Northfield Ins. Co. v. ASS'N OF COUNTIES

• Decision Date: 26 September 2000
• Docket Number: No. 00-072.,00-072.
• Parties: NORTHFIELD INSURANCE COMPANY, and Lloyds of London, Plaintiffs and Appellants, v. MONTANA ASSOCIATION OF COUNTIES, Defendant and Respondent.
• Court: Montana Supreme Court

10 P.3d 813

301 Mont. 472

2000 MT 256

NORTHFIELD INSURANCE COMPANY, and Lloyds of London, Plaintiffs and Appellants, v. MONTANA ASSOCIATION OF COUNTIES, Defendant and Respondent.

No. 00-072.

Supreme Court of Montana.

Submitted on Briefs April 27, 2000.

Decided September 26, 2000.

Michael J. Milodragovich, G. Patrick Hagestad; Milodragovich, Dale, Steinbrenner & Binney, Missoula, Montana, For Appellants.

Stuart L. Kellner; Hughes, Kellner, Sullivan & Alke, Helena, Montana, For Respondent.

Justice KARLA M. GRAY delivered the Opinion of the Court.

¶ 1 Northfield Insurance Company (Northfield) and Lloyds of London (Lloyds) appeal from the order entered by the First Judicial District Court, Lewis and Clark County, granting the motion filed by the Montana Association of Counties, Joint Powers Insurance Authority (MACO) to dismiss their complaint for declaratory judgment. We affirm.

¶ 2 The sole issue on appeal is whether the District Court abused its discretion in dismissing the complaint seeking declaratory relief for lack of a justiciable controversy.

BACKGROUND

¶ 3 The present case stems from a class action lawsuit entitled Alan Doe, et al. v. Park County, et al., currently pending before the United States District Court for the District of Montana, Billings Division, in which the plaintiffs allege they were sexually abused while incarcerated at the Park County Detention Center (Detention Center). The Doe plaintiffs have asserted claims for negligence, violation of their constitutional rights, and intentional and negligent infliction of emotional distress against the Park County Sheriff and several jailers at the Detention Center.

¶ 4 MACO's self-insurance fund is the primary insurer for numerous public entities in Montana, including Park County. Pursuant to its primary insurance policy, MACO has assumed the defense and indemnification of Park County and the individual Park County officials named in the federal suit. Northfield and Lloyds are secondary assurance companies under a Public Entities All Lines Aggregate Insurance Policy (Policy) issued to MACO. Northfield and Lloyds brought the present action seeking a declaratory judgment that, under the terms of the Policy, they have no duty to indemnify MACO in connection with the claims pending in federal court against MACO's insureds.

¶ 5 Among other things, Section II of the Policy provides comprehensive general liability indemnification for all sums which the assured becomes obligated to pay by reason of errors, omissions or negligent acts arising out of the performance of employment duties, including law enforcement duties. Section II states that any claim for damages "which the Assured intended or expected or reasonably could have expected" is excluded from coverage, as is "any claim resulting from the sexual or physical abuse or molestation of any person by the Assured."

¶ 6 Section IV of the Policy provides errors and omissions indemnity for any loss incurred by reason of a "Wrongful Act." The term "Wrongful Act" is defined to include any "act of neglect or breach of duty including misfeasance, malfeasance, and non-feasance by the Assured." Section IV states that any claim for damages "for bodily injury" or "arising out of law enforcement activities" is excluded from coverage.

¶ 7 MACO moved to dismiss Northfield's and Lloyds' complaint for declaratory judgment pursuant to Rule 12(b)(6), M.R.Civ.P., on the ground that it failed to state a claim upon which relief may be granted. The District Court granted MACO's motion and dismissed the complaint for lack of a justiciable controversy. Northfield and Lloyds moved to alter or amend the order, the District Court denied their motion, and Northfield and Lloyds appeal.

STANDARD OF REVIEW

¶ 8 In evaluating a Rule 12(b)(6) motion to dismiss, a district court is required to construe the complaint in the light most favorable to the plaintiff and should not dismiss the complaint unless it appears the plaintiff is not entitled to relief under any set of facts which could be proved in support of the claims. Loney v. Milodragovich, Dale & Dye, P.C. (1995), 273 Mont. 506, 509, 905 P.2d 158, 160. The decision to dismiss a complaint for declaratory judgment is within the sound discretion of the district court. Brisendine v. State, Dept. of Commerce (1992), 253 Mont. 361, 364, 833 P.2d 1019, 1020 (citations omitted). "When a district court determines that declaratory relief is not necessary or proper, we will not disturb the court's ruling absent an abuse of discretion." Ridley v. Guaranty Nat. Ins. Co. (1997), 286 Mont. 325, 329, 951 P.2d 987, 989 (citations omitted). However, we review the conclusions upon which that decision is based to determine whether the court's interpretation of the law is correct. Ridley, 286 Mont. at 329, 951 P.2d at 989 (citations omitted). A district court's ruling on whether a justiciable controversy exists is a conclusion of law. See generally Ridley, 286 Mont. at 332,

951 P.2d at 991; Brisendine, 253 Mont. at 365,

833 P.2d at 1021.

DISCUSSION

¶ 9 Did the District Court abuse its discretion in dismissing the complaint seeking declaratory relief for lack of a justiciable controversy?

¶ 10 The remedial purpose of the Uniform Declaratory Judgments Act (Act), "to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations," is to be liberally construed. Section 27-8-102, MCA. Nevertheless, liberal interpretation of the Act is tempered by the necessity that a justiciable controversy exist before courts exercise jurisdiction. See Marbut v. Secretary of State (1988), 231 Mont. 131, 135, 752 P.2d 148, 150

. Indeed, "this Court has on occasion refused to entertain a declaratory judgment action on the ground that no controversy is pending which the judgment would affect." Hardy v. Krutzfeldt (1983), 206 Mont. 521, 524, 672 P.2d 274, 275. Furthermore, § 27-8-206, MCA, of the Act authorizes a 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."

¶ 11 In granting MACO's motion to dismiss in the present case, the District Court determined that a declaratory ruling as to Northfield's and Lloyds' duty to indemnify in the early stages of the underlying federal litigation, and based on the current status of the federal complaint, would be premature. Because a ruling that Northfield and Lloyds have no duty to indemnify MACO might need to be modified later if liability ultimately were imposed on MACO as a result of a settlement or judgment actually entered, the District Court concluded that any declaratory relief granted in their favor would be "ineffectual and mere speculation." As a result, the court further concluded no justiciable controversy existed.

¶ 12 The test of whether a justiciable controversy exists contains three elements:

First, a justiciable controversy requires that parties have existing and genuine, as distinguished from theoretical, rights or interest. Second, the controversy must be one upon which the judgment of the court may effectively operate, as distinguished from a debate or argument invoking a purely political, administrative, philosophical or academic conclusion. Third, [it] must be a controversy the judicial determination of which will have the effect of a final judgment in law or decree in equity upon the rights, status or legal relationships of one or more of the real parties in interest, or lacking these qualities be of such overriding public moment as to constitute the legal equivalent of all of them.

Brisendine, 253 Mont. at 364, 833 P.2d at 1020-21 (quoting Lee v. State (1981), 195 Mont. 1, 6, 635 P.2d 1282, 1284-85

(quoting Matter of Secret Grand Jury Inquiry (1976), 170 Mont. 354, 357, 553 P.2d 987, 990)). We apply the justiciable controversy test to actions for declaratory judgment to prevent courts from determining purely speculative or academic matters, entering anticipatory judgments, providing for contingencies which may arise later, declaring social status, dealing with theoretical problems, answering moot questions, or giving abstract or advisory opinions. See Brisendine, 253 Mont. at 365,

833 P.2d at 1021; Montana Dept. of Nat. R. & C. v. Intake Water Co. (1976), 171 Mont. 416, 440, 558 P.2d 1110, 1123 (citations omitted).

¶ 13 In Brisendine, for example, a denturist sought a judicial declaration that he was not prohibited from entering into a professional relationship with a dentist while the issue was still pending before the Board of Dentistry. Brisendine, 253 Mont. at 362-63, 833 P.2d at 1019-20. We upheld the district court's determination that no justiciable controversy existed because the complaint lacked specificity regarding his proposed business association and because Brisendine had not exhausted his administrative remedies. We determined that an action for declaratory judgment while the underlying controversy was still pending before an administrative board was premature and would serve only as an impermissible advisory opinion. Brisendine, 253 Mont. at 365, 833 P.2d at 1021.

¶ 14 Applying the justiciable controversy test to the present case, Northfield and Lloyds do not have an existing and genuine interest at stake at this time, even under the broad language of the Act. Northfield and Lloyds seek a declaration that they have no duty to indemnify MACO pursuant to the secondary Policy, even though the record fails to establish anything more than a hypothetical controversy regarding indemnification. While it is true that § 27-8-202, MCA, specifically affords any person whose rights, status or other legal relations are affected by a contract the right to have any question of construction or validity of such a contract determined under the Act, a justiciable controversy cannot exist based on hypothetical facts and...