Wellcome v. Home Ins. Co., 92-387

Citation849 P.2d 190, 257 Mont. 354
Case DateMarch 25, 1993
CourtUnited States State Supreme Court of Montana

Page Wellcome, pro se.

Dennis McCafferty; James, Gray & McCafferty, Great Falls, for defendant and respondent.

GRAY, Justice.

This case is before us on certified questions from the United States Court of Appeals for the Ninth Circuit concerning interpretation of insurance policy provisions.

A Montana trial court imposed sanctions against Page Wellcome (Wellcome), a Montana attorney, for disregarding its orders regarding voir dire, examination of witnesses and argument. The court ordered Wellcome and the insurer for his client to pay the sanctions. The sanctions, either as ordered or as compromised, ultimately were paid by Page Wellcome and Aetna Insurance Company.

Wellcome submitted a claim for the amount of the sanction to The Home Insurance Company (Home) under his professional liability policy. Home denied the claim on the basis of a provision excluding payment for "fines or statutory penalties whether imposed by law or otherwise...."

Wellcome filed a diversity action in the United States District Court asserting a breach of the insurance contract and seeking a declaration of the parties' rights thereunder. Home pleaded as affirmative defenses both the "fines or statutory penalties" exclusion and an exclusion for "deliberately wrongful acts or omissions committed by the Insured." The parties filed cross-motions for summary judgment. Wellcome sought summary judgment on the grounds that: (1) the term "fine" in the policy was ambiguous and, therefore, should be construed against Home; and (2) coverage should be required under the "reasonable expectations" doctrine. The U.S. District Court granted summary judgment to Home on the basis of the "fines" exclusion, concluding that the term was not ambiguous. On that basis, the court determined that the reasonable expectations principle did not apply. The court did not rely on the "wrongful acts" exclusion, 758 F.Supp. 1375.

Wellcome appealed to the United States Court of Appeals for the Ninth Circuit. Stating that no clear controlling precedent in Montana judicial decisions existed on questions determinative of the case, the Ninth Circuit certified questions to this Court. We accepted jurisdiction of the certified questions by order dated August 25, 1992.

The following two questions are certified from the Ninth Circuit:

(1) Was there ambiguity in the contract language that should be construed against Home to require it to provide coverage for the sanctions imposed against Wellcome?

(2) Does the doctrine of reasonable expectations require Home to provide coverage for the sanctions imposed against Wellcome?

The interpretation of an insurance contract is a question of law in Montana. Truck Ins. Exchange v. Waller (1992), 252 Mont. 328, 331, 828 P.2d 1384, 1386. Well-established principles guide our interpretation. The language of the policy governs if it is clear and explicit. Waller, 828 P.2d at 1386. Ambiguities are construed against the insurer. Bauer Ranch v. Mountain W. Farm Bur. Mut. Ins. (1985), 215 Mont. 153, 156, 695 P.2d 1307, 1309. Furthermore, exclusions from coverage will be narrowly and strictly construed because they are contrary to the fundamental protective purpose of an insurance policy. Farmers Union Mut. Ins. Co. v. Oakland (1992), 251 Mont. 352, 356, 825 P.2d 554, 556.

With these principles of insurance policy interpretation in mind, we turn to the policy at issue and the question of whether the "fines or statutory penalties" language is ambiguous, thereby requiring Home to provide coverage for the sanctions imposed against Wellcome. In so doing, we note that Home's alternative basis for excluding coverage, the "deliberately wrongful acts" exclusion, is not before us and, therefore, is not addressed herein.

Pursuant to the claims made policy between Wellcome and Home, Home generally undertook to pay on Wellcome's behalf all sums in excess of the deductible amount which Wellcome became "legally obligated to pay as damages...." The specific provision under which the U.S. District Court granted summary judgment to Home defines damages as follows:

Damages, whenever used in this policy, means a monetary judgment or settlement and does not include fines or statutory penalties whether imposed by law or otherwise, nor the return of or restitution of legal fees, costs and expenses arising therefrom.

The court agreed with Wellcome that the monetary sanction was not imposed pursuant to statutory authority, and focused on the term "fine." It determined that the term was not reasonably subject to differing interpretations, "[r]ather, the term, whether used in a formal context or in ordinary parlance, means the payment of money imposed upon a person for misconduct." Because the Montana trial court imposed a payment of money on Wellcome for misconduct, the court concluded that the imposed sanctions were excepted from coverage under the policy.

On appeal to the Ninth Circuit, and before this Court, Wellcome argues that sanctions are sanctions and are not fines, penalties or any other type of punishment. He asserts that the term "fines" is used in Montana statutes only in the context of criminal matters and, therefore, that a Montana attorney reasonably could understand the exclusion for "fines" in his professional liability policy to exclude only criminal fines. Home contends that the policy clearly informed Wellcome that coverage was not available if a court ordered him to pay money as a result of his misconduct.

We conclude that the term "fines," as used in the policy before us, is not ambiguous and excludes coverage for the sanctions imposed by the state trial court. We note first that the "statutory penalty" language does not apply here; it was not the basis for the trial court's imposition of sanctions. However, that language would include penalties of all kinds imposed under authority of statute or rule, including a criminal fine, an "excess costs" penalty pursuant to § 37-61-421, MCA, a statutory...

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