Opinion ID: 2519881
Heading Depth: 2
Heading Rank: 5

Heading: the effect of davis's fraud

Text: ¶ 18 Under the plain language of the insurance policy, the insured's liability coverage for injuries sustained by third parties is expressly preserved up to the minimum statutory limits even where Progressive opts to void the policy due to fraud by an insured person. Specifically, the insurance policy declares that avoidance of coverage due to an insured person's fraud shall not affect coverage under Part 1 Liability to Others up to the minimum statutory limits if the accident occurs before we notify the named insured that the policy is void. (Bold-faced type omitted.) Thus, on its face, the policy appears to require some liability coverage for Price, notwithstanding her fraud, because the underlying accident occurred before Progressive attempted to void the policy. ¶ 19 In the instant action, however, both the insured person (Price) and the third-party claimant (Davis) made fraudulent misrepresentations to Progressive. Having concluded that Price's right to indemnification was reduced by her own fraud, we must therefore determine whether her right to coverage under the insurance policy is further reduced by Davis's fraud as a third-party claimant. We conclude that it is not for three reasons. ¶ 20 First, Davis's fraudulent statements to Progressive are unrelated to his claim against Price and do not entitle Progressive to void Price's coverage. As we explained in Beck v. Farmers Insurance Exchange, a third-party action is a dispute between the insured and the person alleging injury, and the insurance company's role is limited to defense and indemnification of the insured. 701 P.2d 795, 798 n. 2 (Utah 1985) (noting that a third-party action is one where 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). Any fraudulent act committed by an injured third party against an insurance company therefore has no relevance to the third-party's action against the insured. ¶ 21 Second, although it is repugnant for an individual to benefit from his or her fraudulent activity, see, e.g., Wall v. Salt Lake City, 50 Utah 593, 607, 168 P. 766 (1917) (declaring that a municipal corporation can no more profit by fraud ... than an individual), there is no indication here that Davis is benefitting from his fraud. To the contrary, the funds originally obtained by Price from Progressive were returned, and Davis is now merely seeking the recovery for his injuries to which he is legitimately entitled. ¶ 22 Finally, the policy itself does not distinguish between an innocent third party and a third party who has committed fraud. It merely provides Progressive with the option of reducing the coverage available to the minimum statutory limits if an insured person commits fraud. ¶ 23 Despite our conclusion that Davis may recover against Price and that Price is indemnified up to the minimum statutory limits by Progressive, we note that Davis and Price are not in the same position that they would have been absent their fraud. Both individuals have exposed themselves to potential criminal charges. In addition, the coverage provided by Progressive to Price has been reduced to the minimum statutory limits from the coverage that would have been available absent the fraud, thereby reducing Price's capacity to pay any damages awarded to Davis.