REFF-CONLIN'S INC. v. FIREMAN'S FUND INS.

• Decision Date: 28 March 2002
• Docket Number: No. 00-795.,00-795.
• Citation: 45 P.3d 863,2002 MT 60
• Parties: REFF-CONLIN'S INC., Conlin's of Grand Forks, Inc., and Conlin's Contract Service, Inc., Plaintiff/Respondent/Cross-Appellant, v. FIREMAN'S FUND INSURANCE COMPANY and Western States Insurance Company, Inc., Defendants/Appellant/Cross-Respondent.
• Court: Montana Supreme Court

45 P.3d 863

2002 MT 60

REFF-CONLIN'S INC., Conlin's of Grand Forks, Inc., and Conlin's Contract Service, Inc., Plaintiff/Respondent/Cross-Appellant, v. FIREMAN'S FUND INSURANCE COMPANY and Western States Insurance Company, Inc., Defendants/Appellant/Cross-Respondent.

No. 00-795.

Supreme Court of Montana.

Submitted on Briefs January 17, 2002.

Decided March 28, 2002.

Rehearing Denied May 2, 2002.

L.B. Cozzens, Cozzens, Warren & Harris, P.L.L.P., Billings, Montana, For Appellant.

James L. Jones, Dorsey & Whitney, LLP, Billings, Montana, For Respondent.

Justice TERRY N. TRIEWEILER delivered the Opinion of the Court.

¶ 1 The Plaintiff, Reff-Conlin's Inc., brought this action in the District Court for the Thirteenth Judicial District in Yellow-stone County to recover compensation for losses caused when the Red River flooded Conlin's Grand Forks, North Dakota, furniture store. Named as defendants were its insuror, Fireman's Fund Insurance Company, and its insurance agent, Western States Insurance Company. Conlin's settled with Fireman's Fund but proceeded to trial against Western States. The jury found that Western States negligently procured flood insurance for the Grand Forks store and negligently misrepresented its efforts to obtain the insurance and is 100% liable for Conlin's damages. Following a post-trial hearing to determine damages, the District Court entered judgment in favor of Conlin's. Western States appeals from the judgment of the District Court and Conlin's cross-appeals. We reverse the District Court and remand for a new trial.

¶ 2 Although numerous issues are raised on appeal and cross-appeal, our resolution of the following issue requires a new trial and therefore we decline to address additional issues:

¶ 3 Did the District Court err when it denied Western's challenge for cause of potential juror Derrig?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 4 On April 19, 1997, the Red River flooded Reff-Conlin's Inc.'s furniture store in Grand Forks, North Dakota. At the time of the flood, Conlin's was insured by the Defendant Fireman's Fund, Inc., through its agent, Defendant Western States, Inc., an independent insurance agency with fourteen offices across Montana.

¶ 5 Conlin's filed a complaint in the District Court for the Thirteenth Judicial District in Yellowstone County on August 19, 1997. Conlin's alleged that it asked Western to add flood insurance to the Grand Forks store's existing policy in March 1997. However, Fireman's failed to inform Western that no flood insurance would be offered until April 18, 1997, the day before the dikes protecting Grand Forks broke.

¶ 6 Conlin's claimed: (1) that Fireman's breached its contract to insure the store; (2) that Fireman's and Western committed constructive fraud and negligent misrepresentation in handling Conlin's flood insurance request; (3) that Fireman's negligently handled Conlin's request for flood insurance; (4) that Fireman's and Western breached the implied covenant of good faith and fair dealing; (5) that Fireman's conduct in handling Conlin's insurance claim violated the Unfair Claims Settlement Practices Act; (6) that Western negligently handled Conlin's request for flood insurance; and (7) that the conduct of the Defendants amounted to actual fraud and malice which entitled Conlin's to punitive damages.

¶ 7 In an Amended Complaint filed September 8, 1998, Conlin's further alleged that Fireman's made representations about coverage upon which Conlin's relied and that Fireman's should therefore be estopped from relying on a policy exclusion for damage caused by flood. Finally, Conlin's contended that Western breached its contract with Conlin's.

¶ 8 The essence of Conlin's argument at the District Court was that an existing Fireman's policy covered $329,000 of its $665,000 loss. Moreover, Conlin's alleged that Fireman's was negligent for failing to inform either Western or Conlin's of its decision not to offer flood insurance until it was too late for Conlin's to look elsewhere. Conlin's alleged that Western was negligent for failing to procure flood insurance and negligently misrepresented that flood insurance would be acquired for the Grand Forks store.

¶ 9 Conlin's and Fireman's reached a confidential settlement agreement, and the District Court filed a May 10, 1999, order which dismissed Fireman's with prejudice as a defendant. A general release of all Conlin's claims against Fireman's was subsequently filed on September 3, 1999. However, Conlin's proceeded to trial against Western, which made a claim for contribution against Fireman's.

¶ 10 On January 21, 1999, Western filed a motion for summary judgment. Western argued that Conlin's had never specifically requested that Western procure flood insurance for the Grand Forks store. Western further argued that it had no duty to procure flood insurance pursuant to its contract with Conlin's.

¶ 11 The District Court granted Western's summary judgment motion on the breach of contract and constructive fraud claims, concluding that Western had no contractual obligation to provide flood insurance. However, the District Court concluded that issues of material fact precluded summary judgment on the breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, and negligence claims. Conlin's proceeded to trial against Western on these remaining claims.

¶ 12 During voir dire prospective juror Martin Derrig disclosed that he was president of U.S. Bank, which, at the time of trial, was represented by Conlin's trial counsel; that he had in the past worked with that firm as bank president; and that U.S. Bank was one of Conlin's creditors.

¶ 13 Western challenged Derrig for cause twice during voir dire. The District Court denied both challenges. Western then used one of its peremptory challenges to remove Derrig from the jury panel. Western used all of its peremptory challenges during jury selection.

¶ 14 Following a seven day trial, the jury found that Western was negligent in the procurement of flood insurance for the Grand Forks store and that Western negligently misrepresented its efforts to obtain the insurance. The jury attributed 100% of the liability to Western.

¶ 15 After a post-trial hearing on damages, the District Court offset $146,849, added interest, and entered judgment in favor of Conlin's for $615,030. Western now appeals from that judgment and Conlin's cross-appeals. We reverse and remand for a new trial.

STANDARD OF REVIEW

¶ 16 We will review a district court's refusal to grant a challenge for cause for an abuse of discretion.¹

DISCUSSION

¶ 17 Did the District Court err when it denied Western's challenge for cause of potential juror Derrig?

¶ 18 Western contends that the District Court erroneously denied its challenge for cause to prospective juror Derrig. Because Western was forced to use a peremptory challenge to prevent Derrig from serving, and because Western used all of its peremptory challenges, Western now maintains that it was correspondingly denied an equal number of peremptory challenges and is therefore entitled to a new trial.

¶ 19 At trial, Western asserted two bases for challenging Derrig for cause. Western challenged Derrig based on the debtor-creditor relationship between Conlin's and U.S. Bank and Western challenged Derrig due to the potential for bias arising from his attorney-client relationship with Conlin's trial attorneys. Each of these challenges for cause was denied and Western was forced to use a peremptory challenge to exclude Derrig from the jury.

1. Debtor—Creditor Relationship

¶ 20 Derrig revealed during voir dire that U.S. Bank provided financing for Conlin's. The District Court denied Western's challenge for cause based on U.S. Bank's creditor relationship with Conlin's. Western now maintains that as president of U.S. Bank, Derrig had a professional interest in Conlin's recovery of it flood losses and, therefore, its challenge should have been granted. Conlin's contends that Derrig is merely an employee of a creditor and that the District Court considered the relevant facts and properly concluded that Derrig could be impartial.

¶ 21 Section 25-7-223(3), MCA, provides that "[c]hallenges for cause may be taken" on the grounds that a debtor-creditor relationship exists between the juror and either party. We conclude that there is no substantive difference between the Chief Executive Officer of a creditor who is responsible for the creditor's success and the creditor itself when it comes to impartiality and jury duty. To hold otherwise would exalt form over substance. Therefore, we conclude that the District Court abused its discretion when it denied Western's challenge to Derrig based on the debtor-creditor relationship of Conlin's and U.S. Bank.

2. Attorney-Client Relationship

¶ 22 Derrig also stated during voir dire that U.S. Bank was represented by the attorneys for Conlin's and that he had worked with attorneys from that firm. Derrig revealed that as president, he was one of two people who made decisions with regard to which firm the bank would use. When questioned, however, Derrig said that he could be fair and impartial despite his professional relationship with Conlin's trial attorneys.

¶ 23 Western contends that Derrig should have been removed for cause because of U.S. Bank's relationship with Conlin's trial counsel. Conlin's counters that there was no attorney-client relationship between its attorneys and Derrig. Rather, any professional relationship was between the attorneys and U.S. Bank. Western replies that any distinction between personal and corporate representation is eroded where the potential juror is an officer, director, or shareholder of the corporation and notes that as president of U.S. Bank, Derrig had a professional interest in his relationship with opposing counsel.

¶ 24 Section 25-7-223, MCA, lists the grounds for challenge to jurors for cause in civil actions. Although the...