Court Opinion

ID: 5137575
Source: CourtListenerOpinion
Date Created: 2021-12-21 14:40:38.070073+00
Date Added: 2024-06-11T08:24:03.229793
License: Public Domain

2013 UT App 68
_________________________________________________________

               THE UTAH COURT OF APPEALS

                 COLONY INSURANCE COMPANY,

                            Plaintiff,

                                v.

                  THE HUMAN ENSEMBLE, LLC,

                    Defendant and Appellant.
                 ___________________________

               SCOTTSDALE INSURANCE COMPANY,
                    Intervenor and Appellee,

                     Memorandum Decision
                       No. 20111013‐CA
                      Filed March 14, 2013

               Third District, Salt Lake Department
                The Honorable Paul G. Maughan
                          No. 060910117

 Ralph C. Petty and Daniel G. Darger, Attorneys for Appellant
  Andrew M. Morse and Richard A. Vazquez, Attorneys for
                          Appellee

      JUDGE STEPHEN L. ROTH authored this Memorandum
         Decision, in which JUDGES JAMES Z. DAVIS and
               CAROLYN B. MCHUGH concurred.

ROTH, Judge:

¶1      The Human Ensemble, LLC (Human Ensemble) appeals
from the entry of summary judgment in favor of Scottsdale
Insurance Company (Scottsdale), Human Ensemble’s general
liability insurance provider. Human Ensemble takes issue with the
               Colony Insurance v. Human Ensemble

district court’s decision to consider Scottsdale’s renewed motion for
summary judgment on Human Ensemble’s claims for breach of
contract, breach of the covenant of good faith and fair dealing, and
negligence, after the court had previously denied the motion.
Human Ensemble also asserts that the court’s ruling was based on
an erroneous understanding of the application of the implied
covenant of good faith and fair dealing to insurance contracts. In
particular, Human Ensemble asserts that a general liability
insurance carrier has a duty to timely investigate the scope of
coverage in order to promptly notify the insured when the policy
does not cover the property damages incurred. We affirm.

¶2     In October 2005, Human Ensemble purchased two insurance
policies: a general liability policy from Scottsdale and a property
damage policy from Colony Insurance Company (Colony).1 In late
December 2005, a toilet overflowed in a building owned by Human
Ensemble, resulting in several inches of standing water. When
cleanup efforts stalled, Human Ensemble’s commercial tenants
sued for damages because they had “to relocate and incur moving
expenses, increased rent, lost profit and other damages.” Due to
some confusion unexplained in the appellate briefing, Human
Ensemble filed a claim in early January 2006 for its cleanup
expenses with its liability carrier, Scottsdale, rather than with
Colony, its property damage insurer. About this same time,
Scottsdale agreed to defend Human Ensemble against the liability
claims filed by its tenants. Approximately six weeks later, on
February 21, 2006, Scottsdale informed Human Ensemble that it
was the general liability insurer only and would not cover Human
Ensemble’s claims for property damage because it had not issued

       1
        Human Ensemble actually purchased these policies
through an independent insurance agent. Human Ensemble
admitted, however, that one of its principals, Gibbs Smith,
signed the application for the Colony policy and two of its prin‐
cipals, Smith and Gary Justesen, signed disclosures on both
policies.

20111013‐CA                      2                 2013 UT App 68
                Colony Insurance v. Human Ensemble

a property damage policy. The six‐week gap between Human
Ensemble’s submission of the claim and Scottsdale’s disclosure
became the basis for Human Ensemble’s assertion that Scottsdale
violated the implied duty of good faith and fair dealing in the
general liability policy that is now at issue on appeal. At all times
relevant, Scottsdale continued to defend Human Ensemble in the
separate liability case brought by its tenants, which was still
pending when this appeal was filed.

¶3      In June 2006, Colony, which is not a party to this appeal,
filed a complaint seeking a declaratory judgment “that Colony is
not obligated, under the terms of the Insurance Contract, to pay . . .
any claims, losses, damages, costs, and/or expenses” in connection
with the water leak problems. Scottsdale intervened in the
declaratory judgment action in January 2008 to have the court
determine its own obligations to Human Ensemble. Human
Ensemble then counterclaimed against Scottsdale, asserting claims
for breach of contract, breach of the implied covenant of good faith
and fair dealing (the bad faith claim), and negligence. Scottsdale
responded to Human Ensemble’s counterclaims by filing a motion
for summary judgment (the original motion). In particular,
Scottsdale asserted that its “only obligation, if any, at present is to
participate in [Human Ensemble]’s defense” against the tenants, an
obligation that it was then fulfilling. Human Ensemble opposed
summary judgment, arguing that “Scottsdale had an obligation to
promptly investigate [Human Ensemble]’s claims when the claim
was made” and that this obligation was breached by the adjuster’s
failure to notify Human Ensemble for over six weeks that its policy
did not cover the property damage caused by the flooding. On July
28, 2009, the district court denied the motion for summary
judgment on the basis that there were disputed issues of material
fact regarding Scottsdale’s duty to investigate.

¶4     Five months later, the case was reassigned to a different
judge within the same district. Scottsdale hired new counsel and
filed a renewed motion for summary judgment (the renewed
motion), asserting that the bad faith claim was not ripe because

20111013‐CA                       3                  2013 UT App 68
                Colony Insurance v. Human Ensemble

Scottsdale had not yet withheld any benefits due under the
insurance policy, that Scottsdale had no actionable duty to inform
Human Ensemble of the coverage terms in a policy it had sought
out and purchased, and that, in any event, Human Ensemble was
on notice of the coverage terms by virtue of signing the Colony
policy application and the disclosures on both policies. The district
court determined that the renewed motion was “procedurally
appropriate” because it “presented new legal theories and
authorities not previously considered.” After hearing argument, it
granted the renewed motion for summary judgment.

      I. The District Court Did Not Abuse Its Discretion in
  Reconsidering the Previous Denial of Scottsdale’s Motion for
                       Summary Judgment.

¶5     Human Ensemble argues that the district court should not
have reconsidered its denial of the original motion for summary
judgment. We conclude, however, that reconsideration was within
the district court’s discretion. Rule 54(b) of the Utah Rules of Civil
Procedure permits a court “to revis[e] at any time before the entry
of judgment adjudicating all the claims and rights and liabilities of
all the parties” “any order or other form of decision, however
designated, that adjudicates fewer than all the claims or the rights
and liabilities of fewer than all the parties.” Utah R. Civ. P. 54(b).
“This is true even when a second judge has taken over the case
because the two judges, while different persons, constitute a single
judicial office.” PC Crane Serv., LLC v. McQueen Masonry, Inc., 2012
UT App 61, ¶ 43, 273 P.3d 396 (citation and internal quotation
marks omitted). “Thus, a motion under [r]ule 54(b) is a proper
vehicle to ask the court to reconsider its prior denial of a motion for
summary judgment.” Trembly v. Mrs. Fields Cookies, 884 P.2d 1306,
1311 (Utah Ct. App. 1994).

¶6      Whether to reconsider a prior ruling is ordinarily within the
sound discretion of the district court, as only the parties of a case
are bound by the court’s nonfinal decisions. Mid‐America Pipeline
Co. v. Four‐Four, Inc., 2009 UT 43, ¶ 12, 216 P.3d 352 (“While a case

20111013‐CA                       4                  2013 UT App 68
                Colony Insurance v. Human Ensemble

remains pending before the district court prior to any appeal, the
parties are bound by the court’s prior decision, but the court
remains free to reconsider that decision.” (citation and internal
quotation marks omitted)). Factors that weigh in favor of the
district court’s decision to reconsider include, but are not limited
to, (1) the matter being presented in a new or different light, (2) a
change in the governing law, (3) the discovery of new evidence, or
(4) a conviction that the prior decision was clearly erroneous.2
Trembly, 884 P.2d at 1311.

¶7      Because the case was not yet fully resolved, the district court
“was not required to reconsider . . . [nor] was [it] forbidden from
doing so.” See Mid‐America Pipeline Co., 2009 UT 43, ¶ 15. The
district court reasoned that reconsideration was appropriate
because the presentation of “new legal theories and authorities” in
the renewed motion allowed the court “to fully assess the merits of
Scottsdale’s position.” The court’s decision to reconsider therefore
falls within the broad scope of its discretion, and we will not
disturb it. U.P.C., Inc. v. R.O.A. Gen., Inc., 1999 UT App 303, ¶ 57,
990 P.2d 945 (“A trial court’s decision to grant or deny a motion to
reconsider summary judgment is within the discretion of the trial
court, and we will not disturb its ruling absent an abuse of
discretion.” (citation and internal quotation marks omitted)).

     II. The District Court Appropriately Granted Summary
    Judgment in Favor of Scottsdale on the Bad Faith Claim.

¶8     We next address Human Ensemble’s claim that the district
court erred in granting summary judgment on the bad faith claim.

       2
        Certain of these factors “function only to dictate when
the district court has no discretion but rather must reconsider a
previously decided, unappealed issue.” Mid‐America Pipeline Co.
v. Four‐Four, Inc., 2009 UT 43, ¶ 14, 216 P.3d 352 (emphasis
omitted) (listing those factors). We conclude that none of the
factors mandated reconsideration under the circumstances.

20111013‐CA                       5                  2013 UT App 68
                Colony Insurance v. Human Ensemble

Summary judgment is appropriate when “there is no genuine issue
as to any material fact and . . . the moving party is entitled to a
judgment as a matter of law.” Utah R. Civ. P. 56(c). “We review a
district court’s decision to grant summary judgment for
correctness, with no deference to the district court’s conclusions.”
State ex rel. School & Inst. Trust Land Admin. v. Mathis, 2009 UT 85,
¶ 10, 223 P.3d 1119.

¶9       The district court granted summary judgment to Scottsdale
on the basis “that the duty of good faith extends only to benefits
actually provided for under the applicable insurance policy” and
Scottsdale had not denied Human Ensemble any of the bargained‐
for benefits. Human Ensemble argues that this decision was
incorrect because a breach of the insurance contract is not a
prerequisite to a claim of breach of the implied covenant of good
faith and fair dealing. We agree with Human Ensemble that a
breach of contract is not necessary for a claim of bad faith to arise.
See Christiansen v. Farmers Ins. Exch., 2005 UT 21, ¶ 13, 116 P.3d 259
(recognizing that an insurer could be liable for bad faith even if the
insurer ultimately fulfilled its obligations under the policy because
if the courts conditioned a bad faith claim “on violation of the
express terms of the contract, the insurer could escape liability for
its failure to honor the good faith dut[ies]”). We nevertheless affirm
the district court’s decision to grant summary judgment on the
basis that the duty of investigation that Human Ensemble seeks to
impose upon Scottsdale is outside the scope of the insurance
contract. See generally Bailey v. Bayles, 2002 UT 58, ¶ 10, 52 P.3d 1158
(“[A]n appellate court may affirm the judgment appealed from if
it is sustainable on any legal ground or theory apparent on the
record, even though such ground or theory differs from that stated
by the trial court . . . .” (citation and internal quotation marks
omitted)).

¶10 The covenant of good faith and fair dealing “inheres in
almost every contract” and is “implied in contracts to protect the
express covenants and promises of the contract.” KeyBank Nat’l
Ass’n v. Systems W. Computer Res., Inc., 2011 UT App 441, ¶ 32, 265

20111013‐CA                        6                  2013 UT App 68
                Colony Insurance v. Human Ensemble

P.3d 107 (citations and internal quotation marks omitted). In Utah,
this implied covenant imposes a duty “not to intentionally or
purposely do anything [that] will destroy or injure the other party’s
right to receive the fruits of the contract and to . . . act consistently
with the agreed common purpose and the justified expectations of
the other party.” United States Fid. & Guarantee Co. v. United States
Sports Specialty Ass’n, 2012 UT 3, ¶ 20, 270 P.3d 464 (alteration and
omission in original) (footnote citation and internal quotation
marks omitted). In the insurance context,

       the implied obligation of good faith performance
       contemplates, at the very least, that the insurer will
       diligently investigate the facts to enable it to
       determine whether a claim is valid, will fairly
       evaluate the claim, and will thereafter act promptly
       and reasonably in rejecting or settling the claim. The
       duty of good faith also requires the insurer to deal
       with laymen as laymen and not as experts in the
       subtleties of law and underwriting and to refrain
       from actions that will injure the insured’s ability to
       obtain the benefits of the contract.

Beck v. Farmers Ins. Exch., 701 P.2d 795, 801 (Utah 1985) (citations
and internal quotation marks omitted) (addressing good faith and
fair dealing obligations in a first‐party insurance arrangement); see
also Black v. Allstate Ins. Co., 2004 UT 66, ¶ 20, 100 P.3d 1163
(addressing the same obligations in a third‐party insurance
arrangement). By requiring that the insurer act reasonably and in
good faith in resolving the insured’s claims, these implied duties
protect an insured’s expectation that he will receive the benefits he
reasonably anticipated when he obtained the insurance policy. See
generally Pixton v. State Farm Mut. Auto Ins. Co. of Bloomington, Ill.,
809 P.2d 746, 748–49 (Utah Ct. App. 1991) (explaining the reasons
for imposing good faith duties to the insured on insurance
companies).

20111013‐CA                        7                  2013 UT App 68
                Colony Insurance v. Human Ensemble

¶11 Black v. Allstate Insurance Co., 2004 UT 66, 100 P.3d 1163,
provides an example of how the implied duty to diligently
investigate has been applied in Utah. In Black, the district court
granted the insurance company’s motion for summary judgment
on the insured’s claim that his automobile insurance carrier
violated the duty to reasonably investigate when it denied his
accident claim on the basis that he was primarily at fault without
first having contacted the only eyewitness. Id. ¶¶ 1, 3, 7. The Utah
Supreme Court, in the course of reversing summary judgment,
explained what the duty involves: in order to provide the insured
with automobile accident coverage “by virtue of the insurance
policy,” “Allstate at least had an obligation to Black to diligently
investigate the facts [of the accident], and then act fairly and
reasonably in evaluating and settling the claim.” Id. ¶¶ 20, 22. In
carrying out this duty, the focus is on whether the insurer’s
investigation was “fair and reasonable” given “the extent and
availability of evidence, whether available evidence is collected and
witnesses are contacted, common practice in the industry, and
clarity of the evidence with regard to issues of liability.” Id. ¶ 21.

¶12 Human Ensemble asserts that Scottsdale breached the
implied duty to investigate, not by failing to adequately inquire
into what caused the water leak and the nature and extent of the
resulting damage, but by failing to notify Human Ensemble for
over six weeks that its general liability policy did not cover
property damage. Specifically, Human Ensemble claims that had
Scottsdale “diligently investigate[d] the facts . . . to determine
whether [the] claim [wa]s valid,” see Beck, 701 P.2d at 801, it would
have realized earlier that the insurance coverage Human Ensemble
purchased from Scottsdale did not cover property damage but only
liability. Thus, according to Human Ensemble, the duty to
investigate a claim is not confined to the facts underlying the claim
but requires the insurer to examine the policy’s coverage upon
receiving a claim and promptly notify the insured if the claim does
not fit within the policy’s general scope.

20111013‐CA                       8                 2013 UT App 68
                Colony Insurance v. Human Ensemble

¶13 When a claim appears at least nominally to fall within the
scope of the subject matter of the policy, it makes sense to expect
the insurer not only to investigate the underlying facts, but also to
promptly determine whether the claim ought to be denied because
of some exclusion or exception in the policy. Such an interpretation
of the implied duty to diligently investigate ensures that an
insured, who reasonably might expect a property damage policy to
cover damages to personal property from a water damage incident,
is timely put on notice that the insurer considers the damages to
fall under an exclusion or exception, for example, where the policy
excludes damages to property owned by third parties. The insurer
may be in an advantaged position with regard to understanding
the details of coverage, and recognition of such a duty ensures that
the insurer does “not . . . intentionally or purposely do anything
[that] will destroy or injure the [insured]’s right to receive the fruits
of the contract.” See United States Fid. & Guarantee, 2012 UT 3, ¶ 20
(first alteration in original) (footnote citation and internal quotation
marks omitted). But while the obligation to investigate the facts in
order to resolve a claim may also include a duty to promptly
determine if a claim within the policy’s nominal subject matter is
excepted or excluded by its detailed or technical terms, Human
Ensemble has not persuaded us that this duty extends so far as to
encompass an obligation to inform the insured of the general type
of policy that the insured has purchased. Certainly, such an
expectation does not seem to be in the same category as the duty to
diligently investigate the facts and circumstances of a claim that at
least arguably falls within coverage in order to properly defend or
resolve the claim.

¶14 And while it is reasonable to expect that an insurer like
Scottsdale would determine early in the process whether an
insured’s claim falls within the general subject matter of its liability
policy or involves a subject, such as a property damage claim, that
is clearly outside the broad scope of the policy, that expectation
arises from a sense of the insurer’s own self‐interest rather than
from any notion of a special duty to the insured under the
circumstances. It was the insured in the first place who purchased

20111013‐CA                        9                  2013 UT App 68
                Colony Insurance v. Human Ensemble

a liability policy from Scottsdale and a separate property damage
policy from Colony. It therefore seems as reasonable to expect that
Human Ensemble would be responsible for keeping track of which
insurance company provided which type of coverage as it would
that Scottsdale would do so. See, e.g., John Call Eng’g, Inc. v. Manti
City Corp., 743 P.2d 1205, 1207–08 (Utah 1987) (“[O]ne party to an
agreement does not have a duty to ensure that the other party has
a complete and accurate understanding of all terms embodied in a
written contract.”); cf. DeBry v. Valley Mortg. Co., 835 P.2d 1000,
1007 (Utah Ct. App. 1992) (explaining, in the context of a fraud
claim, that “[a] duty to speak will not be found where the parties
deal at arm’s length, and where the underlying facts are reasonably
within the knowledge of both parties,” for “[u]nder such
circumstances, [a party] is obliged to take reasonable steps to
inform himself, and to protect his own interests” (citation and
internal quotation marks omitted)).

¶15 Indeed, Human Ensemble admits that it purchased a general
liability policy from Scottsdale and a property damage policy from
a separate company, Colony. While Human Ensemble purchased
these insurance policies through an independent agent, it is
undisputed that one of its principals, Gibbs Smith, signed the
application for Human Ensemble’s property damage coverage with
Colony, and Smith and another principal, Gary Justesen, both
signed policy disclosures on the Scottsdale liability policy that
described the policy’s scope of coverage. In addition, the Scottsdale
policy itself clearly identifies commercial general liability in the
“Coverage Part(s)” and expressly excludes commercial property
damage as “NOT COVERED.” Further, all of the policy
declarations and forms address general liability only. Human
Ensemble therefore was on notice of the scope of its Scottsdale
insurance policy and was aware that it had purchased property
damage coverage from Colony, not Scottsdale. See John Call Eng’g,
Inc., 743 P.2d at 1208 (explaining that because “each party has the
burden to read and understand the terms of a contract before he or
she affixes his or her signature to it,” he or she is presumed to have
knowledge of its content).

20111013‐CA                      10                 2013 UT App 68
                Colony Insurance v. Human Ensemble

¶16 As a consequence, we can see no basis for concluding that
an insurer’s implied duty “to refrain from actions that will injure
the insured’s ability to obtain the benefits of the contract” would
make Scottsdale liable for failure to timely discover and disclose to
Human Ensemble that it had not purchased property damage
coverage from Scottsdale, but from another insurer altogether. See
Beck v. Farmers Ins. Exch., 701 P.2d 795, 801 (Utah 1985). Such an
obligation does not seem to fall within the good faith duty, which
“protect[s] the express covenants and promises of the contract,”
because it is outside the scope of the bargained‐for benefits of the
insurance contract that Human Ensemble actually purchased. See
KeyBank Nat’l Ass’n v. Systems W. Computer Res., Inc., 2011 UT App
441, ¶ 32, 265 P.3d 107 (citation and internal quotation marks
omitted). To the contrary, Human Ensemble is asking that an
additional duty be imposed upon Scottsdale to be legally
responsible to Human Ensemble for its own error in filing its
property damage claim with the wrong carrier and under the
wrong policy. Imposition of such an obligation would extend the
duty of good faith and fair dealing beyond its intended purpose of
“protect[ing] the express covenants and promises of the contract.”3
See id. (citation and internal quotation marks omitted); see also
United States Fid. & Guarantee Co. v. United States Sports Specialty
Ass’n, 2012 UT 3, ¶ 20, 270 P.3d 464 (characterizing the implied
duty of good faith and fair dealing as requiring one party to a
contract “not to intentionally or purposely do anything [that] will
destroy or injure the other party’s right to receive the fruits of the

       3
        Human Ensemble has also failed to identify what harm
actually resulted from Scottsdale’s failure to notify Human
Ensemble for over six weeks that it lacked coverage under the
policy. See Resnick v. AvMed, Inc., 693 F.3d 1317, 1325 (11th Cir.
2012) (requiring a showing of harm to establish a breach of the
covenant of good faith and fair dealing by an insurance com‐
pany); Coventry Assocs. v. American States Ins. Co., 961 P.2d 933,
935 (Wash. 1998) (same for first‐party insurance claims).

20111013‐CA                      11                 2013 UT App 68
               Colony Insurance v. Human Ensemble

contract” (alteration in original) (footnote citation and internal
quotation marks omitted)). Accordingly, we affirm the grant of
summary judgment to Scottsdale on the bad faith claim.4

III. Scottsdale’s Request for Attorney Fees Incurred on Appeal Is
               Denied, but It May Recover Its Costs.

¶17 Scottsdale seeks reimbursement for attorney fees and costs
incurred on appeal on the basis that the “‘appeal is obviously
without any merit and has been taken with no reasonable
likelihood of prevailing, and results in delayed implementation of
the judgment of the lower court; increased costs of litigation; and
dissipation of [court] time and resources.’” (Quoting Porco v. Porco,
752 P.2d 365, 369 (Utah Ct. App. 1988).) Although we ultimately
find Human Ensemble’s claims to be without merit, they are not
frivolous. Attorney fees are therefore denied. Costs are awarded to
Scottsdale in accordance with rule 34(a) of the Utah Rules of
Appellate Procedure.

¶18 We affirm the grant of summary judgment to Scottsdale.
Attorney fees to Scottsdale are denied, but it may recover its costs.

       4
        Because we uphold the grant of summary judgment in
favor of Scottsdale on Human Ensemble’s failure to demonstrate
that notice of the policy’s coverage was within the scope of the
implied covenant of good faith and fair dealing, we do not
address Scottsdale’s alternative bases for affirming the judg‐
ment.

20111013‐CA                      12                2013 UT App 68