Lincoln Cnty. Port Auth. v. Allianz Global Risks U.S. Ins. Co.

• Decision Date: 14 January 2014
• Docket Number: No. DA 12–0519.,DA 12–0519.
• Court: Montana Supreme Court
• Parties: LINCOLN COUNTY PORT AUTHORITY, Plaintiff and Appellee, v. ALLIANZ GLOBAL RISKS U.S. INSURANCE COMPANY, Defendant and Appellant.

373 Mont. 60

315 P.3d 934

LINCOLN COUNTY PORT AUTHORITY, Plaintiff and Appellee,

v.ALLIANZ GLOBAL RISKS U.S. INSURANCE COMPANY, Defendant and Appellant.

No. DA 12–0519.

Supreme Court of Montana.

Argued Sept. 20, 2013.

Submitted Sept. 25, 2013.

Decided Dec. 10, 2013.

Rehearing Denied Jan. 14, 2014.

For Appellant: Robert J. Phillips (argued), Phillips Haffey PC; Missoula, Montana, G. Brian Odom, Kerry K. Brown, David B. Winter, Zelle Hofmann Voelbel & Mason LLP; Dallas, Texas, Gary M. Zadick, Ugrin, Alexander, Zadick & Higgins PC; Great Falls, Montana.

For Appellee: R. Allan Payne (argued), Jacqueline R. Papez, Doney Crowley Payne Bloomquist P.C.; Helena, Montana.

For Amicus Curiae: Michael W. Sehestedt, General Counsel for the Montana Association of Counties; Helena, Montana.

Justice BRIAN MORRIS delivered the Opinion of the Court.

¶ 1 Appellant Allianz Global Risks U.S. Insurance Company (Allianz) appeals the decision of the Nineteenth Judicial District Court, Lincoln County. The District Court entered summary judgment in favor of Appellee Lincoln County Port Authority (Port) on the issue of whether the Port qualified as an insured under the Allianz insurance policy. The District Court also granted the Port's motion to dismiss Allianz's counterclaim that had sought to reform the insurance policy. We affirm in part, reverse in part, and remand.

¶ 2 We address the following issues on appeal:

1. Whether the Port is an “insured” as contemplated by the Allianz policy.

2. Whether sufficient collateral evidence entitles Allianz to reformation of the policy.

3. Whether the District Court correctly valued the Plywood Plant Building.

4. Whether prejudgment interest began to accrue on the date of the fire at the Plywood Plant Building.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 3 The Montana Association of Counties (MACo) is a nonprofit corporation that acts on behalf of Montana's 56 counties. MACo represents the interests of county governments before the Montana legislature, administrative agencies, and the federal government.

¶ 4 MACo created a property and liability self-insured risk pool, the Montana Association of Counties Joint Powers Insurance Authority (MACo/JPIA), in the 1980s. Through MACo/JPIA, MACo self-insures its member counties and related entities. MACo/JPIA obtained catastrophic property insurance to supplement its pooled fund of public monies used for self-insurance. The catastrophic insurance serves as excess insurance designed to mitigate MACo's loss on large claims that exceed a designated amount. MACo/JPIA purchased the catastrophic insurance from Allianz to cover damages over $100,000.

¶ 5 Lincoln County is a MACo member. Lincoln County created the Port as a separate public body pursuant to § 7–14–1104, MCA. The Port seeks to foster economic development in Lincoln County through its operation of an industrial facility in Libby, Montana. The industrial facility consists of several buildings associated with a former lumber mill. The lumber mill includes a Plywood Plant Building. The Port insured the Plywood Plant Building, along with its other buildings at the lumber mill, through the MACo/JPIA self-insured risk pool.

¶ 6 Part of the roof of the Port's Plywood Plant Building collapsed from heavy snow during the winter of 2007–2008. The Port submitted an insurance claim for damages caused by the collapse of the roof. Allianz assessed the damage to the Plywood Plant Building at 29% of its value. Allianz paid the Port over $3 million for the loss of this portion of the Plywood Plant Building consistent with its coverage obligations under the catastrophic insurance policy with MACo/JPIA.

¶ 7 MACo/JPIA thereafter informed the Port in a June 24, 2008, letter that it no longer would insure the Plywood Plant Building. The 2009–2010 schedule of insured locations omitted the Plywood Plant Building. This omission coincided with the Port's decision to demolish the part of the Plywood Plant Building that had collapsed due to the heavy snowfall. The Port intended to renovate the part of the Plywood Plant Building that remained standing after the roof collapsed.

¶ 8 The Port was in the process of demolishing the damaged part of the Plywood Plant Building when a fire destroyed the building entirely on February 25, 2010. The Port submitted an insurance claim for damages caused by the fire to the Plywood Plant Building. MACo/JPIA and Allianz refused to cover this loss. The Port filed this suit against Allianz.

¶ 9 The District Court granted summary judgment in favor of the Port. The District Court determined that the Allianz policy insures the Port and ordered the parties to conduct appraisal proceedings. The District Court also granted the Port's motion to dismiss Allianz's counterclaim that had sought to reform Allianz's policy to exclude coverage of the Plywood Plant Building.

¶ 10 During the following appraisal, the parties disagreed whether the valuation provision in Allianz's policy limited the Port's recovery for that portion of the Plywood Plant Building that had been slated for demolition to the increased cost of demolition. The District Court issued an order on May 22, 2012, that clarified that the valuation provision did not apply in appraisal proceedings.

¶ 11 The District Court entered its final judgment on July 31, 2012. The District Court awarded a principal amount of $6,060,980 based on the findings of the appraisal panel and the parties' stipulation to the value of certain other damages, $1,474,560 in prejudgment interest beginning on the date of the fire, and $2,511,847 in attorneys' fees and costs. The total award with fees and interest now exceeds $10 million.

STANDARD OF REVIEW

¶ 12 We review de novo a district court's ruling on a motion for summary judgment. Bailey v. State Farm Mut. Auto. Ins. Co., 2013 MT 119, ¶ 18, 370 Mont. 73, 300 P.3d 1149. We review de novo a district court's ruling on a M.R. Civ. P. 12(b)(6) motion to dismiss. White v. State, 2013 MT 187, ¶ 15, 371 Mont. 1, 305 P.3d 795. We review for correctness a district court's legal determination. N. Cheyenne Tribe v. Roman Catholic Church, 2013 MT 24, ¶ 21, 368 Mont. 330, 296 P.3d 450.

DISCUSSION

¶ 13 Whether the Port is an “insured” as contemplated by the Allianz policy.

¶ 14 The Port argues that it qualifies as an insured under the Allianz policy's definition. The Port claims that the policy's definition of “ insured” includes the MACo counties and any other entities that receive insurance through MACo/JPIA. Allianz argues that it intended this language to cover only MACo and MACo/JPIA.

¶ 15 We begin our analysis by examining the insurance contract's plain language. We will not rewrite clear and explicit language in an insurance contract. Monroe v. Cogswell Agency, 2010 MT 134, ¶ 15, 356 Mont. 417, 234 P.3d 79. We interpret an insurance contract's terms “according to their usual, common sense meaning,” that is, how they would be understood by “a reasonable consumer of insurance products.” Steadele v. Colony Ins. Co., 2011 MT 208, ¶ 18, 361 Mont. 459, 260 P.3d 145.

¶ 16 The Allianz policy defines the “insured” as MACo “and its subsidiary, associated or allied company, corporation, firm, organization.” All of the terms used by Allianz describe one single entity, not multiple entities. The language of the contract would lead us to believe that the policy's definition of “insured” covers only MACo and one other entity, presumably MACo/JPIA. Steadele, ¶ 18.

¶ 17 This understanding of “insured,” however, cannot be reconciled with other provisions in the Allianz policy. We construe an insurance policy in accordance with the entirety of its terms and conditions. Lambert Well Serv. v. Wellington Specialty Ins. Co., 2008 MT 212, ¶ 11, 344 Mont. 204, 186 P.3d 1255. In other words, we read the Allianz policy as a whole and attempt to reconcile its various parts to give the entire policy meaning and effect. Lambert, ¶ 11.

¶ 18 The Allianz policy defines “insured property” to include real property and personal property. The personal property covered by the policy includes personal property of the following type: (1) “owned by the Insured,” (2) “of officers and employees of the Insured,” and (3) “of others in the Insured's custody.” The substitution of “MACo and MACo/JPIA” for the term “insured” in each of these provisions would undermine the policy's definition of “insured property.” MACo counties and other associated entities owned the personal property insured by the policy. MACo or MACo/JPIA did not own the personal property in question. MACo's or MACo/JPIA's employees did not own the personal property in question. And none of the personal property contemplated by the policy resided in the custody of MACo or MACo/JPIA.

¶ 19 We note further that portion of the policy that sets forth the action to be taken in the event of a loss. The policy obligates the insured to protect the subject property from further loss or damage. The insured also must provide an inventory of lost, destroyed, or damaged items. MACo lacks the ability to undertake the protection of the insured's properties or to prepare inventories of lost, destroyed, or damaged items. The owner of the property in question undertakes these duties.

¶ 20 The use of “insured” under the policy's discussion of “insured property” and “requirements in case of loss” conflict with Allianz's claim that only MACo and MACo/JPIA qualify as insureds under the policy. These provisions of the policy raise ambiguities. We must reconcile these seemingly contradictory provisions to give meaning and effect to the entire policy. Lambert, ¶ 11. The disconnect between the policy's definition of “insured” and its definition of “insured property” and “requirements in case of loss” creates ambiguity regarding the policy's definition of “insured.” This ambiguity requires us to look beyond the plain language of the Allianz policy's definition of “insured.”

¶ 21 We consider extrinsic evidence to interpret...