INSURANCE: Injury to Worker Exclusion did not become part of renewed policy due to failure to provide proper notice of updating and insurer and insured “stuck their heads in the sand” as to changes in insured’s operations over several policy renewals, no affirmative misrepresentation that would preclude coverage for injured subcontractor of subcontractor… declaration of insurer’s employee stricken as undisclosed expert testimony, not lay testimony as purported… Molloy.

On 8/12/22 Steven Blanchard was picking up a load of pole bundles for Pacific Western Lumber at the Clark Fork Posts facility in Plains when a 7,000-lb bundle fell on him due to Ryan Hart’s negligent operation of a loader belonging to Wild Horse Trading. He and his wife pursued 10 claims against Wild Horse and Hart as well as Jason Subatch (one of the 2 members of Wild Horse), PacWest, Nautilus Ins., and Scottsdale Ins. Scottsdale first provided CGL coverage to Wild Horse in 2019 (the initial policy) and renewed it 10/19/20 (the First Renewed Policy) and 10/19/21 (the Second Renewed Policy). Scottsdale agreed to defend Wild Horse, Hart, and Subatch under a complete reservation of rights.

Scottsdale filed this action 5/10/23 seeking a declaratory judgment that it has no duty to defend or indemnify Wild Horse, Subatch, or Hart. The parties request summary judgment.

Scottsdale argues that there is no coverage based on the Injury to Employee and Worker Exclusion and because Wild Horse made material misrepresentations that obscured some of the business’s risk. Part B provides that the policy does not apply to “bodily injury” to (a) any contractor or subcontractor “hired or retained by or for any insured” or (b) to “any employee or anyone directly or indirectly employed by such contractor or subcontractor.” Scottsdale argues that it precludes coverage because Blanchard’s injuries arose out of his retention by PacWest. Defendants argue that it does not apply because he was not hired by Wild Horse.

Blanchard was hired as a subcontractor by PacWest to transport posts from Clark Fork Posts’ facility in Plains. Clark Fork Posts hired Wild Horse to move posts around the facility. So Wild Horse was a subcontractor for Clark Fork Posts and Blanchard was a subcontractor for PacWest. There is no contract between Wild Horse — or any other insured — and Blanchard. Thus Part B does not preclude coverage.

Scottsdale next argues that Part C precludes coverage because Blanchard is a “worker.” Defendants agree that if Part C applies, it precludes coverage, but argue that it is unenforceable because Scottsdale failed to notify Wild Horse of the change to the policy. Part C provides that there is no coverage for “bodily injury” to any “worker” — “any person performing duties directly or indirectly related to the conduct of any business, regardless of the person or organization responsible for hiring, retaining, employing, furnishing or directing the worker.”

Blanchards allege that he was performing duties directly related to the conduct of his own business and/or was indirectly performing duties related to the conduct of Clark Fork Posts’ and PacWest’s businesses. They further allege that Clark Fork Posts hired Wild Horse to “undertake work on its behalf for the purpose of loading pole bundles.” Clark Fork Posts’ and PacWest’s business interests were to get the pole bundles from the Plains facility to another facility and they hired Blanchard to do it. His work for them was therefore directly related to Wild Horse’s business, as Clark Fork Posts had hired Wild Horse. As the exclusion lays out, it is immaterial that Wild Horse was not “responsible for hiring” Blanchard. Therefore, if Part C is enforceable, it precludes coverage.

“If an insurer offers or purports to renew a policy but on less favorable terms, at a higher rate, or at a higher rating plan,” the insurer must notify the insured of the change.” MCA 33-15-1106. These changes may not “take effect” unless “the insurer has mailed or delivered notice of the new terms, rate, or rating plan to the insured at least 45 days before the expiration date.” Id. “Whether an insurer has provided adequate notice of a change in insurance coverage requires a two-step analysis.” Robertus (Mont. 2008). A court “must determine whether the policy modification constituted a change in coverage requiring notice” under the statute, then “determine whether the insurer provided adequate notice of the change in coverage.” Id. The insurer has the burden to demonstrate proper notice. Thomas (Mont. 1998). The notice requirement “does not apply if the increase in the rate or the rating plan, or both, results from a classification change based on the altered nature or extent of the risk insured against.” §33-15-1106(2).

Scottsdale argues that notice was not required because it made a “classification change based on the altered nature or extent of the risk insured against” as outlined in §33-15-1106(2) and that even if notice was required it was provided. Defendants argue that although a new classification was added, that does not absolve Scottsdale of its responsibility to notify Wild Horse of less favorable terms in a renewed policy. Defendants have the better argument.

First, the change in the policy required notice under §33-15-1106, satisfying the first prong of the Robertus test. Although both the first renewed policy and the second renewed policy included Injury to Worker exclusions, the language is different in the most recent exclusion. The first renewed policy’s Injury to Worker Exclusion only precluded coverage for a contractor or subcontractor of the insured. In the second renewed policy Scottsdale changed the definition of “worker” to preclude coverage to a much larger group. The gravity of the difference is only all too clear here. Blanchard was not a contractor or subcontractor of the insured and thus he likely would not have fallen under the old exclusion, but he is excluded under the new policy language. Thus the new exclusion changes the policy to include “less favorable terms” because fewer occurrences are covered.

Nevertheless, notice may not be required under §33-15-1106(2) because the policy also contained a new classification. On 9/3/21, before the second policy renewal, Scottsdale sent a quote and proposal via Big Sky Underwriters to producer Tiffani Sheehan. She received a 10% commission for facilitating the transaction. In addition to renewing the first renewed policy, Scottsdale added an additional classification for what it considered a new risk. Scottsdale maintains that notice was not required under §33-15-1106(2) as the rate change “results from a classification change.” However, the classification change must be “based on the altered nature or extent of the risk insured against.” Id. Thus a classification change negates an insurer’s notice requirement only if the reason for the rate increase was the classification change in the policy.

It is undisputed that a new classification was added to the policy. The Building or Premises — Bank or Office — Mercantile or Manufacturing — Other than Not-for-Profit (Lessor’s Risk Only) (Class Code 61212) was added to the second renewed policy. However, Scottsdale has not demonstrated that the increased rate “results from” that added classification. It points to emails between Sheehan and underwriter Kriss Martensen to support its argument that this classification addition was the reason for the increased cost of the policy. The conversation, which memorializes a casual conversation between insurance professionals familiar with the facts underlying the policy’s needs, may do that. However, that determination reads facts into the record. The conversation merely demonstrates that Martensen noticed that there “were some exposures that we are not rated for” and suggested covering for an additional risk. While this shows that new classifications were likely needed it does not show that this was the reason for the rate increase, especially when other changes were also made to the policy. Therefore Scottsdale was required to provide notice of the policy changes.

Because notice is required, it must be done properly. Robertus. It was not. Scottsdale insists that it notified Wild Horse’s agent Sheehan of the changes 45 days before the renewal date and Wild Horse did not object. Defendants counter that notice to Sheehan does not count as notice to Wild Horse because she is not their agent and the notice that it received was deficient. They are correct.

Although Scottsdale notified Wild Horse of some changes in the second renewed policy it failed to notify it that the new Injury to Worker Exclusion covered fewer injuries than the one in the first renewed policy. (Even if notice to Sheehan was proper, she is contracted by Scottsdale to produce the insurance for Wild Horse. Showing that she was notified does not also show that Wild Horse received proper notice.) Scottsdale sent a Premium Increase/Altered Terms document to Wild Horse 9/3/21 which notified the insured “that the rate will be increased and/or the policy coverage will be changed as follows.” Under “change description” it lists added forms but does not mention the Injury to Worker Exclusion, nor does Scottsdale mention that change in the quote sent to Sheehan the same day. Therefore it failed to provide proper notice of the updated Injury to Worker Exclusion. Because notice was required and not properly provided, the exclusion did not become part of the second renewed policy and cannot be enforced against Wild Horse.

Scottsdale next argues that Wild Horse materially misrepresented information about its business in negotiating for coverage, causing it to cover risks it did not know existed. Defendants argue that Wild Horse made no misrepresentations and even if it truthfully represented information that later became inaccurate, those representations were not material to the coverage provided. They again have the better argument.

Under MCA 33-15-403(1) “all statements and descriptions in any application for an insurance policy or in negotiations for an insurance policy by or on behalf of the insured are considered representations.” Under 403(2):

Misrepresentations, omissions, concealment of facts, and incorrect statements preclude a benefit and allow rescission under the policy or contract if:

(a) the representations are fraudulent;

(b) the representations are material either to the acceptance of the risk or to the hazard assumed by the insurer; or

(c) the insurer in good faith would either not have issued the policy or contract or would not have issued a policy or contract in as large an amount or at the same premium or rate or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise; and

(d) the questions in the application are sufficiently specific so that a reasonable person would understand the requirement to provide the particular facts and that the applicant’s response was material to the insurer’s decision to provide coverage or to determine the premium or rate to be charged for the coverage.

(The statute was revised in 2019 to include (d) after Running Wolf (Mont. 2020) concluded that the previous version had been misinterpreted for half a century. Other than Justice Rice’s concurring discussion, no other court has substantively considered this statute after the revision.) “This statute should be read in the disjunctive. Thus, a misrepresentation, omission, concealment of fact or incorrect statement will prevent recovery under an insurance policy if one of the three factors listed in subsection (2) is present.” Schneider (Mont. 1991). Fraud is not required. Id.

Parsing the arguments requires a closer look at Wild Horse’s representations. In its reservation of rights letter to Subatch, Scottsdale argues that Wild Horse misrepresented its employee count and payroll data as well as the specifics of its operations.

In the Application Information Section of its application dated 10/2/19 Wild Horse listed Subatch as owner. There is no indication that it had any other employees. The application notes a payroll of $15,700 for the excavation work, with the sole owner being the only one doing it. The parties do not dispute that these representations in the original application were accurate, but they dispute the size of Wild Horse’s workforce at the time of Blanchard’s injury.

Scottsdale argues that the “Employee details report” for Wild Horse’s business demonstrates that it had upwards of 15 employees by 8/12/22, the date of Blanchard’s injuries. While this document does not indicate how many were employed at any one time because only the “hire date” is listed, it shows that Wild Horse employed more than just 1 person. Further supporting Scottsdale’s theory that its workforce had grown substantially are the depositions of Wild Horse employees. Jason Woods said he was employed by Wild Horse for 2-1/2 years as an equipment operator and estimated that it had 12-15 employees including 3 “equipment operators.” Hart stated that Wild Horse employed him, and while he did not know how many employees it had, he knew they had at least a human resources-type professional. Thus while Wild Horse’s original representation of its employees may have been accurate, as of 8/22 it employed others in addition to Subatch.

In response to the question “does applicant lease equipment with or without operators,” Wild Horse responded “rents daily or hourly without operator.” In another section it represented that it owned “four pieces of equipment he uses for his company Wildhorse Trading Co, LLC but he was also renting them out with daily rates with no operator.” The application notes that “he is an escavator [sic] and does septic and water lines.” However, it is undisputed that by 8/22 Wild Horse was employing operators. Thus Scottsdale was not aware that it was renting out equipment with and without operators at the time it originally provided coverage.

Wild Horse’s representations in its 2019 application do not represent the work it was doing by 8/22. That does not mean they constitute a misrepresentation as a matter of law. Defendants argue that the period for which it can be held accountable for any misrepresentations is when the application was made. Scottsdale interprets Montana law differently, arguing that Wild Horse is under a continuing obligation to inform it about its business activities and can therefore be held responsible for misrepresentations throughout the coverage period. Neither argument is completely accurate but Defendants have the stronger one.

Defendants cite the unpublished Minks (Mont. 2013) which held that representations at the time of signing the lease were to be relied on even when situations drastically changed during the lease period. Scottsdale cites Gabelhausen (D.Mont. 2017) in which Mount Vernon Fire Ins. sued insured Homeowners to determine coverage when they had misrepresented their ownership interest in a property in the Virgin Islands in their application. Judge Christensen found that the insurer was not on inquiry notice of the ownership interest when it did not further investigate details of that interest.

Neither case clearly instructs whether Scottsdale had the burden to seek more information from Wild Horse or Wild Horse had the burden to update Scottsdale. Wild Horse first purchased insurance from Scottsdale in 2019 and renewed without substantively updating Scottsdale about its operations. Scottsdale argues that it attempted to get more information from Wild Horse via periodic audits that were never returned but it never stopped providing coverage. Conversely, Subatch affirms that he “articulated the nature of my business to the insurance agent I procured insurance from” and “assumed that the insurance I procured would be adequate to cover claims that arose from my business.”

Both parties stuck their heads in the sand. Scottsdale renewed its coverage for Wild Horse twice without providing another application to inquire about updates to its business; Wild Horse clearly knew its business had grown since it initially purchased coverage yet never passed that information to Scottsdale. Nevertheless, the record does not reflect that Wild Horse ever affirmatively misrepresented its activities, and Scottsdale does not demonstrate that Wild Horse’s acceptance of the renewed policies, which it chose to issue without additional information from the insured, is a misrepresentation under §33-15-403. Thus coverage is not precluded by Wild Horse’s failure to notify Scottsdale about the changes to its business.

Defendants move to strike the declaration of Karen Hanna as lay witness testimony. They argue that it is an undisclosed expert disclosure that lacks foundation and offers improper legal conclusion as to construction of the policy. They are correct.

Rule 701 allows for an opinion that is based on personal perception, is helpful, and is not based on “scientific, technical, or other specialized knowledge within the scope of Rule 702.” Rule 702 instructs that an expert witness may testify based on their “knowledge, skill, experience, training, or education” if they meet the rule’s strict requirements.

Hanna is a “Territory Director of E&S Wholesale, Contract P&C — Mountain West” at Scottsdale and declares: She is “familiar with Scottsdale classification guidelines and program ratings for its commercial general liability insurance policies.” The premiums that Wild Horse paid for the policy under the classification for Excavation coverage “was based on a payroll of $1,700, i.e., one owner, and that owner being the only person performing excavation work.” Had Wild Horse represented that it employed more people, Scottsdale would have charged a higher premium. The “post-loading work Wild Horse was performing does not come within any of the Policy’s defined classes” and had Scottsdale known about the post-loading work it would have included the class code for “Contractors Equipment Rental Program” and charged a higher premium.

Hanna’s testimony seeks to assert technical or specialized knowledge regarding Scottsdale’s policies. Her opinions are not based on her personal experience with Wild Horse’s insurance contract, but on her specialized knowledge taken from her experience as an insurance professional. Had she been personally involved with Wild Horse’s insurance policy and coverage she may have been able to proffer some of this testimony, but her declaration does not include that detail. Instead, she testified about what she would have done had the situation of the insurance contract been different — a legal conclusion not based on her personal experience. Her declaration is therefore stricken because it was not disclosed as expert testimony.

Scottsdale’s summary judgment motion is denied and Defendants’ motion is granted. The 7/8/2024 bench trial and related deadlines are vacated.

Scottsdale Ins. v. Wild Horse Trading, Hart, Blanchards, and Subatch, 45 MFR 3, 6/28/24.

Leah Handelman (Garlington, Lohn & Robinson), Missoula, for Scottsdale; Conner Bottomly & Justin Stalpes (Beck, Amsden & Stalpes), Bozeman, and Dan Spoon & Bryan Spoon (Spoon Gordon), Missoula, for Blanchards; Jenna Lyon (Reep, Bell & Jasper), Missoula, for Subatch and Wild Horse; J.R. Casillas (Datsopoulos, MacDonald & Lind), Missoula, for Hart.

ATTORNEY DISCHARGE: No Montana personal jurisdiction over wrongful discharge suit by Texas law firm attorney who moved to Montana to work out of his home… case transferred to Texas Federal Court rather than dismissed… Molloy.

Roberts Markel Weinberg Butler Hailey is a law firm with 4 locations in Texas. In 2018 it hired Shawn Isakson, who lived in Texas, as business manager. In 2019 he became the CEO. (The Firm alleges that this was a title that he bestowed upon himself; he claims he was appointed by the Board of Directors.) He directly supervised 4-6 employees including 2 full-time permanent remote employees in Colorado and Illinois. In 7/20 he began working remotely from Whitefish. Several other executives worked remotely, either full-time or part-time, from their homes in Colorado, Illinois, or Texas without a primary office location.

Isakson moved to Whitefish during COVID for personal reasons unrelated to the Firm’s practice of law. He claims the Firm was aware that his move was permanent; the Firm maintains that it treated his remote work from Montana as temporary because he had assured that he still owned a home in Houston, he would be moving back to Houston, and his wife’s employer may also require her to return to Houston. It maintains that not only was his move to Montana neither required by nor a benefit to the Firm, it was not even “approved.” However, as apparently required by IRS guidelines pertaining to temporary work locations, in 11/21 the Firm updated his employment record to reflect a full-time remote status with his Montana address and began deducting Montana payroll taxes, paying Montana unemployment taxes, and providing work comp and employer’s liability insurance for his home office in Montana. In 11/22, the Firm’s VP Jeff Roberts terminated his employment during a phone call while Roberts was in Texas and Isakson was in Montana.

In 11/23 Isakson sued the Firm pursuant to Montana’s WDEA. The Firm moved to dismiss all claims for want of personal jurisdiction. At the conclusion of a hearing 3/14/24 the parties were asked to be prepared to discuss transfer of venue and related conflict of law issues at the preliminary pretrial conference the next day. At the 3/15 conference Isakson argued that the case should stay in Montana because it has personal jurisdiction over the Firm and, because the WDEA provides specific protections for employee-employer relations, Montana has the stronger interest. The Firm countered that Texas has the stronger interest because its laws protect employers by providing them the freedom & flexibility of an at-will system. The Court ordered supplemental briefing on conflict of law and choice of law issues raised at the conference.

The parties do not dispute that the Court lacks general personal jurisdiction over the Firm but disagree as to whether it had sufficient minimal contacts with Montana to support a finding of specific personal jurisdiction. Isakson asserts that such jurisdiction exists because the Firm “purposefully” employed him in Montana, paid Montana taxes, had a Montana-based work comp and employer’s liability policy, occasionally conducted business in Montana, and “engaged in conduct that resulted in the accrual of a tort action in the State of Montana, thereby injecting itself in multiple ways into the affairs of the State of Montana.”

Isakson insists that the requirements under Montana’s long-arm are met under Rule 4(b)(1) because the Firm transacted business in Montana under (A), committed an act resulting in a tort action under (B), and contracted to insure a person, property, or risk located in Montana under (D).

Neither side presents authority establishing a clear definition of “transaction of any business” in Montana. Isakson cites Prentice Lumber (Mont. 1970) for the proposition that there is a “prevailing trend” to interpret what constitutes conducting business broadly. However, under more recent precedent the Montana Supreme Court explained the factors that show a defendant was transacting business within Montana are the same as the factors that would support general jurisdiction, albeit to a less exacting standard. These factors include the defendant’s “local negotiations for various types of commercial transactions, the solicitation of business within the state, prior litigations in the forum, the presence of agents in the state, and the existence of ongoing contractual relationships with residents of the forum state.” Milky Whey (Mont. 2015) (quoting Wright & Miller).

Isakson argues that because he was employed in Montana, other employees of the Firm occasionally conducted business in Montana, and the Firm paid taxes and insured him in Montana, the Firm was transacting business within the meaning of Montana’s long-arm statute. He further relies on the fact that the Firm bought and still owns his computer and networking equipment and paid for his internet access. He also points out that he personally “transacted and solicited a great deal of corporate business” for the Firm from his home office in Montana.

The Firm counters that Isakson takes “significant liberties” with the facts in his affidavit. It argues that its only business is practicing law which it does exclusively in Texas and the work that Isakson performed — banking, payroll, hiring and managing employees, and paying vendors — was incidental to its practice of law, not its “business.” It asserts that any employees he claims “worked” while in Montana were on vacation. It points out that IRS guidelines require employers to pay taxes and insure even temporary remote workers once they have been working in another state for more than 1 year, and following such requirements is not enough to confer personal jurisdiction. In sum, it maintains that it did not transact business in Montana as to invoke jurisdiction because it did not hire Isakson in Montana, it did not seek to expand its business into Montana, his remote work location was a unilateral and unapproved decision by him, and his work itself is only ancillary to the Firm’s business. The Firm is correct.

Unlike in Prentice where the parties engaged in the interstate sale of lumber, the Firm is not engaged in the practice of law in Montana. It has never employed a Montana-licensed attorney, practiced law in Montana, or planned to generate legal work in Montana. Nothing in Isakson’s affidavit contradicts the Firm’s statements that it has never solicited business in Montana, negotiated locally to further its business in Montana, or had any clients, financial accounts, or other contractual relationships with Montanans, other than those directly linked to his remote location in Montana. Although the parties dispute whether any of the Firm’s other employees conducted business in Montana and the benefit of the doubt goes to Isakson, LNS (9th Cir. 2022), employees checking email and Isakson’s management team having work-related conversations at his home in Whitefish do not rise to “transacting business.” Many modern companies have out-of-state meetings and/or corporate retreats and employees often engage in important work-related conversations while traveling or for any number of reasons. These incidental contacts are insufficient to show that the Firm transacted business in Montana for the purposes of specific personal jurisdiction under 4(b)(1)(A).

Isakson next argues that personal jurisdiction is proper under (B) which extends jurisdiction over “the commission of any act resulting in accrual within Montana of a tort action.” The Firm argues that a WDEA claim cannot give rise to jurisdiction under (B) because it is a statutory claim that preempts other torts related to wrongful discharge. The Montana Supreme Court does not appear to have answered that question, but even assuming that a WDEA action is a tort action under the long-arm statute, jurisdiction would be improper.

The test for whether a tort accrued in Montana is “highly fact specific and dependent on the nature of the alleged tort at issue.” Groo (Mont. 2023) (tort accrued in Montana where a New York social media user directed a negative campaign at a Montana business and its customers). The inquiry “focuses on where the events giving rise to the tort occurred, rather than where the plaintiffs allegedly experienced or learned of their injuries.” Tackett (Mont. 2014). “Jurisdiction is not acquired through interstate communications solely by signing a contract to be performed in another state.” Groo; Cimmaron (Mont. 2003) (“Interstate communication is an almost inevitable accompaniment to doing business in the modern world, and cannot by itself be considered a contact for justifying the exercise of personal jurisdiction.”); Threlked (Mont. 2000) (no long-arm jurisdiction existed where the defendants’ interstate communications related entirely to services to be performed out-of-state).

While no Montana case is on all fours with this case, the reasoning in Bird (Mont. 1995) is persuasive. It held that Montana courts lacked personal jurisdiction over an Idaho attorney because, although he had communicated with his clients in Montana, the alleged fraud and deceit accrued in Idaho where he agreed to represent the Montanans for their claims arising out of an auto accident in Idaho.

Isakson’s claims center on his allegedly wrongful termination which Roberts, acting as an agent of the Firm from his office in Texas, performed over the phone. The termination targeted Isakson in Montana and was experienced by Isakson in Montana. However, the acts giving rise to the termination — both the Firm’s decision to terminate him and all of Isakson’s actions while working for the Texas-based Firm — occurred in Texas or were directed toward operating a business solely in Texas. Isakson was hired by the Texas Firm while he was a resident of Texas and even after his move to Montana he worked to advance its legal business in Texas. Under Montana law, any tort connected to his termination accrued where the events that gave rise to it occurred — in Texas. 4(b)(1)(B) does not confer specific jurisdiction over the Firm.

Isakson’s next argument is that jurisdiction is proper under (D) because his wrongful discharge claims arose from the Firm “contracting to insure any person, property, or risk located within Montana at the time of contracting.” He argues that after he had been working remotely from Montana for 1 year the Firm secured a Montana employer’s liability and work comp policy for him at his Montana address. The Firm disagrees that (D) applies because his termination claim is not connected to the policy, which covers an employee’s “bodily injury by accident or bodily injury by disease” and excludes “termination of any employee.” The Firm is correct.

The parties agree that “arising from” in this context means a “direct affiliation, nexus, or substantial connection between the basis for the cause of action and the act which falls within the long-arm statute.” Seal (Mont. 2002). At issue in Seal was whether a judge erred in deciding the merits of an insurance claim during a jurisdictional dispute. The plaintiff alleged that the defendant failed to fulfill her “contractual duty to insure the goods against loss or damage and he suffered a loss as a result of that breach.” Seal determined that personal jurisdiction was appropriate under (D) because “at their core, the allegations in the complaint derived from the alleged acts.”

Conversely, Isakson’s claims stem entirely from his allegedly wrongful termination. He does not allege any breach of the insurance policy and the policy excludes coverage for any damages arising from the “termination of any employee.” The mere fact that it covered him and his remote work location in limited ways is insufficient to create a substantial connection to his wrongful discharge claim. 4(b)(1)(D) cannot be used to establish personal jurisdiction over the Firm.

As Isakson has failed to establish specific personal jurisdiction under Montana’s long-arm statute, the Firm’s motion to dismiss could be granted for that reason alone. Milky Whey. However, even if he had satisfied one of the Rule 4(b)(1) conditions, the exercise of personal jurisdiction must also comport with due process. FMC (US 2021). The Firm argues that it neither availed itself of the benefits of Montana’s laws nor did it purposely direct any activity toward Montana. It maintains that “Isakson was hired in Texas, lived in Texas, and worked in Texas until he unilaterally ‘moved’ to Montana temporarily due to COVID-19.” Isakson counters that it purposefully availed itself of the benefits & protections of Montana laws and directed activity toward Montana when it terminated him here because it was a voluntary act designed to have an effect in Montana. The Firm has the better argument.

Taking Isakson’s factual allegations as true, the Firm withheld Montana taxes related to his employment, obtained insurance for him, and engaged in interstate communication with him related to his job. This distinguishes his case from where the defendant’s relationship with the forum state was predominantly to impact the market of the forum state. Sinatra (9th Cir. 1988) (a Swiss clinic’s tortious conduct was partly intended to avail it of California’s market). But the fact that the Firm never attempted to avail itself of Montana’s market for legal services weighs against finding that it “expressly aimed” any actions at Montana. Every connection between Montana and the Firm — including Isakson’s occasional hosting of Firm employees — was the result of his decision to move there and all are the sort of “random, fortuitous, or attenuated contacts” that under Burger King (US 1985) are insufficient to establish specific personal jurisdiction. Although he lives in Montana, his “injury is entirely personal to him and would follow him wherever he might choose to live or travel”; thus “the effects of [the Firm’s] actions are ‘not connected to the forum State in a way that makes those efforts a proper basis for jurisdiction.'” Picot (9th Cir. 2015) (quoting Walden (US 2014).

Because Isakson has neither established a prima facie showing of specific personal jurisdiction over the Firm under Montana’s long-arm statute nor one that comports with due process, the Court lacks personal jurisdiction over the Firm.

In response to the Firm’s motion to dismiss, Isakson requests that he be allowed to conduct discovery so he may further develop the jurisdictional evidence. The Firm argues that because his temporary remote work location was its only tie to Montana, jurisdictional discovery is not necessary.

Isakson’s allegation that he conducted business on the Firm’s behalf in Montana where his home functioned as a satellite office for the Firm provides a colorable basis for personal jurisdiction, but he fails to proffer specificity about what he would hope to learn through discovery. Merely pointing to existence of a jurisdictional dispute and arguing that discovery may uncover further evidence is insufficient to justify jurisdictional discovery.

Although the Court lacks personal jurisdiction over the Firm, transfer, rather than dismissal, is appropriate. 28 USC 1406(a). A transfer would not cause hardship to the Firm and its position on the merits would not be prejudiced, while a transfer would allow Isakson to obtain personal jurisdiction over the Firm while alleviating the procedural burdens related to the cost of refiling a suit in Texas Federal Court and any statute of limitations concerns that might apply to his potential cause(s) in Texas. Additionally, a transfer under 1406(a) does not prejudice any choice of law analysis to be determined by the Texas court.

Isakson v. Roberts Markel Weinberg Butler Hailey, 45 MFR 2, 4/9/24.

Anne Sherwood & Frederick Sherwood (Morrison, Sherwood, Wilson & Deola), Helena, for Isakson; Jean Faure & Katie Ranta (Faure Holden), Great Falls, for RMWBH.

INSURANCE: Coverage of $3.76 million net verdict for defectively designed & constructed disappearing floor pool at residence precluded by CGL business risk and professional liability exclusions… Molloy.

Insurance. An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table. The Devil’s Dictionary, Ambrose Bierce.

So it is with the case before the Court, the balance of the insured’s comfort measured against the words of the insurance policy. This dispute arises out of construction of a “disappearing floor” pool at a residence on Big Mountain. What is at issue is whether Nautilus has a duty to indemnity Michael & Robin for the millions in damages awarded by jury. Because several exclusions bar coverage, summary judgment is granted for Nautilus.

Farrens engaged Rock & Water, an Idaho-based LLC that designs & builds swimming pools and water features, in 2014 to construct a floating or disappearing deck/floor pool & spa with features such as an infinity edge, a basin to catch the water overspilling the edge, a moveable & disappearing pool & spa deck, a waterslide, and a fire pit. Construction began in 2015 and ended in 2018. Because Rock & Water had not built a floating floor pool, to avoid paying an engineer, its owner Sean Henry designed a ballast-tank system based on information he found on YouTube. Although the system’s operation is disputed, the general idea was that the tanks would fill with air and make the floor float to create a deck and then fill with water and sink to reveal the pool. The tanks and frame used to lift the floor were made of aluminum and the floating floor was made of Ipe wood.

Although many aspects of the pool and deck were completed in 7/16, there were immediate problems with the floating floor. It would not raise or lower evenly and therefore jammed inside the pool shell, damaging the shell and wood flooring. The aluminum tanks began to corrode due to contact with chlorine. 15,000 gallons of water were released down the hill below the pool every time the floor was moved, eroding the soil and requiring installation of riprap.

Farrens sued Rock & Water in State Court in 11/18. Nautilus provided a defense under reservation. Following a 4-day trial in 3/22, the Kalispell jury awarded Farrens $4.5 million for repairs and found them 20% contributorily negligent. It also awarded $100,000 for loss use and $100,000 for emotional distress. Judgment was entered against Rock & Water in the amount of $3.76 million in damages and $11,976.49 in costs.

Rock & Water was insured 2016-18 by a Nautilus CGL policy with $2 million General Aggregate Limit (other than products/completed operations) and $1 million limit occurrence. Under the 2016 and 2017 policies, the “products/completed operations aggregate limit” is stated as “$INCLUDED.” For the 2018 policy it is stated as $2,000,000.” Farrens offered to settle for the $1 million limits twice prior to trial.

Nautilus filed this case in 12/22 seeking a declaration that there is no coverage under the policies and therefore no duty to indemnify, and that even if coverage was triggered, a number of exclusions apply. Farrens counterclaimed seeking a declaration that Nautilus has a duty to indemnify and that because it acted in bad faith in failing to settle for policy limits it is obligated to pay the judgment in excess of the limits. The parties moved for summary judgment. Farrens moved to dismiss their bad faith counterclaims.

Coverage is triggered only if there is “bodily injury” or “property damage” caused by an “occurrence.” Nautilus argues that there is no coverage because the damage was the product of defective workmanship, which is never considered an occurrence, and the damage was exclusively to Rock & Water’s work product. Farrens argue that because an occurrence includes intentional acts with unexpected results, it can apply in circumstances such as here.

Nautilus relies primarily on Phoenix Ins. v. Boland Const. (D.Mont. 2017) which involved construction delays caused by a subcontractor and which the Court stated that “Montana federal courts, applying Montana law, have concluded that defective workmanship is not considered an ‘occurrence’ under the insuring language of a CGL policy.” But no further analysis was provided, and while Phoenix cited 2 federal district court decisions, neither bolsters Nautilus’s argument.

Because there appears to be no dispute that Rock & Water’s installation of the floating pool system and its components — such as the aluminum — was an intentional act, the dispositive inquiry under Fisher (Mont. 2016) is whether it intended or expected Farrens’s damages. Applying an objective standard, the record shows that it did not intend or expect its floating floor to cause the damage. It is undisputed that Henry did not anticipate that the floor would bind when it was raised or lowered, which damaged the mechanism, the pool shell, and the Ipe wood flooring. It is also undisputed that he did not research the effect that chlorine would have on the aluminum components which caused additional damage to the spa frame and hydraulics. Although the parties disagree whether the lift system caused the pool epoxy to delaminate or whether the epoxy was simply the wrong product for this job, that damage was equally unexpected and unintended. Indeed, Rock & Water contacted the epoxy manufacturer who stated that it was not the application that caused the problem, but rather the coating had failed on other jobs in Montana.

Because Farrens’s damages arose from the unanticipated and unexpected consequence of Rock & Water’s design and work, its installation of the floating floor and its components constitutes an “occurrence” triggering coverage.

Exclusion j(5) excludes coverage for “property damage to that particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.” Nautilus argues that the damage to the pool, spa, and water features is excluded because it occurred when Rock & Water was performing operations on or immediately adjacent to them. Farrens respond that “particular part” is limited to the discrete project component, not the pool area as a whole. Nautilus counters that while “particular part” is narrower than the residence, it encompasses the entire pool area in which all of Rock & Water’s work was performed. Nautilus has the better argument.

Fortney (6th Cir. 2010) held that “particular part” means “the distinct component parts of a building — things like the interior drywall, stud framing, electrical wiring or the foundation.” However, it relied on JHP (5th Cir. 2009) which focused on the fact that the faulty exterior work and retaining walls “were distinct component parts that were each the subject of separate construction processes and are severable from the interior drywall, stud framing, electrical wiring, and wood flooring.” That is not the case here. The pool shell, aluminum tanks, spa frame, and deck floor were all part of the floating floor pool system upon which Rock & Water continued to perform work until 4/18. Thus the alleged property damage was to the particular part of real property that was the direct focus of its continued operation. Coverage is therefore excluded under j(5).

Exclusion j(6) precludes coverage for “property damage to that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” “Your work” is defined as Rock & Water’s “work or operations,” “materials, parts or equipment furnished in connection with such work or operations,” or “warranties and representations made at any time with respect to the fitness, quality, durability, performance or use of ‘your work.'” Nautilus argues that this applies because “all of the awarded damages were to replace Rock & Water’s own work product (or the materials, parts and equipment used in connection with that work) because Rock and Water’s work was done incorrectly.” Farrens quibble in response that there were completed, properly installed portions of the project that were damaged: the pool shell; the aluminum tanks, frame, and hydraulic cylinders; and the Ipe wood decking. Nautilus has the better argument.

Rock & Water designed & installed all of the pool components and they needed to be replaced because of its design decisions and material choices. It installed the aluminum components without protecting them from the chlorine in the pool. While Farrens may be correct that aluminum can be used in some pools in some situations, it is undisputed that Rock & Water’s submersion of the untreated aluminum in chlorine caused it to corrode and degrade. As argued by Nautilus, “your work” includes the materials used in connection with the insured’s operations. This falls within the definition of “your work.” Similarly, as it relates to the Ipe wood decking, while Farrens may be correct that wood flooring can be an appropriate decking material in Montana, its repeated submersion under the pool water and its removal and replacement by Rock & Water while it was troubleshooting the pool lift system damaged the floor. This product was therefore once again damaged by Rock & Water’s faulty operation of the floating floor and use of the wrong material. While the pool shell is a closer question, it also falls within this exclusion as even if the epoxy was an appropriate material in some pool contexts, Rock & Water installed a component that did not stand up to the repeated raising and lowering of the nylon wheels that caused the pool shell to scar.

Farrens again unsuccessfully try to separate out the failures of what they call the “floating pool floor” from its component parts. Because the alleged property damage was a result of “your work” by Rock & Water, coverage for those damages is excluded under j(6).

The 2016 policy’s Professional Liability Exclusion excludes coverage for property damage “arising out of the rendering of or a failure to render any professional services by you, but only with respect to your providing engineering, architectural or surveying services in your capacity as an engineer, architect or surveyor.” “Professional services” includes “preparing, approving, or failing to prepare or approve shop drawings, opinions, reports, or drawing and specifications” and “supervisory or inspection activities performed as part of any related architectural or engineering activities.” The 2016 policy further states that “this exclusion does not apply to your operations in connection with construction work performed by you.” This exclusion impacts later policy years as the 2017 and 2018 policies define “property damage” to include the “continuation, change or resumption” of property damage and state that if the insured was aware of the property damage prior to the policy period, the “continuation, change or resumption” of that property damage “during or after the policy period will be deemed to have been known prior to the policy period.”

Farrens insist that “Nautilus submitted no evidence that Rock and Water acted in the capacity of an engineer, architect, or surveyor.” They also emphasize that Altius Design Group was the architect and that under the construction agreement an independent engineer was to be consulted. They argue that the exclusion requires the rendering of “professional services,” claiming that Rock & Water rendered no such services. Nautilus responds that the record shows that Rock & Water designed all of the faulty elements and “the fact that Rock and Water lacked the credentials to make these types of design and engineering decisions does not render the exclusion inapplicable. Nautilus has the better argument.

Under the plain language of this provision, coverage is excluded when a contractor acts in the capacity of an engineer or architect. As contended by Nautilus, that necessarily includes Rock & Water’s design of all the pool components that were designed & built here. Indeed, while it may have contracted only to build the pool, it is undisputed that its owner Sean Henry “said he would design the pool himself.” He then did so. (“Based on this YouTube video, Rock and Water designed a ballast tank system that consisted of nine tanks that were seven feet wide and two feet deep.”) (Emphasis added).) The fact that Henry was not qualified to perform this design or engineering function does not change the undisputed fact that he did. While Farrens may be correct that the “professional” component of these services was questionable considering that he copied an idea from YouTube, that does not alter applicability of the policy terms. He prepared drawings of the pool and a detailed list of structural components. Further, the pay schedule notes that the first 20% of the pool cost included “completion of engineering” that would “be completed in R&W WHSE.” Thus the fact that Rock & Water was not qualified to render the professional services it provided does not void application of this exclusion.

Finally, Farrens argue that per its plain terms this exclusion does not apply to Rock & Water’s construction activities. While that argument is persuasive on its face, it again fails to recognize the services that were provided. Farrens correctly note that Rock & Water performed the physical labor and installed the component parts that comprise this project. But those activities did not give rise to Farrens’s damages. The “construction exception” to the exclusion is meant to insulate a contractor from competently executing a design error when it was not responsible for that design. But Rock & Water competently installed a pool that it poorly designed itself. The professional liability exclusion bars coverage.

Nautilus takes the position that there is no coverage for the hillside erosion caused by repeated draining of the pool because the policies contain a subsidence exclusion. It excludes coverage for property damage “directly or indirectly arising out of, resulting from, contributed to, aggravated or concurrently caused by subsidence or movement of soil, land, bedrock or earth, whether natural, manmade or otherwise.” “Subsidence or movement of soil, land, bedrock or earth” includes but is “not limited to settling, bulging, shaking, sinking, slipping, shifting, eroding, rising, tilting, expanding, contracting, shrinking, instability, falling away, caving in, landslide, mudflow, flood, sinkhole, earthquake, volcano, or avalanche.” Nautilus argues that the “erosion damage” alleged by Farrens is excluded under this provision. Farrens insist that this exclusion is limited to “damage caused by erosion” as opposed to the situation here where the erosion itself is the damage. They have the better argument.

Coverage is excluded if the alleged property damage is caused by subsidence, natural or manmade. It is undisputed that a substantial amount of water ran down the hillside whenever the vanishing basin edge was full and Rock & Water attempted to move the floating floor. This flooding caused the soil below the pool to erode. Thus it is not the case where erosion of the hill below the pool caused damage to the pool foundation; rather, as Farrens argue, the subsidence is the damage. This exclusion does not bar coverage for the hillside erosion.

However, Nautilus further argues that there is no coverage for the erosion because the jury awarded no repair costs related to the hillside. Farrens argue that the jury award includes all of their losses associated with the project and if Nautilus wanted the jury to distinguish between covered and noncovered damages it could have requested special interrogatories on the verdict form. Although Nautilus responds only to the first argument, it prevails.

Farrens are generally correct that an insurer waives its right to itemize covered and noncovered damages when it fails to ask for an allocation of damages. But this is not the case where the jury heard evidence on both covered and noncovered claims and Nautilus is now asking the Court to allocate lump sum damages among those claims. Cf. Automax Hyundai (10th Cir. 2013) (“Damages are presumed to be covered unless the insurer can demonstrate an appropriate allocation.”) It is undisputed that this jury heard no evidence regarding the repair cost or cost of loss of use associated with the hillside erosion. Thus while Nautilus has the duty to indemnify Farrens for damages associated with the hillside erosion, no such damages were awarded.

Although Farrens originally pled that Nautilus acted in bad faith and is therefore on the hook for damages beyond the $1 million policy limits, they moved to dismiss those counter-claims. The issue is now moot based on the Court’s finding of no coverage. Steadele (Mont. 2011) (“Where an insurance policy excludes coverage, a third party’s bad faith claim fails as a matter of law.”).

Summary judgment is granted for Nautilus.

Nautilus Ins. v. Farrenses and Rock & Water, 45 MFR 1, 3/1/24.

Randall Colbert & Emma Mediak (Garlington, Lohn & Robinson), Missoula, and Linda Hsu (Selman Leichenger Edson Hsu Newman Moore), San Francisco, for Nautilus; Sean Frampton (Frampton Purdy Law Firm), Whitefish, for Farrenses.

INSURANCE: Insurer failed to unequivocally demonstrate that UTV was not designed for operation principally on public roads and could never be a Covered Auto, now liable for $1.6 million consent judgment plus interest and attorney fees for failure to defend rollover injury claim rather than only $25,000 policy limit it would have risked had it filed declaratory action… Watters.

Sully Weinreis bought a 2017 Can-Am Maverick X3 UTV 4/2/21. The next day he was driving it with Benjamin Fettkether in the passenger seat when he took a turn too fast and rolled. Fettkether’s right hand was crushed and degloved. He is now 38.

Weinreis had a Progressive policy that provided up to $25,000 for any accident involving a “Covered Auto” including any “Auto” listed on the declarations page and any “Additional Auto.” The declarations page lists a Silverado and a Mustang.

“Additional Auto” is defined as “an auto the insured becomes the owner of during the policy period that does not permanently replace an auto shown on the declarations page if: a. Progressive insures all the other autos the insured owns; b. the additional auto is not covered by any other insurance policy; c. the insured notifies Progressive within 30 days of becoming the owner of the additional auto; and d. the insured pays any additional premium due.”

An “Auto” is a “land motor vehicle: a. of the private passenger, pickup body, or cargo van type; b. designed for operation principally upon public roads; c. with at least four wheels; and d. with a gross vehicle weight rating of 12,000 pounds or less, according to the manufacturer’s specifications.” If a vehicle meets the definition of an additional auto it is a Covered Auto.

Fettkether sued Weinreis for negligence in 13th Judicial District Court and demanded the $25,000 bodily injury limit. Progressive rejected the demand 12/9/21 and refused to provide Weinreis a defense on grounds that the X3 was not an Auto because, according to the owner’s manual, it is not designed for operation principally on public roads. It noted that the manual described it as an “Off-Road” vehicle that is not designed for use on paved roads, warns against operation on paved roads, and even warns of operation on dirt or gravel roads. It also stated that the X3 lacked “safety equipment required for vehicles designed for use principally on public roads such as rear safety bumper, horn, mirrors.” Progressive did not file a declaratory action to determine coverage.

(Progressive also denied Weinreis’s claim under a motorcycle policy that he purchased 3 days after the accident. Fettkether concedes that it did not apply because it was purchased after the accident. However, the parties also argue that purchase of the motorcycle policy implies some relevant mental state. According to Progressive, it indicated that he knew the X3 was not covered by the auto policy. Fettkether asserts that the purchase was pursuant to the requirement in the auto policy that Weinreis notify Progressive within 30 days of a newly acquired vehicle for it to constitute a covered auto. Neither provides evidence of these assertions so the Court finds both arguments speculative and irrelevant.)

Weinreis and Fettkether agreed that Weinreis would confess judgment for $1.6 million and assign his policy rights to Fettkether and Fettkether agreed not to execute judgment against Weinreis’s assets. Judge Moses found the settlement reasonable following a hearing which Progressive did not attend.

Fettkether sued Progressive in this Court 3/1/23. He seeks a declaration that it had a duty to defend Weinreis and breached its duty by failing to defend against Fettkether’s negligence action on Weinreis’s behalf. He seeks $1.6 million in contract damages, interest on the judgment, and attorney fees & costs. The parties request summary judgment.

Progressive argues that the X3 does not meet the definition of Auto and thus a Covered Auto for which the policy would provide injury coverage because it is an “off-road vehicle” and not designed for operation principally on public roads. It analogizes to Rodgers (WD Wash. 2019) which held that an ATV was not a Covered Auto.

Fettkether responds that Progressive cannot meet the “high bar” of the unequivocal demonstration standard for duty to defend because it cannot be said that the X3 could never have been an “Auto” as defined in the policy. Rather, it is at minimum ambiguous and at best unequivocal that a UTV like the X3 could be designed to operate on public roads. He cites Montana caselaw about the wide range of “public roads” which generally speak to whether the road is publicly or privately owned/accessible. He further argues that even if the Court accepts Progressive’s definition of a public road as only paved streets, Montana law permits UTVs to be driven on public highways and thus they can primarily be used for city driving.

On supplemental briefing Progressive attached the owner’s manual and quoted parts that stated that the X3 was a “high-performance off-road” vehicle that a user should “never operate on any public street.” Fettkether declined to address the X3’s specific features because “Progressive cannot now introduce — nor can the Court consider — any evidence that may negate coverage acquired after its denial of a defense.” Instead, Fettkether argued, quoting Tidyman’s (Mont. 2014), that the Court should focus on whether Progressive unequivocally demonstrated that there was no “potential for coverage,” not whether coverage in fact existed.”

The linchpin issue is whether Progressive unequivocally demonstrated that no coverage could exist because the X3 was not “designed for operation principally upon public roads.” Importantly, the policy does not define “public roads” or specify what design features would make a vehicle considered designed for operation principally on public roads.

Next, looking to the Complaint, Fettkether claims that his injuries stemmed from the operation of a Covered Auto. Thus if proven, his claims would fall under the policy. He does not comment on the X3’s design or suitability for operation principally on public roads; the Complaint only details the accident, his injury, his request that Progressive tender the $25,000 limit, and the litigation. The Complaint is insufficient on its face to conclude that a duty to defend existed. See Geraldine (Mont. 2008) (“We have repeatedly held that it is the acts giving rise to the complaint which form the basis for coverage, not the complaint’s legal theories or conclusory language.”)

The Court last looks to the facts considered by Progressive in refusing to defend, which are outlined in its denial letter. The letter states that it reviewed the owner’s manual and the requirements of the vehicle to operate on public roads. It summarized that the manual describes the X3 “as an ‘Off-Road’ vehicle which is not designed for use on paved roads. The owner’s manual also warns against operation on paved roads and even warns of operation on dirt or gravel roads.” It notes that the X3 “lacks the safety equipment required for vehicles designed for use principally on public roads such as a rear safety bumper, horn, mirrors.”

Since Progressive considered the owner’s manual in its investigation, the Court also will look to the manual. It explains that the X3 is a “high-performance off-road vehicle,” as Progressive’s denial letter stated. It also cautions, “Never operate this vehicle on any public street, road or highway, even dirt or gravel ones. Riding your vehicle on roads or highways could result in a collision with another vehicle. This vehicle is not designed for operation on roads. In many jurisdictions it is not legal to operate this vehicle on public roads.”

Based on the Court’s reading of the policy, complaint, denial letter, and owner’s manual, Progressive failed to make an unequivocal demonstration that the X3 was not designed for operation principally on public roads and could never be a Covered Auto. Its denial letter repeatedly references unsuitability for operation on paved, dirt, or gravel roads but does not state that such unsuitability also means that it is unsuitable for operation on a public road. Nor is “public road” defined as a paved, dirt, or gravel road in the policy. (Fettkether’s suggestion that “public road” could be referring to a public road versus a private road is not a reasonable interpretation. Whether a road is accessible to the public has no bearing on the type of vehicle that can operate on it, only the type of persons that can go down it.) The ambiguity of “public road” in the policy, the inconsistencies between the language evoked in the policy and the denial letter, and the obligation that the Court narrowly construe any exceptions to coverage preclude concluding that Progressive met the unequivocal demonstration standard.

The owner’s manual bolsters the Court’s conclusion. Progressive could have used the exact language regarding public roads from the manual in its denial letter so that its word choice was consistent with the policy and manual. Instead, it toggled between paved, dirt, and gravel roads. Parsing out whether a paved, dirt, or gravel road equates to a public road when such ambiguity exists in the Policy is too “nuanced” in a breach of duty to defend case and “makes it impossible to conclude that there was ‘an unequivocal demonstration’” that Fettkether’s claims fell outside the policy. In contrast, it is unequivocal that the motorcycle policy does not provide coverage because the accident occurred before the beginning of the coverage period.

(The Court did not seek the owner’s manual so it could analyze whether there was coverage, as it would in a declaratory action and as Fettkether seems to imply. It sought the manual so it could see first-hand what facts Progressive stated it had considered, how those facts translated into a denial letter, and how the language compared to the policy.)

While the denial letter states that the X3 lacks safety features that a vehicle designed for use principally on public roads must have, safety features are only 1 component of a design and, alone, cannot unequivocally demonstrate that the X3 was not a Covered Auto, particularly in light of the ambiguous statements regarding suitability of the X3 for certain types of roads.

Progressive’s reliance on Rodgers is misplaced because it concerns a declaratory judgment claim under the plaintiff’s UIM endorsement, not a breach of duty claim.

This case, like many presented to Montana state and federal courts, highlights the prudence that an insurer must undertake to not only uphold its duties under the policies it underwrites but also avoid liabilities in excess of the policy limits. Instead of filing a declaratory action to determine coverage and only facing a potential judgment for, if anything, the policy’s $25,000 limit, Progressive is now bound to pay the $1.6 million confession of judgment plus interest and attorney fees & costs. The Court hopes this serves as another reminder to Progressive and similarly situated parties that the prudent course is always to proceed under the reservation of rights clause and file a declaratory action.

Fettkether’s motion for summary judgment is granted.

Fettkether v. Progressive Northwestern Ins., 44 MFR 306, 1/10/24.

Colin Gerstner & Paul Adam (Gerstner Adam Law), Billings, and John Heenan (Heenan & Cook), Billings, for Fettkether; Randall Nelson (Nelson Law Firm), Billings, for Progressive.