United States Fid. & Guarantee Co. v. United States Sports Specialty Ass'n

• Decision Date: 24 January 2012
• Docket Number: No. 20090657.,20090657.
• Citation: 270 P.3d 464,700 Utah Adv. Rep. 78,2012 UT 3
• Parties: 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.
• Court: Utah Supreme Court

2012 UT 3

270 P.3d 464

700 Utah Adv. Rep. 78

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.

Jan. 24, 2012.

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.Justice NEHRING, opinion of the Court:

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 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) 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 undertaken in Blue Ridge Insurance Co. v. Jacobsen, which permits an insurer to seek reimbursement from its insured for noncovered payments to a plaintiff when (1) the insurer timely and expressly informs its insured that the insurer is reserving its rights under the policy; (2) the insurer notifies the insured of its intent to make the potentially noncovered payment; and (3) the insurer expressly offers the insured the ability to assume its own defense of the underlying suit if it objects to the payment.³ We do not agree that the Restatement and the analysis set forth in Blue Ridge are consistent with Utah law.

¶ 11 USF & G observes that “restitution, also referred to as a claim for unjust enrichment, has long been recognized as a valid cause of action in Utah.” As such, there is ample case law defining the limits of a claim of unjust enrichment. Under our precedent, a claim of unjust enrichment cannot arise where there is an express contract governing the “subject matter” of a dispute.⁴ Because an insurer's right to reimbursement from an insured substantially affects the relative levels of risk assumed by each, Utah law does not allow an insurer to seek reimbursement or restitution through an extracontractual claim of unjust enrichment. Instead, we hold that an insurer's right to reimbursement from an insured must be expressly provided in an insurance policy before it can be enforced. Given this holding, it is unnecessary to respond to the second and third certified questions regarding prerequisites to a claim for restitution and the effect of payment in excess of policy limits.

I. A CLAIM OF UNJUST ENRICHMENT CANNOT EXIST WHERE THERE IS AN EXPRESS CONTRACT GOVERNING THE SUBJECT MATTER OF THE DISPUTE

¶ 12 Restitution is distinct from a contractual right to reimbursement. More precisely, restitution is an extracontractual remedy for a claim of unjust enrichment. To establish a claim for unjust enrichment, a plaintiff must show: “(1) a benefit conferred ...; (2) an appreciation or knowledge by the conferee of the benefit; and (3) the acceptance or retention [of the benefit] by the conferee ... under such circumstances as to make it inequitable for the conferee to retain the benefit without payment of its value.” ⁵ The doctrine of unjust enrichment “developed to remedy injustice when other areas of the law could not.” ⁶ Once a plaintiff establishes each of its elements, “the remedy is one of restitution designed to restore to a plaintiff a benefit unjustly enjoyed by a defendant.” ⁷

¶ 13 Because “[unjust enrichment] is designed to provide an equitable remedy where one does not exist at law,” ⁸ the doctrine may be invoked “only when no express contract is present” ⁹ that governs the remedies available to an injured party. However, “where an express contract covering the subject matter of the litigation exists, recovery for unjust enrichment is not available.” ¹⁰ To allow...