Opinion
No. CV 01 076590 S
July 31, 2003
MEMORANDUM OF DECISION
The defendants, the Great American Insurance Co. and Century Indemnity Co., move to strike those counts of the complaint sounding in tort and pertaining to them, viz, counts four, eleven, sixteen, nineteen, twenty, twenty-one, twenty-six through thirty-one, and thirty-four through thirty-six as well as the portions of the prayer for relief requesting attorneys fees, consequential damages, and punitive damages. The various tort counts allege bad faith, breach of fiduciary duty, and breach of the covenant of good faith and fair dealing. The basis for the motions to strike is that, under Utah law, an insured seeking redress for the refusal of an insurer to defend the insured with respect to third-party claims is restricted to bringing an action for breach of contact.
A motion to strike "admits all the facts well pleaded; it does not admit conclusions or the truth or accuracy of opinions stated in the pleadings." Mingachos v. CBS, Inc., 196 Conn. 91, 108 (1985).
The parties agree that substantive Utah law applies to this action brought by the plaintiffs, Ensign-Bickford Industries, Inc. et al., who seek damages for the refusal of the defendants to defend and indemnify the plaintiffs against claims by several property owners in Utah whose land and water were allegedly polluted by toxic discharges released into the environment by the Trojan Company, a predecessor corporation of the plaintiffs. The parties also agree that, under Utah law, an insured making a "first-party" claim against its insurer is limited to suit for breach of the underlying insurance contract based on the holding announced by the Utah Supreme Court in the case of Beck v. Farms Insurance Exchange, 701 P.2d 795 (Utah 1985). The parties further agree that tort actions are permitted for bad faith, breaches of fiduciary duty, etc. in "third-party" actions against an insurer. See Campbell v. State Farm Mutual Automobile Insurance Co., 840 P.2d ___ (Utah App.Ct. 1992); reversed on other grounds, 65 P.3d 1134 (Utah 2001), reversed in part on other grounds, State Farm Mutual Automobile Insurance Co. v. Campbell ___ U.S. ___ CT Page 8722-bn (2003). Thus, the question before this court reduces to whether the allegations of the present case set forth a first-party or third-party action.
Difficulty answering that question arises because the Utah Supreme Court has issued conflicting decisions as to what constitutes a first-party versus third-party suit. Also, no Utah appellate court has had occasion to address a case alleging a bad faith refusal to defend, as opposed to bad faith in refusing to settle. The parties concur that this court must attempt to predict what the Utah Supreme Court would decide if faced with such a claim.
The Beck case, supra, involved an insured suing an insurer for refusal to pay the insured as provided in an underinsured/uninsured motorist coverage policy issued to the insurer by the insurance company. There was no third-party claim against the insured. Clearly, in that case the plaintiff was suing the insurance company for the company's direct liability under the insurance contract. The Utah Supreme Court held that a tort action was inappropriate in such a case because it was a first-party action. Consequently, all of the plaintiff's bad faith claims had to be brought under breach of contract rather than tort. That Court acknowledged that it was in the minority of jurisdictions in adopting this restrictive rule.
Twelve years after the Beck decision was rendered, the Utah Supreme Court held that an insured who sued its insurer for the unwarranted refusal to reimburse it for payment it made to a third party, to whom the insured was liable in negligence was also a first-party action. Gibbs M. Smith, Inc. v. U.S. Fidelity and Guaranty Co., 949 P.2d 337, 344 (Utah 1997). It should be observed that the third party in that case never sued the insurer, but, instead, the claim was paid upon submission. The Utah Supreme Court stated that "[w]hile the instant case involves a claim for third-party coverage, USFG is being sued by its own insured. Therefore, the trial court did not err in concluding that this is a first-party action, although a more accurate statement might be that this is a first-party action for third-party coverage." Id.
The logical conclusion one draws from this statement is that any action instituted by an insured against the insurer is a first-party action regardless of whether the suit is based on direct, contractual liability, as in the Beck case, supra, or based on coverage for damages claimed by a third party. If the Gibbs M. Smith, Inc. decision, supra, was the last word on the matter, it would be easy to determine that the facts alleged in the present complaint set forth a first-party action. CT Page 8722-bo
However, four years later, the Utah Supreme Court included a footnote in Campbell v. State Farm Mutual Automobile Insurance Co., 65 P.3d 1134 (Utah 2001), which cast doubt on the validity of the characterization in Gibbs M. Smith, Inc., supra, that that case was, indeed, a first-party action. Footnote 20 in Campbell, supra, states:
In Gibbs M. Smith, Inc. v. United States Fidelity Guaranty Co., 949 P.2d 337, 344 (Utah 1997), this court implied the same result we reach here, by holding, in a third-party claim, that attorney fees were recoverable for a breach of the implied covenant of good faith and fair dealing. Although the court observed that "a more accurate statement might be that this is a first-party action for third-party coverage," it is plain on the facts that the action involved what we described in Beck as a third-party claim. Thus our holding in that case, despite its scant analysis, stands for the proposition that fees are awardable in third-party bad faith claims by an insured against its insurer, a ruling we make explicit today.
(Emphasis added.)
So despite the clear statement in Gibbs M. Smith, Inc., supra, that that case was a first-party action, the Campbell case, supra, definitively portrays the Gibbs M. Smith, Inc. case, supra, as, in reality, a third-party action.
The Campbell decision, supra, allowed tort claims for the bad faith refusal to settle with a third party, calling that kind of suit by an insured against the insurer a third-party action. The defendants attempt to distinguish the Campbell case, supra, from the present matter by pointing out that in Campbell, supra, the insurer did step in to defend its insured in the suit commenced by the third party. By doing so, the insurer activated a fiduciary duty to its insured to act in the insured's best interest even at the expense of its own. In assuming responsibility to defend, the insurer wielded the decision-making power for the insured, who was then at the mercy of the insurer to act in the insured's best interest throughout the litigation against the insured. The defendants argue that the allegations in the present case are that the insurance companies never acted to defend the plaintiff, and, therefore, the fact pattern more closely resembles those of Gibbs M. Smith, Inc., supra, than Campbell, supra, because in Gibbs M. Smith, Inc., supra, the insurer never assumed the defense of the insured.
The plaintiffs contend, inter alia, that footnote 20 in Campbell, supra, clarifies the holding of Gibbs M. Smith, Inc., supra, to the extent that it states that Gibbs M. Smith, Inc., supra, was a third-party CT Page 8722-bp and not a first-party action. The court agrees.
The Campbell case, supra, was decided four years later and footnote 20 specifically noted that the language cited above used by the Utah Supreme Court in Gibbs M. Smith, Inc., supra, was the result of "scant analysis." Further, the Utah Supreme Court in Campbell, supra, pronounced that it was making "explicit" that the scenario in Gibbs M. Smith, Inc., supra, was a third-party rather than first-party action. This court predicts that the Utah Supreme Court, if presented with a bad faith refusal to defend a claim, would regard such as a third-party action which allows the insured to sue in tort as well as breach of contract.
Therefore, the motions to strike are denied.
Sferrazza, J. CT Page 8722-bq