State Farm Fire v. Schwan, DA 12–0641.
| Decision Date | 11 September 2013 |
| Docket Number | No. DA 12–0641.,DA 12–0641. |
| Parties | STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff and Appellant, v. Daryl and Patricia SCHWAN, individually and as co-personal representatives of the Estate of Whitney Schwan, Defendants and Appellees. |
| Court | Montana Supreme Court |
OPINION TEXT STARTS HERE
For Appellant: Martha Sheehy; Sheehy Law Firm; Billings, Montana.
For Appellee: Norman L. Newhall, III; Linnell, Newhall, Martin & Schulke, PC; Great Falls, Montana.
[371 Mont. 193]¶ 1 State Farm Fire and Casualty Company (State Farm Fire) sought a declaration that its homeowners policy excluded coverage for the vehicular death of Whitney Schwan (Whitney). Daryl Schwan and Patricia Schwan (Schwans), Whitney's parents and the co-personal representatives of her estate, counterclaimed that State Farm Fire was estopped from denying coverage because it had breached its duty to defend under the policy. The Twelfth Judicial District Court, Hill County, granted summary judgment to the Schwans. The District Court ordered State Farm Fire to pay the Schwans' claims and awarded them attorney fees and costs. State Farm Fire appeals and raises three issues. We address only the following issue, and reverse and remand for further proceedings:
¶ 2 Did the District Court err in concluding that State Farm Fire breached its duty to defend?
¶ 3 On the night of June 19, 2004, Whitney was a passenger in a vehicle being driven by Travis Turner (Travis) on a road just south of Havre. Travis was driving his mother's Dodge Stratus, and lost control of the vehicle. The vehicle left the highway and overturned. Whitney and Travis were both thrown from the vehicle and sustained injuries that resulted in their tragic deaths.
¶ 4 Marvin and Cheri Turner (Turners), Travis's parents, had two State Farm insurance policies relevant to this matter. Turners had an automobile liability policy on the Dodge Stratus with State Farm Mutual Automobile Insurance Company (State Farm Auto). They also had a homeowners policy with State Farm Fire.
¶ 5 In 2007, Schwans sued both Travis's estate and the Turners (the Underlying Action). The complaint alleged that Travis was negligent in his operation of the vehicle and that Turners were negligent in entrusting Travis with the vehicle, failing to stop him from driving, providing him with alcohol on the night of the accident, and failing to warn Whitney of Travis's poor driving record.1 State Farm Auto retained Billings attorney Calvin Stacey (Stacey) to defend the Turners in this action.
¶ 6 Several months later, Stacey notified State Farm Fire's in-house legal counsel, David Bauer (Bauer), of the Underlying Action. Stacey advised Bauer that Schwans had demanded payment of policy limits under both the State Farm automobile policy and the State Farm homeowners policy. While the homeowners policy generally excluded coverage for automobile accidents, the Schwans contended that the alleged facts triggered coverage pursuant to Pablo v. Moore, 2000 MT 48, 298 Mont. 393, 995 P.2d 460 ().
¶ 7 Discussions regarding the status of the case were undertaken by Bauer, State Farm Auto Team Manager, Beth Corbin (Corbin), State Farm Fire Claim Team Manager, Jennifer McKenzie (McKenzie), and Stacey. State Farm Fire acknowledged a potential duty to defend the Turners under the homeowners policy and confirmed with Stacey that he was defending the Turners on all claims in the Underlying Action. Stacey further advised that additional counsel was not necessary to assist in defending the Turners. Upon receipt of this information, State Farm Fire sent a letter to the Turners discussing the Schwan suit and Stacey's representation of them. The letter further stated, in part:
It is also our understanding that you are not tendering defense of this lawsuit to State Farm Fire & Casualty Company at this time.... If we do not hear from you to the contrary, we will assume that it is acceptable for us to continue handling the case on these terms.
Based on its determination that Stacey was defending the Turners on all claims, State Farm Fire did not hire a separate attorney to defend the Turners in the Underlying Action.
¶ 8 However, State Farm Fire maintained contact with State Farm Auto and Stacey throughout the duration of the Underlying Action. Bauer advised Stacey that if State Farm Auto's defense of the Turners would terminate for any reason, State Farm Fire would assume responsibility for Stacey's continued defense of the Turners. Corbin agreed with Bauer and McKenzie's proposal for State Farm Fire to take over paying for Stacey's services if it became necessary.
¶ 9 Shortly thereafter, in January 2008, State Farm Fire filed an action (the Declaratory Action) seeking a declaration that it owed no duty to defend or indemnify the Turners under the homeowners policy for claims arising out of the subject auto accident. State Farm Fire retained an attorney of Turners' choosing to defend the Turners in the Declaratory Action. With the assistance of Stacey, Turners requested and obtained the representation of Michael Young (Young) for that matter.
¶ 10 In September 2008, a court-ordered mediation for the Underlying Action was held. Stacey attended with the Turners. Schwans' counsel, Norman Newhall, made a request to Stacey that Young also attend the mediation. Stacey contacted Young on this request, and also requested that a representative of State Farm Fire attend the mediation. Young attended in his capacity as Turners' counsel in the declaratory matter, and in-house counsel Bauer also attended. Although continuing to maintain that the homeowners policy excluded all of Schwans' claims against the Turners, Bauer offered “some money” in an unsuccessful attempt to settle the matter. Ultimately, the mediation concluded with an alternative settlement that included a consent judgment against the Turners for $750,000 and assignment of all of Turners' rights and claims under the homeowners' policy to the Schwans. In return, Schwans agreed not to execute the judgment against the Turners. The District Court entered judgment in favor of the Schwans pursuant to these terms.
¶ 11 Pursuant to the assignment of rights, the Schwans replaced Turners in the Declaratory Action. The District Court initially denied summary judgment on the coverage issue, and in December 2010, the Schwans filed a counterclaim alleging that State Farm Fire had breached its duty to defend the Turners by not retaining counsel to “appear and defend” the Turners in the Underlying Action. The District Court granted summary judgment to the Schwans on this issue, reasoning that language in the homeowners policy that State Farm Fire would “provide a defense at our expense by counsel of our choice” had been breached because State Farm Firm had not retained separate counsel for Turners in the Underlying Action or contributed financially to payment of Stacey's legal fees:
Under the facts of this case, the Court determines that in the underlying [ ] case, State Farm Fire and Casualty had to either provide separate counsel for the Turners, or authorize and pay for Mr. Stacey's services for the potential claims implicating the homeowners policy.
The court then concluded that because State Farm Fire had breached its duty to defend, it was estopped from denying coverage and was liable for the full amount of the stipulated judgment of $750,000, as well as Schwans' attorney fees and costs.
¶ 12 A district court's grant of summary judgment is reviewed de novo,applying the same criteria as the district courts. Kaufman Bros. v. Home Value Stores, Inc., 2012 MT 121, ¶ 6, 365 Mont. 196, 279 P.3d 157. When the material facts are undisputed, the question of whether an insurer breached its duty to defend is a question of law. Travelers Cas. & Sur. Co. v. Ribi Immunochem Research Inc. ( Ribi ), 2005 MT 50, ¶ 14, 326 Mont. 174, 108 P.3d 469. We review a district court's conclusions of law for correctness. Ribi, ¶ 14.
¶ 13 Did the District Court err in concluding that State Farm Fire breached its duty to defend?
¶ 14 State Farm Fire argues that it satisfied its duty to defend the Turners, and that the District Court's determination that it breached the contract was error. The Schwans counter that State Farm Auto's hiring of Stacey to defend the Turners did not relieve State Farm Fire of its equal duty to defend the Turners. Quoting from Jane M. Draper, Performance by One Insurer of its Duty to Defend as Excusing Failure of Other Insurers Equally Obligated to Defend, 90 A.L.R.3d 1199, 1200–01 (1979), the Schwans offer that “courts have answered unequivocally that performance by one insurer of its duty to defend does not excuse the failure of other insurers equally obligated to defend.” However, State Farm Fire has never taken the position that it did not have its own obligation to defend the Turners. The question here is whether State Farm Fire fulfilled that duty by the actions it took.
¶ 15 Initially, we note that an insurer's duty to defend is independent from and broader than its duty to indemnify. Farmers Union Mut. Ins. Co. v. Staples, 2004 MT 108, ¶ 21, 321 Mont. 99, 90 P.3d 381. Unlike the insurer's duty to indemnify, which arises only if there is coverage under the policy, the duty to defend is triggered when “a complaint against an insured alleges facts, which if proven, would result in coverage.” Staples, ¶ 21 (). When determining whether the duty...
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