State Farm Mut. Auto. Ins. Co. v. Freyer

Citation2013 MT 301
Decision Date15 October 2013
Docket NumberDA 12-0543
PartiesSTATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff, Appellee and Cross-Appellant, v. FRANK FREYER, as Personal Representative of the Estate of Heath Evans Freyer, and as Conservator of the Estate of Alicia Freyer, a Minor Child, and VAIL FREYER, Defendants, Appellants and Cross-Appellees.
CourtMontana Supreme Court

APPEAL FROM: District Court of the Eighteenth Judicial District,

In and For the County of Gallatin, Cause No. DV 07-754A

Honorable Holly Brown, Presiding Judge


For Appellants:

Allan H. Baris; Moore, O'Connell and Refling, P.C.; Bozeman, Montana

(for Frank Freyer)

Daniel P. Buckley; Buckley Law Office, P.C.; Bozeman, Montana

(for Vail Freyer)

For Appellee:

Dale R. Cockrell; Jinnifer Jeresek Mariman; Moore, Cockrell, Goicoechea

& Axelberg P.C.; Kalispell, Montana (for State Farm)

Robert F. James; Ugrin, Alexander, Zadick, & Higgins, P.C.;

Great Falls, Montana (for State Farm)

For Amici:

Lawrence A. Anderson; Attorney at Law, P.C.; Great Falls, Montana

(for Amicus MTLA)


ClerkJustice Jim Rice delivered the Opinion of the Court.

¶1 This is the second appeal in this case. See State Farm Mut. Aut. Ins. Co. v. Freyer (Freyer I), 2010 MT 191, 357 Mont. 329, 239 P.3d 143. Generally, Heath Freyer (Heath) and Vail Freyer (Vail), who were married and the parents of Alicia Freyer (Alicia), were all riding in their vehicle, which was insured by State Farm Mutual Automobile Insurance Company (State Farm). Vail was driving when the vehicle was involved in a rollover accident that resulted in Heath's death. In Freyer I, we held, based upon the language of the subject policy's "Limits of Liability" clause, that there was coverage for Alicia's claim for derivative damages stemming from the death of her father, Heath, under her own "Each Person" policy limit of $50,000, contrary to State Farm's position that all damages arising from Heath's death were covered only by the "Each Person" policy limit of $50,000 applicable to him. Freyer I, ¶¶ 13-16. After remand, State Farm paid the contested coverage amounts. Appellants then brought claims against State Farm under several theories for the wrongful denial of coverage for Alicia's derivative claims. The District Court granted summary judgment to State Farm on all of those theories, which Appellants challenge on appeal. We reverse in part, affirm in part, and remand for further proceedings. We address the following issues:

¶2 1. Did the District Court err in concluding that State Farm had not breached the insurance contract when it failed to indemnify Vail for Alicia's derivative claims because it had a "reasonable basis in law" to challenge coverage of those claims?

¶3 2. Did the District Court err in granting summary judgment to State Farm on the common-law bad faith and breach of the covenant of good faith and fair dealing claims?

¶4 3. Did the District Court err in granting summary judgment to State Farm on the Unfair Trade Practices Act claims?

¶5 4. Did the District Court err in concluding State Farm waived its statute of limitations affirmative defenses?


¶6 In October 2003, Vail was driving a family vehicle in the Bozeman area, and Heath and three-month-old Alicia (collectively the Freyers), were passengers. Vail maneuvered the vehicle to pass a string of cars ahead of them, but when they were nearly even with the lead vehicle, driven by Michelle Manning (Manning), Manning executed a left-hand turn. The vehicles collided, sending the Freyers' vehicle off the road, where it overturned. Heath was ejected and suffered fatal injuries. Alicia, who was confined by her car seat, suffered minor injuries.

¶7 State Farm insured the Freyers' three vehicles against liability arising from Vail's driving. On the subject vehicle, State Farm's automobile liability policy provided coverage limits of $50,000 per person and $100,000 per accident, as well as underinsured motorist coverage of $50,000. Within days of the accident, State Farm offered to pay Heath's Estate the $50,000 per person coverage limit for Heath's injuries, but Vail's attorney asked State Farm to wait on payment until a probate proceeding had beeninitiated. Heath's father, Frank Freyer (Frank), was appointed as personal representative of Heath's Estate and as conservator of Alicia's Estate.

¶8 On August 4, 2004, Frank requested by letter that State Farm pay the $50,000 it had previously offered to Heath's Estate. Frank also advised State Farm that he would be demanding $50,000 for settlement of Alicia's claims. The next day, State Farm sent Frank a check for $49,723.22, the balance of the $50,000 per person coverage limit for Heath's Estate's claim after deduction for payments made for Heath's funeral and medical care.

¶9 In September 2004, State Farm filed a declaratory judgment action in federal court in an unrelated case that sought a declaration that the "Limits of Liability" clause in its auto liability policy limited coverage to $50,000 for all claims arising from the bodily injury to one person. See State Farm Mut. Aut. Ins. Co. v. Bowen (Bowen I), No. 04-63-BU-RFC (D. Mont. Aug. 3, 2005). The Limits of Liability clause at issue in Bowen I was identical to the one in the policy insuring Vail. That clause provides, in pertinent part:

The amount of bodily injury liability coverage is shown on the declarations page under "Limits of Liability-Coverage A-Bodily Injury [-W-], Each Person, Each Accident." Under "Each Person" is the amount of coverage for all damages due to bodily injury to one person. "Bodily injury to one person" includes all injury and damages to other persons, including emotional distress, sustained by such other persons who do not sustain bodily injury.

(Emphasis added.)

¶10 On November 18, 2004, Frank demanded by letter that State Farm also pay $50,000 to satisfy Alicia's claims against Vail. Frank asserted that because Aliciasuffered "bodily injury," she was entitled to payment for all her damages, including her derivative claims arising from her father's death, out of her own $50,000 "Each Person" limit. Frank also asserted that Alicia had personally sustained over $50,000 in damages because she had suffered a "closed head injury."

¶11 Four days later, State Farm contacted its in-house counsel, Jo Ridgeway (Ridgeway), concerning Frank's interpretation of the Limits of Liability clause. Two days later, Ridgeway advised State Farm that the majority rule from courts that had interpreted the clause was that all "derivative claims"—damages arising from another person's injury or wrongful death—were subject to the $50,000 Each Person coverage limit. In other words, any derivative claim Alicia had pertaining to Heath's death was subject to the $50,000 Each Person coverage limit for his claims, which had already been paid to Heath's Estate. Based on this advice, State Farm informed Frank that it had already paid the available coverage limits for damages stemming from Heath's death. Further, State Farm advised that, based upon Alicia's medical records indicating that her head CT scan was normal, and her doctor's conclusion that she suffered only "minor bruising," it would settle her personal bodily injury claim against Vail for $5,000.

¶12 On January 27, 2005, Frank rejected the $5,000 offer and renewed his demand for $50,000. Frank advised that, if State Farm tendered that amount, he would provide a full release for all claims against Vail. State Farm rejected that offer, responding that it had changed neither its position regarding the interpretation of the policy nor its $5,000 valuation of damages for Alicia's own physical injuries.

¶13 On August 3, 2005, the U.S. District Court for Montana ruled in Bowen I that a derivative claim was subject to the same Each Person coverage limit as other claims for that person. See Bowen I at 9. That decision was ultimately affirmed by the Ninth Circuit. State Farm Mut. Aut. Ins. Co. v. Bowen (Bowen II), 247 Fed. Appx. 901, 902-03 (9th Cir. 2007).

¶14 On September 19, 2006, Frank, in his capacity as personal representative of Heath's Estate and conservator of Alicia's Estate, sued his daughter-in-law Vail for the damages sustained in the accident due to Vail's negligent driving. State Farm accepted defense of the lawsuit and retained counsel to defend Vail.

¶15 On October 30, 2007, State Farm filed an action seeking a declaration that it had complied with the payment obligations under the Limits of Liability clause. In their answers, Frank, on behalf of Heath's Estate and Alicia, and Vail asked the court to declare that the policy provided the additionally claimed coverage, and counterclaimed that State Farm had breached the insurance contract and the implied covenant of good faith and fair dealing, and violated Montana's Unfair Trade Practices Act (UTPA) by its mishandling of Alicia's and Heath's Estates' claims.

¶16 Two days later, Frank sent to State Farm a settlement letter demanding $2.6 million to settle all of the claims against Vail. According to Frank, $1.7 million of that settlement represented the "low range" of the economic loss to Heath's Estate because of his death, while approximately $1 million represented the loss of support, loss of companionship, loss of established course of life, and emotional distress damagesstemming from Alicia's loss of her father. Frank subtracted from the $2.7 million the $100,000 he had already been paid ($50,000 from State Farm and $50,000 from Manning's insurer). Although State Farm did not change its position regarding interpretation of the policy, it paid an additional $150,000 to Heath's Estate for three stacked $50,000 underinsured motorist coverages for the Freyers' three vehicles insured by State Farm on June 4, 2008.

¶17 On July 21, 2008, Frank and Vail executed a $2.6 million stipulated judgment that is the center of controversy in this case. The settlement agreement stated...

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  • State Farm Mut. Auto. Ins. Co. v. Freyer, DA 12-0543
    • United States
    • Montana Supreme Court
    • October 15, 2013
    ...2013 MT 301STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,Plaintiff, Appellee and Cross-Appellant, v. FRANK FREYER, as Personal Representative of the Estate of Heath Evans Freyer,and as Conservator of the Estate of Alicia Freyer, a Minor Child,and VAIL FREYER, Defendants, Appellants and Cro......

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