Travelers moved for summary judgment on Mr. Marc's claim for breach of the covenant of good faith and fair dealing.

The District Court's Decision

The district court denied the motion.

In its decision, the district court explained that, under applicable Utah law, "an action for breach of the covenant of good faith and fair dealing may be brought only by a party to the insurance contract." Thus, the district court continued, there was no duty of good faith and fair dealing imposed on an insurer running to a third-party claimant. This was so, the district court added, because the duty of good faith and fair dealing was "a contractual covenant" arising "solely as an incident to contractual obligations owed by an insurer to its insured."

Accordingly, the district court said, Utah law distinguished between an insurer and its insured in two different contexts – first-party and third-party insurance policies – and the determination of whether a claimant was an insured under a particular policy decided the issue of whether the claimant was owed a duty of good faith and fair dealing as a party to the insurance contract.

The district court conceded that the distinction between first-party and third-party insurance agreements was "not always clear." It explained that, typically, a first-party insurance agreement was "where the insurer agrees to pay claims submitted to it by the insured for losses suffered by the insured." By contrast, a third-party agreement was "one where the insurer contracts to defend the insured against claims made by third parties against the insured and to pay the resulting liability, up to the specified dollar limit." Under a third-party agreement, the third-party claimant lacked standing to sue for bad faith, the district court noted.

The district court then rejected Travelers' argument that Mr. Marc was a third-party claimant because he did not bargain for or pay premiums and he lacked any contractual relationship with Travelers. It reasoned that "characterizations of an insured as a first or third party must be transaction specific," and it found that the transaction between Mr. Marc and Travelers was "first-party rather than third-party."

The district court ruled that Mr. Marc was a first-party claimant because:

• Travelers agreed to pay "all sums 'the insured' is legally entitled to recover as compensatory damages from the owner or driver of an 'underinsured motor vehicle'";
• The Travelers policy defined "insured" as anyone "occupying" a covered auto; and
• Mr. Marc was occupying a covered auto when he was injured in the accident.

The district court rejected Travelers' argument that although Mr. Marc was listed as an authorized driver and he was occupying a covered auto, he was not a named insured because only Quality Appliance had contracted with Travelers for the insurance policy. The district court pointed out that Mr. Marc was "not suing Quality Appliance" which in turn would have required that it seek indemnification from Travelers. Instead, it said, Mr. Marc's claim arose from the contract Quality Appliances made with Travelers. "Quality Appliances paid Travelers to compensate [Mr.] Marc for injuries he might suffer from a third-party underinsured motorist. That is first-party liability."

In other words, the district court concluded, the transaction lacked all indicia of a third-party agreement and Travelers failed to demonstrate that Mr. Marc was barred by Utah law from asserting a bad faith claim.

The case is Marc v. Travelers Commercial Ins. Co., No. 2:17- CV-1193 TS-PMW (D. Utah Sept. 16, 2019). Attorneys involved include: For Timothy Marc, an individual, Plaintiff: Mark R. Taylor, LEAD ATTORNEY, SIEGFRIED & JENSEN, SALT LAKE CITY, UT. For Traveler's Commercial Insurance Company, a corporation, also known as Traveler's Indemnity Company of Connecticut, Defendant: Paul M. Belnap, LEAD ATTORNEY, Nicholas E. Dudoich, STRONG & HANNI, SALT LAKE CITY, UT.