Nat'l Indem. Co. v. State, DA 19-0533

• Docket Nº: DA 19-0533
• Citation: 499 P.3d 516
• Case Date: November 23, 2021
• Court: United States State Supreme Court of Montana

499 P.3d 516

NATIONAL INDEMNITY COMPANY, Plaintiff, Appellant, and Cross-Appellee,
v.
STATE of Montana, Defendant, Appellee, and Cross-Appellant,
and
Terry Jellesed, Raymond Abrahamson, Randall Baeth, Marlise Bailey, Delmas Brooks, Shirley Chapman, Ruth Fore, Jeffery Govi, Thomas Jenkins, James McNulty, and Phillip Perez, Intervenors.

DA 19-0533

Supreme Court of Montana.

Argued and Submitted: November 20, 2020
Decided: November 23, 2021

For Appellant: Mary Beth Forshaw (argued), Simpson Thacher & Bartlett LLP, New York, New York, Peter F. Habein, Marcia Davenport, D. Wiley Barker, Crowley Fleck PLLP, Helena, Montana, Gary M. Zadick, Ugrin, Alexander, Zadick & Higgins, PC, Great Falls, Montana

For Appellee: John F. Sullivan (argued), Kate McGrath Ellis, Colin W. Phelps, Christensen & Prezeau, PLLP, Helena, Montana, Calvin J. Stacey, Stacey & Funyak, Billings, Montana

For Intervenors: Allan M. McGarvey, Roger Sullivan, Ethan Welder, Jinnifer Jeresek Mariman, McGarvey, Heberling, Sullivan & Lacey, P.C., Kalispell, Montana, J. David Slovak, Mark. M. Kovacich, Kovacich & Snipes, P.C., Great Falls, Montana

For Amicus Complex Insurance Claims Litigation Association and American Property Casualty Association: Brian L. Taylor, Hall & Evans LLC, Billings, Montana, Laura A. Foggan, Crowell & Moring LLP, Washington, District of Columbia

For Amicus United Policyholders: Lorelie S. Master, Hunton Andrews Kurth LLP, Washington, District of Columbia, Curt Drake, Patricia Klanke, Drake Law Firm, P.C., Helena, Montana

Justice Jim Rice delivered the Opinion of the Court.

¶1 In 2012, National Indemnity Company (National, or NIC) commenced this action seeking a declaration of its rights and obligations under a general liability insurance contract (Policy) issued to the State of Montana (State) for the period between July 1, 1973 and July 1, 1975, with regard to claims of personal injury from toxic asbestos dust exposure arising from the State's failure to warn claimants of these conditions, despite conducting inspections of the source vermiculite mining and milling operations in and around Libby, Montana ("Libby Mine"), as early as the 1950s and through the 1970s. Intervenors are among hundreds of individuals who suffer from and brought claims for asbestos-related injuries as a result of exposure at or around the Libby mining operations (collectively referred to as "Libby Mine Claimants" or "Libby Mine Claims"). National alleged herein that it "had and has no obligation to defend or indemnify the State in connection with all or portions of" the asbestos injury claims asserted against the State

499 P.3d 521

and has "no obligation to defend or indemnify the State against Future Claims." After extensive litigation and extraordinary effort by the District Court, orders addressing numerous legal issues and a multitude of claims were entered, which ultimately concluded National had breached its duty to defend the State and was further obligated to pay claims under the terms of the Policy. Judgment in the amount of $97,883,193.39 was entered against National and in favor of the State, including prejudgment interest, attorney fees and costs, which was less than the amount sought by the State. National appeals and the State cross-appeals rulings of the District Court adverse to their respective positions. We address various sub-issues, but the general issues raised by the parties are as follows:

1. Did the District Court err in its determinations that National breached its duty to defend the State?

2. Did the District Court err in its determinations regarding coverage under the general liability policy issued by National to the State?¹

3. Did the District Court err by awarding pre-judgment interest on the settlement amounts and defense costs?

4. Did the District Court's rulings violate National's due process and contract clause rights under the Montana and United States Constitutions?

¶2 We affirm in part, reverse in part, and remand for limited further proceedings necessary to implement this Opinion.

FACTUAL AND PROCEDURAL BACKGROUND

¶3 This insurance-related dispute arises from underlying litigation against the State related to its regulatory role of the Libby Mine, owned and operated by W.R. Grace and Company and its predecessors, Universal Zonolite and Insulation Company and Zonolite Company. As this Court discussed in Orr v. State , 2004 MT 354, ¶ 37, 324 Mont. 391, 106 P.3d 100, as early as 1956, the dangers to the workers arising from asbestos and the mining conditions "were already clear and present." See also Maryland Cas. Co. v. Asbestos Claims Court , 2020 MT 70, ¶ 8, 399 Mont. 279, 460 P.3d 882 and BNSF Ry. Co. v. Asbestos Claims Court , 2020 MT 59, ¶ 4, 399 Mont. 180, 459 P.3d 857. From 1956 onward, the State relied upon a 1942 Montana Attorney General's Opinion to withhold the results of its workplace inspections and did not advise workers of the hazardous conditions at the Libby Mine.

¶4 Ratification of Montana's 1972 Constitution brought abolishment of Montana's sovereign immunity, which the Constitutional Convention Delegates deemed "an anachronism." Orr , ¶ 54 ; see also Mont. Const. art. II, § 18. The State thereafter solicited bids from private insurers for provision of comprehensive general liability coverage. The State provided prospective bidders with an underwriting packet that described aspects of the State's risk, but did not mention the State's knowledge of the asbestos conditions at the Libby Mine. The State acknowledges it provided no information about the Libby Mine, or related injuries and deaths by workers, until 2002. The State also provided bidders with specifications for proposed coverage that indicated an exclusion for "[c]ontamination or pollution" was acceptable to the State. Following this bidding process, the State accepted the bid from National, which issued a comprehensive general liability policy to the State in June 1973. Therein, National agreed to pay "all sums" for bodily injury "caused by an occurrence" for which the State "shall become legally obligated to pay as damages," with National having the "right and duty to defend any suit against the insured seeking damages on account of such bodily injury." The initial term of the policy was for a three-year period between July 1, 1973, and July 1, 1976, but National unilaterally cancelled coverage as of July 1, 1975. Glacier General Assurance Company, now defunct, provided coverage for the State in the interim, and, commencing in 1976, the State has since maintained a comprehensive self-insurance program, as authorized under §§ 2-9-101 through 305, MCA.

¶5 Beginning in 2000, Libby Mine Claimants began filing tort claims against the

499 P.3d 522

State for injuries resulting from asbestos exposure during times prior to, during, and after the term of the National policy. See Orr , ¶ 3. Orr involved nine claimants and was an early proceeding, which asserted negligence based upon the theory the State had failed to warn claimants of the dangers of asbestos exposure, resulting in bodily injuries. In response to the lawsuits, the Risk Management and Tort Defense Division of the State Department of Administration hired outside counsel to defend the State pursuant to its self-insurance program and did not notify National of the claims. Between September 2000 and June 2002, 18 lawsuits were filed against the State. State-retained counsel served responsive pleadings, filed dispositive motions and briefing, and argued for dismissal, still without notifying National.

¶6 In January 2002, the State began searching its storage records for an insurance policy, and in June 2002 located the Declarations Page of the National Policy indicating comprehensive general liability coverage. On June 27, 2002, Dale Cockrell, counsel for the State, made the first con522tact with National regarding the claims then filed, writing that:

[W]e are tendering these claims to National Indemnity ... it appears that National Indemnity provided comprehensive general liability insurance to the State from on or about 1973 through 1975 or 1976.

The State listed the first 18 Libby Claim lawsuits, provided copies of 12 of those complaints, advised that the State had "filed Motions to Dismiss each of the complaints that have been served upon the State," and requested a copy of the insurance policy. Shortly thereafter, Cockrell sent National a follow-up letter, providing five of the remaining six complaints, and advising the State had argued the dismissal motions. Both letters were received by National in July 2002. Despite the "tendering" language within the June 27, 2002 letter, neither letter referenced or requested that National pay the State's counsel, assume defense responsibilities, reimburse the State's incurred defense costs, or provide any other assistance on the claims. In response to the letters, National Claims Administrator Reed Grandgenett called Cockrell, who advised Grandgenett that, the State's motions having been argued, "there was nothing further to be done."

¶7 In August 2002, the District Court granted the State's motion to dismiss the Orr proceeding, and the Orr Claimants appealed to the Montana Supreme Court. In November 2002, National opened a claim file for the Libby Claims and internally set aside $25,000 for "various asbestos claims" at the "Toxic...