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

United States District Court, D. Montana, Missoula Division

January 3, 2020




         This is a bad faith case arising out of a fatal accident involving a vehicle owned by Plaintiff High Country Paving and insured by Defendant United Fire and Casualty Company. United Fire ultimately paid policy limits to the third-party victims of the accident-the policy limits are $3 million-but settled without securing a release for High Country, its insured. High Country then settled with the same injured third parties for an additional $1, 275 million over and above the policy limits. High Country sued United Fire, alleging bad faith for settling without a release (Count 1) and breach of contract for failing to pay the excess under the comprehensive general liability ("CGL") coverage (Count 2). (Doc. 21.) Summary judgment motions are pending on both the issues raised in the counts of the complaint.

         The case was stayed on December 3, 2019, pending resolution of a certified question at the Montana Supreme Court and a writ of mandamus at the Ninth Circuit Court of Appeals. (See Doc. 87.) On December 31, 2019, the Montana Supreme Court issued its decision. See High Country Paving, Inc. v. United Fire & Cas. Co., Slip Op. No. 19-0283, 2019 WL 7374362 (Mont. Dec. 31, 2019); (Doc. 88). The opinion clarifies Montana law regarding an insurance company's obligations when catastrophic injury may exceed insurance limits in a clear liability case. It is now appropriate to address the pending summary judgment motions. Accordingly, the stay is lifted for that limited purpose.

         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, 251 (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.


         I. Reasonable Basis in Law (Count 1)

         An insurer may not be held liable under Montana's Unfair Trade Practices Act "if the insurer had a reasonable basis in law or in fact for contesting the claim or the amount of the claim, whichever is in issue." Mont. Code Ann. § 33-18-242(5). Accordingly, United Fire seeks two rulings: (1) that it had a reasonable basis in law to pay policy limits to the third-party claimants without conditioning payment on a release, and (2) it "did not have a duty to assist High Country in leveraging a release of claims from" the injured and deceased third-party claimants. (Doc. 45 at 1-2.) High Country argues that "United Fire's request for relief overreaches its argument." (Doc. 65 at 11.) High Country also criticizes United Fire's attempt to "weaponiz[e] this Court's certification of a question of state law to the Montana Supreme Court." (Id. at 8.)

         If a jury finds that the reasonable settlement value of this case exceeded $3 million, United Fire had a reasonable basis in law for settling without a release for its insured before it paid policy limits. However, because that factual dispute remains, a legal ruling is contingent on a jury's factual determination given the circumstances of the case.

         High Country raises a number of concerns regarding United Fire's motion. First, High Country emphasizes that a "reasonable basis" defense only applies to bad faith claims. See State Farm Mut. Auto. Ins. Co. v. Freyer, 312 P.3d 403, 411-12 (Mont. 2013) ("A breach of contract cannot be ameliorated by the reasonableness of the breaching party's actions."). United Fire agrees. Second, High Country argues that the "reasonable basis" defense only applies to the extent an insurer denies or contests an insurance claim or the amount of an insurance claim. United Fire did neither. This argument is unpersuasive, however, as the Montana Supreme Court has upheld such a defense in two of the most prominent cases involving settlement releases. See Watters v. Guaranty Nat'1 Ins. Co., 3 P.3d 626, 639 (Mont. 2000); Shilhanek v. D-2 Trucking, Inc., 70 P.3d 721, 726-27 (Mont. 2003).

         Nevertheless, United Fire, as the party asserting the reasonable basis defense, has the burden of establishing it by a preponderance of the evidence. Watters, 3 P.3d at 639. "[A]lthough the determination of whether a party acted reasonably [i]s typically a question of fact for the jury, whether an insurer was reasonable in its interpretation of legal precedent in its coverage determination [i]s a question of law for the court[.]" State Farm, 312 P.3d at 418-19 (emphasis added). "To determine whether an insurer had a reasonable basis in law for contesting the claim or the amount of the claim it is necessary first to survey the legal landscape as it existed during the relevant time period." Id. at 418 (cleaned up). "Then, the court must assess the insurer's proffered defense in light of that legal landscape." Id. at 419. "In the absence of caselaw on point, 'the determinative question' is whether the law in effect at the time, caselaw or statutory, provided sufficient guidance to signal to a reasonable insurer that" the grounds for its actions "were not meritorious." Id.

         United Fire's in-house counsel, Katherine Huso, originally advised United Fire that "[n]o Montana court has ever required an insurer to advance pay general damages without a full and final release of its insured." (Doc. 66-12.) United Fire sought additional guidance, however, from Guy Rogers, an experienced insurance attorney. (See Doc. 46 at ¶ 8.) Mr. Rogers advised United Fire's Chief Legal Counsel and Vice President Neal Scharmer that "the duty to settle is not limited to situations where medical expenses or special damages exceed policy limits" and the "reasonable settlement value of the claims in question exceeded" the policy limits of $3 million. (Id. at ¶¶ 22, 23.) Ms. Huso then spoke to Mr. Rogers and she ultimately agreed with his opinion. (Id. at ¶ 24.)

         The "legal landscape" of Montana's advance payment and settlement jurisprudence lends credence to United Fire's decision to pay policy limits without obtaining a release. As discussed more thoroughly in the Certification Order, both Watters and Shilhanek determined that "an insurer must, under certain circumstances, pay policy limits without a full and final release for its insured." Watters, 3 P.3d at 639; Shilhanek, 70 P.3d at 727. Given Montana case law, it is likely there was a reasonable basis for United Fire to believe that it was required to settle.

         United Fire's interpretation of the law is bolstered by the Montana Supreme Court's answer to the certified question, which explains that the duties surrounding settlement are, and always have been, distinct from those regarding Ridley payments. Slip Op. at ΒΆ 25. The Court held that "[a]n insurer does not breach its duty [to] its insured when it pays policy limits to an injured third party, without a release for its insured, after a motor vehicle accident when both liability for the accident is ...

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