Nelson v. Farmers Union Mut. Ins. Co.

• Citation: 315 Mont. 268,2003 MT 101,68 P.3d 689
• Decision Date: 24 April 2003
• Docket Number: No. 01-537.,01-537.
• Parties: Robert L. NELSON and Marilyn H. Nelson, Plaintiffs and Appellants, v. FARMERS UNION MUTUAL INSURANCE COMPANY, Defendant and Respondent.
• Court: Montana Supreme Court

68 P.3d 689

2003 MT 101

315 Mont. 268

Robert L. NELSON and Marilyn H. Nelson, Plaintiffs and Appellants, v. FARMERS UNION MUTUAL INSURANCE COMPANY, Defendant and Respondent.

No. 01-537.

Supreme Court of Montana.

Submitted on Briefs March 14, 2002.

Decided April 24, 2003.

Tony P. Lucas, Seidlitz Law Office, Great Falls, Montana, For Appellants.

Joseph M. Sullivan, Emmons & Sullivan, Great Falls, Montana, For Respondent.

Justice PATRICIA O. COTTER delivered the Opinion of the Court.

¶ 1 On June 6, 1994, Marilyn and Robert Nelson (Nelsons), brought an action against their insurer, Farmers Union Mutual Insurance Company (Farmers) in the Eighth Judicial District Court, alleging Farmers had violated Montana's Unfair Trade Practices Act (MUTPA). Following a bench trial, the District Court entered judgment in favor of Farmers on all claims. We affirm.

¶ 2 Nelsons present the following issues on appeal:

1. Whether the District Court abused its discretion by allowing Farmers' counsel to testify at trial;

2. Whether the District Court erred in its interpretation of the insurance contract; and

3. Whether the District Court erred in its interpretation of MUTPA.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 3 The homeowners insurance policy that Nelsons purchased from Farmers provided coverage for their residence in Cascade, Montana, from June 15, 1990 to June 15, 1991, and included replacement value coverage. On July 2, 1990, a hail storm hit Cascade, causing damage to the siding on Nelsons' home and garage.

¶ 4 The first appraisal of damage was prepared on July 30, 1990, by Gene Dolezal (Dolezal) of First General Services of Montana (First General), who estimated that replacing Nelsons' damaged siding would cost $40,562.71. Apparently, First General was providing appraisals at no charge to many Cascade residents after the storm. In September of 1990, Gary Humble (Humble), an adjuster for Farmers, concluded Nelsons' siding did not require replacement, and estimated the damage to be in the amount of $2,588.00. Based on these inconsistent estimates, a dispute arose between the parties as to the appropriate amount of coverage owed the Nelsons.

¶ 5 On October 11, 1990, Farmers' claims manager, Gary Bickler (Bickler) informed Nelsons that Farmers wished to invoke the appraisal clause of the insurance policy. The appraisal clause provided that if the parties were unable to agree on the amount of loss, either could demand an appraisal of the costs. Upon invocation of this clause, each party had twenty days to select a competent appraiser and advise the other party of its choice. The appraisers then had fifteen days to choose an umpire who would resolve any dispute between them. If the appraisers could not agree on an umpire, either party could request the choice be made by a judge.

¶ 6 Nelsons disputed whether Farmers could name an appraiser under the appraisal clause. Apparently, Nelsons contended that the bids already submitted by Humble and First General fulfilled the appraisal requirement as contemplated by the clause. For over a year, the parties disagreed over Farmers' right to choose an appraiser, and how the clause should be implemented. As of January 15, 1991, Nelsons considered Dolezal—the appraiser who completed the initial estimate in July 1990, for First General—to be their appraiser, while Farmers had selected Cal Hoiland (Hoiland). However, an umpire was not determined by the appraisers as provided for in the appraisal clause.

¶ 7 Hoiland inspected Nelsons' property and issued an appraisal on January 28, 1991. According to Hoiland, there was no apparent damage on the hardboard siding. He estimated the total damage to be in the amount of $3,480.00. Based on that appraisal, on or about June 6, 1991, Farmers offered Nelsons the sum of $2,980.00 ($3,480.00 less a $500.00 deductible). Although Nelsons accepted and kept this payment upon re-issuance of the check in August of 1991, they maintained the estimate was invalid, arguing that it failed to cover the total loss suffered.

¶ 8 Nelsons continued to disagree about implementation of the appraisal clause, and in October of 1991, District Court Judge John McCarvel (Judge McCarvel) was asked to select an umpire and determine whether Humble or Hoiland should be considered Farmers' appraiser under the appraisal clause. On November 18, 1991, Judge McCarvel agreed with Farmers, concluding that under the appraisal clause, Hoiland was properly designated, and noted that at that time, Nelsons' choice of appraiser was still Dolezal. In this ruling, Judge McCarvel also selected an umpire.

¶ 9 For the next sixteen months, between November 18, 1991, and March 3, 1993, the parties undertook the joint appraisal process. However, the process was delayed for various reasons. First, Nelsons disagreed that McCarvel's choice of umpire was binding. Next, Nelsons' appraiser moved and became unavailable, and finally, once definitively chosen, the appraisers had trouble getting together.

¶ 10 During this time frame, Nelsons filed a complaint against Farmers in the Eighth Judicial District Court on July 1, 1992, seeking payment in addition to the $2,980.00 already received, for damage to their property. This particular cause of action is separate from the instant cause and will be referred to as Nelson I.

¶ 11 Finally, in March of 1993, Hoiland (Farmers' appraiser) and Chuck Olson (Olson) (Nelsons' second appraiser) undertook a joint appraisal. On March 12, 1993, Hoiland and Olson submitted a joint appraisal letter on the damage to Nelsons' property, determining the repair costs to be $11,834.00. The letter explained that while the siding had aged and faded, it "appear[ed] to be the same color on all facades, and seem[ed] sound and serviceable." The letter added that the original siding could not be matched since it was no longer available, but noted that not all the siding showed hail damage. The joint appraisers stated that the suggested estimate "will pay the cost of a good professional paint job, or for good new pre-finished siding material to cover both buildings. Siding installation costs to be paid by [Nelsons]—their choice." (Emphasis in original.)

¶ 12 By letter dated March 24, 1993, Nelsons rejected this joint appraisal because it did not take into account the replacement labor costs associated with removal of the old siding and installation of the new siding, which they argued they were entitled to recover under their policy. The letter stated that "[i]f we are unable to resolve the extent of the insurer's duty under the March 12, 1993 appraisers' report, I [Nelsons' counsel] will proceed with service of the Complaint filed in this matter." Nelsons did not make a demand for payment based on the joint appraisal estimate of $11,834.00.

¶ 13 Within a month, arrangements were made for Olson to submit a bid for the labor and materials required to replace the siding; however, Olson later declined to give the bid. Although Farmers made arrangements for two other contractors to submit bids, Nelsons refused to allow the contractors on their property. Apparently, Nelsons believed that Farmers should rely on the July 1990 estimate prepared by First General, which included replacement costs, and as such, Nelsons questioned the necessity of additional bids. Between August 5, 1993, and March 17, 1994, Farmers sought authorization from Nelsons for contractors to make their bids, but Nelsons continued to refuse them access to their property. Finally, on March 17, 1994, Nelsons agreed to allow two contractors to view their property and make bids.

¶ 14 On May 3, 1994, Bill Peterson (Peterson), one of the contractors chosen, provided a preliminary bid, but was asked to resubmit the bid with additions and corrections. Peterson's revised bid of $46,002.09 was received on June 27, 1994. Both parties accepted Peterson's revised bid, thus settling Nelsons' claim in Nelson I, and on July 14, 1994, Farmers tendered a check to Nelsons in the amount of $42,522.09, which together with the $2,980.00 and the $500 deductible, totaled $46,002.09. On July 22, 1994, Nelson I was dismissed with prejudice.

¶ 15 However, on June 6, 1994, prior to receiving Peterson's revised bid, Nelsons filed the underlying complaint in this case (Nelson II), alleging Farmers violated MUTPA, specifically §§ 33-18-201(2), (3), (4), (6) and (7), MCA. According to Nelsons, Farmers had refused to pay the damages suffered by Nelsons in spite of the estimates provided. Nelsons sought money damages for mental anguish and emotional distress, punitive damages, and costs and attorney fees.

¶ 16 The bench trial in Nelson II commenced on February 20, 2001. Prior to trial, the court determined that the only remaining claims left to be resolved were a claim for "loss of use of money" and a derivative claim seeking punitive damages. Moreover, the District Judge stated on the record prior to hearing testimony that "there's going to be no claim for wrongful conduct, alleged wrongful conduct prior to the March 12th [1993] date." Nelsons concurred with this statement.

¶ 17 Nelsons called Humble, Bickler, Robert Stainsby (Stainsby), a former claims representative with Farmers, and Marilyn Nelson (Marilyn) to testify. We recount only that testimony that is directly relevant to the issues presented for review.

¶ 18 Significantly, Marilyn confirmed during her testimony that no claim was being made for any conduct on the part of Farmers prior to March 12, 1993, when the joint appraisal was obtained.

¶ 19 Bickler, Farmers' claims adjuster, told the court that Robert Emmons (Emmons) was involved as Farmers' counsel as of Fall, 1990, and added that Farmers funneled everything through Emmons and relied on Emmons' guidance in making any decisions.

¶ 20 Stainsby, who was a former field claims representative with Farmers with over thirty years of experience, testified on behalf of Nelsons. In Stainsby's opinion, ninety days was a reasonable time...