APPEAL FROM: District Court of the Twentieth Judicial District, In and For the County of Lake, Cause No. DV 10-280 Honorable Deborah Kim Christopher, Presiding Judge
The opinion of the court was delivered by: Patricia Cotter
Submitted on Briefs: December 12, 2012
Justice Patricia O. Cotter delivered the Opinion of the Court.
¶1 This matter arises from a related case involving the suicide of a 16-year-old girl, Karlye Newman, who was residing at the Spring Creek Lodge Academy in Thompson Falls, Montana, at the time of her death in October 2004. Spring Creek Lodge Academy was one of many "tough love" academic facilities associated with the World Wide Association of Specialty Programs and Schools, Inc. (WWASP). Following Karlye's death, Karlye's mother, Judith Newman, brought an action against the owner of the school Robert Lichfield, its on-site directors Cameron and Chaffin Pullan, Teen Help, and various related entities alleging, among other things, wrongful death, negligence, breach of contract, deceit, and constructive fraud. A court-ordered settlement mediation was conducted in February 2010 at which time Defendant Teen Help agreed to settle with Newman by assigning to her its rights to $3 million in insurance coverage. The settlement was later reduced to a judgment.
¶2 Claims against the majority of the remaining defendants were also settled before trial. A jury subsequently ruled in favor of Defendants Lichfield and Premier Educational Systems, LLC (f/k/a WWASP) and Newman appealed. We affirmed in part, reversed in part and remanded for a new trial. Newman v. Lichfield, 2012 MT 47, 364 Mont. 243, 272 P.3d 625 (Newman I- wrongful death action).
¶3 In August 2010, after settling with Teen Help and while Newman I proceeded to trial, Newman filed this action (Newman II-declaratory judgment/breach of contract action) against Teen Help's insurers, Scottsdale Insurance Company and National Union Fire Insurance Company, to collect on the settlement and judgment. She argued the insurers breached their obligation to defend and indemnify Teen Help in Newman I. After nearly eighteen months of litigation, the Twentieth Judicial District Court entered summary judgment, determining that the insurers wrongfully refused to defend Teen Help and thus breached their contracts with their insured. As a result, the court held that Scottsdale and National Union were severally liable for the underlying judgment of $3,000,000. The court also awarded attorney's fees of $1,188,399.45, and interest on the underlying judgment totaling $568,767.12. Scottsdale and National Union appeal. We affirm in part and reverse and remand in part.
¶4 A restatement of Scottsdale and National Union's issues on appeal is:
¶5 Did the District Court err in considering inadmissible evidence and facts beyond the allegations set forth in the Newman I Third Amended Complaint, and resolving disputed issues of fact?
¶6 Did the District Court err in finding a duty to defend under the insurance policies but not applying the policy exclusions?
¶7 Did the District Court err in calculating and awarding attorney's fees to Newman?
¶8 Did the District Court err in finding that Montana law controls?
¶9 For purposes of analysis, we consider the first and second issues together.
FACTUAL AND PROCEDURAL BACKGROUND
¶10 The facts and procedural history pertaining to the underlying wrongful death action are set forth in Newman I and will not be repeated here. As noted above, following settlement of the wrongful death claim with Teen Help, Newman brought this breach of contract and declaratory action in August 2010 against Teen Help's insurers, Scottsdale Insurance and National Union Fire Insurance. Scottsdale provided a commercial general liability (CGL) policy to Teen Help while National Union offered an excess, or umbrella, policy. Both policies obligated the insurers to defend and indemnify Teen Help against covered actions and contained combined policy limits of $3,000,000. Newman maintained that both insurers unjustifiably refused to defend and indemnify Teen Help in Newman I, and refused to pay the settlement that Teen Help negotiated with Newman.
¶11 Scottsdale moved to dismiss Newman's Complaint arguing that its policy excluded coverage for the claim against Teen Help. It based its assertion upon two exclusions contained in the CGL policy: (1) a "designated professional services" exclusion and (2) a "designated operations" exclusion. The "professional services" exclusion stated:
With respect to any professional services shown in the Schedule, this insurance does not apply to "bodily injury," "property damage," "personal injury" or "advertising injury" due to the rendering or failure to render any professional service.
The "Schedule" section of the policy described "professional services" as "any and all professional exposures."
¶12 The "designated operations" exclusion stated:
This insurance does not apply to any medical incident, "damages," "bodily injury," "property damage," or "personal and advertising injury" arising out of the operations shown in the schedule above.
The referenced "schedule above" described "excluded operations" as "all professional other than premises liability at scheduled locations." While the policy listed Teen Help's call center office in St. George, Utah, as the insured, there were no "scheduled locations" identified in the designated operations exclusion. The policy provided a definition for "coverage territory," however. Coverage territory was defined in part as "the United States of America (including its territories and possessions), Puerto Rico and Canada."
¶13 Scottsdale maintained that Newman's claim against Teen Help arose from actions that constituted "professional services." Scottsdale claimed that Newman's complaint alleging negligence and wrongdoing on the part of Teen Help constituted a challenge to the professional recommendation and placement services provided by Teen Help, and that such claims were excluded under the policy. Additionally, as the Complaint alleged Teen Help was jointly liable for the negligence and intentional acts of the other defendants, Scottsdale maintained that the actions of the other defendants were also "professional services" that were excluded from coverage by the "professional services" exclusion.
¶14 Applying the "designated" or "excluded operations" clause, Scottsdale further argued that because Karlye's death occurred at Spring Creek Academy in Montana, rather than the St. George, Utah, location, coverage was excluded and Scottsdale had no duty to defend Teen Help. Accordingly, Scottsdale asserted that because there was no coverage available to Teen Help as assignor, there was likewise no coverage available to Newman as assignee; therefore, the action should be dismissed.
¶15 National Union also filed a motion to dismiss with a brief on February 7, 2011, asserting that Newman had not alleged, nor could she allege, that the loss constituted an "occurrence" as defined by the policy. The insurer argued that Karlye's death was not an "accident," as suicide was a purposeful act for which the National Union policy did not provide coverage. National Union also claimed a "professional liability" exception to the policy. In addition, National Union asserted that, as an excess policy, it owed no duty to defend or indemnify until after Scottsdale's policy was exhausted.
¶16 National Union's policy provided, in relevant part, the following definitions, terms and conditions:
A. We shall have the right and duty to defend any claim or suit seeking damages covered by the terms and conditions of this policy when:
1. The applicable Limits of Insurance of the underlying policies listed in the Schedule of Underlying Insurance and the Limits of Insurance of any other underlying insurance providing coverage to the Insured have been exhausted by payment of claims to which this policy applies; or
2. Damages are sought for Bodily Injury . . . covered by this policy but not covered by any underlying insurance listed in the Schedule of Underlying Insurance or any other underlying insurance providing coverage to the Insured.
C. Bodily Injury means bodily injury, sickness, disability or disease. Bodily Injury shall also mean mental injury, mental anguish, humiliation, shock or death if directly resulting from bodily injury, sickness, disability or disease.
1. As respects Bodily Injury . . . an accident, including continuous or repeated exposure to conditions, which result in Bodily Injury . . . neither expected nor intended from the standpoint of the Insured. All such exposure to substantially the same general conditions shall be considered as arising out of one Occurrence . . . .
O. Bodily Injury . . . expected or intended from the standpoint of the Insured.
PROFESSIONAL LIABILITY EXCLUSION This insurance does not apply to Bodily Injury . . . arising out of any act, error, omission, malpractice or mistake of a professional nature committed by the Insured or any person for whom the Insured is legally responsible.
¶17 While not raised by National Union in its Motion to Dismiss, National Union subsequently argued that the notice provisions of its policy had not ...