate Rules. Four rules were amended: C.A.R. 3, “Appeal as of Right – How Taken”; C.A.R. 25, “Filing and Service”; C.A.R. 32, “Form of Briefs and Appellate Documents”; and C.A.R. 57, “Briefs – In General.”

In general, these rules were amended to change “shall” to “must” where applicable and change “papers” to “documents.” Several of the comments were removed from subsections of Rule 3, as well as references to specific caption requirements and requirements regarding transcripts. Description of magistrate review requirements was added to Rule 3.

Many of the changes to Rule 25 address the availability of electronic filing and specifications related to electronic files. Inmate filing procedures were also clarified. Rule 32 was amended to add information to the caption regarding the lower court. The sample captions in Rule 32 were also changed, and much language was deleted from the comment. In Rule 57, some dates were changed in accordance with the Rule of Seven. Specifications that briefs comply with the content and length requirements of Rule 28 and the form and service requirements of Rule 32 were added to Rule 57 as well.

For a redline of these changes to the Colorado Appellate Rules, click here. For all of the Colorado Supreme Court’s rule changes, click here.

Colorado Court of Appeals: Named Insured Means All Persons Named in Policy for UM Coverage Purposes

The Colorado Court of Appeals issued its opinion in Johnson v. State Farm Mutual Automobile Insurance Co, Inc. on Thursday, October 9, 2014.

Uninsured or Underinsured Motorist Coverage—Scope of Waiver.

Daphne Satriano helped her roommate, plaintiff, buy a car. When plaintiff’s insurance policy expired, Satriano called her insurance company (State Farm) to obtain a policy for the car. Plaintiff was not present during the call. Both plaintiff and Satriano were listed as “named insured” and Satriano signed a form waiving uninsured or underinsured motorist (UM/UIM) coverage. Plaintiff did not sign the form, nor was he aware of it. Satriano told plaintiff he was “fully covered.” The written policy, mailed to Satriano, did not state whether UM/UIM coverage had been waived.

Plaintiff was seriously injured in an accident. The at-fault driver was underinsured. State Farm paid the policy limits of the UM/UIM coverage from a second policy that Satriano had on her car, but refused to pay under the policy on plaintiff’s car. Plaintiff sued State Farm, and the trial court found that Satriano had acted as agent for plaintiff in waiving the UM/UIM coverage and the driver was bound by that waiver.

The Court of Appeals reversed, holding that State Farm did not show that plaintiff expressly waived UM/UIM coverage on his car’s policy. The general rule in Colorado is that automobile liability insurance policies must contain coverage for bodily injury damages caused by uninsured or underinsured motorists unless “the named insured” waives such coverage in writing. The Court found it was unambiguous that a “named insured” under the UM/UIM statutes means all persons listed in a policy. Even if the term were not unambiguous, the legislative history and policies for UM/UIM coverage support the conclusion that a waiver of UM/UIM coverage is effective only as to each named insured that has expressly waived it. The Court then examined common law agency principles and concluded that one named insured may not act as an agent for another in waiving UM/UIM coverage on the other’s behalf unless the agent acts with express actual authority from the other. The judgment was reversed and the case was remanded.

Summary and full case available here, courtesy of The Colorado Lawyer.