Hanson v. Employers Mut. Cas. Co., No. CV 03-157-M-DWM.

• Decision Date: 22 September 2004
• Docket Number: No. CV 03-157-M-DWM.
• Citation: 336 F.Supp.2d 1070
• Parties: Gary L. HANSON and Gail Hanson, Plaintiffs, v. EMPLOYERS MUTUAL CASUALTY CO., Defendant.
• Court: U.S. District Court — District of Montana

336 F.Supp.2d 1070

Gary L. HANSON and Gail Hanson, Plaintiffs, v. EMPLOYERS MUTUAL CASUALTY CO., Defendant.

No. CV 03-157-M-DWM.

United States District Court, D. Montana, Missoula Division.

September 22, 2004.

COPYRIGHT MATERIAL OMITTED

Alexander Blewett, III, Hoyt & Blewett, Great Falls, MT, Michael Maurer, Lukins & Annis, Spokane, WA, for Plaintiffs.

James M. Ramlow, Kaufman, Vidal & Hileman, PC, Kalispell, MT, for Defendant.

ORDER

MOLLOY, Chief Judge.

I. INTRODUCTION

On May 4, 2002, Gary Hanson was jogging on a road in Spokane when a driver negligently crossed the centerline and struck him. Stipulated Facts (Facts) ¶ 1. The driver paid his policy limits of $100,000 to Gary and/or Gail Hanson. Facts ¶ 2.

Defendant Employers Mutual Casualty Co. (EMC) provided uninsured motorist coverage to P.H. Moller Co., Inc., the named insured and title owner of three vehicles. Facts ¶ 4. Gary and Gail Hanson were the sole shareholders of P.H. Moller Co., Inc., a Montana corporation doing business as Marathon Electric. Facts ¶ 3. An underinsured vehicle is an uninsured vehicle under the policy. Exh. C, Facts, Uninsured Motorists Coverage, at 3-4, ¶ F(3)(b).

EMC had insured P.H. Moller for several years. Until January 30, 2000, the policy defined an insured as follows:

B. Who Is An Insured

1. You.

2. If you are an individual, any "family member."

3. Anyone else "occupying" a covered "auto" or temporary substitute for a covered "auto." The covered "auto" must be out of service because of its breakdown, repair, servicing, loss or destruction.

4. Anyone for damages he or she is entitled to recover because of "bodily injury" sustained by another "insured."

Facts ¶ 6. The policy issued for the period January 30, 2000 — January 30, 2001 changed the definition of an insured:

If the Named Insured is designated in the Declaration as:

1. An individual, then the following are "insureds":

A. The named insured and any "family members."

B. Anyone else "occupying" a covered "auto" or a temporary substitute for a covered "auto." The covered "auto" must be out of service because of its breakdown, repair, servicing, "loss" or destruction.

C. Anyone for damages he or she is entitled to recover because of "bodily injury" sustained by another "insured."

2. A partnership, limited liability company, corporation or any other form of organization, then the following are "insureds":

A. Anyone "occupying" a covered "auto" or a temporary substitute for a covered "auto." The covered "auto" must be out of service because of its breakdown, repair, servicing, "loss" or destruction.

B. Anyone for damages he or she is entitled to recover because of "bodily injury" sustained by another "insured."

Facts ¶ 4. EMC did not notify Hansons of the change in definition. Facts ¶ 8.

Plaintiffs contend EMC was required by M.C.A. § 33-15-1106 to notify them of a substantive change in their insurance contract, and that they are entitled to rely on the earlier definition because of EMC's failure to do so. EMC responds that the change was not "on less favorable terms" and therefore did not trigger any duty to inform. Nonetheless, EMC argues that Hansons are not "insureds" under the earlier definition. In its Preliminary Pretrial Statement, Defendant states that it "does not contend that the 2001 revision of the policy which modified the definition of `Who Is An Insured' in the uninsured/underinsured motorist definition applies to this claim." Defendant's Preliminary Pretrial Statement (Dkt # 19) at 3. Therefore, I will address only the issue of whether the Hansons are "insureds" under the UM endorsement as that term was defined up until 2001. Moreover, I will not address Plaintiffs' argument regarding notice, as that claim is mooted by Defendant's willingness to concede that the post-2001 definition does not apply.

II. DISCUSSION

A. Summary Judgment Standards

Summary judgment is proper when no genuine issue of material fact exists and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. The initial burden is on the moving party to establish that there is no genuine issue of material fact; once met, the burden shifts to the party opposing the motion to establish otherwise. Erker v. Kester, 296 Mont. 123, 988 P.2d 1221, 1224 (1999). All reasonable inferences that might be drawn from the offered evidence must be drawn in favor of the party opposing summary judgment. Id. If there are no genuine issues of fact, the court must determine whether the moving party is entitled to judgment as a matter of law. Blain v. Stillwater Mining Co., 321 Mont. 403, 92 P.3d 4, 6-7 (2004).

B. Applicable Law

Because this court's jurisdiction arises out of diversity, the law of Montana applies. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Under Montana law, the interpretation of insurance contracts is a question of law for the courts. Marie Deonier & Assoc. v. Paul Revere Life Ins. Co., 301 Mont. 347, 9 P.3d 622, 630 (2000). The principles of interpretation to be applied are as follows:

The language of the policy governs if it is clear and explicit. Ambiguities are construed against the insurer. Furthermore, exclusions from coverage will be narrowly and strictly construed because they are contrary to the fundamental protective purpose of an insurance policy.

Id. The terms of an insurance policy must be interpreted according to their "usual, common sense meaning as viewed from the perspective of a reasonable consumer of insurance products." Dakota Fire Ins. Co. v. Oie, 291 Mont. 486, 968 P.2d 1126, 1129 (1998). Although doubts in coverage are construed strictly against the insurer, the court will not rewrite the terms of a policy, but will enforce the terms as written. Generali-U.S. Branch v. Alexander, 320 Mont. 450, 87 P.3d 1000, 1004 (2004). An ambiguity exists when a contract taken as a whole is reasonably subject to two different interpretations. Jacobsen v. Farmers Union Mut. Ins. Co., 320 Mont. 375, 87 P.3d 995, 997-98 (2004) (citation omitted).

III. Applying Montana Law to Hansons' Contract

Plaintiffs advance several arguments as to why "you" must include Gary Hanson, some of which overlap. Their primary argument relies on a federal case out of this district interpreting Montana law. Hager v. American West Insur. Co., 732 F.Supp. 1072, 1075 (D.Mont.1989). A second argument is that "you" must include the shareholders of a close corporation because a contrary interpretation would result in an illusion of coverage, and Montana requires an insured to provide something of value for premiums paid by an insured. A third argument is that because Defendant interpreted "you" under the med-pay portion of this contract to include Gary Hanson, it must interpret "you" under the UM/UIM endorsement similarly. Moreover, if EMC interprets "you" in two different ways, it has created an ambiguity that must be construed in favor of the insured.

A. Hager: "You or Any Family Member"

Plaintiffs rely heavily on Hager v. American West Insur. Co., 732 F.Supp. 1072, 1075 (D.Mont.1989), in which the court held that Colleen Hager, a minority shareholder in a closely held family corporation, was an additional insured under the corporation's uninsured motorist coverage. The policy defined an insured as "You or any family member." Judge Hatfield concluded, "Where an automobile liability policy containing the `family member' terminology has been issued to a closely held corporation, it is entirely legitimate to conclude the readily identifiable officers and shareholders of that corporate entity fall within the purview of that terminology." Id. at 1075. The court explained that this conclusion was consistent with the public policy manifest in the Montana uninsured motorist statute, M.C.A. § 33-23-201, as well as with the rule that ambiguities in an insurance policy must be construed in favor of the insured. Id. "The ambiguity in the subject policy is created by utilization of the term `family member' in a policy issued to a closely held corporation." Id.

Importantly, the Hager definition of insured was "You or any family member." Because a corporation cannot have family members, the court found the definition ambiguous. Here, in contrast, the definition is:

1. You.

2. If you are an individual, any family member.

The Hager definition was ambiguous because it included family members regardless of whether the named insured was a corporation or an individual. Here, that ambiguity is absent. Moreover, the phrase, "If you are an individual" emphasizes that "you" may not be an individual. Defendants observe that Hager has never been cited by the Montana Supreme Court, except in dissent, Lierboe v. State Farm Mut. Ins. Co., 316 Mont. 382, 73 P.3d 800, 804 (2003), and argue that it therefore offers no "definitive ruling on the precise issue." Def. Brf. Supporting Motion for Sum. Jdgmnt., at 12. It also cites numerous cases from other jurisdictions, which it contends have refused to follow the Hager rule, i.e., that shareholders of an insured corporation are entitled to UM or UIM coverage under the corporation's automobile liability polices. While some courts have construed Hager as establishing that rule, others have discerned a different rule: that the class of insureds covered by a UM/UIM policy cannot be smaller than the class of insureds covered by the liability portion of the policy. See, e.g., Georgeson v. Fidelity & Guaranty Insur. Co., 48 F.Supp.2d 1262, 1265 (D.Mont.1998). Under this rule, the court must look to the liability portion of the policy, which here defines an insured as being, essentially, anyone using one of the three vehicles owned by the corporation. Exh. C, Facts, at 2, ¶ A(1).

The definition of "insured" for purposes of UM/UIM coverage is the named insured ("you"), any family members if the named insured is an individual, anyone in a covered auto (or temporary substitute of the covered auto is out of...