R & R. Indus. Park v. Utah Prop. & Cas. Ins., 20070107.

• Court: Supreme Court of Utah
• Citation: 2008 UT 80,199 P.3d 917
• Docket Number: No. 20070107.,No. 20070131.,No. 20070100.,20070107.,20070100.,20070131.
• Parties: R & R INDUSTRIAL PARK, L.L.C.; AlumaTek, Inc.; and Repair Express, Inc., Plaintiffs, Appellees/Cross-Appellants, v. The UTAH PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Defendant, Appellant/Cross-Appellee.
• Decision Date: 21 November 2008

199 P.3d 917 2008 UT 80 R & R INDUSTRIAL PARK, L.L.C.; AlumaTek, Inc.; and Repair Express, Inc., Plaintiffs, Appellees/Cross-Appellants,
v.
The UTAH PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Defendant, Appellant/Cross-Appellee. No. 20070107. No. 20070100. No. 20070131. Supreme Court of Utah. November 21, 2008.

[199 P.3d 920]

Andrew M. Morse, Richard A. Vazquez, Robert G. Gilchrist, Jeffrey D. Eisenberg, David A. Cutt, Salt Lake City, for plaintiffs.

Tim Dalton Dunn, Gerry B. Holman, Salt Lake City, for defendant.

DURHAM, Chief Justice:

INTRODUCTION

¶ 1 This case comes to us on appeal from summary judgment and an order invalidating a settlement agreement between the parties. We are presented with two questions in this case: (1) whether the district court correctly interpreted Utah Code sections 31A-28-201 to -222 (the Guaranty Act), and (2) whether the district court properly invalidated the parties' settlement agreement (the Settlement Agreement). We affirm the district court's interpretation of the Guaranty Act, but reverse its holding regarding the Settlement Agreement.

BACKGROUND

¶ 2 In 1999, a fire occurred at the R & R Industrial Park, L.L.C. (R & R) property in Salt Lake City, destroying a significant portion thereof. At the time of the fire, AlumaTek, Inc., (AlumaTek) was leasing a portion of the property damaged by the fire, and CDR Enterprises (CDR) was occupying another portion of the property. The evidence indicated that material stored by CDR caused the fire.

¶ 3 At the time of the fire, CDR was insured by Reliance Insurance Company (Reliance) with a liability insurance policy of $1,000,000 per occurrence as well as an excess liability policy of $5,000,000. However, Reliance was liquidated on February 21, 2002. Subsequently, the Utah Property and Casualty Insurance Guaranty Association (UPCIGA) assumed the role of CDR's insurer pursuant to its statutory obligation under Utah Code sections 31A-28-202, -207 (2005 and Supp. 2008).¹

¶ 4 R & R collected $1,517,609.86 from its insurance carrier CNA. Of that amount, $1,343,382.86 was for its first-party property damage, and $174,227 was for lost rent. AlumaTek received $272,000 from its insurance carrier, St. Paul Insurance Company, for property damage.

PROCEDURAL HISTORY

¶ 5 In November 2000, R & R filed suit against CDR for negligence and breach of contract. On January 11, 2001, AlumaTek filed its own action against CDR for negligence, claiming over $500,000 in property and inventory damages and $700,000 for losses stemming from interruption of business.

¶ 6 CDR turned its defense over to its insurance company, Reliance. Subsequently, Reliance was liquidated by order of the Commonwealth Court of Pennsylvania, and, pursuant to its duties, UPCIGA took over defense of the case.

A. THE SETTLEMENT AGREEMENT

¶ 7 On February 21, 2003, R & R, AlumaTek, Repair Express², and UPCIGA attended a mediation. During the mediation, UPCIGA argued that it only had a maximum $300,000 obligation to R & R and AlumaTek respectively, as it only had to respond to "one covered claim per claimant" on behalf of Reliance. In addition, UPCIGA argued that it should not have to pay any sum because of the offset clause in Utah Code section 31A-28-213 (Supp.2008), which it argued requires the deduction from UPCIGA's obligation of any recovery from third-party insurers.

¶ 8 To resolve the issue, the parties agreed to file a declaratory action to determine UPCIGA's rights and obligations under the Guaranty Act in relation to the "one covered

199 P.3d 921

claim per claimant" and the offset clause provisions of the statute. The Settlement Agreement was drafted and submitted to all parties on May 2, 2003, and was signed on May 21, 2003.

¶ 9 The relevant part of the Settlement Agreement reads as follows:

UPCIGA will pursue declaratory judgement [sic] action regarding its rights and obligations in this matter. More specifically, this declaratory judgment action will address, among other issues, UPCIGA's argument that the UPCIGA Act provides the amounts payable by UPCIGA on covered claims are to be reduced or offset by amounts recovered under other insurance policies. At issue is whether the offset is subtracted from the $300,000.00 statutory limit or whether the offset is subtracted from a claimant's damages. UPCIGA agrees that if the judicial pronouncement in the declaratory judgment action requires the UPCIGA to calculate the offset from the amount of a claimant's damages and not from the $300,000.00 statutory limit, UPCIGA will automatically pay R & R Industrial Park, Alumatek, and Repair Express $300,000.00 each for and on behalf of the respective claims against CDR Enterprises. Additionally, R & R Industrial Park, Alumatek, and Repair Express will assert claims that there are two separate policies applicable to the claims in this action. If the second/excess policy is adjudicated to increase the statutory limit to $600,000.00 per claimant, R & R Industrial Park, Alumatek, and Repair Express will be required to prove damages only in excess of $300,000.00 each.

(Emphases added).

B. SUMMARY JUDGMENT

¶ 10 Pursuant to the Settlement Agreement, a third-party complaint was filed against UPCIGA by R & R and AlumaTek on July 1, 2003. UPCIGA answered the third-party complaint on April 1, 2004, arguing it was not required to pay excess coverage claims and arguing that it was entitled to an offset on its statutory indemnification obligation against funds received by R & R from its first-party insurer.

¶ 11 R & R and AlumaTek filed a joint motion for summary judgment on whether the Guaranty Act provides one or two layers of $300,000 coverage for liability and excess policies, and whether UPCIGA was entitled to an offset against funds received from other insurance carriers.

¶ 12 A hearing was held on February 7, 2005. On February 14, 2005, the court granted summary judgment to R & R and AlumaTek, ruling that UPCIGA must provide coverage of $300,000 for each liability policy as well as up to an additional $300,000 for each excess policy. In addition, the court ruled that UPCIGA could not subtract or offset the amount the plaintiffs received from their first-party property insurers.

C. EVIDENTIARY HEARING

¶ 13 The Settlement Agreement provided that if the district court found that UPCIGA was obligated to provide coverage for excess policies, an evidentiary hearing would be held to determine R & R and AlumaTek's damages. At the evidentiary hearing, one of R & R's experts testified that R & R had suffered $862,000.31 in damages, and AlumaTek's expert testified that AlumaTek had suffered $918,494 in damages.

¶ 14 In response, UPCIGA presented its own expert who testified that R & R's damages, including offsets for insurance proceeds received from other sources and prejudgment interest, were between $214,789.14 and $394,796.18. UPCIGA's expert also submitted evidence that AlumaTek suffered no uncompensated damages from the fire.

¶ 15 The district court awarded R & R $262,490.77, plus $137,407.90 in prejudgment interest. AlumaTek was awarded no damages.

D. INVALIDATION OF THE SETTLEMENT AGREEMENT

¶ 16 Five days before the evidentiary hearing, UPCIGA filed a hearing brief in which it argued, among other things, that the court should set aside the entire Settlement Agreement. At the conclusion of the evidentiary

199 P.3d 922

hearing, the court invalidated the Settlement Agreement in its Amended Findings of Fact and Conclusions of Law because it found that R & R and AlumaTek made "less than accurate representations regarding insurance proceeds."

E. THE APPEAL

¶ 17 Alumatek filed a notice of appeal on January 25, 2007, to contest the invalidation of the Settlement Agreement. UPCIGA filed a notice of appeal on January 26, 2007, contesting the granting of summary judgment on the issues of whether the statutory cap applied to multiple policies and whether UPCIGA was entitled to an offset to its liability for payments from third-party insurers. R & R also filed a notice of appeal on February 8, 2007, contesting the invalidation of the Settlement Agreement. The Utah Supreme Court has jurisdiction in this matter pursuant to Utah Code section 78A-3-102(3)(j) (Supp.2008).

ISSUES AND STANDARD OF REVIEW

¶ 18 Whether summary judgment is proper is a question of law. "An appellate court reviews a trial court's `legal conclusions and ultimate grant or denial of summary judgment' for correctness, and views `the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party.'" Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600 (quoting Higgins v. Salt Lake County, 855 P.2d 231, 233 (Utah 1993)).

¶ 19 Whether the district court correctly interpreted the Guaranty Act is a question of law. See Rushton v. Salt Lake County, 1999 UT 36, ¶ 17, 977 P.2d 1201. Therefore, "we accord no deference to the legal conclusions of the district court but review them for correctness." Id.

¶ 20 Whether the invalidation of a settlement agreement is proper can be both a question of law and a question of fact. "Settlement agreements are governed by the rules applied to general contract actions...." Butcher v. Gilroy, 744 P.2d 311, 312 (Utah Ct.App.1987). The standard of review on the validation or invalidation of a contract "turns on whether the claim is one of fact or law." Cal Wadsworth Constr. v. City of St. George, 865 P.2d 1373, 1375 (Utah Ct.App.1993). In the present case, the district court invalidated the Settlement Agreement based on an interpretation of law and findings of fact. However, we reverse that decision based on the district court's interpretation of law, which we review for correctness, giving no deference to its legal conclusions. See Rushton, 1999 UT 36, ¶ 17, 977 P.2d 1201.

ANALYSIS

¶ 21 We will address the questions at issue in the following order: first, whether the district court correctly interpreted the Guaranty Act, and second,...