United States District Court, D. Montana, Missoula Division
NORTHLAND CASUALTY COMPANY, a Connecticut Corporation, Plaintiff and Counter-Defendant,
JOSEPH S. MULROY DBA YORLUM RANCH AND YORLUM RANCH LTD, NORTHWEST LOG HOMES LLC, and DUANE KEIM, Defendants, JOSEPH S. MULROY, Counterclaimant and Third-Party Plaintiff,
GLACIER INSURANCE OF LIBBY, INC., a Montana Corporation, Third-Party Defendant.
L. Christensen, Chief Judge United States District Court.
the Court are the parties' cross-motions for summary
judgment (Docs. 128 & 131) and the Defendants' motion
to supplement the record (Doc. 138).
2006, Defendant and Counterclaimant Joseph S. Mulroy hired
Duane Keim's company, Northwest Log Homes, LLC,
build a log home near Trego, Montana. Among other
responsibilities, Keim was to build and stain the log
component of the home. He also partially remodeled a guest
home using logs. Keim purchased logs from a log broker, and
he did not treat the logs for insects. Several years later,
Mulroy noticed signs of an active wood-boring powderpost
beetle infestation in both the main home and the remodeled
guest home. The infestation caused substantial damage to both
structures, and it remains ongoing.
asserted a claim for damages against Keim, and Keim tendered
the claim to his insurer, Plaintiff and Counter-defendant
Northland Casualty Company ("Northland"). Northland
notified Keim of its position that the operative commercial
general liability ("CGL") policy did not cover
Mulroy's damages. Mulroy proceeded to file a complaint in
state court, and Northland provided a defense under a
reservation of rights. Without Northland's consent,
Mulroy and Keim settled the claim. Keim admitted liability
and assigned any rights under the CGL policy to Mulroy.
Following a damages hearing, which Keim did not attend, the
state court awarded $208, 824.58 in damages for remediation
costs and $120, 000 for loss of value, for a total of $328,
824.58, plus interest and costs.
is entitled to summary judgment if it can demonstrate 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). Summary judgment is warranted where the
documentary evidence produced by the parties permits only one
conclusion. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 250-51 (1986). Only disputes over facts that might
affect the outcome of the lawsuit will preclude entry of
summary judgment; factual disputes that are irrelevant or
unnecessary to the outcome are not considered. Id.
at 248. In ruling on a motion for summary judgment, a court
must view the evidence "in the light most favorable to
the opposing party." Adickes v. S.H. Kress &
Co., 398 U.S. 144, 157 (1970). "[T]he evidence of
the non-movant is to be believed, and all justifiable
inferences are to be drawn in his favor."
Anderson, 477 U.S. at 255.
sole question before the Court is whether Northland has a
duty to indemnify Keim for the damages suffered by Mulroy.
Northland relies on three of the CGL policy's business
risk exclusions to support its position that coverage cannot
be found: (1) exclusion j(6),  which excludes coverage for
certain property damage arising from the insured's work
on the damaged property; (2) exclusion k, excluding coverage
for damages to the insured's "product"; and (3)
exclusion 1, which bars coverage for certain property damage
to the insured's work arising from that work. Mulroy
argues that the exclusions do not apply, either unambiguously
or because they are ambiguous and accordingly must be
construed in favor of coverage. If those arguments fail,
Mulroy nonetheless contends that the reasonable expectations
doctrine operates to create coverage.
Court looks to Montana law for the "rules of
decision." 28 U.S.C. § 1652. "The
interpretation of an insurance contract is a question of
law." Babcock v. Farmers Ins. Exck, 999 P.2d
347, 348 (Mont. 2000). "If the language of a policy is
clear and explicit, the policy must be enforced as
written." Nat'l Farmers Union Prop. & Cos.
Co. v. George, 963 P.2d 1259, 1261 (Mont. 1998).
"Ambiguities are construed against the insurer and
exclusions from coverage are construed narrowly because they
are contrary to the fundamental protective purpose of
insurance policies." Id. Further, "because
exclusions are contrary to the fundamental purpose of the
policy, such exclusions are frequently subject to challenge
for ambiguity or inconsistency." Newman v.
Scottsdale Ins. Co., 301 P.3d 348, 355 (Mont. 2013).
the terms of the policy, Mulroy suffered "property
damage"- "[p]hysical injury to tangible
property." (Doc. 26-1 at 34.) This Court previously
found that the initial grant of coverage did not extend to
Mulroy's claim for property damage because Keim's
defective construction did not constitute an
"occurrence." The Ninth Circuit reversed, applying
Employers Mutual Casualty Co. v. Fisher Builders,
Inc., 371 P.3d 375 (Mont. 2016). On remand, Northland
does not contend that there was no occurrence, relying
instead on the policy's exclusions. Northland bears the
burden of demonstrating the applicability of an exclusionary
clause. Travelers Cas. & Sur. Co. v. Ribi Immunochem
Research, Inc., 108 P.3d 469, 476 (Mont. 2005). If
Northland meets its burden, Mulroy has the burden of proving
that an exception to the exclusion applies. Id.
j(6) excludes coverage for "property damage" to
"[t]hat particular part of any property that must be
restored, repaired or replaced because 'your work'
was incorrectly performed on it." (Doc. 26-1 at 24.) For
its part, "your work" is defined to include:
(1) Work or operations performed by you or on your behalf;
(2) Materials, parts or equipment furnished in connection
with such work or operation.
work" also includes "warranties or
representations" regarding the work, as well as the
provision or omission of warnings or instructions. (Doc. 26-1
said, exclusion j (6) does not exclude coverage if the
"property damage" falls under the
"products-completed operations hazard." In relevant
part, the "products-completed operations hazard"
a. Includes all... "property damage" occurring away
from premises you own or rent and arising out of "your
product" or "your work" ...