Grindheim v. Safeco Ins. Co. of America

• Decision Date: 06 November 1995
• Docket Number: No. CV-92-157-GF,CV-92-180-GF.,CV-92-157-GF
• Citation: 908 F. Supp. 794
• Parties: Lyle and Barbara GRINDHEIM, Plaintiffs, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant. HUTTERIAN BRETHREN OF DEERFIELD, as a Church, a Montana corporation, a/k/a Deerfield Colony, Plaintiff, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — District of Montana

908 F. Supp. 794

Lyle and Barbara GRINDHEIM, Plaintiffs, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant.

HUTTERIAN BRETHREN OF DEERFIELD, as a Church, a Montana corporation, a/k/a Deerfield Colony, Plaintiff, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant.

Nos. CV-92-157-GF, CV-92-180-GF.

United States District Court, D. Montana, Great Falls Division.

November 6, 1995.

COPYRIGHT MATERIAL OMITTED

John C. Hoyt, Alexander Blewett, III, Hoyt & Blewett, Great Falls, MT, A. Clifford Edwards, Edwards Law Firm, Billings, MT, for Lyle Grindheim, Barbara Grindheim.

Shelton C. Williams, Williams & Ranney, P.C., Missoula, MT, for Safeco Insurance Company of America.

MEMORANDUM DECISION

HATFIELD, Chief Judge.

I.

This action has its genesis in a civil lawsuit instituted in the District Court for the Tenth Judicial District, Fergus County, Montana, by Lyle and Barbara Grindheim against the Hutterian Brethren of Deerfield (a/k/a Deerfield Colony). Grindheim v. Deerfield Colony, cause No. DV-92-74 ("Grindheim action"). In the Grindheim action, the Grindheims sought compensatory and punitive damages for injuries they sustained relative to the use and enjoyment of their property resulting from the conduct of the Deerfield Colony; an adjoining landowner. Specifically, the Grindheims claimed injury resulting from the Deerfield Colony's disposal of human and animal waste. The Deerfield Colony tendered defense of the Grindheim action to Safeco Insurance Company of America ("Safeco") pursuant to a farm and ranch liability insurance policy issued by Safeco to the Deerfield Colony.¹ Safeco, however, declined the tender of the defense.²

The Grindheim action ultimately settled when the Deerfield Colony confessed judgment in favor of the Grindheims in the sum of $500,000.00. Subsequently, the Grindheims and the Deerfield Colony executed an agreement whereby the Colony assigned its rights under the subject insurance policy to the Grindheims in exchange for a covenant not to execute against the Colony upon the judgment.

On November 12, 1992, the Grindheims instituted an action in this court, Lyle and Barbara Grindheim v. Safeco Ins. Co. of America, No. CV-92-157-GF, seeking, in their capacity as assignees of the rights of the Deerfield Colony under the insurance contract at issue, to enforce the underlying consent judgment based upon Safeco's purported breach of the terms of the insurance contract, and breach of the duty of good faith and fair dealing attendant to that contract. On December 30, 1992, the Deerfield Colony instituted a separate action in this court, Hutterian Brethren of Deerfield, a/k/a Deerfield Colony v. Safeco Ins. Co. of America, No. CV-92-180-GF, seeking to recover the attorney's fees and costs the Colony incurred in defending the Grindheim action, as well as the costs and expenses associated with (1) remedying the property damage incurred by the Grindheims; and (2) preventing any future damage to the property of the Grindheims. On April 5, 1993, the court entered an order consolidating the two actions for all pretrial proceedings.³

The consolidated actions are presently before the court upon the parties' cross-motions for summary judgment, presented pursuant to Fed.R.Civ.P. 56. The issue dispositive of the parties' respective motions for summary judgment is whether or not the uncontroverted facts of record, establish that Safeco breached its duty, under the contract of insurance at issue, to defend the Deerfield Colony with respect to the Grindheim action.

II.

It is well established under Montana law, that an insurer's duty to defend its insured arises when the insurer, through reference to pleadings, discovery, or final issues declared ready for trial, has received notice of facts representing a risk covered by the terms of the policy. See, Lindsay Drilling & Contracting v. United States Fidelity & Guaranty Co., 208 Mont. 91, 676 P.2d 203, 205 (1984); Northwestern National Cas. Co. v. Phalen, 182 Mont. 448, 597 P.2d 720, 727 (1979); McAlear v. St. Paul Ins. Co., 158 Mont. 452, 493 P.2d 331, 334 (1972); see also, Liberty Bank of Montana v. Travelers Indemnity Co., 870 F.2d 1504, 1506 (9th Cir. 1989). This rule contemplates the institution of an action by a claimant against the insured. See, Fisher v. Hartford Accident & Indemnity Co., 329 F.2d 352, 353 (7th Cir. 1964). Consequently, the rule is often restated to acknowledge that an insurer's duty is ordinarily "triggered" when the insured, or someone on the insured's behalf, tenders the defense of an action potentially within the policy coverage. See, e.g., Hartford Accident & Indemnity Co. v. Gulf Ins. Co., 776 F.2d 1380, 1383 (7th Cir.1985). Ordinarily, the initial determination as to whether the duty to defend has been "triggered" is determined upon the insurer's review of the allegations set forth in the complaint instituting an action against the insured, see, Atcheson v. Safeco Ins. Co., 165 Mont. 239, 527 P.2d 549, 552 (1974); Aetna Cas. & Surety Co. v. First Security Bank of Bozeman, 662 F.Supp. 1126, 1128 (D.Mont.1987), citing, McAlear v. St. Paul Ins. Co., 158 Mont. 452, 493 P.2d 331, 334 (1972), and the duty to defend arises if the complaint against an insured alleges facts, which if proven, would result in coverage. Stillwater Condominium v. American Home Assurance Co., 508 F.Supp. 1075, 1077 (D.Mont.1981), aff'd, 688 F.2d 848; cert. denied, 460 U.S. 1038, 103 S.Ct. 1429, 75 L.Ed.2d 789 (1981). An insurer who refuses, without justification, to defend its insured, will be estopped from denying coverage. See, Hartford Accident & Indemnity Co. v. Gulf Ins. Co., 776 F.2d at 1382; see also, Independent Milk & Cream Co. v. Aetna Life Ins. Co., 216 P. 1109, 68 Mont. 152 (Mont. 1923).

The Grindheims, as assignees, and the Deerfield Colony, in its own right, contend, in essence, that Safeco breached its duty to provide the Deerfield Colony a defense to the Grindheim action and should now be estopped from denying coverage under the insurance contract. Safeco, on the other hand, contends its duty to defend was not "triggered" because the complaint in the Grindheim action did not allege facts, which had those facts been proven, would have resulted in coverage under the policy.

Analysis of the parties' respective positions must necessarily begin with a review of the allegations of the complaint filed in the Grindheim action, which were stated as follows:

2. The Grindheims, as successors to a water right dating back to 1893, have a legal right to water originating from a spring located in a coulee near the Defendant Colony's buildings and animal pens and barns and dwellings for Colony habitants.

3. For years (decades) the Defendant Colony has dumped raw sewage from their dwelling waste and from their animal pens and corrals and barns and other buildings and areas from which mammal and fowl waste is generated right into the coulee untreated, just above (upstream) from the Grindheims' water right source.

4. Further, the coulee mentioned drains to and empties into the Judith River just a few hundred feet from the Grindheims' house. The drainage runs over the Grindheims' land and runs right across the road from the Grindheims' buildings, fields and home. The sewage drainage from Defendant Colony runs through the Grindheims' irrigation ditch.

5. The Colony's sewage, for years and years has polluted the Grindheims' water and land, has damaged the Grindheims and their family as it has omitted sic foul odors offensive to the Grindheims and their family, ruining their property and seriously interfering with their comfortable enjoyment of and use of their property and lives thereon. The Grindheims and their family's health has been endangered.

6. The Colony's actions set out above have caused said damages to the Grindheims and their family and the Colony's actions constitute negligence, nuisance, trespass and unlawful interference with the Grindheims' rights to their water source and rights thereunder to include matters stated above.

7. The Grindheims have for years complained of sic Colony and the State of Montana about the Colony's actions regarding their discharge of sewer sic as set forth. The Grindheims are informed, and therefore allege, that for a decade the Colony has ignored State orders and directions to stop its sewage practices and to comply with State law governing sewage discharge and disposal which have been and are affecting the Grindheims and their family.

Review of the farm and ranch liability policy at issue reveals the existence of several provisions of pertinence to the present controversy.⁴ The provisions of the policy delineating liability coverage provided as follows:

COVERAGE G — FARM LIABILITY

If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will:

(a) pay up to the limit of insurance for the damages for which the insured is legally liable, and

(b) provide a defense at our expense by counsel of our choice even if the allegations are groundless, false or fraudulent. We may make any investigation and settle any claim or suit that we decide is appropriate.

We are not obligated to pay any claim or judgment or to defend any suit after the applicable limit of insurance has been exhausted by payment through judgments or settlements.

The policy defines the term "occurrence" as follows:

Occurrence means an accident, including exposure to conditions which results, during the policy period, in bodily injury or property damage.

The farm and ranch liability policy also contained the following two exclusions of pertinence to this controversy:

4. EXCLUSIONS

(a) Coverage G ... does not apply to:

(1) bodily injury or property damage which is expected or intended by the insured.

. . . . .

(8) injury⁵ or damage caused by or resulting from a Pollution Incident unless injury or damage:

1. occurs suddenly during the policy

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