Blakely et al v. USAA Casualty Insurance
Filing
259
ORDER granting 240 Defendant's Motion for Summary Judgment. Plaintiffs' alleged breach of the implied covenant claim is DISMISSED WITH PREJUDICE. Signed by Judge Bruce S. Jenkins on 4/2/15. (ss)
FILED
2015 APR 2 AM 11:33
CLERK
U.S. DISTRICT
COURT
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
ALAN BLAKELY and COLELYN
BLAKELY,
COURT OPINION AND ORDER
Plaintiffs,
vs.
Civil No. 2:06-cv-00506
. USAA CASUALTY INSURANCE
COMPANY,
Judge Bmce S. Jenkins
Defendant.
I. INTRODUCTION
Continued final pretrial conference and Defendant's Motion for Summary Judgment
came before the court on January 23, 2015. L. Rich Humpherys appearing on behalf of Plaintiffs,
and S. Baird Morgan appearing on behalf of Defendant. 1 Defendant filed its Motion for
Summary Judgment on December 29, 2014. 2 At the previous pretrial hearing held January 7,
2015, Plaintiffs requested and were granted additional time to respond in writing to the summary
judgment motion, and the pretrial conference was continued. 3 Plaintiffs filed their opposition to
Defendant's summary judgment motion on January 16, 2015, 4 which Defendant responded to on
January 21, 2015. 5
1
Jan. 23,2015 Minute Entry, (CM/ECF No. 249).
2
Mot. and Supporting Mem. For Summ. J., filed Dec. 29, 2014 (CM/ECF No. 240).
3
Jan. 7, 2015 Minute Entry, (CM/ECF No. 243).
4
Pls.' Mem. in Opp'n to Def. 's Mot. for Summ. J., filed Jan. 16, 2015 (CM/ECF No. 247) [hereinafter Pls.'
Opp'n].
5
Reply Mem. in Supp. ofDef. 's Mot. for Summ. J., filed Jan. 21, 2015 (CM/ECF No. 248).
The express purpose of the hearing on January 23, 2015 was, inter alia, to consider the
parties' written submissions and hear argument on Defendant's Motion for Summary Judgment,
all within the context of final pretrial. At the January 23, 2015 hearing the court first heard oral
argument from Defendant's counsel, Mr. Morgan. For approximately twenty-two pages worth of
hearing transcript, Mr. Morgan outlined Defendant's position and the reasons its summary
judgment motion should be granted. 6 In response, Plaintiffs' counsel, Mr. Humpherys,
effectively declined oral argument. 7 His approximately one page hearing transcript response
offered little more than his opening statement: "I think we have addressed these issues numerous
times in hearings and I think my opposing memorandum sets forth our position." 8 Following
additional oral argument from Mr. Morgan, the court inquired whether either party had anything
else to present to the court. 9 Nothing further was offered.
Having considered the parties' briefs, the evidence presented, the oral arguments of
counsel, the relevant law, as well as the full record in this matter, the court concludes that
Defendant's Motion for Summary Judgment should be GRANTED.
II. BACKGROUND
This is an action by Plaintiffs Alan Blakely and Colelyn Blakely against their homeowner
insurer, Defendant USAA Casualty Insurance Company ("USAA"). All claims and causes of
action arise from a basement fire at Plaintiffs' home on August 29, 2002. In their Amended
Complaint, Plaintiffs assert four causes of action: (i) breach of contract; (ii) breach of covenant
6
Hr'g Jan. 23, 2105 Tr., (CM/ECF No. 250), at 3:14-24:17.
7
Id., at 24:20-25:22.
8
Jd., at 24:20-22.
9
Id., at 32:10.
2
of good faith and fair dealing; (iii) breach of industry standards and statutes; and (iv) intentional
infliction of emotional distress. 10
This case has been extensively pretried from inception to the present. 11 On March 28,
2008, Defendant filed a partial summary judgment motion and memorandum in support. 12 This
motion was considered wholly within the context of pretrial. Plaintiffs' third cause of actionbreach of industry standards and statutes-and fourth cause of action-intentional infliction of
emotional distress-were dismissed during pretrials held March 31 and June 5, 2008,
respectively. 13 Plaintiffs' two remaining claims-breach of contract and breach of covenant of
good faith and fair dealing-were subsequently dismissed at the sixth pretrial conference held
December 2, 2008. 14 With the dismissal of all causes of action, judgment was entered in favor of
Defendant on August 24,2009. 15
Plaintiffs provided notice of appeal on September 4, 2009. 16 This court docketed the
Tenth Circuit's mandate on Febmary 16, 2011 (Blakely I). 17 In the Blakely I mandate, the Tenth
10
Am. Compl., (CM/ECF No. 1; 248-5).
"See Mar. 31, 2008 Minute Entry, (CM/ECF No. 72); June 5, 2008 Minute Entry, (CM/ECF No. 83); Aug.
13, 2008 Minute Entry, (CM/ECF No. 87); Aug. 28, 2008 Minute Entry, (CM/ECF No. 90); Sept. 12, 2008 Minute
Entry, (CM/ECF No. 92); Dec. 2, 2008 Minute Entry, (CM/ECF No. 98); Mar. 22, 2013 Minute Entry, (CM/ECF
No. 174); Apr. 23,2013 Minute Entry, (CM/ECF No. 175); Dec. 10, 2013 Minute Entry, (CM/ECF No. 202); Feb.
24,2014 Minute Entry, (CM/ECF No. 215); July 30,2014 Minute Entry, (CM/ECF No. 231); Jan. 7, 2015 Minute
Entry, (CM/ECF No. 243); Jan. 23, 2015 Minute Entry, (CM/ECF No. 249).
12
Mot. for Partial Summ. J., filed Mar. 28, 2008, (CM/ECF No. 70); Mem. of Points and Authorities in
Supp. of Mot. for Partial Summ. J., filed Mar. 28, 2008, (CM/ECF No. 71).
13
See Order, filed Aug. 19, 2008, (CM/ECF No. 86).
14
See Order of Dismissal, filed Aug. 7, 2009, (CM/ECF No. 113).
15
Clerk's J., filed Aug. 24, 2009, (CM/ECF No. 115).
16
Notice of Appeal, filed Sept. 4, 2009, (CM/ECF No. 117).
17
Mandate, filed Feb. 16, 2011, (CM/ECF No. 138).
3
Circuit affirmed summary judgment against Plaintiffs on their breach of contract and intentional
infliction of emotional distress causes of action. 18 But the Tenth Circuit reversed this court on the
breach of the implied covenant of good faith and fair dealing claim. 19
Following remand from this appeal and with a single cause of action remaining before the
court-breach of the implied covenant of good faith and fair dealing-Defendant filed another
summary judgment motion and memorandum in support. 20 Plaintiffs filed an opposition on May
16, 2011,
21
which Defendant responded to on May 20, 2011. 22 A hearing was held May 24, 2011,
wherein the court reserved on the summary judgment motion. 23
On December 6, 2011, the court issued an order granting Defendant's summary judgment
24
motion. The court concluded Defendant's motion should be granted to the extent it was based
upon Defendant's "fairly debatable" defense under Utah law. 25
18
N ote: this court's dismissal of Plaintiffs' claim for breach of industry standards and statutes during the
March 31, 2008 pretrial conference was not an issue on appeal.
19
The Tenth Circuit reversed, finding that the claim was not frivolous within the meaning of Fed. R. Civ. P.
16(c)(2)(A). The mandate stated, "Although we express no opinion on the ultimate merits of the Blakelys' claim for
breach of the implied covenant of good faith and fair dealing, or whether the evidence is sufficient to withstand any
other type of dispositive motion, it is abundantly clear that this claim is not wholly incredible ... Accordingly, we
conclude that the district court abused its discretion in dismissing the claim as frivolous under Rule 16."
20
USAA's Mot. for Summ. J., filed Apri115, 2011, (CM/ECF No. 143); USAA's Mem. in Supp. of Mot.
for Summ. J., filed Apri115, 2011, (CM/ECF No. 144).
21
Pls.' Mem. in Opp'n to USAA's Mot. for Summ. J., filed May 16,2011, (CM/ECF No. 147).
22
Reply to Pls.' Opp'n to Def.'s Mot. for Summ. J., filed May 20,2011, (CM/ECF No. 148).
23
May 24, 2011 Minute Entry, (CM/ECF No. 152).
24
Mem. Op. and Order, filed Dec. 6, 2011, (CM/ECF No. 153).
25
Citing several cases, the court noted the then Utah law that where an insured's claim is fairly debatable,
the insurer's denial does not breach the implied covenant of good faith and fair dealing. See, e.g., Prince v. Bear
River Mut. Ins. Co., 2002 UT 68, at~ 36, 56 P.3d 524, 535.
4
In the December 6, 2011 order, the court outlined several operative facts as not being
genuinely at issue. These facts are as follows:
1. On August 29, 2002, a fire occurred in the unfinished basement
of Plaintiffs' home in Bountiful, Utah. The Blakelys and
USAA agree that this fire was caused by acts or omissions of a
third party, Stone Touch.
2. At the time of the fire loss, the Blakelys were insured under a
homeowner policy issued by USAA and covering the premises
in question.
3. The Blakelys reported the loss to USAA and within 24 hours a
local claim adjuster, Curtis Camp, arrived at the premises,
conducted an initial inspection and assessment and authorized
both the securing of the premises and temporary living
accommodations for the Blakelys.
4. The Blakelys requested and were paid for two nights'
accommodation at the Grand America Hotel in Salt Lake City.
Thereafter, the Blakelys requested and USAA paid for
temporary living accommodations at a rental home in the
Blakelys' neighborhood and did so through November 30,
2002. All of these payments were made under the Additional
Living Expense ("ALE") provision of the USAA policy.
5. The Blakelys considered other options, and then agreed to use
Phipps Construction, a contractor pre-approved and urged by
USAA, and they signed an agreement with Phipps
Construction for the restoration and repair work.
6. A principal concern raised by the Blakelys as to Phipps
Construction's structural remodel and restoration plan
concerned the number of joists in the basement ceiling and
main level floor that required replacement or significant repair
work.
7. Phipps Construction retained an independent structural
engineer, Mr. Donald Barfuss, who issued an engineering
report identifying which joists needed replacement, which
could be repaired, and which needed cleaning or treatment by
the contractor.
5
8. The joist replacement/repair recommendations in the Barfuss
report were implemented by Phipps Constmction or its
subcontractors.
9. By mid-November, 2002, Phipps Constmction completed the
work recommended in the Barfuss report and its repair and
restoration work in the Blakelys' home. At that point, still
unresolved were some odor and cleaning issues and some
personal property claims-claims which USAA submits had
ostensibly been resolved and paid by not later than July of
2003, but which the Blakelys insist still remained unresolved.
10. By July of 2003, USAA had made the following payments to
the Blakelys or on the Blakelys' behalf: $47,789.94 for
dwelling/stmctural damage; $37,832.70 for unscheduled
personal property; and $7,709.56 for temporary housing,
totaling $93,332.20.
11. By Jt1ly of 2003, the Blakelys were still not satisfied with the
extent of the floor joist restoration work performed by Phipps
Constmction pursuant to the Barfuss report, and with the
cleaning, repair and restoration of their home and its contents.
But instead of making further demand for payment by USAA
of additional amounts within the dwelling, contents and
temporary housing coverage under their USAA policy, and
instead of invoking the contractual remedies available under
the terms of that policy to resolve the issue, the Blakelys
changed course.
12. On July 1, 2003, the Blakelys commenced a civil lawsuit
against Stone Touch for damages, property and personal injury
resulting from the August 29, 2002 fire. See Alan Blakely and
Colelyn Blakely vs. Desert Rose Roofing, Inc., dba Stone
Touch, et al., Civil No. 030914762 (3d Dist. Ct., filed July 1,
2003). Plaintiffs were represented in that action and all related
proceedings by attorney Rex Bushman. A year later, on July
20, 2004, USAA filed a motion to intervene in that lawsuit,
which was granted.
13. Shortly after USAA intervened in the Stone Touch litigation,
the Blakelys notified USAA that they had identified additional
losses that they had not previously submitted to USAA.
Specifically, the Blakelys' attorney, Rex Bushman, wrote to
USAA: "It has become apparent in depositions that plaintiffs
6
have not applied for a significant amount of their losses to their
insurer, USAA, because of extreme disappointment with the
contractor USAA hired to make remedies for the fire and
which while in the process of facilitating remedies offered such
a poor performance that further damages were caused my
clients."
14. In conjunction with this letter, the Blakelys' attorney also sent
USAA a new "inventory of losses" annexed to a letter to Ralph
Tate, dated June 30, 2004, as an overall summary of the
Blakelys' losses resulting from the fire. Mr. Bushman wrote
that "Plaintiffs['] damages . . . amount to several hundred
thousand dollars" and that Stone Touch's insurance may not be
sufficient "to fully compensate their loss." He reiterated that
"Plaintiffs were unsatisfied with the total coverage allowed by
your client's adjuster," and explained that
enclosed is documentation plaintiffs
have prepared during the course of this
litigation that will more fully explain
their losses. This itemization should now
be reviewed by your client for
consideration of further compensation
for the extensive losses which to date
have not been adequately compensated
by their home owner's policy.
The Blakelys' new loss inventory estimated a total repair cost
for their dwelling of $303,890.00 and an estimated replacement
cost for damaged personal property of$207,133.50
15. In response, USAA's claims adjuster, Robert Sawyer, in a
letter to Rex Bushman dated August 27, 2004, requested
additional information, noting that "the information recently
supplied to USAA regarding additional claims appears to have
some overlap in comparing what USAA has paid for the loss
and what is being additionally claimed."
16. The Blakelys received this letter, and in response, Alan Blakely
wrote:
Given the demands placed upon us at the
present time with regard to our ongoing
litigation [against Stone Touch], it is our
7
preference to delay the matter of
additional claims against USAA for the
time being. We therefore request that
further examination of this issue be
delayed pending the resolution of our
action against Stone Touch.
17. On October 13, 2004, the Blakelys' attorney Rex Bushman
sent USAA another letter in which he clarified their position:
"My clients, Alan and Colelyn Blakely, have for several
reasons advised me to inform you that they will no longer
pursue a claim against USAA for their fire loss. You may,
therefore, close out their request for further reimbursement for
their available coverage on their policy with USAA."
18. Subsequently, the Blakelys realized that despite clear liability,
Stone Touch would not pay for all of their damages without a
costly fight. Mr. Nathanael Cook of Adjusters International, a
public adjuster whom the Blakelys hired to assist them in their
damages claims against Stone Touch, advised the Blakelys to
invoke the "appraisal process," a contractual remedy available
under the express terms of their USAA Policy. Therefore, in
January 2005, the Blakelys once again changed course,
deciding to pursue their additional claims against USAA under
their insurance coverage using the appraisal remedy.
19. Accordingly, Mr. Cook sent USAA a letter dated January 26,
2005, in which he stated that the Blakelys disagreed with
USAA's calculation of their losses. This notice was the first
time the Blakelys invoked the appraisal remedy under their
USAA policy.
20. Prior to invoking the appraisal remedy in January 2005, the
Blakelys had not submitted a report or opinion from a
contractor to USAA that disputed either the September 11,
2002 Barfuss engineering report or the adequacy of Phipps
Construction's structural repairs to the joists that had been
completed in November 2002, based upon Barfuss' report.
21. The January 26, 2005 Cook letter named the Blakelys' selected
appraiser and requested USAA to do the same within 20 days,
as required under the policy. USAA promptly responded by
letter dated February 8, 2005 identifying its selected appraiser.
Additionally, USAA offered to reexamine the Blakelys' claim
8
for additional damages outside the appraisal process in order to
expedite a settlement and save all parties the expense of the
appraisal-an offer to which the Blakelys did not respond.
22. The Blakelys and USAA proceeded with the appraisal process
arising from the Blakelys' $468,575.05 appraisal demand, and
on October 18, 2005, the panel issued its final appraisal award
of$291,356.52.
23. Based on the appraisal award, USAA timely paid the Blakelys
an additional $197,524.32, representing the difference between
the final appraisal award and the $93,332.20 that USAA had
previously paid to the Blakelys or disbursed on their behalf.
Upon receipt of this additional payment, the Blakelys executed
a release and subrogation assignment in favor of USAA on
December 5, 2005.
24. The Blakelys acknowledge that this appraisal award payment
by USAA concluded and satisfied all claims under the USAA
policy.
25. Nevertheless, the Blakelys commenced this action against
USAA in March of 2006-three months after USAA's
payment of the balance due under the appraisal award, and
while their lawsuit against Stone Touch was still pending.
26. Settlement of all of Blakelys' claims against Stone Touch was
reached in mediation on or about August 30, 2006. The
settlement included a separate mediated settlement with USAA
for its subrogation interest, but embraced the Blakelys' claims
for intentional infliction of emotional distress, negligent
infliction of emotional distress, fraud, and all other claims that
the Blakelys brought or could have brought arising from the
fire loss in question. In the mediated Stone Touch settlement,
USAA received $205,000 on its subrogation claim of
$290,856.52 and the Blakelys received $30,000 on their noncovered claims, including claims for emotional distress.
27. Following payment received by USAA on its subrogation
claim through settlement, USAA requested documentation
from the Blakelys of attorney's fees and costs incurred by them
in the Stone Touch litigation.
9
28. Upon receipt of the requested documentation, USAA made a
payment of attorney's fees and costs to the Blakelys in the
amount of $50,000, which was subsequently augmented by an
additional payment of $20,695.40 based in part upon additional
information gleaned from the November 2007 deposition of
Rex Bushman, for a total attorney's fees and costs payment by
USAA to the Blakelys of $70,695.40 with respect to the Stone
Touch litigation.
Plaintiffs appealed the order granting Defendant's summary judgment motion and the
associated entry ofjudgment. 26 The resulting Tenth Circuit mandate (Blakely II) was docketed
with this court on November 16, 2012. 27 The Tenth Circuit in the Blakely II mandate found this
court's ruling regarding the "fairly debatable" defense to be incompatible with the law as
described in Jones v. Farmers Ins. Exch., 2012 UT 52, 286 P.3d 301. 28 Jones, a case which was
decided while this court's order was on appeal, determined that "the fairly-debatable defense
should not be resolved through summary judgment if reasonable minds could differ as to whether
the defendant's conduct measures up to the standard required for insurance claim investigations."
Jones, 2012 UT 52, ,-r 1, 286 P.3d 301, 302. The Tenth Circuit determined that, in the present
case, reasonable minds could differ as to whether Defendant breached the implied covenant of
good faith and fair dealing and summary judgment was thus inappropriate. 29
Importantly, the Tenth Circuit in its Blakely II mandate also made the following
determination:
Plaintiff argues the district court should not have granted summary
judgment because the facts were "disputed." But Plaintiff cannot
point us to any material facts that are actually in dispute. We agree
26
Notice of Appeal, filed Dec. 27,2011, (CM/ECF No. 156).
27
Mandate, filed Nov. 16,2012 (CM/ECF No. 164).
28
Id., at 12.
29
Id., at 13.
10
with the district court that the parties dispute merely the
significance of the facts, not the facts themselves.
(CM/ECF No. 164), at 8 (citations and footnote omitted) (emphasis added).
Thus, with the Tenth Circuit's reversal and remand, this court finds itself with no
disputed material facts and Tenth Circuit instructions that the jury must detennine whether those
undisputed facts resulted in Defendant's breach of the implied covenant of good faith and fair
dealing.
III. DISCUSSION
Certain implied terms as crafted, modified, and clarified by the Utah Supreme Court are
present in every insurance contract relating to property loss by fire. Insurance is designed to shift
risk of loss to the insurance company. That is why premiums are paid. Implied tenns are present
in every insurance contract as if they are expressly written. One such term implied in all
contracts is the duty of good faith and fair dealing. 30 The Utah Supreme Court crafted this
implied duty in Beck v. Farmers Insurance Exchange as follows: "[W]e conclude that 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.',3l The Utah Supreme Court subsequently modified this implied right in Jones v. Farmers
Ins. Exchange, stating "an insurer cannot be held to have breached the covenant of good faith 'on
30
Beck v. Farmers Insurance Exchange, 701 P.2d 795, 798 (Utah 1985).
31
Id., at 801.
11
the ground that it wrongfully denied coverage if the insured's claim, although later found to be
proper, was fairly debatable at the time it was denied. '" 32
The implied terms are not stand-alone provisions but provisions of the contract that must
be viewed and construed as part of the whole contract. The implied words do not purport to
change the expressed tenns of the written contract, and the division of responsibilities between
the parties, as defined therein, but to emphasize the implicit duties of the insurance company.
Those duties are a given, but in no sense do they relieve the company or the insured of their own
duties under the written contract. The words, implied and expressed, need to be considered as a
whole. The insureds are still bound by the expressed contract they entered into. They cannot just
be a passive spectator or an oral complainer but must assume and perform the responsibilities
they have undertaken.
The insurance contract entered into by Plaintiffs and Defendant contains several express
provisions. The following are contained under Section I- Conditions:
2. Your Duties After Loss. In case of a loss to which this
insurance may apply, you must see that the following are done:
e. prepare an inventory of damaged personal
property showing the quantity, description,
actual cash value and amount of loss. Attach all
bills, receipts and related documents that justify
the figures in the inventory;
g. send to us, within 60 days after our request, your
signed, sworn proof of loss which sets forth, to
the best of your knowledge and belief:
(1) the time and cause of loss;
32
Jones v. Farmers Ins. Exch., 2012 UT 52,~ 7, 286 P.3d 301, 304 (quoting Billings ex ref. Billings v.
Union Bankers Ins. Co., 918 P.2d 461, 465 (Utah 1996)).
12
(2) the interest of the Insured and all others
in the property involved and all liens on
the property;
(3) other insurance which may cover the
loss;
(4) changes in title or occupancy of the
property during the term of the policy;
(5) specifications of damaged buildings and
detailed repair estimates;
(6) the inventory of damaged personal
property described in 2e above;
(7) receipts for Additional Living Expenses
and Temporary Living Expense, incurred
and records that support the Fair Rental
Value loss; and
(8) evidence or affidavit that supports a claim
lmder ADDITIONAL COVERAGES,
Credit Card, Fund Transfer Card, Forgery
and Counterfeit Money coverage, stating
the amount and causes of loss,
5. Appraisal. If you and we do not agree on the amount of loss,
either party can demand that the amount of the loss be
determined by appraisal. If either makes a written demand for
appraisal, each will select a competent, independent appraiser
and notify the other of the appraiser's identity within 20 days
of receipt of the written demand,
The two appraisers will then select a competent, impartial
umpire, If the two appraisers are not able to agree upon the
umpire within 15 days, you and we can ask a judge of a court
of record in the state where the residence premises is located
to select an umpire,
The appraisers will then set the amount ofloss, If they submit a
written report of any agreement to us, the amount agreed upon
will be the amount of loss, If they fail to agree within a
reasonable time, they will submit their differences to the
umpire. Written agreement signed by any two of these three
will set the amount of the loss. Each appraiser will be paid by
the party selecting that appraiser. Other expenses of the
appraisal and the compensation of the umpire will be equally
paid by you and us.
13
(CM/ECF No. 75-14), at DEF 1065-DEF 1066.
At some point, someone has to define what "the claim" is. Someone has to identify what
the parties are talking about, including the parties. "The claim" in 2002 is not the same claim as
in 2005 or 2006, as ~s evident from the history of this case and the available information. That is
why methods for defining "the claim" are set forth in the contract.
There is nothing in the contract as a whole which relieves Plaintiffs of their specific
undertakings. Plaintiffs acknowledge that whatever they presented in writing during the first
year--August 29, 2002 through July 1, 2003-was limited. 33 Instead, most of what they
communicated to Defendant was done orally. 34 Additionally, it is uncontested that Plaintiffs
never took advantage of the appraisal process during the first year, a process contractually
available to them since the fire occurred. Instead, it was not until January 2005 that Plaintiffs
first invoked the appraisal remedy.
All ofthis is preliminary and only background, because Defendant's motion for summary
judgment takes a new approach to this case. It avoids entirely the subject of the Blakely II
remand-i.e., Jones and "debatable" or "non-debatable" as a defense to the alleged breach of the
implied covenant of good faith and fair dealing. Instead, Defendant's motion for summary
judgment focuses on and asserts an inability on the part of Plaintiffs to proffer any plausible
theory of damages or a plausible proffer of damages attributable to or flowing from the alleged
breach of the implied provision of the contract. Defendant argues that even if a jury determined
33
Plaintiffs acknowledge that August 29,2002 through July 1, 2003 is the period of inquiry regarding
Defendant's alleged breach of the implied covenant of good faith fair and dealing. See Hr'g April23, 2013 Tr.,
(CM/ECFNo. 176) at48:12-49:10.
34
Hr'g Jan. 7, 2015 Tr., (CM/ECF No. 245) at 24:16--26:21.
14
that Defendant breached the implied covenant, Plaintiffs' claim would still fail because there are
no resulting damages.
Generally, damages for breach of the implied covenant may be recoverable in the event
of insurer bad faith. In Beck v. Farmers Insurance Exchange, the Utah Supreme Court stated
that "[ 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."35
Plaintiffs allege damages for breach of the implied covenant in the form of (i) emotional
distress; 36 (ii) economic loss damages; 37 and (iii) attorney fees and costs from the Stone touch
litigation, attorney fees and costs from the appraisal demand and process, and attorney fees and
costs in the instant litigation.
After careful analysis of the issue, the court agrees with Defendant that Plaintiffs have
failed to proffer plausible damages attributable to the alleged breach of the implied contract
covenant, and summary judgment is warranted. Absent viable damages, the exercise of trial
pursuant to the Tenth Circuit's mandate and the application of Jones would be purely academic.
35
701 P.2d 795, 801 (Utah 1985) (emphasis added) (citations omitted).
36
In their opposition to summary judgment, Plaintiffs additionally argue damages resulting from
"aggravation of their physical conditions." Pls.' Opp'n, supra note 4, at 5. But the factual record in this matter
through all the submissions of the parties fails to allege any form of "personal injury" other than the alleged
emotional distress or "mental anguish." Plaintiffs' Amended Complaint makes no mention of physical injuries and
otherwise fails to provide notice that Plaintiffs seek damages for physical injuries. See Am. Compl., (CM/ECFNo.
1; 248·5), Second Cause of Action re Alleged Breach of Implied Duties. And though Plaintiffs identify in their
opposition to summary judgment two of their previous memorandums as setting out in detail their claim for
damages, neither document discusses damages for aggravation of Plaintiffs' physical conditions. Pls.' Opp'n, supra
note 4, at 4 (referring to Pls.' Mem. in Opp'n to Def.'s Mot. for Partial Summ. J., filed May 16, 2008, (CM/ECF No.
75), and Pls.' Mem. in Opp'n to USAA's Mot. for Summ. J., filed May 16, 2011 (CM/ECF No. 147)). As such,
Plaintiffs may not now argue physical personal injuries as a source of damages.
37
The court notes that Plaintiffs acknowledge that the damages for alleged diminished value of residence
were dismissed at the hearing of April23, 2013. See Pls.' Opp'n, supra note 4, at 3.
15
A. Damages for Emotional Distress
The Utah Supreme Court in Beck expanded on the notion of recoverable damages for
breach of the implied covenant, specifically discussing emotional damages:
In an act1on 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. An
insured frequently faces catastrophic consequences if funds are not .
available within a reasonable period of time to cover an insured
loss; damages for losses well in excess of the policy limits, such as
for a home or a business, may therefore be foreseeable and
provable. See, e.g., Reichert v. General Insurance Co., 59
Cal.Rptr. 724, 728, 428 P .2d 860, 864 (1967), vacated on other
grounds, 68 Cal.2d 822, 442 P.2d 377, 69 Cal.Rptr. 321 (1968)
(because bankruptcy was a foreseeable consequence of fire
insurer's failure to pay, insurer was liable for consequential
damages flowing from bankruptcy). Furthermore, it is axiomatic
that insurance frequently is purchased not only to provide funds in
case of loss, but to provide peace of mind for the insured or his
beneficiaries. Therefore, although other courts adopting the
contract approach have been reluctant to allow such an award,
Lawton v. Great Southwest Fire Insurance Co., 392 A.2d at 58182, we find no difficulty with the proposition that, in unusual
cases, damages for mental anguish might be provable. See
Kewin v. Massachusetts Mutual Life Insurance Co., 409 Mich. at
440-55, 295 N.W.2d at 64-72 (Williams, J., dissenting); cf
Lambert v. Sine, 123 Utah 145, 150, 256 P.2d 241, 244 (1953).
The foreseeability of any such damages will always hinge upon
the nature and language of the contract and the reasonable
expectations of the parties. J. Calamari & J. Perillo, Contracts §
14-5 at 523-25 (2d ed. 1977).
701 P.2d 795, 802 (Utah 1985) (emphasis added) (footnote omitted). The Beck court further
clarified that "[ c]learly, damages will not be available for the mere disappointment, frustration or
anxiety normally experienced in the process of filing an insurance claim and negotiating a
settlement with an insurer." Id., at 802 n.6.
16
Thus, from Beck, we understand that Plaintiffs can recover for damages that are
reasonably foreseeable, that in "unusual cases" this may include damages for mental anguish, but
that the foreseeability of such damages always hinges on the contract language itself and "the
reasonable expectations of the parties."
Defendant points out that Beck has been clarified, or at least modified, by the Utah
Supreme Court in Cabaness v. Thomas, which states as follows:
We agree and recognize that emotional distress is typically not
recoverable in an action for breach of contract because such
damages are rarely a foreseeable result of breach. To be sure, "in
the ordinary commercial contract, damages are not recoverable for
disappointment, even amounting to alleged anguish, because of
breach." Stewart, 84 N.W.2d at 823. This is so because, although
[i]n such cases breach of contract may cause worry
and anxiety varying in degree and kind from
contract to contract, depending upon the urgencies
thereof, the state of mind of the contracting parties,
and other elements, but it has long been settled that
recovery therefor was not contemplated by the
parties as the "natural and probable" result of the
breach.
Id. Indeed,
[s]ome type of mental anguish, anxiety, or distress
is apt to result from the breach of any contract
which causes pecuniary loss. Yet damages therefor
are deemed to be too remote to have been in the
contemplation of the parties at the time the contract
was entered into to be considered as an element of
compensatory damages.
Lamm, 55 S.E.2d at 813.
But we also agree that in rare cases the non-breaching party to a
contract may recover damages for emotional distress. Accordingly,
given our discussion above, we hold that a non-breaching party
may recover general and/or consequential damages related to
17
emotional distress or mental anguish ansmg from a breach of
contract when such damages were both a foreseeable result of the
breach of contract and explicitly within the contemplation of the
parties at the time the contract was entered into. As we stated in
Beck, the applicability of such damages "will always hinge upon
the nature and language of the contract and the reasonable
expectations of the parties." 701 P.2d at 802.
2010 UT 23, ~~74-75, 232 P.3d 486,507-08.
Although not an insurance case, Cabaness does provide insight into the Utah Supreme
Court's interpretation of Beck and the availability of emotional distress damages: such damages
are available in "rare cases," where such damages were both foreseeable and "explicitly within
the contemplation of the parties."
Plaintiffs have failed to provide meaningful evidence or justifications for why this case
could be deemed "unusual" or "rare." Furthermore, there is no evidence that emotional damages,
particularly those emotional damages beyond "the mere disappointment, frustration or anxiety
nonnally experienced in the process of filing an insurance claim and negotiating a settlement
with an insurer" were contemplated explicitly by the parties.
As such, the court determines damages for emotional distress are not available to
Plaintiffs as a result ofthe alleged breach of the implied covenant.
B. Damages for Economic Loss
Plaintiffs also claim economic loss damages. They suggest that the stress and
consequences of the alleged breach of the implied covenant diverted Alan Blakely from his
business, resulting in lost income to him, and prevented Colelyn Blakely from returning to any
significant gainful employment. 38
38
Pls.' Opp'n, supra note 4, at 6.
18
Again, as outlined by the Beck court, damages are available to Plaintiffs for breach of the
implied covenant, but only insofar as those consequential damages were "reasonably within the
contemplation of, or reasonably foreseeable by, the parties at the time the contract was made."
And Plaintiffs have again failed to demonstrate that such economic losses were foreseeable or
contemplated by the parties. The contract between Plaintiffs and Defendant is a policy of
homeowner's insurance. It covers (i) Plaintiffs' dwelling; (ii) the dwelling's contents; and (iii)
additional living expenses. The policy does not provide personal injury protection or other firstparty losses for lost wages or income that are typically a part of other types of insurance policies
(e.g., auto insurance). In fact, the insurance policy expressly disclaims personal injury protection
for Plaintiffs. 39
Although an implied contract can embrace or contemplate more than the express contract,
Plaintiffs have not shown that such occurred here regarding lost income. As such, economic
losses are not available to Plaintiffs as damages for the alleged breach of the implied covenant.
C. Damages for Attorney Fees and Costs
Plaintiffs' damages claims for attorney fees and costs can be divided into three
subcategories: (i) attorney fees and costs from the Stone Touch litigation; (ii) attorney fees and
costs from the appraisal demand and process; and (iii) attorney fees and costs in the instant
litigation. 40
39
See (CM/ECF No. 75-14) at DEF 1069, § 2(f).
40
The court notes that, although Plaintiffs seek attorney fees and costs as damages arising as a consequence
of the alleged breach of the implied covenant, Plaintiffs do not want the issue to go to a jury. Instead, Plaintiffs filed
a motion seeking to exclude evidence of attorney fees and expenses and seeldng a court order that attorney fees
would be decided after the initial jury trial. See Motions: (1) For Partial Summ. J.; (2) In Liminie; and (3) To Have
Att'ys Fees and Litigation Expenses Decided After Trial, filed Dec. 23, 2014 (CM/ECF No. 237).
19
As a general proposition, it is true that Utah courts recognize that attorney fees and costs
may be recoverable as consequential damages for breach of the implied covenant. But it is also
true that the availability of attorney fees as damages is subject to conditions. The Utah Supreme
Court in Billings v. Union Bankers Ins. Co. 41 put it as follows:
Attorney fees may be recoverable as consequential damages
flowing from an insurer's breach of either the express or the
implied terms of an insurance contract. See Canyon Country Store
v. Bracey, 781 P.2d 414, 420 (Utah 1989). However, as
consequential damages, attorney fees are recoverable only if they
were "reasonably within the contemplation of, or reasonably
foreseeable by, the parties at the time the contract was made."
Beck, 701 P.2d at 801.
918 P.2d 461,468 (Utah 1996) (footnote omitted).
The parties expressly contemplated a methodology for resolving disputes over payments
owed-the appraisal process. When Plaintiffs and Defendant, at the time of contract formation,
expressly indicate their contemplation that future disputes will be resolved through submission of
an inventory of damaged property and/or use of the appraisal process, is it foreseeable that
Plaintiffs will go outside this methodology and instead sue Stone Touch, a third party? We find
that it is not. As such, the fees and costs associated with the Stone Touch litigation are not
available to Plaintiffs as consequential damages. 42
Similar reasoning prevents Plaintiffs' fees and costs associated with the appraisal process
from being available as consequential damages. Reference to the contract indicates that, in
41
A case referred to by Plaintiffs in their summary judgment opposition to support their claim that attorney
fees are recoverable. Pls.' Opp'n, supra note 4, at 10.
42
This conclusion is further strengthened by the written agreement entitled "Subrogation Assignment and
Receipt." Plaintiffs signed this document December 5, 2005 at the conclusion of the appraisal process and while the
suit against Stone Touch was still ongoing. The document expressly provides that Plaintiffs "agree that any claims
arising from this loss, but not covered under this policy and payment, are his/her sole responsibility to pursue at
his/her cost and expense." (CM/ECF No. 240-4).
20
addition to the appraisal process itself, the contract contemplates the method for allocating the
costs associated with the appraisal process. As outlined above, the appraisal provision of the
contract states as follows: "Each appraiser will be paid by the party selecting that appraiser.
, Other expenses of the appraisal and the compensation of the umpire will be equally paid by you
and us." 43
Plaintiffs have not argued that Defendant did not pay the cost of its own appraiser or split
the other expenses of the appraisal and the compensation of the umpire. Plaintiffs are not arguing
Defendant failed to comply with this express contract provision. As such, Plaintiffs are left with
no damages claims regarding the appraisal process, because the proffered and uncontested
evidence does not support a finding that anything beyond the express tenns of the contract was
foreseeable or contemplated by the parties.
Finally, the attorney fees and costs associated with the instant action are not recoverable
as damages. As analyzed above, Plaintiffs cannot recover damages for emotional distress,
economic loss, or attorney fees and costs associated with the Stone Touch litigation or appraisal
process. And the fees and costs in the instant case are not stand-alone damages sufficient to
support a breach of the implied covenant claim. 44 Plaintiffs must have otherwise suffered
damages from the alleged breach before they can assert a claim for the fees and costs associated
with bringing the instant action. 45
4
\CM/ECF No. 75-14), at DEF 1066.
See Neffv. Neff, 2011 UT 6 ~~7, 87-90,247 P.3d 3380, 403; see also Holladay v. Storey, 2013 UT App.
158, ~48, 307 P.3d 584, 597-98.
44
45
Plaintiffs argue that USAA's $70,695.40 payment to Plaintiffs months after Plaintiffs filed this case is
sufficient to trigger their claim for attorney fees and expenses in this case. Plaintiffs cite to Highland Construction
Co. v. Stevenson, 636 P.2d 1034 (Utah 1981) in support of this position. See Pls.' Opp'n, supra note 4, at 9-10. But
·
(continued ... )
21
IV. CONCLUSION
Having determined that damages in the form of (i) emotional distress, (ii) financial
distress, and (iii) attorney fees and costs are not recoverable damages, the court finds Plaintiffs
are unable to demonstrate the damages necessary to maintain a breach of the implied covenant
cause of action.
As such, the court orders that Defendant's summary judgment motion is GRANTED and
Plaintiffs' alleged breach of the implied covenant claim is DISMISSED WITH PREJUDICE.
Let judgment be entered accordingly.
DATED this
~ay of April, 2015.
45
( ..• continued)
there are significant differences between Highland Construction Co. and the instant case. In Highland Construction
Co., an excavating subcontractor sued a general contractor for damages allegedly caused by defective construction
plans and unreasonable delays.636 P.2d at 1034. After trial, judgment was entered in favor of defendants. Id., at
1036. On appeal, the plaintiff argued the trial court erred in not awarding it attorney fees, despite not prevailing at
trial, "because 164 days after it filed this action and while this action was pending in the court below, [defendant]
admitted that he owed and he voluntarily paid [plaintiff] $10,300.78 of the amount it was suing for." Id., at 1037-38.
The plaintiff subcontractor pursued attorney's fees under§ 14-1-8 U.C.A. (1953), which provided that "In any action
brought upon either of the bonds provided herein ... the prevailing party, upon each separate cause of action, shall
recover a reasonable attorney's fee to be taxed as costs." I d., at 1038. The Highland Construction Co. court found
the subcontractor plaintiffs receipt of funds after filing suit qualified them as a prevailing party. Icl. In contrast to
the facts in Highland Construction Co., Plaintiffs here have not provided evidence that Defendant admitted Plaintiffs
are entitled to the attorney fees and costs associated with the Stone Touch litigation. Additionally, and more
importantly, Plaintiffs have not pointed to a statute similar to § 14-1-8 U. C.A. that entitles them to attorney fees,
even if this court deemed that Defendant's $70,695.40 payment to Plaintiffs made Plaintiffs a prevailing party. As
such, Highland Construction Co. is inapplicable and unhelpful to the instant case.
22
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