Judith Newman v. United Fire & Cas. Co.

• Decision Date: 15 January 2014
• Docket Number: No. CV 13–47–M–DLC.,CV 13–47–M–DLC.
• Citation: 995 F.Supp.2d 1125
• Court: U.S. District Court — District of Montana
• Parties: Judith NEWMAN, as Personal Representative of the Estate of Karlye Newman, Plaintiff, v. UNITED FIRE AND CASUALTY COMPANY, Defendant.

995 F.Supp.2d 1125

Judith NEWMAN, as Personal Representative of the Estate of Karlye Newman, Plaintiff,

v.UNITED FIRE AND CASUALTY COMPANY, Defendant.

No. CV 13–47–M–DLC.

United States District Court,

D. Montana,

Missoula Division.

Jan. 15, 2014.

Ann L. Moderie, Moderie Law Firm, PLLC, James A. Manley, Manley Law Firm, Polson, MT, Elizabeth A. Best, Best Law Offices, P.C., Lawrence A. Anderson, Anderson Law Office, Great Falls, MT, Thomas J. Beers, Beers Law Offices, Missoula, MT, for Plaintiff.

Dennis P. Clarke, Stephanie A. Hollar, Smith Walsh Clarke & Gregoire, Great Falls, MT, for Defendant.

ORDER

DANA L. CHRISTENSEN, Chief Judge.

Before the Court are the parties cross-motions for summary judgment. Jurisdiction is based on diversity. For the reasons explained, the Court will grant Plaintiff's motion for summary judgment and deny Defendant's motion.

Factual and Procedural Background

I. Introduction

This case arises out of the suicide of Karlye Newman, age 16, on October 4, 2004 at Spring Creek Lodge in Sanders County, Montana. Spring Creek Lodge was a behavior modification residential program for youth where Karlye resided as a student.

Following Karlye's death, Judith Newman as personal representative for Karlye (“Newman”), filed suit against multiple defendants, including National Contract Services, LLC (“National”), for wrongful death and survivorship among other claims in Sanders County District Court. According to the Complaint, National was one company of a large web of interlocking companies run by a man named Robert Lichfield, who ran behavior modification residential programs for youth. The Complaint alleged that National purported to provide various services to Spring Creek Lodge, including marketing, promotion, admissions, support services, academic course routine, curriculum, manuals, and training outlines. According to the Complaint, many of the services National claimed to provide Spring Creek Lodge were inadequate and contributed to Karlye's suffering and eventual death, including misleading marketing, wrongful admission to the program, poor educational services, and negligent training.

National was an insured under two policies issued by Defendant United Fire and Casualty Company (“United”): a Commercial General Insurance Policy and a Commercial Umbrella Policy. National tendered defense of the suit to United. United declined to defend, asserting that under the Designated Premises Endorsement in the Commercial General Liability Policy there was no coverage and no duty to defend. United did not provide any analysis concerning its duty to defend under the Commercial Umbrella Policy.

United subsequently declined to attend a mediation where National settled with Newman. The settlement awarded judgment against National for the policy limits under the two policies, $3,000,000, and assigned all of National's first party claims it might have against United to Newman.

Newman, in her capacity as third party beneficiary under the policies, and as a first party insured under the assignments, then filed this action against United for breach of contract for its refusal to defend and for declaratory judgment.

II. The policies

The Commercial General Liability Policy provided that United would have the “duty to defend the insured against any ‘suit’ seeking” damages for “bodily injury” or “property damages.” (Doc. 11–1 at 4.) It further provided that “we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply.” Id. The Commercial General Liability Policy's endorsement, which United relied on in denying a defense, limits coverage as follows: “This insurance applies only to ‘bodily injury’, ‘property damage’, ‘personal and advertising injury’ and medical expenses arising out of [ ] the ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; or the project shown in the Schedule.” (Doc. 11–1 at 3.) The premises listed on the declarations schedule was “158 W 1600 S # 15, St. George, UT 84770.” (Doc. 11–2 at 20.)

The Commercial Umbrella policy provided: “We have a duty to defend any claims or suits not covered by any underlying insurance shown in the Declarations; we also have the duty to defend such claims or suits if the applicable limit of underlying insurance is exhausted.” Id. at 9. The Commercial Umbrella policy contained the same endorsement limiting coverage to “ ‘bodily injury’, ‘property damage’, ‘personal and advertising injury’ and medical expenses arising out of [ ] the ownership, maintenance or use of the premises [at 158 W 1600 S # 15, St. George, UT 84770] and operations necessary or incidental to those premises.” Id. at 20.

Summary Judgment Standard

Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.Civ. P. 56(a). The movant bears the initial burden of informing the Court of the basis for its motion and identifying those portions of “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotation marks omitted). The movant's burden is satisfied when the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251–52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Where the moving party has met its initial burden, the party opposing the motion “may not rest upon the mere allegations or denials of his pleading, but ... must set forth specific facts showing that there is a genuine issue for trial.” Id. at 248, 106 S.Ct. 2505 (internal quotation marks omitted).

Choice of Law

The parties disagree as to which state's substantive law applies to this claim. Accordingly, as a threshold matter, the Court must decide the choice of law issue.

A federal court sitting in diversity applies the substantive law of the forum state to state law claims, Mason and Dixon Intermodal, Inc. v. Lapmaster Intern. LLC, 632 F.3d 1056, 1060 (9th Cir.2011), including the choice-of-law rules of the forum state. Johnson v. Wells Fargo Home Mortg. Inc., 635 F.3d 401, 420 n. 16 (9th Cir.2011). Here, the Court applies the choice-of-law rules of Montana.

United contends that under Tucker v. Farmers Insurance Exchange, 351 Mont. 448, 215 P.3d 1, 7–8 (2009), Utah law applies to this case for purposes of determining liability on Plaintiff's claim for breach of the duty to defend. Newman counters that there is no conflict of law issue in this case because the applicable general principles of insurance law are the same in Montana as in Utah. Accordingly, Newman contends the Court should apply the law of the forum state. See Modroo v. Nationwide Mutual Fire Insurance Company, 345 Mont. 262, 191 P.3d 389, 395 (2008).

“In any conflict-of-laws case, the court's first task is to determine if an actual conflict exists, and if the laws and interests of the concerned states are not in conflict, the result is deemed a ‘false conflict’ or no conflict at all.” 15A Corpus Juris Secundum “Conflict of Laws” § 31. “If the laws of both states relevant to the set of facts are the same, or would produce the same decision in the lawsuit, there is no real conflict between them.” Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 839 n. 20, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985) (quoting R. Leflar, American Conflicts Law § 93, p. 188 (3d ed. 1977)). A false conflict exists where application of either state's law “are substantially the same and would produce the same results.” In re Guardianship of Mowrer, 294 Mont. 35, 979 P.2d 156, 161 (1999); see also Modroo, 191 P.3d at 395. An actual conflict of law exists only “if the choice of one forum's law over the other will determine the outcome of the case.” 15A Corpus Juris Secundum “Conflict of Laws” § 30 (citing Townsend v. Sears, Roebuck and Co., 227 Ill.2d 147, 316 Ill.Dec. 505, 879 N.E.2d 893 (2007)). When there is no actual conflict, “no further analysis is necessary, and the law of the forum state applies.” Id.; Modroo, 191 P.3d at 395.

Here, United's sole basis for asserting that there is a conflict of law (and thus a choice of law issue) relates to the phrase “arising out of,” which appears in the endorsement in both the Commercial General Liability Policy and the Commercial Umbrella Policy. While Newman contends that the phrase “arising out of,” absent a policy definition, is inherently ambiguous in an insurance contract under Montana law, See Pablo v. Moore, 298 Mont. 393, 995 P.2d 460, 461–462 (2000), United contends that the phrase “arising out” of is unambiguous in the insurance context under Utah law. See National Farmers Union Prop. & Cas. Co. v. W. Cas. & Sur. Co., 577 P.2d 961, 963 (Utah 1978).

United contends that under Utah law the phrase “arising out of” has an unambiguous meaning. The problem is that even under United's preferred Utah version of the phrase, “arising out of” has a “very broad, general and comprehensive” meaning, id. 577 P.2d at 963, and is “a phrase of much broader significance than ‘caused by’ and is ordinarily understood to mean ‘incident to, or having connection with.’ ” Id. (quoting Jackson v. Lajaunie, 270 So.2d 859 (La.1972)). As interpreted in Utah, the words “arising out of” “are very broad, general and comprehensive,” are “commonly understood to mean originating from, growing out of, or flowing from,” and it is sufficient to show that something arises out of something else if one thing is in any way “linked to” another. Id.

The Court is thus left to resolve the question of whether, in the context of an exclusion under the Commercial General Liability policy (which exclusion must,...