INSURANCE: Ambiguous Builders’ Risk policy construed to cover pipeline right of way after it was cleared, excavated, and leveled as “structure” and therefore “Covered Property,” not precluded by “land” exclusion, interpretation not inconsistent with additional coverage for Site Preparation… right of way sustained “direct physical loss or damage” as result of extreme precipitation, covered by policy… insurer did not waive and is not estopped from asserting policy defenses by not including them in reservation letter… Christensen.

Barnard Pipeline contracted with Kern River Gas Transmission to complete the 28-mile Apex Pipeline Expansion Wasatch Loop in Utah. Travelers Property Casualty insured Barnard under a Builder’s Risk policy. Phase 1 involved construction and/or improvement of roads to access the right of way. Unusually heavy precipitation the fall and winter of 2010 led to Barnard filing claims in 12/11 based on damage to access roads and environmental control equipment and losses associated with damage to the right of way. Travelers paid for damage to the roads and environmental equipment but denied the claim for losses to the right of way, concluding that access roads and environmental control equipment were “Covered Property” which had sustained direct physical loss or damage from a “Covered Cause of Loss,” while the right of way was “land” for which coverage was expressly excluded and also that it had not sustained direct physical loss or damage. It stated in a reservation of rights letter in 8/13:

The project description on the Declarations page expressly includes “project access roads” and therefore Travelers is accepting this element of Barnard’s claim. Land is not covered property under the policy. The land making up the right-of-way is distinguished from project access roads which are expressly identified in the policy Declarations. Further, Travelers does not agree that land which becomes saturated is “damaged.”

Travelers paid $1,486,949 for “expenses to repair only access roads that Barnard constructed or improved for the purposes of this project” and the damage to environmental control equipment, and denied the balance of the claim. The parties request partial summary judgment.

Barnard notes that “Covered Property” is defined as “Builders’ Risk” which includes all buildings & structures, even temporary structures, described on the Declarations page. It emphasizes the expansive description of “Builders’ Risk” on the Declarations page and asserts that the work required to prepare the right of way was extremely costly and notes that it was included in the limits of insurance and premium calculation. It points out that the work altered the natural state of the land and served a critical function in completing the project. Once cleared, excavated, and graded, the right of way became a lane for heavy equipment and a platform for construction & installation of the pipe. It asserts that the cleared, excavated, and leveled right of way meets the legal and common definition of “structure” and thus should constitute “Covered Property.”

Travelers contends that the clearing, excavating, and leveling where the pipe was to be laid did not transform the land into a structure as that term is commonly understood and the Court need not look to a dictionary definition of “structure.” It notes that the right of way, even after the work performed on it, was comprised only of soil, and contends that applying Barnard’s definition of “structure” is inconsistent with the policy viewed as a whole because it provides additional coverage for “`Builders’ Risk’ Site Preparation,” which would be rendered unnecessary if excavating a job site transformed the site into a structure.

Travelers’ position runs contrary to the canons of interpretation of an insurance contract, in particular that any ambiguities must be narrowly & strictly construed against the insurer. Hardy (Mont. 2003); Revelation (Mont. 2009). Further, the Court is not persuaded that the work to the right of way did not render it a structure or temporary structure, as that term is understood pursuant to policy provisions. The Montana Supreme Court has approved use of dictionaries to interpret an insurance contract. Horton (Mont. 2003). Travelers cannot dispute that the cleared, excavated, and leveled right of way meets the definition of “structure” as defined in legal and common dictionaries. The policy does not define “structure.” Travelers was obligated to draft a more restrictive definition if the common and legal definition was to be regarded as too expansive. Black’s defines “structure” as “any construction, production, or piece of work artificially built up or composed of parts purposefully joined together.” Webster’s defines it as “something built or constructed, as a building or dam.” These definitions are not inconsistent with what one would typically consider a structure. The right of way existed as raw land before Barnard began working. It extensively changed the inert natural state through use of heavy machinery, turning it into something “artificial” and “purposely joined together,” free of vegetation, level, compact, and more useful for its construction purposes. It used the cleared right of way as a place to perform work and as a lane for its machinery. As Travelers admits, the photo of the excavated right of way submitted with Barnard’s brief appears very much like a large road. Although the right of way may not be the first thing that comes to mind when one thinks of a “structure,” the excavated right of way cannot be easily excluded from the general category of things falling within its broad meaning. The policy does not limit a broad definition of “structure.” Indeed, it invites the reader to be flexible with one’s ordinary understanding of “buildings and structures.” According to the definitions section, “buildings or structures including temporary structures” is part of “Builders’ Risk,” which is what is “Covered Property.” Although it may be difficult to think of “Builders’ Risk” as synonymous with “buildings and structures,” that is what the policy requires. “Builders’ Risk” is then further defined by reference to the Declarations Page, where “Builders’ Risk” appears under the heading of “Covered Property.” Below this is the statement that “We cover only the buildings and structures shown below.” It would be reasonable to expect a list of the “buildings and structures” that the policy covers. However, instead of addresses or specific descriptions of certain buildings and structures, one finds, under “Description,” the following: “APEX PIPELINE EXPANSION WASATCH LOOP SPANNING DAVIS, SALT LAKE & MORGAN COUNTIES, UTAH, INCLUDING THE PROJECT ACCESS ROADS AND ALL PIPE STORAGE SITES IN CONNECTION WITH THIS PROJECT.” Thus the Declarations Page presents the “buildings and structures shown below” in a manner that includes the entire project. It is also notable that on the same line as the expansive project description one finds that the policy identifies only “1” building. The policy thus appears to cover in a unified, all-encompassing manner the project as described. The “Covered Property” is the “Builders’ Risk,” which is “the buildings and structures” as defined in the expansive, all-caps language on the Declarations Page. Indeed, Travelers’ reservation of rights letter refers to “the project description on the Declarations page.” Although its statement of undisputed facts suggests that the all-caps language describes the “job site” rather than the project description, Ms. Young’s deposition testimony stands for the proposition that the all-caps language describes both the “job site” and the “project.” Given that the “job site” is apparently not covered by the policy and that the “project” is covered, this is a confusing explanation indeed.

The Declarations page and definition of “Builders’ Risk,” when read for determining what is “Covered Property,” is ambiguous and the Court will therefore “interpret any doubts in coverage strictly against the insurer.” Brabeck (Mont. 2000). The right of way, after it had been cleared, excavated, and leveled, constituted a “structure” and was therefore “Covered Property.”

The land exclusion, also construed narrowly, does not clearly exclude coverage for the right of way after it had been intentionally & systematically altered from its natural state to improve its functional capacity for completion of the project. Klockner (SDNY 1991) (land exclusion did not preclude damage to excavated site);Mortensen (D.Minn. 1999) (compacted soil in subgrade did not constitute “land”). While the case law is particularly sparse, Travelers has cited no cases that support its reading of the land exclusion.

The Court is not persuaded that interpreting the policy in this manner is impermissibly inconsistent with additional coverage for Site Preparation. To exclude coverage otherwise available under the basic grant of insurance would turn the protective purpose of insurance on its head. The Court also finds persuasive Barnard’s position that this additional coverage generally pertains to where which damage to a building or structure gives rise to the need for additional site preparation. The right of way here constitutes a “structure” under the policy.

The right of way sustained “direct physical loss or damage” as those terms are used in the policy. Travelers does not really contest otherwise. Its argument is based on the proposition that “land” cannot be damaged, but the Court rejects its assertion that the right of way remained “land” after it was cleared, excavated, leveled, and used in the course of construction. The Court also agrees with Barnard that “direct physical loss or damage” suggests that “there was an initial satisfactory state that was changed by some external event into an unsatisfactory state.” Dupuy (MD La. 2012); Trinity (5th Cir. 1990). Damage to the right of way from the extreme precipitation meets this definition of direct “physical loss or damage.”

Barnard contends that it is entitled to summary judgment on Travelers’ affirmative defenses because Travelers can point to no evidence supporting them and that it waived them by not raising them in its reservation letter. Travelers was not obligated to detail all potential defenses in its reservation letter and it has not waived and is not estopped from asserting other defenses. “Waiver is a voluntary and intentional relinquishment of a known right or claim.” Edwards (Mont. 2009). Travelers’ reservation letter expressly reserves its right to pursue additional policy defenses. Thus Barnard has always been on notice of its intention to pursue all available defenses. While MCA 33-18-201(14) requires an insurer to “promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim,” an insurer does not waive all defenses that are not included in a reservation letter. Portal (Mont. 1993); EOTT (D.Mont. 1999).Portal rejected the contention that an insurer is limited to defenses detailed in a reservation letter when the insured fails to demonstrate prejudice, distinguishingEllinghouse (Mont. 1986) wherein an insurer was estopped from denying coverage when it had initially accepted coverage and assumed defense without reservation. Barnard has always been on notice of Travelers’ intent to assert all applicable policy defenses.

Summary judgment on Travelers’ failure to mitigate defense is inappropriate. Barnard has not explained why it should be dismissed as to damages it is claiming beyond those owed under the policy, and Travelers points to provisions in Barnard’s contract with Kern which arguably could have been utilized to avoid or reduce some of its damages.

Barnard argues that Travelers’ agents admitted in depositions that it has no evidence to dispute the damages Barnard has claimed for damage to the right of way. Travelers cites its expert reports in which they opine that Barnard’s claimed damages are inflated. It also contends that once it decided there was no coverage for losses associated with damages to the right of way it had no duty to further investigate details of the claim, and that it retains the right to investigate and contest the claimed losses. Disputed fact issues remain as to the extent of damages claimed.

Barnard Pipeline v. Travelers Property Casualty, 41 MFR 352, 3/13/14.

Christian Nygren & Patrick Brown (Barnard Pipeline), Bozeman, and Richard Beal (Ashbaugh Beal), Seattle, for Barnard; Marshal Mickelson & Annie Harris (Corette Black Carlson & Mickelson), Butte, Daniel Bentson, Seattle, and Ronald Clark, Portland (Bullivant Houser Bailey), for Travelers.

ATTORNEY FEES: $1,483,449 fees/costs recommended by Strong approved by Christensen for decades of stonewalling by US which forced Plaintiffs to litigate statutory right to coal tract transfer, over objection by US to rates of $500 for 1 attorney, $300 for 6.

An amendment to the Surface Mining Control & Reclamation Act of 1977 entitled coal owners to exchange their coal interests for equally valuable coal owned by the US in situations where mining was prohibited. Notwithstanding the promise of an exchange, Plaintiffs were stymied for many years. They at least twice reached agreement with BLM, but the agreements were never finalized. Thus they were compelled to sue. After 6 years of litigation the exchange was consummated and they received exchange coal valued at $5,536,000. The final issue is the compensation to be paid to Plaintiffs’ attorneys. Magistrate Strong’s task in determining the amount was complicated by Edwards, Frickle & Culver not maintaining contemporaneous time & billing records. The Court suspects that Plaintiffs would not have achieved justice had they not found competent counsel to represent them on a contingency — they would not have been able to fund 6 years of litigation by lawyers charging on an hourly basis. In any event, Judge Cebull found that they should be awarded fees & costs, calculated on a lodestar basis rather than a percentage of the value of the coal. Strong heeded Cebull’s order, applied the appropriate standards, and awarded $1,483,449.12:

Fees for 917.2 hours by Clifford Edwards at $500/hr, totaling $458,600.

Fees for 2,443.2 hours by the 6 other attorneys in the firm at $300/hr, totaling $732,960.

Litigation costs of $180,384.74.

Pre-litigation costs of $111,504.38.

The US urges a lower hourly rate.

A reasonable rate is determined by referencing “the prevailing market rates in the relevant community,” Perdue (US 2010), and “the experience, skill, and reputation of the attorney requesting fees,” Chalmers (9th Cir. 1986). Pursuant to the “no-interest rule,” fees awarded against the US must be based on the rate when the work was performed rather than when the fees are awarded. Shaw (US 1986). The party seeking fees bears the burden of submitting “detailed time records justifying the hours claimed.” Chalmers. Hours may be reduced “where documentation of the hours is inadequate.” Id. Under the SMCRA, fees & costs should only be awarded for hours associated with claims that were intimately tied to resolution of the judicial action and where the claimant achieved “some degree of success on the merits.” Ohio River Valley (4th Cir. 2007). While there is a strong presumption that a lodestar calculation is reasonable without enhancement, it may be overcome in rare cases. Perdue. The USSC has recognized 3 situations where enhancement may be appropriate: the method for determining the rate in the lodestar calculation does not adequately measure the attorney’s true market value, as demonstrated in part during the litigation; the attorney’s performance includes extraordinary outlay of expenses and the litigation is exceptionally protracted; the attorney’s performance involves exceptional delay in payment of fees. (EFC advanced significant litigation costs of $180,384.74, underscoring that had Plaintiffs not had the good fortune of retaining it on a contingency they probably would not have been able to pursue the case.)

The US contends that EFC failed to carry its burden of producing evidence that the requested rate represents the prevailing rate in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation. It emphasizes that determining a reasonable rate “is not made by reference to rates actually charged the prevailing party.” Chalmers. This is without merit. EFC, as its standard practice, took the case on a contingency. The total awarded represents a significant reduction from the rate it charged. Further, it has shown that the requested rate represents the prevailing rate in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation. The affidavit of James Goetz clears this hurdle.

The US also contends that the rate is based on current rather than historical rates. This is unsubstantiated speculation and conflicts with EFC’s undisputed affidavits that in the last several years EFC clients agreed to pay Edwards $500/hr and all others in the firm $300. This hurdle is also cleared.

The Court appreciates, as evidenced by Steven Ruffatto’s affidavit, that other skilled Montana attorneys perform natural resources work at rates less than those charged by EFC. That does not mean that EFC’s rates are therefore unreasonable. Market prices of commodities and services are determined by supply & demand, and thus, in a traditional sense, there really is no such thing as a prevailing market rate for lawyers in a particular community. Blum (US 1994). Experience, skill, and reputation vary greatly within the community and can vary greatly within firms, as evidenced by the rates charged by the attorneys in Ruffatto’s firm. The reality is that Plaintiffs did not, and probably could not, afford lawyers who billed in a traditional hourly manner. Instead, they found highly competent and skilled lawyers who were willing to put aside their other work and risk hundreds of hours and tens of thousands of dollars of costs to pursue their claims for many years. Had Plaintiffs not been successful, their lawyers would have recovered nothing. But Plaintiffs were successful, and their lawyers are entitled to be paid for their efforts.

The Court finds no clear error in any of Strong’s other findings. Fees & costs are awarded as recommended.

Nance, Boedecker, Hayes, Rodolph, and Brown Cattle Shareholders Coal Trust v. Interior, 41 MFR 343, 3/11/14.

Clifford Edwards, Philip McGrady, Christopher Edwards, John Edwards, Roger Frickle, Triel Culver, and Jackie Shields (Edwards, Frickle & Culver), Billings, for Plaintiffs; Ruth Storey (DOJ Natural Resources), DC, and AUSA Victoria Francis.

AMENDMENT: Untimely motion to add punitives component fails Rule 16(b)(4) good cause… Molloy.

Robert Ferrell requests leave to amend his complaint to add tortious & negligent entrustment by Nelson Trucking based on its knowledge of its employee’s poor driving record. Pursuant to the Rule 16 scheduling order, the amended pleading deadline was 10/9/13. Ferrell contends that he was unaware of the facts giving rise to this cause until after he received discovery from Nelson. It is unclear when he received that discovery and how much time elapsed before the present motion was filed. Further, his complaint includes a claim for “liability for negligently and tortiously hiring, retaining, and entrusting its employee to drive a tractor trailer rig, when he was a reckless, dangerous, and incompetent driver, unfit for operation of a tractor trailer rig in interstate transportation.” Even though he now asks to add a punitives component to this claim, the presence of this claim indicates that he was aware of the facts & theories that supported this cause as early as 5/13 and actually pled

them. Thus his motion fails to meet Rule 16(b)(4) good cause and is denied.

Ferrell’s motion also fails to comply with a number of Local Rules such as contacting the other party and including that information in his motion, LR 7.1(c)1), filing his motion & brief separately, LR 7.1(d)(1)(A), and including a certificate of compliance, LR 7.1(d)(2)(E).

Ferrell v. Nelson Trucking v. SK Const., 41 MFR 339, 2/14/14.

Frederick Overby (Overby Law Office), Bozeman, and Matthew Dodd (Dodd Law Firm), Bozeman, for Ferrell; Lee Henning, Samantha Travis, and Rebecca Henning-Rutz (Henning Keedy), Kalispell, for Nelson; Calvin Stacey & Kevin Funyak (Stacey & Funyak), Billings, for SK.

INSURANCE: Insurer had no duty to indemnify $210,000 sex discrimination stipulated judgment prior to exhaustion of $25,000 retention, but under NY law “exhausted” is ambiguous, construed against insurer to include settlement by compromise… retention was exhausted and insurer’s duty to indemnify was triggered upon entry of the stipulated judgment… further briefing ordered on reasonableness of stipulated judgment as required by NY, but summary judgment for nonmovant Plaintiff likely on claim that insurer breached duty to indemnify but not duty to defend… Molloy.

Samantha Lasorte filed a sex discrimination/retaliation suit against Real Estate Client Referrals in litigation before Judges Deschamps and Townsend. RECR was insured under a Lloyds Employment Practices policy which contained a $25,000 Self Insured Retention. RECR notified Lloyds and retained Malin Johnson. Lloyds acknowledged that the claim was covered and expressed approval of the choice of counsel, then advised that the $25,000 retention had to be satisfied before it would be on the hook for any loss or defense cost payments. RECR entered into a stipulated judgment for $210,000, assignment of claims, and covenant not to execute. It agreed to pay Lasorte $2,000, but it is not clear whether it actually paid those amounts; according to Johnson it did not pay anything toward defense counsel’s fees. Lloyds refuses to indemnify RECR for the judgment, claiming its duty to pay any loss was never triggered because RECR, by failing to pay $25,000 toward the judgment or for defense costs, failed to exhaust the retention. Prior to execution of the stipulated judgment Johnson gave Lloyds the opportunity to exercise its right to assume defense of the discrimination claim but it chose not to do so. Lasorte then sued Lloyds in State Court asserting breach of contract. Lloyds removed to this Court and moved for summary judgment that its duties to defend or indemnify were not triggered because RECR failed to pay the entire retention. Lasorte insists that because Lloyds refused to defend RECR in the discrimination suit it is estopped from denying coverage and is liable for the judgment. Almost as an afterthought she concludes her response brief by arguing that the Court should grant summary judgment for the requested amount as the undisputed material facts demonstrate that Lloyds violated its duty to defend. Lloyds retorts that she has not moved for dispositive relief and that even if summary judgment is granted for her a trial is still necessary to quantify reasonableness of the stipulated judgment.

Both parties based their initial arguments on the assumption that Montana law governs. However, the policy states that NY law shall govern policy interpretation. Supplemental briefing was ordered as to application of NY law. A secondary issue was RECR’s solvency. Under NY law, an insurer must defend & indemnify an insolvent insured even if the insured has not exhausted any retention. According to Johnson, RECR told him that it was “selling off all its assets” and it would not compensate Lasorte for time & expenses. This created the appearance that it was insolvent, triggering the request for supplemental briefing on the issue. Lasorte claims RECR was insolvent, but offers only emails indicating that it was unwilling or unable to pay defense costs to support the claim. Lloyds argues that it was not insolvent, relying on the affidavit of its GM that as of 3/10 it was solvent and able to pay several $25,000 retentions. It is clear that it was not insolvent.

Lloyds’ motion for summary judgment is denied because the policy language requires it to indemnify once the retention is exhausted, and the retention was exhausted by the underlying judgments. Under NY law, “exhausted” — as used in analogous policies — is ambiguous and therefore construed against the insurer to include settlement by compromise. Thus the $25,000 retention was exhausted when Lasorte agreed to the $210,000 judgment after tendering to Lloyds the right to defend and control disposition of the case.

On the other hand, Lasorte’s argument that Lloyds breached its duty to defend fails. Under NY law, unless the insured is bankrupt, the insurer has no duty to defend before the retention was exhausted. RECR was not insolvent. Consequently, Lloyds had no duty to defend, nor is it liable for defense costs incurred prior to the stipulated judgment.

By refusing to indemnify the claims, Lloyds breached the policy. However, NY law requires insurers to pay only reasonable amounts entered into by an insured after an insurer breaches its duties. Lasorte is not entitled to summary judgment on damages because determining reasonableness of the stipulated judgment involves disputed material facts. There is very little evidence in the record on which a fact-finder could determine reasonableness. It is not clear what other evidence the parties shared in discovery that would address reasonableness. Prudential (SD NY 1994) allowed further discovery so the insurer could determine the reasonable value of the plaintiff’s claims. The parties shall brief the question of summary judgment, but based on the existing record, they are given notice that summary judgment for Lasorte is likely under Rule 56(f)(1) (after notice and reasonable time to respond, summary judgment may be granted for a nonmovant) on the claim that Lloyds breached its duty to indemnify but not its duty to defend.

Lasorte v. Lloyds, 41 MFR 309, 2/5/14.

Torrance Coburn (Tipp & Buley), Missoula, for Lasorte; Benjamin Cory & Peter Habein (Crowley Fleck), Billings, and Matthew Baldassin (Crowley Fleck), Missoula, for Lloyds.

ERISA: Big HIPAA does not prohibit rating employers in purchasing consortium, preempts identical Montana statute, method of rating consortiums does not violate Montana’s little HIPAA… UTPA anti-discrimination statute cannot be used to challenge discriminatory rating… breach of contract claim cannot be maintained when it requires adjudication of matters for which there is no private right… Plaintiffs fail to state claim in complaint under SEHIAA, which in any event does not provide private right of action to directly challenge rating practices… Montana insurance code places primary enforcement duty with Commissioner… class/common fund claims moot… Plaintiffs suffered no actual damages, no basis for restitution of premiums… analysis of non-preempted state claim on remand from affirmance of other rulings… 2nd request for remand to State Court or certification to MSC denied… Lovell.

This Court granted summary judgment for BCBS that a group health premium calculation which considers health status factors when rating employer plans separately is permissible under an ERISA provision identical to a Montana provision prohibiting requiring an individual to pay more than similarly situated individuals based on health status. (38 MFR 80). Plaintiffs appealed. Fossen (9th Cir. 2011) affirmed this Court’s finding that MCA 33-22-526(2)(a) was preempted by the identical 29 USC 1182(b)(1) and that AMI/MCCT met the federal definition of a multiple employer welfare association for purposes of the federal statute. Because this Court did not analyze Plaintiffs’ non-preempted state claim, the Panel remanded for further proceedings.

The Court must first consider Plaintiffs’ 2nd motion for remand and alternative motion for certification to the Montana Supreme Court. It is the Court’s belief that the state claims are not unclear and do not raise complex issues of state law. Because this Court has delved deeply into the federal claim upon which summary judgment was granted and invested considerable resources in this litigation, and because the state law claims are fundamentally dependent on and/or restricted by that federal claim, it would be a waste of judicial resources to remand for litigation beginning anew. The Court remains dubious of Plaintiffs’ assertion that state insurance law is unclear, and therefore will hold the question of certification pending analysis of the state claims.

While the UTPA is generally & specifically enforceable by the Montana Insurance Commissioner, the 1987 Legislature carved out 6 UTPA claims-handling complaints that may be brought as independent causes for actual damages in state court — §§ 33-18-242(1), 33-18-201(1), (4), (5), (6), (13) — none of which is pertinent here or has been pled by Plaintiffs. Their UTPA claim (Count 3) rests on §33-18-206(2):

No person shall make or permit any unfair discrimination between individuals of the same class and of essentially the same hazard in the amount of the premium, policy fees, or rates charged for any policy or contract of disability insurance or in the benefits payable thereunder or in any of the terms or conditions of such contract or in any other manner whatever.

Originally, the basis of Count 3 was the Count 2 allegations that Caring for Montanans (fna BCBS of Montana) discriminated against them in violation of an insurance code provision outside of the UTPA, §33-22-526(2):

A group health plan and a health insurance issuer offering health insurance coverage in connection with a group health plan may not require an individual, as a condition of enrollment or continued enrollment under the group health plan, to pay a premium or contribution that is greater than the premium or contribution for a similarly situated individual enrolled in the group health plan on the basis of any health statute-related factor of the individual or of an individual enrolled under the plan as a dependent of the individual.

Thus their original theory was that because CFM raised the premium on their group health policy on the basis of the health status of one individual in their group, they had been discriminated against in violation of 526(2). They originally asserted that their group was an association of 600 employers, and their employer health plan was an “individual.” They concluded that all employer groups in the association should pay the same premium and that no employer group should be singled out to pay a higher premium based on the health status of one individual in the group. This Court found that 526(2) was preempted by the identical 29 USC 1182(b)(1). The 9th Circuit affirmed this and upheld determination that under federal law pertaining to 1182 (b)(1), the association of 600 employers was not a bona fide association, but merely a purchasing consortium, compelling the conclusion that the “group” was the Fossen Bros. Farms’ employer group, and thus because no single individual within Plaintiffs’ employer group was singled out to pay higher premiums based on health, 1182(b)(1) could not be violated by CFM.

Plaintiffs assert that there is a long line of cases that provide an independent basis for their claims under state law. However, in Larson (Mont. 1967) and Goddard(Mont. 1979), which they cite, the insured’s independent cause was breach of a contract, and the pertinent issue was whether the insurer was correctly allowed to recover punitives for an act that constituted breach of the contract and an unlawful act under Montana statutes, such as the statute requiring disability insurers to immediately pay claims. In neither case was there a separate, independent cause permitted under state law, but merely punitives made available for the breach of contract claim when it alleged an unlawful act as the breach. Notably, both are claims handling cases. Here we have the breach of contract claim but no evidence of an unlawful act under Montana insurance statutes, and certainly not under the only private right of action afforded by the UTPA, §33-18-242. Plaintiffs also point to Klaudt (Mont. 1983), which allowed a 3rd-party claimant to file an independent action under the UTPA for violation of the duty to settle claims. The 1987 Legislature then enacted §33-18-242 to place limitations on such common law claims. This statute does provide an independent cause in claims handling cases, butonly “for breach of the insurance contract, for fraud, or pursuant to this section, but not under any other theory or cause of action.” §242(3). It also added a proviso that “exemplary damages may also be assessed in accordance with 27-1-221.” §242(4). Thus the Legislature preserved the common law punitives permitted by Larson and Goddard for violation of the duty to settle. O’Fallon (Mont. 1993) expanded the common law arising from 242 by allowing plaintiffs to bring claims-handling suits against adjusters in addition to insurers. What is apparent from Plaintiffs’ cases is that common law state causes in Montana insurance cases are confined to claims handling and settlement disputes and would not under any circumstances extend to a rate discrimination dispute.

The real problem with Plaintiffs’ continuing reliance on the UTPA’s anti-discrimination statute, §206, as pled in Count 3, is that there is no such statutory private right of action under the UTPA (but for the claims-handling exceptions itemized in 33-18-242). Thus, not only has this Court found that there has been no discrimination under 33-22-526(2) that can be pled as a violation of UTPA anti-discrimination statute 33-18-206, it now finds that there is no private right of action provided by 33-18-206 itself. To the extent that Plaintiffs belatedly attempt to support this 206(2) discrimination claim by means of an alleged violation of SEHIAA (33-22-1809), the Court finds that SEHIAA likewise provides no private right of action. Indeed, both as to the UTPA (with the statutory and common law exceptions as noted) and to the SEHIAA, it is the Insurance Commissioner who has been tasked with enforcement of these provisions, not Plaintiffs’ counsel and not the state courts except on appeal from the Commissioner’s decision. The Court has received an affidavit on behalf of Commissioner Lindeen. Plaintiff’s counsel John Morrison previously was Commissioner. Both urge an expansive interpretation of Montana insurance law. However, the Legislature did not envision expansion or interpretation of the insurance code except by legislative enactments, administrative rules, or administrative enforcement actions reviewable by the court. Neither commissioner chose to utilize their powers on Plaintiffs’ behalf when they had the opportunity, and there is no authority under Montana law to create a new cause to do what they would not.

Plaintiffs assert that their Count 4 breach of contract claim — which, as pled, is grounded in a violation of 33-22-526(2) — should now be viewed as stating a claim for breach of contract by violation of §§ 33-18-206(2) and 33-22-1809. §1809 is not mentioned in Count 4, the linchpin of which is alleged violation of Montana’s “little HIPAA,” §33-22-526(2). However, the UTPA’s general anti-discrimination statute, 33-18-206(2), cannot forbid conduct that is expressly permitted by the more particular 33-22-526(2) (b): “this subsection (2) does not: (1) restrict the amount that an employer may be charged for coverage under a group health plan….” Plaintiffs now assert that a violation of SEHIAA forms the basis for Count 4 by reference to 33-18-206(2):

44. BCBSM breached its contracts with the Plaintiffs by violating the terms of §§ 33-18-206(2) and 33-22-526(2), which are incorporated in the contracts. BCBSM unfairly discriminated between the Plaintiffs and other individuals of the same class and of essentially the same hazard in the amount of premiums and rates charged for their policies of disability insurance. BCBSM required Plaintiffs to pay premiums greater than the premiums for similarly situated individuals enrolled in the group health plan, on the basis of health status-related factors of the individual Plaintiffs or of their individual dependents enrolled under the plan.

45. BCBSM breached its contracts with the Plaintiffs by violating the implied covenant of good faith and fair dealing in its actions described above.

46. As a result of BCBSM’s breaches of contract, Plaintiffs have suffered damages.

Their newest theory is that a violation of SEHIAA is a type of discrimination encompassed by the UTPA’s anti-discrimination statute. It bears repeating that the Count 4 breach of contract claim is based on alleged violation of Montana’s little HIPAA, which is preempted by the ERISA big HIPAA, which this Court found was not violated, which was affirmed on appeal. Even if the Court were to overlook Plaintiffs’ failure to plead properly an alleged violation of SEHIAA, the problems they encountered as to Count 3 would still continue to beset them in Count 4. There is no private right of action to bring a claim of violation of UTPA’s anti-discrimination statute. There is also no private right of action to bring a claim of violation of SEHIAA. Plaintiffs’ breach of contract claim is merely another backdoor method of presenting an alleged violation of a statute that they have no right to enforce. The Legislature explicitly reserved enforcement of SEHIAA to the Commissioner pursuant to MAPA. Any final decision of the Commissioner is to be appealed to state district court. The statute of limitations for an enforcement action is 2 years from discovery of the violation, 2 years after the violation ought to have been discovered, and up to 5 years from the date of the violation. §33-1-707. Dale Fossen’s complaint to the Dept. of Insurance was dated 4/6/06. The Department took no action. Plaintiffs now claim that Montana common law permits them to bring a breach of contract claim on the basis of any alleged violation of the insurance code, including statutes for which no private right has been granted by the Legislature. This is not supported by the cases cited, which are all claims handling and settlement cases. Further, after the MSC extended the private right to 3rd-party claimants, the 1987 Legislature codified that extension, but expressed its intent that the extension go no further. To permit Plaintiffs to utilize the claims handling/settlement private right cases to charge any violation of any provision of the insurance code would intrude on the Commissioner’s duty of enforcing the code and violate the Legislature’s explicit intent to provide in the UTPA a private right only for claims handling/settlement actions, fraud, or breach of contract. The other possible basis for the breach of contract claim in Count 4 is the alleged violation of the implied covenant of good faith & fair dealing, which is preempted by ERISA. Dytrt (9th Cir. 1990); Jabour (CD Cal. 2001). Defendant is entitled to summary judgment on Count 4. Without any substantive surviving claims, Plaintiffs’ claims for class action and common fund also fail.

As previously noted, Fossens have no actual damages because when they filed a complaint with the Commissioner objecting to Defendant’s notice of impending increase in their premiums for 2006 by 21%, allegedly due at least in part to the health status of one of their employees or dependents. Defendant agreed not to raise the premium for that plan year as a gesture of good will, only because Fossens seemed to have a misunderstanding about the plan. It made clear in 2006 that if they chose to renew their policy for the next year the premium increase would then be imposed. Even though Fossens continued to believe that Defendant had no right to increase their premium, they continued to renew the policy every ensuing year. Thus they suffered no actual damages for 2006, when they arguably may have had a genuine misunderstanding as to Defendant’s method of rating and setting premiums, but in the following years when they could have had no such misunderstanding, they chose to renew and pay the higher premium. There is also a question as to whether Plaintiffs’ request for restitution by return of their premiums from 2006 is proper. ERISA permits relief only in the form of injunctions or “other appropriate equitable relief.” 29 USC 1132(a)(3)(B). Clearly, “appropriate equitable relief” excludes compensatory and punitive damages. Mertens (US 1993). It does include equitable restitution, but “not all relief falling under the rubric of restitution is available in equity.” Knudson (US 2002). A plaintiff can “seek restitution in equity, ordinarily in the form of a constructive trust or an equitable lien, where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant’s possession.” Id. Such an equitable lien applies “only to `particular funds or property in the defendant’s possession.”’ Bilyeu (9th Cir. 2012);CIGNA (US 2011). Thus the funds sought to be recovered in equity must be the specifically identified funds at issue and not payable from the general assets of the defendant. Sereboff (US 2006). Plaintiffs ask the Court to “order that Defendant return to its insureds the excess premiums it has charged in excess of those allowed by §33-22-5262).” It is settled that Defendant did not violate 33-22-526(2), but that is beside the point, which is that Defendant no longer has Plaintiffs’ premiums in its “possession and control,” and that Plaintiffs are seeking to “impose personal liability” on Defendant rather than “enforcement of an equitable lien on particular property.” Bilyeu; Sereboff. “This is quintessentially legal, rather than equitable, relief.” Id. There is really no doubt that the premiums here have not been segregated in a separate fund or dissipated, and that Plaintiffs seek “restitution” by payment from Defendant’s general funds.

The complaint is dismissed and all relief is denied to Plaintiffs.

Fossen et al v. Caring For Montanans, 41 MFR 279, 1/24/14.

Lawrence Anderson, Great Falls, and John Morrison (Morrison, Motl & Sherwood), Helena, for Fossens; Michael McMahon & Bernard Hubley (McMahon Law Firm), Helena, for BCBS.