Court Opinion

ID: 5156649
Source: CourtListenerOpinion
Date Created: 2022-01-02 02:23:01.728573+00
Date Added: 2024-06-11T08:25:23.459552
License: Public Domain

Associate Chief Justice DURRANT
dissenting:
32 I coneur in the majority's conclusion that the "other insurance" policy provisions do not apply to successive insurers and, therefore, do not control the apportionment of defense costs in this case. In addition, I agree that, absent controlling contractual language, we apply equitable principles to apportion defense costs. But I disagree that the "most equitable method of apportionment" allocates defense costs according to "the amount of time each insurer spent 'on-the-risk' and each insurer's policy limits." 1
133 In my view, defense costs should be allocated in equal shares between each insurer who has a duty to defend. Indeed, the apportionment of equal shares is consistent with the broad seope of an insurance provider's duty to defend under Utah law. Because the duty to defend obligates each insurer whose policy is triggered to provide the insured with a full defense, I would allocate the costs associated with that duty equally. And because the duty to defend is not tied to the insurance provider's time on the risk, or to its policy limits, I believe it is inappropriate to apportion defense costs according to these factors.
€ 34 Under Utah law, an insurance provider owes its insureds two independent duties: (1) a duty to indemnify and (2) a duty to defend.2 It is axiomatic, however, that the duty to defend is broader than the duty to indemnify.3 For example, the duty to indemnify is limited to damage caused by acts within the defined period of insurance coverage, and is further limited by the insurance *188provider's policy limits.4 But there is no such limitation for the insurer's duty to defend.5 Unlike the duty to indemnify, the duty to defend is broad in three respects: (1) the duty to defend is triggered whenever a complaint "alleges a risk within the coverage of the policy";6 (2) the duty to defend one claim creates "a duty to defend all of the claims brought" against the insured, even claims outside the period of insurance coverage;7 and (8) the duty to defend exists regardless of the merits of the underlying claims.8
1 35 Consistent with the broad seope of an insurer's duty to defend, each insurance provider whose duty is triggered owes the insured an independent obligation to defend the entire suit.9 Thus, where there is only one insurance provider, that insurer bears the full obligation to pay for the defense costs. Where there are multiple insurance providers whose duties are triggered, they each have an independent duty to defend the entire lawsuit. Because each insurer has an independent duty to defend, and because that duty is not tied to the insurer's time on the risk, I see no reason to apportion defense costs based on the majority's formula. Instead, because each insurance provider bears the obligation to defend the entire suit, I would apportion the costs associated with that duty equally.10
T36 In this case, both Ohio Casualty and Unigard had a duty to defend Cloud Nine. Because of the broad seope of this duty, if either Ohio Casualty or Unigard had refused *189to defend, the other still would have been obligated to provide a full defense. Given that they had an equal duty to defend the entire suit, I would apportion the defense costs associated with that duty equally because I believe that creates the most logical and equitable result.
137 I recognize that equal apportionment of defense costs is at odds with our holding in Sharon Steel Corp. v. Aetna Casualty & Swrety Co.11 In that case, we limited an insurer's duty to defend by apportioning defense costs to insurance providers and insureds based on their time on the risk.12 But I believe that the test for overturning that precedent has been satisfied. It is appropriate to overturn precedent "if we are clearly convinced that the rule was originally erroneous or is no longer sound because of changing conditions and that more good than harm will come by departing from precedent." 13 Regarding the rule announced in Sharon Steel, I believe that each of these requirements is satisfied.
T38 The rule announced in Sharon Steel was erroneous in two respects. First, our limitation of an insurer's duty to defend in that case conflicted with our prior statements about the breadth of that duty.14 In Deseret Federal Savings & Loan Ass'n v. U.S. Fidelity & Guaranty Co., a case decided before Sharon Steel, we stated that the duty to defend was broad and "arises whenever the insurer ascertains facts which give rise to the potential of liability under the policy."15 Thus, we had recognized that insurers had to provide their insureds with a full defense when there was even the potential for liability.16 Without reference to this prior statement, in Sharon Steel we limited an insurer's duty to defend to only those occurrences that took place within the policy period.17
1 39 Second, in Sharon Steel we set forth a rule without receiving argument on the merits of the various methods of allocation or argument on how each method would impact an insurer's duty to defend. Specifically, we adopted the time on the risk allocation even though "[nJeither party ha[d] provided a thorough briefing on thle] issue."18 In fact, we recognized that although one party had "summarily set[ ] forth the different allocation methods employed by various courts," no party had "address[led] the merits of each method, ... [or] explain{ed] how these methods might apply to the instant case."19 Because we departed from precedent without satisfying the test for doing so, and selected a method of apportionment without receiving argument from the parties, I believe that the rule was erroneous.
T 40 In addition to being erroneous, I believe that our holding in Sharon Steel is no longer sound because, in a subsequent case, we retreated from any limitation on an insur*190ance provider's duty to defend. In Benjo-min v. Amica Mutual Insurance Co., a case decided after Sharon Steel, we returned to our position that the duty to defend is broad and, accordingly, requires an insurer to provide a defense to the entire suit, even to claims that fall outside the period of insurance coverage.20 By recognizing the broad seope of the duty to defend and the corresponding broad obligations associated with that duty, we have already moved away from the limitation announced in Sharon Steel. Thus, we have already indicated that the rule adopted in Sharon Steel is no longer sound.
T 41 Similarly, and most importantly, I believe that the majority's rationale for overturning a portion of the holding in Sharon Steel also supports the conclusion that the entire rule should be overturned. In overturning the portion of our holding that allocates defense costs to the insured, the majority recognizes that "[wlhere an insured holds coverage from a single insurer ... and is then without coverage ..., the insurer may not recover defense costs from the insured for the period of non-coverage because the insurer must provide a defense to the entire suit."21 Thus, the majority reasons that allocation to the insured for periods of noncover-age would be inequitable because the insurance provider has a broad duty to defend that requires it to provide a defense for the entire suit, even for periods of noninsu-rance.22
142 While I agree with the majority on this point, I believe that this same logic applies to overturning the entire rule put forth in Sharon Steel. Just as the breadth of the duty to defend makes it inappropriate to apportion defense costs to the insured for periods of non-coverage, the breadth of the duty also makes it inappropriate to apportion defense costs to insurance providers based on their periods of coverage. Because an insurer has a duty to defend the entire suit regardless of whether there are other insurance providers with a similar duty, it would be inequitable to apportion defense costs based on a pro rata formula. Thus, for the same reason that the majority overturns a portion of the holding in Sharon Steel, I would overturn the entire rule.
43 Finally, I believe that more good than harm will come from overturning our holding in Sharon Steel. Specifically, overturning the rule would reduce disputes between insurance providers about the proper apportionment of defense costs and would induce insurers to more promptly defend their insureds. If insurers know that defense costs will be allocated equally among those whose duties are triggered, each insurer will have the same incentive to provide a prompt and efficient defense. Because each insurer would share the defense costs equally from the moment the lawsuit is filed, they would have shared incentives to choose counsel, initiate a defense, and engage in settlement negotiations. They would not need to wait for any judicial determination of their respective responsibilities.
1] 44 In contrast, adherence to the pro rata formula adopted in Sharon Steel, and supported by the majority in this case, actually encourages insurance providers to dispute defense costs or take a "wait and see" approach.23 In fact, the time-on-the-risk formula encourages delay from the moment the lawsuit begins. Although an insured's defense costs accrue from the moment any suit is filed, at that moment there likely will not have been a judicial determination for how multiple insurance providers are to allocate the defense costs. And until the court has determined how each insurer's time on the risk and policy limits impact the apportion*191ment of defense costs, insurers will be motivated to delay in providing a defense to their insureds. Indeed, if an insurer anticipates that it will be responsible for only a small proportion of the defense costs, it will have no incentive to quickly select counsel or initiate settlement negotiations. And while the insurance providers delay, the insured will be left without a defense.
€45 For the foregoing reasons, I believe that our holding in Sharon Steel should be overturned not just in part, as the majority concludes, but in its entirety. In overturning the rule in Sharon Steel, we are free to determine the most equitable method of apportionment of defense costs.
146 In my view, the most equitable and logical way to allocate defense costs is in equal shares between each insurer who has a duty to defend. Equal share apportionment is consistent with the broad scope of an insurer's duty to defend under Utah law and comports with our policy of encouraging a prompt and effective defense by the insurer. Because Ohio Casualty and Unigard have a coextensive duty to defend Cloud Nine for the entire suit, I would allocate the costs associated with their duty on an equal basis. Accordingly, I would affirm the district court's holding.

. Supra N31.

. See Benjamin v. Amica Mut. Ins. Co., 2006 UT 37, ¶¶ 13, 16, 27, 140 P.3d 1210.

. Deseret Fed. Sav. & Loan Ass'n v. U.S. Fid. & Guar. Co., 714 P.2d 1143, 1146 (Utah 1986) ("'The duty to defend is broader than the duty to indemnify ...; the duty to defend is measured by the nature and kinds of risks covered by the policy and arises whenever the insurer ascertains facts which give rise to the potential of liability under the policy.").

. See Benjamin, 2006 UT 37, ¶ 29, 140 P.3d 1210 (" 'The duty to indemnify depends upon liability, i.e., an insurer's obligation to pay a judgment or settlement.' " (quoting Perdue Farms, Inc. v. Travelers Cas. & Sur. Co. of Am., 448 F.3d 252, 258 (4th Cir.2006))).

. See id. 116. For example, an insurance provider who has more time on the risk does not have a greater duty to defend. See id. M1 24-25.

. Id. 116 (emphasis added) (internal quotation marks omitted); see also Simmons v. Farmers Ins. Grp., 877 P.2d 1255, 1258 n. 3 (Utah Ct.App. 1994) ("Generally, insurers have a duty to defend any complaint alleging facts which, if proven, would render the insurer liable for indemnification of its insured.").

. Benjamin, 2006 UT 37, ¶ 25, 140 P.3d 1210; see also id. ("[When there are covered and non-covered claims in the same lawsuit, the insurer is obligated to provide a defense to the entire suit, at least until it can limit the suit to those claims outside of the policy coverage." (alteration in original) (internal quotation marks omitted)); Mt. Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir.1997) ("[U]nder Massachusetts law, if an insurer has a duty to defend one count of a complaint, it must defend them all."). But see Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 141-42 (Utah 1997) (stating that because the insurer has not contracted to pay defense costs for occurrences which took place outside the policy period, insureds "must be prepared to pay their fair share of defense costs for those years that they were without insurance coverage" (internal quotation marks omitted)). The majority now expressly overrules the part of our holding in Sharon Steel that limited an insurer's duty to defend. See infra TY 28-29.

. See Benjamin, 2006 UT 37, ¶ 22, 140 P.3d 1210 (holding that "[an insurer] had a duty to defend [the insured] until it could establish that those claims were not supported by the facts"); see also id. 124 ("[The insurer is obligated to [defend claims] until those claims are either dismissed or otherwise resolved in a manner inconsistent with coverage."); Tex. Prop. & Cas. Ins. Guar. Assoc./Sw. Aggregates, Inc. v. Sw. Aggregates, Inc., 982 S.W.2d 600, 604 (Tex.Ct.App.1998) ('The duty to defend is not affected by facts ascertained before suit, developed in the process of the litigation, or by the ultimate outcome of the suit.").

. See Benjamin, 2006 UT 37, ¶ 22, 140 P.3d 1210.

. Consistent with the district court's apportionment of defense costs in this case, a number of other courts have held that because an insurer's duty to defend is broader than its duty to indemnify, defense costs should be equally divided among multiple insurers. See, e.g., St. Paul Fire & Marine Ins. Co. v. Vigilant Ins. Co., 919 F.2d 235, 241 (4th Cir.1990) ("We hold both [insurers] had a duty to defend [the insured] and thus the defense costs should be shared equally." (internal quotation marks omitted)); Wooddale Builders, Inc. v. Md. Cas. Co., 722 N.W.2d 283, 304 (Minn.2006) ("[We conclude that ... defense costs are [to bel apportioned equally among insurers whose [duty to defend is] triggered. Therefore, we hold that the district court did not err when it apportioned defense costs equally among insurers whose policies were triggered."); Ames v. Cont'l Cas. Co., 79 N.C.App. 530, 340 S.E.2d 479, 486 (1986) ("We hold both [insurers] had a duty to defend [the insured] and thus the defense costs should be shared equally."); Tex.Prop. & Cas. Ins., 982 S.W.2d at 607 ("[Wle hold that under Texas law, an insurer's duty to defend its insured . is not reduced pro rata by the insurer's 'time on the risk' or by any other formula.").

. 931 P.2d 127, 140-42 (Utah 1997).

. Id. (holding that insurance providers would be allocated defense costs according to the period of time they provided coverage and the insured would be allocated defense costs according to the period of time it had no insurance coverage).

. Utah Dep't of Transp. v. Admiral Beverage Corp., 2011 UT 62, ¶ 16, - P.3d -, 2011 WL 5110962 (internal quotation marks omitted); see also Kimball v. Salt Lake City, 32 Utah 253, 90 P. 395, 396 (1907) (recognizing that "adherence to precedent is no doubt a commendable judicial virtue, but, if carried to extremes, [such adherence] may easily, like most virtues, border upon

. Evidence that a rule was erroneous can be found when our opinions stray from precedent without satisfying the test for such a departure. See, e.g., Admiral Beverage, 2011 UT 62, 1128-31, -- P.3d --, 2011 WL 5110962 (finding evidence that a holding was erroneous where a rule "contravenes our longstanding precedent" and "deviated from [the] approach" we used for "over a century").

. 714 P.2d 1143, 1146 (Utah 1986) (emphasis added).

. See id. at 1146-47.

. 931 P.2d at 140-41 (concluding that a pro rata formula was appropriate because it represented what each insurer contracted to provide and "[an] insurer has not contracted to pay defense costs for occurrences which took place outside the policy period" (internal quotation marks omitted)).

. Id. at 140 n. 18; see also id. (noting that because the briefing was not thorough, we were "limited to our own resources in fashioning an equitable apportionment method").

. Id.

. 2006 UT 37, 125, 140 P.3d 1210 ("[When there are covered and non-covered claims in the same lawsuit, the insurer is obligated to provide a defense to the entire suit, at least until it can limit the suit to those claims outside of the policy coverage." (alteration in original) (internal quotation marks omitted)); see also id. 122 (stating that an insurer has a duty to defend the insured "until it could establish that those claims were not supported by the facts").

. Supra 1 29 (internal quotation marks omitted).

. See supra N9 28-29.

. In this respect, I disagree with the majority's statement that its "time-on-the-risk" method of apportionment more fully "comports with our policy of encouraging prompt and effective defense of the insured by the insurer." Supra 127.