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High Country Paving, Inc. v. United Fire and Casualty Co.

United States District Court, D. Montana, Missoula Division

May 9, 2019

HIGH COUNTRY PAVING, INC., Plaintiff,
v.
UNITED FIRE & CASUALTY CO., Defendant.

          CERTIFICATION ORDER

          DONALD W. MOLLOY, DISTRICT JUDGE

         Pursuant to Rule 15(3) of the Montana Rules of Appellate Procedure, I respectfully request that the Montana Supreme Court exercise its discretion to adjudicate the following question of Montana law:

Where liability is reasonable clear, is it a breach of an insurer's duty to its insured to pay policy limits to a third party in a motor vehicle accident without a release of its insured where claimed special damages are below policy limits but total damages (including general damages) exceed policy limits?

See Mont. R. App. P. 15(6)(a)(i). The answer to this certified question will be determinative of Count I of the Amended Complaint.[1] (See Doc. 21.) I acknowledge that your Court may decide to reformulate the question and my phrasing of the question is not intended to restrict your Court's consideration of this request. See Mont. R. App. P. 15(4), (6)(a)(iii).

         I

         There appears to be an unresolved tension in Montana law between an insurer's duty to a third-party claimant, see Mont. Code Ann. § 33-18-201(6); Gibson v. W. Fire Ins. Co., 682 P.2d 725, 730 (Mont. 1984), and its duty to its own insured, see Fowler v. State Farm Mut. Auto. Ins. Co., 454 P.2d 76, 78-79 (Mont. 1969); Draggin Y Cattle Co., Inc. v. Junkermier, Clark, Campanella, Stevens, P.C., ___P.3d___, 2019 WL 1782165, at * 12 (Mont Apr. 24, 2019) (Sandefur, J., concurring). This tension places Defendant United Fire and Casualty Company between a rock and a hard place. On one hand, United Fire has a statutory duty to accept a third-party's reasonable settlement offer within policy limits unless there is a reasonable basis for contesting the claim or the amount. State Farm Mut. Auto. Ins. Co. v. Freyer, 312 P.3d 403, 418 (Mont. 2013). Otherwise, United Fire could be subject to a third-party bad faith claim or waive its policy limits. Goettel v. Estate of Ballard, 234 P.3d 99, 102 (Mont. 2010). On the other hand, United Fire has a duty to give the interests of its insured, Plaintiff High Country Paving, "as much consideration as it gives its own," Gibson, 682 P.2d at 730, which arguably means obtaining a release of all future claims. The failure to do so resulted in the present litigation. Thus, this case presents a "carrier's dilemma" that is far from illusory. See Watters v. Guar. Nat'l Ins. Co., 3 P.3d 626, 635-36 (Mont. 2000) (minimizing the risk an insurer faces).

         United Fire takes the position that where, as here, liability for damages in excess of policy limits is reasonably clear, it could not condition the payment of policy limits on a release of all claims against its insured. In support of that argument, United Fire relies on two distinct lines of Montana cases. The first has gradually limited the circumstances under which a release can be demanded. See Id. at 638 (addressing mandatory minimum coverage under Mont. Code Ann. § 61-6-103); Shilhanekv. D-2 Trucking, Inc., 70 P.3d 721, 725 (Mont. 2003) (extending Watters beyond minimum statutory coverage to policy limits). The second has expanded the types of damages that must be paid prior to final settlement, see Ridley v. Guar. Nat'l Ins. Co., 951 P.2d 987, 992 (Mont. 1997) (requiring the payment of medical expenses); DuBray v. Farmers Ins. Exch., 36 P.3d 897, 900 (Mont. 2001) ("Nothing in Ridley suggests that its scope should be categorically limited to medical expenses."); Lorang v. Fortis Ins. Co., 192 P.3d 186, 218 n.25 (Mont. 2008) (same), where liability is reasonably clear, see Peterson v. St. Paul Fire & Marine Ins. Co., 239 P.3d 904, 913 (Mont. 2010) (declaring standard); Teeter v. Mid-Century Ins. Co., 406 P.3d 464, 468 (Mont. 2017) (applying Peterson standard to liability for special damages).

         On the other hand, High Country argues that where, as here, the undisputed special damages are less than the available coverage, an insurer may breach its duty to its insured by paying policy limits without obtaining a release. High Country emphasizes Montana's distinction between damages that are plainly ascertainable and immediately payable, such as medical expenses and lost wages, and disputed general damages that can await final adjudication of the case, "such as compensation for pain, discomfort, mental distress, and punitive damages." See Hop v. Safeco Ins. Co. of III., 261 P.3d 981, 983-84 (Mont. 2011). Where public policy supports the prompt payment of the prior, the latter generally "will not financially overwhelm an accident victim" and are "wholly subjective in nature and not plainly ascertainable in amount." Id. at 984. However, High Country notes that certain Montana decisions have obfuscated certainty as to liability (i.e., the Peterson standard), and certainty as to the amount of damages (i.e., Ridley payments). Even if liability is reasonably clear, an insurer can dispute a damage amount. Teeter, 406 P.3d at 468. According to High Country, this case did not present a situation where liability for damages in excess of the policy limits could be easily ascertained. Further, High Country argues a brightline rule that insurers do not need to negotiate for a release will cause an "insured defendant [to] face the daunting prospect of his insurer settling an otherwise defensible claim, in order to avoid bad faith litigation." (Doc. 25 at 15.)

         While the Montana Supreme Court's recent decision in Draggin Y Cattle Co., Inc. highlights the complicated nature of an insurer's duties to its insured, it does not provide guidance necessary for the resolution of this case. See 2019 WL 1782165. Accordingly, an answer to the certified question (or some formulation thereof) is requested.

         II

         Pursuant to Rule 15(6)(a)(ii), the following facts, which have been stipulated to by the parties, outline the nature of the controversy from which this question arose. (See Sched. Or., Doc. 22 at ¶ 3.)[2]

         High Country is an asphalt paving company located in Bozeman, Montana. It purchased a liability insurance policy from United Fire which includes three types of coverage: (1) commercial general liability coverage in the amount of $2 million aggregate, with a $1 million per-occurrence limit ("CGL"); (2) commercial auto liability coverage in the amount of $1 million; and (3) commercial umbrella coverage in the amount of $2 million. In August 2016, while the policy was in effect, one of High Country's employees was involved in an accident while operating an insured vehicle. While the vehicle was under way, a loaded equipment trailer came unhitched and collided with another vehicle, killing its driver and seriously injuring the passenger. High Country notified United Fire of the incident. United Fire hired Nick Pagnotta of the Williams Law Firm to represent High Country. High Country separately retained Jeffrey Tiemey and Trent Gardner of Goetz, Baldwin & Geddes PC.

         On October 31, 2017, Chris Edwards, of the law firm Edwards Frickle & Culver, issued a demand letter on behalf of the injured parties, demanding payment of "High Country Paving's Policy Limits of $3, 000, 000.00 . .." without release for High Country. Edwards's letter included a ...


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