J & C Moodie Props., LLC v. Deck

Citation385 Mont. 382,2016 MT 301,384 P.3d 466
Decision Date22 November 2016
Docket NumberDA 16-0051
CourtUnited States State Supreme Court of Montana
Parties J & C Moodie Properties, LLC, a Montana limited liability company, Plaintiff and Appellee, v. Stanley Deck, June Deck, Dickinson Broadcast Croporation, a North Dakota corporation, Dave Campbell, d/b/a Campbell Realty, a Montana company, Hessler Architects, a Montana corporation, NCI Engineering, Inc., a Montana corporation, Everson-Cordeiro Engineering Design, a Montana company, Mountain States Concrete, a Montana company, Wadsworth Builders Company, Inc., a Montana corporation, Alpha Partners LLC, a Montana limited liability company, Nucor Building Systems Utah LLC, Scottsdale Insurance Company, and John Does 1-99, Defendants and Appellants.

385 Mont. 382
384 P.3d 466
2016 MT 301

J & C Moodie Properties, LLC, a Montana limited liability company, Plaintiff and Appellee,
v.
Stanley Deck, June Deck, Dickinson Broadcast Croporation, a North Dakota corporation, Dave Campbell, d/b/a Campbell Realty, a Montana company, Hessler Architects, a Montana corporation, NCI Engineering, Inc., a Montana corporation, Everson-Cordeiro Engineering Design, a Montana company, Mountain States Concrete, a Montana company, Wadsworth Builders Company, Inc., a Montana corporation, Alpha Partners LLC, a Montana limited liability company, Nucor Building Systems Utah LLC, Scottsdale Insurance Company, and John Does 1-99, Defendants and Appellants.

DA 16-0051

Supreme Court of Montana.

Submitted on Briefs: September 7, 2016
Decided: November 22, 2016


For Appellants: Bradley J. Luck, Kathleen L. DeSoto, Garlington, Lohn & Robinson, PLLP, Missoula, Montana

Robert H. King, Jr., Dentons US LLP, Chicago, Illinois (Attorneys for Scottsdale Insurance Company)

For Appellee: James C. Cumming, Cumming Law Firm, Helena, Montana

Justice Jim Rice delivered the Opinion of the Court.

385 Mont. 383

¶1 The above-named Appellants (collectively Defendants), including Scottsdale Insurance Company (Scottsdale), appeal the decision of the Eighth Judicial District Court, Cascade County, granting summary judgment in favor of J & C Moodie Properties, LLC (Moodie) on issues

385 Mont. 384

related to Scottsdale's duty to defend. We affirm in part, reverse in part, and remand for further proceedings.

¶2 We consider the following issues:

1. Did the District Court err by holding that Scottsdale breached its duty to defend its insured?

2. Did the District Court err by holding there were no grounds for a reasonableness hearing regarding the stipulated judgment?

3. Did the District Court err by ruling that Scottsdale was not entitled to conduct discovery regarding the reasonableness determination?

FACTUAL AND PROCEDURAL BACKGROUND

¶3 Moodie hired Haynie Construction (Haynie), owned by Kyle Haynie, as general contractor to construct a building for Moodie's farm equipment dealership. Haynie's commercial business was insured by two different insurance companies during the course of Haynie's work on the project. Mountain West Farm Bureau (Farm Bureau) insured Haynie under a policy that was in effect from April 22, 2008, to April 22, 2009. Scottsdale insured Haynie under a policy that was effective from April 29, 2009 onward, until it was cancelled on February 18, 2010. The Scottsdale policy contained a $1,000,000 limit of liability per occurrence, subject to a $2,000,000 aggregate limit. There was no overlap in the effective periods of the two policies insuring Haynie.

¶4 In August 2008, Moodie entered into a buy/sell agreement to purchase a parcel of land on which to build the dealership building, and the transaction closed on July 18, 2009. Haynie conducted some construction work during the effective period of the Farm Bureau policy. The building project was completed in September 2009, while the Scottsdale policy was in effect.

¶5 In October 2012, Moodie filed the instant action against Haynie, asserting various construction defect claims regarding the construction project. Moodie filed its second amended complaint in February 2013, asserting intertwining claims against Haynie, Kyle Haynie personally, and Russell Country Realty, which was partly owned by Kyle Haynie.1

¶6 According to the affidavit of Jon Reamer (Reamer Affidavit), a Director of Claims for Scottsdale, Scottsdale received a Notice of Claim “indicating Moodie Implement Company had presented a claim against Haynie in the captioned District Court action” on March 6, 2013.

385 Mont. 385

Scottsdale acknowledged receipt of the claim the same day.

¶7 The Reamer Affidavit further attests to “several contacts” between Scottsdale and

384 P.3d 470

Kyle Haynie, on behalf of Haynie, following the receipt of the Notice of Claim. First, on March 21, 2013, Kyle Haynie informed Scottsdale that Farm Bureau had filed an Answer on behalf of Haynie and assigned an incident number to the claim. Second, on March 25, 2013, Kyle Haynie informed Scottsdale that his first contract “as general contractor on the Moodie Implement project was dated February 15, 2009, prior to the inception of the Scottsdale coverage.” Scottsdale averred that, during this second conversation, Kyle Haynie was advised, and he acknowledged, that Scottsdale's policy did not cover operations prior to April 29, 2009, and that Kyle Haynie advised Scottsdale that Farm Bureau “would be defending him in the action.” Kyle Haynie attested that he “never told Scottsdale or anyone else that [he] agreed Scottsdale does not owe a duty to defend [his] company.”

¶8 On May 20, 2013,2 Scottsdale sent Haynie a letter formally denying coverage. The letter advised Haynie that Scottsdale had “determined that there is no coverage available for the presently pending claims against you in this matter.” The letter stated the “Designated Operations Exclusion” of Scottsdale's policy excluded coverage for damages “arising out of any and all operations prior to the inception of this policy.... Therefore, this exclusion will act to bar coverage for this matter and Scottsdale will not defend and/or indemnify you for this matter.” The letter concluded by advising Haynie that if it believed “this coverage determination to be inaccurate, or that the claim has been wrongfully disclaimed or rejected in whole or in part, you [Haynie] may have the matter reviewed by the State Department of Insurance within the pertinent jurisdiction,” and requested that Haynie provide any information or documentation to Scottsdale if the facts or circumstances changed. Scottsdale presented no evidence that it took any additional actions in furtherance of Haynie's defense.3 Scottsdale's next action of any kind was its notice of appearance in this litigation, filed May 19, 2015.

¶9 By discovery responses dated June 20, 2013, Haynie disclosed to

385 Mont. 386

Moodie that Scottsdale had refused to defend and indemnify Haynie, and that Farm Bureau was defending the action, but would be issuing a reservation of rights letter. That same day, Farm Bureau provided the letter to Haynie, advising that it would provide a defense through attorney Curt Drake (Drake) because some of the claims alleged may fall under the Farm Bureau policy. However, the letter stated as follows:

Mountain West Farm Bureau Mutual Insurance Company expressly reserves its rights with respect to the following questions concerning its duty to provide defense and indemnity under the Businessowners [sic] policies issued to you:

1. There is a question as to whether some or all of the damages alleged in the lawsuit were the result of bodily injury or property damage caused by an occurrence as those terms are defined in the policy.

2. There is a question as to whether some or all the claims asserted in the Second Amended Complaint fall within the scope of the policy's coverage.

3. There is a question as to whether the following policy language precludes coverage: [policy provisions regarding, in particular, the “your work” exclusion and whether the damages fall within the definition of “property damage.”]

Farm Bureau noted that “Some potential coverage exists for the claim of negligence. That being said, some or all of the damages alleged in the Second Amended Complaint may be excluded by the policy provisions cited above.” The letter concluded by informing Haynie:

As noted above, some of the damages asserted against you may not give rise to coverage. Consequently, this presents the potential for personal liability on your part, and we reserve the right to deny coverage
384 P.3d 471
to you, and anyone claiming coverage under your policy, for any judgment falling outside the policy's coverage.

Drake represented Haynie throughout the litigation and there is no dispute he provided a competent defense.

¶10 On February 9, 2015, Haynie and Moodie jointly filed a stipulated settlement that recited (1) Moodie's claims against Haynie; (2) Moodie's expert witnessess's opinion that the project was negligently constructed and that Moodie suffered $5,650,000 in damages; (3) Scottsdale's refusal to provide a defense or coverage; (4) Haynie's resulting substantial risk, including financial insolvency; (5) the settlement reached between Moodie and Haynie for $5,650,000; (6) Moodie's agreement to file a covenant not to execute on such judgment; and (7) Haynie's agreement to assign all its rights and interest in the

385 Mont. 387

Scottsdale policy to Moodie. Kyle Haynie attested that, as a result of Scottsdale's refusal to provide a defense, he had “settled with Moodie to eliminate the severe risks to me and my business.”

¶11 The District Court entered judgment in the...

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