INSURANCE: Investment brokerage policy providing for consolidation of similar claims valid under NY law… insurer had reasonable basis to consolidate so coverage was for single occurrence subject to $2 million limit, not $8 million aggregate… defense costs consumed $2 million limit… Strong.

Victor & Rita Donovan, former Montana Rep. Rick Hill and his wife Betti, and George & Gertrude Stevens purchased securities through Independent Financial Group which turned out to be part of a ponzi scheme by DBSI and they did not get the distributions that their brokers allegedly guaranteed. IFG notified Catlin Specialty Ins. of Plaintiffs’ potential claims in 4/09. Catlin issued a reservation of rights letter in 6/09. Plaintiffs sued IFG and individual brokers in 7/09 alleging malpractice and other claims. Catlin disputed IFG’s liability as well as coverage for the claims. It also maintained that 17 pending claims including Plaintiffs’ were “interrelated wrongful acts,” so if there was coverage, it was only for a single occurrence and subject to a $2 million policy limit. Catlin contends — and Plaintiffs do not dispute — that all of the consolidated claims were based on allegations related to the claimants’ purchase of fraudulent “Tenant-In-Common” interests in DBSI. Catlin maintains that the claims are interrelated because they arise from IFG’s single — and allegedly insufficient — due diligence investigation into DBSI. Before the case resolved, defense costs consumed the $2 million policy limit that Catlin contended was applicable, and it withdrew. IFG and Plaintiffs settled without Catlin’s input. IFG is not a party to this action. Plaintiffs do not allege that they have been assigned claims against Catlin by IFG. They allege that Catlin acted in bad faith by providing $2 million for all 17 claims rather than the $8 million aggregate. They argue that by the 12/10 mediation it was reasonably clear that IFG was liable to them, and that the claims against IFG were not interrelated acts as the policy used that term. They argue that its position constituted failure to promptly settle after liability had become reasonably clear, in violation of the Montana UTPA, and allege that this “bad faith” caused them $3 million actual damages and that punitives should also be imposed. Catlin responds that its coverage position was correct or at least not in bad faith. It moved for summary judgment only on the legal issue of whether it was bad faith to apply the limit of liability, but also takes the position that a ruling in its favor on bad faith disposes of the entire case.

The policy included a provision that New York law would govern “issues pertaining to meaning, interpretation and effect” of the policy. Catlin argues that reasonableness of their coverage positions therefore depends on New York law. Plaintiffs argue that the choice-of-law provision should not apply because it was part of a contract between Catlin and IFG and Plaintiffs did not agree to it, and that the conduct at issue occurred in Montana and application of New York law would contravene Montana public policy. Modroo (Mont. 2008). However, the Modroo criteria are not satisfied. Montana law would not apply to a provision of a contract between out-of-state parties that was not performed in Montana, and Montana does not have a materially greater interest than New York in the dispute between the insured and the insurer. Even if the choice-of-law provision contravenes a fundamental Montana policy, the 2 preceding Modroo factors are not satisfied.

The “Interrelated Wrongful Acts” provision is valid under New York law. Quanta Lines Ins. (SDNY 2009) approved application of the identical provision under similar facts. Plaintiffs provide no authority to suggest that any court has found it invalid under New York law. Quanta held that separate demands alleging that an insured fraudulently sold unregistered securities shared a “sufficient factual nexus” and therefore were “interrelated wrongful acts” under the policy. Florida and Nebraska have also upheld equivalent provisions on substantially identical facts.

The claims that Catlin consolidated arose from allegations that related to a single entity’s fraudulent securities and from IFG’s single investigation into that entity. Precedential cases provided a reasonable basis to assert that the claims could be consolidated under a single policy limit, satisfying the UTPA’s safe harbor, §33-18-242(5). Montana law does not require insurers to hand over a blank check for every claim, but simply that an insurer must have a reasonable basis to contest existence or amount of coverage. Catlin and IFG formed a contract that included a choice-of-law provision and a broad Interrelated Wrongful Acts provision. Catlin has cited on-point cases in which similar or identical provisions were held applicable in similar or identical circumstances. It has established a reasonable basis for consolidating Plaintiffs with others. Plaintiffs have advanced no persuasive reason that the provisions should not be enforceable between the insurer and insured, nor have they shown that they, as a 3rd party, are entitled to damages for Catlin’s application of the provision with respect to IFG’s claim. Catlin is entitled to summary judgment.

The parties appear to agree that only damages arising from any bad faith conduct in the underlying litigation are recoverable in this action, and that they cannot “double recover” the same damages they already recovered in the underlying action. They appear to dispute whether Plaintiffs can now recover damages that were alleged but not recovered in the underlying action. The summary judgment on the bad faith claim may moot the damages issue. Ruling on the damages issue will be reserved, subject to the parties’ status reports describing what claims they believe remain pending and whether Catlin’s motion for summary judgment as to underlying claim damages is moot.

Donovan, Hill, and Stevens v. Catlin Specialty Ins., 42 MFR 1, 8/25/14.

Linda Deola (Morrison, Sherwood, Wilson & Deola), Helena, for Plaintiffs; Randall Nelson (Nelson Law Firm), and Jared Dahle (Dahle Law Firm), for Catlin.

§1983 claims against Detective in drug defendant suicide survive summary judgment… objections to Erickson’s recommendations sustained, denied… Christensen.

Colton Peterson, 21, was arrested for growing & selling marijuana. Missoula police were informed by multiple sources that he was possibly suicidal and in need of a mental evaluation. Nevertheless, Det. David Krueger pressured him to supply names & information about bigger dealers, including how to set up controlled buys or sells. Less than 2 hours after a meeting with police 7/27/10 at Willard School, where he was given an ultimatum to provide 3 names of dealers or face a lengthy prison sentence, he shot himself in the head with a rifle. His estate and parents sued the officers, Missoula, and Missoula Co. under 42 USC 1983 and state law theories. Magistrate Strong recommended dismissal of all claims. Plaintiffs’ objection as to Strong’s finding that Peterson was not taken into custody is sustained. They do not contend that he was taken into custody 7/27 at Willard School or that he was in custody when he committed suicide. The Court agrees that he was taken into custody 7/26 when he turned himself in during execution of a search warrant at his apartment.

Plaintiffs’ objection as to officer knowledge is sustained. The evidence relative to Krueger’s knowledge is all that matters for resolving whether summary judgment for Krueger is appropriate. Knowledge of all other officers is generally only relevant to whether summary judgment is appropriate on Plaintiffs’ Monell (US 1978) liability claim. Inter alia, Det. Gunter expressed concern to Krueger while executing the warrant that Peterson was potentially suicidal. During the interview at the station, immediately after Krueger obtained from Peterson the names of 2 other dealers, he asked if he was suicidal or thinking of harming himself. That night his mother Juliena Darling repeatedly expressed concern to Krueger that he was suicidal and begged him to detain Peterson and get a mental evaluation. It is reasonable to infer that Krueger knew that Peterson was potentially suicidal.

Plaintiffs’ objection as to evidence that any of the defendants acted to expose Peterson to any new risk of harm is sustained. Although the evidence of what occurred at Willard School conflicts, if Plaintiffs’ version is believed, it is reasonable to infer that Krueger acted in a manner that significantly increased Peterson’s psychological stress and risk of suicide. Ms. Johns’s testimony suggests that Krueger demanded that he provide the names of 3 more dealers or face life in prison. She testified that the interaction had a dramatic effect on his state of mind and that he showed signs of increasing distress.

Plaintiffs have presented sufficient evidence for a jury to conclude that Krueger acted with indifference to Peterson’s risk of suicide, and that this left him in a more dangerous situation that the one in which Krueger found him. Plaintiffs have established that Krueger’s actions violated Peterson’s 14th Amendment right to substantive due process.

Krueger is not entitled to qualified immunity. It is clearly established in the 9th Circuit that state officials may be held liable where they affirmatively and with deliberate indifference place one in danger he would not have otherwise faced. Although there is no 9th Circuit case specifically on point, the contours of the law were sufficiently clear that Krueger may be said to have been on notice that his conduct was unlawful.

Defendants are entitled to summary judgment on the state law negligence and constitutional claims. Strong correctly found that none of the exceptions to the public duty doctrine applies.

Plaintiffs have presented sufficient evidence to allow Juliena’s emotional distress claims to go forward against the City. Psychologist Philip Bornstein opines that she “clearly suffers from PTSD” which he characterizes as “debilitating” and “pervasive.” The claim fails against the County because Krueger was not an agent of the County, even as a Task Force officer.

Monell supervisory liability claims against Sheriff McMeekin and Chief Muir fail. Inter alia, Plaintiffs do not allege or provide evidence that either was present during the investigation of Peterson or other instances where other members of the Drug Task Force violated the rights of other CIs or drug suspects and thus do not forward a valid acquiescence or ratification theory. They point to deficiencies as to specific HIDTA training, but do not dispute that Krueger received all training required by the PD and the DEA course for drug investigators.

Plaintiffs’ experts: psychologist Philip Bornstein, Missoula; CPA/ABV/CVA Dale Williams, Missoula; Dr. Carol Bridges, Missoula; Michael Levine, NY (police practices); Dr. William Reid, Texas; Craig Shannon, Esq., Missoula; Randi Price, Missoula.

Defendants’ experts: Jerry Williams, Butte; psychologist Paul Moomaw, Missoula; pathologist Thomas Bennett, Billings; William Everett, Minnesota.

Peterson v. Missoula et al, 41 MFR 499, 8/6/14.

Quentin Rhoades, Rob Erickson, and Nicole Siefert (Sullivan, Tabaracci & Rhoades), Missoula, for Plaintiffs; William Crowley, Natasha Jones, and Tracey Johnson (Boone Karlberg), Missoula, for the City and Muir; Charles McNeil & Jeffrey Roth (Garlington, Lohn & Robinson), Missoula, for the County, Sheriff’s Dept., and McMeekin; Brendon Rohan (Poore, Roth & Robinson), Butte, for Krueger.

INSURANCE: Potentially Liable Party notices under Montana’s CECRA are functional equivalent of “suits” under insurance policies, subject to unequivocal demonstration standard… insurer breached duty to defend when presented with request to defend and PLP letters, should have defended and filed dec action to discern coverage… insured entitled to judgment in the amount of $650,000 consent judgment it paid City for site cleanup, plus attorney fees incurred during CECRA proceedings, post-judgment interest at 10%… entitled to fees for this action, amount to be resolved by the parties… Christensen.

Considering the long-established and judicially approved alternative approach, which is to defend the insured and file a declaratory action to determine coverage, it is mystifying that an insurer would continue to deny a defense to its insured in the face of a coverage question, particularly where the consequences are clear under Montana law and can result in a judgment many times greater than the modest cost of the usual defense. This case presents, again, a clear example of the risk associated with this approach.

Pacific Hide & Fur leased a property in Bozeman 1956-88 that later became known as the CMC Bozeman Asbestos Site. In 1/96 MDEQ notified it that it had been identified as a Potentially Liable Party under Montana’s CECRA. In 3/04 counsel for Pacific notified Great American that it had been identified as a PLP and that the City may assert a contribution claim against it. It attached a schedule of 14 policies it allegedly had purchased from GA and requested defense and indemnity from all claims arising from the site. In 4/11 GA denied Pacific’s request. In 8/07 Pacific executed a consent judgment by which it agreed to a 15% allocation of liability for the site, to be paid to the City as the party that undertook the site cleanup. In 7/10 Pacific executed an agreement & release with the City and tendered a check for $650,000. Pacific sued GA and others in State Court in 5/12 alleging breach of contract and bad faith claims handling. Century and Central National filed notice of removal with which GA joined. The Court bifurcated with Phase I to deal with the contract and declaratory claims and Phase II to deal with the remaining claims. In 10/13 the Court granted summary judgment to Pacific on GA’s statute of limitations defense. The Court now resolves Phase I. This case presents 2 novel & interrelated questions of state law concerning the duty to defend that the Montana Supreme Court has yet to directly address.

PLP notices issued pursuant to CECRA are “suits” under the GA policies. While the parties raise numerous issues, Pacific’s claim for breach hinges on whether, absent a “suit,” notice that it has been identified as a PLP and requested to take further action is sufficient to trigger the duty to defend. Pintlar (9th Cir. 1991) held that EPA’s administrative claims against Gulf Resources in connection with contamination of the Bunker Hill Site in Idaho triggered the insurers’ duty to defend.Anderson (9th Cir. 2013 reaffirmed that holding, stating that it was one of the first among “the huge majority” of US courts which now hold that a policyholder’s receipt of a PLP notice” from EPA is the “functional equivalent” of a suit. Given the similarities between the statutes, the reasoning in Pintlar applies with equal force in the context of CECRA. It also corresponds with Montana’s duty to defend statute — that an insurer “is bound on request of the person indemnified, to defend actions or proceedings brought against the person indemnified.” MCA 28-11-316. “Proceedings,” like those formally commenced by MDEQ against Pacific through its 9/03 letters, are sufficient to trigger the duty to defend.

The unequivocal demonstration standard applies to PLP notices. GA does not address Pintlar, let alone set forth an argument as to why the 9th Circuit’s analysis in that case is not equally applicable here, but points to Montana cases to support its position that Pacific only notified it of a “potential claim” and that a “complaint” is required to trigger the “unequivocal demonstration” standard that it claims should govern whether the PLP letters were sufficient to trigger its duty to defend. Given the ruling that a PLP notice constitutes a “suit,” the Court rejects Pacific’s assertion that it was only on notice of a potential claim. In all the cases it cites, a complaint had been filed and the courts were tasked with determining whether coverage existed, and thus none addresses whether a complaint is required in all instances or if there are situations in which an insured may “set forth facts which represent a risk covered by the terms of an insurance policy” through other means. Staples (Mont. 2004). There is simply no good reason or basis in law to ignore or construct an alternative to the unequivocal determination standard in this novel situation where commencement of a CECRA proceeding — and not a complaint — triggers the duty to defend. Pacific faces the sole financial responsibility for removal and/or remediation of contamination at the entire site. The PLP letters will therefore trigger GA’s duty to defend absent an unequivocal demonstration to the contrary.

GA asserts a lost policy defense as to 5 policies. However, Pacific provided copies of 5 proven policies, which also fall outside the sudden & accidental pollution exclusion since it was not included in GA’s policies until 1973. GA’s 3rd basis for denial — the owned property exclusion — cannot withstand application of the unequivocal demonstration standard or the sting of CECRA’s joint & several liability. At the very least, it failed to demonstrate unequivocally that the allegations in the PLP letters trigger coverage under the 5 proven policies, rendering any discussion of the additional policies superfluous, as coverage under a single policy is sufficient to trigger the duty to defend the entirety of MDEQ’s claims. Schwan (Mont. 2013); Newman (Mont. 2013).

GA advances new arguments in the summary judgment proceedings including that Pacific was required to prove coverage before GA was required to provide a defense, Pacific cannot establish that its liability arose from an “occurrence,” and untimely notice of an “occurrence.” The bulk of its briefing could be mistaken for briefing on a declaratory judgment action after tendering a defense to the CECRA claims under reservation of rights. However, it chose instead to take the riskier path by denying coverage after researching MDEQ’s claims and making “unilateral determinations” as to several factual questions. Staples. Thus the Court is presented not with a coverage action, but a claim for breach of the duty to defend. This is not the first time the Court has reminded it that this is an action for breach, not coverage. Several of its arguments attempt to turn the unequivocal demonstration standard on its head, essentially requiring Pacific to prove coverage before GA was required to provide a defense. The Montana Supreme Court has “repeatedly admonished insurers” facing a coverage question to “defend the insured and file a declaratory judgment action to discern coverage.” Freyer (Mont. 2013). GA’s duty to defend was triggered when it was presented with Pacific’s request for coverage and the PLP letters. By denying that request, it breached its duty.

“Where the insurer refuses to defend and does so unjustifiably, that insurer becomes liable for defense costs and judgments.” Staples. Pacific is entitled to judgment in the amount of the $650,000 consent judgment it paid to the City, plus attorney fees incurred during the CECRA proceedings, plus 10% post-judgment interest. It is also entitled to its fees for this action. The Court firmly believes the parties can resolve the fees issue without intervention. An amicable and independent resolution of this issue will conserve scarce judicial resources and save the parties and counsel the time & expense associated with formal proceedings.

Pacific Hide & Fur v. Great American Ins., 41 MFR 460, 5/23/14.

Kyle Gray & Michelle Sullivan (Holland & Hart), Billings, for Pacific; Michael Hooks (Forsberg & Umlauf), Seattle, and Robert Carlson (Corette Black Carlson & Mickelson), Butte, for GA.

ATTORNEY FEES: Attorneys entitled to fees based on what client, as assignee of insurer in $3 million “tough love” suicide consent judgment, would have been able to recover for time & expenses pursuing coverage, not on contingency (amended in an attempt to clarify that it “has always been intended to cover the underlying action and any declaratory judgment action required as Third Party beneficiary or First Party assignee”)… Christensen.

Karlye Newman, 16, committed suicide 10/4/04 at Spring Creek Lodge in Sanders Co., a “tough love” behavior modification program. Her mother sued multiple defendants including National Contract Services in State Court for, inter alia, wrongful death/survivorship. NCS tendered the claim to United Fire & Casualty, which refused to defend or indemnify. Newman than reached a settlement with NCS whereby it consented to a $3 million judgment and assigned all of its rights against United to Newman and she signed a covenant not to execute against NCS. Newman then brought this breach of contract and declaratory action against United. This Court granted summary judgment to Newman and entered judgment for the amount of the underlying State Court judgment. (MLW 1/25/14). Newman also sued Teen Help, whose insurer Scottsdale also refused to defend. Teen Help also entered into a consent judgment and covenant not to execute with Newman. Scottsdale was subsequently found to have breached its duty to defend and ordered to pay the judgment against Teen Help. Judge Christopher awarded Newman attorney fees based on a contingency. Newman (Mont. 2013) affirmed the decision to award fees but reversed as to the basis for the award and remanded “for a calculation based upon what Newman, as Teen Help’s assignee, would have been able to recover for her attorney’s time and expenses incurred in pursuing insurance coverage from the defendants.” Newman and her attorneys in this action then amended their contingency agreement in an attempt to clarify that it “has always been intended to cover the underlying action and any declaratory judgment action required as Third Party beneficiary or First Party assignee.” United contends that Newman is only entitled to fees incurred in prosecuting this declaratory action.

Newman emphasizes that under Brewer (Mont. 2003) a 1st-party insured is entitled to fees in an action against its insured, and that under Riordan (36 MFR 382) a court may use a contingency as the basis for that award. She stresses that an assignee is entitled to all rights of the assignor, and that under Riordan this includes the right to seek fees based on a contingency. She contends that the operable contingency in this case, as amended, clarifies that it pertains to both the underlying litigation and prosecution of this declaratory action brought as an assignee.

It is clear, based on Newman, that Newman is entitled to reasonable “fees for services rendered by counsel in enforcing the insurance contract, just as first-party insured [NCS] would have been able to do had it instituted the contract and declaratory action against [United].” It is equally clear that Newman is not entitled to fees based on the contingency between Newman and her lawyers to which NCS was not a party. Id. Their post-hoc amendments to the contingency do not alter this, because they do not make NCS a party to the contingency. While a 1st-party insured may be awarded fees based on a contingency in an action against its insured,Riordan, it does not follow that the assignee of a 1st-party insured’s rights is also entitled to fees based on a contingency between the assignee and his/her lawyers. First, in the assignee contract, the normal justification for the exception to the American Rule is not present. Sampson (Mont. 2006) (“we have declined to extend this exception to third party actions, where there is no privity of contract”); Jacobsen (Mont. 2009) (“The rationale underlying the insurance exception to the American Rule is the existence of a fiduciary duty.”). Outside of her status as an assignee, Newman is not in privity with United, and United owes her no fiduciary duty. Moreover, as Newman held, in the assignee context, the 1st-party insured is not a party to the contingency between the assignee and its lawyers, and has “no contingency fee agreement to impose in the declaratory action.”

NCS is not a party to the original or amended contingency, and the Court will not consider it in determining an award of fees. As in Newman, the Court must base its award “upon what Newman, as [NCS’s] assignee, would have been able to recover for her attorney’s time and expenses incurred in pursuing coverage.” Newman shall submit a renewed motion for fees to allow the Court to determine an award based on reasonable hourly rates, expenses, and hours prosecuting this declaratory action.

Newman v. United Fire & Casualty, 41 MFR 376, 3/19/14.

Ann Moderie (Moderie Law Firm), Polson, Elizabeth Best (Best Law Offices), Great Falls, Lawrence Anderson, Great Falls, and Thomas Beers (Beers Law Offices), Missoula, for Newman; Dennis Clarke & Stephanie Hollar (Smith, Walsh, Clarke & Gregoire), Great Falls, for United.