Watters v. Guaranty Nat. Ins. Co., 98-718.

Citation2000 MT 150,3 P.3d 626,300 Mont. 91
Decision Date06 June 2000
Docket NumberNo. 98-718.,98-718.
CourtMontana Supreme Court
PartiesCharles K. WATTERS and Janet M. Watters, Plaintiffs and Respondents, v. GUARANTY NATIONAL INSURANCE COMPANY, a Colorado corporation, Defendant and Appellant.

3 P.3d 626
2000 MT 150
300 Mont. 91

Charles K. WATTERS and Janet M. Watters, Plaintiffs and Respondents,
GUARANTY NATIONAL INSURANCE COMPANY, a Colorado corporation, Defendant and Appellant

No. 98-718.

Supreme Court of Montana.

Heard October 14, 1999.

Submitted November 18, 1999.

Decided June 6, 2000.

3 P.3d 628
Guy W. Rogers (argued), Lisa A. Rodeghiero, Brown Law Firm, Billings, Montana, For Appellant

Richard J. Andriolo, Daniel P. Buckley (argued), Berg, Lilly, Andriolo & Tollefsen, Bozeman, Montana, For Respondents.

William Conklin, Conklin, Nybo, Leveque & Lanning, Great Falls, Montana, For Amici State Farm Mutual Automobile Insurance Company.

Paul C. Meismer, Carey, Meismer & McKeon, Missoula, Montana, For Amici Montana Trial Lawyers Association.

John E. Bohyer, Phillips & Bohyer, Missoula, Montana, For Amici Estate of Helen R. Hohstadt.

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

¶ 1 Guaranty National Insurance Company (Guaranty) appeals from an order issued by the Eighteenth Judicial District Court, Gallatin County, granting summary judgment in favor of Charles K. Watters and Janet M. Watters (Watters), and denying its cross-motion for summary judgment.

¶ 2 We affirm in part, reverse in part, and remand for further proceedings.

¶ 3 Guaranty has raised two issues which we restate as follows:

1. Once clear liability was established and damages undisputedly exceeded policy limits, did Guaranty violate Montana's Unfair Trade Practices Act by conditioning the payment of policy limits on the Watters' agreement to provide a full and final release of all liability in favor of its insured?
2. Did Guaranty have a reasonable basis in law or in fact for contesting the Watters' claim, and therefore may not be found liable for violating Montana's Unfair Trade Practices Act?

Factual and Procedural Background

¶ 4 Generally, the underlying facts are not in dispute and have been stipulated to pursuant to a November 2, 1998 judgment issued by the District Court.

¶ 5 On October 31, 1993, the Watters suffered serious physical injuries following a collision between their car and one driven by Robert O. Moore (Moore), near Bozeman, Montana. At the time, Moore was insured by Guaranty for the statutory mandatory

3 P.3d 629
minimum amounts of $25,000 for bodily injury per person, $50,000 for bodily injury per accident, and $10,000 for property damage

¶ 6 Guaranty investigated the accident and determined that Moore was at fault and that the Watters' personal injury claims entitled them to Moore's policy limits of $50,000. By January 4, 1994, medical bills for the Watters had reached approximately $90,000. Ultimately, the Watters incurred in excess of $100,000 in medical bills.

¶ 7 Within one week of the accident, on November 5, 1993, Guaranty informed Moore that "should the claimant pursue recovery through a lawsuit, the possibility does exist that a judgment could be awarded against you in excess of your insurance coverage." Guaranty further informed Moore that he could obtain an attorney at his own expense to represent him regarding "any excess exposure which now exists or may exist in the future." Guaranty emphasized its insurance policy provision that "settlement of any claim or suit remains within the discretion of our company." This notice to Moore was followed up in a letter, dated February 17, 1994, in which Guaranty again advised Moore that Guaranty would not be liable for a judgment in excess of policy limits, and that Moore may wish to retain counsel at his expense, recognizing that "you or your attorney may disagree with the approach taken by Guaranty National."

¶ 8 With liability and entitlement to the policy limits clearly established, the Watters, in a December 23, 1993 letter, demanded payment of Moore's bodily injury policy limits of $50,000. The Watters would not, however, agree to execute a full and final release of all liability in favor of Moore. Counsel for Watters also notified counsel for Guaranty that "any attempt to withhold payment to force a release would be an Unfair Claims Settlement Practice." Guaranty refused to pay the policy limits without a full and final liability release.

¶ 9 On January 5, 1994, the Watters filed suit for personal injuries against Moore in the Eighteenth Judicial District Court. In his February 22, 1994 Answer, filed by counsel for Guaranty on his behalf, Moore admitted fault for the accident. By this time, both Guaranty and the Watters realized that Moore had no assets to contribute to an excess judgment. During this time, counsel for Watters reached a claim settlement with Guaranty for $9,161.07 under Moore's $10,000 property damage coverage. This settlement, however, apparently did not involve an absolute liability release that affected the bodily injury coverage portion of Moore's policy with Guaranty.

¶ 10 In an exchange of letters of negotiation during 1994, Guaranty continued to offer to pay the policy limits, but not unless the Watters agreed to execute a full and final liability release in favor of Moore. Throughout this period, Guaranty asserted that its primary obligation was to protect the interests of its insured. Guaranty informed the Watters that if it paid them Moore's policy limits, it would no longer have an obligation to defend Moore in the lawsuit. Moore's policy with Guaranty stated that "[o]ur payment of the limits of liability ends our duty to defend or settle, but the tender of the limits of liability before a judgment or settlement does not relieve us of our duty to defend." Under the same Part, the policy provided that "[w]e will defend any such suit at our own expense, with counsel of our choice, or, as we deem appropriate, we may settle any claim or suit."

¶ 11 In turn, the Watters offered to accept $49,950—$50 below the policy limits—thereby allowing Guaranty to continue its obligation to defend its insured, yet still make a prompt payment to the Watters. The Watters further offered that they would execute a partial release to the extent of this payment by Guaranty.

¶ 12 Guaranty rejected this offer, and reaffirmed that a full and final release must be agreed to before any policy proceeds would be released to the Watters. Guaranty also asserted that paying the policy limits without a full release would essentially place it in the role of funding the Watters' litigation against Moore, which would be an act of bad faith. Guaranty did, however, suggest two other options: (1) depositing the $50,000 with the court pending a declaratory judgment action to determine the respective parties' rights

3 P.3d 630
and obligations; and (2) deposing Moore so that the Watters could be satisfied that he did not have sufficient assets to pay any excess judgment against him

¶ 13 On October 14, 1994, the Watters filed suit against Guaranty, alleging breaches of Montana's Unfair Trade Practices Act (UTPA), under § 33-18-201(6) and (13), MCA. Guaranty asserted in its Answer that, due to Moore's and his attorney's demand that Guaranty secure a full release for Moore, its primary obligation was to protect his interests and provide him with a defense in the underlying lawsuit. The Answer also included an admission that Moore was "responsible for reasonable damages proximately resulting from the accident."

¶ 14 By December of 1994, Guaranty retained an attorney to defend Moore in the personal injury lawsuit pursuant to its contractual obligations under Moore's policy. Consequently, Moore, through his counsel, demanded that Guaranty continue to defend Moore until he received an unconditional release. Contrary to Guaranty's October 14th Answer, however, it is unclear that Moore ever made a demand for an absolute release prior to this time.

¶ 15 The Watters filed for summary judgment in their UTPA claim against Guaranty on January 25, 1995. Guaranty filed a cross-motion for summary judgment on March 13, 1995.

¶ 16 On March 8, 1995, the policy limits of $50,000 were "tendered" by Guaranty to the court in the Watters' personal injury lawsuit against Moore. At this time, counsel for Moore also asserted that Moore was considering bankruptcy, hoping to discharge any judgment that exceeded the policy limits. The Watters were also informed that the $50,000 policy limits may be exposed to demands by other creditors should the bankruptcy action proceed. Although denied at oral argument before this Court, the record indicates that counsel for Moore believed that Guaranty was willing to pay the costs and fees associated with Moore's bankruptcy, and testified to this fact in his deposition.

¶ 17 On May 11, 1995, approximately one-and-a-half years after the accident, the Watters executed a full and final liability release in favor of Moore, reserving any and all claims against Guaranty. The Watters asserted they took this action because they were in financial need due to medical creditor claims, as well as the uncertainty presented by Moore's potential action in bankruptcy. On May 12, 1995, the parties signed a stipulation distributing the policy limits of $50,000 plus interest to the Watters.

¶ 18 On June 7, 1996, the District Court granted the Watters' motion for summary judgment and denied Guaranty's cross-motion for summary judgment. In doing so, the court determined that Guaranty had engaged in an unfair claims settlement practice in violation of UTPA, in that it had a "duty to release the funds in this case." The court agreed with the Watters' argument that UTPA requires insurance carriers to effectuate prompt and fair settlements, and this requirement "takes precedence over the private contractual agreement to defend between a carrier and its insured." The court also relied on a similarly decided case from Massachusetts, Thaler v. American Ins. Co. (1993), 34 Mass.App.Ct. 639, 614 N.E.2d 1021. With liability established, the only issue remaining for determination at trial was damages.

¶ 19 On November 2, 1998, the court...

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