Certiorari to the Utah Court of Appeals
District, Farmington The Honorable Glen R. Dawson No.
Stewart B. Harman, Joel D. Taylor, Salt Lake City, for
L. Dalton, Salt Lake City, for appellant.
Justice Himonas authored the opinion of the Court, in which
Chief Justice Durrant, Associate Chief Justice Lee, and
Justice Pearce joined.
Robert Oltmanns was named as a defendant in a personal injury
case. He filed a claim with his insurer, Fire Insurance
Exchange, who questioned whether the claim was covered under
the policy. Rather than deny the claim outright, Fire
Insurance brought a declaratory judgment action to determine
whether the claim was covered under Mr. Oltmanns's
policy. The court of appeals ultimately held that it was
covered, and Mr. Oltmanns filed a counterclaim seeking
attorney fees for the declaratory judgment action, arguing
that it was brought in bad faith. The question presented for
this court is whether the court of appeals erred in
concluding that Fire Insurance's denial of Mr.
Oltmanns's insurance claim was "fairly debatable,
" thus negating Mr. Oltmanns demand for attorney fees
and expenses for the coverage dispute and appeal. We affirm
the court of appeals' decision to uphold the summary
judgment of the district court.
In 2006, Mr. Oltmanns was piloting a Honda F-12 AquaTrax
personal watercraft that was towing Mr. Oltmanns's
brother-in-law, Brady Blackner. Mr. Blackner sustained
injuries, and filed a lawsuit against Mr. Oltmanns. Mr.
Oltmanns tendered the defense to Fire Insurance Exchange
under his homeowner's insurance policy. The insurance
policy contains the following provision under Section II
-Liability, Coverage E - Personal Liability:
We pay those damages which an insured
becomes legally obligated to pay because of bodily
injury, property damage or personal injury resulting
from an occurrence to which this coverage applies. . . . At
our expense and with attorneys of our choice, we will defend
an insured against any covered claim or
suit. We are not obligated to pay defense costs, including
attorneys' fees of any claim or suit where you select an
attorney not chosen by us because there is a dispute between
you and us over coverage. We may investigate and settle any
claim or suit that we consider proper. Our obligation to
defend any claim or suit ends once we have paid our limit of
same liability section of the insurance contract, in a
subsection titled "Additional Coverages, " Fire
Insurance agrees to pay "[i]n addition to the limits of
liability . . . all costs we incur in the settlement of a
claim or defense of a suit with attorneys of our
Fire Insurance conducted an in-house review of Mr.
Oltmanns's claim and then submitted his claim to outside
counsel for a coverage opinion. Whether the accident was
deemed covered was uncertain because of the following
exclusion in its liability coverage:
not cover bodily injury [that] . . . .
7. results from the ownership, maintenance, use, loading or
b. motor vehicles
c. jet skis and jet sleds or
d. any other watercraft owned or rented to an insured and
(1) has more than 50 horsepower inboard or inboard-outdrive
motor power; or
(2) is powered by one or more outboard motors with more than
25 total horsepower; or
(3) is a sailing vessel 26 feet or more in length. Exclusions
7c and d do not apply while jet skis, jet sleds or watercraft
Fire Insurance also asked Mr. Oltmanns's attorney to
continue to represent him, indicating that Fire Insurance
might reimburse him for his fees and expenses should
the accident be deemed a covered occurrence. Fire
Insurance's outside counsel advised Fire Insurance that
he believed there was a high probability that the incident
would not be covered, but that Fire Insurance should
authorize him to file a declaratory judgment action seeking a
determination of its responsibility to Mr. Oltmanns under the
policy. He advised this course of action because
"[u]nder Utah law, a liability insurance carrier's
duty to defend is broader than its duty to indemnify, "
and "[i]t would be dangerous to simply deny coverage
because Mr. Blackner and Mr. Oltmanns may enter into an
agreement to stipulate to a large judgment and Mr. Oltmanns
could then assign his claims against Fire Insurance Exchange
to Mr. Blackner."
Fire Insurance filed the action and then moved for summary
judgment. The district court ruled in favor of Fire
Insurance, finding that the exclusion precluded coverage. Mr.
Oltmanns appealed and the court of appeals reversed, holding
that the term "jet ski" as used in the exclusion
was ambiguous and construed the contract against the insurer
in favor of the insured. Fire Ins. Exch. v.
Oltmanns, 2016 UT App 54, ¶ 5, 370 P.3d 566. Fire
Insurance then settled with Mr. Blackner for the policy limit
of $300, 000 and paid Mr. Oltmanns's attorney fees and
expenses for his defense of that claim.
Fire Insurance did not pay for Mr. Oltmanns's costs of
defending the declaratory judgment action. Mr. Oltmanns then
filed a counterclaim against Fire Insurance in the still open
declaratory judgment action seeking "damages for breach
of the implied covenant [of good faith and fair dealing],
which include his attorney fees for prosecuting this coverage
action and the successful appeal" as well as
"damages for the severe emotional distress that was
caused by the coverage denial and his self-defense of a
significant personal injury claim." Fire Insurance once
again moved for summary judgment and for a motion to dismiss.
The district court granted summary judgment finding that Fire
Insurance's actions were reasonable because the coverage
issue was "fairly debatable." Fire Insurance then
withdrew its motion to dismiss. Mr. Oltmanns appealed and the
court of appeals affirmed the district court, holding that
"when an insurance company proceeds in a reasonable way
to resolve a difficult coverage question, its eventual loss
at the appellate level does not foreclose a determination
that an issue of interpretation was fairly debatable, as was
the case here." Id. ¶ 15.
This case comes before us on certiorari review from the court
of appeals decision. "[W]e review the court of
appeals' decision for correctness. The review focuses on
whether the court of appeals correctly reviewed the trial
court's decision [to grant summary judgment to Fire
Insurance] under the appropriate standard of review."
Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600
(citation omitted). "We review the district court's
grant of summary judgment for correctness." Torian
v. Craig, 2012 UT 63, ¶ 13, 289 P.3d 479 (citation
omitted). Under Utah Rule of Civil Procedure 56, we view any
facts and any reasonable inferences "in the light most
favorable to the party opposing summary judgment."
Farmers Ins. Exch. v. Call, 712 P.2d 231, 237 (Utah
1985) (citation omitted).
In both his trial- and appellate-level briefing, Mr. Oltmanns
advanced the same basic argument: because it wasn't
"fairly debatable" whether the term "jet
ski" encompassed a Honda F-12 Aquatrax (in Mr. Oltmanns
view, it obviously did not), Fire Insurance breached its duty
to Mr. Oltmanns by seeking a declaratory judgment that the
"jet ski" exclusion in Mr. Oltmanns's insurance
policy encompassed bodily injuries resulting from the use of
that jet-ski-like watercraft. As Mr. Oltmanns has put it:
[Fire Insurance] relied on the advice of counsel [that an
Aquatrax would be encompassed by the "jet ski"
policy exclusion] in refusing the tender of defense. However,
the advice was patently flawed. Therefore, the claim was not
"fairly debatable, " and [Fire Insurance] breached
the insurance contract and the implied duty of good faith
[and] fair dealing.
On Mr. Oltmanns's account of the governing law, then,
whether Fire Insurance breached its duties to Mr. Oltmanns
turned entirely on whether the "jet ski"
exclusion's applicability to an Aquatrax was fairly
debatable: If it was fair for Fire Insurance to argue that
the "jet ski" exclusion encompassed an Aquatrax
then there was no breach; otherwise, according to Mr.
Oltmanns, there was.
Mr. Oltmanns's argument fails on its own terms. It was
more than fair for Fire Insurance to argue that its
policy's "jet ski" exclusion applied to bodily
injuries resulting from the use of an Aquatrax. In litigating
whether the "jet ski" exclusion encompassed
Aquatrax accidents, Fire Insurance put forward substantial
usage evidence suggesting that the term "jet ski"
is, in Fire Insurance's words, a "genericized term
for any type of personal watercraft." Fire
Insurance's argument is bolstered by the fact that
"jet ski" is frequently treated as a generic term
in cases, ordinances, and dictionaries  The cited
dictionaries, ordinances, and cases show that the public uses
the trademarked term "jet ski" generically, at
least on occasion. That suggests that the scope of the term
may be fairly debatable.
That conclusion is also confirmed by the context of the
"jet ski" exclusion in the insurance policy. The
governing language excludes injury resulting from "the
ownership, maintenance, use, loading or unloading of
aircraft, motor vehicles, jet skis and jet sleds, or any
other watercraft owned or rented to an insured."
(numbering omitted). With the exception of jet ski, each of
the excluded terms unambiguously refers to the generic name
for a category of items. None refers to a specific brand.
This supports a generic reading of "jet ski" under
the noscitur a sociis canon of construction. See
Third Nat'l Bank in Nashville v. Impac Ltd., Inc.,
432 U.S. 312, 322 (1977) ("[W]ords grouped in a list
should be given related meaning." (footnote omitted)).
And that further indicates that the scope of "jet
ski" is at least fairly debatable.
True, in a decision from an earlier phase of this case-a
decision not currently before us-the court of appeals
concluded that the "jet ski" exclusion did not
apply to injuries resulting from the use of an Aquatrax,
apparently declaring the term "jet ski"
irredeemably obscure. See Fire Ins. Exch. v.
Oltmanns, 2012 UT App 230, ¶¶ 9-10, 285 P.3d
802 ("Even discounting the bizarre possibility that
[Fire Insurance] meant to refer only to one Kawasaki
watercraft model, it still cannot be definitively said what
the insurer intended . . . ."). But, candidly, the
correctness of the court of appeals' decision is as open
to debate as the issue it resolved.
The concurrence, however, doesn't affirm the court of
appeals on the basis that Mr. Oltmanns's argument fails
on its own terms. Instead, the concurrence concludes that Mr.
Oltmanns waived his argument that he was entitled to attorney
fees because Fire Insurance breached its duties when it
sought a declaratory judgment that it did not have to defend
Mr. Oltmanns in connection with the Aquatrax accident. It
then devotes many pages of dicta to its view that Mr.
Oltmanns's "fair debatability" argument
analyzed the problem the wrong way. According to the
concurrence, Mr. Oltmanns should have characterized his
claims against Fire Insurance as "third-party
claims." Infra ¶¶ 26-27. Under this
characterization of Mr. Oltmanns's lawsuit, the
concurrence tells us that "fair debatability" is
irrelevant. Instead, because it arose in the third-party
context, the appropriateness of Fire Insurance's decision
to file a declaratory judgment action turned not on whether
the "jet ski" coverage question was fairly
debatable, but on whether Fire Insurance's position was
"reasonable under the circumstances."
Infra ¶ 28.
The concurrence then proceeds to outline the entire syndrome
of duties and obligations that an insurer owes an insured in
the third-party context. Because Fire Insurance's
declaratory judgment action arose in the third-party context,
the concurrence says that Fire Insurance was operating under
a "heightened duty" to act as an agent or fiduciary
for Mr. Oltmanns. Infra ¶¶ 41-42. It
therefore owed Mr. Oltmanns four duties:
(1) [T]he duty to defend an action brought against [Mr.
Oltmanns] that could conceivably fall within the scope of the
policy coverage (as defined by the insurance contract), (2)
the duty to be fair and reasonable in diligently
investigating the validity of claims, (3) the duty to
indemnify [Mr. Oltmanns] for valid claims, and (4) the duty
to settle claims within the policy limits where possible.
Infra ¶ 48.
And, despite concluding that Mr. Oltmanns failed to preserve
his argument that Fire Insurance breached its duty to defend
him in the underlying lawsuit arising from the Aquatrax
accident, the concurrence also details the scope and nature
of the duty an insurer owes an insured to defend against a
third-party lawsuit. Infra ¶¶ 49-50.
We have two problems with the concurrence's analysis.
First, we don't agree that Mr. Oltmanns "waived his
argument that Fire Insurance breached the implied covenant of
good faith by bringing the declaratory judgment action"
because he somehow "conceded that [Fire Insurance's
decision to file that action] was merited in his brief to the
court of appeals and his brief to this court."
Infra ¶ 24. The court of appeals certainly
didn't see it this way. It understood Mr. Oltmanns to
have argued that Fire Insurance breached its fiduciary duties
in seeking declaratory judgment because the coverage
question-whether an Aquatrax was covered by the term
"jet ski"-was not "fairly debatable."
We see this same argument in Mr. Oltmanns's brief to this
court. It's true that there are stray comments in Mr.
Oltmanns's supreme court briefing to the effect that Fire
Insurance "had the right to seek declaratory
relief." But the obvious thrust of Mr. Oltmanns's
argument is that he is entitled to attorney fees in
connection with the declaratory judgment action because
"[t]here was no good basis for [Fire Insurance's
decision to] fil[e] the declaratory judgment action"-
and this because whether the term "jet ski"
encompassed an Aquatrax was not a "'fairly
debatable' coverage question." We therefore consider
this argument on its own terms. And we conclude that, even
accepting Mr. Oltmanns's premises-i.e., even accepting
that Mr. Oltmanns would be entitled to attorney fees if the
coverage question was not fairly debatable-Mr. Oltmanns
We are also concerned by the concurrence's decision to
explain, in detail, the differences between first-party and
third-party insurance claims. On its own terms, the
concurrence's opinion is good stuff. It's, as Judge
Chamberlain Haller might put it, "lucid, intelligent,
[and] well thought-out." And it may very well be entirely
correct. But this isn't the case for it. Mr. Oltmanns
framed his claim as a first-party claim: Fire Insurance is
liable because it could not fairly argue-it wasn't
"fairly debatable"-that an Aquatrax was a "jet
ski." Fire Insurance then responded to this argument on
those same terms. As a consequence, nobody-not the parties,
not the insurance industry, not the plaintiffs' bar-is
fairly on notice that this is the case in which we intend to
announce that an insurer's decision to seek a declaratory
judgment in connection with a third-party lawsuit must be
analyzed under third-party insurance law. Nor, needless to
say, has anybody been put on notice that we're prepared
to announce an ...