State Farm Mut. Auto. Ins. Co. v. Estate of Braun

Decision Date20 June 1990
Docket NumberNo. 89-261,89-261
Citation793 P.2d 253,243 Mont. 125
PartiesSTATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff and Respondent, v. The ESTATE OF Gary Nelson BRAUN, Deceased, and Chester V. Braun, Personal Representative of the Estate of Gary Nelson Braun, Deceased, Defendant and Appellant.
CourtMontana Supreme Court

Barry G. O'Connell, argued, Moore, O'Connell, Refling & Moon, Bozeman, for defendant and appellant.

Lyman H. Bennett, III, argued, Morrow, Sedivy & Bennett, Bozeman, for plaintiff and respondent.

HARRISON, Justice.

This is an appeal from a grant of summary judgment in favor of State Farm regarding an insurance coverage dispute. The Eighteenth Judicial District Court, Gallatin County, Montana, determined that Canada's wrongful death damage limitation governed the damages available to appellants. The District Court held that State Farm had no obligation to appellants under either the uninsured or underinsured motorist provisions of the deceased insured's policy. We reverse and remand for further proceedings consistent with this opinion.

Appellants raise two issues for review:

1. Should Canadian law or Montana law govern the damages available to appellants for Braun's wrongful death given that Canada's wrongful death damage limitation conflicts with Montana law?

2. Does State Farm have an obligation to appellants under either the uninsured or underinsured motorist provisions of Braun's policy?

The parties stipulated to an agreed statement of facts. Briefly, the decedent, Gary Braun, died as a result of a motor vehicle accident that occurred near Creston, British Columbia. The driver of the vehicle in which Braun was a passenger was found liable for the accident. A Canadian insurance company, Alberta Motor Association Insurance Company, insured the vehicle with policy limits of $200,000. In wrongful death tort actions, Canadian law severely restricts damages and under the circumstances of this case, Alberta Motor has advised appellants that it would not pay any claims in excess of funeral expenses.

At his death, the decedent was an insured of State Farm. The insurance contract was made in Gallatin County and the decedent's vehicle, to which the insurance contract applied, was principally garaged in Gallatin County. The insurance policy provided the decedent with uninsured and underinsured motorist coverage. The decedent paid a separate premium for each coverage. Also the policy provided that the coverages purchased extended to Canada.


This case presents a controversy between an insurer and an insured over the interpretation of an insurance contract. As such the dispute sounds in contract and should be resolved by contract law. The question of whether Montana law or Canadian law should govern the measure of damages available to appellants is a conflict of laws question regarding tort law. However, tort law only incidentally enters this dispute because the insurance policy requires that the tort-feasor's fault must be established before the insured can invoke the policy's underinsured motorist protection. No dispute regarding fault exists. As this dispute must be resolved by application of contract law, Issue II is dispositive and we need not discuss Issue I. Further, no question exists that Montana law governs the interpretation of the insurance contract at issue here and neither party argues to the contrary.


While we agree with respondent that appellants cannot recover under the uninsured motorist provision, we hold that the appellants can recover under the underinsured motorist provision of the decedent's insurance contract.

The insured purchased underinsured motorist coverage from respondent for which he paid a separate premium. Regarding underinsurance coverage, the policy provided as follows:

We will pay damages for bodily injury and insured is legally entitled to collect from the owner or driver of an underinsured motor vehicle. (Emphasis added.)

The pertinent part of the definition of an underinsured motor vehicle is the following:

Underinsured Motor Vehicle--means a land vehicle:

. . . . .

(2) Whose limits of liability for bodily injury liability:

a. are less than the amount of the insured's damages; or b. have been reduced by payments to persons other than the insured to less than the amount of the insured's damages. (Emphasis added.)

Also at issue is the following policy language:

There is no coverage until the limits of liability of all bodily injury liability bonds and policies that apply have been used up by payments of judgments or settlement. (Emphasis added.)

Appellants contend that the District Court erred in determining that appellants were legally entitled to collect only the damages allowed by Canadian law. According to appellants, the language "legally entitled to collect" simply means that the insured must have a cause of action against the tort-feasor and must be able to establish fault and the existence of damages. Further, appellants aver that the "limits of liability" language is contrary to an insured's reasonable expectations and to fully compensating injured parties for their losses. We agree.

Initially, respondent contends that the Canadian damage limitation operates as a limited immunity that is available to respondent because it is available to the Canadian tort-feasor. Analogizing to Hubbel v. Western Fire Ins. Co. (1985), 218 Mont. 21, 706 P.2d 111, respondent argues that the Canadian damage limitation is similar to the immunity provided under the Workers' Compensation statutes to employers and coemployees of injured workers. Workers' Compensation statutes and similar statutes deny a cause of action to an injured party in certain circumstances.

Contrary to respondent's assertion, reliance on Hubbel is misplaced. Hubbel involved an employee's heirs trying to collect under an allegedly negligent coemployee's uninsured motorist coverage. In Hubbel, we interpreted the language "legally entitled to recover damages" contained in the coemployee's uninsured motorist policy. We held that because the Worker's Compensation Act provided the exclusive remedy to an employee, Hubbel was not legally entitled to recover damages from the coemployee. Hubbel, 706 P.2d at 112-113. The Workers' Compensation statutes denied the employee a cause of action under the facts of that case. Distinguishable from the Hubbel facts, the appellants in this case possess a cause of action against the tort-feasor. Canadian law does not deny injured parties a cause of action, it only restricts the damages recoverable.

Respondent also erroneously argues that the Canadian damage limitation shields respondent because it is available to the tort-feasor. In essence, respondent asserts that it is the tort-feasor's alter ego. However, tort law is relevant only as far as the fault requirement is concerned. Once an insured demonstrates a legal entitlement to damages, principles of contract law define the coverage afforded by an underinsurance motorist provision.

The instant case is similar to Karlson v. City of Oklahoma City (Okla.1985), 711 P.2d 72. In Karlson, the Oklahoma Supreme Court had to interpret the phrase "legally entitled to recover" in an underinsurance motorist provision. The plaintiffs sued the City for wrongful death arising out of a collision with a city police vehicle. Because the Oklahoma Political Subdivisions Tort Claims Act limits the City's liability, the plaintiffs joined their underinsurance carrier as a defendant and sought to recover their excess damages under the underinsurance coverage. Karlson, 711 P.2d at 73. In reversing summary judgment for the insurer, the court held that the intention of the parties governed.

When the insured and Allstate entered into their contract, they contemplated a situation where Allstate might be required to pay for injuries caused by some tortfeasor where the tortfeasor was not able to make full compensation for those injuries. Whether the tortfeasor's inability to make full compensation results from lack of sufficient insurance, insolvency, or for other reason, is irrelevant.

The intention of the parties at the time of their contracting was that Allstate, not its insured, would assume the risk that the insured might suffer a loss for which a tortfeasor could not make compensation. Our holding here merely gives effect to that intent.

In summary, we hold that in a situation where liability of a tortfeasor is limited ... to an amount which will not compensate an insured for all his proven losses suffered in an automobile accident, that insured may recover from his insurer through the uninsured/underinsured motorist provisions of his automobile liability insurance, according to the terms thereof.

Karlson, 711 P.2d at 75. Thus, in spite of the damage limitation imposed by the Political Subdivisions Tort Claims Act, the Karlson plaintiffs were able to recover under their underinsurance coverage. The same reasoning guides our decision that respondent cannot...

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