Blakely v. USAA Casualty Insurance Co.

FILED
United States Court of Appeals
Tenth Circuit

June 27, 2017
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court

ALAN BLAKELY; COLELYN
BLAKELY,

Plaintiffs - Appellants,
No. 15-4059
v.
(D.C. No. 2:06-CV-00506-BSJ)
(D. Utah)
USAA CASUALTY INSURANCE
COMPANY,

Defendant - Appellee.

ORDER AND JUDGMENT *

Before HOLMES, MURPHY, and BACHARACH, Circuit Judges. **

Plaintiffs-Appellants Alan and Colelyn Blakely appeal from an adverse

summary judgment in which the district court determined that they failed to

demonstrate the damages necessary to advance a cognizable claim for breach of

the implied covenant of good faith and fair dealing (“Implied Covenant”) against

*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Federal Rule of Appellate
Procedure 32.1 and Tenth Circuit Rule 32.1.
**
After examining the briefs and appellate record, this panel has
determined unanimously to resolve this appeal on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
submitted without oral argument.
their homeowner’s insurance provider, USAA Casualty Insurance Company

(“USAA”). This is the third time the Blakelys have appealed to this court based

on the same underlying facts and allegations. 1 Exercising jurisdiction under 28

U.S.C. § 1291, we affirm the district court’s grant of summary judgment in favor

of USAA.

I

Mr. and Ms. Blakely own a home in Bountiful, Utah, which was insured

under a homeowner’s insurance policy issued by USAA. The policy insured

against losses to the home and personal property. 2 In August 2002, a fire broke

1
The Blakelys filed a fourth appeal from the same district court
action, see Blakely v. USAA Cas. Ins. Co., No. 15-4017, but voluntarily dismissed
the appeal prior to merits briefing.
2
The policy provided the following procedure in the event of a loss:

2. Your Duties After Loss. In case of a loss to which this
insurance may apply, you must see that the following are done:

....

e. prepare an inventory of damaged personal property
showing the quantity, description, actual cash value and
amount of loss. Attach all bills, receipts and related
documents that justify the figures in the inventory;

....

g. send to us, within 60 days after our request, your
signed, sworn proof of loss which sets forth, to the best of
your knowledge and belief:

(continued...)

2
out in the basement of the home after a flooring contractor, Desert Rose Roofing,

Inc., doing business as Stone Touch (“Stone Touch”), applied a flammable

sealant. Although the fire was contained within the basement, smoke and soot

damaged other sections of the home, including floor joists, exposed subflooring,

and personal property.

2
(...continued)
(1) the time and cause of loss;

(2) the interest of the Insured and all others in the
property involved and all liens on the property;

(3) other insurance which may cover the loss;

(4) changes in title or occupancy of the property
during the term of the policy;

(5) specifications of damaged buildings and detailed
repair estimates;

(6) the inventory of damaged personal property
described in 2e above;

(7) receipts for Additional Living Expenses and
Temporary Living Expense, incurred and records
that support the Fair Rental Value loss; and

(8) evidence or affidavit that supports a claim under
ADDITIONAL COVERAGES, Credit Card, Fund
Transfer Card, Forgery and Counterfeit Money
coverage, stating the amount and causes of loss.

Aplts.’ App., Vol. VI, at 1225–26 (Ins. Policy, dated Nov. 2, 2001 through Nov. 2,
2002).

3
 The Blakelys prepared an inventory of their losses and made a claim under

their USAA policy. USAA then sent an adjuster to inspect the damage, and

USAA’s preferred contractor ultimately repaired most of the damage to the home.

By mid-2003, USAA had paid out $93,332.20 on the claim—viz., $47,789.94 for

the home, $37,832.70 for personal property, and $7,709.56 for temporary housing.

However, the Blakelys were dissatisfied with the repairs to their home and the

extent to which their personal property had been cleaned or replaced. Although

USAA refused to authorize additional expenses, the Blakelys paid for further

cleaning and repairs themselves. Around this time, the Blakelys also filed suit

against Stone Touch. 3

In January 2005, the Blakelys invoked their contractual right to an

appraisal. 4 The Blakelys asserted that they were entitled to $468,575.05 on the

3
USAA later intervened in the Stone Touch suit under a subrogation
claim for the $93,332.20 that it paid on the Blakelys’ claim and any additional
sums.
4
The homeowner’s insurance policy contained an “appraisal clause”
related to the determination of the loss amount:

Appraisal. If you and we do not agree on the amount of loss,
either party can demand that the amount of the loss be
determined by appraisal. If either makes a written demand for
appraisal, each will select a competent, independent appraiser
and notify the other of the appraiser’s identity within 20 days of
receipt of the written demand.

The two appraisers will then select a competent, impartial
umpire. If the two appraisers are not able to agree upon the
(continued...)

4
claim; however, in October 2005, the three appraisers retained under the policy’s

terms—one by the Blakelys—awarded only $291,356.52. After a credit for the

$93,332.20 that USAA had already paid under the policy, the Blakelys were still

owed $197,524.32. 5 The Blakelys admit that with the payment of the remaining

appraisal award on December 5, 2005, USAA owes them nothing further under

the policy’s plain terms.

In 2006, the Blakelys filed suit against USAA in state court, claiming

breach of contract, breach of the Implied Covenant, breach of industry and

statutory standards, and intentional infliction of emotional distress. The Blakelys

alleged, inter alia, that they suffered financial and emotional damages resulting

from USAA’s failure to make adequate and timely repairs, reimbursements, and

4
(...continued)
umpire within 15 days, you and we can ask a judge of a court of
record in the state where the residence premises is located to
select an umpire.

The appraisers will then set the amount of loss. If they submit a
written report of any agreement to us, the amount agreed upon
will be the amount of loss. If they fail to agree within a
reasonable time, they will submit their differences to the umpire.
Written agreement signed by any two of these three will set the
amount of the loss. Each appraiser will be paid by the party
selecting that appraiser. Other expenses of the appraisal and the
compensation of the umpire will be equally paid by y ou and us.

Aplts.’ App., Vol. VI, at 1226.
5
Although the district court calculated the remaining balance as
$197,524.32, the actual remainder appears to have been $198,024.32.

5
investigations. USAA removed the suit to federal court based on diversity

jurisdiction. Following discovery, the district court granted summary judgment in

favor of USAA on all claims except the claim for breach of the Implied Covenant.

Instead of summary judgment, the district court granted USAA’s oral motion to

dismiss the Blakelys’ Implied-Covenant claim as frivolous under Federal Rule of

Civil Procedure 16(c)(2)(A).

The Blakelys appealed for the first time, and our court affirmed the district

court’s grant of summary judgment, but reversed the dismissal of the Implied-

Covenant claim. Without expressing an opinion “on the merits of the Blakelys’

claim for breach of the implied covenant of good faith and fair dealing,” we

specifically held that

the Blakelys alleged and put forth the following evidence
suggesting that USAA acted unreasonably in taking its initial
position regarding the loss amount: the appraisal award was
nearly three times, or $200,000 more, than USAA’s initial payout
of $93,322.20; USAA’s adjuster refused to communicate with the
Blakelys; USAA’s adjuster claimed that he could not smell
smoke when the smell proved noticeable [to the appraisers] in the
house three years later; USAA delegated adjustment of the
contents claim to a non-adjuster; and USAA refused to pay for
any repairs other than structural ones.

Blakely v. USAA Cas. Ins. Co., 633 F.3d 944, 950 (10th Cir. 2011). On remand,

the district court granted summary judgment in favor of USAA on the Blakelys’

Implied-Covenant claim. See Blakely v. USAA Cas. Ins. Co., No.

6
2:06–CV–00506, 2011 WL 6218212 (D. Utah Dec. 6, 2011), reversed and

remanded by 500 F. App’x 734 (10th Cir. 2012) (unpublished).

The Blakelys appealed a second time to this court, mounting a challenge to

the district court’s determination that they had put forward no genuine issue of

material fact. See Blakely, 500 F. App’x at 738. A panel of this court concluded

that the following four material facts suggested that USAA acted unreasonably:

viz., (1) USAA refused to replace several charred floor joists, and only replaced a

small section of burned subflooring after repeated complaints from the Blakelys;

(2) USAA’s structural adjuster refused at times to communicate with the

Blakelys; (3) the structural adjuster claimed not to be able to smell smoke, even

though the appraisers could smell smoke three years later; and (4) USAA’s

personal-property adjuster did not travel to Utah, delegated her duties to a person

who was not an adjuster, and denied coverage for numerous personal and

household items. See id. at 739–40. Pointing to Jones v. Farmers Insurance

Exchange, 286 P.3d 301 (Utah 2012), the panel explained that summary judgment

was inappropriate under Utah law, because “[a] jury could conclude [USAA]

breached its duties by undervaluing [the Blakelys’] loss” or “acted unreasonably

by not instructing [the Blakelys] to submit their claims in a signed proof of loss.”

Id. at 741.

On remand a second time, the district court again granted summary

judgment in USAA’s favor. This time, however, the district court reasoned that

7
the Blakelys “failed to proffer plausible damages attributable to the alleged

breach of the implied contract covenant,” and “[a]bsent viable damages, the

exercise of trial pursuant to the Tenth Circuit’s mandate and application of Jones

would be purely academic.” Aplts.’ App., Vol. VIII, at 1683 (Dist. Ct. Order,

dated Apr. 2, 2015). More specifically, the district court considered the Blakelys’

alleged damages for emotional distress, economic loss, and attorney’s fees and

costs, and concluded that none were recoverable under Utah law.

The Blakelys timely appealed this decision of the district court.

II

This appeal presents the single issue of whether the Blakelys advanced a

theory of recoverable damages as part of their claim against USAA for breach of

the Implied Covenant. We review de novo the district court’s dismissal of their

claim on a motion for summary judgment. See Hertz v. Luzenac Grp., 576 F.3d

1103, 1107 (10th Cir. 2009) (“We review the dismissal of these claims on a

motion for summary judgment de novo.”); accord Harvey Barnett, Inc. v. Shidler,

338 F.3d 1125, 1129 (10th Cir. 2003). “The court shall grant summary judgment

if the movant shows that there is no genuine dispute as to any material fact and

the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a);

accord Macon v. United Parcel Serv., Inc., 743 F.3d 708, 712 (10th Cir. 2014).

Because this is a diversity case, we must independently discern the content

of and apply state law—specifically, Utah law. See, e.g., Mid-Continent Cas. Co.

8
v. Circle S Feed Store, LLC, 754 F.3d 1175, 1178 (10th Cir. 2014) (“Because this

is a diversity case, we ascertain and apply state law—in this case, New Mexico

law.”); Yousuf v. Cohlmia, 741 F.3d 31, 47 (10th Cir. 2014) (noting that, where

jurisdiction is based on the parties’ diverse citizenship, a federal court is “not to

reach our own judgment regarding the substance of the common law, but simply

to ascertain and apply state law.” (quoting Kokins v. Teleflex, Inc., 621 F.3d 1290,

1295 (10th Cir. 2010))); McIntosh v. Scottsdale Ins. Co., 992 F.2d 251, 253 (10th

Cir. 1993) (“We review de novo the district court’s rulings with respect to Kansas

law.”). Under Utah law, the construction of an insurance policy is a legal

question, which we review de novo. See Mid-Continent Cas. Co., 754 F.3d at

1178; see also S.W. Energy Corp. v. Cont’l Ins. Co., 974 P.2d 1239, 1242 (Utah

1999) (“Interpretation of an insurance policy involves ordinary rules of contract

construction. We accord no deference to the trial court’s interpretation of the

policy, but review the court’s legal conclusions for correctness.” (citation

omitted)).

A

“When the federal courts are called upon to interpret state law, the federal

court must look to the rulings of the highest state court, and, if no such rulings

exist, must endeavor to predict how that high court would rule.” Stickley v. State

Farm Mut. Auto. Ins. Co., 505 F.3d 1070, 1077 (10th Cir. 2007) (quoting Johnson

v. Riddle, 305 F.3d 1107, 1118 (10th Cir. 2002)). “The decision of an

9
intermediate appellate state court is a datum for ascertaining state law which is

not to be disregarded by a federal court unless it is convinced by other persuasive

data that the highest court of the state would decide otherwise.” Kokins, 621 F.3d

at 1297 (quoting Stickley, 505 F.3d at 1077); accord Etherton v. Owners Ins. Co.,

829 F.3d 1209, 1223 (10th Cir. 2016); cf. A.M. v. Holmes, 830 F.3d 1123,

1140–41 (10th Cir. 2016) (“When a state Supreme Court has not spoken on the

question at issue, we assume (without deciding) that a reasonable officer would

seek guidance regarding the scope of proper conduct at least in part from any

on-point decisions of the state’s intermediate court of appeals.”). However, under

the principles of stare decisis, “[w]hen a panel of this Court has rendered a

decision interpreting state law, that interpretation is binding on district courts in

this circuit, and on subsequent panels of this Court, unless an intervening decision

of the state’s highest court has resolved the issue.” Kokins, 621 F.3d at 1295

(quoting Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003)).

At the outset, we must clarify the scope of the legal claim at issue in this

appeal. As discussed above, what remains of the Blakelys’ original cause of

action is their claim that USAA breached the Implied Covenant prior to January

2005 by failing, inter alia, to reasonably investigate the loss caused by the 2002

fire in their home. See Berube v. Fashion Ctr. Ltd., 771 P.2d 1033, 1046 (Utah

1989) (“Utah has recognized that all contracts contain a covenant of good faith

and fair dealing.”). Utah courts have stated that “an insurer’s ‘implied obligation

10
of good faith performance contemplates, at the very least, that the insurer will

diligently investigate the facts to enable it to determine whether a claim is valid,

will fairly evaluate the claim, and will thereafter act promptly and reasonably in

rejecting or settling the claim.’” 6 Jones, 286 P.3d at 304 (quoting Beck v.

Farmers Ins. Exch., 701 P.2d 795, 801 (Utah 1985)). As we noted in the

Blakelys’ first appeal to this court, in Utah, “the covenant of good faith and fair

dealing . . . . is [not] confined to the obligations imposed by the contract itself.”

Blakely, 633 F.3d at 947 (citations omitted).

Under Utah law, “[d]amages recoverable for breach of contract include

both general damages, i.e., those flowing naturally from the breach, and

consequential damages, i.e., those reasonably within the contemplation of, or

6
USAA underscores the distinction between the implied obligation to
perform an insurance contract in good faith in the “first-party” and “third-party”
contexts. In a first-party case, as here, “the insured sue[s] its insurer for bad faith
refusal to settle the insured’s claim.” Campbell v. State Farm Mut. Auto. Ins. Co.,
840 P.2d 130, 137 (Utah Ct. App. 1992). On the other hand, in the third-party
context, “an insurer is obligated to defend the insured against claims by others.”
Id. at 138. More specifically, in the third-party context, because the insurer owes
a “fiduciary duty to its insured to protect the insured’s interests,” Beck, 701 P.2d
at 799, “an insured may state a cause of action in tort for an insurer’s breach of
its obligations,” Campbell, 840 P.2d at 138. However, the implied contractual
obligation to perform a first-party insurance contract in good faith—though
implicating similar considerations as a third-party tort claim—involves a
contractual obligation. See Beck, 701 P.2d at 800 (“We therefore hold in a first-
party relationship between an insurer and its insured, the duties and obligations of
the parties are contractual rather than fiduciary.”); see also Black v. Allstate Ins.
Co., 100 P.3d 1163, 1169 (Utah 2004) (noting that, with respect to a first-party
situation, “[w]ithout more, a breach of those implied or express duties can give
rise only to a cause of action in contract, not one in tort” (alteration in original)
(quoting Beck, 100 P.3d at 800)).

11
reasonably foreseeable by, the parties at the time the contract was made.” Beck,

701 P.2d at 801. As noted, the Blakelys admit that, with the payment of the

remaining appraisal award on December 5, 2005, USAA owes them no further

amounts under the policy’s express terms. See Blakely, 633 F.3d at 947 (noting

the Blakelys’ admission that “no further amounts are either claimed or owing

under the policy”). Therefore, we must determine only whether the Blakelys

established that they have recoverable consequential damages—i.e., damages not

flowing naturally from the breach—under their claim for breach of the Implied

Covenant.

Utah law recognizes “a broad range of recoverable [consequential]

damages” in an action for breach of the Implied Covenant. Beck, 701 P.2d at 802

(noting that a “broad range” of damages “in excess of the policy limits” may be

“foreseeabl[e]” and “provable” in the Implied-Covenant context, because “an

insured frequently faces catastrophic consequences if funds are not available

within a reasonable period of time to cover an insured loss”); accord Machan v.

UNUM Life Ins. Co. of Am., 116 P.3d 342, 345–46 (Utah 2005) (discussing Beck’s

holding). Although Utah law categorizes actions for breach of the Implied

Covenant as contractual disputes, Utah courts have stated that “the measure of

damages . . . should ‘not ignor[e] the principal reason for [other courts’] adoption

12
of the [otherwise theoretically unsound] tort approach.’” 7 Billings v. Union

Bankers Ins. Co, 918 P.2d 461, 466 (Utah 1996) (alterations in original) (quoting

Beck, 701 P.2d at 801). Specifically, the operative rationale is “to remove any

incentive for insurers to breach the duty of good faith by expanding their

exposure to damages caused by such a breach beyond the predictable fixed dollar

amount of coverage provided by the policy.” Id.

However, Utah’s adoption of a doctrine expanding insurers’ exposure

“beyond the bare contract terms” in the Implied-Covenant context remains subject

to important limitations. Beck, 701 P.2d at 801. More precisely, an insured is

entitled only to “those [consequential damages] reasonably within the

contemplation of, or reasonably foreseeable by, the parties at the time the contract

was made.” Machan, 116 P.3d at 346 (quoting Beck, 701 P.2d at 801). And,

Beck teaches that “[t]he foreseeability of [consequential] damages will always

hinge upon the nature and language of the [insurance] contract and the reasonable

7
To be clear, Utah courts have observed that there are two approaches
to measuring damages that various states apply to claims for breach of the
Implied Covenant: viz., the contract approach and the tort approach. See Beck,
701 P.2d at 801. Although Utah courts have “rejected the tort approach” in first-
party insurance claims, Billings, 918 P.2d at 466, and even noted that “the ability
of a plaintiff to recover in tort for breach of the implied covenant of good faith
and fair dealing in a contract ‘has the potential for distorting well-established
principles of contract law,’” Berube, 771 P.2d at 1046 (quoting Beck, 701 P.2d at
799), “a first-party insurer who breaches the implied covenant by unreasonably
denying the insured the benefits bargained for may be held liable for broad
consequential damages foreseeably caused by the breach, damages which might
include those for mental anguish and which would be closely analogous to those
available in states taking a tort approach,” Billings, 918 P.2d at 466.

13
expectations of the parties.” Beck, 701 P.2d at 802; see J. Calamari & J. Perillo,

C ONTRACTS , § 14-5 at 548 (4th ed. 1998) (noting that “there must be an express

or implied manifestation of intent to assume the risk of foreseeable consequential

damages”).

B

With these principles in mind, we turn to the theories of consequential

damages that the Blakelys have advanced in their claim for breach of the Implied

Covenant against USAA. In brief, the Blakelys contend that they are entitled to

damages for emotional distress and aggravation of medical conditions, the

appraisal and diminution in value of their home, and attorney’s fees. Having

surveyed Utah law, we conclude that, under the circumstances of this case, the

Blakelys have failed to advance a viable theory of recoverable damages.

1

Turning first to the Blakelys’ theory that they were entitled to

consequential damages related to emotional distress and aggravation of medical

conditions, they argue that the district court erred in ruling that “such damages

are only available in ‘rare’ and ‘unusual’ cases.” Aplts.’ Opening Br. at 26

(quoting the record). In their view, Utah law only requires an insured to

“convince a jury that his damages are ‘unusual’ in that they are more than the

typical disappointment, frustration, and anxiety ‘normally’ associated with an

insurance claim.” Id. at 28 (emphasis added). In this regard, the Blakelys assert

14
that they need not “show both bad faith and that it was unusual,” to survive a

motion for summary judgment with respect to emotional distress damages. Id.

a

The Blakelys have asserted, as part of their theory of emotional-distress

damages, that “stress related to USAA’s misconduct” exacerbated Ms. Blakely’s

preexisting medical condition and her high blood pressure. Id. at 33. However,

having concluded that the Blakelys’ amended complaint “makes no mention of

physical injuries and otherwise fails to provide notice that [the Blakelys] seek

damages for physical injuries,” the district court declined to consider physical

injuries as a basis for an award of damages. Aplts.’ App., Vol. VIII, at 1683 n.36.

USAA argues that the Blakelys failed to allege a separate theory of

physical injuries, apart from their prayer for emotional-distress damages. In

addressing this argument, the Blakelys point to several filings that refer to Ms.

Blakely’s medical condition: viz, an expert report attached to USAA’s

memorandum in support of summary judgment, which notes that stressful

situations tended to aggravate Ms. Blakely’s fibromyalgia; statements by the

Blakelys’ counsel during a pretrial conference that Ms. Blakely’s fibromyalgia

had been aggravated; and an assertion at the first summary-judgment hearing that

Ms. Blakely’s medical conditions had been aggravated.

Despite these references to Ms. Blakely’s medical conditions in the

summary-judgment proceedings, we cannot glean from the pleadings any

15
assertion of damages for physical injuries separate from the claimed emotional-

distress damages. That is, the Blakelys reference medical conditions only in

advancing a theory of emotional-distress damages, not in support of independent

damages related to the aggravation of a medical condition. For this reason, we

consider this separate theory of physical-injury damages to be forfeited in the

district court and—given that the Blakelys do not call for application of plain-

error review on appeal—to be also effectively waived. See, e.g., Richison v.

Ernest Grp., Inc., 634 F.3d 1123, 1131 (10th Cir. 2011) (“[T]he failure to argue

for plain error and its application on appeal—surely marks the end of the road for

an argument for reversal not first presented to the district court.”).

b

Although we consider the Blakelys’ physical-injury damages theory

waived, we must still assay the Blakelys’ theory of emotional-distress damages

under Utah’s legal standard for proving consequential damages in claims for

breach of the Implied Covenant. The specific legal standard that Utah applies to

claims for emotional distress under the Implied Covenant is that, “in unusual

cases, damages for mental anguish might be provable” where foreseeable given

“the nature and language of the contract and the reasonable expectations of the

parties.” Beck, 701 P.2d at 802 (emphasis added). However, “damages will not

be available for the mere disappointment, frustration, or anxiety normally

experienced in the process of filing an insurance claim and negotiating a

16
settlement with an insurer.” Id. at 802 n.6. In discussing this standard in an

analogous (but non-insurance) setting, the Utah Supreme Court held that “a non-

breaching party may recover general and/or consequential damages related to

emotional distress or mental anguish arising from a breach of contract when such

damages were both a foreseeable result of the breach and explicitly within the

contemplation of the parties at the time the contract was entered into.”

Carbaness v. Thomas, 232 P.3d 486, 508 (Utah 2010) (emphasis added). The

Carbaness court then reiterated Beck’s statement that “the applicability of

[emotional distress or mental anguish] damages ‘will always hinge upon the

nature and language of the contract and the reasonable expectations of the

parties.’” Id. (quoting Beck, 701 P.2d at 802).

Challenging the district court’s summary-judgment decision, the Blakelys

draw our attention to an interpretive dispute—namely, whether Beck’s limitation

of “damages for mental anguish” to “unusual cases” envisions “unusual” conduct

by the insurer (the view advanced by USAA and adopted by the district court), or

“unusual” damages by the insured (the Blakelys’ competing perspective). Beck,

701 P.2d at 802 (emphasis added); see also Aplts.’ Opening Br. at 27–30. We

need not—and thus do not—definitively opine on this interpretive dispute. That

is because, even assuming arguendo that Beck speaks to unusual damages—the

view the Blakelys have propounded—the express limitations on a consequential-

17
damages award for emotional distress squarely defeat the Blakelys’ entitlement to

such damages here.

Critically, Beck stated that, in “unusual cases,” “damages for mental

anguish might be provable” if “foreseeabl[e]” given “the nature and language of

the [insurance] contract and the reasonable expectations of the parties.” Beck,

701 P.2d at 802 (emphasis added). Beck, however, expressly defined those

damages to exclude “the mere disappointment, frustration, or anxiety normally

experienced in the process of filing an insurance claim and negotiating a

settlement with an insurer.” Id. at 802 n.6. In other words, Beck stressed the

noncompensable nature of damages derived from the stress, strain, and

aggravation inherent in any loss of property and subsequent insurance adjustment.

Analogously, the Utah Supreme Court teaches us that some delay necessarily

attends claim administration, stating that “parties to an insurance contract should

expect that an insurance company may require a reasonable amount of time to

process or investigate a claim before determining whether to pay or deny it.”

Machan, 116 P.3d at 347 (emphasis added). Accordingly, “[w]here an insurance

company’s breach consists only of ultimately resolving a claim incorrectly and

failing to pay the insured, we may presume that any damages sustained by the

insured during the initial reasonable investigation period were not caused by the

breach, as these damages would have been sustained even if the insurance

company had resolved the claim correctly in the insured’s favor.” Id.

18
 Invoking Beck, the Blakelys argue that the fire caused by Stone Touch

“disrupted” their “living circumstances,” because the fire “destroyed or damaged”

“[m]uch of their personal belongings and interior contents” and displaced them

from “their home for many weeks.” Aplts.’ Opening Br. at 32. Pressing forward,

the Blakelys then claim that “the actions of USAA enhanced the already existing

anxiety from the fire,” because USAA (1) “wanted to replace their upscale,

custom furnishings with mediocre replacements”; (2) “lowballed [them during

claims administration] by nearly $300,000”; and (3) investigated and underwrote

their claim in a way that forced them “to live in their home before construction

was completed” and to endure “the smell of smoke” “for more than three years.”

Id. From this, the Blakelys reason, their emotional distress exceeded “the

disappointment or frustration ‘normally’ experienced during the insurance claim

process.” Id. at 31–32.

Not so. The Blakelys’ claim of “unusual” damages relies on the

prototypical “disappointment, frustration, or anxiety normally experienced in the

process of filing an insurance claim and negotiating a settlement with an

insurer”—a patently insufficient basis under Beck for an award of emotional-

distress damages. Beck, 701 P.2d at 802 n.6 (emphases added). Indeed, the first

two alleged breaches—USAA’s effort to replace the Blakelys’ “custom

furnishings with mediocre replacements” and the initial “lowball[]” adjustment,

Aplts.’ Opening Br. at 32—express only the Blakelys’ disappointment and

19
frustration with USAA’s evaluative process. Beck forecloses precisely this sort of

consequential-damages award.

The Blakelys’ third source of distress—that they had to live in their home

before construction was completed and had to endure the smell of smoke for more

than three years—fares no better in advancing their cause. Although the Blakelys

take exception to living in an unrepaired house smelling strongly of smoke, they

offer no explanation for their three-year delay in invoking the appraisal procedure

authorized by the parties’ policy. As discussed above, Utah law makes clear that

damages under the Implied Covenant must at least be foreseeable within “the

nature and language of the contract and the reasonable expectations of the

parties.” Beck, 701 P.2d at 802. Because the policy here expressly authorized the

Blakelys to demand an appraisal—viz., to invoke a contractual mechanism clearly

designed to bring loss-payment disputes to a reasonably prompt conclusion—we

see nothing foreseeable about their purported, delay-related distress, which

allegedly stemmed from the Blakelys’ need to occupy an unrepaired home that

was permeated with the smell of smoke for three years.

Furthermore, although the cases the Blakelys cite—e.g., Kewin v. Mass.

Mut. Life Ins. Co., 295 N.W.2d 50, 53 (Mich. 1980); Stewart v. Rudner, 84

N.W.2d 816, 824 (Mich. 1957); and Lamm v. Shingleton, 55 S.E.2d 810, 813

(N.C. 1949)—support an award of damages for emotional distress when the

failure to perform contractual obligations “concerns matters of mental concern

20
and solicitude,” Aplts.’ Opening Br. at 31, the Blakelys provide no direct legal

support for an award of emotional-distress damages in the context of an insurance

policy that provides, as here, a basis to enforce contractual obligations against the

insurer (i.e., the appraisal provision). Again, the Blakelys do not explain their

delayed invocation of the appraisal clause—and when they did finally invoke it,

USAA fully compensated them for the damage to their home in accordance with

that procedure.

In sum, we see no error in the district court’s conclusion that the Blakelys

failed to demonstrate emotional-distress damages. Even assuming arguendo that

Beck’s focus is on “unusual” damages (as opposed to “unusual” insurer conduct),

the Blakelys have not presented the sort of “unusual case[]” that Beck

contemplates. See Beck, 701 P.2d at 802. 8

2

8
The Blakelys also argue that they are entitled to damages for
economic loss and lost income because they “had to spend their personal time
[performing remedial work], resulting in lost income.” Aplts.’ Opening Br. at 45.
They assert that the district court conflated benefits and damages when it noted
that “[t]he policy does not provide personal injury protection or other first-party
losses for lost wages or income that are typically a part of other types of
insurance policies (e.g., auto insurance).” Aplts.’ App., Vol. VIII, at 1687.
Although the Blakelys are correct that consequential damages may exceed
contract benefits, see Billings, 918 P.2d at 467, they must still allege and develop
facts showing that USAA’s alleged breach of the Implied Covenant caused the
consequential loss and that the loss was foreseeable within the nature of the
contract, see Beck, 701 P.2d at 802. The Blakelys have not made this showing.

21
 The Blakelys next argue that “had USAA fulfilled its obligations to fairly

and timely investigate, evaluate, and pay, [they] would not have been forced to

invoke the insurance policy’s appraisal policy, which cost them significant

amounts of money.” Aplts.’ Opening Br. at 39. At the outset, it is clear that Utah

law forbids contracts from abrogating relief appropriately available under the

Implied Covenant. See Christiansen v. Farmers Ins. Exch., 116 P.3d 259, 261–62

(Utah 2005) (“A claim for breach of the implied covenant of good faith and fair

dealing . . . is based on judicially recognized duties not found within the four

corners of the contract. These duties, unlike the duties expressly stated in the

contract, are not subject to alteration by the parties.” (citation omitted)).

However, relief under the Implied Covenant must be “‘consistent with the agreed

common purpose’ of the contract.” Id. at 262 (quoting St. Benedict’s Dev. Co. v.

St. Benedict’s Hosp., 811 P.2d 194, 200 (Utah 1991)).

As the district court explained, the Blakelys “have not argued that [USAA]

did not pay the cost of its own appraiser or split the other expenses of the

appraisal and the compensation of the umpire.” Aplts.’ App., Vol. VIII, at 1689.

The appraisal clause provided that “[e]ach appraiser will be paid by the party

selecting that appraiser,” id. Vol. VI, at 1226, and that “[o]ther expenses of the

appraisal and the compensation of the umpire will be equally paid by you and us,”

id. Because the Blakelys argue only that they should be compensated for the

costs of the appraisal, in order to grant the Blakelys’ requested relief, the district

22
court would have had to override the express terms of the policy (which, as noted,

allocated appraisal-related expenses between the parties). Put another way, the

Blakelys are, in effect, seeking compensatory damages for the cost of the

appraisal, not consequential damages for a breach of the Implied Covenant.

Granting such damages on appeal would require us to override an express

provision of the policy. For this reason, the Blakelys’ prayer for consequential

damages with respect to the appraisal clause must fail.

3

The Blakelys next argue that they are entitled to be compensated for

attorney’s fees incurred as a result of (1) their suit against Stone Touch (the

contractor that caused the fire), (2) their invocation of the appraisal clause, and

(3) the litigation expenses related to the instant case. The district court disagreed,

ruling that it was not “foreseeable that Plaintiffs [would] go outside th[e]

methodology [of the policy and appraisal clause] and instead sue Stone Touch,”

id. Vol. VIII, at 1688, and that the appraisal clause already allocated costs

associated with its invocation under the express terms of the policy, see id. at

1689. The district court further explained that “the fees and costs in the instant

case are not stand-alone damages sufficient to support a breach of the implied

covenant claim.” Id.

It is beyond peradventure that “[u]nder Utah law, plaintiffs may recover

attorney fees if they are successful in pursuing a first-party bad faith suit against

23
their insurer.” Campbell v. State Farm Mut. Auto. Ass’n, 65 P.3d 1134, 1168

(Utah 2001), vacated on other grounds by 538 U.S. 408 (2003); accord Gibbs M.

Smith, Inc. v. U.S. Fidelity & Guar. Co., 949 P.2d 337, 344 (Utah 1997) (“[I]n

first-party actions, attorney fees are recoverable where there has been a breach of

the implied covenant of good faith and fair dealing which inheres in every

insurance contract.”); see also Billings, 918 P.2d at 468 (“Attorney fees may be

recoverable as consequential damages flowing from an insurer’s breach of either

the express or implied terms of an insurance contract.”). “However, as

consequential damages, attorney fees are recoverable only if they were

‘reasonably within the contemplation of, or reasonably foreseeable by, the parties

at the time the contract was made.’” Billings, 918 P.2d at 486 (quoting Beck, 701

P.2d at 801). And, “[t]he foreseeability of any such damages will always hinge

upon the nature and language of the contract and the reasonable expectations of

the parties.” Beck, 701 P.2d at 802. In this case, we cannot conclude that

additional attorney’s fees would have been foreseeable to the parties, because the

Blakelys only invoked the appraisal clause after filing suit against Stone Touch

and the policy’s express terms clearly spelled out the allocation of the resulting

appraisal costs.

As for the attorney’s fees related to the instant case, the Blakelys are

correct that they would be entitled to a fee award if they were adjudicated the

24
prevailing party. See Highland Constr. Co. v. Stevenson, 636 P.2d 1034, 1038

(Utah 1981) (“In any action brought upon either of the bonds provided herein

. . . the prevailing party, upon each separate cause of action, shall recover a

reasonable attorney’s fee to be taxed as costs.” (alteration in original) (quoting

Utah Code Ann. § 14–1–8 (1953))). However, as the district court noted, this rule

does not provide an independent cause of action for attorney’s fees, but rather

allows a fee award “upon each separate cause of action.” Id. (quoting Utah Code.

Ann. § 14–1–8). Therefore, to be entitled to a fee award in the instant case, the

Blakelys must prevail in advancing a theory of damages under the Implied

Covenant independent of attorney’s fees.

Because the Blakelys have not done so, an attorney’s fees award for costs

incurred in litigating the instant case would not be proper. We are equally

unpersuaded that attorney’s fees incurred in litigating the Stone Touch case and in

invoking the appraisal clause are warranted, because those costs and fees were

avoidable or accounted for under the express terms of the policy, and the Blakelys

have not offered an explanation to the contrary.

The Blakelys nonetheless argue that they would be entitled to a fee award if

they prevailed in a claim for nominal damages. See Aplts.’ Opening Br. at 44;

see, e.g., Turtle Mgmt., Inc. v. Haggis Mgmt., Inc., 645 P.2d 667, 670 (Utah 1982)

(“Nominal damages are recoverable upon a breach of contract if no actual or

substantial damages resulted from the breach or if the amount of damages has not

25
been proven.”); accord Holmes Dev., LLC v. Cook, 48 P.3d 895, 906 (Utah 2002)

(finding that the plaintiff’s recovery would be “limited to nominal damages”

because the defendant “cured the breach” before the plaintiff “incurred actual

damages”). However, the Blakelys stumble at the outset because they have not

advanced a theory of nominal damages independent of their other damages

theories. More specifically, even assuming arguendo that a prevailing party in a

suit for nominal damages under the Implied Covenant would be entitled to

attorney’s fees—a proposition the Blakelys do not support with any legal

authority—the party would still be obliged to advance a theory of nominal

damages. And, as noted, the Blakelys have not done so. Thus, we conclude that

the Blakelys have made no showing qualifying them for any attorney’s fees.

4

Finally, we address the Blakelys’ entitlement to consequential damages for

the alleged diminution in their property’s value. During the final pretrial hearing

on April 23, 2013, the Blakelys’ counsel and the district court engaged in the

following colloquy concerning the diminution-in-value claim:

Court: Now, does that come in – well, now, you talk about
devaluation of the home. I thought the home was
paid for by the express contract[.]

Counsel: The reason why [the Blakelys] are asserting a claim
for the devaluation in their home is based upon the
following. Had USAA paid the appropriate amount,
done their investigation, properly evaluated and
timely paid, they would not have incurred the

26
 attorney’s fees and litigation expenses, both
associated with the Stone Touch as well as the
appraisal. And because of the attorney’s fees and
expenses in that regard, they did not have sufficient
money to replace the floor joists and the other items
that needed to be done.

Court: That was part of the adjustment amount.

Counsel: Pardon me?

Court: They were paid for that. The adjustment amount
paid for the house.

Counsel: Correct. But the consequential damages under the
bad faith claim is that because they incurred the
attorney’s fees and expenses, that was not available
to them to –

Court: They were paid for that. The fact that they didn’t
do it is telling in two ways. It’s one thing to talk
about attorney’s fees and quite another thing to talk
about a house that you say is diminished because
they didn’t do what they were paid to do. That’s
just gone. I won’t deal with the devaluation of the
home.

Aplts.’ App., Vol. VIII, at 1575–76 (capitalization omitted) (Tr. of Final Pretrial

Hr’g, dated Apr. 23, 2013). Thus, the Blakelys contended that USAA’s allegedly

bad-faith adjustment required them to incur “attorney’s fees and [litigation]

expenses” to obtain full payment on their insurance claim, leaving them without

“sufficient” funds to perform repairs, even after being paid the appraisal amount;

that, in turn, resulted in a devaluation in their home’s fair market value. Id. at

1576; see also Aplts.’ Reply Br. at 26 (“The Blakelys have alleged that, because

27
of USAA’s delays and other bad faith, they had to use the appraisal payment to

pay down debt they had incurred because of that bad faith, such as the appraisal

and litigation expenses discussed above. They were left with insufficient funds to

make needed repairs, as a result of which (in addition to the length of time itself

to that point) the value of the house diminished.”). The district court effectively

dismissed this claim during the final pretrial hearing. 9 As noted, the court said

that the Blakelys “were paid for that. . . . [T]hey didn’t do what they were paid to

do. . . . I won’t deal with the devaluation of the home.” Aplts.’ App., Vol. VIII,

at 1576 (capitalization omitted).

On appeal, the Blakelys challenge the district court’s reasoning, arguing

that the district court erroneously “assumed that the appraisers’ determination of

policy benefits barred the Blakelys’ claims for consequential damages arising

from the untimely payment of those benefits.” Aplts.’ Opening Br. at 48. Citing

Miller v. USAA Casualty Insurance Co., 44 P.3d 663 (Utah 2002), the Blakelys

contend instead that Utah law “quite clear[ly]” permits this very claim for

consequential damages, e.g., a devaluation claim arising from the untimely

payment of insurance benefits. Aplts.’ Opening Br. at 48. For the reasons that

follow, we conclude that the Blakelys’ diminution-in-value claim is untenable.

9
We view the district court’s pretrial exclusion of the Blakelys’
diminution-in-value claim as an effective dismissal. See Blakely, 633 F.3d at 949
(construing similar action by the district court as a “dismissal”).

28
 We first introduce Miller, then explain our reasoning. In Miller, the Miller

family filed an insurance claim with USAA after their basement water heater

burst, and USAA retained an independent adjuster to assess the damage. 44 P.3d

at 667. Dissatisfied with the assessment, the Millers filed suit against USAA

asserting a contractual claim for the recovery of physical damage to their home,

and extra-contractual claims for, among other things, emotional distress and loss

of use. USAA moved to dismiss, arguing that the parties’ appraisal clause—in all

material respects, the same one implicated here—required that the parties’ dispute

“be resolved via the appraisal process.” Id. at 668 (quoting the record).

Reasoning that the “parties [were] bound by contract to settle the dispute in th[e]

case by appraisal,” the trial court “dismissed all of the Millers’ claims, including

the extra-contractual claims, because USAA invoked the appraisal clause of the

insurance contract.” Id. at 675 (first alteration in original). After the appraisal

panel declined “to embark on the laborious task of analyzing the extra-contractual

claims”—but did reach an award on their contractual claims, id. at 669—the

Millers proceeded to raise their extra-contractual claims in a separate civil action.

The trial court in that separate civil action, however, “dismiss[ed] the extra-

contractual claims,” reasoning that the earlier dismissal “constituted a final

judgment on the merits and, thus, those claims were precluded by res judicata and

the appraisal agreement.” Id. at 668–69.

29
 On appeal, the Utah Supreme Court considered the Millers’ argument that

the trial courts’ treatment of their extra-contractual claims deprived them of due

process. As part of that inquiry, the Miller court noted that the appraisal clause

required only that the appraisers “set the ‘amount of loss,’” meaning that “the

clause necessarily applie[d] only to property damage claims.” Id. at 676. The

court then explained that the “amount of loss as used in the appraisal clause refers

to the value of the injury or damage for which the Millers may seek indemnity,”

and contrasted contractual claims over that “amount of loss” with extra-

contractual claims that do not “pertain to the amount of loss under the insurance

contract,” id.

In contesting the district court’s order, the Blakelys seize on Miller to rebut

any suggestion that their “amount of loss” payment under the appraisal clause

precluded them, as a matter of law, from recovering consequential damages under

a diminution-in-value theory. We do not question that if the district court had

predicated its dismissal on this legal ground, its ruling would, at the very least,

have been in tension with Miller. But we do not interpret the district court’s

order that way. In response to the Blakelys’ argument, the district court held:

“They were paid for that. . . . It’s one thing to talk about attorney’s fees and quite

another thing to talk about a house that you say is diminished because they didn’t

do what they were paid to do.” Aplts.’ App., Vol. VIII, at 1576 (emphases added)

(capitalization omitted). In other words, the district court simply reasoned that

30
the Blakelys’ own conduct—i.e., failing to allocate the money from the appraisal

process to restoration and repairs, as intended—caused any dimunition in value,

see id., not that the appraisal award itself precluded, as a matter of law, the

recovery of consequential damages under a diminution-in-value theory.

Accordingly, we perceive no conflict between the district court’s rationale and

Miller. 10

Nor, for that matter, can we conclude that these sorts of self-inflicted

injuries would have been foreseen by the parties or within their reasonable

10
In arguing to the contrary, the Blakelys refer to remarks made during
an earlier pretrial hearing on March 31, 2008. See Aplt.’s Reply Br. at 27. There,
they claim, the district court expressed a view that “the ‘measure’ of the
Blakelys’ damage [was] the amount awarded in the property damage appraisal.”
Id. Our reading of the relevant aspect of the pretrial hearing transcript reveals
some ambiguity in the district court’s remarks regarding the legal effect of the
appraisal award. See Aplts.’ App., Vol. VII, 1360–61 (Tr. of Pretrial Hr’g, dated
Mar. 31, 2008). Nonetheless, even if we interpreted the court’s comments in the
2008 pretrial hearing as the Blakelys do, we would recognize our focus should be
on the rationale the court articulated in dismissing the diminution-of-value claim
more than five years later. That is because district courts are not encouraged or
obliged to adhere to prior interlocutory rulings—much less prior comments—if
they conclude that those rulings (or comments) are erroneous and would result in
reversal. See, e.g., Major v. Benton, 647 F.2d 110, 112 (10th Cir. 1981) (“When a
lower court is convinced that an interlocutory ruling it has made is substantially
erroneous, the only sensible thing to do is to set itself right to avoid subsequent
reversal.”); see also Unioil v. Elledge (In re Unioil, Inc.), 962 F.2d 988, 993 (10th
Cir. 1992) (“Only final judgments may qualify as law of the case; where a ruling
remains subject to reconsideration, the doctrine is inapplicable.”); United States v.
Bettenhausen, 499 F.2d 1223, 1230 (10th Cir. 1974) (“The rule of the law of the
case does not apply unless there is a final judgment that decided the issue. . . .
The ruling in question here could have been reconsidered by the trial court and
was not final.” (citations omitted)). And the district court’s rationale supporting
its dismissal five years after the 2008 pretrial hearing do not evince any conflict
with Miller.

31
expectations, as Beck requires. As articulated in Beck, Utah law limits an award

of consequential damages to “those [harms] reasonably within the contemplation

of, or reasonably foreseeable by, the parties at the time the contract was made.”

Beck, 701 P.2d at 801. The harms at issue here—that effected the alleged

diminution in value of the Blakelys’ property—do not satisfy this standard

because USAA and the Blakelys could not have reasonably contemplated or

foreseen that the Blakelys would be the primary actors in imposing these harms

on themselves, especially when doing so involved the Blakelys’ decision to forgo

contractual remedies. More specifically, it was the Blakelys who elected to

pursue litigation against Stone Touch in lieu of an early contractual appraisal

process, and the Blakelys who allocated, in significant part, the appraisal payout

to litigation rather than restoring their home to its original value, as intended

under the policy. In short, because the Blakelys’ own conduct engendered much

of the claimed delay in restoring their home and the resulting (ostensible)

diminution in value, we discern no basis to conclude that their diminution-in-

value claim would have been “reasonably within the contemplation of, or

reasonably foreseeable by, the parties.” Id. Thus, their diminution-in-value claim

fails under Beck.

Finally, even if the Blakelys could overcome these deficiencies, we detect

an alternative ground for affirmance. See Elwell v. Byers, 699 F.3d 1208, 1213

(10th Cir. 2012) (“We can affirm a lower court’s ruling on any grounds

32
adequately supported by the record, even grounds not relied upon by the district

court.”). Specifically, regardless of the substantive merits of their diminution-in-

value claim, the Blakelys do not directs us—as USAA observes—to any record

evidence of the alleged diminution in value. Rather, they cite an irrelevant

portion of USAA’s briefing before the district court, and then assert, without

actual evidentiary support, that “the burned joists, floor, and other fire/smoke

damage . . . caused a significant devaluation in the home’s fair market value.”

Aplts.’ Opening Br. at 17. That is not enough. On this alternative ground too, we

find the diminution-in-value claim untenable. In sum, the Blakelys cannot prevail

on appeal on their diminution-in-value claim. We uphold the district court’s

judgment regarding this claim.

**************

In sum, we see no viable footing for the recovery of consequential

damages, nor have the Blakelys advanced a cognizable theory for nominal

damages. Accordingly, the Blakelys cannot prevail on their claim for breach of

the Implied Covenant and are not entitled to an award of attorney’s fees and

costs.

33
 III

For the foregoing reasons, we AFFIRM the district court’s grant of

summary judgment in favor of the Defendant-Appellee, USAA.

ENTERED FOR THE COURT

Jerome A. Holmes
Circuit Judge

34
Blakely v. USAA Casualty Insurance Co., No. 15-4059
BACHARACH, J., dissenting.

I respectfully dissent. Unlike the majority, I believe that a reasonable

fact-finder, guided by applicable Utah law, could find that as a result of

the defendant’s bad faith, the Blakelys suffered damages for

 emotional distress,

 lost income,

 appraisal expenses and attorney fees, and

 other attorney fees.

I also believe that the Blakelys could at least reasonably argue that the

recoverable damages included the diminution in the value of their house.

As a result, I would reverse the district court’s rulings.

I. The Blakelys allegedly suffered damages from breach of the
implied covenant of good faith and fair dealing.

Plaintiffs Mr. Alan Blakely and Mrs. Colelyn Blakely had a home

insurance policy with Defendant USAA Casualty Insurance Company. In

August 2002, a home fire caused significant damage to their home, leading

the Blakelys to submit an insurance claim to USAA.

The Blakelys were dissatisfied with USAA’s response, believing that

USAA had not paid enough for the fire damage, had refused to make

necessary repairs, had avoided communication, and had improperly

delegated tasks to non-adjusters. This dissatisfaction led the Blakelys to

take matters into their own hands, making repairs at their own expense,
suing the contractor responsible for the fire (Stone Touch), and invoking

the insurance policy’s option for an appraisal procedure. The appraisal

procedure led to a determination that USAA had substantially underpaid

the Blakelys. Complying with this determination, USAA paid more to the

Blakelys; and the parties agree that USAA has now paid everything

required under the express terms of the policy.

But the Blakelys allege that USAA had acted improperly earlier,

leading to this suit, which comes to us for the third time. See Blakely v.

USAA Cas. Ins. Co., 633 F.3d 944 (10th Cir. 2011); Blakely v. USAA Cas.

Ins. Co., 500 F. App’x 734 (10th Cir. 2012). The only remaining claim is

USAA’s alleged breach of the insurance policy’s implied covenant of good

faith and fair dealing. On this claim, the Blakelys assert five theories of

damages:

1. injuries from emotional distress

2. loss of income

3. expenses and attorney fees from the appraisal procedure

4. other attorney fees and

5. diminution in the value of their house. 1

1
The Blakelys also appear to assert a sixth theory: physical damages
from the exacerbation of their preexisting medical conditions. As the
majority explains, however, the Blakelys never presented this theory in
district court as a stand-alone claim. Maj. Op. at 15-16. Therefore, I
consider such damages as encompassed within the Blakelys’ emotional-
distress damages.

2
 At a pretrial conference, the district court dismissed the Blakelys’

“diminution-in-value theory” as legally frivolous. USAA then moved for

summary judgment, asserting that the Blakelys could not legally recover

damages on their four other theories. The district court agreed and granted

summary judgment to USAA on these four theories. The majority affirms,

but I would reverse.

II. Legal Background

In this diversity case, we apply Utah substantive law. Erie R.R. Co.

v. Tompkins, 304 U.S. 64, 78 (1938). In applying Utah law, we follow the

opinions of Utah’s Supreme Court. Wade v. EMCASCO Ins. Co., 483 F.3d

657, 665-66 (10th Cir. 2007). If the Utah Supreme Court has not issued a

controlling opinion, we predict what the court would do, drawing guidance

from Utah’s other courts, appellate opinions in other states with similar

legal principles, federal district court opinions interpreting Utah law, and

“‘the general weight and trend of authority.’” Id. at 666 (quoting

MidAmerica Constr. Mgmt., Inc. v. MasTec N. Am., Inc., 436 F.3d 1257,

1262 (10th Cir. 2006)).

A. Utah’s Implied Covenant of Good Faith and Fair Dealing

All contracts in Utah contain an implied covenant of good faith and

fair dealing. Prince v. Bear River Mut. Ins. Co., 56 P.3d 524, 533 (Utah

2002). Under this covenant, the parties promise not to intentionally injure

3
one another’s right to the fruits of the contract. Id. To keep this promise,

the parties must act consistently with the contract’s common purpose and

the parties’ justified expectations. Id. In the insurance context, this means

that the insurer must reasonably investigate, evaluate, and resolve an

insured’s claim. Jones v. Farmers Ins. Exch., 286 P.3d 301, 304 (Utah

2012).

B. Consequential Damages for Breaching the Implied Covenant

A party who breaches the implied covenant of good faith and fair

dealing can incur liability for consequential damages. Machan v. UNUM

Life Ins. Co. of Am., 116 P.3d 342, 345 (Utah 2005). These damages are

not confined to the parties’ express contractual obligations. Id.

To recover such damages, the non-breaching party must prove that

the particular damages were foreseeable when the parties contracted.

Mahmood v. Ross, 990 P.2d 933, 938 (Utah 1999). Foreseeability hinges on

the nature and language of the contract and on the parties’ reasonable

expectations. Machan, 116 P.3d at 346.

Because damages lie “‘within the jury’s province,’” the existence and

amount of damages constitute questions of fact. Lopez v. United Auto. Ins.

Co., 274 P.3d 897, 905 (Utah 2012) (quoting Judd v. Drezga, 103 P.3d 135,

144 (Utah 2004)). In any given case, however, the court must “conform the

jury’s findings to applicable law.” Judd, 103 P.3d at 144. Put otherwise,

the jury makes factual findings against the backdrop of Utah law.

4
 This backdrop includes guidance from the Utah Supreme Court on the

availability of damages for emotional distress. In an “‘ordinary commercial

contract,’” emotional-distress damages are foreseeable only if the damages

were both “a foreseeable result of the breach of contract and explicitly

within the contemplation of the parties.” Cabaness v. Thomas, 232 P.3d

486, 508 (Utah 2010) (emphasis in original) (quoting Stewart v. Rudner, 84

N.W.2d 816, 823 (Mich. 1957)).

In the insurance context, however, explicit contemplation is not

required. Insurance is purchased not only for compensation of a loss, but

also to “‘provide peace of mind for the insured.’” Id. at 507 (quoting Beck

v. Farmers Ins. Exch., 701 P.2d 795, 802 (Utah 1985)). Such peace of mind

is a fruit of the contract that “the insured has bargained for.” Machan, 116

P.3d at 345. Put otherwise, an insured’s mental wellbeing is always on the

minds of the contracting parties.

But not every type of an insured’s mental distress is foreseeable. The

Utah Supreme Court has held that emotional-distress damages are

foreseeable only in “unusual cases.” Beck, 701 P.2d at 802. The court did

not expressly define an “unusual” case, but indicated that an insurer could

not foresee the need to compensate for the “disappointment, frustration, or

anxiety” that an insured “normally” experiences in trying to obtain

insurance proceeds from the insurer. Id. at 802 n.6; see Cabaness, 232 P.3d

at 507-08. It appears, then, that emotional-distress damages are “unusual”

5
if these damages extend beyond the “normal[]” reactions of

disappointment, frustration, or anxiety. See Beck, 701 P.2d at 802 n.6; see

also Machan, 116 P.3d at 346 (suggesting that an insured could be

compensated for the exacerbation of medical conditions caused by

emotional stress (citing Acquista v. N.Y. Life Ins. Co., 730 N.Y.S.2d 272,

276 (N.Y. App. Div. 2001))); Billings v. Union Bankers Ins. Co., 918 P.2d

461, 467-68 (Utah 1996) (affirming an award of emotional-distress

damages when the insured’s lack of a complete recovery resulted in great

mental distress).

To summarize, for an insured to recover emotional-distress damages,

the damages must be unusual and foreseeable.

III. Summary Judgment Rulings: Emotional Distress, Lost Income,
Expenses and Attorney Fees for the Appraisal Procedure, and
Other Attorney Fees

We apply these legal principles in reviewing the summary-judgment

rulings. These rulings rejected the availability of damages for emotional

distress, lost income, use of the appraisal procedure, and attorney fees

unrelated to the approval procedure. I would reverse these rulings.

A. Standard of Review

We engage in de novo review, viewing the evidence and drawing all

reasonable inferences in favor of the Blakelys. Birch v. Polaris Indus.,

Inc., 812 F.3d 1238, 1251 (10th Cir. 2015). Summary judgment was proper

only if

6
  there was no genuine dispute regarding a material fact and

 USAA was entitled to judgment as a matter of law.

Id.

B. The district court improperly concluded that the Blakelys
are not entitled to consequential damages for emotional
distress.

The district court concluded that the Blakelys had failed to prove that

their emotional distress was unusual or foreseeable. This conclusion was

erroneous for two reasons:

1. The Blakelys presented evidence of damages for
emotional distress surpassing the mere “disappointment,
frustration, or anxiety” that commonly arises when
seeking insurance proceeds.

2. When entering the insurance agreement, the parties could
foresee emotional-distress damages arising from USAA’s
bad faith, as this agreement was meant to provide security
and peace of mind by insuring the Blakelys’ most
intimate space—their home.

First, Mr. and Mrs. Blakely’s injuries are “unusual” and would be

compensable under Utah law. For example, the Blakelys presented

evidence of the development and exacerbation of medical conditions

resulting from stress created by USAA’s alleged bad faith. See Machan,

116 P.3d at 346 (suggesting that an insured could be compensated for

stress-induced exacerbation of medical conditions).

For example, Mr. Blakely presented evidence of high blood pressure

caused by his interactions with USAA. See Appellants’ App’x, vol. II at

7
353; Appellants’ App’x, vol. VII at 1318; Appellants’ App’x, vol. VIII at

1614. Mrs. Blakely similarly presented evidence of depression,

fibromyalgia, and headaches from the “continued stress” created by

USAA’s conduct. Appellants’ App’x, vol. I at 176; Appellants’ App’x, vol.

VI at 1138; see also Appellants’ App’x, vol. II at 353 (alleging that the

conflict with USAA “seriously progressed” Mrs. Blakely’s physical

conditions). These injuries are not the result of typical “disappointment,

frustration, or anxiety” from dealing with an insurance company, and the

district court erred in concluding otherwise. 2

The Blakelys also presented evidence involving heightened distress

when they had to leave their home for an extended period and return before

the repairs were complete. This evidence indicated that the Blakelys

needed to return too early, exposing them to the sight of fire damage and

the smell of smoke, which created distress that was beyond ordinary.

Appellant’s App’x, vol. II at 353, 371.

Second, the district court erred by concluding that the contracting

parties could not have foreseen damages for emotional distress. The Utah

2
In the alternative, USAA contends that the Blakelys lack evidence of
exacerbation of their medical conditions. Appellee’s Resp. Br. at 19-22.
The Blakelys maintain otherwise and point out that this contention was not
argued as a ground for summary judgment. Appellants’ Reply Br. at 12.
Assuming that USAA properly raised this contention, I would conclude
that a reasonable fact-finder could infer exacerbation of medical conditions
from USAA’s handling of the claim. See id. at 13-15 (providing citations
to the summary-judgment record).

8
Supreme Court has explained that insurance is purchased to “provide peace

of mind.” Beck v. Farmers Ins. Exch., 701 P.2d 795, 802 (Utah 1985). And

a breach of the implied covenant of good faith for a contract that is

“specifically directed toward matters of mental concern and solicitude” is

likely to result in damages for emotional distress and mental anguish.

Cabaness v. Thomas, 232 P.3d 486, 508 (Utah 2010). 3

Not all damages are foreseeable when an insurer violates an

insurance policy in bad faith. See Beck, 701 P.2d at 802 (noting that in

unusual cases, emotional-distress damages “might be provable”). But this

was not just any insurance policy; this was insurance that covered the

insureds’ home. See Hargrave v. Leigh, 273 P. 298, 301 (Utah 1928)

(noting that the “natural consequence” for being forced to leave one’s

home can include “mental anguish and suffering”). A fact-finder might

reasonably find that USAA could foresee that its conduct would directly

affect the Blakelys’ ability to enjoy the refuge and solace of their home,

3
The district court characterized Cabaness as a clarification or
modification of Beck, creating a requirement for explicit contemplation of
emotional-distress damages at the time of the contract. See Blakely v.
USAA Cas. Ins. Co., No. 06-cv-00506, 2015 WL 1522752, at *9 (D. Utah
Apr. 2, 2015) (stating that Cabaness “clarified, or at least modified” Beck,
and holding that emotional-distress damages were not foreseeable in part
because “there is no evidence that emotional damages . . . were
contemplated explicitly by the parties”). But, Cabaness discussed explicit
contemplation in the context of an “ordinary commercial contract,” as
opposed to insurance contracts, which always contemplate an insured’s
peace of mind. See Part II(B), above.

9
resulting in the sort of emotional distress that the Blakelys allegedly

suffered. See Orkin Exterminating Co. v. Donavan, 519 So. 2d 1330, 1333

(Ala. 1988) (“The breach of a contract . . . which affects the habitability of

a house, can reasonably be foreseen to affect the solicitude and well-being

of the occupants.”); see also John A. Sebert, Jr., Punitive and

Nonpecuniary Damages in Actions Based Upon Contract: Toward

Achieving the Objective of Full Compensation, 33 UCLA L. Rev. 1565,

1589 & n.88 (1986) (explaining that courts permit damages for emotional

distress in connection with contracts involving a person’s home, while

courts have disallowed damages for emotional distress in commercial

contexts).

The Blakelys’ policy specifically addressed their ability to live in

their house. For example, USAA promised to insure any additional living

expenses if the Blakelys’ house was “not fit to live in . . . so that [the

Blakelys could] maintain [their] normal standard of living.” Appellants’

App’x, vol. VI at 1233. And the policy specifically disclaimed coverage

for the Blakelys’ commercial activities conducted on the premises,

providing further evidence that the insurance policy was specifically

directed toward matters of mental concern and solicitude. See id. at 1216,

1228 (excluding insurance coverage for “business” or “rental” property and

activities).

10
 For this reason, a material fact-question existed on whether USAA

could have foreseen the availability of emotional-distress damages. The

Blakelys presented evidence suggesting more than simple disappointment,

frustration or anxiety; and the parties’ focus on the intimate space of a

home could have led USAA to foresee damages for emotional distress.

Thus, the district court erred in granting summary judgment to USAA on

the claim for emotional-distress damages.

C. The district court erred in granting summary judgment to
USAA on the Blakelys’ claims for consequential damages
from (1) lost income, (2) expenses and attorney fees
incurred in the appraisal procedure, and (3) attorney fees
unrelated to the appraisal procedure.

The summary-judgment ruling also addressed three other forms of

consequential damages: (1) lost income, (2) expenses and attorney fees

from using the optional appraisal procedure, and (3) other attorney fees.

For the first two—lost income and appraisal damages—the district court

held that the damages were unavailable because they were unforeseeable. I

respectfully disagree.

For the third form of damages—attorney fees unrelated to the

appraisal—the district court divided the damages into two subcategories:

1. attorney fees from the Stone Touch litigation and

2. attorney fees from the present litigation.

For the first subcategory, the district court held that attorney fees were not

reasonably foreseeable. For the second subcategory, the court concluded

11
that the Blakelys could not recover such fees given the absence of any

other predicate damages. I believe that the district court erred with regard

to both subcategories.

1. The fact-finder might reasonably infer that USAA could
foresee the need to compensate for lost income upon a
breach of the implied covenant of good faith and fair
dealing.

The district court concluded that the Blakelys’ home insurance policy

did not cover lost income. According to the district court, the absence of

express coverage for lost income prevented USAA from foreseeing this

type of loss. But the district court mistook the nature of its inquiry.

“[C]onsequential damages that an insured might foreseeably incur due to

an insurance company’s breach of the implied covenant of good faith may

encompass ‘losses well in excess of the policy limits, such as for a home

. . . .’” Machan v. UNUM Life Ins. Co. of Am., 116 P.3d 342, 345-46 (Utah

2005) (quoting Beck v. Farmers Ins. Exch., 701 P.2d 795, 802 (Utah

1985)). The Blakelys allegedly suffered lost income because they had spent

personal time repairing their home.

The fact-finder might reasonably find that USAA could foresee the

need to compensate for lost income upon a breach of the implied covenant

of good faith and fair dealing. And foreseeability is a question of fact,

which generally cannot be decided on summary judgment. See Rees v.

Albertson’s, Inc., 587 P.2d 130, 133 (Utah 1978) (stating that causation

12
requires reasonable foreseeability, which involves a factual question

“generally for the fact-trier, court or jury, to determine”). Thus, USAA was

not entitled to summary judgment on the claim for lost income.

2. Appraisal-related expenses and attorney fees could be
recoverable upon a breach of the implied covenant of good
faith and fair dealing.

The district court also rejected the Blakelys’ claims involving

expenses and attorney fees from using the appraisal procedure, reasoning

that the insurance policy defined who would pay. But the Blakelys

presented evidence showing that they had resorted to the appraisal

procedure only because USAA had breached the implied covenant of good

faith and fair dealing.

This evidence suggests that the Blakelys would not have needed to

use the appraisal procedure if USAA had acted in good faith. The appraisal

procedure was only an option, not a requirement, in the event of a dispute.

See Appellants’ App’x, vol. VI at 1226 (“[E]ither party can demand . . .

appraisal . . . .” (emphasis added)); id. at 1235 (noting that USAA will pay

for losses if the parties either reach an agreement, go through appraisal, or

receive “entry of a final judgment”). A fact-finder could reasonably find

that the policy had been designed to allocate expenses for reasonable

disputes, not disputes created by USAA’s breach of the implied covenant

of good faith and fair dealing. See Beck v. Farmers Ins. Exch., 701 P.2d

795, 801 (Utah 1985) (“When an insurer has breached [the implied] duty

13
[of good faith], it is liable for damages suffered in consequence of that

breach.”).

Nonetheless, USAA argues that the Blakelys waited too long to

invoke the appraisal procedure. Appellee’s Resp. Br. at 22. The majority

similarly states that the Blakelys “offer no explanation for their three-year

delay in invoking the appraisal procedure” and characterizes the appraisal

damages as “delay-related distress.” Maj. Op. at 20.

But the appraisal procedure was optional, and the fact-finder could

reasonably find that the Blakelys had a good reason for delaying appraisal.

As we said in a prior appeal, the Blakelys waited because “they had been

trying to pursue their claims against [Stone Touch].” Blakely v. USAA Cas.

Ins. Co., 500 F. App’x 734, 737 (10th Cir. 2012). And the Blakelys

presented evidence indicating that they had to sue Stone Touch only

because USAA had allegedly acted in bad faith. In these circumstances, the

fact-finder could justifiably find that the Blakelys had acted reasonably in

the face of USAA’s resistance, pursuing the tortfeasor that caused the fire

and then resorting to the appraisal procedure.

In my view, a genuine, material factual dispute exists on the

recoverability of the Blakelys’ expenses and attorney fees incurred in the

appraisal procedure. 4

4
USAA also asserts that it acted in good faith because it “did not deny
the appraisal request.” Appellee’s Resp. Br. at 23. But USAA’s
14
 3. The parties’ agreement may have contemplated other
attorney fees.

The Blakelys also claimed attorney fees from the Stone Touch

litigation and from the present litigation. The district court rejected these

claims.

For attorney fees from the Stone Touch litigation, the district court

reasoned that attorney fees were not foreseeable given the policy’s

discussion of the appraisal procedure. But as discussed above, the

appraisal procedure was optional. See Part III(C)(2). A fact-finder could

reasonably find that USAA had foreseen that the Blakelys would sue a

responsible third party and incur attorney fees as a result of USAA’s bad

faith. 5

For attorney fees from the present litigation, the district court did not

discuss foreseeability. Instead, the district court determined that such

attorney fees could be awarded only if there was another predicate damage

participation in the appraisal does not prevent a finding of bad faith for
earlier conduct.
5
In the alternative, USAA argues that (1) a subrogation agreement
precludes such fees and (2) USAA already paid such fees. Appellee’s Resp.
Br. at 25-26. The Blakelys maintain otherwise and contend that USAA did
not raise these arguments in the motion for summary judgment. Appellants’
Reply Br. at 21-22. I agree that USAA did not raise these arguments in its
summary-judgment motion; therefore I would not consider these
arguments. See Burnette v. Dresser Indus., Inc. 849 F.2d 1277, 1285 (10th
Cir. 1988) (“We will not address the first theory because [the defendant]
did not raise it in its motion for summary judgment . . . .”).

15
award. Having disposed of all of the Blakelys’ other theories on damages,

the district court denied these attorney fees.

In my view, however, the Blakelys may be able to recover other

damages. Thus, I would reject the district court’s rationale for denying

attorney fees. 6 In addition, I believe that a jury could find that such

attorney fees were foreseeable. Thus, I would reverse the award of

summary judgment on the Blakelys’ claim for attorney fees incurred in this

litigation.

IV. Ruling on Frivolousness: Damages for Diminution in the Value of
the Blakelys’ House

At a pretrial conference, the district court dismissed as legally

frivolous the Blakelys’ claim involving damages from diminution in the

value of their house. Appellants’ App’x, vol. VIII at 1575-76; see also

Blakely v. USAA Cas. Ins. Co., 633 F.3d 944, 949 (10th Cir. 2011) (noting

that a district court may dismiss frivolous claims at a pretrial conference

under Federal Rule of Civil Procedure 16(c)(2)(A)). In my view, the ruling

was erroneous.

In considering this ruling, we apply the abuse-of-discretion standard.

Blakely, 633 F.3d at 949.

6
As a result, I have not addressed the Blakelys’ contention that
attorney fees for this litigation should be available even if the
compensatory award were limited to nominal damages.

16
 We previously found an abuse of discretion when the district court

dismissed the implied-covenant claim. Blakely v. USAA Cas. Ins. Co., 633

F.3d 944, 949-50 (10th Cir. 2011). There we stated the standard:

“[A] complaint . . . is frivolous where it lacks an arguable basis
either in law or in fact.” See Neitze v. Williams, 490 U.S. 319,
325, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989); Denton v.
Hernandez, 504 U.S. 25, 33, 112 S.Ct. 1728, 118 L.Ed.2d 340
(1992) (describing frivolous claims as “fanciful,” “fantastic,”
and “delusional,” and holding “a finding of factual
frivolousness is appropriate when the facts alleged rise to the
level of the irrational or the wholly incredible, whether or not
there are judicially noticeable facts available to contradict
them.”).

Id. Applying this standard, our court concluded that the Blakelys’ claim

was not “wholly incredible” and was not frivolous. Id. at 950. In my view,

these conclusions are equally fitting here.

The district court considered the diminution-in-value claim as

frivolous because USAA had fulfilled its express contractual obligations,

which included paying for home repairs. Appellants’ App’x, vol. VIII at

1575-76. The Blakelys agreed that USAA had paid for such repairs, but

claimed that USAA’s bad faith had required use of the insurance proceeds

for appraisal and litigation expenses. Id. at 1576. The district court

regarded the claim as frivolous because the Blakelys had not repaired their

home even though they had been paid for these repairs. Id.

On appeal, the Blakelys reassert their position with some

embellishment. See Appellant’s Opening Br. at 46-50. In response, USAA

17
reasserts the district court’s reasoning. Appellee’s Resp. Br. at 32-33

(“Despite receiving money to restore the home to its original condition, the

Blakelys did not repair that home.”). 7

We need not opine on whether the Blakelys’ claim is persuasive, for

it is at least arguable. Because of USAA’s alleged bad faith, the Blakelys

had to spend substantial funds for the appraisal and litigation. To spend

those funds, the Blakelys had to dip into coffers that could otherwise have

been used for home repairs. Thus, the Blakelys can reasonably argue that

USAA’s breach of the implied covenant caused the house to diminish in

value notwithstanding USAA’s eventual payments.

Neither USAA nor the district court has directly addressed the

Blakelys’ theory or identified any pertinent case law. Indeed, the issue

appears to be one of first impression for any state. In light of the absence

of pertinent guidance from USAA or any case law, I would regard the

Blakelys’ theory as at least arguable. See Suazo v. NCL (Bahamas), Ltd.,

822 F.3d 543, 556 (11th Cir. 2016) (“Where an appeal requires a court to

decide an issue of first impression in a circuit court, it is not frivolous.”).

7
In the alternative, USAA asserts that the policy did “not provide for
any diminution of value.” Appellee’s Resp. Br. at 32. But damages for
breaching the covenant of good faith and faith dealing are not confined to
the parties’ express contractual obligations. Machan v. UNUM Life Ins. Co.
of Am., 116 P.3d 342, 345-46 (Utah 2005); see Part II(B), above.

18
As a result, I would reverse the dismissal of this claim based on

frivolousness.

V. Conclusion

In my view, we should reverse the district court’s grant of summary

judgment. The district court erroneously concluded that the Blakelys were

foreclosed from claiming consequential damages for emotional distress,

and the district court made factual findings that should have been left for

the jury to decide. The district court also erroneously dismissed the

Blakelys’ claim for damages from their home’s diminution in value.

Because the majority upholds these rulings, I respectfully dissent.

19