Coverage Analysis
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STATE BY STATE SURVEY

UTAH
 (10th Circuit)

  ACCIDENTS AND OCCURRENCES

  The Utah Supreme Court has taken the view that there is no “accident” where  the injuries claimed by the plaintiff are the “natural and probable” consequence of the insured’s intentional acts.  For instance, in Nova Cas. Co. v. Able Construction, Inc., 1999 Utah LEXIS 104 (Utah July 20, 1999), the court ruled that allegations of intentional and negligent mispresentations were not covered under a general liability policy issued to a real estate developer.  The court ruled that the insured’s representations concerning the permissible uses of the property had been made for the purpose of inducing the plaintiff’s reliance.  The court also refused to find coverage for the allegations of negligence, holding that the claim of negligence had nothing to do with the insured’s intent to obtain the plaintiff’s reliance.

   Federal courts have ruled the ordinary meaning of "accident" under Utah law is something that is unexpected or intended, "an event or condition occurring by chance or arising from unknown or remote causes."  Allstate Ins. Co. v. Patterson, 904 F.Supp. 1270 (D. Utah 1995).  

   An injury must be accidental from the standpoint of the insured, not the victim.  State Farm Fire & Cas. Co. v. Geary, 869 P.2d 952, 955 (Utah. App. 1994)(intentional shotgun blast not accidental even if insured lacked subjective intent to cause injury).  In general, insureds will be deemed to have expected or intended the "natural and probable consequences" of their acts. Hoffman v. Life Ins. Co., 669 P.2d 410, 416 (Utah 1983)(health policy).   Accordingly, unless some unintended superseding event intervenes between an intentional act and the result injury, courts will not find an accident. 

  Certain types of conduct will be deemed inherently injurious, regardless of the insureds' subjective intent of expectations.  This rule does not apply in all cases, however.  For instance, in Allstate Ins. Co. v. Patterson, 904 F.Supp. 1270 (D. Utah 1995), the U.S. District Court ruled that sexual assaults carried out by minors were an "accident" because at that age the perpetrator may not have had reason to know that his or her conduct was likely to cause injury.
 

  ALLOCATION AND SCOPE ISSUES

  The Utah Supreme Court declared in Sharon Steel Corp. v. Aetna Casualty & Surety Co., 931 P.2d 127 (Utah 1997) that long-tail claims should be allocated based on the parties' respective years or coverage and limits.  Further, the court ruled that policyholders should bear responsibility for shares attributable to periods of time for which insurance was unavailable.
 

  APPELLATE PROCEDURES

  Utah has both an intermediate appellate court and a state Supreme Court.
 

  BAD FAITH

  Unfair or deceptive consumer practices are proscribed by Utah Code Ann. §§ 13-2-1, 13-5-1 (1992 & Supp. 1993).

  An insurer has an implied obligation to act in good faith in all aspects of claim handling.  Billings v. Union Bankers Ins. Co., 918 P.2d 461 (Utah 1996).  "The implied obligation of good faith performance contemplates, at the very least, that the insurer will diligently investigate the facts to enable it to determine whether a claim is valid, will fairly evaluate the claim, and will thereafter act promptly and reasonably in rejecting or settling the claim."  However, an insurer will not be found to have acted in bad faith for wrongfully denying a claim if its position was reasonable.  The insurer's investigation must be through and must be evenhanded  an investigation calculated to only find facts supporting the denial of coverage is inadequate.  Egan v. Mutual of Omaha Ins. Co., 620 P.2d 141 (Utah 1970).  

  The Utah Supreme Court ruled in Gibbs M. Smith, Inc. v. USF&G, No. 96007 (Utah December 2, 1997) that an insurer's failure to act diligently or reasonably in investigating or responding to a liability claim might support a fee award, even if the insurer had not actually acted in bad faith.  

  Utah has refused to recognize the tort of bad faith in the first-party insurance context.  In Beck v. Farmers Ins. Exch., 701 P.2d 795 (Utah 1985), the Utah Supreme Court expressly declined to recognize a tort claim predicated upon an alleged failure to settle a claim in good faith.  “Instead, we held that the good faith duty to bargain or settle under an insurance contract is only one aspect of the duty of good faith and fair dealing implied in all contracts and that violation of that duty gives rise to a claim for breach of contract.”  701 P.2d at 798.  The court went on to hold that its decision not to adopt a tort cause of action did not limit the policyholder to recovering only the contract amount: “[d]amages recoverable for breach of contract include both general damages, i.e., those flowing naturally from the breach, and consequential damages, i.e., those reasonably within the contemplation of, or reasonably foreseeable by, the parties at the time the contract was made...We have repeatedly recognized that consequential damages for breach of contract may reach beyond the bare contract terms... In an action for breach of a duty to bargain in good faith, a broad range of recoverable damages is conceivable, particularly given the unique nature and purpose of an insurance contract.”  701 P.2d at 801-02.
  A third-party tort claimant has no right to assert bad faith claims against the tortfeasor’s liability insurer.   Pixton v.  State Farm Mutual Automobile Insurance Company, 809 P.2d 746 (Utah App.  1991).  Under Utah law, an insurer owes no obligation of good faith and fair dealing to third-party tort claimants.  Sperry v. Sperry, 1999 WL 980319 (Utah October 29, 1999).  Only a first-party can sue for breach of that duty.  Savage v. Educator’s Insurance Company, 908 P.2d 862, 866 (Utah 1995). 

  Bad faith claims against liability insurers are governed by the seven factor test established in Crookston v. Fire Ins. Exchange, 817 P.2d 789 (Utah 1991).  In particular, an insurer does not act in bad faith if its coverage position is “fairly debatable.”  S.W. Energy Corp.  v.  Continental Ins.  Co., No.  970520 (Utah March 12, 1999).  See also, Billings v.  Union Bankers Ins.  Co., 918 P.2d 461, 465 (Utah1996).

  The fact that an insured may not have any financial exposure does not preclude an action against a liability insurer for negligent failure to settle within policy limits.  Campbell v. State Farm Mut. Auto Ins. Co., 840 P.2d 130 (Utah App. 1992).
 

  BREACH OF POLICY CONDITIONS

  Utah courts have not determined whether the insurer must show prejudice.  Busch Corp. v. State Farm Fire & Cas. Co., 743 P.2d 1217, 1220 (1987).  Federal courts interpreting Utah Code Ann. 31-33-3 has concluded that late notice defeats coverage.  Hunter v. Fireman's Fund Ins. Co., 448 F.2d 805 (10th Cir. 1971).

  Breach of the cooperation clause will only support a denial of coverage if it results in prejudice to the insurer.  Peterson v. Western Casualty & Surety Co., 425 P.2d 769 (Utah 1979).  
 

  BURDEN OF PROOF

  Insured has initial burden of showing that its claim is within the scope of coverage.  Utah Farm Bureau Ins. Co. v. Dairyland Ins. Co., 634 F.2d 1326 (10th Cir. 1980).  The burden of proving an exclusion rests with the insurer.  Allstate Ins. Co. v. Patterson, 904 F.Supp. 1270 (D. Utah 1995).
 

  CHOICE OF LAWS

  Utah adopted the "most significant relationship" test of the Restatement (Second) of Conflict of Laws for tort cases, Forsman v. Foresman, 779 P.2d 218, 219-220 (Utah 1989).  The courts have not yet formally adopted the same test for contract cases, although "several persuasive federal district court opinions have held that such analysis would be adopted by Utah."  Mountain Fuel Supply v. Reliance Ins. Co., 933 F.2d 882 (1991).
 

  "CLAIMS MADE" ISSUES

  The Utah Supreme Court has ruled that claims made policies do not violate public policy.  In AOK Lands, Inc. v. Shand, Morahan & Company, 860 P.2d 924 (Utah 1993), the court upheld a policy requirement that the insured give notice of claims during the policy period.  The court held that this was a reasonable limitation on coverage that was consistent with the underwriting purpose of "claims made" policies.
 

  CONCURRENT CAUSATION

  Losses will be covered if the "efficient proximate cause" was not an excluded peril, even if the loss resulted in part from an excluded cause of loss.  However, concurrent causation may not be used as basis for rewriting the insurance contract and will therefore not create coverage if exclusions are stated as applying if a loss results "directly or indirectly" from such a cause.  Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272 (Utah 1993).
 

  CONFLICTS OF INTEREST

 
 

  "DAMAGES"

  This issue has not yet been addressed by the Utah appellate courts.  Response costs were held to be covered by a state trial court in Sharon Steel and, more recently, by a U.S. District Court in Quaker State Mini-Lube, Inc. v. Fireman's Fund Ins. Co., 868 F.Supp. 1278 (D. Utah 1994), aff'd on other grounds, 52 F.3d 1522 (10th Cir. 1995).  See also Utah Power and Light v. Federal Ins. Co., 711 F.Supp. 1544 (D. Utah 1989), aff'd on other grounds, 983 F.2d 1549 (10th Cir. 1993) (mitigation costs deemed to be covered).
 

  DECLARATORY RELIEF

  The Utah Supreme Court has ruled that an insured may recover its fees for pursuing a first party coverage dispute.  Beck v. Farmers Ins. Exchange, 701 P.2d 795, 798 (Utah 1985).  Further, fees may be awarded where the insurer has breached the implied obligation of good faith and fair dealing, even absent evidence of actual bad faith.  Billings v. Union Bankers Ins. Co., 918 P.2d 461 (Utah 1996).  The court extended this analysis to liability policies in Gibbs M. Smith v. USF&G, 1997 WL 739451 (Utah December 2, 1997).

  A tort plaintiff lacks jurisdictional standing to bring a DJ against an insurer while its claims against the policyholder are still pending.  Boyle v. National Union Fire Ins. Co., 866 P.2d 595 (Utah App. 1993).
 

  DISCOVERY ISSUES

   --Claims Manuals
 

   --Drafting History
 

   --Other Policyholder Claims
 

   --Reinsurance Information
 

   --Reserves
 

  DUTY TO DEFEND

  Pleadings and facts readily knowable.

  PRP letters were deemed to be a "suit" in Quaker State Minit-Lube, Inc. v. Fireman's Fund Ins. Co., 868 F.Supp. 1278 (D. Utah 1994), aff'd on other grounds, 52 F.3d 1522 (10th Cir. 1995).

  For the most part, courts have ruled that the duty to “defend” perforce does not extend to the cost of prosecuting counterclaims on behalf of the policyholder.  Berlant v. McAllister, 480 P.2d 126, 127 (Utah 1977)

  An insurer's duty to defend may extend to bringing an appeal, where reasonable grounds for appeal exist.  However, the obligation to pursue an appeal may be extinguished where the verdict was entered on the basis of an uncovered claim even if a duty to defend originally existed because of covered claims that were not ultimately the basis for the insured's liability.  Crist v. INA, 529 F.Supp. 601 (D. Utah. 1982).  
 

  ESTOPPEL AND WAIVER

  An insurer's failure to reserve rights where a case is being defended will only result in the finding of estoppel if caused substantial prejudice to the insured.  State Farm Mutual Auto Ins. Co. v. Kay, 487 P.2d 852 (Utah 1971).  
 

  EXCESS INSURERS

  An excess insurer's policy obligations are not triggered by the underlying insurer's unilateral tender of its policy limits.  Utah Power & Light Co. v. Federal Ins. Co., 983 F.2d 1549 (10th Cir. 1993)(excess insurer had no duty to pay defense costs where underlying limits were not paid out until time of overall settlement).
 
 

  NUMBER OF OCCURRENCES

  No cases.
 

  POLLUTION EXCLUSION

  The Utah Supreme Court ruled in Sharon Steel Corp. v. Aetna Casualty & Surety Co., 931 P.2d 127 (Utah 1997), declaring that the exclusion was unambiguous; that "sudden has a temporal meaning that limits coverage to discharges that occur quickly and (3) that isolated "sudden" releases will not reinstate coverage if they occur as a concomitant of the insured's ongoing business operations over a period of years

  The Sharon Steel court noted with approval the earlier ruling of the Utah Court of Appeals in Gridley Associates, Ltd. v. Transamerica Ins. Co., 828 P.2d 524 (Utah App. 1992), in which the court had held that the exclusion was unambiguous and limited coverage to discharges that had occurred quickly and unintentionally.

  The Supreme Court's ruling in Sharon Steel also approvingly cited the rulings of the Tenth Circuit in limiting the scope of coverage for pollution claims under Utah law.  In Anaconda Minerals v. Fireman's Fund Ins. Co., 773 F.Supp. 1498 (D. Utah 1991), aff'd, 990 F.2d 1175 (10th Cir. 1993), the Circuit Court ruled that (1) "sudden" has the temporal meaning of an abrupt discharge; (2) it is the discharge that must be intended, not the resulting pollution; (3) an intentional discharge is not "accidental" even if caused by a party other than the insured; and (4) the drafting history of the exclusion is irrelevant to its unambiguous meaning. Accord, Hartford Accident & Indemnity Corp v. El Paso Natural Gas, 765 F.Supp. 677 (D. Utah 1991), aff'd, 962 F.2d 1484 (10th Cir. 1992); Quaker State Minit-Lube, Inc. v. Fireman's Fund Ins. Co., 868 F.Supp. 1278 (D. Utah 1994), aff'd, 52 F.3d 1522 (10th Cir. 1995).

  Public Policy

  District Court ruled in Allstate Ins. Co. v. Patterson, 904 F.Supp. 1270 (D. Utah 1995) that public policy was not a basis for refusing to provide coverage under a homeowner's policy for sexual misconduct by minors.
 

  PUNITIVE DAMAGES

  Utah Code §31A-20-101(4) (1995) prohibits coverage for punitive awards.
 

  STANDARDS FOR POLICY INTERPRETATION

  Policies will be "construed liberally in favor of the insured and their beneficiaries so as to promote and not defeat the purposes of insurance.  USF&G v. Sandt, 854 P.2d 519, 521 (Utah 1993).

  Utah courts give the language in insurance policies its plain meaning.  Marriott v. Pacific National Life Assurance Co.,  467 P.2d. 981, 983 (Utah 1970).  The wording is given the meaning it has for laypersons in daily usage.  Fuller v. Director of Finance, 694 P.2d 1045, 1046-47 (Utah 1985); Government Employees Ins. Co. v. Dennis, 645 P.2d 672, 675 (Utah 1982).  Ambiguities exist only where the language suggests more than one possible meaning.  Metropolitan Property & Liability Ins. Co. v. Childs, 77 Utah Adv.Rep. 31, 33 (1988).  Where such an ambiguity exists, it is construed against the insurer and in favor of the insured.  Fuller, supra. 

  In the absence of ambiguity, terms in an insurance policy will be interpreted in accordance with their common meaning.  Alf v. State Farm Fire & Cas. Co., No. 900582 (Utah April 8, 1993); Camp v. Deseret Mut. Benefits Assn., 589 P.2d 780, 782 (Utah 1979). However, if there is doubt as to meaning, the interpretation most favorable to the insured will be adopted.  Sandt, 854 P.2d at 522.  On the other hand, policy language will not be deemed ambiguous merely because “one party seeks to endow them with a different interpretation according to his or her own interests.  ALF v.  State Farm Fire & Casualty Co., 850 P.2d 1272, 1274 (Utah 1993).

  To date, the Utah Supreme Court has refused to adopt the doctrine of reasonable expectations.  Allen v. Prudential Property & Cas. Ins. Co., 839 P.2d 798, 805 (Utah 1992).
 

  THEORIES OF ALTERNATIVE LIABILITY

  No cases.
 

  TRIGGER OF COVERAGE

  No cases.

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