Opinion ID: 4249099
Heading Depth: 2
Heading Rank: 3

Heading: mr. oltmanns’ counterclaims

Text: AGAINST FIRE INSURANCE ¶66 Where Mr. Oltmanns—either through negligence, inexperience, or a combination of the two—caused injury to his brother-in-law while operating a personal watercraft and his brotherin-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 diligently 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 2006 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 declaratory 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 claims 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.
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 not allow recovery for attorney fees “in the ordinary lawsuit unless it is provided for by statute 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, 427 (Utah 1980). This court has applied that standard in the case of insurance contracts where attorney fees have been awarded “in [a] declaratory judgment action” if “the insurance company acted in bad faith or fraudulently or was stubbornly litigious.” Walker, 486 P.2d at 1044; see 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 insurer is found to 34 Cite as: 2017 UT 81 DURHAM, J., concurring in part and in the result 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 the 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, insureds 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 would 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) (citation 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. Oltmanns’s insurance contract, are unavailable. See also UTAH CODE § 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 to 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 breached 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 one 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. 35 FIRE INSURANCE EXCHANGE v. OLTMANNS DURHAM, J., concurring in part and in the result 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 damages pertaining to the attorney 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 judgment was appropriate for this claim.
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, Fire 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, received 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.” UTAH R. CIV. 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 Both rule 56 and rule 7 were substantially modified in 2015 to 11 more closely follow the style of the Federal Rules of Civil Procedure. We use the 2014 rules in place at the time the memoranda were filed. 36 Cite as: 2017 UT 81 DURHAM, J., concurring in part and in the result 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 material 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 attorney] 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 judgment, 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 restate controverted claims and raise “additional facts in dispute.” ¶74 Because the claim was not raised as a disputed material fact in Mr. Oltmanns’s opposition memorandum, it was not preserved. The claim for failure to defend was not properly presented to the district 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 authority. 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 grant 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. 37 FIRE INSURANCE EXCHANGE v. OLTMANNS DURHAM, J., concurring in part and in the result 38