Fire Insurance Exchange v. Oltmanns

2016 UT App 54
T HE U TAH COURT OF A PPEALS
F IRE I NSURANCE EXCHANGE,
Appellee,
v.
R OBERT A LLEN O LTMANNS,
Appellant.
Opinion
No. 20140984-CA
Filed March 24, 2016
Second District Court, Farmington Department
The Honorable Glen R. Dawson
No. 090700825
Donald L. Dalton, Attorney for Appellant
Stewart B. Harman and Joel D. Taylor, Attorneys
for Appellee
JUDGE GREGORY K. O RME authored this Opinion, in which JUDGES
J. F REDERIC VOROS JR . and M ICHELE M. C HRISTIANSEN concurred.
ORME, Judge:
¶1 	Appellant Robert Allen Oltmanns returns to this court,
once again appealing a district court decision granting summary
judgment to Fire Insurance Exchange. The core dispute between
these two parties previously came to this court and was resolved
in Fire Insurance Exchange v. Oltmanns, 2012 UT App 230, 285
P.3d 802. Last time we reversed; this time, we affirm.
BACKGROUND
¶2 	This suit grew out of an accident in 2006 involving a
personal watercraft piloted by Oltmanns, which resulted in the
injury of Oltmanns’s brother-in-law. Concerned early on about

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potential tort liability stemming from the accident, Oltmanns
consulted with a Fire Insurance agent, who offered to assist
Oltmanns in filing a claim even though the agent was not certain
there would be coverage.1 At that time, Oltmanns declined the
agent’s offer of assistance in submitting the claim.
¶3 	A 	year 	later, 	the 	brother-in-law 	sued 	Oltmanns 	for
negligence 	and 	won, 	obtaining 	a 	judgment 	against 	him.
Oltmanns again contacted Fire Insurance. This time, however,
Oltmanns demanded that Fire Insurance pay the full amount of
his 	liability 	to 	his 	brother-in-law 	under 	his 	homeowner’s
insurance policy. After extensive in-house review, Fire Insurance
submitted Oltmanns’s claim to outside counsel for a coverage
opinion. 	It 	also 	told 	Oltmanns’s 	attorney 	to 	continue
representing Oltmanns and informed him that Fire Insurance
might reimburse him for his fees and expenses.
¶4 	Soon thereafter, in a quite thorough coverage opinion,
outside counsel expressed the view that the term “jet ski” as
used in Oltmanns’s policy most likely would be construed as
referring to the broad category of motorized personal watercraft
such that, in counsel’s opinion, “Fire Insurance had a 75% chance
of prevailing in a declaratory relief action.” Counsel advised
filing 	such 	an 	action 	to 	receive 	a 	definitive 	ruling 	on 	the
coverage question, and Fire Insurance then filed this declaratory
judgment action seeking a determination of its responsibility to
Oltmanns under his policy.
¶5 	Shortly after filing its action, Fire Insurance moved for
summary judgment, and the district court, agreeing with outside
counsel’s 	interpretation, 	ruled 	in 	favor 	of 	Fire 	Insurance.
1. Oltmanns’s policy with Fire Insurance excluded coverage for
accidents involving the use of “jet skis.” In the prior appeal, we
concluded that this term was ambiguous. See Fire Insurance
Exchange v. Oltmanns, 2012 UT App 230, ¶ 10, 285 P.3d 802.

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Oltmanns appealed, and we reversed, concluding that although
one definition of the term “jet ski” supported the view taken by
Fire Insurance and the district court, the term was ambiguous
because “jet ski” was subject to several different interpretations,
some of which favored Oltmanns. Oltmanns, 2012 UT App 230,
¶¶ 9–10. Construing the contract against the drafter and in favor
of 	the 	policyholder, 	we 	ruled 	in 	favor 	of 	Oltmanns 	and
remanded the case to the district court. Id. ¶ 11.
¶6 	Fire Insurance did not petition for rehearing, did not
petition for certiorari review, and did not try to develop new
arguments for the district court’s consideration on remand. On
the contrary, it promptly settled with Oltmanns and agreed to
reimburse him for the attorney fees incurred in defending the
tort case. Fire Insurance declined, however, to cover Oltmanns’s
attorney fees related to the coverage dispute, including those
related to the successful appeal from the district court’s grant of
summary judgment to Fire Insurance.
¶7 	In an effort to recover those attorney fees, Oltmanns filed
a 	counterclaim 	against 	Fire 	Insurance 	in 	the 	still-open
declaratory judgment action, claiming breach of the implied
covenant of good faith and fair dealing for Fire Insurance’s
alleged failure to “fairly evaluate” the claim pending against
Oltmanns and for “unreasonably reject[ing]” that claim.2 The
parties 	began 	discovery 	on 	the 	issues 	presented 	by 	the
counterclaim in the fall of 2013.
2. Unlike some insurance policies that apparently allow for the
recovery 	of 	attorney 	fees 	from 	the 	insurer 	by 	the 	insured
following a successful coverage action, both sides indicated
during oral argument that the insurance contract in this case has
no such provision. Therefore, the parties agree, Oltmanns is
entitled to recover his attorney fees only if he can prove bad
faith—or at least a lack of good faith—by Fire Insurance.

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¶8 	Almost a year later, Fire Insurance moved for summary
judgment, 	relying 	on 	the 	coverage 	opinion 	letter 	and 	the
affidavit of the claims specialist who investigated Oltmanns’s
insurance claim. Despite Oltmanns’s opposition to the motion,
the district court determined that Fire Insurance’s denial of the
claim was reasonable because the interpretation issue was fairly
debatable. 	The 	court 	granted 	summary 	judgment 	to 	Fire
Insurance.
ISSUE AND STANDARD OF REVIEW
¶9 	Oltmanns contends that Fire Insurance was not entitled to
summary judgment because the interpretation question was not
“fairly debatable” as a matter of law. Whether denial of a claim
was “fairly debatable under the facts . . . is a question of law that
we review for correctness.” Prince v. Bear River Mut. Ins. Co., 2002
UT 68, ¶ 33, 56 P.3d 524. Although on summary judgment we
ordinarily 	“accord 	no 	deference 	to 	the 	district 	court’s
conclusions of law, including its interpretation of precedent and
statute,” Torian v. Craig, 2012 UT 63, ¶ 13, 289 P.3d 479, given the
highly 	fact-intensive 	inquiry 	typically 	necessary 	to 	make 	a
“fairly 	debatable” 	determination, 	“trial 	courts 	have 	‘some
discretion’” 	and 	“we 	will 	therefore 	‘grant 	the 	trial 	court’s
conclusion some deference’” when the pivotal question is fact
sensitive, Prince, 2002 UT 68, ¶ 33 (quoting Billings v. Union
Bankers Ins. Co., 918 P.2d 461, 464 (Utah 1996)). Here, it is not, see
infra ¶ 12, and so we review the district court’s ruling for
correctness, according it no deference.
ANALYSIS
¶10 	Oltmanns challenges Fire Insurance’s decision to obtain a
coverage determination through its declaratory judgment action,
claiming that Fire Insurance’s decision to do so was in bad
faith, breaching the covenant of good faith and fair dealing.

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Fire Insurance, for its part, defends its actions as reasonable
under the “fairly debatable” standard. The district court agreed
with Fire Insurance and granted summary judgment in its favor.
¶11 	“[D]enial of a claim is reasonable if the insured’s claim is
fairly debatable.” Prince, 2002 UT 68, ¶ 28. This is because “if an
insurer denies an ‘insured’s claim [that] is fairly debatable, [then]
the insurer is entitled to debate it and cannot be held to have
breached the implied covenant [of good faith and fair dealing] if
it chooses to do so.’” Id. (quoting Morris v. Health Net of Cal., Inc.,
1999 UT 95, ¶ 7, 988 P.2d 940) (first and second alterations in
original) 	(additional 	internal 	quotation 	marks 	omitted). 	The
district 	court’s 	prior 	ruling 	validating 	Fire 	Insurance’s
interpretation of the policy surely seems to make it difficult to
argue that Fire Insurance’s position was not at least “fairly
debatable.”
¶12 	In some respects, the instant case is not unlike previous
“fairly debatable” cases in that reasonable minds could—and
did—differ as to their interpretation of key points. See id. ¶¶ 35–
36; Callioux v. Progressive Ins. Co., 745 P.2d 838, 842 (Utah Ct.
App. 1987). See also Morris v. Health Net of Cal., Inc., 1999 UT 95,
¶ 7, 988 P.2d 940 (“[U]nder Utah law, ‘when an insured’s claim is
fairly debatable, the insurer is entitled to debate it[.]’”) (quoting
Billings v. Union Bankers Ins. Co., 918 P.2d 461, 465 (Utah 1996)).
Unlike those cases, however, here the facts are not in dispute
and never have been; instead, this case concerns a purely legal
issue, i.e., whether the term “jet ski” as used in Oltmanns’s
insurance policy was ambiguous as a matter of law. In the first
appeal, 	we 	concluded 	that 	the 	term 	was 	ambiguous, 	and
resolved the ambiguity against the insurer. See Oltmanns, 2012
UT App 230, ¶¶ 10–11. See also United States Fidelity & Guar. Co.
v. Sandt, 854 P.2d 519, 523 (Utah 1993) (“[P]rovisions that limit
or exclude 	coverage 	should 	be 	strictly 	construed 	against
the insurer.”).

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¶13 	This 	conclusion 	does 	not, 	however, 	compel 	the
determination that the meaning of the clause in question was not
“fairly debatable.” On the contrary, considering the totality of
the 	circumstances, 	it 	is 	very 	relevant 	that 	courts, 	albeit 	in
somewhat different contexts than that presented in this case,
have concluded that both “stand-up” and “sit-down” watercraft
may be considered jet skis. See, e.g., Ford v. Polaris Indus., Inc., 43
Cal. Rptr. 3d 215, 217–18 (Ct. App. 2006) (referring to a two-
seater 	personal 	watercraft 	as 	a 	“jet 	ski”); 	State 	Farm 	Fire
& Casualty Co. v. Johnson, 596 So. 2d 1162, 1163 (Fla. Dist. Ct.
App. 1992) (per curiam) (“The term ‘jet ski’ is often used as
a generic term for all personal watercraft despite the fact that it
is a 	registered 	trademark 	of 	Kawasaki.”). 	It 	is 	additionally
relevant that Wikipedia, the key source for our conclusion in
Oltmanns as to the colloquial understanding of the term “jet ski,”
now 	features 	no 	less 	than 	four 	different 	definitions 	of 	the
term, one of which supports Oltmanns’s position and one of
which supports that of Fire Insurance. See Jet Ski, Wikipedia,
https://en.wikipedia.org/wiki/Jet_Ski 	[https://perma.cc/Z5N9-
M2CG] (last visited Feb. 17, 2016).3 Finally, we find it very
3. The 	Wikipedia 	entry, 	as 	presently 	constituted, 	actually
furnishes stronger support for Fire Insurance’s position than it
previously 	did, 	because 	the 	“sit-down” 	and 	“stand-up”
distinction we relied upon in seeing ambiguity has since been
deleted. Compare Fire Insurance Exchange v. Oltmanns, 2012 UT
App 230, ¶ 9, 285 P.3d 802 (“The term ‘Jet Ski’ . . . is often mis-
applied to all personal watercraft with pivoting handlepoles
manipulated by a standing rider; these are properly known as
Stand-up 	[Personal 	Watercraft].”), 	with 	Jet 	Ski, 	Wikipedia,
https://en.wikipedia.org/wiki/Jet_Ski 	[https://perma.cc/Z5N9-
M2CG] (last visited Feb. 17, 2016) (“Jet Ski is the brand name of a
personal watercraft manufactured by Kawasaki. . . . The term is
sometimes used to refer to any type of personal watercraft . . . .
Though the proper noun ‘Jet Ski’ is a registered trademark of
(continued…)

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20140984-CA 	7 	2016 UT App 54
persuasive 	that 	the 	district 	court 	initially 	accepted 	Fire
Insurance’s theory and argument in this case, i.e., in the first
round of judicial consideration, not only was there a debate, but
Fire Insurance actually won the debate.
¶14 	As a further note, although it is true that we ultimately
accepted the definition argued for by Oltmanns in Fire Insurance
Exchange v. Oltmanns, 2012 UT App 230, 285 P.3d 802, we did so
only 	after 	applying 	the 	interpretative 	rule 	that 	ambiguous
exclusions are to be construed against the insurer. Id. ¶ 6.
Moreover, we applied that rule even though application of the
rule, in these precise terms, was not Oltmanns’s primary theory
in the original appeal.
CONCLUSION
¶15 	An insurance company may reasonably and fairly rely, at
least initially, upon a coverage opinion from qualified outside
counsel, received in the course of careful investigation and
evaluation of a claim. Moreover, submitting the issue to a court
for interpretation in a declaratory judgment action is a prudent,
reasonable step toward the resolution of a legitimate dispute
(…continued)
Kawasaki, the common noun ‘jet ski’ refers to small recreational
watercraft.”). It is, of course, difficult to discern whether the
change came about in response to our prior opinion, perhaps at
the instance of someone with a stake in the debate. See generally
Oltmanns, 2012 UT App 230, ¶ 18 n.3 (Voros, J., concurring)
(“Among 	its 	shortcomings—and 	strengths—is 	Wikipedia’s
fluidity. Anyone can edit a Wikipedia entry at any time, making
it vulnerable to opportunistic editing. Thus, an unscrupulous
lawyer (or client) could edit the Web site entry to frame the facts
in a light favorable to the client’s cause.”) (citations and internal
quotation marks omitted).

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20140984-CA 	8 	2016 UT App 54
over a coverage term or exclusion. And when an insurance
company proceeds in a reasonable way to resolve a difficult
coverage question, its eventual loss at the appellate level does
not foreclose a determination that an issue of interpretation was
fairly debatable, as was the case here.
¶16 	Affirmed.4
4. Oltmanns 	also 	challenges 	the 	district 	court’s 	denial 	of 	a
motion he filed under former rule 56(f) of the Utah Rules of Civil
Procedure. 	Because 	we 	conclude 	that 	Fire 	Insurance’s
interpretation 	of 	the 	term 	“jet 	ski” 	as 	used 	in 	Oltmanns’s
insurance policy was “fairly debatable” as a matter of law, supra
¶¶ 11–13, we decline to consider this issue.