Staples v. FARMERS UNION MUTUAL INSURANCE COMPANY

• Decision Date: 27 April 2004
• Docket Number: No. 03-481,03-481
• Citation: 321 Mont. 99,2004 MT 108,90 P.3d 381
• Parties: RAYMOND STAPLES, KENNETH J. HUNTSINGER, ARLENE L. HUNTSINGER, and KENNETH J. HUNTSINGER, as Natural Parent and Guardian of KAITLYN MARIE HUNTSINGER, Plaintiffs and Appellants, v. FARMERS UNION MUTUAL INSURANCE COMPANY, Defendant, Respondent and Cross-Appellant.
• Court: Montana Supreme Court

2004 MT 108

321 Mont. 99

90 P.3d 381

RAYMOND STAPLES, KENNETH J. HUNTSINGER, ARLENE L. HUNTSINGER, and KENNETH J. HUNTSINGER, as Natural Parent and Guardian of KAITLYN MARIE HUNTSINGER, Plaintiffs and Appellants, v. FARMERS UNION MUTUAL INSURANCE COMPANY, Defendant, Respondent and Cross-Appellant.

No. 03-481

Supreme Court of Montana.

Submitted on Briefs: January 21, 2004

Decided: April 27, 2004

For Appellants: James Hunt and James Molloy, Hunt & Molloy Law Firm, Helena, Montana.

For Appellants: Robert C. Melcher, Attorney at Law, Billings, Montana.

For Respondent: Joseph M. Sullivan, Deschenes & Sullivan, Great Falls, Montana.

Justice W. William Leaphart delivered the Opinion of the Court.

¶1 Raymond Staples (Staples), Kenneth J. Huntsinger, Arlene L. Huntsinger, and Kenneth J. Huntsinger, as Natural Parent and Guardian of Kaitlyn Marie Huntsinger (collectively the Huntsingers) appeal the District Court's ruling. Farmers Union Mutual Insurance Company (FUMIC) cross-appeals. We reverse in part, affirm in part, and remand.

¶2 The issues on appeal are as follows:

¶3 1. Whether the District Court correctly determined that FUMIC had a duty to defend Staples?

¶4 2. Whether the District Court erred in holding that as a matter of law Staples was not an additional insured under Matt Corcoran's (Corcoran) insurance policy?

¶5 3. Whether the District Court erred in failing to conclude that the judgment in the underlying action was invalid under the principle of judicial estoppel?

Factual and Procedural Background

¶6 On August 9, 1998, Kenneth J. Huntsinger (Kenneth) was driving a vehicle on a road near Havre and struck a horse named Frenchy. It appeared that Frenchy may have come from Staples' property just prior to the accident, although testimony regarding the precise location of Frenchy just before the accident is conflicting. Resolution of the issues in this case hinges upon a determination as to whether an insurer, in deciding to tender or reject a defense, should purport to resolve disputed issues of fact.

¶7 The record indicates that Corcoran and Don Christopherson (Christopherson) purchased Frenchy from Tom Leonard in 1993, as half-owners. Corcoran claims that in 1995 or 1996 he sold his half-interest in Frenchy to Christopherson. Staples, Corcoran, and Christopherson were all friends. Frenchy was pastured at both Corcoran's ranch and Staples' ranch at varying times prior to the accident. Frenchy bore Corcoran's brand before and at the time of the accident. Members of the surrounding community believed Corcoran owned Frenchy.

¶8 Corcoran had a ranch liability policy in place at the time of the accident with FUMIC.

In addition to providing coverage for Corcoran (the named insured), the insurance policy provided that any person would be an additional insured if the person was: "(1) legally responsible for animals . . . owned by [the named] Insured . . . but insofar as: (a) The insurance under this policy applies to Occurrences involving animals . . . (b) The person's or organization's custody or use of the animals . . . does not involve Business; (c) That person or organization has the custody or use of the animals . . . with the owner's permission." An Occurrence was defined as including an accident which was neither expected or intended from the standpoint of the Insured (Corcoran).

¶9 Kenneth, Kenneth's mother Arlene L. Huntsinger (Arlene), and Kenneth's daughter Kaitlyn Marie Huntsinger (Kaitlyn) instituted a claim against Staples. Kenneth suffered injuries including mental and physical pain and suffering, complete physical disability, economic loss, disruption of his normal life, lost wages, medical and other expenses, loss of consortium, and other general and special damages. Arlene's claims were derivative claims for loss of consortium, lost earnings, expenses, and emotional distress. Kaitlyn's claims were also derivative claims for economic loss, emotional distress, and loss of consortium.

¶10 After approximately one year of pre-trial litigation (and approximately one month after the Huntsingers filed their claim against Staples), Staples filed a third-party complaint against Corcoran and Christopherson. Staples alleged that Corcoran and Christopherson together owned Frenchy. This would mean that Staples, serving as Frenchy's custodian, was an additional insured under Corcoran's policy. As such, he demanded a defense because, based on the terms of Corcoran's policy, FUMIC would owe a third party with permissive custody of the insured's horse all the duties owed to the insured. The Huntsingers subsequently filed an Amended Complaint which named Christopherson and Corcoran as defendants. The Amended Complaint alleged that Frenchy was owned individually or jointly by Corcoran and Christopherson. The complaint stated Frenchy was on either Staples' or Corcoran's land, under the control of Staples, Corcoran, or Christopherson when he left the pasture (of either Staples or Corcoran), and eventually was situated on the highway where Kenneth's vehicle collided with him.

¶11 FUMIC admitted that Corcoran's policy would cover the accident with the Huntsingers if Corcoran owned Frenchy at the time of the accident and Frenchy was being pastured at Staples' ranch. However, FUMIC refused to defend Staples in the underlying action because it determined that Corcoran did not own Frenchy at the time of the accident and thus Staples was not an additional insured under Corcoran's policy.

¶12 In December of 2001, Staples confessed judgments in favor of the Huntsingers, acknowledging that evidence existed from which a jury could find that he was liable for their damages. Staples assigned his rights under the FUMIC policy to the Huntsingers in exchange for covenants not to execute. After Staples confessed judgments, FUMIC filed a declaratory judgment action against Staples and the Huntsingers. FUMIC sought a declaration that it had no duty to defend or indemnify Staples, that the Huntsingers' judgments against Staples were not valid, and that FUMIC was justified in denying coverage to Staples.

¶13 The parties filed cross-motions for summary judgment. Staples and the Huntsingers asked the court to rule that FUMIC had a duty to defend Staples in the underlying action. FUMIC sought a ruling that it had no duty to defend Staples and that the judgments against Staples were not valid and enforceable. The court concluded that, based on the allegations in the amended complaint, FUMIC had a duty to defend Staples. The court then proceeded to go beyond the allegations in the amended complaint and analyze the facts developed during the course of the ensuing litigation. The court noted that both Corcoran and Christopherson swore under oath that although Frenchy had, at one time, been partly owned by Corcoran, Corcoran had sold his interest in Frenchy to Christopherson some months prior to the accident. Accordingly, the court concluded:

While FUMIC, from the face of the complaint and amended complaint, clearly had a duty to defend when it appeared that Staples might be an insured under Corcoran's policy, the facts, as they have developed, clearly show that Corcoran did not own the horse, that because Corcoran did not own the horse he could not have given permission for the horse to be on Staples' property and, therefore, Staples was not a third-party insured of Corcoran.

¶14 The Huntsingers appeal from this determination.

Discussion

¶15 We combine our discussion of Issues 1 and 2 as follows:

¶16 Issue 1: Whether the District Court correctly determined that FUMIC had a duty to defend Staples but then concluded that Staples was not a third-party insured?

¶17 Issue 2: Whether the District Court erred in holding that as a matter of law Staples was not an additional insured under Corcoran's insurance policy?

¶18 A district court's decision to grant summary judgment is reviewed by this Court de novo. Farmers Union Mutual Ins. Co. v. Horton, 2003 MT 79, ¶ 10, 315 Mont. 43, ¶ 10, 67 P.3d 285, ¶ 10. Our evaluation is the same as that of the trial court. We apply the criteria contained in Rule 56, M.R.Civ.P. According to this rule, "[t]he moving party must establish both the absence of a genuine issue of material fact and entitlement to judgment as a matter of law." Farmers Union Mutual Ins. Co., ¶ 10. If this is accomplished, "the burden then shifts to the non-moving party to prove, by more than mere denial and speculation, that a genuine issue does exist." Old Elk v. Healthy Mothers, Healthy Babies, 2003 MT 167, ¶ 11, 316 Mont. 320, ¶ 11, 73 P.3d 795, ¶ 11 (citation omitted). If the court determines that no genuine issues of fact exist, "the court must then determine whether the moving party is entitled to judgment as a matter of law." Old Elk, ¶ 11 (citation omitted). We review legal determinations made by a district court to determine whether the conclusions are correct. Farmers Union Mutual Ins. Co., ¶ 10.

¶19 This case presents an issue as to whether an insurer, in determining whether it has a duty to defend an insured, most look only to the provisions of the insurance policy and the allegations in the complaint or whether it may also look at facts developed outside the pleadings and the policy.

¶20 Montana law is well-settled that an insurer's duty to defend its insured arises when an insured sets forth facts which represent a risk covered by the terms of an insurance policy. Lindsay Drill. & Cont. v. U.S. Fid. & Guar. Co. (1984), 208 Mont. 91, 94, 676 P.2d 203, 205; Graber v. State Farm (1990), 244 Mont. 265, 270, 797 P.2d 214, 217 ("[t]he general rule is that the insurer has a duty to defend when a complaint filed against its insured sets forth facts which bring the event within the policy provisions"); Grindheim v. Safeco Ins. Co. (D. Mont. 1995), 908 F.Supp. 794, 798 ("an insurer's duty to defend its insured arises when the insurer, through reference to pleadings, discovery, or final issues declared ready for...