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Utah Supreme Court Finds that Availability of “Fairly Debatable” Defense to Insurers in Third-Party Context Remains Open Question

Contact: Richard A. Vazquez

In Fire Insurance Exchange v. Oltmanns, 2017 UT 81 (Utah Nov. 21, 2017), the Utah Supreme Court, unremarkably, found that in the first-party context it was “fairly debatable” for an insurer to deny coverage on the basis that the term “jet ski” in a policy exclusion could theoretically refer to an Aquatrax personal watercraft.  This despite an earlier Utah Court of Appeals decision finding the exclusion to be ambiguous, reasoning that the term could theoretically apply solely to the “Jet Ski” brand of personal watercraft.  The Supreme Court appeared to cast doubt on that Court of Appeals’ decision (which was not at issue on appeal, as the insurer paid its limits following that decision) stating that “candidly, the correctness of the court of appeals’ decision is as open to debate as the issue it resolved.”

The more interesting part of the decision was that four justices of the Supreme Court found that the availability of the “fairly debatable” defense to insurers in the third-party bad faith context was still an open question in Utah.  This despite a lengthy sole concurrence from Justice Christine Durham which read more like a dissent.  Justice Durham strenuously contended that the parties incorrectly applied the “fairly debatable” defense to what was, in essence, a third-party claim and that the “fairly debatable” bad faith defense should not be available to insurers in a third-party bad faith context.  The majority acknowledged that both parties may have incorrectly analyzed the insurer’s bad faith duty under a first-party rather than a third-party standard, but nonetheless applied the “fairly debatable” analysis because of both the acquiescence of the parties, and the split in jurisdictions as to the availability of the “fairly debatable” defense in the third-party context.  The majority concluded that such a sweeping pronouncement on Utah insurance law ought to at least have the benefit of thorough adversarial briefing.

When you need an insurance coverage lawyer or law firm in Utah.

Our insurance coverage and bad faith lawyers are ready to help.  For more information about the services SCM provides in this area, contact Richard A. Vazquez.

Richard A. Vazquez