AMENDED OPINION* This opinion is subject to revision before final publication in the Pacific Reporter

201 8 UT 10

IN THE


## S UPREME 

## C OURT OF THE 

## S TATE OF 

## U TAH

F IRE I NSURANCE E XCHANGE

, Appellee

,

v

.

R OBERT A LLEN O LTMANNS

, Appellant

.

N o. 2016 0304

Filed February 28 , 201 8

On Certiorari to the Utah Court of Appeals

Second District, Farmington

The Honorable Glen R. Dawson

No. 090700825

Attorneys:

Stewart B. Harman, Joel D. Taylor, Salt Lake City, for appellee

Donald L. Dalton, Salt Lake City, for appellant

J USTICE H IMONAS authored the opinion of the Court, in which

C HIEF J USTICE D URRANT
, A SSOCIATE C HIEF J USTICE L EE
, and J USTICE P EARCE joined.

J USTICE D URHAM filed a n opinion concurring in part and concurring

in the result

.

Due to her retirement

, J USTICE D URHAM did n ot participate in the Petition for Rehearing

. J USTICE P ETERSEN became a member of the Court
on November 17, 2017, a nd, accordingly, participated in the Petition for RehearingF IRE I NSURANCE E XCHANGE v. O LTMANNS

Amended Opinion of the Court

2 J USTICE H IMONAS

, amended o pinion of the C ourt :

INTRODUCTION

¶1 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 judgme nt 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

* Mr . Oltmanns filed a Petition for Rehearing, which we deny. Based on undisputed material facts, the district court determined that, with respect to the “jet skis” exclusion, Fire Insurance “was faced with a fairly debatable question” of coverage. The court of appeals affirmed, concluding that the term was debatable as a matter of law. And we affirmed the decision of the court of appeals. Put differently, and perhaps more plainly, the trial court, the court of appeals, and this

court have all concluded that whether the “jet skis” exclusion clearly and unambiguously applied to Mr. Oltmanns’s claim was fairly debatable, making summary judgment for Fire Insurance appropriate. We would ordinarily stop here and refrain from making any additional comments regarding the Petitio n. But the rhetoric Mr. Oltmanns’s counsel chose to employ in the Petition takes this case out of the ordinary. Counsel accuses us of being biased for insurers: “for some reason, since it involved the filing of a declaratory judgment action by an insurance company, the normal rules of contract interpretation

— and civil procedure

— did not apply.” He then goes on to charge that we “unfairly meted out” “savagery” on his client’s case. This sort of language, which questions motives rather than ideas,

reflects an insufficiency of thought and ineffective advocacy and has no place in filings before the trial or appellate courts of this state. We admonish counsel for his use of such language. And we take this opportunity to remind him of paragraph 3 of the Utah Stand ards of Professionalism and Civility

— “Lawyers shall not, without an adequate factual basis, attribute to other counsel or the court improper motives, purpose, or conduct.”Cite as: 2017 UT 81

Amended Opinion of the Court

3 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

.

BACKGROUND

¶2 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 fol lowing 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 c overage 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 liability.

In the same liabili ty 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 cho ice.”

¶3 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 cove rage:
We do not cover bodily injury [that]

. . . . 7. results from the ownership, maintenance, use, loading or unloading of:

a. aircraft

b. motor vehicles

c. jet skis and jet sleds orF IRE I NSURANCE E XCHANGE v. O LTMANNS

Amended Opinion of the Court

4 d. any other watercraft owned or rented to an

insured and which: (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 are stored.

¶4 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 acc ident 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

dan gerous 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.”

¶5 Fire Insurance filed the acti on 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 wa s 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 attor ney fees and

expenses for his defense of that claim

. ¶6 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 act ion 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 injuryCite as: 2017 UT 81

Amended Opinion of the Court

5 claim

. ” Fire Insurance once again moved for summary judgment and

for a motion to dismiss. T he district court granted summary judgment finding that Fire Insurance’s actions were re asonable 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.

STANDARD OF REVIEW

¶7 This case comes before us on ce rtiorari 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).

ANALYSIS

¶8 In both his trial

- and appellate

- level briefing, Mr. Oltmanns advanced the same basic argument: because it was n’t “fairly debatable” whether the term “jet ski” encompasse d 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 [Fir e Insurance] breached the insurance contract and the implied duty of good faith [and] fair dealing.F IRE I NSURANCE E XCHANGE v. O LTMANNS

Amended Opinion of the Court

6 ¶9 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” ex clusion’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.

¶10 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 “j et s ki ” is frequently treated as a generic term in cases , ordinances, and dictionarie s. 1 The cited

1 See, e.g.

, Calhoun v. Yamaha Motor Corp., U.S.A. , 40 F.3d 6 22, 624 (3d Cir. 1994) (noting that a “Wavejammer” is “a type of jet ski manufactured by Yamaha Motor Corporation”); 4 M ATTHEWS

M UNICIPAL O RDINANCES § 52:32 (2d ed. 2017) (“Boat shall mean any watercraft, including sea planes when not airborne, sailboat, ‘jet ski,’ ‘aqua

- trike’ or similar type of watercraft”; “Motorboat shall mean any boat operated through use of a motor or motorized propulsion, including ‘jet skis[]’“); J et Ski, W IKIPEDIA
, https://en.wikipedia.org/ wiki/Jet_Ski (last visited Oct. 13, 2017) (“The term [jet ski] is often used generically to refer to any type of personal watercraft used mainly for
recreation, and it is also used as a verb to describe the use of this type of

water vehicle.” (citation omitted) ); Jet Ski

, F REE D ICTIONARY http://medical

- dictionary.thefreedictionary.com/Jet+Ski (last visited Oct. 13, 2017) (defining “jet ski” as “[a] motorised personal watercraft in which one or two people ride on t he water in much the same way as one rides a motorcycle”); Jet Ski

, L ONGMAN D ICTIONARY OF

C ONTEMPORARY E NGLISH http://www.ldoceonline.com/dictionary/jet

ski (last visited Oct. 13, 2017) (A “jet ski” is “a small fast vehicle on which one or two people can r ide over water for fun.”); Jet Ski

, W ORD W EB O NLINE http://www.wordwebonline.com/ search. pl?w=jet+ski (last visited Oct. 13, 2017) (defining “jet ski” as “[a] jet

powered watercraft with a se a t and handlebars, ridden in a similar way to a motorbike”); see also Trial Judge Properly Restricted Expert Testimony in Jet Ski Death Suit Calhoun v. Yamaha Motor Corp., 1 N O

. 1 A NDREWS (cont.)Cite as: 2017 UT 81

Amended Opinion of the Court

7 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 t erm may be fairly debatable.

¶11 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 , mot or 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

s pecific 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

. “ (fo otnote omitted) ). And that further indicates that the scope of “ jet ski ” is at least fairly debatable.

¶12 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 result ing 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 Insura nce] meant to refer only to one Kawasaki watercraft model, it still cannot be definitively said what the insurer intended . . . .”). But , candidly, the

E XPERT & S CI

. E VIDENCE L ITIG

. R EP

. 13 (2003) (Expert testimony was allowed in a case “to explain how jet skis operate and the differe nces between Yamaha’s jet ski and other brands and models.”). But see Definition of “Jet Ski”

, C AMBRIDGE D ICTIONARY http://dictionary. cambridge

. org/ us/ dictionary/english/jet

- ski (last visited Oct. 13, 2017) (defining “jet ski” as “a brand name for a type of small water vehicle for one or two people that is moved forward by a fast stream of water being pushed out behind it”); Jet Ski

, D ICTIONARY

. COM http ://www.dictionary.com/ browse/jet

- ski (last visited Oct. 13, 2017) (“Jet ski” is a “ [ t ] rademark” for “a brand of personal watercraft.”); Jet

Ski

, T HE F REE D ICTIONARY http://www.thefreedictionary.com/Jet

skiing (last visited Oct. 13, 2017) (defining “Jet Sk i” as “[a] trademark for a personal watercraft”).F IRE I NSURANCE E XCHANGE v. O LTMANNS

Amended Opinion of the Court

8 correctness of the court of appeals’ decision is as open to debate as the

issue it resolved.

¶13 The concu rrence , however, does n’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

bre ached 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 probl em the wrong way. According to the concurrence , Mr. Oltmanns should have characterized his claims against Fire Insurance as “third

- party claims.” Infra ¶ ¶ 26

– 27

. Und er 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

whe ther Fire Insurance’s position was “reasonable under the

circumstances.” Infra ¶ 28

. ¶14 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

. ¶15 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 concurrenceCite as: 2017 UT 81

Amended Opinion of the Court

9 also details the scope and nature of the duty an insurer owes an insured to defend against a third

- party lawsuit. Infra ¶¶ 49

– 50

. ¶16 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 bring ing the declaratory judgment act ion” 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. Oltma nns 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.”

¶17 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” e ncompassed an Aquatrax

was not a “‘fairly debatable’ coverage question.” We therefore consider this argument on its own terms. And w e conclude that, even accepting Mr. Oltmanns’s premises

— i.e., even accepting that Mr. Oltmanns

would be entitled to attorney fees if the coverage questi on was not fairly debatable

— Mr. Oltmanns lose s

. ¶18 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.” 2 And it may very well be entirely correct. But

this is n’t the case for it. Mr. Oltmanns framed his claim as a first

- party

claim: Fire Ins urance is liable because it could not fairly argue

— it

was n’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

2 M Y C OUSIN V INNY (20th Century Fox 1992) (overruling a “lucid, intelligent, and well thought

- out objection” given the circumstances).F IRE I NSURANCE E XCHANGE v. O LTMANNS

Amended Opinion of the Court

10 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 overarching framework for the analysis and resolution of third

- party claims

— a framework that, on its face, purports to occupy the field, controlling a vast array of possible insuranc e lawsuits. We need adversarial briefing before we can fairly do this.

¶19 To be clear

, we do n’t mean that we ’re categorically bound by litigants’ decision to litigate a case under the wrong legal principles (if wrong legal principles they be). We agree with t he concurrence that our

court will not “ be forced to ignore the law just because the parties have

not raise d or pursued obvious arguments. ” Infra ¶ 27 (quoting

Kaiserman Assocs. v. Francis Town , 977 P.2d 462, 464 (Utah 1998) )

. ¶20 But there is a pragmatic reason to draw our decision here narrowly : t he law in this area is unsettled. Courts around the country take different approaches to the issues the concurrence resolves. Some courts part ways with the concurrence ’s repudiation of the “fairly

debatable” sta ndard in the third

- party context, denying bad faith claims in this context as long as the coverage question on which the insurer sought a declaratory judgment is “fairly debatable.” See, e.g.

, Universal

Rundle Corp. v. Commercial Union Ins. Co. , 725 A.2d 7 6, 89

– 90 (N.J. Super.

Ct. App. Div. 1999) (upholding denial of a bad faith claim against insurer because the coverage question was “fairly debatable” and concluding that “for purposes of evaluating bad faith claims against an insurer, it should [not] matte r whether the coverage at issue is first

- or third

- party”); Wis

. Pharmacal Co. v. Neb

. Cultures of Cal

. , Inc. , 876 N.W.2d 72, 78 (Wis. 2016) (“[A n ] insurer does not breach its contractual duty to defend by denying coverage where the issue of coverage is fa irly debatable as long as the insurer provides coverage and defense once coverage is established.” (alteration in original) (citation omitted)). But

see Hart Constr. Co. v. Am. Fam ily Mut. Ins. Co. , 514 N.W.2d 384, 391 (N.D. 1994) (applying reasonableness standard to whether an insurer breached its duties to an insured in seeking a declaratory judgment in

connection with a third

- party lawsuit). Courts also advance different approaches to the duty to defend. See, e.g.

, Wis

. Pharmacal Co. , 876 N.W.2d at 78 (n oting that an insurer need not necessarily tender

defense of a third

- party lawsuit during pendency of a declaratory judgment action if it requests “a bifurcated trial on the issues ofCite as: 2017 UT 81

Amended Opinion of the Court

11 coverage and liability[] [andmoves] to stay any proceedings on liability until the issue of coverage is resolved” (first and second alterations in original) (citation omitted)).

¶21 The concurrence claims that the law in Utah is well

- settled on

all of these issues. Infra ¶ 27 n. 3 . But we’ve never held that an insurer must defend against all third

- party liability claims that could “conceivably” fall within insurance coverage. Nor have we considered

whether an insurer may, consistent with its fiduciary obligations, stay the underlyi ng proceedings until any dispute over coverage is resolved

. Nor, in our view, have we squarely repudiated any role for the “fairly

debatable” standard in the third

- party insurance context. And b ecause there are a variety of possible approaches to the issue s the concurrence explores, we wo n’t take a stand on any of them until after they have been put squarely before us. Here, the parties have litigated this as a

first

- party insurance dispute, and we therefore lack the benefit of adversarial briefing on the p rinciples the concurrence elucidates.

¶22 We certainly agree with the concurrence that we should n’t bind ourselves to a “confuse[d] .

. . distinction between first

- party

insurance claims and third

- party insurance claims” just because the litigants have potentially misapplied this law. Infra ¶ 27

. N or do we

need to commit ourselves to a third

- party insurance framework in a case where nobody has asked us to. Instead, w e chart a middle ground.

We affirm the court of appeals on the basis that Mr. Oltmanns’s argument is n’t persuasive on its own terms

— the coverage question was fairly debatable. But we expressly flag, for futu re litigants, the questions (1) whether claims like those before us should be analyzed under third

party insurance principles and (2) if so, what those principles are.

CONCLUSION

¶23 For the reasons set forth above, Mr. Oltmanns’s claim that Fire Insurance did not fairly evaluate his claim and unreasonably rejected it fails. Thus, we affirm the court of appeals’ decision to uphold the district court’s grant o f summary judgment to Fire Insurance.

J USTICE D URHAM , concurring in part and concurring in the result:

¶24 I concur in the portion of the majority opinion that concludes

that Mr. Oltmanns ’s claim that Fire Insurance did not fairly evaluate his claim and unreasonably rejected it fails. In doing so, I affirm the court of appeals ’ decision to uphold the summary judgment of the districtF IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

12 court , but do so on alternate grounds

. “It is well settled t hat an appellate court may affirm the judgment appealed from if it is sustainable on any legal ground or theory apparent on the record.” Moss v. Parr Waddoups Brown Gee & Loveless , 2012 UT 42, ¶ 26, 285 P.3d 1157 (citation omitted). In this case

, Mr. Oltma nns waived his argument

that Fire Insurance breached the implied covenant of good faith by bringing the declaratory action when he concede d that it was merited in his brief to the court of appeals and his brief to this court. As to the question presented to this court regarding the breach of duty in filing a declaratory judgment, we hold that Fire Insurance was “entitled to seek a declaratory judgment as to its obligations and rights

, ” Farmers Ins.

Exch. v . Call , 712 P.2d 231, 237 ( Utah 1985) (citation omitted) , a s acknowledged by Mr. Oltmanns.

¶25 I also concur in the majority’s decision to reject Mr. Oltmanns’s argument that Fire Insurance breached its duty to defend on preservation grounds

. Mr. Oltmanns failed to preserve his claim fo r a breach of the duty to defend in his opposition to Fire Insurance’s summary judgment motion.

¶26 Unfortunately, parties and the lower courts have conflated the

common law principles regarding insurer’s duties under insurance

contracts regarding third

- party claims against the insured on the one
hand, and first

- party claims where the insured sues the insurer on the

other . While both third

- party and first

- party claims involve coverage decisions, the relationship of the insurer to the insured, the implied oblig ations of good faith performance, and the remedies available to the insured are different depending on the type of claim. These differences are significant. “[T]he relationship betweem the insurer and its insured [in a first

- party context ] is fundamentally different than in a

third

- party context.” Beck v. Farmers Ins. Exch

. , 701 P.2d 795 , 799 (Utah 1985) (“This distinction is of no small consequence.”). As it relates to this case, the holding does not rest on this distinction because Mr.

Oltmanns waived the claim he is bringing before us, so his argument fails regardless of the context in which he brought it. The judgments in

the courts below, however may have the effect of confusing our jurisprudence in this area. Therefore, we take this opportunity to clar ify well settled principles of law regarding first

- party insurance claims and

third

- party insurance claims as part of our responsibility “[a]s the

state’ s highest court

. . . to maintain a sound and uniform body of precedent .” Patterson v. Patterson

, 2011 UT 68, ¶ 20 , 266 P.3d 828

.Cite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

13 ¶27 These principles are clearly laid out in our precedent. To ignore the incorrect approach the parties have taken in this case could set incorrect precedent for future cases and further confuse the distinction

between first

- party insurance claims and third

- party insurance claims. “[S]ettled appellate precedent is of crucial importance in establishing a clear, uniform body of law.” In re United Effort Plan Tr. , 2013 UT 5, ¶ 18,

296 P.3d 742 (citation omitted) . “ As the state’ s highes t court, we have a responsibility to maintain a sound and uniform body of precedent and must apply the [correct] law. ” 1 Patterson , 2011 UT 68, ¶ 20. Although we are not actually applying the principles of law governing first

- party and

third

- party insurance claims to the holding of this case, we reiterate the need to clarify the law because of the arguments and judgments made in the briefs and the courts below. The parties’ “failure to address the legal question from the right perspective does not render us powerless to work the problem out properly. A court of appeals may and often should do so unbidden rather than apply an incorrect rule of law to the parties’ circumstances.” 2 Williams

- Guice v. Bd. of Educ. , 45 F.3d 161, 164

1 The majority would have us apply the principles of law for

first

- party claims because “the parties have litigated this as a first

- party insurance dispute .” Infra ¶ 21 . We think this unwise and believe that where the inappropriate law has been argued or applied, the appellate courts have a duty to ensure that the correct law is applied: “[a]s a court of last resort, [the supreme court] ha[s] the authority to decide on whatever grounds we deem appropriate, regardless of preservation or presentation .” State v. Johnson , 2017 UT 70, ¶ 43, ___ P.3d ___ (alterations in original ) (citation omitted). Typically, however, appellate courts under these circumstances would ask for supplemental briefing or a

remand to the court below. See i d. ¶ 45. Because our holding does not
rest on the distinction in the law in this case, I do not se e the need to do

so.

2 I note that Oltmanns ’ claim fails regardless of whether first

- party

claim law or third

- party claim law applies because he waived his argument as to Fire Insurance’s breach of duty in filing a declaratory judgment. I agree with the ma jority that “ Mr. Oltmanns’s argument

fails on its own terms.” Supra ¶ 10 . However, the reasoning for my holding is that “Fire Insurance was ‘entitled to seek a declaratory judgment as to its obligations and rights,’” supra ¶ 24 , and that

Oltmanns acknowled ges this right in his brief, thus waiving any claims for attorney fees for that declaratory judgment.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

14 (7th Cir. 1995)

. “[W] e decline t o ignore controlling law because counsel failed to argue it below. ” Patterson , 2011 UT 68, ¶ 21, see also i d. ¶¶ 18, 20, (“[W] e are unwilling to disregard controlling authority that bears upon the ultimate resolution of a case solely because the parties di d not

raise it below.

. . . And the failure to raise the controlling [precedent] in the district court is a failure that can be appropriately assigned to counsel for both parties. ” ) 3 ; Kaiserman Assocs. v. Francis Town , 977 P.2d

462, 464 (“ In our view, an overlooked or abandoned argument should not compel an erroneous result. We should not be forced to ignore the law just because the parties have not raised or pursued obvious

arguments. ”); Adkins v. Uncle Bart’s Inc. , 2000 UT 14, ¶ 40, 1 P.3 d 528 (same).

¶28 H ere, the parties are incorrectly using arguments derived from

common

- law first

- party insurance claims when they should be using

the common

- law principles of third

- party claims. Whether a question of coverage is “fairly debatable” has become a term of art t hat has only

been decided in Utah in the context of first

- party claims. Therefore, it is not applicable to this case. Because Mr. Oltmanns’ s claim falls under

3 I disagree with the majority that because both parties have framed

their claim as a first

- party claim we must apply first

- party insurance

claim law to the case. Ultimately, I do not apply either. However, as a court, we are not bound to accept arguments regarding incorrect law. This is clearly a third

- party insurance claim, and we have clearly defined precedent regarding third

- party claims. Nor do I agre e with the majority’s claims that the common law in third

- party insurance claims

is unsettled in Utah. Supra ¶ 20 . We do not “need adversarial briefing before” we can reiterate what has been litigated by other parties who have had the opportunity to litiga te their claims in our adversarial system and been decided by this court. Supra ¶ 18

. The precedent is clear and has been extensively litigated by those who have had the opportunity to present adversarial briefing. Nor is it pertinent that the law in this area is unsettled in other jurisdictions. Supra ¶ 20 . It is well

settled in Utah and neither party has asked us to reconsider our precedent. In fact, one of the primary cases on insurance law also reached the United States Supreme Court, who only reversed on the amount of punitive damages awarded. See Campbell v. State Farm Mut.

Auto Ins. Co., 2001 UT 89, 65 P.3d 1134, reh ’ g denied ( 2001 ) ; cert. granted

65 P.3d 1134 ; rev ’ d & remanded on other grounds

, 538 U.S. 408 (2003).Cite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

15 third

- party liability law, the relevant questions are whether the insurer initiated the declaratory judgment action to have the court deter mine a ”question of construction or validity ” as defined by Utah Code

section 78B

- 6

- 408 and whether the insurer’s inquiry was “reasonable under the circumstances,” pursua nt to Utah Rule of Civil Procedure 11(b)

. 4

¶29 We take this opportunity now, to restate our precedent concerning first

- party claims and third

- party claims to fulfill our responsibility “[a]s the state’s highest court .

. . to maintain a sound and uniform body of precedent.” Patterson , 2011 UT 68, ¶ 20. While insurance policies are contracts at their core, they are treated differently than most contracts under the common law to protect the reasonable expectations of the insured and the insurer. See generally Ma rk A.

Geis t feld, Interpreting the Rules of Insurance Contract Interpretation , 68

R UTGERS U. L. R EV

. 371 (2015). This is true for both liability insurance

claims where a third party makes a claim against the insured’s policy

and first

- party claims where an insured seeks reparation from its own

insurer.

I. INSURANCE LAW IS CONTRACT LAW THAT

CONTAINS ADDED PROTE CTIONS

FOR THE INSURED

¶30 Basic c ontract law is based on the assumption that courts act to “adjust a commercial relationship between parties with roughl y equ al bargaining power.” Mark A. Geis t feld, Interpreting the Rules of Insurance Contract Interpretation , 68 R UTGERS U. L. R EV

. 371, 382 (2015) ( quoting

R OBERT H. J ERRY

, II & D OUGLAS R. R ICHMOND

, U NDERSTANDING

I NSURANCE L AW § 25D(b) (5th ed. 2012)). Howev er, in the context of insurance contracts, the insured is presumed to be “an ordinary, unsophisticated consumer, possessing an understanding of only the most rudimentary aspects of the coverage.” Id. Thus, courts have “interpret[ed] standard

- form insurance policies to protect the ordinary policyholder’s reasonable expectations of coverage.” Id. at 373. Additionally, insurers need to be able to rely on reasonable interpretations to avoid the “risk of legal error that can significantly disrupt the insurer’s a ctuarial calculations

, ” thus keeping insurance

available and affordable. Id. at 374. Insurance law incorporates all the

4 This rule was amended in May 2016, but the relevant provision here was unchanged.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

16 basic principles of contract law, including the implied duty of good faith and fair dealing. But, because of the nature of insurance contracts, and the importance of the public policy considerations, insurers are held to a higher standard than ordinary merchants.

A. Public Policy Implications

¶31 The practice of treating questions of interpretation of insurance contracts differently and of providing for broader remedies under certain conditions than contracts in gener al comes as a result of several public policy implications inherent in insurance contracts. Insurance policies are adhesion contracts. Insurance companies typically use

standardized forms

, and there is no room for negotiation or approval of specific provis ions or exceptions. See Douglas R. Richmond, Trust Me:

Insurers Are Not Fiduciaries to Their Insureds , 88 K Y

. L.J. 1, 4 (2000); see also Geisfeld, supra ¶ 29 , at 382; M ARGARET N. K NIFFIN
, 5 C ORBIN ON

C ONTRACTS § 24.27 (Joseph M. Perillo ed., rev. ed., 1998 ) (“Disparity of bargaining power is likely to exist when a person applies for an insurance policy. The applicant usually has little or nothing to do with the authorship of the policy provisions. The applicant may not even read the policy, being discourage d by the number of terms and the fineness of print. An insurance company normally issues thousands of such policies, using printed forms prepared and approved by its

actu aries, officers, and attorneys.” (footnote omitted)).

¶32 And, purchasing insurance is not always “voluntary.” Insurance coverage is often a requirement of obtaining a mortgage and is mandatory for drivers in Utah. See U TAH C ODE § 31A

- 22

- 302 (requiring owners or operators to carry both no

- fault and liability auto insurance). Also, rather than b eing strictly a commercial relationship, most “insureds purchase their policies for peace of mind and security rather than for financial gain.” Richmond, supra ¶ 3 1 at 4 (footnote omitted)

. ¶33 Because of these policy considerations, “ t his Court has expressed its commitment to the principle that ‘insurance policies should be construed liberally in favor of the insured and their beneficiaries so as to promote and not defeat the purposes of

insurance.’” U.S. Fid. & Guar. Co. v. Sandt , 854 P.2d 519, 521 (Utah 199 3) (citation omitted) . This includes construing “ambiguous or uncertain language in an insurance contract that is fairly susceptible to differentCite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

17 interpretations

. . . in favor of coverage,” 5 id

. at 522, and “in light of how the average, reasonable purchas er of insurance would understand the language of the policy as a whole,” i d. at 523.

B. The Duty of Good Faith and Fair Dealing

¶34 Insurers have, at minimum, the same implied “duty of good faith and fair dealing implied in all contracts and

. . . a violation of that duty gives rise to a claim for breach of contract.” Beck v. Farmers Ins.

Exch ., 701 P.2d 795, 798 (Utah 1985). “Every contract or duty

. . . imposes an obligation of good faith in its performance and

enforcement.” U.C.C. § 1

- 304 ( A M

. L AW I NST

. & U NIF

. L AW C OMM ’ N 2016). See also R ESTATEMENT (S ECOND ) OF C ONTRACTS § 205 ( A M

. L AW

I NST . 2017) (“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”); Aditi Bagchi, Note, Unions and the Duty of Good Faith in Employment Contracts

, 112 Y ALE L.J. 1881, 1882 (2003) (“The duty of good faith is a background condition imposed on all contracts that limits the negative effects of unequal bargaining power

. . . .”). “’Good faith’

. . . means honesty in

fact and the observance of reasonable commercial standards of fair dealing .” U.C.C. § 1

- 201(b)(20 ) ( A M

. L AW I NST

. & U NIF

. L AW C OMM ’ N

2016 ).

¶35 In insurance contracts, the good faith performance of an insurer is evaluated by an objective standard that is measured by what a reasonable insured would expect from an insurer. See Sandt , 854 P. 2d

at 523. “Good faith

. . . emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as

5 But see Truck Ins. Exch. v. Ruther ford , 2017 UT 25, ¶ 14, 395 P.3d 143 (finding that where language is unambiguous in insurance code there is

“no need for a tie

- breaker, and thus no relevance for the principle of

liberal construction of the Act ” (emphases added) (citation omitted)). In

Ru therford , we noted that our common law interpretation that the “tie goes to the insured” in ambiguous statutes was abrogated by Utah

Code sections 31A

- 1

- 102 and

- 201(1). Id . ¶ 15. While Rutherford required us to interpret the coverage mandated by statute, this case requires us to interpret the coverage mandated in a contract. Our interpretation of insurance contracts is still governed by the common law requirement that we construe insurance contracts “in favor of coverage” when the terms are ambiguous.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

18 involving ‘bad faith’ because they violate community standards of decency, fairness or reasonableness.” R ES TATEMENT (S ECOND ) OF

C ONTRACTS § 205 cmt. a ( A M

. L AW I NST . 2017). In the insurance context, this court has held “that the implied obligation of good faith performance contemplates, at the very least, that the insurer will diligently investigate the facts t o 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.” Beck , 701 P.2d at 801 (applying this duty in the first

- party context); see also Black v. Allstate

Ins. Co. , 2004 UT 66, ¶¶ 19

– 20 , 100 P.3d 1163 (applying the same

standard in the third

- party context)

, reh’g denied (2004).

¶36 Insurers are also required to “’deal with laymen as laymen and not as experts in the subtleties of law and underwriting’ and to refrain from actions that will injure the insured ’ s ability to obtain the benefits

of the contract.” Beck , 701 P.2d at 801 (citation omitted). Insurers owe a responsibility to their insureds because of their position of authority

and control over th e underwriting process. See Allen v. Metro. Life Ins.

Co. , 208 A.2d 638 , 644 (N.J. 1965) (“While insurance policies and binders are contractual in nature, they are not ordinary contracts but are ‘contracts of adhesion’ between parties not equally situated. The company is expert in its field and its varied and complex instruments are prepared by it unilaterally whereas the assured or prospective assured is a layman unversed in insurance provisions and practices. He justifiably places heavy reliance on the kn owledge and good faith of the company and its representatives and they, in turn, are under correspondingly heavy responsibility to him.”(citations omitted)).

II. IMPLIED AND CONTRACT UAL DUTIES AND

OBLIGATIONS UNDER THIRD

- PARTY CLAIMS

AND FIRST

- PARTY CLAI MS

¶37 While all insurers have a duty of good faith and fair dealing

with their insureds, there is a difference in the relationship between the
insurer and the insured, the insurer’s implied obligations of good faith performance, and the remedies available to the insured depending on

whether the claim is a third

- party liability claim or a first

- party claim. This difference gives rise to an heigh tened duty in the case of

third

- party claims.Cite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

19 A. Relationships Between Parties

¶38 Third

- party cases involve liability , n ot just coverage . In these cases, a person who is not a party to the insurance contract sues the insured for the losses that are covered by the insurance contract.

Insured s seek coverage under the ir insurance contract for their responsibil ity for the losse s of the third party up to the coverage limit in the policy , tendering the defense of the claim to the insurer

. The

insurer’s duty lies in defending and indemnifying the insured in good

faith. An insurer is not in pri vity of contract with the third party w ho has made a claim against the company’s insured , so the contractual duty to deal fairly and in good faith does not extend to an injured

third

- party. See Pixton v. State Farm Mut. Auto Ins. Co. , 809 P.2d 746 (Utah Ct. App. 199 1 ). An insurer’s duties in these claims are owed to the insured, not the third party. See Black v. Allstate Ins. Co. , 2004 UT 66,
¶ 20, 100 P.3d 1163 (“When an insurer processes a claim

. . . from a third party requesting coverage under the insured’s liability policy, the insurer must act in good faith with respect to its own insured.”)

, reh ’ g denied ( 2004 )

. In third

- party claims, the insureds look to the insurers to defend and indemnify them. In essence, the insurer and the insured are

on the same side and the third party is the adversary.

¶39 In first

- party cases, insured s suffer a loss and then make claims for reparations from the ir insurers , arguing that the loss is covered by the policy . For example, if a hailstorm damages an insured’s roof, she

would make a cl aim under her homeowner’s policy for repairs. In these cases, the relationship between the insured and the insurer is more adversarial. They have conflicting interests. The insured wants to get the most compensation possible, and the insurer wants to cover as little as permissible under the contract . “In the [first

- party] situation, the insured and the insurer are, in effect and practically speaking,

adversaries.” Beck v. Farmers Ins. Exch. , 701 P.2d 795, 799 (Utah 1985) (alteration in original) (citation omitted).

B. Standard of Care and Implied and Contractual Obligations

¶40 The differences in the relationships between the insured and the insurer in these two types of claims affect the implied obligations of good faith performance. In third

- party claims, the insured has a heightened duty that incorporates not only all of the typical contractual obligations of good faith and fair dealing that exist in every insurance contract, but also a duty as a fiduciary to their insureds. First

- party claims, on the other h and do not give rise to this heightened duty.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

20 1. Third

- Party Heightened Duty

¶41 In third

- party cases, there is not only the implied duty of good faith performance that inheres in any insurance contractual relationship, but there is an extended duty because “t he insurer acts as an agent for the insured with respect to the disputed claim.” Beck , 701

P.2d at 799.

¶42 This heightened duty has been characterized as fiduciary in nature in our prior case law. See , e.g., Black , 2004 UT 66, ¶ 27 (“[U]pon

the initiation of formal legal proceedings

. . . the insurer undertake[s] a fiduciary duty to defend its insured by appointing counsel and thereafter zealously protecting the interests of its insured in defending or negotiating settlement of the action.” (emphasis added) ) ; Campbell v.

State Farm Mut. Auto Ins. Co. , 2001 UT 89, ¶ 121, 65 P.3d 1134 (“The duties of good faith arising in a third

- party context include fiduciary duties and are higher duties than the duties arising under the contract theory in a first

- party cont ext.” (emphasis added) ), reh’ g denied

, ( 2001 ) ; cert. granted

, 65 P.3d 1134; rev ’ d & remanded on other grounds

, 538 U

. S

. 408 (2003) ; Campbell v. State Farm Mut. Auto Ins. Co.

, 840 P.2d 130, 140 (Utah Ct. App. 1992) (noting that “the implied duty of good faith and fair dealing [in a third

- party insurance case]

. . . . imposes a fiduciary duty upon the insurer because of the trust and reliance placed in the insurer by its insured” (emphasis added) ) ; Beck , 701 P.2d at 799 (“In
essence, the contract itself creates a fiduciary relationship because of the trust and reliance placed in the insurer by its insured.” (emphasis added) ) ; Ammerman v. Farmers Ins. Exch. , 430 P.2d 576 , 578 (Utah 1967) (“The covenant in the policy re quiring the insurer to defend the insured imposes upon it a fiduciary responsibility.” (emphasis added)).

¶43 Fiduciary duties are “established, whether by express contract or by conduct and circumstances of the parties, which imply a fiduciary

bond and a dut y on the party in whom confidence is placed to exercise good faith toward the party reposing that confidence while entering into transactions during the continuance of the relationship.” First Sec. Bank of Utah N.A. v. Banberry Dev. Corp. , 786 P.2d 1326, 1 330 (Utah 1990).

[T] here are generally two types of fiduciary relationships: “ (1) [T]hose specifically created by contract such as principal and agent, attorney and client, and

trustee and cestui que trust, for example, and those created by formal legal p roceedings such as guardian and/orCite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

21 conservator and ward, and executor or administrator of an estate, among others, and (2) [T]hose implied in law due to the factual situation surrounding the involved transactions and the relationship of the parties to each other and to the questioned transactions. ”

Id. at 1332 (second and third alterations in original) (citation omitted). Most fiduciary relationships require that the fiduciary “give priority to his beneficiary’s best interests whenever he acts on the benefi ciary’s

behalf. ” Richmond, supra ¶ 3 1

, at 1 (citation omitted) ; see also Banberry Dev. Corp. , 786 P.2d at 1333 (“A fiduciary relationship imparts a position of peculiar confidence placed by one individual in another. A fiduciary is a person with a duty to act primarily for the benefit of another.” (citation omitted)). It is a duty that requires “undivided loyalty” to the beneficiary. Richmond, supra ¶ 3 1

, at 1 (citation omitted).

¶44 Fiduciary duties “arise whenever a continuous trust is reposed by one party in the skill and integrity of another.” Banberry Dev. Corp.

, 786 P.2d at 1333. “Generally in a fiduciary relationship, the property, interest or authority of the other is placed in the charge of the fiduciary

. ” Id. (citation omitted). Fiduciary duties can be established by

statute 6 or by common law. 7

¶45 There are, however, some differences between typical fiduciary relationship s and the relationship between the insurer and the insured

in third

- party cases. “ I n the [third

- party] situation, the insurer must act in good faith and be as zealous in protecting the interests of the insured as it would be in regard to its own.” Beck , 701 P.2d at 799 (alteration in original) (citation omitted). T his is a lower standard than that required

of a typical fiduciary relationship where the fiduciary must place the interests of the beneficiary above its own. T his court described the

6 Se e, e.g., U TAH C ODE § 16

- 10a

- 840 ( explaining the fiduciary duties owed by directors to a corporation); U TAH C ODE § 48

- 3a

- 409 ( explaining

the fiduciary duties owed by members in a member

- managed limited liability company); U TAH C ODE §§ 22

- 1

- 1 to

- 2, 75

- 7

- 801 to

- 804 ( explaining the fiduciary duties owed by the trustee of a trust).

7 See

, e.g. , Daniels v. Gamma W

. Brachytherapy, LLC , 2009 UT 66, 221
P.3d 256; Christensen & Hensen, P.C. v. Barrett & Daines , 2008 UT 64, 194
P.3d 931; S orensen v. Barbuto , 2008 UT 8, 177 P.3d 614; Banberry Dev. Corp. , 786 P.2d.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

22 nature of the duty of the insurance company as fiduciary in Ammerman

, ad opting a lower fiduciary obligation than that of a typical fiduciary. 430 P.2d at 579 (describing the obligation as one that “should be looked at realistically, and

. . . dictated b y reason and prudence under the

circumstances

. . . [ with ] an awareness

. . . that the nature of the risks and the extent of liability under an insurance policy are based on premiums

. . . correlated to the legitimate costs of the insurance”).

¶46 Some scholars have argued that third

- party insurer/insured relationship should not be lumped together with other fiduciary relationships. “If insurers were made to be true fiduciaries, they would lose their ability to hold down premiums by weeding out illegitimate claims, contesting an insured’s liability, or disputing a third

- party

claima nt’s damages.” Richmond, supra ¶ 31 at 24. Were this the case, “[t]he cure might then be worse than the illness because insurers would then surely have to fund their new duty through significantly increased premiums.” Id. We acknowledged this concern in Am merman . 430 P.2d

at 578

– 79 (“It is true that the company cannot properly gambl e with or

sacrifice the insured’ s interest simply to protect itself. By the same token it is neither practical nor reasonable to expect it to subvert its own interests entirely t o protect the insured by requiring it to accept any offer below the policy limits, regardless of circumstances, and however questionable the issues of liability and damage may be.”). However, “the existence of a fiduciary relationship

. . . is manifest in

. . . [the] confidence of the [insured] in the [insurer]” because “there

. . . exist[s] a certain inequality, dependence,

. . . business intelligence, knowledge of the facts involved, or other conditions, giving to [the insurer] advantage over the [insured ].” Banberry Dev. Corp. , 786 P.2d at 1333 (citation omitted). A fiduciary relationship is established by the

insurance contract when the insurer contracts to defend the insured for

third

- party liability claims. See Grantsville v. Redevelopment Agency of Tooele City , 2010 UT 38, ¶ 42, 233 P.3d 461 (“ A fiduciary relationship ‘results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.’ ” ( quoting War dley Corp. v. Welsh, 962 P.2d 86, 89 (Utah Ct. App. 1998) quoting R ESTATEMENT (S ECOND ) OF A GENCY § 1(1) ( A M

. L AW I NST

. 1958) ).

¶47 B ecause of the insurer’s special role “[i]n the third party

context,

. . . an insured may state a cause of action in tort for an insurer’s breach of its obligations.” Campbell

, 840 P.2d at 138

. “Accordingly, Utah law allows an insured to sue an insurer in tort toCite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

23 remedy a violation of that duty.” Id. Thus a breach of the heightened duty of an insurer acting as a fiduciary in third

- p arty cases “renders the insurer answerable in tort to remedy a breach of that duty.” Id. at 140. This exposes the insurer to the possibility of “consequential and punitive damages awards in excess of policy limits” if they fail to act reasonably in their d uties as fiduciary in third

- party claims. Black , 2004 UT 66, ¶ 25 (citation omitted).

¶48 Insurers owe their insureds four duties in third

- party claims: (1) the duty to defend an action brought against their insureds that could conceivably fall within the scop e 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 their insureds for valid claims, and (4) the duty to settle claims within the policy limits where possible. See Black , 2004 UT 66

, ¶ ¶ 20

– 21 ( “ When an insurer processes a claim, whether it be from its own insured or from a third party reques ting coverage under the insured’ s liability policy, the insurer must act in good faith with respect to its own insured. In previous cases before this court, we have addressed the good faith duty owed by an insurer to its insured when negotiating settlement of and defending claims brought by third parties. In addition to these duties,

we hold today that claims submitted by third parties must be diligently investigated to determine their validity and then reasonably evaluated in light of all the fa cts. This is a duty the insurer owes to its insured by virtue of the insurance policy. Hence,

. . . [the insurer] at least had an obligation to [the insured] to diligently investigate the facts, and then act fairly and reasonably in evaluating and settling the claim. We note that this duty to investigate and reasonably evaluate a third

- party claim do es not require that the insurer’ s evaluation ultimately prove to be correct. For example, the fact that a different outcome is reached at a subsequent trial is not dispositive of whether the insurer breached its duty. Rather, whether an insurer discharges it s duty in these instances hinges upon whether the investigation and subsequent resolution of the claim is fair

and reasonable. ” (citing Sperry v. Sperry, 1999 UT 101, ¶ 11, 990 P.2d

381; Beck, 701 P.2d at 799

– 800; Ammerman, 430 at 578

– 79 ) ) ; see also

Richmo nd, supra ¶ 3 1 at 7

. If an insurer breaches one of these duties when its insured is being sued by a third party, the insured has a cause of action in contract law for breach of the implied covenant of good faith

and in tort law for failure to act as fiduci aries for the insured.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

24 a

. The c ontractual d uties to d efend and i ndemnify in third

- party

claims

¶49 The duties to defend and indemnify the insured are defined by

contract . The insurer has a duty to defend as defined in contract, and that duty may well exceed th e duty to indemnify. This duty arises when the insurer has obligated itself to defend the insured in the insurance contract and there is a sufficient factual basis for potential liability of a covered incident. “The duty to defend is broader than the duty to indemnify, but the insurer’s obligation is not unlimited; the duty to defend is measured by the nature and kinds of risks covered by the policy and arises whenever the insurer ascertains facts which give rise to the potential of liability under the poli cy.” Deseret Fed. Sav. &

Loan Ass’n v. U.S. Fid. & Guar. Co. , 714 P.2d 1143, 1146 (Utah 1986) (citation omitted). Nevertheless, “an insurer may have a duty to defend

an insured even if

. . . the insurer is ultimately not liable to indemnify

the insured.” Fire Ins. Exch. v. Therkelsen , 2001 UT 48, ¶ 22, 27 P.3d 555.

¶50 Even where insurers have contracted to defend their insureds in liability cases, they are n ot required to defend all cases regardless of

how frivolous they are or how unlikely it is that the los s is covered by the policy . “Where there is no potential liability, there is no duty to

defend.” Deseret Fed. Sav. & Loan Ass’n , 714 P.2d at 1147 (citations omitted). “When faced with a decision as to whether to defend or
refuse to defend, an insurer is en titled to seek a declaratory judgment as to its obligations and rights.” Farmers Ins. Exch. v. Call , 712 P.2d 231

, 237 (Utah 1985). However , an insurer has a duty to defend against a potentially viable third

- party liability claim “unless relief is obtained by way of a declaratory judgment.” State Farm Mut. Auto Ins. Co. v. Kay

, 487 P.2d 852, 855 (Utah 1971)

, overruled on other grounds by Call , 712 P.2d

231

. Thus, when there is a non

- frivolous claim and there is a question as

to whether the insurer will have to pay the claim, the insurer should defend the insured until it obtains a declaratory judgment holding that there is no coverage for the loss under the policy. At that point in time, the duty to defend ends.

b

. T he heightened duty t o act a s fiduciaries i n third

- party claims

¶51 Because insurer s act as insureds ’ agent s in the disposition of

third

- party claims, they have an implied heightened duty as fiduciarie s to diligently investigate the validity of claims and to settle claims within the policy limits where possible. This duty extends beyond theCite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

25 duty of good faith and fair dealing that exists in first

- party claims . This duty arises because

[a]n insurer’s failure to act in good faith exposes its insured to a judgment and personal liability in excess of the p olicy limits.

. . . The insured is wholly dependent upon the insurer to see that, in dealing with claims by third parties, the insured ’ s best interests are protected. In addition, when dealing with third parties, the insurer acts as an agent for the insured with respect to the disputed

claim.

Beck , 701 P.2d at 799.

¶52 “With such a dependent relationship must come a standard of

care that exists independent of the insurance policy and without specific reference to the policy terms.” Richmond, supra ¶ 3 1 at 7 (footnote omitted); s ee also Campbell 840 P.2d at 138 (“This higher duty is imposed on the insurer because in a third

- party situation, the insurer ‘controls the disposition of claims against its insured, who relinquishes any right to negotiate on his own behalf.’” (citation omitted)). This heightened duty to act as fiduciaries also exposes insurers to tort liability for breach of these d uties.

¶53 This court has held that “claims submitted by third parties must be diligently investigated to determine their validity and then reasonably evaluated in light of all the facts.” Black , 2004 UT 66, ¶ 20

. The fulfillment of this duty is not dependent on the ultimate outcome of the claim. “Rather, whether an insurer discharges its duty in these instances hinges upon whether the investigation and subsequent

resolution of the claim is fair and reasonable.” Id. ¶ 21. If an insurer

chooses not to defend an insured in a third

- party claim, it must do so only after it has

ma[d]e a good faith determination based on all the facts known to it, or which by reasonable efforts could be discovered by it, that there is no potential liability under the policy . This me ans that there are no disputed facts which if proved by the plaintiff at trial would result in liability under the policy. However, this does not mean that the insurer can simply say, “We don’t believe that the plaintiff can prove what he is alleging.” The insurance contract includes the duty to defend [when]

. . . . the allegations, if proved, could result in liability under the policy

.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

26 Deseret Fed. Sav. & Loan Ass’n

, 714 P.2d at 114 7 (emphasis added) (citations omitted). This duty to diligently investigate claims and to reasonably evaluate them in light of the facts available to determine their validity is not defined by contract and inheres in all third

- party

claims. Even if an insurer eventually pays for a claim and the associated costs of that claim, this “eventual payment

. . . does not necessarily vitiate the insured’s cause of action [in tort] for breach of the duty ” to

defend

. Campbell

, 840 P.2d at 139.

¶54 If an insurer does not defend an action, and a court finds “ fac ts which give rise to the potential of liability under the policy

, ” Deseret

Fed. Sav. & Loan Ass’n

, 714 P.2d at 1146 (citation omitted), the insurer faces significant claims for damages. An insured may bring a contract

claim for breach of the contract ter m promising to defend against third

party claims. See Beck , 701 P.2d at 801 (“[A] s parties to a contract, the insured and the insurer have parallel obligations to perform the contract in good faith, obligations that inhere in every contractual relationship .”). An insured may also bring tort claims for breach of the insurer’s heightened duty in third

- party claims. See i d. at 799 (“[B] ecause a third

- party insurance contract obligates the insurer to defend the insured, the insurer incurs a fiduciary duty to it s insured to protect the insured's interests as zealously as it would its own; consequently, a tort cause of action is recognized to remedy a violation of that duty .” (citation omitted)). Additionally, the insurer may be liable for the entire judgment ente red against its insured or any

settlement that the insured and the third

- party reach even if it exceeds the policy limits. See Douglas R. Richmond, An Overview of Insurance Bad Faith Law and Litigation

, 25 S ETON H ALL L. R EV . 74, 79 & n.30 (1994) (“ Under th e judg ment rule, the mere entry of an excess judgment against the insured is sufficient to hold the offending insurer wholly liable. The reasoning is basic: judgment proof insureds are injured by excess judgments because their credit is potentially impaired, title to their exempt estates may be clouded, their ability to borrow may be eroded, and they may be forced into bankruptcy. ”).

¶55 In light of this precedent, we leave insurers few options when handling a third

- party claim. Insurers must (1) be cert ain that an
occurrence is not covered, see Deseret Fed. Sav. & Loan Ass’n

, 714 P.2d at

1147 (“ The insurer must make a good faith determination based on all the facts known to it, or which by reasonable efforts could be discovered by it, that there is no po tential liability under the policy. This means that there are no disputed facts which if proved by theCite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

27 plaintiff at trial would result in liability under the policy. ” (citation s omitted)); (2) seek a declaratory judgment regarding coverage, see Call

, 712 P .2d at 237 (“ When faced with a decision as to whether to defend or refuse to defend, an insurer is entitled to seek a declaratory judgment as to its obligations and rights .”); or (3) pay or settle the claim with the third party. Because of the risks to an insurer of not obtaining a declaratory judgment when there is a belief that the insurer will possibly prevail in a coverage dispute, even if that chance is remote, it is usually reasonable for an insurance company to request the district court to “issue [a ] declaratory judgment[] determining rights, status, and other legal relations within its respective jurisdiction,” U TAH C ODE § 78B

- 6

- 401(1), if the insurer determines that the occurrence is not likely covered under the policy.

c. The insurer’s rights under third

- party claims

¶56 Under Utah Code section 78B

- 6

- 401, (the declaratory judgment statute) “[e]ach district court has the power to issue declaratory judgments determining rights, status, and other legal relations within its respective jurisdiction

. . . . The declaration

. . . shall have the force and effect of a final judgment or decree. ” In Baird v. State

, 8 we held that the phrase “’rights, status and other legal relations’ in the declaratory judgment statute relates to a justiciable controversy where there is an actual conflict between interested parties asserting adverse claims on an

accrued set of facts.” 574 P.2d 713, 715 (Utah 1978). See also Miller v.

Weaver

, 2003 UT 12, ¶ 15, 66 P.3d 592 (“Stated another way, ‘[a] justiciable controversy authorizing entry of a declaratory judgment is

8 The operative statute in Baird , Utah Code section 78

- 33

- 2, was renumbered and amended in 2008 and was the predecessor to Utah

Code section 78B

- 6

- 401. It read Any person interested under a deed, will or written contract, or whose rights, status or other legal relations are affected by a statute, municipal ordinance, contract or franchise, may have determined any question of construction or validity arising under the instru ment, statute, ordinance, contract or franchise and obtain a declaration of rights, status or other legal relations

thereunder. Although some material changes were made in the 2008 statute, what constitutes a “justiciable controversy” remains the same.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

28 one wherein the plaintiff is possessed of a protectible interest at law or in equity and the right to a judgment, and the judgm ent, when pronounced, must be such as would give specific relief.’” (alteration in original) (citation omitted)). Declaratory judgments are “designed to

resolve

. . . controversies in order to curtail further problems.” Pintar v.

Houck , 2011 UT App 304, ¶ 25, 263 P.3d 1158.

¶57 In addition to our case law about the rights of a party to bring a declaratory judgment action under Utah Code section 78B

- 6

- 401, we have specifically recognized this right under third

- party liability case law

. T he standard is whether t he insurer initiated the declaratory judgment action to have the court determine a “justiciable controversy.” See W. Cas. & Sur. Co. v. Marchant , 615 P.2d 423, 427 (Utah 1980) (holding that “[i]t would not comport with our ideas of either law or justice to prevent any party who entertains bona fide questions about his legal obligations from seeking adjudication thereon in the courts,” and “where the plaintiff merely stated its position and initiated [an] action for [a] determination of what appears to be a justiciable controversy” (citing U TAH C ONST . art

. 1, § 11)) . In the third

- party insurance claim, an insurer who files a declaratory action to determine its coverage obligations is within its rights to do so provided there is a legitimate question of covera ge. 9

9 Although not at issue on this appeal, we note that in the underlying case which gave rise to this appeal, the district court found the term “jet ski” in the contract to be “clear and unambiguous in that the meaning would be plain to a person of ordinary in telligence and understanding viewing the matter fairly and reasonably, in accordance with the usual and natural meaning of the words

. . . .” In the transcript at oral arguments on this issue, the district court stated that in its “best

view

. . . it would be plain to a person of ordinary intelligence and understanding that the generic term ‘jet ski,’ as included in the insurance agreement in this case, includes the watercraft involved in this litigation. So I’m going to grant the motion for that re ason

. . . .” In its memorandum to the district court in support of summary judgment, Fire Insurance attached several websites as exhibits, including boat reviews and a Wikipedia article among others. Neither the lawyer nor the court explains how a person al “best

view” or a self

- selected sampling of websites of questionable reliability provides substantial evidence as to how a layman reading the contract (cont.)Cite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

29 would interpret “jet ski.” As recognized by this court and others, lawyers should provide courts with m eaningful tools using the best available methods when the court is tasked with determining ordinary meaning. See FCC v. AT&T, Inc.

, 562 U.S. 397 , 406 07 (2011); State v.

Rasabout , 2015 UT 72, 356 P.3d 1258 (Lee, A.C. J., concurring); State v.

Canton , 2013 U T 44, ¶¶ 13, 20, 27 n.6, 308 P.3d 517; People v. Harris , 885

N.W.2 d 832, 838

– 42 (Mich. 2016). Even though we place great trust in a judge’s discernment, a “judge’s confidence in her linguistic intuition may be misplaced

. . . . Though the human language fac ulty is very good at assessing which meanings are linguistically permissible in a given context, human intuition is less successful in selecting the most common meaning or common understanding.” Stephen C. Mouritsen, Hard Cases and Hard Data: Assessing Cor pus Linguistics as an Empirical Path to Plain Meaning

, 13 C OLUM

. S CI

. & T ECH

. L. R EV . 156, 160

– 61 (2012) [hereinafter

Mouritsen , Hard Cases ]. When terms are to “be interpreted according to their ordinary meaning, they implicate a set of empirical questions

, many of which are amenable to different types of linguistic analysis.

. . . [I]n the field of corpus linguistics, scholars

. . . determine

. . . those meanings that are consistent with common usage,” or “the term’s ordinary or most frequent meaning” based on empirical data rather than personal intuition

. Id. at 161. These tools for empirical analysis are readily available to lawyers and should be used when appropriate. See,

e.g. , Rasabout , 2015 UT 72, ¶¶ 57

– 134, (Lee, J., concurring); In re Adoption

o f Baby E.Z. , 2011 UT 38, ¶¶ 86

– 105, 266 P.3d 702 (Lee, A.C. J., concurring); Brief for the Project On Government Oversight et al. as Amici Curiae Supporting Petitioners, FCC v. AT&T, Inc.

, 562 U.S. 397 (2011) (No. 09

- 1279); 2017 BYU Law Review Symposium, La w & Corpus Linguistics , 2017 B.Y.U. L. R EV

. (forthcoming)

, http://lawcorpus.byu.edu/; Neal Goldfarb, Words, Meanings, Corpora: A Lawyer’s Introduction to Meaning in the Framework of Corpus Linguistics

, 2017 B.Y.U. L. R EV

. (forthcoming), https://ssrn.com/ab stract=2907485; Stephen C. Mouritsen, The Dictionary is Not a Fortress: Definitional Fallacies and a Corpus

- Based Approach to Plain Meaning , 2010 B.Y.U. L.

R EV . 1915; Mouritsen , Hard Cases, supra ; Daniel Ortner, The Merciful Corpus: The Rule of Lenity, Amb iguity and Corpus Linguistics , 25 B.U. P UB

. I NT

. L.J. 101 (2016); James C. Phillips, Daniel Ortner, & Thomas Lee, Corpus Linguistics & Original Public Meaning: A New Tool to Make Originalism More Empirical , 126 Y ALE L.J. F ORUM 20 (2016); Neal
Goldfarb, L AWN L INGUISTICS , https://lawnlinguistics.com/ (last visited (cont.)F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

30 ¶58 Where an insurer files a declaratory judgment action to determine its responsibilities in a third

- party claim that comports with

Utah Code section 78B

- 6

- 401(1) and Utah Rule of Civil Procedure 11(b), the insured is not entitled to attorney fees unless they are provided for

in the insurance contract. S ee Call , 712 P.2d at 237

– 238 (“An award of attorney fees is not warranted ‘where the plaintiff merely stated its position and initiated this action for determination of what appears to be a justiciable con troversy.’” (citation omitted)); W. Am. Ins. Co. v.

AV&S , 145 F.3d 1224, 1230 (10th Cir. 199 8) (refusing to award attorney fees for a declaratory action where “[t]here is no evidence in the record that West American did not file this action in good faith o r was stubbornly litigious”).

¶59 However, the right to bring a declaratory judgment action to determine a coverage question does not relieve the insurer of the duty to defend during the pendency of the declaratory judgment action if

there is a potentially via ble third

- party liability claim

. “ [ A ] n insurer may have a duty to defend an insured even if

. . . the insurer is ultimately not liable to indemnify the insured.” Therkelsen , 2001 UT 48,
¶ 22

. See also Deseret Fed. Sav. & Loan Ass’n , 714 P.2d at 1146 ; Kay , 487

May 16, 2017) (discussing many contemporary issues regarding corpus linguistics and the law and providing links to various online tools and resources). Additionally, both Fire Insurance’s and the court of appeals’ reliance on Wikipedia is ill

- advised. See Fire Ins. Exch. v. Oltmanns

, 2012 UT App 230, 285 P.3d 802. The article cited as authority for using Wikipedia by the majority warns against its use in precisely this kind of case, an appeal from a summary judgment. The article specifically cautions judges to “exercise care when citing a Wikipedia entry because of the collaborative and constantly changing nature of its content,” warning that judges “should not rely upon a Wikipedia entry as the

so le basis for their holding or reasoning or to demonstrate the existence or absence of a material fact in the context of a motion for summary judgment .” Lee F. Peoples, The Citation of Wikipedia in Judicial Opinions , 12 Y ALE J.L.

& T ECH

. 1, 50 (2010) (empha sis added). Further, because Wikipedia is a public collaboration it may be a reliable source for possible or permissible definitions of terms, but it can never yield reliable evidence on which of those possible uses are “common” or “ordinary.” For that,

so me type of empirical analysis is required.Cite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

31 P.2d at 855. This duty to defend is defined and governed by the
insurance contract, and where it exists, the insurer must defend the insured until the suit is finalized or there is a declaratory judgment that there is no coverage under the policy

.

2. First

- Party Standard of Good Faith and Fair Dealing

¶60 Because “ [n]o relationship of trust and reliance is created by the [insurance] contract” in the first

- party situation, the insurance contract “simply obligates the insurer to pay claims submitted by the

insured in accordance with the contract.” Beck , 701 P.2d at 800. “The Utah Supreme Court has found the nature of the relationship between a

first

- party insurer and its insured to be contractual, rather than fiduciary.” Id. at 801. “[T]he insured and the in surer have parallel obligations to perform the contract in good faith, obligations that inhere in every contractual relationship.” Id. (citations omitted).

¶61 Alth ough in the third

- party context an insurer’s breach of its duties as a fiduciary can expose the insurer to punitive damages in tort liability, a breach of the implied duty of good faith and fair dealing in

the first

- party context only permits remedies in contract law. See Id. at

800 ( “Without more [than a breach of duties and obligations of the

part ies in a first

- party relationship], a breach of those implied or express duties can give rise only to a cause of action in contract, not one

in tort.” ). See also Allapattah Servs., Inc. v. Exxon Corp. , 61 F. Supp. 2d 1326, 1328 (S.D. Fla. 1999) (“[D]amages for breaches of a contract are generally limited to those that equate to the benefit of the bargain
intended to be realized under the terms of the contract, or, in other
words, that which the non

- breaching party would have received had the contract been p erformed

. . . .”); Walsh v. Ford Motor Co. , 627

F. Supp. 1519 , 1523 (D.D.C. 1986) (“ The central purpose of damages in actions for breach of contract or warranty is to place the plaintiff in the same position he would have occupied had the contract not bee n breached

. Consequently, punitive damages are not awarded for mere breach of contract, regardless of the motives or conduct of the breaching party

. ” ( citing 5A C ORBIN

, C ORBIN ON C ONTRACTS § 992 at 5 (1964); U.C.C. § 1

- 106(1) ( A M

. L AW I NST

. & U NIF

. L AW C OM M ’ N ) ; Simpson, Punitive Damages for Breach of Contract , 20 O HIO S T

. L.J. 284 (1985) )

. ¶62 However, the damages recoverable under contract law are not constrained by the policy limits. See Beck , 701 P.2d at 801

– 02 (“Damages

recoverable for breach of contract in clude both general damages, i.e., those flowing naturally from the breach, and consequential damages,F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

32 i.e., those reasonably within the contemplation of, or reasonably foreseeable by, the parties at the time the contract was made. We have repeatedly recogn ized that consequential damages for breach of contract may reach beyond the bare contract terms.” (citations omitted)).

¶63 If an insurer denies a first

- party claim and the insured brings a suit against the insurer, the insurance company does not have to pay the claim until a judgment is made by the court. Noting that “[a]n insured frequently faces catastrophic consequences if funds are not available within a reasonable period of time to cover an insured loss,” this court specifically allowed for “damages for losses well in excess of the policy limits” when they are “foreseeable and provable.” Id. at 802 (citations omitted). Thus

, while breach of first

- party duties by the insurer only ha s remedies available under contract law, the damages

awarded the insured ma y exceed the policy limits in the insurance

contract. See i d. at 798 (holding “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 a viola tion of that duty gives rise to a claim for breach of contract”).

¶64 In the first

- party context, the insurer does not have a duty beyond the implied duty of good faith and fair dealing. However, this duty still requires an insurer to “diligently investigate t he facts to
enable it to determine whether a claim is valid,

. . . fairly evaluate the
claim, and

. . . act promptly and reasonably in rejecting or settling the

claim.” I d. at 801 (citation s omitted). But a s a party to a contract, “[w]hen a claim is fairly debatable, the insurer is entitled to debate it.” Callioux v. Progressive Ins. Co. , 745 P.2d 838, 842 (Utah Ct. App. 1987).

¶65 Because of the potential harm to insureds from an unpaid legitimate claim, our c ase law has recognized that an insurer may not deny a claim and require the insured to bring a suit in order to obtain coverage unless the question of coverage is reasonable or “fairly debatable.” This “fairly debatable” standard has become a term of art i n first

- party claims. See Jones v. Farmers Ins. Exch. , 2012 UT 52, ¶ 7, 286 P.3d 301 (“Farmers defended against Mr. Jones’s causes of action by arguing that his [underinsured motorists] claim was fairly debatable .” (emphasis added)); Prince v. Bear River M ut. Ins. Co. , 2002 UT 68, ¶ 28, 56 P.3d 524 (“The denial of a claim is reasonable if the insured’s claim is fairly debatable .” (emphasis added)); Billings v. Union Bankers Ins. Co. , 918 P.2d 461, 465 (Utah 1996) (“[A] first

- party insurer may [not] be heldCite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

33 liable for breaching the implied covenant on 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.” (emphasis added)); Callioux , 745 P.2d at 842 (“When a cla im is fairly debatable , the
insurer is entitled to debate it, whether the debate concerns a matter of fact or law.” (emphasis added) (citation omitted)). The use of this term

of art in our first

- party case law predates our 1997 amendment to Utah

Rule of Ci vil Procedure 11(b), 10 which requires a similar standard. However, in addition to the rule 11(b) requirements, the “fairly

debatable” standard in first

- party insurance claims also incorporates “the implied contractual obligation to perform a first

- party ins urance contract in good faith,” which “contemplates at the very least, that the

insurer will diligently investigate the facts to enable it to determine
whether a claim is valid,

. . . fairly evaluate the claim, and

. . . act promptly and reasonably in rejecting or settling the claim.” Beck , 701

P.2d at 80 1

.

10 Utah Rule of Civil procedure 11(b) states that [b]y presenting a pleading, written motion, or other paper to the court (whether by signing, filing, submitting, or advocating), an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances,

. . . it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or need less increase in the cost of litigation;

. . . the claims, defenses, and other legal contentions are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;

. . . the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and

. . . the denials of factual conten tions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

34 I II. MR. OLTMANNS’ COUNTERCLAIMS

AGAINST FIRE INSURAN CE

¶66 Where Mr. Oltmanns

— either through negligence, inexperience, or a combination of the two

— c aused injury to his

brother

- in

- law while operating a p ersonal watercraft and his brother

in

- law sought to recover his expenses associated with the event, Mr.

Oltmanns was potentially liable for those injuries. Mr. Oltmanns turned to his insurer, tendering his defense pursuant to the contract. The

insurer dili gently investigated the claim, but did not defend Mr. Oltmanns in the personal injury case during the investigation. “Fire Insurance asked Mr. Dalton to continue defending Robert Oltmanns and told him that in the event coverage was extended for the July 20 06
accident, Fire Insurance would reimburse him for the costs and fees incurred by Robert Oltmanns.” Fire Insurance admits that they “did not offer or propose to defend the claim.” Mr. Oltmanns argues that the insurer should not have requested a declarator y judgment action because the ambiguity in the contract is presumed to be interpreted in

his favor. Mr. Oltmanns claims that the Fire Insurance inappropriately relied on outside counsel in its decision to file a declaratory judgment.

Mr. Oltmanns also clai ms that Fire Insurance breached its duty of good faith by failing to assume the defense while deciding whether the

incident was covered. We address each of these claims in turn.

A. Mr. Oltmanns’ s Claim for Attorney Fees for the Declaratory Judgment Action

¶67 One remedy that Mr. Oltmanns seeks here is a right to recover

attorney fees in the declaratory judgment action under contract law

, claiming that Fire Insurance should not have requested a declaratory judgment action . Utah courts do n ot allow recovery for a ttorney fees “in the ordinary lawsuit unless it is provided for by stat ut e or by
contract,” Am

. States Ins. Co. v. Walker , 486 P.2d 1042, 1044 (Utah 1971), or “where they are a legitimate item of damages caused by the other party’s wrongful act, ” W. Cas. & Sur. Co. v. Marchant , 615 P.2d 423, 42 7 (Utah 1980). This court has applied that standard in the case of

insu rance contracts where attorney fees have been awarded “in [a] declaratory judgment action” if “ the insurance company acted in bad

faith or fraudul ently or was stubbornly litigious.” Walker , 486 P.2d at

1044 ; s ee also Doctors’ Co. v. Drezga , 2009 UT 60, ¶ 38, 218 P.3d 598 (“The rule that attorney fees will not be available to a prevailing insured following an action for declaratory relief unless an i nsurer is found toCite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

35 have acted fraudulently, stubbornly or in bad faith remains

undisturbed. Nor do we intend to abandon the caution that Utah courts have long shown regarding the awarding of attorney fees.”).

¶68 We affirm the court of appeals’ affirmance of t he district court’s grant of summary judgment to Fire Insurance on this claim and deny Mr. Oltmanns’ s request for attorney fees for the declaratory judgment action. Because of the potential liability that is at stake for

insurers in third

- party cases, insu reds face a very high bar in proving that an insurer filed a declaratory judgment in bad faith or to be stubbornly litigious. In this case Fire Insurance relied on the advice of outside counsel. Even though outside counsel believed that Fire

Insurance woul d prevail, he advised Fire Insurance to file a declaratory judgment action to determine coverage. Fire Insurance was “entitled to seek a declaratory judgment as to its obligations and rights,” Farmers

Ins. Exch. v . Call , 712 P.2d 231, 237 (Utah 1985) (cita tion omitted)

. Attorney fees for a declaratory judgment action brought in compliance

with Utah Code section 78B

- 6

- 401 and Utah Rule of Civil Procedure 11,

and not provided for in Mr. Oltmann s’ s insurance contract

, are unavailable

. See also U TAH C ODE § 78B

- 5

- 825(1) (not awarding “reasonable attorney fees” unless “the court determines that the action or defense to the action was without merit and not brought or asserted in good faith”).

¶69 Additionally, Mr. Oltmanns waived the right to argue that Fire Insurance acted in “bad faith or fraudulently or was stubbornly litigious” when it brought a declaratory judgment action for whether the “jet ski” exception applied in his situation. He did so by stipulating in its brief to the court of appeals and t o this court that “Fire Insurance was within its rights to file for declaratory relief. For this, it had the advice of counsel,” noting that “no one contended” in the district court

that “Fire Insurance [did not have] the right to seek declaratory relief.”
In fact, in Mr. Oltmanns’ s briefing, his main contention is that Fire Insurance breached its duty because “[a] reasonable response would

have been to assume defense of the Blackner action.” Failure to assume

the defense does not mean that Fire Insurance b reached its duty by filing a declaratory judgment. “What Fire Insurance got [from counsel] was a recommendation to file for declaratory judgment. Fire Insurance argued over

- and

- over in the trial court that it had the right to seek declaratory relief. No on e contended otherwise . However, it never occurred to Fire Insurance that it could argue the coverage question while at the same time defending its insured.” (Emphasis added

. ) Mr.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

36 Oltmanns’ s briefing shows that he seeks a remedy for breach of duty to

defend through an award of attorney fees for the declaratory judgment

action. This is not how the law works. Mr. Oltmanns therefore waived the argument that Fire Insurance brought the declaratory judgment

action in bad faith and seeks dama ges pertaining to the a ttorney fees for defending the declaratory judgment action only under contract law; this request is without merit

. There are no disputed material facts that indicate that Fire Insurance acted in bad faith in filing the declaratory judgment. Thus, summary j udgment was appropriate for this claim.

B. Mr. Oltmanns’ s Claim of Bad Faith for Relying on Opinion of Outside Counsel

¶70 Mr. Oltmanns also claimed that Fire Insurance impermissibly relied on the allegedly flawed advice of outside counsel. Thus, he argues, Fi re Insurance did not fairly evaluate his claim and unreasonably rejected it. We agree with the court of appeals that “[a]n insurance company may reasonably and fairly rely, at least initially, upon a coverage opinion from qualified outside counsel, receive d in the course of careful investigation and evaluation of a claim.” Fire Ins. Exch.

v. Oltmanns , 2016 UT App 54, ¶ 15 , 370 P.3d 566. Mr. Oltmanns thus does not prevail on this claim.

C. Mr. Oltmanns’ s Claim for Breach of Duty to Defend

¶71 Mr. Oltmanns argued in its operative complaint in the district court and its briefing to the court of appeals and this court that “Fire Insurance breached its duty by failing to assume defense of the Blackner action” breaching “both contractual and implied duties.”

However, Mr. Oltmanns failed to preserve this argument in their memorandum in opposition to Fire Insurance’s motion for summary judgment.

¶72 The Utah Rules of Civil Procedure at the time required that “[t] he motion, memoranda and affidavits [filed in summary judgment actions] shall be in accordance with Rule 7. ” U TAH R. C IV

. P . 56(c) (2014). 11 Summary judgment was required “ if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material

11 Both rule 56 and rule 7 were substantially modified in 2015 to more closely follow the style of the Federal Rules of Civil Pr ocedure. We use the 2014 rules in place at the time the memoranda were filed.Cite as: 2017 UT 81

D URHAM , J., concurring in part and in the result

37 fact and that the moving party is entitled to a judgment as a matter of law.” Rule 7(c)(3)(A) requires that “[a] memorandum supporting a motion for summary judgment shall contain a statement of materi al facts as to which the moving party contends no genuine issue exists.” Rule 7(c)(3)(B) requires that “[a] memorandum opposing a motion for summary judgment shall contain a verbatim restatement of each of the moving party’s facts that is controverted, and may contain a separate statement of additional facts in dispute.”

¶73 Fire Insurance submitted a memorandum in support of their motion for summary judgment, which included statements that “Oltmanns tendered defense,” that “Fire Insurance asked [Oltmanns’ s

at torney] to continue defending Robert Oltmanns,” and “that in the event coverage was extended, .

. . Fire Insurance would reimburse him

for the costs and fees incurred.” In Mr. Oltmanns’ s memorandum in opposition to Fire Insurance’s motion for summary judgm ent, Mr. Oltmanns does not use these facts to raise a breach of the duty to defend claim as an additional fact in dispute. Although Mr. Oltmanns raised this claim in his operative counterclaim, this does not nullify the mandate of rule 7(c)(3)(B) to restat e controverted claims and raise “additional facts in dispute. ”

¶74 Because the claim was not raised as a disputed material fact in

Mr. Oltmann s ’ s opposition memorandum, it was not preserved. The claim for failure to defend was not properly presented to the di strict

court in its opposition to summary judgment motion, so the court was not properly put on notice that it should rule on the failure to defend claim separately from the claim regarding the declaratory judgment

action. See Donjuan v. McDermott , 2011 UT 72, ¶ 20, 266 P.3d 839 (“ To properly preserve an issue for appellate review, the issue must be raised in the district court. Additionally, the issue must be specifically raised, in a timely manner, and must be supported by evidence and relevant legal

auth ority. The purpose of the preservation requirement is to put the district court on notice of an issue and provide it with an opportunity to

rule on it. ” (citations omitted)).

¶75 I would affirm the court of appeals ’ decision to uphold the

district court ’ s gran t of summary judgment , but do so on alternate grounds. Mr. Oltmanns waived his argument that Fire Insurance breached the implied covenant of good faith by bringing the declaratory judgment action when he conceded that it was merited in

his brief to the court of appeals and his brief to this court. Therefore, summary judgment on behalf of Fire Insurance was appropriate

.F IRE I NSURANCE E XCHANGE v. O LTMANNS

D URHAM , J., concurring in part and in the result

38