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Atlantic Casualty Insurance Co. v. Quinn

United States District Court, D. Montana, Missoula Division

June 20, 2019

ATLANTIC CASUALTY INSURANCE COMPANY, Plaintiff,
v.
PEGGY QUINN, KEVIN QUINN, BRUNNER HOMES AND CONSTRUCTION, INC., and JOHN DOES 3 through 10, Defendants.

          OPINION AND ORDER

          Donald W. Molloy, District Judge.

         Plaintiff Atlantic Casualty Insurance Company (“Atlantic”) seeks a declaratory judgment that it has no duty to defend or indemnify its insured Brunner Homes and Construction (“Brunner”) in an underlying lawsuit brought by homeowners Peggy and Kevin Quinn (“the Quinns”). (Doc. 1.) Pending before the Court are Atlantic and Brunner's cross-motions for partial summary judgment. (Docs. 23, 30, 50.) A hearing was held in Missoula, Montana on June 20, 2019. Ultimately, Atlantic has a duty to defend Brunner against all claims in the underlying complaint. However, Atlantic does not have a duty to indemnify Brunner for the liquidated damages, breach of warranty, Montana Consumer Protection Act, and emotional distress claims. Factual issues preclude summary judgment on Atlantic's duty to indemnify Brunner for the other claims. Consequently, the issue of indemnity on those claims is held in abeyance until the underlying state case is resolved.

         Background

         The Quinns entered into a contract with Brunner on June 29, 2015, for the construction of a $745, 688.98 custom home in Missoula. (Doc. 36-4 at 17-23.) The contract required Brunner to complete the home no later than 300 days after work commenced-by May 24, 2016 (“the Completion Date”). (See Id. at 18.) However, the Completion Date was permissibly subject to delays resulting from any change orders the Quinns issued during the construction period. (Id.) Barring any change orders, Brunner agreed to finish the home no later than the Completion Date or else be responsible for .5% of the contract price for every day beyond that date that the home remained unfinished. (Id.)

         On September 25, 2017, the Quinns sued Brunner in state court for negligence, breach of contract, and construction default, among other things. (Doc. 36-1.) The Quinns allege the home was not satisfactory for habitation by the Completion Date. (Doc. 36-4 at 4-5.) As part of their claim for damages, the Quinns assert that Brunner must pay $3, 728.45 per day for each day past the Completion Date that the home remains substandard. (Id. at 8.) The Quinns thus allege that as of April 27, 2018, Brunner owes $2, 624, 828.80 for the delay on the home, accruing at a rate of $3, 728.45 each day. (Id.)

         Brunner was insured by Atlantic at all relevant times. (See Doc. 35 at 3.) Brunner notified Atlantic of the Quinns' lawsuit on October 6, 2017. (Doc. 36-5.) On November 14, 2017, Atlantic informed Brunner on at least one Atlantic policy that it would defend under a complete reservation of rights. (Doc. 36-2.)

         On April 20, 2018, Atlantic filed suit in this Court, seeking a declaration that it has no duty to defend or indemnify Brunner in the underlying lawsuit. (Doc. 1.) It moved for partial summary judgment on its duties to defend and indemnify against the underlying complaint's breach of contract claims on November 21, 2018. (Doc. 23.) It moved for summary judgment on its duty to defend and indemnify against all twelve counts of the underlying complaint on January 4, 2019. (Doc. 30.) Brunner filed a cross-motion for summary judgment on the duty to defend on April 1, 2019. (Doc. 50.)

         Legal Standards

         I. Summary Judgment

         Summary judgment is proper “if the movant shows 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). The court must view all evidence and draw all inferences in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

         II. Contract Interpretation

         The substantive law of Montana applies to this diversity action. Med. Lab. Mgmt. Consultants v. Am. Broad. Cos., 306 F.3d 806, 812 (9th Cir. 2002). Interpretation of a contract or an insurance policy is a question of law. Wendell v. State Farm Mut. Auto Ins. Co., 974 P.2d 623, 627 (Mont. 1999). Even so, “[e]ach case turns on its precise individual facts, ” which play a significant role in determining whether coverage under an insurance contract exists. Id. at 637 (internal quotation marks omitted). Contracts are interpreted “according to their usual, common-sense meaning” viewed from the perspective of the insured, who is treated as a consumer of average intelligence with no training in the law or in insurance. Id. at 628; Hanson v. Emp'rs Mut. Ins. Co., 336 F.Supp.2d 1070, 1075 (D. Mont. 2004). Exclusions from coverage are construed narrowly. Farmers Union Mut. Ins. Co. v. Staples, 90 P.3d 381, 385 (Mont. 2004). Ambiguities are construed in favor of the insured and against the insurer. Id.

         III. Duties to Defend and Indemnify

         “The duty to defend is independent from and broader than the duty to indemnify created by the same insurance contract.” Id. An insurer's duty to indemnify arises only if there is coverage under the policy. State Farm Fire & Cas. Ins. Co. v. Schwan, 308 P.3d 48, 51 (Mont. 2013). The duty to defend, however, “is triggered when a complaint against an insured alleges facts, which if proven, would result in coverage.” Id. (internal quotation marks omitted). Allegations in the complaint must be liberally construed so that any doubts regarding coverage are resolved in favor of finding a duty to defend. Farmers Union, 90 P.3d at 385. An insurer is presumed to have a duty to defend, absent an “unequivocal demonstration that the claim against an insured does not fall within the insurance policy's coverage.” Id. Further, Montana follows “the ‘mixed action' rule, which requires an insurer to defend against all counts in a complaint so long as one count potentially triggers coverage, even if the remaining counts would not be covered.” State Farm, 308 P.3d at 51 (internal citation omitted).

         Analysis

         To prevail at summary judgment, Atlantic must show that none of the Quinns' claims against Brunner are or could be covered by the relevant insurance policy.[1] Atlantic has shown the Quinns' claims for liquidated damages, breach of warranty, Montana Consumer Protection Act violations, and emotional distress are not covered. Factual issues preclude summary judgment on the remaining claims. However, because the possibility of ...


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