Lead Opinion
Glen A. Billings brought this action on behalf of his son Stanley D. Billings (“Billings”) against Union Bankers Insurance Company (“Union Bankers”), alleging that Union Bankers breached both the express terms and the implied covenant of good faith and fair dealing contained in a catastrophic
In June of 1984, Billings entered into a catastrophic health insurance contract with Union Bankers in which Union Bankers agreed to pay certain medical expenses incurred by Billings as a result of injury or sickness. Covered expenses included hospital inpatient services, room, and board; skilled nursing facility services, room, and board; and home health care services. In addition, the policy contained a miscellaneous benefits rider in which Union Bankers agreed to pay, among other things, certain out-of-hospital medical expenses. Throughout the period of the policy, Billings paid the premiums and performed each act required to keep the policy in full force and effect.
On September 22, 1985, Billings was involved in a motorcycle accident in which he sustained serious injuries, including traumatic brain injury. He was hospitalized for several months following the accident, and pursuant to the insurance policy, Union Bankers paid Billings’ hospitalization expenses.
In May of 1986, Dr. Goka, Billings’ treating physician at Holy Cross Hospital, determined that Billings’ recovery would be improved if he were transferred to Tangram Rehabilitation Network in San Marcos, Texas (“Tangram”). Tangram is a transitional treatment center for individuals who are medically stable but who have suffered loss of memory or basic functional skills due to traumatic brain injury. Billings was admitted to Tangram on May 9, 1986. However, Union Bankers denied coverage for Billings’ treatment at Tangram, stating that the insurance policy did not cover such treatment. Although his condition was improving, Billings discontinued his treatment at Tangram on November 25,1986, due to a lack of funds.
Billings commenced this action on May 4, 1988, alleging that Union Bankers breached both the express coverage provision and the implied covenant of good faith and fair dealing contained in the insurance contract. Billings sought reimbursement of the expenses he incurred at Tangram and consequential damages resulting from the premature termination of treatment, which allegedly prevented Billings from ever achieving his full potential for recovery.
On April 10, 1990, Billings moved for partial summary judgment, seeking a ruling that Union Bankers had breached the express coverage provision by refusing to pay for Billings’ treatment at Tangram. The trial judge denied Billings’ motion “for the reason that differing interpretations of the insurance policy create genuine issues of material fact to be tried.” Billings then petitioned this court for interlocutory review. We granted Billings’ petition and affirmed the denial of Billings’ motion because the “record before us ... fail[ed] to adequately demonstrate the nature of the treatment received at Tan-gram.” Billings v. Union Bankers Ins. Co.,
Following closing arguments, Union Bankers moved for a directed verdict on Billings’ claim for breach of the implied covenant of good faith and fair dealing. Union Bankers argued that it could not have breached the implied covenant as a matter of law because its liability under the insurance policy was fairly debatable. The district court denied Union Bankers’ motion but instructed the jury that Union Bankers would not be liable for breaching the implied covenant if its liability under the insurance policy was “fairly debatable [and] a reasonable insurance company in similar circumstances [would have] den[ied] the claim.” The district court also instructed the jury that if it found Union Bankers to have breached the express coverage provision of the insurance contract, it could award Billings the value of the insurance policy benefits to which he was entitled
Following the trial, the jury returned a special verdict finding that Union Bankers had breached both the implied covenant of good faith and fair dealing and the express coverage provision of the insurance contract. It awarded Billings $1,800,000. The district court subsequently addressed the attorney fee issue and awarded Billings what it determined to be a reasonable attorney fee of $110,651.
On appeal, Union Bankers argues that the district court erred in (i) denying Union Bankers’ motion for a directed verdict on Billings’ claim for breach of the implied covenant of good faith and fair dealing, and (ii) instructing the jury that it could award damages for mental anguish caused by Union Bankers’ breach of the insurance contract’s express coverage provision.
Union Bankers first argues that the district court should have granted its motion for a directed verdict on Billings’ claim for breach of the implied covenant of good faith and fair dealing. Union Bankers contends that under our decision in Beck v. Farmers Insurance Exchange,
We first state the applicable standard of review. Whether Beck established a fairly debatable defense to a claim for breach of the implied covenant based on an insurer’s wrongful denial of coverage is a question of law which we review for correctness. See State v. Montoya,
Because our' decision today turns heavily on our holding in Beck, we examine
[T]he implied obligation of good faith performance 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.
Id. at 801.
The first question presented is whether, under Beck, a first-party insurer may be held liable for breaching the implied covenant on the ground that it wrongfully denied coverage if the insured’s claim, although later found to be proper, was fairly debatable at the time it was denied. The answer lies in the nature of the duties imposed by the covenant on an insurer: when confronted with a claim for benefits by a first-party insured, the insurer must “diligently investigate the facts ..., fairly evaluate the claim, and ... act promptly and reasonably in rejecting or settling the claim.” Id. (emphasis added). The terms used to characterize these duties plainly indicate that the overriding requirement imposed by the implied covenant is that insurers act reasonably, as an objective matter, in dealing with their insureds.
Having agreed -with Union Bankers’ construction of Beck, we next address its contention that the district court should have granted its motion for a directed verdict because Billings’ claim was fairly debatable as a matter of law. Union Bankers argues that this court’s conclusion in Billings I that a material issue of fact existed as to whether Union Bankers breached the express coverage provision was tantamount to a conclusion that Billings’ claim for benefits was fairly debatable. We disagree.
In Billings I, Billings contended that the trial court erred in refusing to grant him partial summary judgment on the question of whether his treatment at Tangram was covered by the express terms of the insurance policy. We affirmed the trial court, reasoning that Billings had not adduced sufficient factual information regarding the nature of the treatment he received at Tangram to enable us to reach the legal question of whether that treatment was covered. Billings I,
Union Bankers next contends that the district court erred in instructing the jury that it could award Billings the same broad types of consequential damages for breach of the insurance contract’s express coverage provision as it could award under Beck for breach of the implied covenant. We review Union Bankers’ challenge to the jury instructions for correctness, granting the trial court no deference on its view of the law. Steffensen v. Smith’s Management Corp.,
Again, because our decision on this issue revolves around our holding in Beck, we refer to that case in some detail. Beck did not deal with a breach of the underlying insurance contract’s express provisions, but only with a breach of the implied covenant of good faith and fair dealing. After settling on a contract, as opposed to a tort, theory upon which to base the plaintiffs claim, we discussed the types of damages recoverable for the breach. We began with the general rule that “[d]amages recoverable for breach of contract include both general damages, i.e., those flowing naturally from the breach, and consequential damages, ie., those reasonably within the contemplation of, or reasonably foreseeable by, the parties at the time the contract was made.” Beck,
The Beck court observed that although it had rejected the tort approach, the measure of damages that the law made available for breach of the implied covenant should “not ignorfe] the principal reason for [other courts’] adoption of the [otherwise theoretically unsound] tort approach,” i.e., to remove any incentive for insurers to breach the duty of good faith by expanding their exposure to damages caused by such a breach beyond the predictable fixed dollar amount of coverage provided by the policy. Id. In furtherance of this purpose, we departed from the restrictive traditional contract damages approach and followed a course more closely aligned with a tort damages approach. The Beck court concluded that a first-party insurer who breaches the implied covenant by unreasonably denying the insured the benefits bargained for may be held liable for broad consequential damages foreseeably caused by the breach, damages which might include those for mental anguish and which would be closely analogous to those available in states taking a tort approach. Id. at 802. Against this background, we consider Union Bankers’ claim.
Union Bankers asserts that this expanded consequential damage measure should be available only for breach of the implied covenant, not, as the trial court instructed the jury, for breach of the express terms of the contract. We agree. As noted above, the implied covenant imposes a duty on first-party insurers to act in an objectively reasonable manner in handling an insured’s claim. It would not further Beck ⅛ purpose of encouraging insurers to act reasonably if we were to impose the broad consequential damages allowed in Beck on every insurer who is ultimately determined by a court to have incorrectly denied coverage, regardless of how reasonable the denial. Such an insurer
We must now determine the consequences of this instructional error. Union Bankers asserts that because the jury’s special verdict did not identify what portion, if any, of Billings’ damages were awarded pursuant to the erroneous instruction, we must vacate the entire damage award and remand for a redetermination of Billings’ recoverable damages under proper instructions. We disagree.
When a civil case is submitted to a jury on several alternative theories and the jury does not identify which theory or theories it relied on in reaching its verdict, we may affirm the verdict if the jury could have properly found for the prevailing party on any one of the theories presented. See Cambelt Int’l Corp. v. Dalton,
In reviewing a jury verdict, “we view the evidence in the light most supportive of the verdict, and assume that the jury believed those aspects of the evidence which sustain its findings and judgment.” E.A. Strout W. Realty Agency, Inc. v. W.C. Foy & Sons, Inc.,
At trial, the following colloquy took place between Billings’ counsel and Billings’ father:
Q: Have you observed Mr. Billings, Stanley Billings, in a state of depression?
A: Most definitely.
Q: And can you describe how you were able to determine the depression, or how you reached this conclusion?
A: Well, he becomes very, or has been since his return, very discouraged as to the fact that he hasn’t been able to do what he possibly could have done....
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Q: ... [D]o you have any understanding that the depressions that you have observed associated with Stan are related to the fact that he may have recovered more, or not?
A: Yes.... [H]e’s constantly making the statement, quote, “Dad, I want to be a better man. I think I could have been a better man,” words to that effect.
In addition, two doctors testified that Billings was capable of experiencing mental anguish and that Billings understood that his recovery from his brain injury was not as full and complete as it could have been. One of those doctors explained:
[E]very patient, including Mr. Billings, that has sustained an injury and has the*468 ability to look back and see what they were like prior to the injury, and compare what they are like now, experiences distress. And when they can perceive that they have not recovered because of a lack of treatment, or inappropriate treatment, it only accentuates that distress.
Although this evidence does not necessarily compel the conclusion that Billings suffered mental anguish as a result of Union Bankers’ breach of the implied covenant, it is sufficient to sustain the verdict under that theory of recovery. Accordingly, we affirm the verdict.
Finally, we address Billings’ cross-appeal from the district court’s award of attorney fees. Attorney fees may be recoverable as consequential damages flowing from an insurer’s breach of either the express or the implied terms of an insurance contract. See Canyon Country Store v. Bracey,
Billings now argues that the district court’s finding that Billings’ contingency fee arrangement was not foreseeable was not supported by the evidence. We reverse a trial court’s findings of fact only if they are “ ‘against the clear weight of the evidence,’ thus making them ‘clearly erroneous.’ ” In re Estate of Barbell,
In sum, we conclude that Beck established a fairly debatable defense to a claim for breach of the implied covenant of good faith and fair dealing, but we reject Union Bankers’ argument that Billings’ claim was fairly debatable as a matter of law. Therefore, we affirm the jury’s finding that Union Bankers is liable for breaching the implied covenant of good faith and fair dealing. We also conclude that the district court erred in instructing the jury that it could award broad conse
Notes
. Union Bankers also raises various other challenges to the jury instructions and to the special verdict form, none of which were raised below. Union Bankers’ failure to object at trial precludes our consideration of these issues on appeal unless, in our discretion, we conclude that the “interests of justice” would be served by addressing the issues. Utah R.Civ.P. 51. We have held that before this exception to the waiver principle is available to a party, that party must make a showing of “ ‘special circumstances warranting such a review.' " Crookston v. Fire Ins. Exch.,
. We emphasize that whether an insurer has acted reasonably is an objective question to be determined without considering the insurer's subjective state of mind. As we said in Beck v. Farmers Insurance Exchange,
. This rule is essentially a refined version of the harmless error rule, under which we will affirm a verdict unless we conclude that "the likelihood of a different outcome [absent the error] is sufficiently high as to undermine our confidence in the verdict.” Crookston,
. We express no opinion as to whether attorney fees are recoverable as consequential damages in other contexts. However, we note that our prior cases have allowed such recovery for breach of an implied-in-fact employment contract. Heslop v. Bank of Utah,
. Billings agreed to pay his attorney one-third of any recovery for claims pursued through trial and forty percent of any recovery if the case was appealed.
Concurrence Opinion
concurring and dissenting:
I concur except that I would allow the recovery of attorney fees by plaintiff as consequential damages only for defendant’s breach of the implied covenant of good faith and fair dealing. I would not allow fees based on any breach of the express terms of the contract.
The general rule observed in this jurisdiction is that attorney fees can be awarded to the prevailing party in litigation only where the award is predicated upon a statute or the express terms of a written instrument such as a promissory note or a contract. However, we have departed from that general rule in a few cases and upheld the recovery of fees by a successful insured in a first-party suit against his or her insurer. The fees have been awarded as an element of consequential damages for breach of the implied covenant of good faith and fair dealing inherent in every insurance policy. Zions First Nat’l Bank v. National Am. Title Ins. Co.,
The majority in the instant case recognizes:
It would not further Beck’s, purpose of encouraging insurers to act reasonably if we were to impose the broad consequential damages allowed in Beck on every insurer who is ultimately determined by a court to have incorrectly denied coverage, regardless of how reasonable the denial. Such an insurer ought to incur no greater damage exposure than any other person breaching the express terms of a contract.
Yet despite this statement, the majority sanctions the award of attorney fees as an element of consequential damages for both the breach of the implied covenant and the express provisions of the insurance contract. With that determination I cannot agree. It does violence to our general rule that in a breach of contract action, attorney fees cannot be awarded to the successful party unless the parties have so provided in their agreement. I would award fees only for breach of the implied covenant, consistent with the majority’s holding that “the trial court erred in instructing the jury that it could award broad consequential damages for breach of either the implied covenant of good faith and fair dealing or the express terms of the insurance contract.”