Scheafer v. Safeco Ins. Co. of Ill.

• Decision Date: 18 March 2014
• Docket Number: No. DA 11–0393.,DA 11–0393.
• Parties: Valerie SCHEAFER, individually and on behalf of all others similarly situated, Plaintiff and Appellant, v. SAFECO INSURANCE COMPANY OF ILLINOIS, and any and all parent companies, subsidiaries, and affiliates, and John Doe Defendants 1–50, Defendant and Appellee.
• Court: Montana Supreme Court

374 Mont. 278

320 P.3d 967

Valerie SCHEAFER, individually and on behalf of all others similarly situated, Plaintiff and Appellant,

v.SAFECO INSURANCE COMPANY OF ILLINOIS, and any and all parent companies, subsidiaries, and affiliates, and John Doe Defendants 1–50, Defendant and Appellee.

No. DA 11–0393.

Supreme Court of Montana.

Submitted on Briefs Jan. 29, 2014.

Decided March 18, 2014.

For Appellant: Hillary P. Carls, Mark J. Luebeck; Angel, Coil & Bartlett; Bozeman, Montana.

For Appellee: Carey E. Matovich, Brooke B. Murphy; Matovich, Keller & Murphy, P.C.; Billings, Montana.

Justice PATRICIA COTTER delivered the Opinion of the Court.

¶ 1 This is the second appeal in this case. The appeals arise out of a November 7, 2007 automobile accident and ensuing insurance coverage disputes.

¶ 2 At the time of the accident, Valerie Scheafer was driving a business vehicle owned by Mattress King, Inc. and insured by Mountain West Farm Bureau. Scheafer alleges that as a result of the accident, she incurred medical expenses and other losses. Scheafer, whose personal vehicles were insured by Safeco at the time, filed a claim with Safeco for medical payment benefits (Med Pay). Safeco paid Scheafer Med Pay benefits and Mountain West paid to her an undisclosed amount of underinsured motorist (UIM) benefits.¹ In November 2009, Scheafer, believing Safeco wrongfully refused to pay additional claimed benefits, brought a class action suit against her insurer in the Eighteenth Judicial District Court. Safeco moved to dismiss the complaint, and in June 2011 the District Court granted the motion. Scheafer appealed to this Court.

¶ 3 In March 2012, we remanded the matter to the District Court with specific instructions pertaining to supplementation of the record and additional analysis by the District Court. The District Court issued its order following remand in August 2013, ruling in favor of Safeco. Scheafer appeals this order. We affirm.

ISSUE

¶ 4 A restatement of the issue on appeal is whether the “other insurance” clauses in Scheafer's automobile liability policy are valid, and whether they violate the “made whole” doctrine as de facto subrogation.

FACTUAL AND PROCEDURAL BACKGROUND

First Appeal:

¶ 5 Scheafer was injured in an automobile accident on November 7, 2007. At the time of the accident, Scheafer, whose three personal vehicles were insured by Safeco, was driving a vehicle insured by Mountain West Farm Bureau. In August 2008, Scheafer submitted a notice of the accident to Safeco in which she specifically requested Med Pay benefits. She claimed that her then-current medical expenses exceeded $22,600. While Scheafer's Safeco policy provided both Med Pay and UIM coverage and Scheafer paid separate premiums for each, Scheafer's notice letter made no request for UIM benefits nor did it state any monetary damages related to UIM.

¶ 6 Scheafer later claimed that Safeco refused to pay Med Pay or UIM benefits. Safeco countered that it had paid her $1,000 which was the limit of her Med Pay coverage. Safeco acknowledged that after learning she was not driving one of her Safeco-insured vehicles, it advised her that it would not pay any UIM claim until the limits of Mountain West's UIM coverage were exhausted. Safeco explained to Scheafer that her policy contained “other insurance” clauses which provided that Safeco's Med Pay and UIM coverage were “excess” ² to any other similar coverage available under other applicable insurance policies—in this case, that of Mountain West.

¶ 7 On November 23, 2009, Scheafer filed suit against Safeco on her own behalf and on behalf of other similarly situated Safeco insureds. In her class action complaint, Scheafer claimed she had “incurred reasonable and necessary medical expenses and other damages and losses, which were causally related to the accident.” The complaint did not reference the amount of medical expenses Scheafer had incurred nor did it identify the type or amount of “other damages and losses” for which she was seeking benefits. Additionally, the complaint did not indicate whether Mountain West, or any other insurer, had paid benefits to Scheafer and, if so, the amount and nature of such benefits.

¶ 8 In Scheafer's complaint, she alleged that by requiring other Med Pay and UIM coverage to be exhausted before triggering Safeco's duty to pay benefits, Safeco engaged in unlawful subrogation that effectively reduced the amount of coverage available to her and all Safeco insureds under their applicable policies. In her complaint, she asserted that Safeco: (1) breached its contract; (2) violated the Unfair Trade Practices Act, §§ 33–18–101–1006, MCA; (3) committed constructive fraud; and (4) breached the implied covenant of good faith and fair dealing. Among other things, she sought the certification of her putative class and a declaration that the “other insurance” clauses in Safeco's policies violated public policy and were void and/or unconstitutional because they constituted subrogation. She also sought punitive damages. Scheafer further asserted that the “other insurance” clauses violated her right to be made whole.

¶ 9 In December 2009, Safeco moved to have Scheafer's action dismissed under M.R. Civ. P. 12(b)(6) (Rule 12(b)(6)) for failure to state a claim upon which relief may be granted. Safeco argued that the “other insurance” clauses were valid, enforceable, and did not constitute subrogation, and that Scheafer misinterpreted well-established Montana law. It asserted that Scheafer would not be entitled to the relief she seeks under any set of facts she could prove.

¶ 10 In its June 2011 order, the District Court noted that the “other insurance” clauses in Safeco's policy constituted “excess” clauses and are generally considered valid and enforceable. It acknowledged, however, that we have not previously discussed the enforceability of an excess clause in the context of both Med Pay and UIM coverage. After citing numerous cases in which we ruled excess insurance clauses were enforceable, the District Court concluded that the clauses in this case were valid and enforceable.

¶ 11 The court next addressed whether the “other insurance” clauses constituted subrogation. It determined that they did not amount to subrogation because the “excess” clause did not reduce the amount of coverage available to Safeco's insureds; rather, the clause merely established a priority system by requiring that any other applicable policy be exhausted before Safeco's coverage was triggered. Thus, if Scheafer's damages exceed the amount of coverage available under the primary policy issued by Mountain West and she has not been made whole, then Safeco's benefits, up to the policy limits, are available to her. Having determined that the excess coverage clauses in Safeco's policy were valid, enforceable, did not amount to subrogation, and did not violate Scheafer's right to be made whole, the District Court granted Safeco's Rule 12(b)(6) motion. Scheafer appealed.

¶ 12 We determined on appeal that the District Court record was insufficient to support its ruling in that the record did not contain either insurance policy at issue in the case. Furthermore, we observed there was nothing in the record to resolve the dispute as to whether Safeco had paid her Med Pay claim. Noting that we have historically treated Med Pay coverage differently from UIM coverage,³ we remanded the matter to the District Court for supplementation of the record and additional analysis concerning the distinction between Med Pay and UIM coverages in the context of “other insurance” clauses. We also instructed the District Court to determine the priority of the “other insurance” clauses contained in the two policies.

Second Appeal:

¶ 13 Following additional proceedings, the District Court issued its supplemental order on August 1, 2013, and the matter has returned to us on appeal, once again by Scheafer. The record has been supplemented with a copy of each insurance policy and the parties have stipulated that on August 27, 2008, Safeco paid Scheafer the total $1,000 Med Pay benefits to which she was entitled under her policies. Additionally, the District Court conducted the requested analysis pertaining to Med Pay and UIM coverage. The court again concluded the “other insurance” clauses contained in Safeco's policy were valid, enforceable, and did not constitute unlawful subrogation. The court further held that under the facts of the case, Mountain West's coverage was primary and Safeco's coverage was excess. Scheafer appeals.

STANDARD OF REVIEW

¶ 14 We review a district court's ruling on a motion to dismiss under the standards set forth in Rule 12(b)(6). A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him to relief. When considering a motion to dismiss under Rule 12(b)(6), all well-pled allegations and facts in the complaint are admitted and taken as true, and the complaint is construed in a light most favorable to the plaintiff. A district court's determination that a complaint has failed to state a claim for which relief can be granted is a conclusion of law which we review for correctness. Sinclair v. Burlington Northern & Santa Fe Ry., 2008 MT 424, ¶ 25, 347 Mont. 395, 200 P.3d 46 (citation omitted).

DISCUSSION

¶ 15 The issue on appeal is whether the “other insurance” clauses in Scheafer's automobile liability policy are valid, and whether they violate the “made whole” doctrine as de facto subrogation.

¶ 16 Scheafer's claim on appeal is that the “other insurance” clauses contained in Safeco's policy violate Montana's subrogation law and are therefore void and unenforceable. Scheafer asserts her right to be made whole is critical to this analysis. She cites numerous cases that stand for an injured insured's right to be made whole before an insurer may seek subrogation. Skauge v. Mountain States Tel. & Tel. Co., 172...