INSURANCE: Property damage to YMCA caused by employee’s meth “drug den” covered by commercial policy with ambiguous or undefined pollution/criminal act exclusions and vandalism/smoke exceptions… Molloy.

Greater Missoula Family YMCA discovered in 4/18 that an employee was habitually using meth in its daycare center. She had constructed a “drug den” inside a cabinet by installing baffles, a light, shelves, and a lock to secure the door from the inside. Testing revealed that she had also likely used meth in the bathroom, laundry room, and kitchen, and that the HVAC system spread contamination throughout the premises. She subsequently pled guilty to endangering the welfare of a child, drug possession, and criminal mischief. US Fire Ins. seeks a declaration that it has no obligation to pay YMCA’s property damage claim under its commercial policy. YMCA has counterclaimed, and both seek summary judgment.

The material facts are generally undisputed. US Fire and YMCA agree that the damages sustained to the daycare resulted from the habitual use of meth by an employee and that the property was covered by the policy at the time of the incident. They dispute application of the policy’s pollution and criminal acts exclusions.

The pollution exclusion bars coverage for the “discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ unless the discharge, dispersal, seepage, migration, release or escape is itself caused by any of the ‘specified causes of loss.'” “Pollutants” is defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” “Specified causes of loss” include “fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire-extinguishing equipment; sinkhole collapse, volcanic action; falling objects; weight of snow, ice or sleet; water damage.” In short, the policy bars a claim for contamination but restores coverage for — relevant here — damage caused by “vandalism” and “smoke.”

US Fire has the burden of proving that the exclusion applies. Ribi (Mont. 2005). YMCA makes a half-hearted attempt to argue that meth contamination does not inherently meet the definition of a “pollutant.” That argument is belied by the plain language of the policy (including “contaminant” in the definition of “pollution”), the undisputed facts agreed to by the parties (describing chemical composition of contamination), and the parties’ extensive argument on the fundamental nature of meth particulate. Because US Fire has met its burden, YMCA must show that the damage is excepted from the exclusionary language. Id. It argues that the damage was caused by “vandalism” or “smoke,” which are both “specified causes of loss” that would restore coverage.

Vandalism Exception.

“Vandalism” is not defined in the policy and Montana courts have not addressed or defined it in the context of insurance coverage. It must therefore be assigned its usual meaning. Id. “Vandalism” is commonly understood as the deliberate destruction of or damage to property. Black’s; Webster’s. While the parties largely agree on this definition, US Fire argues that the term requires a specific intent to destroy and that the damage resulting from the employee’s meth use was neither intended nor reasonably expected. While YMCA agrees that vandalism must be malicious or willful to some degree, it argues that the intentional disregard of another’s property interest satisfies the intent requirement.

The parties rely primarily on Livaditis (Ga. 1968) (residential tenant’s moonshine operation), Bowers (Wash. 2000) (covert marijuana grow), and Graff (Wash. 2002) (meth lab). In all 3, smoke, fumes, and vapors from the activity left a residue that was ultimately characterized as contamination. However, the courts determined that the malicious or deliberative component of vandalism is met when one acts with intentional disregard for the property rights of another. See also Louisville (6th Cir. 1985) (“malice may be presumed from the unlawful act itself,” especially if it is evident that the act will result in property damage). Consistent with that conclusion, the employee’s habitual use of meth inside the YMCA satisfies the ordinary meaning of vandalism. The resulting contamination is therefore excepted from the pollution exclusion.

Smoke Exception.

While the parties do not contest that the damage suffered by YMCA was the result of its employee habitually using meth, US Fire characterizes the resulting particulate matter as “fumes” (not covered) while YMCA characterizes it as “smoke” (covered). YMCA has the better argument. The policy does not define “smoke.” Nevertheless, it can be reasonably interpreted to include the particulates that result from meth use. Montana courts have not addressed this question and the limited non-precedential case law provides little guidance. See Farmers (Ore. 1993) (unnecessary to address whether smoke includes vapor because there was evidence of smoke as defined by insurer). Smoke, like vandalism, must therefore be assigned its usual meaning. “Smoke” is generally understood to describe the visible suspension of carbon or other particles in the air emitted from a burning substance. Webster’s (the “gaseous products of burning materials especially of organic origin made visible by the presence of small particles of carbon” and “a suspension of particles in a gas”). The term is often used colloquially to refer to the act of inhaling and exhaling the gaseous product of a burning material, such as smoking a cigarette or other illicit substances. Id.

US Fire disputes YMCA’s assertion that its employee smoked meth by burning foil, instead arguing that she ingested meth fumes by heating foil. But when applying the ordinary definition of smoke, this distinction is one without a difference. From the viewpoint of a layperson untrained in law or insurance, Giacomelli (Mont. 2009), when she used meth, the resulting by-product resulted in suspension of particles in the air emitted from the heated substance. This is consistent with the ordinary definition of smoke. Moreover, the policy uses the term “smoke” in both defining “pollutants” in the exclusion and “unspecified causes of loss” in the exception, giving rise to ambiguity which must be construed in favor of coverage.

Criminal Act Exclusion.

The criminal act exclusion bars coverage for any “dishonest or criminal act (including theft).” But it “does not apply to acts of destruction by [YMCA] employees….” The policy does not define “acts of destruction.” Montana courts have not had an opportunity to interpret the exception in this context, nor have others applied an analogous clause to similar facts. This case may present a matter of first impression.

US Fire argues that — like the vandalism exception to the pollution exclusion — the acts of destruction exception to the criminal act exclusion requires a showing that the employee acted with an intent to destroy the property that was damaged. According to US Fire, she was acting solely “to get high.” While YMCA does not contest that she was engaged in criminal conduct, it argues that “acts of destruction” contemplates “harm that substantially detracts from the value of the property.” Although a close call, YMCA has the better argument.

The parties only substantively discuss one case that addresses the acts of destruction exception. NMS (4th Cir. 2003) determined that an employee’s act of installing hacking software that destroyed company records was a covered cause of loss. US Fire seizes on specific language in NMS to extrapolate that an acts of destruction exception requires an intent element, highlighting that the employee had a specific “plan” to destroy the files. However, NMS does not squarely address the intent question.

US Fire additionally cites a footnote in SA-OMAX (Tex. 2010) pertaining to an employee’s theft of copper wires. In the “copper crime” cases, some courts have extended coverage for damage resulting from the theft of copper wire and pipe because stealing copper often results in extensive property damage. See Morley Witus, The Paradox of Insurance Coverage for Vandalism but Not Theft, Wayne L. Rev. (2010). But other courts have denied coverage for property damage if the crime was motivated by theft for profit rather than property destruction. Id.

These cases provide limited guidance where it is difficult to discern if one’s actions are motivated by an intent to destroy or whether one is merely indifferent to the property rights of others. For example, the YMCA employee was using meth to get high but concealed her use, “defaced and damaged the inside of a cabinet to make what has been described as a ‘drug den’,” and specifically used it in areas from which the HVAC spread the contamination. Her actions therefore go beyond what was necessary to merely “get high.” And those actions, consistent with YMCA’s argument, “substantially detract from the value of property.” Black’s (defining “destruction”). Although US Fire asserts that a broad interpretation of the exception threatens to swallow the rule, construing the acts of destruction exception to be analogous with the vandalism exception provides greater internal consistency in the policy. The acts of destruction exception can therefore be read to include the YMCA employee’s conduct, and thus the criminal acts exclusion does not bar coverage.

Attorney Fees.

YMCA asserts that it is entitled to fees if it is determined that coverage exists for its claims. US Fire did not address this request. Although it appears that an award of fees may be appropriate under Brewer (Mont. 2003) and Riordan (9th Cir. 2009), this case is somewhat unique. Although YMCA counterclaimed, it has since stipulated to dismissal of its claims potentially related to US Fire’s bad faith. And application of both exceptions raised close questions under Montana insurance law. Thus US Fire shall have the opportunity to address whether fees can or should be awarded.

YMCA’s motion is granted and US Fire’s cross-motion is denied. (Fn. US Fire asserts in a footnote that if YMCA’s motion is granted and coverage is found to exist, further proceedings will be required to establish the scope and value of covered damages. However, such relief is not included in its pleading and is beyond the scope of this litigation.)

United States Fire Ins. v. Greater Missoula Family YMCA, 44 MFR 220, 4/9/20.

Kristin Gallagher & Mark Hamilton (Kennedys CMK), Basking Ridge, NJ, and Shane Macintyre (Brown Law Firm), Missoula, for US Fire Ins.; Leah Handelman & Bradley Luck (Garlington, Lohn & Robinson), Missoula, for YMCA.

INSURANCE: Even assuming general contractor is additional insured under painting subcontractor’s policy (a close question), pollution exclusion bars coverage for alleged injury through exposure to chemicals in epoxy coatings that painters applied on wastewater plant, no duty to defend/indemnify… Molloy.

This is a coverage dispute arising out of injuries sustained by employees of T&L Painting, a subcontractor to Swank Enterprises in the 2015 construction of the Butte-Silverbow Metro Wastewater Treatment Plant. 2 T&L Painting employees filed suit in State Court in 6/18 against Swank and Tnemec Co., an epoxy manufacturer, alleging injury through exposure to chemicals in the coatings they applied at the Project. T&L was insured by United Fire & Casualty. Swank tendered the underlying cases to United for defense & indemnity, insisting that it was an additional insured under T&L’s policy. United rejected the tender, and seeks a judgment on the pleadings that it does not owe a duty to defend or indemnify Swank as an additional insured under T&L’s policy. The motion is granted because even assuming that Swank is an additional insured, which is a close question, the pollution exclusion bars coverage.

Pursuant to the Subcontractor’s Agreement, T&L agreed to indemnify Swank for all claims for bodily injury and property damage related to the Project and name Swank as an additional insured on T&L’s policy “with respect to liability for bodily injury, property damage or personal and advertising injury to the extent caused by the negligent acts or omissions of [T&L], or those acting on [T&L]’s behalf, in the performance of Subcontract Work for Contractor at the Project site.” As required by the Agreement, T&L provided a “Certificate of Liability Insurance” produced by Cogswell Ins. Agency 8/18/14. It identifies Swank as the “Certificate Holder” but advises across the top:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.

It also includes an attachment of “additional insured endorsements” specific to the relationship between T&L and Swank. However, Swank was not added to the Schedule of Additional Insureds included in T&L’s policy.

The applicable endorsements are:

Additional Insured — Owners, Lessees or contractors — Completed Operations Endorsement.

Additional Insured — Managers of Lessors of Premises Endorsement.

Contractors Blanket Additional Insured — Limited Products — Completed Operations Coverage Endorsement.

Broadened Liability Plus Endorsement.

Because the first two endorsements require that the additional insured be “shown in the Schedule [of Additional Insureds],” and Swank is not on that Schedule, United argues that only the second two endorsements apply. Swank insists that a material fact issue exists as to whether United should have listed it in the Schedule but wrongfully failed to do so. Plum Creek Mktg. v. Am. Econ. Ins. (Mont. 2009) directly addressed this issue in United’s favor. Thus the action as currently pled is limited to consideration of T&L’s Policy as issued, which does not list Swank as a Scheduled Additional Insured. Thus only the second two endorsements apply.

United argues that under the two remaining endorsements, Swank — as an additional insured — is covered by T&L’s policy only to the extent that T&L is liable for wrongdoing and that liability can be imputed to Swank. Swank responds that the Subcontractor’s Agreement broadened the scope of coverage. However, “an insurer’s duty to defend or indemnify depends on the four corners of the invoked insurance policy — not on an agreement between an insured and a third party.” Stoltze (Mont. 2015). And the endorsement language that limits coverage under T&L’s policy to that contracted by the parties cannot reasonably be read to broaden coverage beyond those 4 corners.

Swank’s reliance on the policy amendments section is also unavailing. It purports to amend the additional insured endorsements to state: “coverage to the additional insured will be afforded to the extent permissible by law and to the extent the named insured is required by the contract or agreement to provide insurance for the additional insured.” However, that amendment only applies to certain enumerated endorsements, which does not include the 2 at issue. Although Swank argues that this raises an ambiguity in the policy, the amendment actually clarifies that absence of such language in the endorsements was purposeful.

While Swank may have a claim against T&L or United regarding the scope of insurance actually obtained, that dispute is not relevant to the coverage provided under the 4 corners of T&L’s policy.

Pursuant to the additional insured endorsements, Swank’s coverage under T&L’s policy is limited to the extent that T&L’s liability can be imputed to Swank. United argues that Swank cannot make such a showing because the underlying cases do not allege liability against T&L, and T&L is immune from such actions under Montana comp exclusivity. United cites Plum Creek and Stoltze, but it appears that this case is distinguishable because the underlying cases allege liability for injuries caused at least in part by an entity allegedly acting on T&L’s behalf — Tnemec — and the policy language from Plum Creek and Stoltze is narrower, providing that the additional insured “is an insured only to the extent [the named insured] is held liable due to” work performed under the subcontract, while the T&L policy merely uses the term “your liability.” This distinction also impacts comp exclusivity under the Workers’ Compensation Act. Accordingly, United argues that liability cannot be established under the endorsement because T&L is immune. But legal immunity is different from causal responsibility. While “held liable” unambiguously has a legal connotation, Graham (D. Neb. 2016), Phillips (D. Or. 2009), the T&L policy simply states “your liability.” Because “your liability” could reasonably be interpreted to mean causal responsibility or legal liability, it is ambiguous and must be construed in favor of coverage. Ribi (Mont. 2005). Thus immunity under the WCA does not necessarily bar T&L from being found responsible.

But even assuming that Swank is an additional insured, the Total Pollution Exclusion bars coverage: T&L’s policy does not apply to “‘bodily injury’ or ‘property damage’ which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time.” “‘Pollutants’ mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

The parties’ arguments reflect the 2 approaches courts have taken to interpret the Total Pollution Exclusion. “Some courts apply the exclusion literally because they find the terms to be clear and unambiguous.” Apana (9th Cir. 2009, collecting cases). “Other courts have limited the exclusion to situations involving traditional environmental pollution, either because they find the terms of the exclusion to be ambiguous or because they find that the exclusion contradicts policyholders’ reasonable expectations.” Id. Montana falls into the former category. Id.; Sokoloski (Mont. 1999).

Swank relies on Enron (9th Cir. 1997) in which an oil company alleged injury resulting from explosions and malfunctions caused by injection of foreign substances into a pipeline carrying its crude oil. The policy included an exclusion that used the undefined term “contamination.” The 9th Circuit concluded that the exclusion was ambiguous and could be reasonably read to limit its application “to only those hazards traditionally associated with environmental pollution.” But 2 years later the Montana Supreme Court decided Sokoloski, which involved a homeowner’s claim for smoke & soot damage caused by scented candles. Unlike the Enron policy, the Sokoloski policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” Distinguishing Enron, the Court determined that the “smoke and soot damages were expressly included within the policy definition of ‘pollutants’” and there was no reason to look beyond the policy, and coverage was therefore properly denied.

Sokoloski controls here because T&L’s policy explicitly defines “pollutants” to include “chemicals,” which unambiguously includes the epoxies used at the Project. See Kline (E.D. Va. 2007) (the pollution exclusion barred coverage for fumes released by an epoxy/urethane sealant). Although an ambiguity exists where a policy when taken as a whole is reasonably subject to two different interpretations, “courts should not seize upon certain and definite covenants expressed in plain English with violent hands, and distort them so as to include a risk clearly excluded by the insurance contract.” Ribi. This exclusion unambiguously bars coverage.

Because there is no possibility of coverage, United owes neither a duty to defend nor to indemnify. United’s motion for judgment on the pleadings is granted.

Swank Enterprises v. United Fire & Casualty, 44 MFR 219, 4/7/20.

Randy Tanner & Scott Stearns (Boone Karlberg), Missoula, for Swank; Nicholas Pagnotta & Alexander Tsomaya (Williams Law Firm), Missoula, for United.

INSURANCE: Contract and declaratory claims against Iowa UM/UIM reinsurer relating to shooting death in Montana of South Dakota resident driving vehicle with business policy and shooter driving uninsured or underinsured vehicle dismissed for lack of personal jurisdiction… Cavan.

FNB Sioux Falls as PR for the Estate of Travis Carlson sued the Estate of Eric Carlson and Grinnell Mutual Reinsurance in relation to the death of Travis Carlson. Its 2nd Amended Complaint alleges breach of contract (Count 5) and declaratory relief (Count 6). Grinnell moves to dismiss under Rule 12(b)(2) for lack of personal jurisdiction. For purposes of this motion, the Court accepts as true the uncontroverted facts from the 2nd Amended Complaint and also considers relevant declarations and discovery materials submitted by the parties.

Travis, 39, a resident of South Dakota, was in the fencing business and frequently traveled to Montana. On 10/19/17 he was building a fence on a ranch in Carter Co. which borders South Dakota. His twin Eric drove onto the property and confronted Travis. Travis attempted to flee in his vehicle but was overtaken by Eric who shot into Travis’s truck at least 6 times during the chase. They collided and came to a stop and Eric then shot and killed Travis. (Eric was found the next day dead from a self-inflicted gunshot. The Complaint does not indicate what the dispute was about.) Travis had a business auto policy with Grinnell which provided $1 million in UM and UIM. FNB alleges that Travis’s estate is entitled to receive benefits under the policy because his injuries arose out of Eric’s use of an uninsured or underinsured vehicle.

To exercise personal jurisdiction over a non-resident in a diversity case, a federal court must determine whether a state rule or statute confers personal jurisdiction and whether assertion of jurisdiction comports with constitutional principles of due process. Data Disc (9th Cir. 1977).

FNB argues that general personal jurisdiction exists because Grinnell has expressly consented to it through Montana’s reinsurance statutory scheme and because it gave implied consent through significant contacts with Montana, and that it also exists due to its continuous and systematic contacts with the State.

Grinnell states that it is headquartered and incorporated in Iowa and thus is not “at home” in Montana. FNB does not advance any contrary argument that thus concedes that general jurisdiction is not established by Grinnell’s place of incorporation and principal place of business, but nevertheless argues that Grinnell’s affiliations with Montana are so continuous and systematic that it is essentially at home in the State. It emphasizes that Grinnell is an accredited reinsurer in Montana, which gives rise to multiple statutory obligations to the Montana Insurance Commissioner. It also points out that 9 insurers in Montana sell Grinnell insurance and that its website represents that it is a “valued member of the Montana business community” and “We Live Where You Live” as a “local ‘neighbor.’” Grinnell responds with the affidavit its Reinsurance VP Kevin Farrell to show that it is not “essentially at home” in Montana. He states that it did not employ anyone in Montana until 2018 when only a single employee was hired and constituted .0012% of its company workforce, its gross written premiums in Montana never exceeded 1% of its total gross written premiums, and it did not issue a single direct policy (like Travis’s policy) to customers in Montana, instead only issuing reinsurance.

Comparing the extensive contacts in Daimler (US 2014) and DeLeon (Mont. 2018) with the forum states in those cases with Grinnell’s contacts with Montana, it is clear that it is not “essentially at home” in Montana. None of its contacts advanced by FNB approach the level necessary to establish general jurisdiction. The statutes relative to its obligations to Montana pertain to reinsurance and are specific to that business. MCA 33-2-1216. As Daimler and Tyrrell (US 2017) demonstrate, simply conducting in-state business is not sufficient to permit the assertion of general jurisdiction. Nor do FNB’s assertions that Grinnell “holds itself out as being located in Montana” and “sells insurance directly” from at least 9 offices support its general jurisdiction argument. A closer look at its citations shows Grinnell’s 2015 Annual Report announcement that it was a “tremendously successful year for the Reinsurance marketing team” by welcoming 6 new Montana mutuals into “the Grinnell Mutual Family” which “marks the beginning of our entrance into the state of Montana.” Its intent to do business in Montana is indisputable, but FNB has not shown that it bought, owns, opened, or franchised the 6 new offices or otherwise was establishing substantial, continuous, and systematic activities to the extent of being at home.

Nor is FNB’s reliance on Grinnell’s web-based representations that they “live where you live” and function as a “neighbor” sufficient. Its website states:

Having neighbors you can rely on is invaluable. We work with 250 local mutual and more than 1,600 local independent agencies in Illinois, Indiana, Iowa, Minnesota, Missouri, Montana, Nebraska, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, and Wisconsin.

FNB fails to differentiate Montana from the other 13 states, and Grinnell obviously cannot be considered at home in each of these jurisdictions.

FNB has not advanced evidence showing that Grinnell’s entrance into Montana resulted in it being “essentially at home” in the State, and therefore it is not subject to general personal jurisdiction under MRCivP 4(b)(1).

FNB argues that Grinnell’s transaction of business in Montana subjects it to specific personal jurisdiction under MRCivP 4(b)(1)(A and that it also subject to jurisdiction under 4(b)(1)(D) by contracting to insure property or risk located within Montana at the time of contracting. Grinnell responds that since this action does not arise out of its reinsurance activities, FNB’s breach of contract claim does not arise from or relate to any of its Montana-related conduct.

Even though Grinnell may be viewed as “doing business” in Montana. the 4(b)(1)(A) analysis requires that “the defendant’s suit-related conduct create a substantial connection with the forum State.” Milky Whey (Mont. 2015); Walden (US 2014). Grinnell’s alleged breach of contract has no connection with Montana. Its activities in the State were limited to reinsurance, which are unrelated to the policy at issue. FNB’s claim arises from the transaction of business within South Dakota: a policy between a South Dakota resident and a South Dakota insurance agency (Parsons) who sold a policy on behalf of an Iowa insurer, Grinnell.

FNB argues that 4(b)(D) is implicated because “Grinnell insured persons, property and risks in Montana when the Policy was issued.” It asserts that “Grinnell knew vehicles insured under the Policy would be driven in Montana because Eric Carlson was a resident of Montana with a Montana driver’s license and was listed as a driver of insured vehicles.” Grinnell responds by pointing to representations by Travis Carlson at the time of contracting that he was a South Dakota resident and the vehicles were garaged there, and proffers the underwriting file and affidavit of Melanie Parsons who obtained commercial insurance for Travis from Grinnell. The original application dated 6/6/16 shows the “longest hauling distance” to be 400 miles, Eric as a licensed driver in Montana, and garaging addresses for all vehicles at Canton, SD. She attests that her files do not show any notations relating to Montana other than that “one or more employees had a Montana driver’s license.” She further relates that Travis requested a change in the rating of his commercial vehicles in 8/16 to “intermediate status” which is defined as 51-200 miles from Canton, which is over 400 miles from Montana.

While there is a conflict as to whether Parsons Ins. Agency knew that the vehicles may be used in Montana for business, there is nothing offered to establish that Travis or the vehicle ultimately involved in this incident were in Montana at the time of contracting. This case is similar in many respects to Carter (Mont. 2005), which involved an MVA in Montana, Carter lived in Mississippi, and the property to be insured was garaged in Mississippi and thus there was no basis for finding jurisdiction under 4(B)(1)(d).

Having determined that there is no basis for jurisdiction under Montana’s long-arm statute, the Court need not determine whether exercise of jurisdiction comports with due process. Nevertheless, FNB relies heavily on FIE (9th Cir. 1990), which involved a Canadian insurer, Portage, that insured a vehicle involved in an MVA in Montana whose driver was insured by Farmers. Portage refused to defend, so Farmers defended and settled for policy limits, then sued Portage. Judge Hatfield dismissed for want of personal jurisdiction, but the 9th Circuit reversed, finding that exercise of jurisdiction would be reasonable — that “automobile liability insurers contract to indemnify and defend the insured for claims that will foreseeably result in litigation in foreign states.” However, FNB acknowledges that Carter declined to apply FIE, finding that “Portage arguably had an obligation to appear and defend the driver who had been sued in Montana as a result of an accident, while here, MFBCIC had no similar obligation to appear and defend because neither its insured or an omnibus insured was sued in this state.” The Court explained that it is important to differentiate between a case in which an insured is sued in a foreign state as the result of an MVA and where the insured is suing its insurer in a foreign state for breach of contract. The former involves a question of indemnity, while the latter involves 1st-party coverage, which “are distinguishable on multiple levels.” In an indemnity situation, “the insurer is obligated by the terms of the policy to appear for and defend its insured, wherever an accident and resulting lawsuit occurs.” In the case of 1st-party coverage, “the place of the accident is immaterial for purposes of jurisdiction, as the action is one to enforce a contract.” In a 1st-party coverage case, “the question of whether the forum has personal jurisdiction of the other contracting party is a question that must be answered before — and separate and apart from — the inquiry into whether the contract is enforceable.” King (9th Cir. 2011) recognized that FIE involved an indemnity dispute and does not apply where an insured is suing its insurer in a foreign state for breach of contract.

Therefore, this Court declines to exercise specific personal jurisdiction over Grinnell.

Because personal jurisdiction is an individual right, a defendant can waive due process protections by express or implied consent to it. DeLeon; Ins. Corp. of Ir. (US 1982). FNB argues that Grinnell expressly consented as an accredited reinsurer under MCA 33-2-1216(5)(e)(ii)(C):

To be eligible for certification … an assuming insurer must be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction … and shall … agree to the jurisdiction of this state.

FNB also asserts that Grinnell impliedly consented to personal jurisdiction because of its status as an accredited reinsurer, which requires significant contact with Montana, pointing to its $2.5 million reinsurance business in Montana as well as MCA 33-2-126 requirements.

Grinnell responds by emphasizing language in MCA 33-2-1218 which limits application of 33-2-1216 & 1217 “to all cessions … under reinsurance agreements,” and to Montana’s Form AR-1: “I … the assuming insurer under a reinsurance agreement(s) … hereby certify that [name of assuming insurer] 1. Submits to the jurisdiction of any court of competent jurisdiction in Montana for the adjudication of any issues arising out of the reinsurance agreement(s)….”

The Court agrees with Grinnell that it did not consent to general jurisdiction in Montana, but for different reasons. MCA 33-2-1201(1) provides that “an insurer may not retain any risk on any one subject of insurance … in an amount exceeding 10% of its surplus to policyholders.” (3) further provides that “reinsurance as authorized by this part must be deducted in determining risk retained.” The purpose of 33-2-1216 is to establish the circumstances in which a domestic insurer will be allowed credit for reinsurance ceded in determining risk retained. To receive any credit, reinsurance must be ceded to an assuming insurer who is accredited by the Insurance Commissioner as a reinsurer in Montana, and to be accredited, the reinsurer must “agree to the jurisdiction of this state.” Thus §33-2-1216 only pertains to the issue of credit for reinsurance ceded to another insurer. To receive credit, it ensures that the reinsurer will be subject to a Montana court’s jurisdiction. Interpreting it as suggested by FNB would require the reinsurer to subject itself to jurisdiction for any suit brought by any party relative to any dispute that occurs anywhere in the US, plainly beyond the Legislature’s purpose & intent.

For many of the same reasons, it cannot be found that Grinnell impliedly consented to general jurisdiction in Montana. “The implication must be predicable and fair.” Deleon; Worldcare (D.Conn. 2011). Given the limited scope and purpose of the reinsurance statute, Grinnell would not have understood that it was waiving its due process protections and consenting to general jurisdiction in Montana, particularly in light of Form AR-1 which limits the consent to “the adjudication of any issues arising out of the reinsurance agreements.”

FNB argues that dismissal cannot be granted without allowing additional discovery because Grinnell attached “material extraneous to the pleadings” that converts its motion into one for summary judgment, relying on Rule 12(d):

If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.

However, Grinnell’s motion was brought under 12(b)(2) which allows for consideration of extrinsic evidence including affidavits. Stewart (N.D. Cal. 2015). Therefore the Court will convert this motion to summary judgment.

FNB also requests the opportunity to conduct jurisdictional discovery to establish a basis for personal jurisdiction. Where material jurisdictional facts are disputed, the court has discretion to permit discovery to resolve factual issues. Bunch (Mont. 2009). Material jurisdictional facts relative to the jurisdictional issues are not disputed here. There are disputed facts concerning whether Parsons Ins. Agency had knowledge of the use of the insured vehicles in Montana and whether and to what extent they may have been used in Montana, but these facts were not material to the Court’s decision. Nor has FNB explained what it expects discovery might reveal or how it might result in facts that would establish personal jurisdiction. Chapman (D. Haw. 2009).

Grinnell’s motion to dismiss for lack of personal jurisdiction is granted. Counts 5 and 6 are dismissed without prejudice.

FNB Sioux Falls as PR of Travis Carlson v. Estate of Eric Carlson and Grinnell Mutual Reinsurance, 44 MFR 218, 3/24/20.

John Amsden & Justin Stalpes (Beck, Amsden & Stalpes), Bozeman, for FNB; Calvin Stacey (Stacey & Funyak), Billings, and Gerry Fagan & Stephanie Baucus (Moulton Bellingham), Billings, for Estate of Eric Carlson; Nicholas Pagnotta & Alexander Tsomaya (Williams Law Firm), Missoula, and Katherine Huso (Matovich, Keller & Huso), Billings, for Grinnell.