Steadele v. Colony Ins. Co.

Decision Date30 August 2011
Docket NumberNo. DA 10–0351.,DA 10–0351.
PartiesStephen G. STEADELE and Dawn R. Steadele, Plaintiffs and Appellants,v.COLONY INSURANCE COMPANY, Defendant and Appellee.
CourtMontana Supreme Court

OPINION TEXT STARTS HERE

For Appellants: Torrance L. Coburn (argued), Tipp & Buley, P.C., Missoula, Montana.For Appellee: Oliver H. Goe (argued), Christy S. McCann, Jason B. Jewett, Browning, Kaleczyc, Berry & Hoven, P.C., Helena, Montana.Justice JAMES C. NELSON delivered the Opinion of the Court.

[361 Mont. 460] ¶ 1 Stephen and Dawn Steadele (the Steadeles) filed this action against Colony Insurance Company (Colony) to recover on a default judgment they were awarded against Montana Component Housing Corp. (MCHC), Colony's insured. The District Court for the Fourth Judicial District, Missoula County, denied the Steadeles' Motion for Partial Summary Judgment and granted Colony's Cross Motion for Summary Judgment. The Steadeles appeal. We affirm.

¶ 2 The Steadeles raise two issues on appeal which we have restated as follows:

¶ 3 1. Whether the District Court erred in granting summary judgment to Colony based upon MCHC's failure to notify Colony of the Steadeles' claim.

¶ 4 2. Whether the District Court erred in finding that genuine issues of material fact precluded granting the Steadeles' Motion for Partial Summary Judgment.

¶ 5 Because we find the first issue to be dispositive of this case, we do not address the second issue.

Factual and Procedural Background

¶ 6 In 2007, the Steadeles contracted with MCHC and Custom Comfort Homes Corp. to construct a single-family home on property the Steadeles owned in Missoula County. Both corporations were owned and operated by Kim Powell. MCHC was to build the home in several sections at its warehouse in Anaconda. The sections would then be shipped to the Steadeles' property where they would be assembled. Under the terms of the contract, the home was to be completed by the end of November 2007. However, MCHC did not complete the home by the November 2007 deadline, and work continued on the home into March 2008. Eventually, MCHC abandoned the project without completing the home.

¶ 7 In the underlying cause of action, the Steadeles complained that MCHC was negligent in many aspects of its work. They contended that the wrong insulation was used in constructing the home causing it to be less energy efficient than intended; that the wrong screws were used on the exterior walls causing the screws to rust and to leave rust stains on the home's finish; and that the foundation was placed in the wrong location on the property. Most particularly, the Steadeles contended that MCHC negligently allowed portions of the home to be exposed to the elements which in turn caused mold to grow and spread throughout the entire home. Due to this mold, the home had to be stripped down to the foundation and rebuilt using new materials.

¶ 8 The Steadeles filed suit in the Fourth Judicial District Court after determining that neither MCHC nor Powell were willing to rectify the situation. Although they were properly served, MCHC and Powell failed to respond to the suit and a default judgment was entered against them on December 9, 2008, in the amount of $1,879,204.54. This amount consisted of $532,527.68 in actual damages suffered by the Steadeles as a result of MCHC's negligence and breaches of contract; $9,319.50 in actual damages suffered by the Steadeles as a result of MCHC's willful acts of conversion; $1,083,694.36 in additional damages as allowed by the Montana Consumer Protection Act; punitive damages in the amount of $250,000.00; and $3,663.00 for the Steadeles' attorney's fees and costs.

¶ 9 In February 2009, after securing judgment against MCHC, the Steadeles contacted Colony requesting payment of the judgment. Colony had provided Commercial General Liability Insurance coverage to MCHC from October 1, 2007, through March 29, 2008, when the policy was cancelled due to nonpayment. Because MCHC never notified Colony of the Steadeles' claim against MCHC, Colony never appeared on behalf of MCHC during the pendency of the action. Consequently, Colony denied coverage and refused to pay. As a result, the Steadeles filed the present action.

¶ 10 In their Complaint, the Steadeles argued that Colony's refusal to issue payment on the underlying judgment was a violation of § 33–18–201, MCA, which prohibits unfair claim settlement practices. Colony asserted in its Answer that there is no coverage for the Steadeles' claim under the policy.

¶ 11 On November 3, 2009, the Steadeles filed a Motion for Partial Summary Judgment wherein they alleged that it is undisputed that the $532,527.68 in actual damages suffered by the Steadeles and awarded to them by the District Court is covered by the insurance policy Colony issued to MCHC. In response, Colony filed a Cross Motion for Summary Judgment wherein it argued that its insured, MCHC, failed to notify Colony of the claim against MCHC which gave rise to the Steadeles' suit against Colony. Colony maintained that this failure to notify resulted in actual and substantial prejudice to Colony thereby absolving Colony of its obligation to provide coverage to MCHC and to pay on the Steadeles' claim.

[361 Mont. 462] ¶ 12 In its June 3, 2010 Order and Memorandum, the District Court concluded that a factual dispute existed as to when the damage to the Steadeles' home occurred and whether it was within the coverage period of the insurance policy. Hence, the court denied the Steadeles' Motion for Partial Summary Judgment. The court also concluded that there was no factual dispute that MCHC failed to comply with the terms of the insurance policy when it failed to provide Colony with notice of the underlying claim and suit. And, because MCHC failed to notify Colony, there was no coverage for MCHC under the policy, Colony did not have a duty to defend MCHC, and the Steadeles' claim failed as a matter of law. Hence, the court granted Colony's Cross Motion for Summary Judgment.

¶ 13 The Steadeles appeal the District Court's order granting Colony's Cross Motion for Summary Judgment as well as the court's order denying the Steadeles' Motion for Partial Summary Judgment.

Standard of Review

¶ 14 We review a district court's grant or denial of a summary judgment motion de novo. Lee v. Great Divide Ins. Co., 2008 MT 80, ¶ 9, 342 Mont. 147, 182 P.3d 41 (citing Farmers Union Mut. Ins. Co. v. Horton, 2003 MT 79, ¶ 10, 315 Mont. 43, 67 P.3d 285). Under M.R. Civ. P. 56(c), summary judgment is proper only when no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Moreover, the party moving for summary judgment has the initial burden of proving that no genuine issues of material fact exist. See Roy v. Blackfoot Telephone Co-op., 2004 MT 316, ¶ 11, 324 Mont. 30, 101 P.3d 301. The burden then shifts to the non-moving party to prove by more than mere denial and speculation that a genuine issue of material fact does exist. Roy, ¶ 11. However, the fact that both parties moved for summary judgment does not establish the absence of genuine issues of material fact. Hajenga v. Schwein, 2007 MT 80, ¶ 18, 336 Mont. 507, 155 P.3d 1241 (citing Montana Metal Buildings Inc. v. Shapiro, 283 Mont. 471, 477, 942 P.2d 694, 698 (1997)). We must evaluate each motion on its own merits and take care in each instance to draw all reasonable inferences against the party whose motion is under consideration. Hajenga, ¶ 18 (citing Ike v. Jefferson Nat. Life Ins. Co., 267 Mont. 396, 399–400, 884 P.2d 471, 473–74 (1994)).

Discussion

¶ 15 Whether the District Court erred in granting summary judgment to Colony based upon MCHC's failure to notify Colony of the Steadeles' claim.

¶ 16 The Steadeles argue on appeal that the District Court erred when it determined that MCHC's failure to notify Colony of the Steadeles' claim precluded recovery by the Steadeles for the damages caused by MCHC's negligence. The Steadeles maintain that an insured's failure to notify its insurer does not prevent an injured third-party claimant from being compensated by the insurer for the claimant's damages. They further maintain that because they were not parties to the insurance contract, they have no duty under that contract to provide notice to Colony.

¶ 17 Colony argues on the other hand that summary judgment in its favor was appropriate here because the undisputed facts show that MCHC's failure to notify Colony of the occurrence, claim or even the judgment against it in the underlying suit, was a material breach of MCHC's obligations under the policy. Colony further argues that MCHC's breach resulted in severe prejudice to Colony and terminated Colony's obligation to indemnify MCHC.

¶ 18 This Court has repeatedly held that general rules of contract law apply to insurance policies and that we will construe those policies strictly against the insurer and in favor of the insured. Travelers Cas. v. Ribi Immunochem Research, 2005 MT 50, ¶ 17, 326 Mont. 174, 108 P.3d 469. Moreover, the interpretation of an insurance contract is a question of law. Park Place Apartments v. Farmers Union, 2010 MT 270, ¶ 12, 358 Mont. 394, 247 P.3d 236 (citing Cusenbary v. U.S. Fidelity and Guar. Co., 2001 MT 261, ¶ 9, 307 Mont. 238, 37 P.3d 67; Babcock v. Farmers Ins. Exchange, 2000 MT 114, ¶ 5, 299 Mont. 407, 999 P.2d 347). When a court reviews an insurance policy, it is bound to interpret its terms according to their usual, common sense meaning as viewed from the perspective of a reasonable consumer of insurance products. Park Place, ¶ 12 (citing Counterpoint, Inc. v. Essex Ins. Co., 1998 MT 251, ¶ 13, 291 Mont. 189, 967 P.2d 393). Exclusions from coverage are to be narrowly and strictly construed because they are contrary to the fundamental protective purpose of an insurance policy. Park Place, ¶ 12 (citing Swank Enterprises v. All Purpose Services, 2007 MT 57, ...

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