Insurance Bad Faith in Utah

JurisdictionUtah,United States
CitationVol. 6 No. 10 Pg. 13
Publication year1993
Insurance Bad Faith in Utah
Vol. 6 No. 10 Pg. 13
Utah Bar Journal
December, 1993

L. Rich Humphreys, J.

"Bad faith" [1] is typically asserted in insurance claims pursued by lawyers. Its overuse often leads to insurance adjusters' complacent lack of respect for the potential liability for breaching the covenant of good faith and fair dealing. A basic understanding of the law in this area will hopefully enhance the fair claims practices of both claimants and insurers, and facilitate the recovery of damages in the event the good faith duties are legitimately breached.

There are numerous treatises written on the subject of insurance bad faith, but the law in Utah is largely undeveloped. This article primarily focuses on the general status of bad faith law in Utah and some unresolved issues facing Utah litigants.

When addressing issues of bad faith, it is important to distinguish between "first party" and "third party" bad faith. The nature of the legal claims, the defenses and the remedies may differ significantly depending upon this distinction. A "first party" claim refers to the claim of an insured for benefits under his or her policy, such as the payment of medical expenses under medical coverage. A "third party" claim arises out of liability coverage where the insurer has agreed to defend the insured against claims made by third parties and to pay any resulting liability, up to a specified dollar amount.


The leading case in first party bad faith is Beck v. Farmers Ins. Exch., 701 P.2d 795 (Utah 1985), which should be reviewed by any attorney or adjuster involved in insurance claims. The duties to act in good faith and deal fairly are implied by law regardless of the policy language and cannot be waived by either party.[2] These duties apply equally to the insured as well as the insurer and each have parallel obligations to act in good faith.[3] A breach of the implied or express duties in a first party situation gives rise to a cause of action in contract, not tort. The relationship between the insured and insurer is largely adversarial.


"Privity of contract" between the claimant and insurer is generally a necessary element of a bad faith claim.[4]It is doubtful, however, that this requirement will relieve an insurer of its good faith duties toward an unnamed insured who is not typically in privity of contract. An unnamed insured would include, for example, an injured pedestrian who is entitled to first party benefits under the car owner's policy, or a subcontractor covered under a general contractor's policy. Though the Utah courts have not clarified this issue, it would be dangerous for an insurer to disregard its good faith duties to an unnamed insured.[5]There is little rational basis and it would appear contrary to public policy to relieve an insurer of its good faith duties in such cases.


The law imposes on the insured duties to comply with the general conditions of the policy, including timely notice, reasonable proof of loss and reasonable cooperation in the insurer's investigation. The insured's duties may also include providing recorded statements and submitting to independent medical examinations. The Utah courts have not yet fully defined the parameters of the insured's duties nor the effects of the breach of those duties.

Before pursuing a bad faith claim, a plaintiff's attorney should carefully consider whether the client has complied with these duties. An attorney who makes demand for insurance benefits when little verification has been provided and who then refuses to reasonably cooperate with the insurer, may jeopardize not only the client's bad faith claim, but also the client's claim for insurance benefits. The insured, however, is not necessarily bound to comply with all technical requirements, such as signing a particular proof of loss form. An insurer's undue reliance upon strict compliance with all policy conditions may in itself constitute a breach of its own good faith duties.


The Utah Supreme Court has outlined five good faith duties of an insurer. 1. An insurer must diligently investigate to determine the validity of a claim.[6]It cannot sit back and wait for the insured to provide all of the verification. It must fairly investigate all areas, not just those favorable to the insurer's position. An insurer is held responsible for t he information that it would have obtained had it reasonably performed this duty.

2. An insurer must fairly evaluate the insured's claim.[7]To properly fulfill this duty, an insurer must first comply with its duty to investigate. A fair evaluation includes the evaluation of adverse as well as supporting facts. It may include legal questions, in which event the insurer should consider the general rules of construction applicable to insurance policies, i.e. if ambiguous or uncertain, the policy will be construed strictly against the insurer.[8]

3. The insurer should take prompt and reasonable action to reject or settle the insured's claim for fair value.[9]Under certain circumstances, unreasonable delays in payment can have catastrophic results, such as foreclosure or loss of necessary medical treatment. Fair value for the claim must be promptly offered. An insurer that first offers less than fair value, hoping to save money, may violate this duty.

4. An insurer must deal with lay persons as lay persons and not as experts in the subtleties of law and underwriting.[10]Most insureds understand very little about policy provisions and legal principles. The insurer should fairly explain coverages, conditions and exclusions, including time limitations or other traps for the unwary insured.

5. The insurer must refrain from actions that would injure the insured's ability to obtain the "benefits of the contract."[11] These benefits are not necessarily restricted to monetary benefits but include intangible benefits such as peace of mind, protection against creditors, avoidance of litigation, or freedom from personal intrusions.


An insurer's rejection of a claim, absent any explanation, may constitute a prima facie case of bad faith.[12]Likewise, a refusal to bargain or settle, standing alone and without reasonable justification, may also present a prima facie showing of the insurer's breach of its good faith duties.[13]


An insurer has many defenses to bad faith claims, including the following.

1. A breach of the insured's good faith duties may be the proximate cause of some or all of the claimed damages. If an insured refuses to cooperate or delays in responding to the insurer's reasonable requests, the insurer may not be responsible for the resulting damages. An insurer, however, must be cautious with this defense. The insured's duties, though somewhat interrelated, do not replace the insurer's duties to investigate and evaluate.[14] One o f the "benefits of the...

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