Loendorf v. Emp'rs Mut. Cas. Co.

• Citation: 513 P.3d 1268
• Decision Date: 19 July 2022
• Docket Number: DA 21-0449
• Parties: Joseph and Sharlene LOENDORF; Abram and Kathy Stevens, Plaintiffs and Appellees, v. EMPLOYERS MUTUAL CASUALTY COMPANY, a foreign corporation, Defendant and Appellant.
• Court: United States State Supreme Court of Montana

513 P.3d 1268

Joseph and Sharlene LOENDORF; Abram and Kathy Stevens, Plaintiffs and Appellees,
v.
EMPLOYERS MUTUAL CASUALTY COMPANY, a foreign corporation, Defendant and Appellant.

DA 21-0449

Supreme Court of Montana.

Submitted on Briefs: March 30, 2022
Decided: July 19, 2022

For Appellant: David C. Berkoff, Carey B.C. Schmidt, Schmidt Berkoff, PLLC, Missoula, Montana

For Appellees: Carey Matovich, Ryan Gustafson, Matovich, Keller & Huso, P.C., Billings, Montana, Mark D. Parker, Parker, Heitz, Cosgrove, P.C., Billings, Montana (for Helgeson)

Justice Jim Rice delivered the Opinion of the Court.

¶1 Employer's Mutual Casualty Company (EMC) appeals an order of the Thirteenth Judicial District Court denying summary judgment to EMC and granting partial summary judgment to Joseph and Sharlene Loendorf and Abraham and Kathy Stevens (collectively "Homeowners"), concluding a Commercial General Liability (CGL) policy issued by EMC provides coverage for Homeowners’ claims against the insured, S.D. Helgeson, Inc., d/b/a Stan Helgeson Homes, and SRKM, Inc., d/b/a Helgeson Homes (collectively "Helgeson"). EMC also appeals the District Court's order awarding Homeowners’ attorney fees, but because we reverse on coverage, we do not reach this issue. We address:

Did the District Court err in granting partial summary judgment to Homeowners by concluding EMC had a duty to provide coverage for Homeowners’ claims under the Earth Movement Exclusion of the CGL Policy, which it determined to be ambiguous?

FACTUAL AND PROCEDURAL BACKGROUND

¶2 Helgeson built and sold homes in the Falcon Ridge subdivision in Billings; Homeowners purchased homes built by Helgeson. After moving in, Homeowners noticed small cracks in the homes’ interior walls and foundation. Helgeson assured them the cracks were not indicative of a more serious problem, but the damage increased over the next several years. In 2017, Homeowners hired Krivonen Structural Consultants to inspect their properties. Krivonen found misaligned doors and windows, foundation movement issues, separation of exterior siding, and cracks in the foundation and drywall. Krivonen characterized the damage as functional-structural damage caused by settlement of the soil under and around the homes.

¶3 In the fall of 2018, Homeowners filed lawsuits (Underlying Lawsuits) in federal court against Helgeson, alleging negligent construction of their homes. The Underlying Lawsuits seek damages for the structural damage that resulted from the allegedly negligent construction and the settling of the surrounding soil around and underneath the homes. Homeowners assert Helgeson failed to install deep foundation systems, such as foundation piers, in an area with known sandy soils with "collapse potential." Helgeson has denied any negligence, and the Underlying Lawsuits’ merits have not yet been tried.

¶4 EMC insured Helgeson with one-year term CGL policies from 2009 to 2016 (the Policy). The Policy insures Helgeson for "sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies," subject to applicable exclusions. By endorsement, the Policy included what was titled, "Exclusion—Injury or Damage from Earth Movement" ("Earth Movement Exclusion" or "the Exclusion"). The Exclusion explained that it modified the commercial general liability coverage of the policy, and further provided:

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This insurance does not apply to "bodily injury," "property damage," "personal injury" and "advertising injury" ... arising out of, caused by, resulting from, contributed to, aggravated by, or related to earthquake, landslide, mudflow, subsidence, settling, slipping, falling away, shrinking, expansion, caving in, shifting, eroding, rising, tilting or any other movement of land, earth or mud.

¶5 EMC is defending Helgeson in the Underlying Lawsuits under a reservation of rights. On November 15, 2019, EMC filed a declaratory judgment action in federal court, naming Helgeson and seeking a declaration that, pursuant to the Earth Movement Exclusion, there is no coverage under the Policy for Homeowners’ claims. Homeowners requested to intervene in the action, but EMC objected.¹ Homeowners then initiated this declaratory judgment action in the Yellowstone County District Court, seeking a ruling that EMC "is obligated to fully indemnify Helgeson for [Homeowners’] claims within the applicable liability policy limits without further delay."

¶6 EMC moved for summary judgment, while Homeowners opposed EMC's motion and filed a cross-motion for partial summary judgment. EMC argued the Earth Movement Exclusion unambiguously barred coverage for the claims against Helgeson because earth movement—the settling of the soil around and underneath the homes—was alleged to have caused the claimed damages. Homeowners argued the Exclusion was ambiguous because it did not differentiate between natural and human-made earth movement causes.

¶7 The District Court denied EMC's motion and granted partial summary judgment to Homeowners, holding EMC "has a duty to provide coverage" for Homeowners’ claims. Noting that "there is no disputing that the alleged injuries were caused by the actions of Helgeson," the District Court concluded the Earth Movement Exclusion, read in its entirety, applies when "the earth movements are the result of settling of the earth rather than earth movement as a result of the insured's actions," further reasoning that the Exclusion applies to "long-term earth movement that spanned years from expected earth movement, not movement caused by the insured." Thus, the Earth Movement Exclusion did not apply, and coverage was not excluded, because the "event at issue here was human caused." Despite this determinative interpretation favoring the Homeowners, the court further concluded that the Exclusion was ambiguous, and must be construed in favor of the Homeowners.² The District Court awarded attorney fees for the declaratory action to Homeowners under the Uniform Declaratory Judgment Act. Section 27-8-313, MCA.

STANDARDS OF REVIEW

¶8 We review an appeal from a summary judgment ruling de novo, applying the same criteria as the district court. Pablo v. Moore , 2000 MT 48, ¶ 11, 298 Mont. 393, 995 P.2d 460 (citation omitted). Summary judgment is appropriate when there are no genuine issues of material fact, and the moving

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party is entitled to judgment as a matter of law. M. R. Civ. P. 56(c).

DISCUSSION

¶9 Did the District Court err in granting partial summary judgment to Homeowners by concluding EMC had a duty to provide coverage for Homeowners’ claims under the Earth Movement Exclusion of the CGL Policy, which it determined to be ambiguous?

¶10 The interpretation of an insurance contract is a question of law we review for correctness. Pablo , ¶ 12 (citing Wellcome v. Home Ins. Co. , 257 Mont. 354, 356, 849 P.2d 190, 192 (1993) ; Steer, Inc. v. Dep't of Revenue , 245 Mont. 470, 474, 803 P.2d 601, 603 (1990) ). The language of the policy governs if it is clear and explicit. Truck Ins. Exchange v. Waller , 252 Mont. 328, 331, 828 P.2d 1384, 1386 (1992) (citing § 28-3-40, MCA). If a policy is ambiguous, however, it is construed in favor of the insured with any doubts resolved in favor of extending coverage. Park Place Apartments, L.L.C. v. Farmers Union Mut. Ins. Co. , 2010 MT 270, ¶ 13, 358 Mont. 394, 247 P.3d 236 (citation omitted). Exclusions from coverage are narrowly and strictly construed "because they are contrary to the fundamental protective purpose of an insurance policy." Park Place Apartments , ¶ 12 (citation omitted); see also Farmers Union Mut. Ins. Co. v. Oakland , 251 Mont. 352, 356, 825 P.2d 554, 554 (1992). We interpret an insurance policy's terms "according to their usual, common sense meaning as viewed from the perspective of a reasonable consumer of insurance products." Park Place Apartments , ¶ 12 (citation omitted).

¶11 At issue in this case is whether the Earth Movement Exclusion precludes coverage for Helgeson's potential liability in the Underlying Lawsuits. We have not yet analyzed this type of exclusion in the context of a CGL policy, where the damage is alleged to have been caused by the insured's negligence but involves the movement of earth. EMC argues that the Exclusion's language "includes both long[-] and short-term events that have either a human or natural cause" and the District Court's conclusion is a "facially strained" reading of the language that "impermissibly [re-wrote] the [Policy]." Homeowners answer that the Exclusion's "express language ... does not mention human-caused events." Instead, according to Homeowners, the Exclusion "lists a series of naturally occurring events that are not covered" which an "objectively reasonable consumer" would assume excludes only naturally caused events, not "human-caused settling damage."

¶12 We agree with EMC that the District Court's conclusions that the Exclusion "applies [only] to long-term earth movement that spanned years from expected earth movement, not movement caused by the insured," and that the Exclusion is ambiguous, are incorrect. When the entirety of the EMC Policy, including its governing terms, is considered, see Newbury v. State Farm Fire & Cas. Ins. Co. , 2008 MT 156, ¶ 19, 343 Mont. 279, 184 P.3d 1021 ("[w]hen interpreting an insurance policy, we read the policy as a whole"), the meaning of the Exclusion is straightforward and is not ambiguous.

¶13 The Policy here is a CGL policy that insures "the acts or omissions of the insured." Nat'l Indem. Co. v. State , 2021 MT 300, ¶ 73, 406 Mont. 288, 499 P.3d 516 (citing Travelers Cas. & Sur. Co. v. Ribi Immunochem Research , 2005 MT 50, ¶ 18, 326 Mont. 174, 108 P.3d 469 ). This must be the starting point, because coverage under a CGL policy "differs substantially from the coverage analysis in the [first-party] property insurance context, which draws on the relationship between perils that are either covered or excluded in...