Utah Supreme Court
Can a named insured sue their own insurance company for bad faith? Sperry v. Sperry Explained
Summary
Annette Sperry sued her co-insured husband Robert for wrongful death after their son was killed in a car accident. When AMCO Insurance initially offered only $25,000 under a household exclusion clause, Annette sued AMCO for bad faith and misrepresentation. The trial court dismissed these claims, finding Annette was a third party despite being a named insured.
Analysis
In Sperry v. Sperry, the Utah Supreme Court addressed whether a named insured could bring bad faith claims against their own insurance company when pursuing a liability claim against a co-insured spouse.
Background and Facts
After Robert Sperry fell asleep while driving and caused a fatal accident that killed the couple’s son Daniel, his wife Annette filed a wrongful death claim against him. Both spouses were named insureds under an AMCO Insurance policy that included a household exclusion clause limiting coverage to $25,000 for family member claims, despite the policy’s $100,000 liability limit. When AMCO initially offered only $25,000 to settle Annette’s claim based on this exclusion, she sued both Robert and AMCO, asserting bad faith and misrepresentation claims against the insurer.
Key Legal Issues
The central issue was whether Annette should be characterized as a first party or third party for purposes of her bad faith and misrepresentation claims against AMCO. Utah law clearly limits the duty of good faith to first parties to insurance contracts, making this characterization determinative of whether her claims could proceed.
Court’s Analysis and Holding
The court adopted a transaction-specific approach to determining first party versus third party status. Although Annette was a named insured, her wrongful death claim was based on Robert’s liability coverage for negligence, not her own coverage under the policy. The court reasoned that recognizing a duty of good faith would create conflicting duties for AMCO—owing duties simultaneously to both Annette as claimant and Robert as the insured defendant. Following the reasoning in Rumley v. Allstate Indemnity Co., the court held that Annette assumed the posture of a third party claimant by bringing a liability claim against her co-insured husband.
Practice Implications
This decision establishes that being a named insured does not automatically confer first-party status for all interactions with the insurer. When named insureds pursue liability claims against co-insureds, they will be treated as third parties unable to assert bad faith claims. Practitioners should explore alternative theories of recovery and carefully evaluate the specific nature of coverage being invoked when advising clients about potential claims against their own insurers.
Case Details
Case Name
Sperry v. Sperry
Citation
1999 UT 101
Court
Utah Supreme Court
Case Number
No. 980312
Date Decided
October 29, 1999
Outcome
Affirmed
Holding
A named insured who asserts a wrongful death claim against a co-insured is properly characterized as a third party for purposes of bad faith claims against the liability insurer.
Standard of Review
Correctness for Rule 12(b)(6) dismissal
Practice Tip
When representing named insureds pursuing liability claims against co-insureds, consider alternative theories of recovery since bad faith claims will likely be unavailable due to third-party status.
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