Beaverhead Cnty. v. Mont. Ass'n of Counties Joint Powers Ins. Auth.

• Citation: 2014 MT 267,376 Mont. 413,335 P.3d 721
• Decision Date: 07 October 2014
• Docket Number: No. DA 13–0853.,DA 13–0853.
• Parties: BEAVERHEAD COUNTY, a political subdivision of the State of Montana, Plaintiff and Appellant, v. MONTANA ASSOCIATION OF COUNTIES JOINT POWERS INSURANCE AUTHORITY, Defendant and Appellee.
• Court: Montana Supreme Court

376 Mont. 413

335 P.3d 721

2014 MT 267

BEAVERHEAD COUNTY, a political subdivision of the State of Montana, Plaintiff and Appellant

v.MONTANA ASSOCIATION OF COUNTIES JOINT POWERS INSURANCE AUTHORITY, Defendant and Appellee.

No. DA 13–0853.

Supreme Court of Montana.

Submitted on Briefs Sept. 17, 2014.

Decided Oct. 7, 2014.

For Appellant: Andrew P. Suenram, Adam M. Shaw, Erb & Suenram, PLLC; Dillon, Montana.

For Appellee: Gary M. Zadick, Ugrin, Alexander, Zadick & Higgins, P.C.; Great Falls, Montana.

Opinion

Justice MICHAEL E. WHEAT delivered the Opinion of the Court.

¶ 1 Beaverhead County (County) appeals from the order of the Montana Fifth Judicial District Court, Beaverhead County, granting summary judgment in favor of the Montana Association of Counties Joint Powers Insurance Authority (MACo). We affirm.

ISSUES

¶ 2 We review the following issues:

1. Did the District Court err by granting summary judgment on the issue of MACo's duty to defend?

2. Did the District Court err by considering the insurance policy's Exclusion 23 when granting summary judgment?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 3 In 2009, the County invited interested persons to submit bids for the Blacktail Deer Creek Stream Rehabilitation and Bridge Replacement Project. Coleman Construction (Coleman) submitted a bid, and the County subsequently selected Coleman to complete the project. However, Coleman was unable to finish the project on time or for the amount of money that it originally estimated.

¶ 4 Coleman sued for damages, filing a complaint against the County on April 4, 2011. Coleman asserted ten claims for relief. Seven of these claims expressly alleged a breach of contract, asked for relief from the contract, or asked for reformation of the contract. The other three claims, claims 1–3, stated:

First Claim for Relief

(Negligent Misrepresentation)

...

37. Defendants knew or should have known that certain material representations contained in the Contract Documents were not true.

...

41. Defendants' negligent representations, both expressed and implied, materially affected the cost and time necessary to perform the work....

Second Claim for Relief

(Negligence)

...

43. Under applicable codes and industry standards, Defendants had a duty of care to Coleman, as a general contractor and prospective bidder, to exercise appropriate care when preparing Contract Documents for the purpose of inviting the submission of secured bids.

44. Defendants[ ] each and severally breached their duty of care by preparing and providing Contract Documents that contain material defects and were not otherwise prepared in compliance with applicable codes or industry standards.

45. Defendants' negligence materially impacted the cost and time actually necessary to perform the work, causing Coleman to suffer damages, costs, fees, and expenses....

Third Claim for Relief

(Professional Negligence)

...

48. In order to have his bid considered Coleman was required under the terms of the Contract Documents to follow plans and specifications prepared by Defendants and to post and bond for bids and the performance of work, and to comply with other specified conditions.

49. Coleman submitted a secured bid, obtained the required bond(s) and satisfied other conditions imposed by Defendants on bidders for the Blacktail Project.

50. Because Coleman was required to rely on and conform to the Contract Documents, to provide a secure bid, bond its work, and otherwise comply with Contract Documents prepared by Defendants, Defendants owed Coleman a higher duty of care as professional engineers.

¶ 5 On April 5, 2011, the County notified MACo, in writing, of Coleman's complaint and provided MACo with a copy of the complaint. MACo is a joint risk insurance pool comprised of Montana counties, and the County carried an insurance policy with it. The County's letter requested that, pursuant to its insurance policy, MACo defend and indemnify the County from the claims against it.

¶ 6 MACo's attorney responded with a preliminary decision on April 13, 2011, recommending that coverage be denied. MACo's claims administrator confirmed the denial with a final decision on April 20, 2011. In their communications, both MACo's attorney and its claims administrator cited Exclusions 12 and 15 of the MACo JPIA Manuscript Liability Policy. Exclusion 12 reads: “This policy does not insure against: Any claim arising out of a claimed breach of contract or for breach of contract against the Insured.” Exclusion 15 was applied to deny coverage to claim 10 of the complaint only. This denial was not contested and is not relevant to the present action.

¶ 7 Both the preliminary and final decisions denying coverage reasoned that “[e]ach of the claims for relief is clearly based on Beaverhead County's contract with Coleman and accordingly falls under this exclusion.” Although MACo recognized that the first three claims in the complaint were labelled as requests for relief from negligence, it decided, having examined the complaint and citing this Court's decision in Town of Geraldine v. Montana Mun. Ins. Auth., 2008 MT 411, 347 Mont. 267, 198 P.3d 796, that the acts giving rise to the claims were based on contract, rather than tort. Accordingly, it denied coverage.

¶ 8 Following MACo's denial of coverage, the County hired an attorney to defend it against Coleman's claims. On June 27, 2011, that attorney sent a letter to MACo on the County's behalf. It included his analysis of Coleman's complaint and asserted that it triggered MACo's duty to defend the County under the County's insurance policy. Follow-up letters were sent on August 10, 2011 and September 20, 2011. While discussing MACo's legal obligations, none of these letters provided any facts that were not already included in Coleman's complaint. Another letter was sent on May 23, 2012. It included Coleman's responses to interrogatories, in which he explained the factual basis for his claims against the county. While enumerating the specific instances of breach, Coleman did not change his position in the interrogatory responses. He continued to base his claims of negligent misrepresentation, negligence, and professional negligence on representations in the contract documents. The County sent a final letter to MACo on December 5, 2012, again asking MACo to reconsider coverage and suggesting that the County could pursue legal remedies if MACo did not defend and indemnify it in the action against Coleman.

¶ 9 MACo responded to these letters on December 10, 2012. It continued to contend that the claims against the county were excluded from coverage based upon Exclusion 12. MACo also cited Exclusion 23 as an additional basis for denying coverage of claims 1–3. Exclusion 23 states that the policy does not insure against: “Any claim ... for faulty preparation of bid specifications or plans....”

¶ 10 On January 16, 2013, the County filed a complaint against MACo in district court, alleging, among other things, that MACo violated its duty to defend. On May 10, 2013, MACo filed a motion for summary judgment. The County filed its own motion for summary judgment on May 23, 2013. Resolving these cross motions for summary judgment, the District Court granted summary judgment in favor of MACo. It ruled that MACo did not have a duty to defend, reasoning that Exclusions 12 and 23 each provided sufficient independent bases for denying coverage. The County appeals.

STANDARD OF REVIEW

¶ 11 We review a district court's ruling on a motion for summary judgment de novo. Newman v. Scottsdale Ins. Co., 2013 MT 125, ¶ 20, 370 Mont. 133, 301 P.3d 348. Doing so, we apply the same rule as the district court, M.R. Civ. P. 56, which states that 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, ¶ 20.

DISCUSSION

¶ 12 1. Did the District Court err by granting summary judgment on the issue of MACo's duty to defend?

¶ 13 The County argues that the District Court erred by granting summary judgment in favor of MACo. It contends that MACo's duty to defend was triggered because MACo could not unequivocally demonstrate that the claim was not covered by the insurance policy, based on Coleman's complaint, the letters the County sent to MACo, and Exclusion 12. We disagree.

¶ 14 The duty to defend arises when a complaint against an insured alleges facts which, if proved, would result in coverage under an insurance policy. Tidyman's Mgmt. Servs. v. Davis, 2014 MT 205, ¶ 22, 376 Mont. 80, 330 P.3d 1139 ; Farmers Union Mut. Ins. Co. v. Staples, 2004 MT 108, ¶ 20, 321 Mont. 99, 90 P.3d 381. The insurer has no obligation to look beyond the complaint in determining whether a claim is covered by a policy, but it cannot ignore other information actually obtained. Newman, ¶ 56; Staples, ¶ 24. Unless it unequivocally demonstrates, based on the information before it, that the claim against an insured does not fall within the insurance policy's coverage, the insurer has a duty to defend. Tidyman's, ¶ 23; Staples, ¶ 24.

¶ 15 Here, MACo had notice of Coleman's complaint and, from the excerpts of Coleman's interrogatory responses, of some of the specific conduct that...