Insurer’s Duty to Defend

An insurer must defend unless the allegations unequivocally demonstrate the policy does not cover them. Plum Creek Marketing, Inc. v. Am. Econ. Ins. Co., 352 Mont. 56, 214 P.3d 1238, 1247 (2009).

Four Corners Rule

See discussion below at 1.2.

Consideration of Extrinsic Evidence

The insurer has no duty to defend if the complaint alleges covered facts, and the insurer knows of no other facts creating a duty to defend; if the complaint does not allege covered facts, the insurer has no duty to look beyond the complaint. Landa v. Assurance Co. of Am., 371 Mont. 202, 307 P.3d 284, 290 (2013); Revelation Indus., Inc. v. St. Paul Fire & Mar. Ins. Co., 350 Mont. 184, 206 P.3d 919, 923 (2009). If the complaint alleges covered facts, but the insurer knows of facts outside the complaint negating coverage, the insurer has no duty to defend. Landa, 307 P.3d at 290–91; Revelation Indus., 206 P.3d at 923. If the complaint alleges facts not covered by the policy, but the insurer knows of facts outside the complaint triggering a duty to defend, the insurer cannot ignore these facts and must defend. Id. at 925–26.

Occurrence Requirement

General rule

When the policy defines “occurrence” as an “accident,” a potentially covered accident is “any unexpected happening that occurs without intention or design on the part of the insured.” Landa, 307 P.3d at 288. An accident “may include intentional acts if the damages were not objectively intended or expected by the insured….” Employers Mut. Cas. Co. v. Fisher Builders, Inc., 383 Mont. 187, 371 P.3d 375, 380 (2016).

Faulty workmanship and construction defect claims

A Montana federal court recently stated that “a claim for faulty workmanship, in and of itself, is not an occurrence under a commercial general liability policy because a failure of workmanship does not involve the fortuity required to constitute an accident.” Phoenix Ins. Co. v. Ed Boland Constr., Inc., 229 F.Supp.3d 1183, 1190 (D. Mont. 2017). As of April 2018, the Montana Supreme Court has not decided if a stand alone defective construction claim is an “occurrence.”

Bodily Injury Requirement

Emotional distress

When policy defined “bodily injury” as “physical harm to the body, sickness, disease, or death, but does not include: [sexually transmitted diseases, AIDS, and HIV],” purely emotional injuries, without physical manifestations, do not constitute covered “bodily injury.” Allstate Ins. Co. v. Wagner-Ellsworth, 344 Mont. 445, 188 P.3d 1042, 1051 (2008).

Consideration of physical manifestations

Under same definition of “bodily injury,” when mental or psychological injuries are accompanied by physical manifestations, covered “bodily injury” exists. Id.

Property Damage Requirement

Purely economic loss

Economic losses, such as loss of profits or goodwill, are not covered “property damage.” Liberty Bank of Montana v. Travelers Indem. Co. of Am., 870 F.2d 1504, 1508 (9th Cir. 1989) (security interest in property is not tangible property); Graber v. State Farm Fire & Cas. Co., 244 Mont. 265, 269, 797 P.2d 214, 216 (1990) (plagiarism complaint for loss of advertising business, revenue, and reputation alleged only economic damage and not covered property damage).

Loss of use

When policy defines “property damage” as “loss of use of tangible property which has not been injured,” tangible property can be “handled, touched or physically possessed.” Graber v. State Farm Fire and Cas. Co., 244 Mont. 265, 797 P.2d 214, 216 (1990). Economic losses are not tangible property. Id. at 216–17. The insured contractor’s liability for refunding the cost of the work it performed is not “[l]oss of use of tangible property that is not physically injured.” Generali-U.S. Branch v. Alexander, 320 Mont. 450, 87 P.3d 1000, 1003 (2004). When policy defines “property damage” as “[l]oss of use of tangible property that is not physically injured,” unused property, in contrast to property rendered useless, does not render the insured liable for “[l]oss of use of tangible property that is not physically injured. Phoenix Ins. Co., 229 F.Supp.3d at 1189.

Trigger of Coverage for Latent Injury i.e. exposure to asbestos, silica and lead paint

If some injury takes place during the policy period, even if it is hidden and can only be discovered retroactively, covered “physical injury to tangible property” occurred during the policy period. In re Silicone Implant Ins. Litig., 667 N.W.2d 405, 415 (2003), cited in, Swank Enter., Inc. v. All Purpose Services, LTD, 336 Mont. 197, 154 P.3d 52, 55–56 (2007).

Continuous trigger

In Swank, the Montana Supreme Court relied on a Minnesota Supreme Court decision, in which it adopted the “injury-in-fact” or “actual injury” trigger and appeared to favor it over the “continuous trigger” theory. In re Silicone Implant Ins. Litig., 667 N.W.2d 405, 415 (2003), cited in, Swank, 154 P.3d at 56.

Injury-in-fact trigger

In Swank, the Montana Supreme Court did not refer to trigger labels, but it relied on the Minnesota Supreme Court’s decision, in which this Court adopted the injury-in-fact trigger. Id.

Another trigger

See discussion at 1.6 through 1.6.2 above.

Trigger of Coverage Non-Latent Injury

General

In Swank, the Montana Supreme Court indicated that it likely will not apply a different trigger test depending on whether the injury is latent or non-latent. Id.

Construction Defect Claims

The Swank case arose from a subcontractor’s application of improper paint. Id. at 55. According to the Court in Swank, covered “physical injury’ can occur ‘even though the injury is not ‘diagnosable,’ ‘compensable,’ or manifest during the policy period as long as it can be determined, even retroactively, that some injury did occur during the policy period.” Id. at 56.

Duty to Defend Covered and Uncovered Claims

Montana follows the mixed action rule, in which the duty to defend all allegations is triggered even if some allegations are excluded. Fire Ins. Exchange v. Weitzel, 383 Mont. 364, 371 P.3d 457, 461 (2016).

Duty to defend contractual indemnity and common law indemnity claims

General contractor against insured

Under indemnity agreement regarding “any act or omission of the Subcontractor,” the subcontractor was required to indemnify the general contractor without actual evidence of the indemnitor subcontractor’s negligent conduct. A.M. Welles, Inc. v. Montana Materials, Inc., 378 Mont. 173, 342 P.3d 987, 989–990 (2015).

Is there an anti-indemnification statute?

Yes. Under construction contracts, identical statutes forbid language requiring one party to indemnify for the other party’s acts or omissions. Construction contracts may require indemnity for a third party’s or the indemnitee’s acts or omissions. MCA 18-2-124 and 28-2-2111.

Insurer’s Wrongful Refusal to Defend

An insurer “unjustifiably” denying the duty to defend “is estopped from denying coverage” and “becomes liable for defense costs and judgments.” Tidyman’s Mgmt. Serv. Inc. v. Davis, 376 Mont. 80, 330 P.3d 1139, 1149 (2014). An insurer that breaches the duty to defend is liable for the full amount of the judgment, even if it exceeds the policy limits. Id. at 1150. The insured, or its assignee, may recover its attorney’s fees incurred in a declaratory action to compel the insurer to defend and indemnify. Newman v. Scottsdale Ins. Co., 370 Mont. 133, 301 P.3d 348, 362 (2013).

Reliance on coverage defenses to deny indemnity

An insurer’s duty to indemnify arises when the policy covers facts actually proven. State Farm Mut. Auto. Ins. Co. v. Freyer, 372 Mont. 191, 312 P.3d 403, 411 (2013).

Conditions of Coverage

Late notice

Factors considered to determine if coverage is forfeited

Notice provision is breached, precluding liability coverage, when insured failed to notify its insurer of suit against it because insurer “was deprived of the ability to investigate, to locate witnesses, to appoint counsel, to engage in discovery, to negotiate a settlement, and to develop a trial strategy.” Steadele v. Colony Ins. Co., 361 Mont. 459, 260 P.3d 145, 151 (2011).

Prejudice requirement

If a liability insurer does not receive timely notice of a suit against the insured, the insurer “must demonstrate prejudice from the lack of notice to avoid defense and indemnification of the insured.” Atl. Cas. Ins. Co. v. Greytak, 379 Mont. 332, 350 P.3d 63, 67 (2015).

Meaning of “arising out of”

Coverage grants/agreements

“Arising out of” is ambiguous, and the phrase should be interpreted expansively. Wendell v. State Farm Mut. Auto. Ins. Co., 293 Mont. 140, 970 P.2d 623, 639 (1999). Insured’s injuries arose out of the use of the uninsured vehicle if the insured’s injuries originated from, or grew out of, or flowed from use of the uninsured vehicle. Id.

Exclusions

As in coverage grant, “arising out of” is ambiguous; for an exclusion of Commercial General Liability coverage arising out to the use of an auto, however, the phrase will be narrowly interpreted to benefit the insured. Pablo v. Moore, 298 Mont. 393, 995 P.2d 460, 995 P.2d 460, 462–63 (2000). To prevent coverage, arising out of the use of an auto must include all potential theories of liability. Because the underlying plaintiff pleaded theories of liability for negligent hiring, supervision, and training, the ambiguous exclusion did not preclude coverage. Id. at 464.

Other policy forms

Under endorsement limiting coverage to liability arising out of the ownership, maintenance, or use of the designated premises, if allegations can be causally linked to the ownership, maintenance, or use of the designated premises, the duty to defend is triggered. Newman v. United Fire and Cas. Co., 995 F.Supp.2d 1125, 1131–32 (D. Mont. 2014), aff’d, 668 Fed.Appx. 816 (9th Cir. 2016).

Coverage for punitive damages

Insurable?

Insuring punitive damages does not violate public policy. Fitzgerald v. W. Fire Ins. Co., 209 Mont. 213, 679 P.2d 790, 792 (1984). By statute, punitive damages are only insurable if “expressly included in the contract of insurance.” MCA 33-15-317.

Distinction for statutory multiple damages?

We found no authority distinguishing the insurability of punitive and multiple damages. Montana’s Supreme Court stated, however, that multiple damages awarded under Montana’s Consumer Protection Act should not be considered punitive in nature. Vader v. Fleetwood Enter., Inc., 348 Mont. 344, 201 P.3d 139, 150 (2009).

Additional Insured Endorsement

Contract or writing required

When an additional insured endorsement stated named insured “agreed by written ‘insured contract’ to designate the person or person or organization listed above as an additional insured,” the absence of a written contract requiring additional insured coverage did not defeat claim for additional insured coverage. Scentry Biologicals, Inc. v. Mid-Continent Cas. Co., 374 Mont. 18, 319 P.3d 1260, 1266 (2014). Instead, written affidavits from the producing agent and the putative additional insured detailing how the party seeking additional insured coverage asked to be made an additional insured constituted “sufficient writings … to satisfy the written ‘insured contract’” provisions necessary to establish additional insured coverage. Id. at 1267.

Analysis and factors considered for liability arising out/caused by of the named insured’s work

Where endorsement covers additional insured’s liability: “... caused, in whole or in part, by: 1. [named insured’s] acts or omissions; or 2. [t]he acts or omissions of those acting on [named insured’s] behalf; in the performance of [named insured’s] ongoing operations for the additional insured,” allegations that both additional and named insured may have caused injury trigger the duty to defend the additional insured. WBI Energy Transmission, Inc. v. Colony Ins. Co., 56 F.Supp.3d 1194, 1202–03 (D. Mont. 2014).

Coverage B- Personal and Advertising Injury

Meaning of publication for “oral or written publication of material, in any manner, that violates a person’s right of privacy” offense

Allegations that insured used spy software to track rented laptops triggered duty to defend under provision covering: “oral or written publication ‘of material that violates a person’s right of privacy.’” Am. Econ. Ins. Co. v. Hartford Fire Ins. Co., 695 Fed.Appx. 194, 196 (2017) (construing Montana law). Exclusions extinguished coverage. Id.

A corporation alleged the insureds used confidential and proprietary information to compete against the corporation. Mid-Century Ins. Co. v. Windfall, Inc., 15-146, 2016 WL 2992114, *1 (D. Mont. May 23, 2016). No coverage existed because the complaint did not allege a viable invasion of a person’s right to privacy. While the corporation may be a person, a corporation “has no violable right of privacy.” Id. at *5.