Coverage Analysis
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  Generally, the term "accident" from the standpoint of the insured refers to any unexpected happening that occurs without intention or design on the part of the insured. See Farmers Union Mut. Ins. v. Kienenberger  847 P.2d 1360, 1361 (Mont. 1993). In turn, "accidents" that result from the unsafe use or mishandling of firearms are an all too frequent "occurrence" in this State--and, more importantly, are an insurable event unless otherwise expressly excluded under an insured's personal liability policy. See, e.g., Farmers Union Mut. Ins. Co. v. Blair  817 P.2d 1156, 1157(Mont. 1991) (third-party accidentally shot with insured's gun at party);  Kohne v. Yost, 818 P.2d 360, 361  (Mont. 1991)(describing negligence claim involving a shooting incident with B.B. gun resulting in permanent eye damage to victim); Estate of Strever v. Cline, 924 P.2d 666, 670 (Mont. 1996)(stating that "various types of liability insurance policies are readily available at a reasonable cost and cover the risks inherent in the negligent use and storage of firearms"); Gentry v. Douglas Hereford Ranch, Inc.,  962 P.2d 1205 (Mont. 1998) (victim accidentally shot by hunting rifle after rifle owner stumbled and fell).

  In Northwestern Nat'l Cas. Co. v. Phalen, 597 P.2d 720, 724 (Mont. 1979), the Montana Supreme Court declared that:

The word 'occurrence' instead of the word 'accident' in the insuring clause means that the word 'occurrence' is in fact broader than the word 'accident' and is so intended by the insurer. In such case, the intent of the policy is to insure the acts or omissions of the insured, including his intentional acts, excluding only those in which the resulting injury is either expected or intended from the insured's standpoint. It is clear therefore, that the insured here would be debarred from coverage in those cases where his deliberate acts or assaults resulted in injuries which would be expected or intended by him to result from his deliberate acts. But what about coverage where the results of his acts (even though deliberate) are unexpected or not intended by the insured? The answer . . . is that (1) the event is an occurrence; (2) since it results in bodily injury it is an accident under the definition of the policy, and (3) since it is unintended or unexpected, it is within the coverage of the policy.

  An occurrence for purposes of coverage under a general liability requires a finding that the insured did not intentionally cause the underlying plaintiff's injuries, even though the insured may have intended the act itself.  Daly Ditches Irrigation Dist. v. National Surety Corp., 234 Mont. 537, 764 P.2d 1276 (1988); United Pacific Ins. Co. v. First Interstate Bancsystems of Montana, 664 F.Supp. 1390 (D. Mont. 1987).  The fact that acts are intentional will not preclude coverage unless the resulting injuries are also expected or intended.  Burns v. Underwriters Adjusting Co., 765 P.2d 712 (Mont. 1988).  Where, however, it is determined that the insured intended some damage, it is irrelevant whether the insured causes an injury different in character or magnitude from the harm he subjectively intended.  Mutual Serv. Cas. Ins. Co. v. McGehee, 219 Mont. 304, 711 P.2d 826 (1985).   Similarly, the fact that the resulting injuries are greater than what was expected or intended will not reinstate coverage. Id. See also Montana Code Annotated Section 28-2-702 (1995) (public policy forbids contracts that have as their purpose the indemnification of someone for the results of their intentional injuries).

  Claims for property damage resulting from the insured's deliberate injection of butane gas into an oil pipeline were held not to be an "occurrence" in Portal Pipeline Co. v. Stonewall Ins. Co., 845 P.2d 746 (Mont. 1993).

  The Montana Supreme Court has identified certain acts, such as hitting another person in the face with your fist, that if admitted or proven, are "per se" intentional acts regardless of whether the actual injury inflicted was intended. See, e.g.Mutual Serv. Cas. Ins. Co. v. McGehee  711 P.2d 826, 827 (Mont. 1985)(insured admitted to intentionally striking appellant in the face); New Hampshire Ins. Group v. Strecker, 798 P.2d 130, 131 (Mont. 1990)(insured admitted to sexually molesting his daughter);  American States Ins. Co. v. Willoughby ,836 P.2d 37, 40 (Mont. 1992)(hitting, biting and kicking stock car race security guards deemed per se intentional act); Smith v. State Farm Ins. Co. 870 P.2d 74, 75 (Mont. 1994) (stating that "striking another person in the face is an intentional act because of the certainty of causing harm, and any argument stating the opposite does not change this rule"). 
In Kienenberger, a divided Montana Supreme Court ruled that an insurer had no obligation to afford coverage for even negligent supervision claims, where the insured's liability was based upon their alleged failure to prevent their son's sexual assault on the plaintiff, which the court held was not an "occurrence."

  A homeowner's assault on a babysitter was held to be an intentional act that was excluded from coverage, notwithstanding the insured's contention that the babysitter had already knocked him unconscious and that his blow was an involuntary reflexive response.  In Smith v. State Farm Ins. Cos., 870 P.2d 74 (Mont. 1994), the Montana Supreme Court ruled that the fact that the insured did not remember the assault did not make its nature involuntary.

  A U.S. District Court declared in Safeco Ins. Co. of  America v. Tunkle, 1998 WL 125756 (D. Mont. March 20, 1998), that an intruder's claim against a property owner who shot him in self-defense is outside the scope of an "intentional acts" exclusion as acts taken in self-defense are volitional and not intentional.

  Evidence of diminished mental capacity may form a basis for concluding that an insured lacks the requisite intent to cause harm by intentional acts.  New Hampshire Insurance Group v. Strecker, 798 P.2d 130, 131 (Mont. 1990) and Safeco Insurance Company of America v. Liss, No. 99-515 (Mont. December 28, 2000)


  A federal magistrate has recommended in Eott Energy Operating Limited Partnership v. Certain Underwriters at Lloyd’s, CV-90-122 (D. Mt.  November 8, 1999) that non-settling insurers receive only a dollar-for-dollar credit for the amounts paid by settling insurers.  Magistrate Cebull rejected the insurer’s contention that these carriers should obtain a credit for the full amount of the settled policy limits, distinguishing cases in which excess insurers have received full policy limit credits for payments by primary insurers.

  The Montana Supreme Court refused to permit apportionment of defense costs in Home Ins. Co. v. Pinski Brothers, Inc., 500 P.2d 945 (Mont. 1972).


  All appeals are heard directly by the Montana Supreme Court.


  Governed by Montana Unfair Claims Settlement Practices Act,  MCA §27-1-101, et seq. and the Montana Unfair Trade Practices Act, MCA §33-18-101, et seq.  An award of punitive damages against an insurer will only be sustained if it meets the nine step test set forth in MCA §27-1-221(7).   In 1997, the legislature enacted MCA 33-18-242(3), which prohibits an insured from bringing an action for bad faith in connection with the handling of an insurance claim.

  Under Montana law, an insurer cannot “refuse to pay claims without conducting a reasonable investigation based upon all available information.”  Montana Code Annotated Section 33-18-201(4).  

  An insurer’s good faith obligations do not end when coverage litigation begins.  Palmer v. Farmers Ins. Exch., 861 P.2d 894, 913 (Mont. 1993)(“courts have held, and we agree, that an insurer’s duty to deal fairly and not to withhold payment of valid claims does not end when an insured files a complaint against the insurer”; declining to admit certain evidence of post-litigation conduct).

  An insurer does not act in bad faith it its coverage position was reasonable in light of the law and facts existing at the time of denial.  The insurer may not claim the benefit of changes in the law or subsequently-discovered evidence to justify an earlier stated coverage position, however.    Eott Energy Operating Limited Partnership v. Certain Underwriters at Lloyd’s of London, 1999 U.S. Dist. LEXIS 12600 (D. Mt. August 10, 1999).

  The Montana Supreme Court has ruled in Watters v. Guaranty National Insurance Company, No. 98-718 (Mt. June 6, 2000) that a liability insurer breached the Unfair Trade Practices Act by refusing to pay the full amount of its primary policy limits until such time as the underlying plaintiff agreed to give a full release of all claims against the insured, including a release of claims for damages attributable to injuries in excess of the primary policy limits.  While recognizing that the insurer was trapped in a dilemma between the risk of an unfair trade practices claim for settling a third-party claimant’s demand in a case where liability was certain and a bad faith claim by its policyholder for executing a settlement that left it exposed to an excess claim, the court nonetheless ruled that the insurer must make the payment.  It suggested that the insurer would be insulated against liability for any claim of bad faith by Section 33-18-242(3) of the Unfair Trade Practices Act and that the risk of liability to the policyholder was therefore likely exaggerated if not altogether illusory.
  A cause of action for reverse or comparative bad faith was rejected by the Montana Supreme Court in Stephens v.  Safeco Ins.  Co.  of America, 852 P.2d 565, 568 (Mont.  1993).


  Held not to encompass claims for mental distress in  Aetna Cas. & Sur. Co. v. First Security Bank of Bozeman, 662 F.Supp. 1126 (D. Mt. 1987)(wrongful termination).


  Insurer must prove prejudice.  J.G. Link & Co. v. Continental Cas. Co., 470 F.2d 113 (9th Cir. 1972) (applying Montana law).  Further, an insured's delay in giving notice of an "occurrence" may be excused where it is "trivial, results in no apparent harm and [where the insured had no] no reasonable ground to believe that a claim might arise."  State Farm Mut. Auto Ins. Co. v. Murnion, 439 F.2d 945 (9th Cir. 1971).


  Neighbors' nuisance allegations based on the insured's use of noxious hog manure as a fertilizing agent were held to allege claims for "wrongful entry" in Grindheim v. Safeco Ins. Co. of America, 908 F.Supp. 794 (D. Mt. 1995).  While recognizing that various rulings of the Ninth Circuit had generally precluded "personal injury" coverage for pollution liabilities, such rulings depended upon a finding that the policies contained an unambiguous pollution exclusion, which the court held was not the case here.


  In Hellman v. Colonial Ins. Co., 475 F.2d 1061 (9th Cir. 1973), the Ninth Circuit ruled that an insured had the burden of showing that his use of a non-owed vehicle was with the owner's permission in order to overcome an otherwise applicable policy exclusion for out of state accidents.


  Montana courts have adopted the Restatement (Second) "most significant relationship" test.  Energy Oils, Inc. v. Montana Power Co., 626 F.2d 731 (9th Cir. 1980).


  A liability insurer must pay for independent defense counsel where a conflict of interest arises due to matters for which it has denied coverage or is reserving its rights. St.Paul Fire & Marine Ins. Co. v. Thompson, 433 P.2d 795 (Mont. 1967).


  Issue was to be decided by Montana Supreme Court in Quisel but was settled on the eve of argument.  The Supreme Court of Montana has ruled that a court-ordered fine or sanction are outside the scope of "damages."  Page Wellcome v. The Home Ins. Co., 849 P.2d 190 (Mont. 1993). 


  The Declaratory Judgment Act, Section 27-8-102, MCA, is intended to “settle and to afford relief from uncertainty and insecurity with respect to rights, status and other legal relations.”  The Act authorizes the district court to “refuse to render or enter a declaratory judgment or decree where such judgment or decree, if rendered or entered, would not terminate the uncertainty or controversy giving rise to the proceeding.”  The Montana Supreme Court ruled in Northfield Insurance Company v. Montana Association of Counties, 2000 MT 256 (Mont. September 26, 2000) that an excess insurer had no right to bring an action for declaratory relief to determine whether it had an indemnity obligation for underlying claims against its insured where the insured’s liability had yet to be determined and there was no suggestion that the underlying primary insurance would be unavailable, in the event that liability was declared, to satisfy any award of damages.

  Under Montana law, a plea of guilty in a criminal proceeding does not collaterally estop the insured from contesting issues of intent or the like inasmuch as a plea of guilty is not a judgment on the merits and therefore cannot form the basis for a collateral estoppel argument.  Northwestern National Casualty Company v. Phalen, 597 P.2d 720, 727 (1979) and Safeco Insurance Company of America v. Liss, No. 99-515 (Mont. December 28, 2000).  The court distinguished guilty pleas from cases in which the insured is convicted following a trial.  A plea of guilty is admissible in a subsequent civil action on the independent ground that it is an admission but, while evidence of intent, is not conclusive on the issue.

  The general rule in Montana is that absent a statutory or contractual provision, attorney fees are not recoverable. Kennedy v. Dawson,  989 P.2d 390 (Mt. 1999).   Courts may, in their discretion, award fees where the other party’s claims were frivolous, however.


   --Claims Manuals

   --Drafting History

   --Other Policyholder Claims

   --Reinsurance Information



  In general, a duty to defend arises if any cause of action is within the insured's grant of coverage.  Northwestern National Cas. Co. v. Phalen, 182 Mont. 448, 597 P.2d 720 (1979).  However, there is no duty to defend actions for which the insurer would have no possible indemnity obligation.  Mut. Service Co. v. McGehee, 711 P.2d 826 (Mont. 1985).  Therefore, if the actual facts confirm that no coverage is afforded, an insurer may look beyond the "four corners" of the Complaint to determine whether it has a duty to defend.  Burns v. UAC, 765 P.2d 712 (Mont. 1988)(allegation of negligence in assault case did not require defense where actual facts were that insured had intentionally struck plaintiff).  

  In Troutt v. Colorado Western Insurance Company, No. 98-36268 (9th Cir. April 2, 2001), the U.S. Court of Appeals for the Ninth Circuit ruled that a liquor liability insurer did not have a duty to defend a suit involving an incident in which a tavern employee cut off his fingers while drunkenly splitting wood for the tavern.  Applying Montana law, the court ruled that the proceedings in the underlying case had not established that the claims against the insured were based upon or arose out of the sale of alcohol nor was the insurer’s duty to defend triggered since the underlying complaint failed to allege alcohol as a cause of the accident.  Further, the Ninth Circuit refused to impose liability based upon the insurer’s alleged failure to conduct a more diligent investigation that might have uncovered alcohol as a cause of the accident inasmuch as the insured itself had failed to provide this information in the short statement that was requested by the insurer shortly after the incident in question. 

  The duty to defend does not arise until such time as a claim is tendered to the insurer.  Thus, an insurer that was first given notice of the claim against its insured after the case had settled had no duty to reimburse the settling carrier for defense costs. Casual Indemnity Exchange Ins. Co. v. Liberty National Fire Ins. Co., 902 F.Supp. 1235, 1239 (D. Mont. 1995) “where the insured has failed to tender the defense of an action to its insurer, the latter is excused from its duty to perform under its policy or to contribute to a settlement procured by a co-insurer.”


  An insurer that undertakes the defense of its insured without issuing a reservation of rights will be presumed to have caused prejudice to the insured and may be estopped to dispute coverage later.  Safeco Ins. Co. v. Ellinghouse, 725 P.2d 217, 221 (Mont. 1986);   Portal Pipe Line Company v. Stonewall Insurance Company, 845 P 2nd 746, 749 (Mont. 1993).   In such cases, the presumption of prejudice is conclusive.

  A federal district court has declared that an insurer that refuses, without justification, to provide a defense to its insured will be estopped from denying coverage.  Grindheim v. Safeco Ins. Co. of America, 908 F.Supp. 794 (D. Mt. 1995).

  Although an insurer has a duty to inform the insurer that all policy defenses upon which it intends to rely, estoppel will only apply if the insured has been prejudiced by the newly asserted grounds for denial.  Safeco Insurance Company v. Elling House, 725 P 2nd 317 (Mont. 1986).  Such estoppel rules do not apply to excess insurers, as they are not affording a defense to the underlying suit.  Eott Energy Operating Limited Partnership v. Certain Underwriters at Lloyd’s of London, 1999 U.S. Dist. LEXIS 12600 (D. Mt. August 10, 1999).


  Federal court ruled that excess insurers have an obligation to share defense costs with primary carriers in proportion to the amount of indemnity that they pay for any given loss.  Guaranty National Ins. Co. v. American Motorists Ins. Co., 758 F.Supp. 1394 (D. Mont. 1991).


  Fire that damaged property of seven tenants held to be one "accident" in Barrett v. Iowa National Mut. Ins. Co., 264 F.2d 224 (9th Cir. 1959).


  The Montana Supreme Court has ruled that gradual, cumulative contamination is not “sudden.”  In Sokoloski v. American West Ins. Co., 980 P.2d 1043 (Mont.1999), the court held that the cumulative effect of smoke and soot damage from scented candles that have been burned over a period of five weeks  was not “sudden.”  While noting the split in opinion in courts around the country concerning the meaning of “sudden and accidental,” the court ruled that such terms must be given an independent meaning.  Further, the court ruled that the smoke damage plainly involved pollution, rejecting the insured’s contention that this was “an environmental term of art which applies only to discharges of pollution into the environment from sources outside the home.”    The court distinguished the Ninth Circuit’s opinion in Enron (see below) on the basis that the Lloyds’ policy in the case had not contained a definition of “pollutant.”

  A first party "contamination" exclusion was held to be unambiguous in Duensing v. The Travelers Companies, 849 P.2d 203 (Mont. 1993) but was held not to apply in the absence of a showing that injury had resulted from the actual presence of a foreign substance.

  Notwithstanding Duensing, the U.S. Court of Appeals for the Ninth Circuit ruled in Enron Oil Trading and Transportation Co. v. Underwriters of Lloyds, 132 F.3d 526 (9th Cir. 1997) that the "contamination" portion of a Lloyd's "Industries, Seepage and Contamination" clause only applied to environmental contamination and did not extend to the adulteration of the insured's petroleum products by a company that illegally poured a cheap substituted into its pipeline.  Echoing the 7th Circuit's view in Pipefitters that a "common sense approach" must be taken to the interpretation of such clauses, the court held that the exclusion, read as a whole, was only meant to apply to "environmental-type harms." 

  An insurer’s failure to give clear notice to its insured of the addition of a “total” pollution exclusion at the time that policy was renewed has been held to preclude the insurer from relying on it.  Thomas v.  Northwestern National Ins.  Co., 973 P.2d 804 (Mt. 1998)(fuel loss claim against contractor).

  Claims by abutting property owners that the insured's farming operations and, in particular, its use of hog manure as a fertilizing agent, were releasing noxious odors, was held to be outside the scope of both "absolute" and limited" exclusions in Grindheim v. Safeco Ins. Co. of America, 908 F.Supp. 794 (D. Mt. 1995).  The foul odors emanating from this sewage were not, in the court's view, pollutants within the scope of the exclusion.  Further, with respect to the earlier form of the exclusion, the court concurred that "sudden" had a temporal meaning but nonetheless found ambiguity in light of the exclusion's failure to specify whether it is the commencement or the duration of the discharge that must be abrupt. 


  Claims for economic loss were held not covered in Liberty Bank of Montana v. Travelers Indemnity Co. of American, 870 F.2d 1504, 1508 (9th Cir. 1990)(failure of insured bank to permit claimant's access to security interest in inventory and accounts receivable).  See also  Mutual Service Cas. Ins. Co. v. Coop. Supply, Inc., 699 F.Supp. 1438 (D. Mont. 1988).


 The public policy of Montana precludes indemnification for the intended consequences of intentional acts as well as criminal activity but does not necessarily preclude insurance coverage for all unlawful acts.  Safeco Insurance Company of America v. Liss, No. 99-515 (Mont. December 28, 2000).  In Liss, the Montana Supreme Court criticized a broader interpretation of the law that had earlier been advanced by the Federal District Court in Safeco Insurance Company of American v. Tunkel, 997 F.Supp. 1356, 1360 (D. Mont. 1998) in which the Federal District Court had broadly concluded that “illegal or criminal acts cannot be insured.”  The bar against indemnification is not based upon the fact that the conduct may be unlawful alone.


  Coverage forbidden pursuant to statute.  Mont. Code. Ann. Sec. 33-15-317(1) (1994).

  Earlier, the Montana Supreme Court had ruled that public policy does not preclude insurance coverage for punitive damages.  First Bank (N.A.)-Billings v. Transamerica Ins. Co., 209 Mont. 93, 679 P.2d 1217 (1984); Fitzgerald v. Western Fire Ins. Co., 209 Mont. 213, 579 P.2d 790 (1984).


  Montana recognizes that insureds are entitled to all coverage that may reasonably be expected to be provided under policies of insurance.  Transamerica Ins. Co. v. Royle, 202 Mont. 173, 656 P.2d 820 (1983); Page Wellcome v. The Home Ins. Co., 849 P.2d 190 (Mont. 1993)("objective" standard).  The expectation is defeated only by "an unequivocally conspicuous, plain and clear manifestation of the [insurer's] intent to exclude coverage."  United Pacific Ins. Co. v. First Interstate Bancsystems of Montana, 664 F.Supp. 1390 (D. Mont. 1987).

  An insurer has an affirmative obligation to notify its insured of any reductions in coverage at the time of renewal.  Thomas v.  Northwestern National Ins.  Co., No.  97-509 (Mt.  December 31, 1998)(total pollution exclusion invalidated).


  No cases.


  No "trigger" cases.  Federal court has ruled that an insured cannot obtain coverage for a pollution loss under policies issued after it becomes aware of its claimed clean-up liability.  Bank of Montana v. Travelers Ind. Co., CV 91-085 (D. Mont. June 30, 1994).

  Allegations that the plaintiff inhaled carbon monoxide fumes during the concluding hours of one carrier's liability insurance for the defendant motel and was found unconscious during the first hours of the successor policy was held to have potentially given rise to coverage under both policies. Casualty Indemnity Exchange Ins. Co. v. Liberty National Fire Ins. Co., 902 F.Supp. 1235 (D. Mont. 1995).

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