Fisher v. State Farm Mut. Auto. Ins. Co.

• Citation: 305 P.3d 861,371 Mont. 147
• Decision Date: 30 July 2013
• Docket Number: No. DA 12–0346.,DA 12–0346.
• Parties: Kathleen C. FISHER, a Limited Conservator for the Estate of Sharon McCARTNEY, a protected person, Sharon McCartney, and Leslie D. McCartney, Plaintiffs and Appellees, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Delaware Corporation, and State Farm Fire and Casualty Company, Defendants, Cross-claim Defendants and Appellants.
• Court: Montana Supreme Court

371 Mont. 147

305 P.3d 861

Kathleen C. FISHER, a Limited Conservator for the Estate of Sharon McCARTNEY, a protected person, Sharon McCartney, and Leslie D. McCartney, Plaintiffs and Appellees,

v.STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a Delaware Corporation, and State Farm Fire and Casualty Company, Defendants, Cross-claim Defendants and Appellants.

No. DA 12–0346.

Supreme Court of Montana.

Argued and Submitted Feb. 20, 2013.

Decided July 30, 2013.

For Appellants: Robert F. James; Cathy J. Lewis (argued); Ugrin, Alexander, Zadick & Higgins, P.C.; Great Falls, Montana.

For Appellees Kathleen Fisher and Sharon McCartney: Travis W. Kinzler (argued); Julieann McGarry; Cok Kinzler, PLLP; Bozeman, Montana.

For Appellee Leslie McCartney: William R. Bieler (argued); Burk, Lee & Bieler, PLLC; Choteau, Montana Lyman H. Bennett, III; Attorney at Law; Bozeman, Montana.

For Amicus Property Casualty Insurers Association of America and National Association of Mutual Insurance Companies: Martha Sheehy (argued); Sheehy Law Firm; Billings, Montana.

For Amicus Montana Trial Lawyers Association: Amy Poehling Eddy; Bottomly Eddy & Sandler, PLLP; Kalispell, Montana, Gregory S. Munro; Attorney at Law; Missoula, Montana.

Justice JIM RICE delivered the Opinion of the Court.

[371 Mont. 148]¶ 1 Sharon McCartney (Sharon) and Leslie McCartney (Les), wife and husband, sought declaratory relief that Les's umbrella policy with State Farm Fire and Casualty Company (State Farm) provided coverage for injuries sustained by Sharon as a result of Les's negligent driving. State Farm answered that there was no coverage for Sharon's claim due to a family member exclusion in the umbrella policy. The Eighteenth Judicial District Court, Gallatin County, concluded that the policy was not ambiguous, did not violate the McCartneys' reasonable expectations, and did not violate Montana public policy, but that the exclusion was unconscionable. The District Court entered summary judgment in favor of the McCartneys.

¶ 2 State Farm appeals. In their arguments, both State Farm and the McCartneys challenge portions of the District Court's orders.¹ State Farm argues that the District Court's unconscionability determination is erroneous and should be reversed, and summaryjudgment be entered in its favor. McCartneys argue that the District Court's entry of summary judgment in their favor should be affirmed, but that this Court should “reverse the District Court's ruling regarding ambiguity and direct it to enter an order declaring that the family member exclusion at issue .... is ambiguous and violates the McCartneys' reasonable expectations,” thus arguing that the District Court erred by not entering judgment in their favor on additional grounds. To address the parties' arguments, and because the issues are interrelated, we take up the issues in the following order:

¶ 3 1. Did the District Court err by concluding that the Umbrella Policy unambiguously excluded Sharon's claim from coverage and that the Family Member Exclusion did not violate the McCartneys' reasonable expectations?

¶ 4 2. Did the District Court err by concluding that the Family Member Exclusion did not violate Montana public policy?

¶ 5 3. Did the District Court err by concluding that the Family Member Exclusion was unconscionable?

¶ 6 Upon review of these issues, we reverse the judgment of the District Court.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 7 On December 30, 2007, Les and Sharon were involved in a motor-vehicle accident near Townsend. Les was driving his vehicle when he negligently struck a vehicle parked on the side of the road. Sharon, a passenger in Les's car, sustained serious injuries.

¶ 8 Les has two insurance policies pertinent to this dispute. The first is Les's State Farm Automobile Liability Policy (Auto Policy), which provided bodily injury limits of $250,000 per person and $500,000 per accident. Les paid an annual premium of $289.16 for this coverage. The second policy is Les's State Farm Personal Liability Umbrella Policy (Policy or Umbrella Policy), with a stated limit of $2,000,000. Les paid an annual premium of $201 for this coverage.

¶ 9 State Farm paid Sharon the full per-person bodily injury liability limit of $250,000 under the Auto Policy for the injuries she received as a result of the accident. State Farm denied Sharon's claim to additional coverage for her injuries under the Umbrella Policy because that policy excluded claims brought by Les's relatives who lived with him pursuant to an exclusion denominated by the parties as the Family Member Exclusion.

¶ 10 Sharon sought a declaratory judgment that she was entitled to coverage for her injuries under the Umbrella Policy. Les sought the same relief. The McCartneys argued that the exclusion was unenforceable because it was ambiguous, violated Montana public policy, violated their reasonable expectations of coverage, and was unconscionable. State Farm answered that Sharon's claim was properly excluded by the Family Member Exclusion. The District Court granted summary judgment to the McCartneys, holding the Exclusion was unconscionable because it denied coverage to family members, a class of victims the District Court reasoned was most likely to need coverage:

“[This innocent class of victims] is exposed to negligent operation of the covered vehicle more than included victims, because typical family relations require family members to ride together on the way to work, church, school, social functions, or family outings. Thus, these individuals cannot practically avoid exposure to the risk for which they [are] uninsured. [This is unconscionable.]”

(Quoting Safeco Ins. Co. of Ill. v. Auto. Club Ins. Co., 108 Wash.App. 468, 31 P.3d 52, 54–55 (2001)) (brackets in District Court Order).

STANDARD OF REVIEW

¶ 11 We review de novo a district court's grant or denial of summary judgment, applying the same criteria as the district court. Modroo v. Nationwide Mut. Fire Ins. Co., 2008 MT 275, ¶ 19, 345 Mont. 262, 191 P.3d 389. The District Court's interpretation of an insurance contract is a question of law this Court reviews de novo. Stutzman v. Safeco Ins. Co. of Am., 284 Mont. 372, 376, 945 P.2d 32, 34 (1997).

DISCUSSION

¶ 12 1. Did the District Court err by concluding that the Umbrella Policy unambiguously excluded Sharon's claim from coverage and that the Family Member Exclusion did not violate the McCartneys' reasonable expectations?

[371 Mont. 151]¶ 13 When interpreting an insurance contract, we accord the usual meaning to the terms and the words used, and we construe them using common sense. Modroo, ¶ 23. The Umbrella Policy contains the following pertinent policy provisions, with bolded words defined:

COVERAGE L—PERSONAL LIABILITY

If a claim is made or suit is brought against an insured for damages of a loss for which the insured is legally liable and to which this policy applies, we will pay on behalf of the insured, the damages that exceed the retained limit.

...

EXCLUSIONS

There is no coverage under this policy for any:

13. bodily injury or personal injury to any insured as defined in part a .... of the definition of insured[.]

Thus, the Policy generally covers claims in excess of the insured's primary insurance but does not cover claims brought by an insured. The Policy defines who is an insured:

DEFINITIONS

“insured” means:

a. you and your relatives whose primary residence is your household[.]

...

“relative” means any person related to you by blood, adoption, or marriage.

...

“you” and “your” mean the person or persons shown as the “Named Insured” on the declarations page. If a named insured shown on the declarations page is a human being then you and your includes the spouse of the first person listed as the named insured if the spouse resides primarily with that named insured.

Les was issued the Umbrella Policy and is named on the declarations page. Applying the definitions of “you” and “your,” he is an insured. “Relative” is defined by the policy as “any person related to you by blood, adoption, or marriage.” Sharon is related to Les by marriage. See also Stutzman, 284 Mont. at 379–80, 945 P.2d at 36 (“In accordance with prevailing case law, and applying a common sense interpretation of the terms at issue, we conclude that the average consumer of insurance would, in reading the [policy], conclude that the term ‘relative’ includes reference to his or her spouse.”). ² Sharon is an “insured” by virtue of being Les's relative who primarily resides with him. The Umbrella Policy excludes Sharon's claim because, under the Family Member Exclusion, there is no coverage for bodily injury sustained by an insured.

¶ 14 Having determined that the Umbrella Policy facially excludes coverage for Sharon's bodily injuries, we next consider if public policy or principles of contract interpretation prohibit the enforcement of the exclusion. See Augustine v. Simonson, 283 Mont. 259, 264, 940 P.2d 116, 119 (1997). We first address principles of contract interpretation under this issue, and then turn to principles of public policy under Issue 2.

¶ 15 The interpretation of an insurance contract is a question of law. Modroo, ¶ 23. “We accord the usual meaning of the terms and the words in an insurance contract, and we construe them using common sense.” Modroo, ¶ 23. An insurance contract is ambiguous if it is “ ‘reasonably subject to two different interpretations.’ ” Modroo, ¶ 23 (quoting Mitchell v. State Farm Ins. Co., 2003 MT 102, ¶ 26, 315 Mont. 281, 68 P.3d 703). Whether a provision of an insurance contract is “reasonably susceptible to two different interpretations,” is determined from “the viewpoint of a consumer with average intelligence, but untrained in the law or the insurance business.” Modroo, ¶ 23. However, a provision is not ambiguous “just because a claimant says so or just because the parties disagree as to [its] meaning....” Giacomelli v. Scottsdale Ins. Co., 2009 MT 418, ¶ 32, 354 Mont. 15, 221 P.3d 666 (...