Scentry Biologicals, Inc. v. Mid-Continent Cas. Co.

• Decision Date: 18 March 2014
• Docket Number: No. DA 13–0415.,DA 13–0415.
• Citation: 374 Mont. 18,319 P.3d 1260
• Parties: SCENTRY BIOLOGICALS, INC., Plaintiff and Appellee, v. MID–CONTINENT CASUALTY COMPANY, Defendant and Appellant, Wilbur–Ellis Company and Applewood Orchards, Inc., Plaintiffs in Intervention and Appellees.
• Court: Montana Supreme Court

374 Mont. 18

319 P.3d 1260

SCENTRY BIOLOGICALS, INC., Plaintiff and Appellee,

v. MID–CONTINENT CASUALTY COMPANY, Defendant and Appellant,Wilbur–Ellis Company and Applewood Orchards, Inc., Plaintiffs in Intervention and Appellees.

No. DA 13–0415.

Supreme Court of Montana.

Submitted on Briefs Jan. 22, 2014.

Decided Feb. 18, 2014.

Rehearing Denied March 18, 2014.

For Appellant: Allan H. Baris, Moore, O'Connell & Refling, P.C., Bozeman, Montana, Levon G. Hovnatanian, Christopher W. Martin, Ethan D. Carlyle, Martin, Disiere, Jefferson & Wisdom, L.L.P., Houston, Texas.

For Appellees: Donald L. Harris, Tucker P. Gannett, Harris & Warren, PLLP, Billings, Montana (for Scentry Biologicals, Inc.), Gregory ‘Greg’ G. Murphy, Attorney at Law, Billings, Montana (for Wilbur–Ellis Company), Paul D. Odegaard, Odegaard Law Firm, Billings, Montana (for Applewood Orchards, Inc.).

Justice PATRICIA COTTER delivered the Opinion of the Court.

¶ 1 Appellant Mid–Continent Casualty Company provided comprehensive general liability insurance to Scentry Biologicals, a Delaware corporation licensed to do business in Montana. Scentry is the manufacturer of NoMate, a pest control product designed to protect various agricultural crops from destructive insects by thwarting the insects' mating activities. Applewood Orchards, a Michigan corporation, purchased NoMate in 2006 from Wilbur–Ellis (W–E), a distributor of NoMate. Applewood used the product on its apple crop in spring and summer 2006 for protection against codling moths. It subsequently discovered significant moth damage and pursued a tort action against Scentry and W–E in a Michigan court. Scentry notified Mid–Continent and both Scentry and W–E requested that the insurer defend them under Scentry's policy. Mid–Continent initially refused but subsequently agreed to defend Scentry, reserving its right to determine its coverage obligations later. It persisted in its refusal to defend W–E and W–E subsequently settled with Applewood for $62,500.

¶ 2 In the tort action, the Michigan court ruled against Scentry and in favor of Applewood, and entered a $544,325 award. A few months prior to the Michigan court's resolution, Scentry filed a declaratory judgment action against Mid–Continent in Montana's Thirteenth Judicial District Court seeking declaratory relief on coverage issues. W–E and Applewood intervened. Following the Michigan court's ruling, all parties in the Montana proceeding moved for summary judgment. The District Court granted Scentry, Applewood, and W–E's motions and denied Mid–Continent's motion. Based upon stipulated damages, the court awarded Applewood $595,000, Scentry $210,000, and W–E $460,000. Mid–Continent appeals the orders of summary judgment. We affirm.

ISSUES

¶ 3 Mid–Continent presents the following issues on appeal:

¶ 4 Did the District Court err in granting Scentry's motion for summary judgment?

¶ 5 Did the District Court err in granting W–E's motion for summary judgment?

¶ 6 Did the District Court err in granting Applewood's motion for summary judgment?

¶ 7 Did the District Court err in denying Mid–Continent's motion for summary judgment?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 8 Scentry is a pest control product manufacturer with its principal place of business in Billings, Montana. In 2006, Applewood Orchards purchased Scentry's product from W–E and applied it to portions of its Michigan apple orchard. It is undisputed that Applewood applied the product correctly and in accordance with the application instructions, and that it subsequently monitored the crop appropriately. However, Applewood suffered significant codling moth damage to those portions of its apple crop treated with Scentry's product.

¶ 9 During this time, from May 1, 2006, through May 1, 2007, Scentry carried $2 million in commercial general liability (CGL) insurance with Mid–Continent Casualty Company. Scentry claims it also carried $2 million in products-completed operations hazard coverage (PCOH) with Mid–Continent. Mid–Continent asserts it did not insure Scentry for PCOH.¹

Michigan litigation

¶ 10 In 2008, Applewood brought an action in the Circuit Court for Lenawee County, Michigan, against Scentry's distributor, W–E. In 2009, Applewood filed an amended complaint adding Scentry as a defendant and claiming breach of warranty of merchantability, breach of warranty of fitness, breach of contract, negligence, misrepresentation, fraud in the inducement, and violation of the Michigan Consumer Protection Act.

¶ 11 Upon notice of Applewood's complaint, Scentry notified Mid–Continent and tendered the matter to the insurer for a defense. Mid–Continent refused, asserting that Applewood's claims did not fall within the CGL coverage of Scentry's policy. Scentry countered that its claims were covered under the PCOH coverage of the policy but Mid–Continent did not address this claim. After Scentry made additional demands for a defense under the policy, Mid–Continent subsequently assumed Scentry's defense under a reservation of rights with respect to coverage.

¶ 12 W–E, asserting it was an additional insured on Scentry's policy, also sought a defense from Mid–Continent. Mid–Continent repeatedly refused and W–E assumed its own defense. Ultimately, it settled with Applewood for $62,500.

¶ 13 In April 2011, the Michigan court conducted a 4–day bench trial. At the conclusion, the court held that Scentry was liable to Applewood for breach of the implied warranty of fitness, breach of the implied warranty of merchantability, and fraud in the inducement. The court issued judgment in May 2011 and awarded Applewood damages of $508,564.69 plus costs and pre-judgment interest for a total award of $544,325.03.

Montana litigation

¶ 14 In January 2011, as the Michigan case was proceeding toward trial, Scentry brought a declaratory action against Mid–Continent in the Thirteenth Judicial District Court of Montana, seeking a judgment declaring that Scentry was covered under its policy with Mid–Continent for Applewood's claims and that Mid–Continent was obligated to defend and indemnify Scentry.

¶ 15 In May 2011, W–E was granted leave to intervene in the Montana cause of action. It argued that as an additional insured under the Mid–Continent policy, it was entitled to indemnification for its settlement and expenses. In September 2011, Scentry moved for summary judgment. In December 2011, Applewood moved to intervene in order to assert a right to recover the Michigan judgment against Mid–Continent. Applewood's motion to intervene was granted by the District Court. Shortly thereafter Mid–Continent moved for summary judgment. In March 2012, Applewood moved for summary judgment and in November 2012, W–E filed a second motion for summary judgment.

¶ 16 On December 12, 2012, the District Court issued its Decision on Summary Judgment Motions, addressing each party's motion individually.

Scentry

¶ 17 The court concluded that in addition to providing the undisputed CGL coverage, Scentry's policy with Mid–Continent also provided coverage for PCOH. The District Court held that Applewood's claims for breach of the implied warranties of merchantability and fitness fell within the PCOH coverage and entitled Scentry to summary judgment on its claim against Mid–Continent for coverage and indemnification.

¶ 18 Mid–Continent argued that any award to Scentry must be proportionately reduced in light of the Michigan court's finding of fraud, as fraud is considered an uninsured intentional act. The court declined to apportion the award, explaining that either Mid–Continent did not seek apportionment in the Michigan case or sought apportionment there but was unsuccessful. Moreover, Mid–Continent did not “produce[ ] a colorable argument for apportionment” before the District Court. The court held that “liability and damages which Applewood sustained are covered by the [PCOH] portion of the policy, and therefore Mid–Continent must indemnify Scentry for the Applewood judgment.” The court therefore granted Scentry's motion for summary judgment.

Applewood

¶ 19 As to Applewood, the District Court merely noted that Applewood moved for summary judgment based upon Scentry's arguments; therefore, having granted Scentry's motion, the court granted Applewood's as well.

Wilbur–Ellis

¶ 20 W–E moved for partial summary judgment seeking a declaration that it was an additional insured under Scentry's policy and, as such, Mid–Continent should have defended it upon W–E's requests. The District Court rejected Mid–Continent's argument that it did not insure W–E, finding that “Mid–Continent accepted an additional premium for Wilbur–Ellis, as well as issued a certificate of insurance.” The court concluded that having

previously held that Mid–Continent must indemnify Scentry ... Mid–Continent must also indemnify Wilbur–Ellis for the defense costs which [W–E] bore as well as the settlement amount. Mid–Continent had a duty to either defend the case, or prove with the evidence available that defense was not available because of exclusions, or defend under a reservation of rights....

Based upon these findings and conclusions, the District Court granted W–E's motion for summary judgment.

Mid–Continent

¶ 21 Mid–Continent also sought summary judgment, asserting that it had neither a “duty to defend nor duty to indemnify” W–E in the underlying Michigan action. Noting that it had granted W–E's summary judgment motion on the same grounds, the District Court denied Mid–Continent's motion.

¶ 22 Mid–Continent appeals.

STANDARD OF REVIEW

¶ 23 We review a district court's ruling on a motion for summary judgment de novo, applying the same criteria of M.R. Civ. P. 56 as did the district court. Summary judgment “should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” M.R. Civ. P. 56(c)(3); Newman v. Scottsdale Ins....