Plant Christensen & Kanell has another case before the Utah Supreme Court.
As the parties to the litigation prepare their briefs, here is some background on the case.
Ten years ago Mr. Oltmanns was injured while operating a Honda F-12 AquaTrax personal watercraft on a lake in southern Utah. About a year after the injury, Mr. Oltmanns was sued by his cousin-in-law for injuries caused by the watercraft accident. Then, two years after that, in 2009, Mr. Oltmanns sought defense of the claims under his homeowner’s policy (generally, if coverage exists, insurers have a duty to defend insureds in lawsuits). When his insurer, Fire Insurance Exchange, reviewed the policy, they decided that they needed the rights, responsibilities, and obligations of the parties decided by the court regarding one term. The term in question: jet skis.
Mr. Oltmanns policy excluded coverage for bodily injury resulting from “the ownership, maintenance, use, loading or unloading of . . . jet skis and jet sleds.” Fire Insurance consulted with its counsel about whether to deny coverage based on the presence of the term "jet skis." Their counsel then provided a "quite thorough coverage opinion, [wherin] 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.'" Fire Ins. Exch. v. Oltmanns, 2016 UT App 54, ¶ 4, 370 P.3d 566, 567.
Fire Insurance’s counsel advised them to file the declaratory judgment action to determine its rights and obligations under the insurance contract. The insurance company asked the courts to determine whether coverage existed.
Let’s get some background on the legal issue here. Generally, when insurance policy language is ambiguous, the policy is construed in favor of finding insurance coverage. See United States Fidelity & Guar. Co. v. Sandt, 854 P.2d 519, 521-22 (Utah 1993). This is because insurance agreements are considered contracts of adhesion, where the insurer has greater control over the contract language. Id. When faced with ambiguity in a written contract, courts do not interpret the provision to comport with what they think is most sensible or is most likely what one of the parties "really" meant or is what leads to the fairest result. Fire Ins. Exch. v. Oltmanns, 2012 UT App 230, ¶ 7, 285 P.3d 802, 805. Rather, they recognize the need to consider extrinsic evidence in an effort to resolve the ambiguity. See Wilburn v. Interstate Electric, 748 P.2d 582, 584-85 (Utah Ct. App. 1988). If the extrinsic evidence is not conclusive, then the last resort in contract interpretation is to construe the provision against the drafter. Id. Disputed terms in the policy are generally given their plain and ordinary meaning unless the parties have expressed a contrary intent. Estes v. St. Paul Fire & Marine Ins. Co., 45 F. Supp. 2d 1227, 1229 (D. Kan. 1999). It was against this legal backdrop that the parties entered into litigation.
In December 2009, Fire Insurance filed a declaratory relief action to have the court determine the rights and responsibilities of the parties as they related to the language in Mr. Oltmanns’ homeowners insurance policy. In that preceding, Fire Insurance moved for summary judgment, arguing that accident was not covered by the homeowners insurance policy. The trial court granted summary judgment in favor of Fire Insurance, concluding that the term “jet skis” in Mr. Oltmanns’ homeowners insurance policy included the Honda F-12 AquaTrax which Mr. Oltmanns was operating when the accident occurred. Mr. Oltmanns appealed the summary judgment to the Utah Court of Appeals. Concluding the term "jet skis" was ambiguous, the Utah Court of Appeals found that the provision should be construed against the drafter (i.e., the insurer), and hence coverage should exist. The court reversed and remanded to the Utah Second District Court. Thereafter, Fire Insurance immediately accepted coverage and settled the lawsuit.
Then, in 2013, Mr. Oltmanns filed a counterclaim against Fire Insurance seeking an award of attonrey's fees and costs from defending the declaratory judgment action. Fire Insurance filed a motion for summary judgment, claiming that Mr. Oltmanns’ claim was fairly debatable as a matter of law. The trial court agreed, and granted Fire Insurance’s Motion for summary judgment, concluding that Mr. Oltmanns’ claim was fairly debatable as a matter of law. Mr. Oltmanns appealed the trial court’s order on October 20, 2014, and the court of appeals affirmed the trial court’s order. The court held that meaning of ambiguous term “jet ski” was fairly debatable thus precluding any claims of liability for bad faith. Fire Ins. Exch. v. Oltmanns, 2016 UT App 54, 370 P.3d 566, cert. granted, 370 P.3d 566 (Utah 2016). Mr. Oltmanns then petitioned the Utah Supreme Court for certiorari (meaning they appealed the finding of the Utah Court of Appeals). The Utah Supreme Court granted the petition for certiorari.
Now, Plant Christensen & Kanell is preparing to argue the case before the Utah Supreme Court. Stewart Harman and Joel Taylor are on the case and are presently preparing briefs for the Utah Supreme Court. We will keep you posted on the findings of Utah's highest court. In the mean time, remember to err on the side of caution and provide plenty of descriptive language in your contracts.