Opinion ID: 159881
Heading Depth: 2
Heading Rank: 3

Heading: attorney fee issue

Text: Finally, we address the Johnsons’ contention the district court erred by denying them attorney fees. In a diversity suit, the issue of attorney fees is considered a substantive matter and is controlled by state law. Jones v. Denver Post Corp., 203 F.3d 748, 757 (10th Cir. 2000). However, our standard of review is a matter of federal law and “[w]e review a district court’s award of attorney fees for abuse of discretion. The district court’s factual findings are only reversed if clearly erroneous. Legal conclusions and statutory analysis are reviewed de novo.” Parks v. American Warrior, Inc., 44 F.3d 889, 892 (10th Cir.1995) (citations omitted). In Utah, the general rule is attorney fees are recoverable only if provided After filing their brief with this Court, the Johnsons filed a motion for us to certify this issue to the Utah Supreme Court, contending certification is proper because the Utah courts have not yet determined “how, under state law, language limiting coverage under accidental death policies where an insured suffers a preexisting disease should be interpreted ....” Life Investors filed no response to the Johnsons’ motion to certify, but in its opposition to the Johnsons’ motion for certification, Monumental argues this Court should interpret the “direct cause of loss, independent of all other causes” language as allowing it to deny coverage based on Winchester and without resorting to certification to the state court. We deny the Motion for Certification without reaching its merits, and decline addressing Monumental’s motion in opposition, leaving the Johnsons free to reassert their motion to certify in the district court on remand. -19- for in a contract at issue or by statute. Occidental/Nebraska Fed. Sav. Bank v. Mehr, 791 P.2d 217, 221 (Utah Ct. App. 1990). However, exceptions to this general rule exist. In an insurance contract dispute where the insured sues the insurer for breach of contract, attorney fees may be recovered as consequential damages for either a breach of the express terms of the contract or for a breach of the implied covenant of good faith and fair dealing. Billings v. Union Bankers Ins. Co., 918 P.2d 461, 468 (Utah 1996).
An insured may recover attorney fees as consequential damages for the breach of an express term in the insurance contract if the fees “were reasonably within the contemplation of, or reasonably foreseeable by, the parties at the time the contract was made.” Billings, 918 P.2d at 468 (quotation marks and citation omitted). Thus, in order to recover attorney fees as consequential damages flowing from a breach of express terms in the contracts, the Johnsons need to first show the companies breached the contracts. However, the district court never ruled on whether either company breached the express or implied terms of its contract. The district court instead found Monumental and Life Investors were estopped from relying on the sickness exclusions in their policies, and under the doctrine of estoppel, held the Johnsons could not recover attorney fees. -20- Given our and the district court’s holdings that Monumental is estopped from denying coverage, we must examine the principles of estoppel to determine if attorney fees from Monumental are warranted in this case. To begin, estoppel does not operate to alter the terms of the contract as originally written. See Perkins v. Great-West Life Assurance Co., 814 P.2d 1125, 1131 (Utah Ct. App. 1991). Rather, estoppel is normally asserted as a defense to a claim or right and does not create an independent cause of action. See Raymond v. Halifax Hosp. Med. Ctr., 466 So.2d 253, 255 (Fla. Dist. Ct. App. 1985); Lohse v. Atlantic Richfield Co., 389 N.W.2d 352, 357-58 (N.D. 1986); see also General Motors, 668 P.2d at 502 (“Although estoppel is usually a factual defense, it may be established as a matter of law to preclude an insurance company from relying on an exclusion in a credit life and accident policy.”). Estoppel merely abates the insurer’s right to defend against the insured’s claim for breach of contract by relying on the language in its policy. See id. Moreover, unlike breach of contract where the award of attorney fees is reasonably contemplated at the time of the contract, Billings, 918 P.2d at 468, estoppel is not an independent cause of action like breach of contract, or a circumstance in which attorney fees are ever contemplated. It is not the same as breach of contract for the purpose of awarding attorney fees. -21- In applying this conclusion to the facts of this case, we note neither we nor the district court ever reached the issue of whether Monumental breached its contract with the Johnsons when holding Monumental is estopped as a matter of law from relying on the sickness exclusion. Therefore, the Johnsons are not entitled to attorney fees from Monumental under the theory Monumental breached the express terms of the contract. However, because we are reversing and remanding the district court’s grant of summary judgment in favor of the Johnsons on their claim against Life Investors, we leave the determinations of whether Life Investors breached the express terms of its contract, and whether the Johnsons are entitled to attorney fees under Utah law, to the district court.
The Johnsons alternatively assert an award of attorney fees is proper because the companies breached the implied covenant of good faith and fair dealing. 10 In Beck v. Farmers Ins. Exch., 701 P.2d 795 (Utah 1985), the Utah 10 The Johnsons assert because Life Investors did not answer their cross-appeal from the denial of attorney fees, it waived the issue. Although an appellant who chooses not to brief an issue may be deemed to waive the issue, see Sheets v. Salt Lake County, 45 F.3d 1383, 1390 (10th Cir.), cert. denied, 516 U.S. 817 (1995), this rule does not apply to appellees. The Johnsons, as the appellants, retain the burden to prove on appeal the trial court erred. If the insurance companies, as the appellees, choose not to defend the trial court’s decision, this does not relieve the Johnsons of their burden to convince us of the district court’s errors. -22- Supreme Court recognized attorney fees may be available as consequential damages flowing from a breach of the implied covenant of good faith and fair dealing by an insurance company. Id. at 801. Under Beck, an insurer may be found to breach the implied covenant of good faith and fair dealing if it fails to diligently investigate the facts underlying a claim, fairly evaluate the claim, or “act promptly and reasonably in rejecting or settling the claim.” Id. “[T]he overriding requirement imposed by the implied covenant is that insurers act reasonably ... in dealing with their insureds.” Billings, 918 P.2d at 465. However, “when an insured’s claim is fairly debatable, the insurer is entitled to debate it and cannot be held to have breached the implied covenant if it chooses to do so.” Id. The Johnsons contend “[a]s a matter of law, the Companies could not have acted diligently, fairly or reasonably in rejecting the Johnsons’ claims, as they violated applicable Utah Insurance Department Regulations by which they were bound, and denied the claims in the face of the Regulations.” However, they cite no case where failing to comply with insurance regulations has been found to be the equivalent of failing to fairly evaluate a claim or act promptly and reasonably in rejecting the claim. Nor are we persuaded by the Johnsons’ argument. Monumental’s contention the disclosure regulation did not apply to its contract is -23- “fairly debatable” as the Utah courts have not ruled directly on the issue of whether the disability insurance regulations apply to accidental death policies. Obviously, because we agree with Life Investors that the regulation does not apply to its contract, we cannot hold Life Investors violated the covenant of good faith and fair dealing by asserting it is not estopped from relying on the sickness exclusion. However, on remand, the Johnsons might prove Life Investors breached the covenant of good faith and fair dealing on other grounds and that they are entitled to attorney fees in accordance with Utah law.