270 P.3d 464 (Utah 2012), 20090657, United States Fidelity and Guarantee Co. v. United States Sports Specialty Association

Docket Nº:20090657.
Citation:270 P.3d 464, 2012 UT 3
Opinion Judge:NEHRING Justice.
Party Name:UNITED STATES FIDELITY AND GUARANTEE CO., Plaintiff, Counterclaim Defendant and Appellant, v. UNITED STATES SPORTS SPECIALTY ASSOCIATION, Defendant, Counterclaimant and Appellee. United States Sports Specialty Association, Plaintiff, v. Nelson, Chipman & Burt, Clifford Payne, Lewis Quigley and American Specialty Insurance Risk Services, Inc., Third
Attorney:L. Rich Humpherys, Karra J. Porter, Geoffrey C. Haslam, Barton H. Kunz II, Salt Lake City, for appellant. Alan C. Bradshaw, Tyson B. Snow, Salt Lake City, for appellee United States Sports Specialty Association. John A. Snow, Salt Lake City, for appellee Nelson, Chipman & Burt. Jonathan O. Hafen,...
Judge Panel:Justice NEHRING authored the opinion of the Court, in which Associate Chief Justice DURRANT, Justice PARRISH, Justice LEE, and District Judge BRUCE C. LUBECK joined. Having recused herself, Chief Justice DURHAM did not participate herein. District Judge BRUCE C. LUBECK sat.
Case Date:January 24, 2012
Court:Supreme Court of Utah
 
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Page 464

270 P.3d 464 (Utah 2012)

2012 UT 3

UNITED STATES FIDELITY AND GUARANTEE CO., Plaintiff, Counterclaim Defendant and Appellant,

v.

UNITED STATES SPORTS SPECIALTY ASSOCIATION, Defendant, Counterclaimant and Appellee.

United States Sports Specialty Association, Plaintiff,

v.

Nelson, Chipman & Burt, Clifford Payne, Lewis Quigley and American Specialty Insurance Risk Services, Inc., Third-Party Defendants and Appellees.

No. 20090657.

Supreme Court of Utah.

January 24, 2012

Page 465

[Copyrighted Material Omitted]

Page 466

L. Rich Humpherys, Karra J. Porter, Geoffrey C. Haslam, Barton H. Kunz II, Salt Lake City, for appellant.

Alan C. Bradshaw, Tyson B. Snow, Salt Lake City, for appellee United States Sports Specialty Association.

John A. Snow, Salt Lake City, for appellee Nelson, Chipman & Burt.

Jonathan O. Hafen, Bryan S. Johansen, Salt Lake City, William G. Passannante, Marc T. Ladd, New York, NY, Amy Bach, San Francisco, CA, for amicus United Policyholders.

OPINION

NEHRING Justice.

INTRODUCTION

¶ 1 We have agreed to answer the following questions certified to us by the United States District Court for the District of Utah: (1) Does an insurer have a right to reimbursement or restitution against an insured? (2) If an insurer does have a right to reimbursement or restitution against an insured, are there any prerequisites to receiving such a right? (3) And finally, if such a right exists, does an insurer's payment in excess of a policy's limit impact any such right? Because we conclude that an insurer may obtain the right to reimbursement from its insured only when the right is expressly provided in their insurance agreement, we decline to answer the second and third certified questions.

BACKGROUND

¶ 2 Seven-year-old Dalton Nielson suffered serious injury when he was struck in the head with a bat during an adult softball game in Lehi, Utah. The softball game was sponsored by United States Sports Specialty Association (USSSA). As a result, Dalton's parents sued USSSA and several other defendants.

¶ 3 At the time of the accident, USSSA was insured by United States Fidelity and Guarantee Co. (USF & G). The policy had a liability coverage policy limit of approximately $2 million. In the suit, USF & G assumed the defense of its insured, USSSA. The case went to trial and resulted in a jury verdict of roughly $6.1 million against USSSA.

¶ 4 USF & G moved to stay execution proceedings and block attempts to collect the judgment. It also filed various other post-judgment motions on USSSA's behalf. The court held a hearing on the motion to stay. It stayed execution proceedings pending the outcome of the other post-trial motions on the condition that a bond for the entire

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amount of the judgment be posted within five business days of the hearing. USF & G initially posted a bond in the amount of $2,033,057.92, the amount of coverage provided by the policy. However, USSSA demanded that USF & G satisfy the entire judgment. It alleged that USF & G had conducted its defense in bad faith, as demonstrated by conflicts of interest, failure to communicate, refusal to accept settlement offers within policy limits, and other misconduct. In response to USSSA's demand, USF & G offered to pay the bond for the entire judgment if USSSA would agree to a full reservation of rights between the parties. USSSA refused to agree to the reservation of rights and insisted that USF & G pay the entire amount. USSSA asserted that if USF & G did not pay the bond, it would incur further injury from USF & G's bad faith.

¶ 5 After extensive correspondence between USF & G and its insured, USF & G posted an additional bond of $4,186,471 to secure the remainder of the judgment just before the five-day deadline passed. USF & G simultaneously filed an action in federal court. It sought judicial declaration that it could not be compelled to pay more than the $2 million policy limit. USF & G asserts that it posted the additional $4 million dollar bond under a unilateral reservation of rights. USSSA contends that it never agreed to any reservation, and it filed a counterclaim asserting bad faith against USF & G in the Nielsons' suit.

¶ 6 Following the stay, the case proceeded to mediation with the Nielsons. USSSA insisted that USF & G pursue a " global" settlement and objected to any settlement with the Nielsons that required USSSA to pay out-of-pocket or created a claim of reimbursement for USF & G against USSSA as its insured. Despite this, USF & G " proceed[ed] with mediation based on its own authority." USF & G ultimately settled the judgment for $4,825,000 under a " unilateral reservation of rights" that purported to allow USF & G to seek reimbursement from USSSA for the approximately $2.8 million of the settlement that exceeded policy limits. As a result, USSSA refused to sign the settlement. Nonetheless, USF & G paid the Nielsons, and a satisfaction of judgment was filed in the underlying suit.

¶ 7 After the settlement, USF & G amended its complaint in the United States District Court seeking restitution for the amount of the judgment bonded and paid that exceeded the policy limits. USSSA amended its answer to include an affirmative defense that payments beyond policy limits fit within the " voluntary payment" exception to unjust enrichment.

¶ 8 USSSA moved for partial summary judgment. It contended that USF & G has no right to restitution against its insured for the amounts paid in excess of policy limits. USF & G opposed the motion and filed a cross-motion to strike USSSA's assertion that USF & G paid the judgment voluntarily. After oral argument, the United States District Court certified to this court the questions of law that control the parties' motions. We accepted the certification to answer the following: (1) Does an insurer have a right to reimbursement or restitution against an insured? (2) If an insurer does have a right to reimbursement or restitution against an insured, are there any prerequisites to receiving such a right? (3) If such a right exists, does an insurer's payment in excess of a policy's limit impact any such right? We have jurisdiction under Utah Code section 78A-3-102(1).

STANDARD OF REVIEW

¶ 9 " A certified question from the federal district court does not present us with a decision to affirm or reverse a lower court's decision; as such, traditional standards of review do not apply. On certification, we answer the legal questions presented without resolving the underlying dispute." 1

ANALYSIS

¶ 10 USF & G urges us to apply an approach proposed in the Restatement (Third)

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of Restitution and Unjust Enrichment to an insurer's overpayment of benefits under a policy. The tentative draft provides that

[i]f one party to a contract demands ... performance that is not in fact due by the terms of the[ ] agreement, ... the party on whom the demand is made may render such performance ... with [a] reservation of rights, preserving a claim in restitution to recover the value of the benefit conferred in excess of the recipient's contractual entitlement.2

Accordingly, USF & G advocates the analysis...

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