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A New Utah Court of Appeals Decision

A new Utah Court of Appeals decision recently came out that insurers may find helpful. The case is titled Lund v. Truck Ins. Exch., 2021 UT App 64, ¶ 12. The case involved an insurer, Truck Insurance Exchange (TIE), who declined to pay a UIM coverage claim after it was determined that the Plaintiff/Insured may have been at least 50% at fault for the accident. TIE conducted a thorough investigation of the accident to determine liability including hiring an accident reconstructionist, who also determined that the Plaintiff/Insured could be at least 50% or more liable for the accident.

After the claim was denied, the Plaintiff brought an action against TIE alleging a breach of the policies implied covenant of good faith and fair dealing. TIE filed a Motion for partial summary judgment on the basis that their denial of the UIM claim could not have been made in bad faith because the validity of the Insured’s claim was “fairly debatable.” The Utah Court of Appeals sided with TIE on the basis that there could not have been bad faith because the validity of the claim was thoroughly investigated and the claim was fairly debatable and held that the Plaintiff was only “legally entitled” to UIM coverage if the other drivers fault exceeded the Plaintiff’s fault.

The Court stated “The implied obligation of good faith…contemplates, at the very least, that the insurer will diligently investigate the facts to enable it to determine whether a claim is valid, will fairly evaluate the claim, and will thereafter act promptly and reasonably in rejecting or settling the claim. However, if a claim brought by an insured against an insurer is fairly debatable, failure to comply with the insured’s demands for coverage cannot form the basis of bad faith.”

The Court determined that an insured’s claim is “fairly debatable” when the evidence creates “a legitimate factual issue as to the validity of an insured’s claim for benefits.”

What this means for insurers, is that as long as they thoroughly investigate a claim and there are facts that make the validity of the claim’s coverage “fairly debatable,” they cannot be held liable for bad faith for denying said claim. This decision is very helpful to insurers because it reinforces the fact that they are not obligated to comply with every one of their insured’s demands when the liability is fairly debatable. This decision will help shield insurers in Utah from bad faith claims where they have investigated a claim thoroughly and found its more than likely not covered.

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