Owners Insurance v. Dockstader
19-4156
| 10th Cir. | Jun 29, 2021Background
- In 2014 Dockstader struck Brooks with a 15‑lb dumbbell at a gym; Brooks suffered a traumatic brain injury and Dockstader was convicted of aggravated assault. Brooks later sued Dockstader in tort.
- Dockstader tendered defense to Owners Insurance; Owners accepted defense under a reservation of rights and then filed a federal declaratory‑judgment action disputing coverage under the homeowners policy (coverage limited to "accidents"; intentional‑acts exclusion applied).
- While the declaratory action was pending, Brooks made three policy‑limit ($500,000) settlement demands; Owners responded conditionally (agreeing to pay if coverage is found) or did not respond to the final demand.
- Brooks and Dockstader later (without Owners) executed a stipulation and assignment producing a $5,000,000 judgment against Dockstader and assigning Dockstader’s claims against Owners to Brooks.
- The district court granted summary judgment to Owners in the declaratory action (policy did not cover) and then granted summary judgment to Owners on Brooks’ third‑party bad‑faith and related claims; the Tenth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Brooks) | Defendant's Argument (Owners) | Held |
|---|---|---|---|
| Whether insurer who accepts defense must accept reasonable policy‑limit settlements while contesting coverage via declaratory action | Owners controlled Dockstader’s defense and thus had a fiduciary duty to accept reasonable policy‑limit offers when excess judgment was likely | No absolute duty to settle when there is no coverage; insurer may defend under reservation and seek declaratory relief; conditional acceptance was reasonable | Court: No. Under Utah law the duty to settle is not absolute; where coverage is legitimately disputed Owners reasonably conditioned payment on a coverage determination and owed no duty to settle once court found no coverage |
| Whether Owners’ conditional responses to Brooks’ offers violated duty of good faith to insured | Conditional responses were effectively rejections that exposed insured to excess liability and were bad faith | Owners’ conditional acceptance (or counteroffers) was reasonable given the coverage dispute and lack of reimbursement clause in policy | Court: Owners acted within Utah precedent — it properly defended under reservation and sought declaratory relief; its conditional approach was reasonable |
| Whether insurer’s right to seek declaratory relief is illusory if insurer must pay prior to coverage determination | Insurer’s control of defense makes pending declaratory action irrelevant; reasonableness is judged by likely liability/damages, not coverage dispute | Declaratory action preserves insurer’s rights; insurer bears risk of being wrong but is not required to settle uncovered claims | Court: Allowing automatic duty to settle would nullify declaratory‑judgment right; insurer may seek declaration and condition payment on coverage finding |
| Effect of district court’s eventual finding of no coverage on bad‑faith claim | Even if court later found no coverage, that retrospective result does not absolve bad‑faith conduct at time offers were rejected | The court’s coverage ruling confirms there was no duty to defend/settle, so no bad‑faith liability | Court: Because policy provided no coverage (unchallenged on appeal) Owners owed no duty to defend/settle and summary judgment was proper |
Key Cases Cited
- Summerhaze Co., L.C. v. Fed. Deposit Ins. Corp., 332 P.3d 908 (Utah 2014) (explains distinct duties to defend and indemnify and use of declaratory actions)
- Benjamin v. Amica Mut. Ins. Co., 140 P.3d 1210 (Utah 2006) (duty to defend is triggered when complaint alleges a potentially covered risk; "when in doubt defend")
- Campbell v. State Farm Mut. Auto. Ins. Co., 840 P.2d 130 (Utah Ct. App. 1992) (insurer’s implied duty to settle in good faith; reasonableness standard)
- Fire Ins. Exch. v. Estate of Therkelsen, 27 P.3d 555 (Utah 2001) (insurer may owe a duty to defend even if ultimately not liable to indemnify)
- Beck v. Farmers Ins. Exch., 701 P.2d 795 (Utah 1985) (insurer’s fiduciary duties when it controls insured’s defense)
- Oltmanns v. Fire Ins. Exch., 416 P.3d 1148 (Utah 2018) (discusses scope of duty to defend; distinguishes concurrence’s dicta on declaratory actions)
- Ammerman v. Farmers Ins. Exch., 430 P.2d 576 (Utah 1957) (insurer has reasonable latitude to accept or reject settlements; cannot be forced to accept any offer regardless of liability uncertainty)
- Blue Ridge Ins. Co. v. Jacobsen, 22 P.3d 313 (Cal. 2001) (if insurer refuses reasonable policy‑limit settlement because it disputes coverage, it assumes the risk of excess judgment)
- Johansen v. Cal. State Auto. Ass’n Inter‑Ins. Bureau, 538 P.2d 744 (Cal. 1975) (coverage disputes cannot be used to justify unreasonable refusal to settle)