Doctor's Company v. Drezga

2009 UT 60
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
The Doctors’ Company, 	No. 20080514
Plaintiff and Appellant,
v.
G. Gregory Drezga, MD; and Heidi
J. Judd, personally and as the
natural parent and guardian of
Athan Montgomery, for and on 	F I L E D
behalf of Athan Montgomery,
Defendants and Appellees. 	September 15, 2009
---
Third District, Salt Lake
The Honorable William W. Barrett
No. 990904527
Attorneys: 	Jaryl L. Rencher, Salt Lake City, for plaintiff
Paul C. Burke, David C. Biggs, Kenneth D. Lougee,
Salt Lake City, for defendants
---
DURHAM, Chief Justice:
¶1 	This case comes before us on appeal from a grant of
summary judgment by the district court. 	Appellant, The Doctor’s
Company (TDC), argues that the district court erred in holding
that its malpractice insurance policy could not be invalidated
based on the misrepresentations and noncooperation of the insured
doctor. 	Appellant further challenges the district court order
that it pay attorney fees for an absent and nonindigent Appellee.
We affirm.
BACKGROUND
¶2 	In 1996, Appellee Dr. Gregory Drezga, an obstetrician-
gynecologist, applied to TDC for a medical malpractice insurance
policy. 	In his application, Drezga warranted that he had not
been the subject of any malpractice claims over the preceding ten
years. 	This was apparently a misrepresentation, as Drezga had in
fact been the subject of three such malpractice claims. 	But

1 Athan Montgomery’s given name is spelled variously in the
record. 	For consistency, we employ the same spelling we have
used the previous two times that matters relating to this case
have come before us. 	See Judd v. Drezga, 2004 UT 91, 103 P.3d
135; Burke v. Lewis, 2005 UT 44, 122 P.3d 533. 	In addition,
throughout this opinion we refer to Athan, who is now 12 years
old, by his given name only. 	This is to prevent confusion
between Appellee and the plaintiff in Montgomery v. Preferred
Risk Mutual Insurance Co., 411 P.2d 488 (Utah 1966), a key
precedent in this case.
2 The case was initially heard in the district court by
Judge Leslie Lewis, who left the bench in 2006. 	The case was
then transferred to Judge William Barrett, who presided until its
resolution in 2008.
No. 20080514 	2
since TDC did not discover the misrepresentation until four years
later, it issued Drezga the malpractice policy.
¶3 	In May 1997, Drezga’s use of forceps during a birth
resulted in severe brain damage to Athan Montgomery, an Appellee
in this case. 1 	Sometime thereafter, but before any legal
proceedings began, Drezga disappeared. 	His whereabouts remain
unknown. 	Efforts to locate Drezga have been unsuccessful for
more than a decade.
¶4 	Athan’s mother, Helen Judd, filed a medical malpractice
suit against Drezga in 1998. 	TDC initially hired counsel on
Drezga’s behalf to defend against the claim. 	While the
malpractice litigation was ongoing, TDC filed a separate action
against the still-absent Drezga. 	The action, which named Judd
and Athan as co-defendants, sought a declaration that the
insurance contract was invalid and that TDC should therefore be
excused from defending Drezga or paying any judgment on his
behalf.
¶5 	TDC advanced two arguments in this action. 	First, TDC
claimed that the misrepresentations made by Drezga on the
insurance application gave TDC the right to rescind the contract.
Second, TDC argued that Drezga’s disappearance constituted a
failure to cooperate with TDC in defending the malpractice suit.
These claims were litigated over the course of eight years before
two different district court judges. 2 	In September 2000, TDC
moved for summary judgment on the noncooperation claim. 	The
district court denied the motion, holding that TDC failed to
submit undisputed evidence that Drezga had “willfully and
intentionally” breached the cooperation requirement in the

3 TDC requested leave from this court to provide
supplemental materials regarding the noncooperation claim and
other matters on June 15, 2009, more than a month after we heard
oral arguments. 	Because this was an exceedingly belated attempt
to introduce new evidence, we decline to consider these
supplemental materials as part of the record. 	See State v. Law,
2003 UT App 228, ¶ 2, 75 P.3d 923 (noting that motions to
supplement the record are inappropriate if used to “introduce new
material into the record”).
3 	No. 20080514
policy. 3 	Judge Lewis further held that TDC could not
retroactively avoid liability because such action would deny
recovery to an innocent third party.
¶6 	The malpractice suit went to trial in December 2000 and
resulted in a judgment against Drezga worth nearly $2.3 million.
The judgment was later reduced to $1.3 million in compliance with
a statutory cap on damages, a decision this court affirmed. 	Judd
v. Drezga, 2004 UT 91, ¶ 40, 103 P.3d 135. 	Realizing that
recovery would be impossible if TDC succeeded in its continuing
efforts to void or rescind the insurance contract, Judd asked the
district court to appoint counsel to represent Drezga’s interests
in the case. 	Despite ethical concerns raised by Drezga’s
absence, the district court appointed counsel, a ruling that also
was affirmed by this court. 	Burke v. Lewis, 2005 UT 44, ¶ 38,
122 P.3d 533. 	In addition, the district court ordered TDC to pay
attorney fees for Drezga’s representation. 	In Burke, we declined
to address the correctness of this part of the order. 	Id. ¶ 16
n.3.
¶7 	Once the issue of court-appointed counsel for Drezga
was settled, Appellees Judd and Drezga moved for summary judgment
on TDC’s action for declaratory relief. 	In May 2008, the
district court granted the motion. 	The insurance contract,
according to Judge Barrett’s ruling, gave TDC the option of
cancellation or rescission of Drezga’s policy. 	Because the
evidence indicated that TDC chose cancellation, the district
court held that TDC could not later rescind the same policy.
Since cancellation has only a prospective effect, and did not
occur here until after Athan’s birth, the district court held
that TDC could not avoid responsibility for the malpractice
judgment. 	This court has jurisdiction under Utah Code section
78A-3-102(3)(j)(2008).
ISSUES AND STANDARD OF REVIEW
¶8 	This case raises three issues: 	(1) whether the
district court erred in granting summary judgment based on its

No. 20080514 	4
holding that TDC had waived its right to rescission; (2) whether
the district court erred in granting summary judgment on the
ground that Drezga’s alleged noncooperation was insufficient to
void the insurance contract; and (3) whether the district court
had the authority to order TDC to pay the fees of Drezga’s court-
appointed counsel.
¶9 	A grant of summary judgment is proper when there is no
genuine issue as to any material fact and the moving party is
entitled to judgment as a matter of law. 	Utah R. Civ. P. 56(c).
We evaluate the evidence in the light most favorable to the party
opposing summary judgment. 	Fishbaugh v. Utah Power & Light, 969
P.2d 403, 405 (Utah 1998). 	The district court’s construction of
contract language is given no particular weight and is reviewed
for correctness as a matter of law. 	LDS Hosp. v. Capitol Life
Ins. Co., 765 P.2d 857, 858 (Utah 1988). 	The question of whether
the district court has authority to order TDC to pay the fees of
court-appointed counsel for an absent, nonindigent defendant is
reviewed for correctness, granting “no deference to the district
court’s legal conclusions.” 	Burke v. Lewis, 2005 UT 44, ¶ 15,
122 P.3d 533.
ANALYSIS
¶10 	In reviewing the district court’s grant of summary
judgment, we examine whether the insurance contract allowed
Appellant to rescind Drezga’s policy after first taking action to
cancel it. 	We then consider two matters relevant to TDC’s
noncooperation claim: 	first, whether TDC met the burden of proof
required for a noncooperation claim; and second, whether the
contract allowed rescission of coverage in the event that
noncooperation was demonstrated. 	Finally, we analyze whether the
order requiring TDC to pay attorney fees for Drezga’s court-
appointed counsel fell within the inherent equitable authority of
the district court.
I. 	THE INSURANCE CONTRACT PREVENTS TDC FROM
RESCINDING THE POLICY AFTER FIRST CANCELLING IT
¶11 	TDC argues that the district court erred in granting
summary judgment because it failed to recognize TDC’s statutory
and contractual right of rescission in light of Drezga’s alleged
misrepresentations and failure to cooperate. 	We disagree and
conclude that TDC is barred from rescinding Drezga’s insurance
policy for two reasons. 	First, the contract uses clearly
disjunctive language, indicating that TDC can either rescind or
cancel the policy, but cannot do both. 	Because TDC’s own
pleadings indicate that it first cancelled the policy, we hold

5 	No. 20080514
that it waived whatever right of rescission it may have
possessed. 	Second, even when viewed in the light most favorable
to TDC, the contract language regarding the consequences of
misrepresentation is ambiguous. 	This court has long followed the
rule that any such ambiguity must be resolved in favor of the
insured party; thus, the district court did not err in granting
summary judgment to Appellees.
¶12 	As always, when presented with a contractual obligation
we first look to the contract and construe its terms to give
effect to the intentions of the parties. 	When possible, of
course, these intentions “should be gleaned from an examination
of the text of the contract itself.” 	LDS Hosp. v. Capitol Life
Ins. Co., 765 P.2d 857, 858 (Utah 1988). 	We construe insurance
contracts by considering their meaning “to a person of ordinary
intelligence and understanding, viewing the matter fairly and
reasonably, in accordance with the usual and natural meaning of
the words, and in the light of existing circumstances, including
the purpose of the policy.” 	Id. at 858-59 (quoting Auto Lease
Co. v. Cent. Mut. Ins. Co., 325 P.2d 264, 266 (Utah 1958)).
Furthermore, “any ambiguity or uncertainty in the language of an
insurance policy must be resolved in favor of coverage.” 	Id. at
858. 	This rule of strict construction is justified by “the need
to afford the insured the protection he or she endeavored to
secure by paying premiums.” 	Id. 	Ambiguity exists if a provision
of a contract “is capable of more than one reasonable
interpretation because of uncertain meanings of terms, missing
terms, or other facial deficiencies.” 	WebBank v. Am. Gen.
Annuity Serv. Corp., 2002 UT 88, ¶ 20, 54 P.3d 1139 (internal
quotation marks omitted).
¶13 	The contract between Drezga and TDC sets forth the
consequences of misrepresentation in two places. 	First, under
Part 1 of the “General Provisions” section, the contract states
that if an applicant misrepresents any material fact, then “this
policy will be void and the Exchange will rescind or cancel” the
policy. 	(Emphasis added). 	Second, under Part 11 of the same
section, the contract indicates that TDC “may cancel your policy
at any time” in case of “fraud or material misrepresentation.”
The contract then explains that should cancellation occur TDC
will notify the insured party using “a written notice by
certified mail to [the] latest address shown on the Exchange’s
records.” 	Such action has prospective effect, since “the date
for cancellation will be 60 days from the date on the written
notice.”
¶14 	The record shows that TDC took action to cancel the
contract once Drezga’s misrepresentations became known. 	In its

4 In August 2007, TDC requested permission to file a second
amended complaint to “clarify” its request for rescission,
presumably by deleting any reference to cancellation. 	The
district court did not grant permission for the amendment. 	Even
if it had, an attempt to recast an act of cancellation as
something different more than seven years after the fact would
not persuade us to hold differently here.
5 TDC also claims that the district court erred by failing
(continued...)
No. 20080514 	6
amended complaint, TDC confirmed that it “canceled the policy of
insurance with Dr. Drezga by mailing a notification regarding the
same to his last known address.” 4 	The use of the word
“canceled,” and the fact that TDC followed the procedure outlined
in the contract for cancellation, both indicate that TDC
deliberately selected this course of action.
¶15 	TDC argues that its cancellation of Drezga’s policy did
not waive its right of rescission; in other words, that the two
actions are not mutually exclusive. 	The Utah Court of Appeals
has held that, absent an express waiver by an insurance company,
a contractual right to rescission is forfeited only if the
insurer’s “course of conduct demonstrates that it intended to
relinquish that right.” 	Cont’l Ins. Co. v. Kingston, 2005 UT App
233, ¶ 9, 114 P.3d 1158. 	To determine whether a waiver has
occurred, the court must consider the “totality of the
circumstances.” 	Id. ¶ 11 (internal quotation marks omitted). 	A
waiver may be implied by “any substantial act that recognizes the
contract as in force.” 	Id. ¶ 14. 	Once the right of rescission
has been relinquished, an insurer is “thereafter prohibited from
asserting that right.” 	Id. ¶ 9. 	TDC contends that its actions
demonstrate that it reserved, rather than relinquished, the right
of rescission.
¶16 	Given the clearly disjunctive language in this
contract, we do not find this argument persuasive. 	We need not
decide here whether cancellation and rescission are in all cases
mutually exclusive. 	It may be permissible for an insurance
company to include contractual language allowing it to cancel a
policy, thus limiting its future risk, while its right to rescind
the same policy is being litigated. 	In this case, however, the
language of the contract does not so provide. 	The policy limits
TDC’s options: 	it may cancel, or it may rescind. 	TDC is
essentially asking us to read the “or” as “and”; we decline to do
so. 	When the language of a contract creates a choice between
cancellation or rescission, pursuing the former is a course of
conduct that demonstrates waiver of the latter. 5

5 (...continued)
to recognize its statutory right to rescind under Utah Code
section 31A-21-303. 	The statute, TDC argues, does not indicate
that rescission and cancellation are mutually exclusive. 	This is
true, but irrelevant. 	Here, TDC is barred from rescission not by
statute but by the language in a contract that TDC itself
drafted. 	The same section of the statute states that “[a] policy
may provide terms more favorable to insureds than this section
requires.” 	Utah Code Ann. § 31A-21-303(1)(b) (1991). 	Thus,
while the law permits rescission in cases of misrepresentation,
it in no way limits an insurance company’s ability to tie itself
to more restrictive terms, as TDC did here.
7 	No. 20080514
¶17 	TDC also contends that the district court erred by
failing to give effect to the contract language as a whole. 	TDC
points specifically to Part 1 of the contract’s “General
Provisions” section, which contains not only the “rescind or
cancel” language but states in its entirety, “this policy will be
void and the Exchange will rescind or cancel” the policy in cases
of material misrepresentation. (Emphasis added). 	This, TDC
argues, gives it a contractual right to seek rescission of the
policy. 	But the “void” language does not help TDC’s case,
because its primary impact makes the consequence of
misrepresentation unclear. 	The language “will be void” suggests
that, in case of misrepresentation, the contract will be void ab
initio, a result that would be contrary to Utah law. 	Baldwin v.
Burton, 850 P.2d 1188, 1193 (Utah 1993) (explaining that
insurance contracts induced by misrepresentation are “not void
but only voidable”). 	On the other hand, the language immediately
following states that TDC will take action to “rescind or cancel”
the policy. 	Therefore, under the contract, a misrepresentation
could plausibly produce any one of three distinct consequences:
the policy could be void, such that legally speaking it never
existed; it could be merely voidable, in which case the insurer
could retroactively nullify it through the process of rescission;
or the policy could be cancelled, meaning that a legally valid
contract once existed but has since been severed.
¶18 	We do not see in this language the clear right of
rescission that TDC wishes us to find. 	At best, the contract is
ambiguous as to the consequences of misrepresentation, and we
resolve such ambiguity against the drafter of the contract and in
favor of maintaining insurance coverage. 	LDS Hosp., 765 P.2d at
858. 	We therefore rely on the plain language of the “cancel or
rescind” provision, which compels TDC to choose between
cancellation or rescission rather than allowing it to do both.
TDC chose to cancel the policy in 2000 and therefore waived its
right to rescission. 	Because cancellation has only prospective

6 Appellees advance two additional arguments for affirming
the district court, neither of which we reach today. 	First, the
district court held that TDC’s right of rescission was abrogated
due to the involvement of “an innocent third party,” i.e., a
claimant who would be denied recovery for malpractice if the
contract were retroactively invalidated. 	Because of our holding
above, we need not decide whether the district court’s ruling on
abrogation was correct. 	Second, Appellees argue that TDC failed
in its duty to make a reasonable investigation into Drezga’s
insurability before offering the malpractice policy. 	As a result
of that failure, Appellees contend that TDC cannot retain the
right to rescind. 	There is support for this conclusion in our
precedents. 	Specifically, in State Farm Mutual Automobile
Insurance Co. v. Wood, we held that an insurer “cannot neglect
its duty to make a reasonable investigation . . . until after it
learns of a probable claim and still retain its right to
rescind.” 	483 P.2d 892, 893 (Utah 1971). 	However, the court
then remanded for a factual determination as to whether the duty
had been satisfied. 	Id. 	We face a similar situation here, as
the record does not indicate whether, or to what extent, TDC
investigated Drezga’s insurability prior to the malpractice
claim. 	But because our conclusions on the other issues are
dispositive, we need not remand.
No. 20080514 	8
effect, Drezga’s policy was valid at the time of Athan’s birth
and TDC remains responsible for the malpractice judgment.
Accordingly, we hold that the district court correctly granted
summary judgment to the Appellees. 6
II. 	TDC CANNOT, AS A MATTER OF LAW, INVALIDATE THE INSURANCE
POLICY DUE TO DREZGA’S ALLEGED FAILURE TO COOPERATE
¶19 	TDC argues that the district court erred procedurally
and substantively in granting summary judgment on its
noncooperation claim. 	Addressing the procedural matter first,
TDC argues that this case must be remanded for a determination of
whether Drezga’s disappearance constitutes a failure to cooperate
with the malpractice defense. 	The record reflects that TDC
requested summary judgment on the noncooperation claim in 2000
but was denied on grounds that there were factual disputes
regarding Drezga’s alleged efforts to avoid the malpractice
claim. 	When Appellees moved for summary judgment in 2008, the
district court held that rescission was barred as a matter of law
but did not directly address the noncooperation claim. 	TDC
therefore argues that the noncooperation claim has not been
disposed of and remains trial-worthy. 	We disagree; the 2008
district court order disposed of the noncooperation claim by
implication and as a matter of law. 	“When a final disposition of

9 	No. 20080514
a case is entered by a district court, any unresolved motions
inconsistent with that disposition are deemed resolved by
implication.” 	State v. Mullins, 2005 UT 43, ¶ 8, 116 P.3d 374.
That the district court was aware of the noncooperation claim and
considered it disposed of is made clear in its minute entry
denying TDC’s motion for court clarification. 	The minute entry
states that “the Court is satisfied that there is no legal or
factual basis for the Court to alter its decision.” 	Because the
noncooperation claim reached final disposition at the district
court, we may affirm on other grounds. 	Bailey v. Bayles, 2002 UT
58, ¶ 10, 52 P.3d 1158 (“[An] appellate court may affirm . . . on
any legal ground or theory apparent on the record. . . .”)
(quoting Dipoma v. McPhie, 2001 UT 61, ¶ 18, 29 P.3d 1225).
¶20 	Turning to the substance of the noncooperation claim,
TDC contends that Drezga’s disappearance releases it from the
duty of paying the malpractice claim. 	This argument fails for
two reasons. 	First, TDC has not met its burden to relieve itself
of the responsibility for the malpractice judgment on grounds of
noncooperation. 	Second, even if TDC could satisfy this burden,
the contract does not allow TDC to retroactively deny coverage
due to a failure to cooperate. 	Therefore, the district court did
not err in granting summary judgment.
A. 	TDC Failed to Meet Its Burden of Proof for Noncooperation
¶21 	The district court, citing a federal case, Cincinnati
Insurance Co. v. Irvin, 19 F. Supp. 2d 906, 911 (S.D. Ind. 1998),
held that proof of noncooperation required TDC to show Drezga
“willfully and intentionally breached the cooperation clause.”
Because the only available evidence suggests that Drezga’s
disappearance was motivated by family and financial difficulties
rather than a desire to avoid cooperation with TDC, the district
court held that this standard was not satisfied. 	The parties
have argued at length over whether the “willful and intentional”
standard used by the district court is appropriate. 	Utah law,
however, does not demand that we resolve this issue. 	An insurer
seeking to avoid coverage of a claim for reasons of
noncooperation must establish two things: 	(1) that it used
“reasonable diligence” to secure the insured’s cooperation; and
(2) that the noncooperation “substantially prejudiced” its
ability to defend against the claim in question. 	Montgomery v.
Preferred Risk Mut. Ins. Co., 411 P.2d 488, 490 (Utah 1966). 	The
burden for demonstrating reasonable diligence and substantial
prejudice rests on the insurance company. 	Peterson v. W. Cas. &
Sur. Co., 425 P.2d 769, 770 (Utah 1967). 	Even if we assume that
Drezga’s disappearance constituted noncooperation, TDC has not
satisfied either the reasonable diligence or substantial

No. 20080514 	10
prejudice requirements and therefore cannot invalidate its
insurance policy with Drezga.
1. 	TDC Has Not Shown That It Used Reasonable Diligence in Its
Attempts to Find Drezga and Secure His Cooperation
¶22 	An insurance company faces a conflict of interest when
an insured party has disappeared. 	Id. at 771. 	On one hand, the
insurance company has a duty to diligently seek cooperation from
the insured party. 	But since failure to cooperate may allow the
insurance company to avoid payment of claims, it is arguably
against its interests to find a vanished party who is being sued.
Therefore, an insurer must show that it “used the same degree of
diligence to secure the insured’s cooperation that would have
been exercised by a reasonable and prudent person where the
cooperation of the insured would be to its advantage in
protecting it against liability, rather than to relieve it
therefrom.” 	Id. 	In Peterson, the insured party was an itinerant
restaurant worker who moved from Salt Lake City to another state
shortly after an automobile accident that led to a lawsuit.
Prior to trial, the insurance company received information that
the insured party was in Miami, but it made no effort to contact
him there. 	Under those circumstances, this court held that the
insurance company failed to exercise reasonable diligence because
it looked for the insured “everywhere except where they had
reason to believe he was.” 	Id. at 772.
¶23 	In this case, the facts point strongly toward a lack of
reasonable diligence. 	In Peterson, the insurance company
searched diligently enough to locate the insured party in
California before losing track of him. 	Id. at 770. 	In this
case, however, the record shows that nearly all of the efforts to
locate Drezga were made by Appellees, pursuant to their attempts
to serve him with notice of the malpractice lawsuit. 	In
contrast, TDC’s own brief shows that its attempts to find Drezga
consisted solely of phone calls and efforts to mail
correspondence to addresses it knew were outdated. 	Further, TDC
knew from the insurance application that Drezga attended medical
school in Zagreb, Croatia. 	TDC also learned from the affidavit
of Rick Rambo, a process server hired by Judd in her malpractice
action, that Drezga’s relatives believed him to be in Europe.
Yet at no point during the last eleven years has TDC claimed to
have acted on these tips in an attempt to locate Drezga abroad.
We expect that a “reasonable and prudent” insurance company would
have gone far beyond TDC’s exceedingly limited efforts if it
believed that finding a vanished party would relieve, rather than
create, a $1.3 million liability.

11 	No. 20080514
¶24 	Appellant argues that it made the same efforts to
locate Drezga as Appellee Judd, who was held by the district
court to have used “reasonable diligence” in her search for
Drezga and was allowed to serve by publication. 	TDC therefore
asks us to find that it satisfied the reasonable diligence
standard as a matter of law. 	We decline, however, to
mechanically apply the same standard to two different situations.
The “reasonable and prudent” test used in Peterson makes clear
that “reasonable diligence” is defined in a specific way when
applied to cooperation clauses in insurance contracts. 	We
therefore follow our precedent in Peterson. 	Because TDC has not
satisfied the reasonable diligence standard, we hold that it
cannot be excused from liability for reasons of noncooperation.
2. 	TDC Has Not Demonstrated That It was Substantially Prejudiced
by Drezga’s Unavailability
¶25 	Even if Drezga’s failure to cooperate was far more
obvious than the record here suggests, Utah law also requires TDC
to show that noncooperation put it at a material disadvantage in
defending against the malpractice claim. 	Montgomery, 411 P.2d at
490. 	The burden rests on the insurance company to prove
substantial prejudice. 	Peterson, 425 P.2d at 770. 	In
Montgomery, the insured party disappeared prior to a trial to
determine his liability for an automobile accident. 	We held that
the absence or disappearance of the insured party alone does not
establish a failure to cooperate. 	411 P.2d at 490. 	The
nonattendance of the insured at trial does not breach the
cooperation clause “where his testimony would not have been of
material aid or where, for this or other reasons, the insurer was
not substantially prejudiced by his absence.” 	Id.
¶26 	TDC has not met its burden of showing substantial
prejudice. 	Indeed, TDC’s briefs do not suggest a single reason
why the malpractice suit would have ended differently had Drezga
been present. 	TDC’s only support is an affidavit filed by the
attorney who represented Drezga at the malpractice trial. 	The
affidavit, which was filed several months before the trial began,
simply asserts that it “would be extremely difficult and
prejudicial . . . to go to trial with an absentee
defendant/physician.” 	As proof of substantial prejudice, this is
unpersuasive. 	The affidavit is self-serving and conclusory; it
provides no concrete insight as to how Drezga’s presence would
have been helpful given the overwhelming proof of malpractice
that was present in this case.
¶27 	In an attempt to buttress its argument, TDC points to a
single case in which a Georgia appellate court held that a

No. 20080514 	12
defendant’s absence at trial is per se prejudicial because of the
“intangible effect” that the absence of a defendant has on the
minds of jury members. 	H.Y. Akers & Sons, Inc. v. St. Louis Fire
& Marine Ins. Co., 172 S.E.2d 355, 359 (Ga. Ct. App. 1969). 	Even
if the holding in Akers did not contradict established Utah law,
we would not find it persuasive because the jury in the Drezga
malpractice case played almost no role in deciding the outcome.
Drezga’s negligence was “so clearly evident” that the question of
malpractice was settled by directed verdict in favor of the
plaintiffs. 	Judd v. Drezga, 2004 UT 91, ¶ 8, 103 P.3d 135. 	On
appeal, the appropriateness of the directed verdict was not
questioned by Drezga’s counsel. 	Id. 	Although the jury did
decide on a judgment amount, that figure was later reduced in
adherence to a statutory cap. 	Thus, even if the jury members had
been influenced by Drezga’s absence, there is very little
possibility that TDC suffered substantial prejudice as a result.
Therefore, TDC has failed to show substantial prejudice resulting
from the alleged noncooperation.
B. 	Even If TDC Met All of the Requirements for
Noncooperation, It Is Contractually Barred from
Avoiding Coverage on Those Grounds
¶28 	Finally, even if TDC met the noncooperation
requirements, its contract with Drezga does not allow it to
retroactively avoid coverage of the malpractice claim. 	Again, we
examine the language of the contract and resolve any ambiguity in
favor of the insured party. 	LDS Hosp. v. Capitol Life Ins. Co.,
765 P.2d 857, 858 (Utah 1988).
¶29 	The final sentence of the cooperation provision states,
“Failure to cooperate with the Exchange in the defense of any
claim is a breach of this policy and will result in loss of
coverage.” 	(Second emphasis added). 	The phrase “will result in
loss of coverage” has two plausible meanings. 	It could be
interpreted as having a limited prospective effect-–in other
words, a failure to cooperate would result in cancellation of the
policy and removal of coverage for the future. 	Alternatively, it
could be interpreted as having retroactive effect--allowing the
insurance company to deny coverage for events that occurred even
before the noncooperation. 	Because the phrase “loss of coverage”
is capable of more than one reasonable interpretation, it is
ambiguous.
¶30 	We resolve any such ambiguity in favor of maintaining
coverage. 	Id. 	We therefore strictly construe the cooperation
provision to have a limited prospective effect and hold that TDC
is contractually barred from avoiding coverage on grounds of

7 This decision does not implicate Utah Code Section 78B-5-
825.5 (Supp. 2009).
13 	No. 20080514
Drezga’s alleged failure to cooperate. 	Accordingly, the district
court’s grant of summary judgment in favor of Appellees is
affirmed.
III. 	THE ORDER REQUIRING TDC TO PAY DREZGA’S ATTORNEY FEES
WAS PROPER IN LIGHT OF THE DISTRICT COURT’S
INHERENT EQUITABLE AUTHORITY
¶31 	The final issue is whether the district court can order
TDC to pay the fees of Drezga’s court-appointed counsel.
Appellant argues that the district court lacked authority to
issue the order. 	We hold that under the extraordinary
circumstances present in this case the order to pay attorney fees
fell within the inherent equitable authority of the court.
¶32 	In Burke v. Lewis, we decided that the district court
acted within its “inherent power” when it ordered the appointment
of counsel for the absent Drezga. 	2005 UT 44, ¶ 1, 122 P.3d 533.
At the time of the Burke decision, however, we declined to
address the separate issue of whether the district court could
order TDC to pay for the court-appointed attorney. 	Id. ¶ 16 n.3.
As a general rule, Utah courts award attorney fees only to a
prevailing party, and only when such action is permitted by
either statute or contract. 	Hughes v. Cafferty, 2004 UT 22,
¶ 21, 89 P.3d 148. 	The absence of such authority, however, does
not bar the court from awarding attorney fees “when it deems it
appropriate in the interests of justice and equity.” 	Stewart v.
Utah Pub. Serv. Comm'n, 885 P.2d 759, 782 (Utah 1994). 	In
Stewart, we described several categories of cases that may
qualify for equitable awards of attorney fees. 	These include
class action suits, cases involving action by a trustee that
benefits a group of other trustees, suits under the “private
attorney general” doctrine, and suits in which the nonprevailing
party acted “in bad faith, vexatiously, wantonly, or for
oppressive reasons.” 7 	Id. (citation omitted). 	Our precedents
involving insurers who seek a declaration relieving them from
liability have followed the same logic. 	Unless there is a
showing that the insurance company “acted in bad faith or
fraudulently or was stubbornly litigious,” an equitable award of
attorney fees has not been allowed, even when the insured party
prevails. 	Farmers Ins. Exch. v. Call, 712 P.2d 231, 237 (Utah
1985); see also Am. States Ins. Co. v. Walker, 486 P.2d 1042,
1044 (Utah 1971).
¶33 	In this case, there is no applicable statute, and we
have already held that TDC was not contractually required to pay

8 In this case, Judd and Athan became aware of TDC’s action
for declaratory relief because they were named as co-defendants
by TDC. 	There is no reason, however, to expect that other
insurers will behave similarly when it would be in their interest
(continued...)
No. 20080514 	14
for Drezga’s defense of the complaint for declaratory relief.
Burke, 2005 UT 44, ¶ 21. 	This case also does not fall into any
of the previously recognized categories for an equitable award of
attorney fees. 	See Farmers Ins. Exch, 712 P.2d at 237.
¶34 	Nonetheless, we believe this case does fall into an
additional category in which an equitable award of attorney fees
can be made under the court’s inherent authority. 	First and
foremost, it would defy equity to give the district courts the
authority to appoint counsel for an absent client, but not the
authority to ensure that the attorney is compensated for months
or years of service. 	Drezga’s attorney has worked on this case
for more than eight years. 	Further, in accordance with our
holdings above, Drezga prevails in this action. 	If we were to
reverse the district court’s order, however, Drezga’s attorney
would receive no compensation of any kind for these successful
efforts. 	Drezga, of course, is not available to render payment
himself. 	The only other parties involved are TDC, on one side,
and Judd and Athan on the other. 	It would be perverse to order
Judd and Athan to pay Drezga’s attorney fees after prevailing in
a malpractice suit against him. 	TDC, as the insurer and the
nonprevailing party, is the only logical choice when assigning
equitable responsibility for fees under such unusual
circumstances.
¶35 	Drezga’s absence, in conjunction with the presence of
Judd and Athan as innocent third parties, provides additional
justification for the district court’s award of attorney fees.
Indeed, it is not difficult to see how this deeply problematic
situation could become even more troubling. 	In a hypothetical
case, an injured party files a malpractice suit against a doctor
who has disappeared. 	After being notified of the claim, the
insurance company realizes that it has an easy way to relieve
itself of liability. 	The insurer therefore files a complaint for
declaratory relief against the absent doctor, its own insured.
The doctor, unaware of the litigation, never responds to the
complaint. 	Default judgment is eventually entered, relieving the
insurer of any responsibility for defending the doctor or paying
the malpractice claim. 	It is entirely possible that the action
for declaratory relief could take place without the involvement,
or even the knowledge, of the third party pursuing the
malpractice claim. 8 	That innocent third party would then find

8 (...continued)
to keep third parties in the dark. 	Indeed, TDC later attempted
to have Judd and Athan removed as defendants, a motion that was
never granted by the district court.
15 	No. 20080514
that it has been denied any opportunity to pursue its claims or
defend its interests.
¶36 	We therefore hold that where an insurer files a
complaint for declaratory relief against its own insured, who is
absent and unaware of the litigation, and where such relief would
adversely affect the interests of an innocent third party, it is
within the inherent equitable authority of the court to both
appoint counsel for the insured and to order that the insurer pay
attorney fees for appointed counsel, if and when the insured
prevails in the action. 	This authority will ensure that the
interests of all parties are considered without significantly
affecting the ability of an insurance company to argue for
declaratory relief. 	Accordingly, we hold that the action taken
by the district court was appropriate. 	We acknowledge TDC’s
argument that the district court essentially ordered it to pay
Drezga’s attorney fees “up front,” i.e., before Drezga became the
prevailing party. 	We disagree with TDC’s characterization of the
district court’s order, but agree that an award of attorney fees
prior to the insured prevailing in the action for declaratory
relief would be inappropriate, as our holding makes clear. 	TDC’s
argument about “up front” fees is made irrelevant by our other
holdings today, which clearly establish Drezga as the prevailing
party.
¶37 	We note that this new exception, while an extension of
Utah law, provides for attorney fees under much narrower
circumstances than is the case in numerous other jurisdictions.
A minority of states routinely allow an insured party to recover
attorney fees whenever it prevails in an action for declaratory
relief, even when there is no finding that the insurer acted
stubbornly or in bad faith. 	See, e.g., Farm Bureau Mut. Ins. Co.
v. Kurtenbach, 961 P.2d 53, 64 (Kan. 1998); Litz v. State Farm
Fire & Cas. Co., 695 A.2d 566, 573 (Md. 1997); Rubinstein v.
Royal Ins. Co., 708 N.E.2d 639, 641 (Mass. 1999). 	The minority
bases its rule on the idea that individuals obtain insurance not
merely to be protected from liability, but also to avoid the
costs of litigation. 	When an insurer files an action for
declaratory relief, the insured party is forced to litigate in
order to receive the benefit that it paid premiums to gain in the
first place. 	Rubinstein, 708 N.E.2d at 642. 	If no recovery of
attorney fees is possible, then an insured party who prevails in
the declaratory action can succeed in maintaining insurance

No. 20080514 	16
coverage but still be worse off financially than it was before.
Id. 	A rule this expansive, however, would run counter to
established Utah law and could negatively affect an insurance
company’s ability to seek judicial resolution of legitimate
controversies over coverage. 	Farmers, 712 P.2d at 237.
¶38 	Fortunately, we need not reach so far today in order to
secure a just result. 	Our holding does not overturn Farmers.
The rule that attorney fees will not be available to a prevailing
insured following an action for declaratory relief unless an
insurer is found to have acted fraudulently, stubbornly or in bad
faith remains undisturbed. 	Nor do we intend to abandon the
caution that Utah courts have long shown regarding the awarding
of attorney fees. 	Instead, our holding creates a narrow
equitable exception applicable only in extraordinary
circumstances. 	An award of attorney fees would not be
appropriate if a nonindigent insured party is present to defend
its own interests. 	In addition, the district court would not
have the authority to award attorney fees in the absence of an
innocent third party. 	Finally, the district court’s authority to
order the insurer to pay attorney fees does not exist until the
insured party prevails in the action for declaratory relief.
This rule, thus limited, best enables the district court to
pursue an equitable result under the rare circumstances presented
here.
CONCLUSION
¶39 	For the foregoing reasons, we affirm the district
court’s grant of summary judgment to Appellees. 	We hold that the
insurance contract between TDC and Drezga prevents TDC from
rescinding the policy after first taking action to cancel it. 	In
addition, we hold that the contract prevents TDC from being
relieved of liability due to Drezga’s alleged failure to
cooperate. 	Finally, we affirm the district court’s order that
TDC pay Drezga’s attorney fees under the narrow exception created
today.
---
¶40 	Associate Chief Justice Durrant, Justice Wilkins,
Justice Parrish, and Justice Nehring concur in Chief Justice
Durham’s opinion.