Opinion ID: 2634519
Heading Depth: 2
Heading Rank: 2

Heading: duties owed by insurer

Text: ¶ 17 In Beck v. Farmers Insurance Exchange, 701 P.2d 795 (Utah 1985), we described some of the duties owed by an insurer to its insured, which duties depend, to some extent, on the type of coverage the insured has under his insurance policy. In that case, we distinguished between two types of insurance coverage: first-party coverage, which refers to an insurance agreement where the insurer agrees to pay claims submitted to it by the insured for losses suffered by the insured, and third-party coverage, which refers to an agreement wherein the insurer contracts to defend the insured against claims made by third parties against the insured and to pay any resulting liability, up to the specified dollar limit. Id. at 799 n. 2. ¶ 18 In this case, Black's insurance policy included both types of insurance coverage. The present action, however, arises only in connection with Black's liability, or third-party, coverage. Under Black's liability coverage, Allstate promises, We will defend an insured person sued as the result of a covered auto accident, even if the suit is groundless or false. We will choose the counsel. We may settle any claim or suit if we believe it is proper. Further, under the heading Assistance and Cooperation, Allstate requires that [w]hen we ask, an insured person must cooperate with us in the investigation, settlement, and defense of any claim or lawsuit. ¶ 19 In Beck, we held that as 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. 701 P.2d at 801. We stated that this implied obligation of good faith performance contemplates, at the very least, that the insurer will diligently investigate the facts to enable it to determine whether a claim is valid, will fairly evaluate the claim, and will thereafter act promptly and reasonably in rejecting or settling the claim. Id. We explained that [t]hese performances are the essence of what the insured has bargained and paid for, and the insurer has the obligation to perform them. When an insurer has breached this duty, it is liable for damages suffered in consequence of that breach. Id. ¶ 20 Although in Beck we specifically described this duty in the context of first-party insurance coverage, that is, where the insurer handles a claim submitted to it by its own insured, we see no reason why a similar duty should not apply with respect to the insured when the insurer deals with a claim submitted to it by a third party. When an insurer processes a claim, whether it be from its own insured or 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. 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. See, e.g., Sperry v. Sperry, 1999 UT 101, ¶ 11, 990 P.2d 381; Beck, 701 P.2d at 799-800; Ammerman v. Farmers Ins. Exch., 19 Utah 2d 261, 264-66, 430 P.2d 576, 578-79. 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 facts. This is a duty the insurer owes to its insured by virtue of the insurance policy. Hence, in handling the Gallagher claim against Black, its insured, Allstate at least had an obligation to Black to diligently investigate the facts, and then act fairly and reasonably in evaluating and settling the claim. [3] ¶ 21 We note that this duty to investigate and reasonably evaluate a third-party claim does 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 its duty in these instances hinges upon whether the investigation and subsequent resolution of the claim is fair and reasonable. This may depend upon various considerations, including, for example, the extent and availability of evidence, whether available evidence is collected and witnesses are contacted, common practice in the industry, and clarity of the evidence with regard to issues of liability. ¶ 22 Therefore, we hold that Black not only had standing to bring an action directly against Allstate under his own insurance policy, but that Black also properly asserted a breach of the duties owed to him by Allstate under that policy. Thus, summary judgment was inappropriate and we must remand to the district court for a determination of whether Allstate breached its duty of good faith as outlined above.