Submitted on Briefs: May 15, 2013
District Court of the Twelfth Judicial District, In and For the County of Hill, Cause No. DV 08-128 Honorable Karen Townsend, Presiding Judge
Martha Sheehy; Sheehy Law Firm; Billings, Montana For Appellant:
Norman L. Newhall, III; Linnell, Newhall, Martin & Schulke, PC; Great Falls, Montana For Appellee
Jim Rice Justice
¶1 State Farm Fire and Casualty Company (State Farm Fire) sought a declaration that its homeowners policy excluded coverage for the vehicular death of Whitney Schwan (Whitney). Daryl Schwan and Patricia Schwan (Schwans), Whitney's parents and the co-personal representatives of her estate, counterclaimed that State Farm Fire was estopped from denying coverage because it had breached its duty to defend under the policy. The Twelfth Judicial District Court, Hill County, granted summary judgment to the Schwans. The District Court ordered State Farm Fire to pay the Schwans' claims and awarded them attorney fees and costs. State Farm Fire appeals and raises three issues. We address only the following issue, and reverse and remand for further proceedings:
¶2 Did the District Court err in concluding that State Farm Fire breached its duty to defend?
FACTUAL AND PROCEDURAL BACKGROUND
¶3 On the night of June 19, 2004, Whitney was a passenger in a vehicle being driven by Travis Turner (Travis) on a road just south of Havre. Travis was driving his mother's Dodge Stratus, and lost control of the vehicle. The vehicle left the highway and overturned. Whitney and Travis were both thrown from the vehicle and sustained injuries that resulted in their tragic deaths.
¶4 Marvin and Cheri Turner (Turners), Travis's parents, had two State Farm insurance policies relevant to this matter. Turners had an automobile liability policy on the Dodge Stratus with State Farm Mutual Automobile Insurance Company (State Farm Auto). They also had a homeowners policy with State Farm Fire.
¶5 In 2007, Schwans sued both Travis's estate and the Turners (the Underlying Action). The complaint alleged that Travis was negligent in his operation of the vehicle and that Turners were negligent in entrusting Travis with the vehicle, failing to stop him from driving, providing him with alcohol on the night of the accident, and failing to warn Whitney of Travis's poor driving record. State Farm Auto retained Billings attorney Calvin Stacey (Stacey) to defend the Turners in this action.
¶6 Several months later, Stacey notified State Farm Fire's in-house legal counsel, David Bauer (Bauer), of the Underlying Action. Stacey advised Bauer that Schwans had demanded payment of policy limits under both the State Farm automobile policy and the State Farm homeowners policy. While the homeowners policy generally excluded coverage for automobile accidents, the Schwans contended that the alleged facts triggered coverage pursuant to Pablo v. Moore, 2000 MT 48, 298 Mont. 393, 995 P.2d 460 (the term "arising out of" clearly excluded claims for negligent operation of a vehicle but did not clearly exclude coverage for the negligent hiring, training, and supervision of a driver who caused injury while driving).
¶7 Discussions regarding the status of the case were undertaken by Bauer, State Farm Auto Team Manager, Beth Corbin (Corbin), State Farm Fire Claim Team Manager, Jennifer McKenzie (McKenzie), and Stacey. State Farm Fire acknowledged a potential duty to defend the Turners under the homeowners policy and confirmed with Stacey that he was defending the Turners on all claims in the Underlying Action. Stacey further advised that additional counsel was not necessary to assist in defending the Turners. Upon receipt of this information, State Farm Fire sent a letter to the Turners discussing the Schwan suit and Stacey's representation of them. The letter further stated, in part:
It is also our understanding that you are not tendering defense of this lawsuit to State Farm Fire & Casualty Company at this time. . . . If we do not hear from you to the contrary, we will assume that it is acceptable ...