Town of Geraldine v. Mt. Mun. in. Authority

• Decision Date: 09 December 2008
• Docket Number: No. DA 06-0402.,DA 06-0402.
• Citation: 347 Mont. 267,198 P.3d 796,2008 MT 411
• Parties: TOWN OF GERALDINE, Plaintiff and Appellant, v. MONTANA MUNICIPAL INSURANCE AUTHORITY, Defendant and Appellee.
• Court: Montana Supreme Court

198 P.3d 796

2008 MT 411

347 Mont. 267

TOWN OF GERALDINE, Plaintiff and Appellant, v. MONTANA MUNICIPAL INSURANCE AUTHORITY, Defendant and Appellee.

No. DA 06-0402.

Supreme Court of Montana.

Submitted on Briefs November 6, 2008.

Decided December 9, 2008.

For Appellant: Ward E. Taleff, Taleff Law Office, P.C., Great Falls, Montana.

For Appellee: Curt Drake, Drake Law Firm, P.C., Helena, Montana.

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 The Town of Geraldine (the Town) appeals an Order of the District Court for the Twelfth Judicial District, Chouteau County, denying the Town's Motion for Partial Summary Judgment and granting the Motion for Summary Judgment of the Montana Municipal Insurance Authority (MMIA). We affirm.

¶ 2 The Town raises the following issue on appeal: Whether the District Court erred in holding that MMIA did not have a duty to defend and indemnify the Town in an underlying action.

Factual and Procedural Background

¶ 3 On December 12, 2003, the Town entered into a contract with AK Drilling, Inc. (AK) for the construction of a well. Delta Engineering, P.C. (Delta) was the project engineer. In October 2004, AK brought an action against the Town and Delta alleging that the Town's Mayor instructed AK to perform work beyond the scope of the contract, and that the Mayor represented to AK that the Town would pay for this work. When the town refused to pay, AK filed suit alleging breach of contract against the Town; negligent misrepresentation and constructive fraud against both the Town and Delta; and breach of professional duty against Delta.

¶ 4 MMIA was created by the Montana League of Cities and Towns to provide member towns with loss protection. MMIA issued a policy of insurance to the Town covering the period from July 1, 2004, through January 1, 2005. The extent of protection MMIA provided to the Town is defined in its Memorandum of Liability Coverage, Forms A and B.

¶ 5 Following service of AK's Complaint, the Town notified MMIA of the suit and requested that MMIA provide both a defense and indemnification under the terms of the policy. On December 10, 2004, counsel for MMIA sent the Town a letter refusing to defend or provide coverage for the claims brought by AK citing policy exclusions for non-monetary damages, punitive damages, breach of contract, and liability based on estimated probable costs or faulty bid specifications.

¶ 6 Thereafter, the Town brought this action seeking a judgment that MMIA is obligated to defend and provide coverage for the claims brought against the Town by AK. The Town and MMIA filed cross-motions for summary judgment on the issues of duty to defend and indemnification. The District Court denied the Town's motion and granted MMIA's motion on the basis that MMIA did not have a duty to defend and indemnify the Town because the allegations contained in AK's Complaint were not covered events due to the contract exclusion in the policy. The Town appeals.

Standard of Review

¶ 7 We review a district court's summary judgment ruling de novo using the same M.R. Civ. P. 56 criteria applied by the district court. Eastgate Village Water and Sewer v. Davis, 2008 MT 141, ¶ 18, 343 Mont. 108, ¶ 18, 183 P.3d 873, ¶ 18 (citing Watkins Trust v. Lacosta, 2004 MT 144, ¶ 16, 321 Mont. 432, ¶ 16, 92 P.3d 620, ¶ 16). 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. Eastgate Village, ¶ 18. Furthermore, all reasonable inferences which may be drawn from the offered proof must be drawn in favor of the party opposing summary judgment. Eastgate Village, ¶ 18. If there is any doubt regarding the propriety of the summary judgment motion, it should be denied. Eastgate Village, ¶ 18 (citing 360 Ranch Corp. v. R & D Holding, 278 Mont. 487, 491, 926 P.2d 260, 262 (1996); Whitehawk v. Clark, 238 Mont. 14, 18, 776 P.2d 484, 486-87 (1989)).

¶ 8 The interpretation of an insurance policy presents a question of law. Allstate Ins. Co. v. Wagner-Ellsworth, 2008 MT 240, ¶ 8, 344 Mont. 445, ¶ 8, 188 P.3d 1042, ¶ 8 (citing Jacobsen v. Farmers Union Mut. Ins. Co., 2004 MT 72, ¶ 9, 320 Mont. 375, ¶ 9, 87 P.3d 995, ¶ 9, overruled on other grounds by Allstate, ¶ 13; Wendell v. State Farm Mut. Auto. Ins. Co., 1999 MT 17, ¶ 10, 293 Mont. 140, ¶ 10, 974 P.2d 623, ¶ 10). We review a district court's conclusions of law to determine whether those conclusions are correct. Eastgate Village, ¶ 19 (citing Montana Pet. Tank Release Comp. Bd. v. Crumley's, 2008 MT 2, ¶ 32, 341 Mont. 33, ¶ 32, 174 P.3d 948, ¶ 32; State Farm Mut. Auto. Ins. Co. v. Gibson, 2007 MT 153, ¶ 9, 337 Mont. 509, ¶ 9, 163 P.3d 387, ¶ 9).

Discussion

¶ 9 Whether the District Court erred in holding that MMIA did not have a duty to defend and indemnify the Town in an underlying action.

¶ 10 The Town argues that MMIA has a duty to defend and indemnify the Town because AK's Complaint makes assertions which involve risks covered under the policy, i.e., personal injury and public official's errors and omissions. The Town contends that the District Court erred when it relied entirely on the breach of contract exclusion of the policy to deny MMIA's defense and coverage obligations, ignoring AK's actual claims.

¶ 11 An insurer's duty to defend its insured arises when a complaint alleges facts which represent a risk covered by the terms of an insurance policy. Farmers Union Mut. Ins. Co. v. Rumph, 2007 MT 249, ¶ 14, 339 Mont. 251, ¶ 14, 170 P.3d 934, ¶ 14 (citing Blair v. Mid-Continent Casualty Co., 2007 MT 208, ¶ 15, 339 Mont. 8, ¶ 15, 167 P.3d 888, ¶ 15; Farmers Union Mut. Ins. Co. v. Staples, 2004 MT 108, ¶ 20, 321 Mont. 99, ¶ 20, 90 P.3d 381, ¶ 20). An insurer must look to the allegations in the complaint to determine if coverage exists under the policy, thus giving rise to a duty to defend. Rumph, ¶ 14. Moreover, the insurer must defend "unless there exists an unequivocal demonstration that the claim against the insured does not fall under the policy's coverage." Rumph, ¶ 14.¹

¶ 12 The Memorandum of Liability Coverage (Form A) between MMIA and the Town declares that MMIA shall provide coverage to the Town for claims against the Town for bodily injury, personal injury, property damage and public official's errors and omissions. Section II of Form A states that MMIA's "duty to defend shall arise when the complaint or claim alleges facts which would obligate [MMIA] to indemnify the insured if the alleged facts were proven."

¶ 13 AK's Complaint against the Town alleges claims of breach of contract, negligent misrepresentation and constructive fraud. The Town maintains that its policy with MMIA provides coverage for these claims under the personal injury and public official's errors and omissions provisions of the policy. We will analyze each of AK's claims against the Town in turn to determine whether MMIA has a duty to defend the Town.

Count One — Breach of Contract

¶ 14 The Town alleges that AK's claim for breach of contract does not turn on the terms of the contract, but instead is a claim for negligence. The Town contends that AK's Complaint alleges that the Mayor knew or should have known that the Town was not going to pay for the work performed and that the Mayor should have disclosed this fact to AK in advance. Thus, the Town argues that the Mayor's alleged failure to act when she had a duty to act constitutes negligence and negligence is a claim which MMIA is obligated to defend under the terms of the policy.

¶ 15 MMIA argues on the other hand that there is no reference in Count One to any "duty," only references to a contract being created and breached. Nevertheless, as MMIA points out in its brief on appeal, breach of contract claims are pled as breaches of duties, i.e., the duties created by each parties' obligations under the contract. "A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty." Restatement (Second) of Contracts § 1 (1981).

¶ 16 In Count One of its Complaint, AK set forth the facts leading up to its claim for breach of contract and specifically stated in ¶ 24 that the Town "has breached its Agreement" with AK. Nowhere in Count One does AK refer to a breach of duty by the Mayor or any other claim that could be considered other than a breach of contract. Section IX.22. of Form A specifically excludes from coverage "[a]ny liability arising out of failure to perform, or breach of, a contractual obligation."

¶ 17 We have held that "exclusions from coverage will be narrowly and strictly construed because they are contrary to the fundamental protective purpose of an insurance policy." Swank Enterprises v. All Purpose Services, 2007 MT 57, ¶ 27, 336 Mont. 197, ¶ 27, 154 P.3d 52, ¶ 27 (citing Deonier & Assoc. v. Paul Revere Life Ins. Co., 2000 MT 238, ¶ 45, 301 Mont. 347, ¶ 45, 9 P.3d 622, ¶ 45).

¶ 18 Here, contrary to being excluded from coverage, the Town argues that this claim falls under the personal injury coverage of the policy. Personal injury is defined in Section V.O. of Form A as follows:

"Personal Injury" — means injury, other than Bodily Injury, including but not limited to one or more of the following:

1. False arrest, detention, imprisonment, or malicious prosecution;

2. Wrongful entry or eviction or other invasion of private occupancy;

3. The publication or utterance of a libel or slander, including disparaging statements concerning the condition, value, quality or use of real or personal property; or a publication or utterance in violation of the rights of privacy;

4. Unlawful discrimination or violation of civil rights;

5. Shock, fright, mental anguish or mental injury;

6. Assault and battery, committed by, at the discretion of, or with the consent of a COVERED PARTY, for the purpose of protecting persons from injury, death, or property from damage. [Emphasis added.]

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