Farm Bureau Mut. Ins. v. Weston

• Citation: 2023 UT App 136
• Docket Number: 20180699-CA
• Decision Date: 09 November 2023
• Parties: FARM BUREAU MUTUAL INSURANCE, Appellant and Cross-appellee, v. JARED H. WESTON, FARMERS INSURANCE EXCHANGE, PREMATIC SERVICE CORPORATION, AND WILSON GREEN INSURANCE AGENCY, Appellees and Cross-appellants.
• Court: Court of Appeals of Utah

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2023 UT App 136

FARM BUREAU MUTUAL INSURANCE, Appellant and Cross-appellee,
v.
JARED H. WESTON, FARMERS INSURANCE EXCHANGE, PREMATIC SERVICE CORPORATION, AND WILSON GREEN INSURANCE AGENCY, Appellees and Cross-appellants.

No. 20180699-CA

Court of Appeals of Utah

November 9, 2023

Third District Court, Salt Lake Department The Honorable Royal I. Hansen No. 050905850

Trent J. Waddoups, Attorney for Appellant and Cross-appellee Farm Bureau Mutual Insurance

Troy L. Booher, Beth E. Kennedy, and Dick J. Baldwin, Attorneys for Appellees and Cross-appellants Farmers Insurance Exchange and Wilson Green Insurance Agency

Daniel F. Bertch, Attorney for Appellee and Cross-appellant Jared H. Weston

JUDGE GREGORY K. ORME authored this Opinion, in which JUDGE RYAN D. TENNEY concurred. JUDGE RYAN M. HARRIS concurred in Parts I, II, III.A, III.B.2, IV, and V, but dissented as to Parts III.B.1 and III.B.3, with opinion.

OPINION

GREGORY K. ORME, JUDGE

¶1 This appeal is multifaceted. The threshold issue concerns whether an insurance policy Farmers Insurance Exchange

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(Farmers Insurance^[1]) provided on a vehicle was in effect at the time the vehicle was involved in an accident in which the other driver was killed. Following the first bench trial in this case, the trial court held that Farmers Insurance had properly cancelled the policy prior to the accident for failure to timely pay a premium. Despite this ruling, the issue remained whether Farmers Insurance nonetheless breached its duty to defend when it failed to offer a defense for Jared H. Weston (Jared)-the driver of the vehicle it periodically insured-in a lawsuit Farm Bureau Mutual Insurance (Farm Bureau) initiated as the subrogee of the deceased driver. The trial court held on summary judgment that Farmers Insurance breached the duty to defend and, following a second bench trial, the court awarded Jared $320,000 in damages for emotional distress plus an additional $128,000 in attorney fees for that breach. On reconsideration, the court reduced the damages award to $0 and entered judgment in Jared's favor for $105, representing only Jared's costs. The parties raise several issues on appeal.

¶2 First, we hold that the arguments Farm Bureau and Jared raise on appeal are not moot, and we therefore have jurisdiction to consider them. We then affirm the trial court's determination that Farmers Insurance properly cancelled the insurance policy prior to the accident and certain other of the court's summary judgment rulings. Finally, we turn to the issues concerning the duty to defend. We affirm the court's ruling that Farmers Insurance breached the duty to defend and that Jared is not entitled to damages for emotional distress, but we hold that Jared is entitled to damages in the amount of the judgment entered against him in favor of Farm Bureau plus attorney fees.

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BACKGROUND^[2]

Insurance Policy

¶3 Joelyn Weston (Joelyn) purchased multiple automobile insurance policies from Farmers Insurance, including one for her 1992 Ford Explorer. On several occasions, Joelyn^[3] was late in paying the insurance premiums, resulting in several lapses in coverage after Farmers Insurance sent notices of cancellation. In September 2003, Farmers Insurance sent Joelyn one such notice of cancellation, requiring payment on or before September 16. Because Farmers Insurance did not receive full payment until October 3, Joelyn's vehicles were not insured from September 16 until October 3, when Joelyn reinstated the policies.

¶4 That December, a new six-month period of coverage began for Joelyn's vehicles. The declarations page of the policy provided

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that the coverage for the vehicles, including for the 1992 Ford Explorer, was for a six-month period beginning on December 3, 2003, and extending until June 3, 2004. The policy provided that "[t]his policy with the Declarations includes all agreements between you and us" and that "[n]o other change or waiver may be made in this policy except by endorsement, new Declarations or new policy issued by us."

¶5 Instead of paying the entire amount due for the six-month period upfront, Joelyn elected to make monthly payments. Accordingly, Endorsement E0022 was incorporated into the policy. Endorsement E0022 stated that "[t]his endorsement is part of your policy" and that it "supersedes and controls anything to the contrary." Endorsement E0022 amended the policy period "to one Calendar month" and provided that "[t]he premium is due no later than on the expiration date of the then current monthly period." Following the first bench trial, the trial court found that Endorsement E0022 also incorporated into the insurance contract the Prematic Service Corporation Monthly Payment Plan Agreement (the Prematic Agreement). The trial court found that Prematic Service Corporation (Prematic) "is a billing system that bills for the Farmers Policies"; that Prematic is entirely owned by Farmers Group, Inc.; and that "all Prematic's employees are full-time employees of Farmers Group, Inc."

¶6 Under the Prematic Agreement, Joelyn, who was referred to as "Customer" in the agreement, agreed to appoint Prematic as her "agent to budget monthly payment of premiums . . . during the term of [the Prematic Agreement] and to make premium payments to insurers . . . pursuant to the terms and conditions of this Agreement." She further agreed "to forward to Prematic by the due dates set forth in the bill sent by Prematic . . . a sum equal to the current monthly payment of the policy(ies) budgeted for monthly premium payment under this Agreement and a service charge."

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¶7 Pursuant to Endorsement E0022 and the Prematic Agreement, each monthly payment was due on the third of each month. The first Prematic bill was for a period of 45 days of coverage, and each subsequent bill was for a monthly period of coverage.^[4] This, "by design" according to the trial court, "resulted

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in a practice of prepayment of insurance premiums that would lead to a refund of insurance premiums, rather than a bill for unpaid insurance premiums, upon termination or cancellation of the policy."

¶8 Prematic reserved the right to terminate the Prematic Agreement "in the event that . . . Customer has failed to make timely payments to Prematic." The Prematic Agreement further provided,

In the event that less than full monthly payment is received by Prematic, . . . Customer authorizes Prematic to apply any funds received or credited to Customer's accounts as follows:

(a) first, toward any unpaid balance from a prior month;

(b) second, to the current Service Charge as reflected on the current Prematic bill;

(c) third, toward the payment of any other fees or charges shown on the current Prematic bill; and

(d) [fourth,] toward the payment of current monthly premium amounts for any policy(ies) under this Agreement, applied pro rata.

Customer acknowledges that less than full payment constitutes breach of this Agreement and that Prematic has the right to terminate this Agreement[.]

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Cancellation of the Insurance Policy

¶9 In December 2003, Joelyn received a bill in the amount of $158.92 for what the bill purported to be the coverage period from January 18, 2004, until February 17, 2004, for four vehicles, including the 1992 Ford Explorer. The bill stated that it was for "Activity processed after: 12-14-03." Payment was due January 3, 2004, which Joelyn did not timely pay, later explaining that she "[p]robably didn't have the money at the time." Sometime after January 6 but before January 15, she mailed a check dated January 6, 2004, for $158.92. Prematic processed the check on January 15, and payment on the check was withdrawn from Joelyn's bank account on January 16.

¶10 On January 14, the day before her check was processed, Farmers Insurance issued a notice of cancellation (the Notice of Cancellation) to Joelyn. The Notice of Cancellation indicated that it "Includes Activity Processed Before: 1-14-04" and stated that Joelyn's policies, including the one for the 1992 Ford Explorer, would be cancelled on February 3, 2004, if payment in the amount of $220.16 was not received by that same date.^[5] Joelyn received the Notice of Cancellation "sometime before the February 3, 2004 cancellation date." The trial court later found that Joelyn's "history of late payments and cancellations demonstrates she understood that failure to pay the full amount due as set forth in the . . . Notice of Cancellation would result in cancellation of the insurance policy with no right to retroactive reinstatement." In other words, Joelyn "read and understood . . . that if $220.16 was

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not paid by February 3, 2004, all of the Farmers' Policies would be cancelled as of February 3, 2004."

¶11 Although Prematic processed the $158.92 check on January 15, it did not receive the remaining $61.24 due under the Notice of Cancellation by the February 3 deadline. For this reason, on February 14, Farmers Insurance cancelled all of Joelyn's policies for non-payment, effective February 3. The trial court later found that "[b]ased on her history of late payments and cancellations Joelyn Weston understood that her payment of $158.92 . . . and Farmers' subsequent processing of her payment did not satisfy the terms outlined in the . . . Notice of Cancellation." On February 18, Prematic mailed Joelyn a letter stating that because she had not made timely payment, it was cancelling her policies pursuant to the Prematic Agreement. It also noted that Farmers Insurance "has cancelled your policy, or policies, in accordance with the terms of each policy." Prematic's letter also included a refund check for $130.68, which represented the $158.92 payment minus the amount due to Farmers Insurance for the coverage it provided until February 3 plus certain credits Joelyn was owed for changes made to a policy on a different vehicle.

The Accident

¶12...