Opinion ID: 2625838
Heading Depth: 4
Heading Rank: 2

Heading: Such an award encourages insurers to act reasonably.

Text: c. The award of actual attorney's fees is designed to assist in fully compensating the insured for the damages caused by the breach of good faith duties, whether such good faith duties arise from a first-party or a third-party situation. d. For purposes of this issue, there is no reasonable basis to distinguish an insured's damages incurred in a first-party or third-party context[.] e. 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 context. (Citations omitted.) Because we agree with the trial court's analysis, we affirm its conclusion that plaintiffs can recover foreseeable attorney fees if they successfully pursue a third-party bad faith action against their insurer. Although the foreseeability of damages test is generally limited to the contractual realm, we note that its use to determine damages in the context of tortious third-party, bad faith claims is justified since such claims arise only because of the contractual relationship of the parties. Savage v. Educators Ins. Co., 908 P.2d 862, 866 (Utah 1995) (holding that employee who had no contractual relationship with employer's workers' compensation insurance carrier could not sue carrier for breach of the covenant of good faith and fair dealing since such actions are predicated upon parties' contractual relationship). [20] ¶ 122 Finally, we note that the existence of a fiduciary relationship between insurers and insureds in the context of third-party bad faith claims, which we recognized in Beck, supports an exception to the general rule that attorney fees are not recoverable in tort actions. State Farm relies on a 1996 Colorado case, Bernhard v. Farmers Ins. Exch., 915 P.2d 1285 (Colo.1996), holding that such fees are not recoverable. However, Bernhard clearly recognized that [a]ttorney fees may be recoverable in an action for breach of fiduciary duty as a recognized exception to the American rule. Id. at 1289 (citations omitted). The Colorado Supreme Court, however, concluded that insurers were only quasi, and not true, fiduciaries, and thus declined to apply the exception. We disagree with Bernhard's view of the relationship, which is contrary to the Utah position. We do, however, accept its assertion that breach of a fiduciary obligation is a well-established exception to the American rule precluding attorney fees in tort cases generally. We thus conclude that the trial court correctly held attorney fees to be a proper element of damages in this case. ¶ 123 Thus, the issue becomes whether, at the time State Farm issued the policy to the Campbells, State Farm could reasonably foresee that if a claim arose against it the Campbells would incur attorney fees in pursuing that claim. Review of the transcript discloses that, at a minimum, State Farm's Claims Vice-President, Frank Haynes, knew that insureds pursuing claims against State Farm typically retained attorneys on a contingency fee basis. Based on this, we hold that an award of attorney fees to the Campbells was indeed foreseeable by State Farm.