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Insurance Law

SNR Denton LLP on Jones v. Farmers Insurance Exchange: Whether Insurer's Position Is Fairly Debatable Not Always Susceptible to Summary Judgment

William Barker   By William T. Barker, Partner, SNR Denton LLP

In Jones v. Farmers Insurance Exchange, the Utah Supreme Court held that the district court had erred in granting summary judgment that the insurer's denial of coverage was "fairly debatable" and, thus, not bad faith.  This reflects a trend to restrict use of summary judgment.  This commentary examines when the fairly-debatable issue is susceptible to summary judgment and when it is not.

This was an underinsured motorist claim on which, ultimately the only disputed aspect was dental treatment for cracked teeth.  Jones visited the dentist four years after the accident, and the dentist reported a need for extensive procedures; he said that the breaks could have been caused by trauma and that Jones attributed them to the accident, saying that other medical procedures had taken precedence over attention to these.  Farmers questioned causation, but the dentist responded that the teeth had been cracked in the accident and that delay in treatment had not changed what was required.  Farmers still declined to recognize this as a compensable loss, negotiations failed, and arbitration awarded an amount large enough to include compensation for the cracked teeth.

As the commentary notes:

Farmers argued that "'if an insured cannot establish that [he] is entitled to summary judgment on the merits of his [bad faith] claim, that means the claim is fairly debatable.'"  The court disagreed, noting that such a rule, if accepted, would require that the "fairly debatable" issue always be resolved on summary judgment, and that was not the law in Utah.  The court pointed to Billings ex rel. Billings v. Union Bankers Ins. Co., a case where it had affirmed judgment on a jury verdict of bad faith, even though it had affirmed denial of summary judgment on the contract claim.  The court also noted that other jurisdictions had rejected the rule advocated by Farmers. [Footnotes omitted]

The court remanded for further proceedings.

The commentary examines the logic of bad faith law, in Utah and all but a few other jurisdictions, and shows how that is connected to the procedural requirements for summary judgment or directed verdict on the coverage claim.  It also examines the circumstances in which entitlement to summary judgment or directed verdict on the coverage claim is not necessary to a viable bad faith claim and states general rules describing cases where that could be found.

The commentary concludes that Jones and Billings are consistent with the analysis and rules stated.  It concludes by contrasting the law in a few states that appear to reject that analysis:

There are states that appear to reject all forms of a directed-verdict rule.  Notably, Florida is committed to a unique "totality of the circumstances" standard for first-party bad faith, and Montana holds that a jury must determine whether an insurer's view of the facts constitutes bad faith.  Arizona holds that, at least in some circumstances, a jury may properly find bad faith based on the improper way in which a claim was handled, even if there were, ultimately, a genuine dispute as to the amount due, [1] and Rhode Island has agreed.  But all of these cases are inconsistent with the rule, reaffirmed in Jones, that "'[w]hether an insured's claim is fairly debatable under a given set of facts is ... a question of law.'"  Thus, Arizona and Rhode Island may indicate a small trend away from the generally recognized limits of the bad faith cause of action and, as a result, a narrowing of the procedures that can be used to defend against bad faith claims.

Nonetheless, Utah remains in the mainstream of jurisdictions that firmly protect the right of an insurer to dispute any claim that is fairly debatable (based on all information that a reasonable investigation would have developed).  In such jurisdictions, the modified directed-verdict rule continues to indicate when summary judgment will be available in cases involving factual disputes as to coverage.  [Footnotes omitted]


 [1] Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, ¶¶ 20-24 (Sup. Ct. 2000).

William T. Barker is a member of SNR Denton's Insurance Litigation & Coverage Practice Group and practices in the firm's Chicago office. He has a nationwide practice in the area of complex commercial insurance litigation, including coverage, claim practices, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is the co-author, with Ronald D. Kent of The New Appleman Insurance Bad Faith Litigation, Second Edition and with Charles Silver of the forthcoming Professional Responsibilities of Insurance Defense Counsel; he has written over 100 published articles on insurance and litigation subjects. He has been described as "[t]he leading lawyer commentator" on the relationships between insurance and civil procedure. Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 & n.4 (1995). He is an Adviser to the American Law Institute project on Principles of the Law of Liability Insurance. He is a member of the Editorial Board of The New Appleman on Insurance Law Library Edition and The New Appleman Insurance Law Practice Guide. He is Editorial Board Director and Senior Contributing Editor of Insurance Litigation Reporter and a member of the Board of Editors of Defense Counsel Journal.

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