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Western Heritage Insurance Co. v. Slopeside Condominium Association, Inc.

United States District Court, D. Montana, Missoula Division

March 6, 2019

WESTERN HERITAGE INSURANCE COMPANY, an Arizona corporation, Plaintiff,
SLOPESIDE CONDOMINIUM ASSOCIATION, INC., a Montana corporation, MATTHEW FOLKMAN, individually and d/b/a JARAS CONSTRUCTION, Defendants.



         The parties to this insurance coverage dispute have filed cross-motions for summary judgment. (Docs. 28 & 36.) Defendant Slopeside Condominium Association, Inc. (“Slopeside”) attained a judgment against Defendant Matthew Folkman, doing business as Jaras Construction, in the underlying state court action, and it hopes to satisfy that judgment. Plaintiffs Western Heritage Insurance Company and Scottsdale Insurance Company (collectively, “Western Heritage”) seek a declaration that Western Heritage has no duty to indemnify Folkman, its insured. Folkman has chosen to represent himself in this matter, and he has not responded to Western Heritage's motion. (See Docs. 43 & 49.) Slopeside seeks partial summary judgment, arguing that the relevant insurance policy provides coverage if Slopeside can prove certain facts.


         Slopeside is a homeowners association responsible for the operation and maintenance of a group of condos in Whitefish, Montana. (Doc. 13-4 at 1.) In September 2011, Folkman and Slopeside entered into a construction agreement. (Doc. 38 at 8.) Folkman agreed to install thermal “T-panel” systems on the roofs of Slopeside buildings to melt snow and ice. (Doc. 38 at 8.) However, the T-panel systems were not effective-not only did they fail to serve their intended purpose, but they created ice buildups and caused additional damages-and Slopeside sued Folkman in state court on November 16, 2016. (Docs. 13-4 & 13-8.)

         Folkman initially retained counsel without notifying Western Heritage of the lawsuit, but his counsel withdrew on March 23, 2017. From that point forward, Folkman did not respond to Slopeside's discovery requests or otherwise defend against the action. (Doc. 38 at 8-9.) Slopeside filed a motion for summary judgment on June 27, 2017, to which Folkman did not respond, as well as a proposed order granting summary judgment to Slopeside. (Doc. 38 at 9.) On July 21, 2017, Slopeside's attorney in the underlying action informed Western Heritage of the underlying action, attaching a copy of the proposed order granting summary judgment. (Doc. 38 at 10-11.)

         On July 31, 2017, the state court adopted Slopeside's proposed order, awarding Slopeside $441, 770.83, comprising $436, 040.37 in damages and $5, 730.46 in attorneys' fees. (Docs. 13-8; 13-9; 28 at 11.) In awarding damages, the court adopted in full the statement of actual and anticipated expenses submitted by Slopeside's representative. (Docs. 13-6 & 13-8.) Excluding attorneys' fees, the damages awarded included: (1) $68, 040.37 in actual expenses as of the date of the state court judgment; and (2) an additional $368, 000 in anticipated expenses. (Doc. 13-6 at 6.) The anticipated expenses were calculated by multiplying 23-the number of condo units-by $16, 000-the actual expenses incurred in repairing the T-panel system in one of the Slopeside units, rounded down to the nearest $1, 000. (Doc. 13-6 at 6.)

         Folkman was served with a notice of entry of judgment on August 4, 2017. (Doc. 20 at 3.) On September 19, 2017, Western Heritage sent a letter to Folkman, informing him that Western Heritage would defend Folkman under a reservation of rights if Slopeside would agree to set aside the state court judgment. (Doc. 13-10 at 2.) Because Slopeside refused, Western Heritage declined coverage based on the failure of Folkman to provide timely notice. Western Heritage initiated this lawsuit, seeking a declaration that it had no duty to indemnify Folkman in the underlying action.

         During the relevant time, Folkman was insured under three commercial general liability (“CGL”) policies. The relevant provisions of the policies are identical. (Doc. 38 at 2-8.)

         Legal Standard

         A party 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.


         Because federal jurisdiction is grounded in diversity, the 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. Exch., 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. & Cas. 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., 1 P.3d 348');">301 P.3d 348, 355 (Mont. 2013).

         I. Occurrence

         Western Heritage argues that there was no “occurrence” triggering coverage ...

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