ERISA: Former clinic Medical Education Specialist proved that she was totally disabled and entitled to benefits for 24-months ending 3/29/20, denial applied wrong definition of “Total Disability and Totally Disabled,” Claimant was unable to perform one or more material & substantial duties of her Regular Occupation, denial based on subjective evidence combined with perceived lack of objective evidence contrary to case law… Claimant awarded attorney fees, costs, prejudgment interest, remanded for determination of whether she met policy’s “any occupation” definition of “total disability” after 3/29/20… “paper bench trial”… Watters.

Before the Court are proposed findings & conclusions submitted by Paula Maulolo and Sun Life Assurance of Canada on Maulolo’s claim for ERISA benefits. The parties stipulated to “a paper bench trial” on the administrative record under Rule 52(a). At issue is whether Maulolo is entitled to long-term benefits under Billings Clinic’s group policy. After considering the submissions, the Court finds her to be disabled and entitled to benefits.

Billings Clinic employed Maulolo from 2008 as Internal Medicine Residency Program Administrator, Organizational Development Consultant, and Medical Education Specialist. She also owned a jiu-jitsu dojo with her husband.

She first sought medical care for radiating back & leg pain in the spring of 2016 after years of pain symptoms. The pain affected her homelife and activities. She lost 140 pounds over 7 years from exercise but now found her capabilities limited. A 12/3/16 MRI revealed a sacral cyst at L5-S1. She underwent injections, electrical stimulation, and bed rest, and ultimately opted for a drain in the cyst. The drain improved radicular symptoms but caused intense sacral pain. On 2/2/17 she had a shunt installed and experienced relief for 48 hours. However, the incision began building fluid, causing positional headaches, and did not result in lasting relief. She continued to work and integrated various measures to find comfort such as a standing desk or lying down for brief periods.

Maulolo had the cyst removed in 8/17 by Dallas neurosurgeon Dr. Feigenbaum who identified it as a sacral meningeal cyst. She took medical leave and by the end of August had made “slow but steady” progress with use of medication but still had sacral and leg pain. Dr. Kari Kale in Billings noted in 10/17 that she was “still in lots of pain, but gradually improving,” had increased steps to 8,000 – 10,000 per day, could not stay in one position too long, and used a “sit to stand desk at work.” Maulolo reported to Kale in 11/17 that her pain was worsening, activities increased it, and work was difficult.

Kale referred Maulolo to pain specialist Michael Schabacker who documented her reports of “persistent deep aching and stabbing pain in the lower reaches of her lumbar spine” that “radiates distally into her lower extremities but does not follow a radicular pattern.” He further documented severe and incapacitating pain that was creating “substantial despair in her life” including dependence on family for household duties like cooking and concluded: “Clearly, the impact of this chronic pain condition on her life both at home and at work is dramatic.” He increased her Oxycontin and Oxycodone and referred her to Giancarlo Barolat in Denver for possible spinal cord stimulation therapy.

Billings Clinic had provided accommodations including a special chair, a standing desk, a conference room to lie down, and a yoga mat to lie down in her office. In 12/17 she requested to work from home. Billings Clinic denied her request based on the requisites of her job description such as attending meetings, escorting medical students and residents, and other in-person tasks.

Maulolo was informed 1/5/18 that her 12 weeks of leave was expiring 1/8, she may be placed on inactive status for up to 12 weeks, and she may be eligible for long-term disability under Billings Clinic’s Sun Life group policy. She applied for long-term disability 1/10/18 and resigned 1/12.

She underwent percutaneous placement of a temporary spinal cord stimulator in 4/18, initially reporting near-complete relief, and considered a permanent stimulator for which Barolat opined she was a “great candidate.” On 6/19/18 he implanted a permanent stimulator.

In a follow-up with Schabacker’s nurse 8/1/18 Maulolo reported her frustration with the stimulator; while some improvement had occurred, it was not what she had hoped. She felt the pain was well-managed when immobile but worsened with activity and included new pain in her thorax.

2 weeks later Schabacker noted that Maulolo was “a viable candidate for application disability given the substantial impairment in function chronic pain condition has imparted. It is apparent she is substantially limited functionally.” He reiterated his opinion in a 2/19 letter that she was disabled as of 12/29/17. SSA determined that she was disabled as of 1/5/18.

Sun Life was unable to make a disability determination based on its initial processing of Maulolo’s claim. It interviewed her 1/25/18 during which she disclosed that she had 2 jobs in addition to Medical Education Specialist at Billings Clinic: the jiu-jitsu dojo that she co-owns with her husband and a sales-commission job with health coaching company Optavia. It further determined “in lieu of an ISO search a background check given the claim circumstances would be best.” No explanation was given as to what “claim circumstances” prompted the background check. It obtained a background check investigation from PHOTOFAX which revealed details of her day-to-day life from recreation to social media posts and interviews with neighbors. The investigator summarized the neighbors’ observations as confirming her injuries, surgeries, and activity level pre- and post-injury.

Sun Life nevertheless rejected Maulolo’s claim 3/13/18:

We have determined that the medical evidence does not support that you would be precluded from performing the Material and Substantial Duties of your Own Occupation as Medical Education Specialist I throughout and beyond the Elimination Period. As such, you do not meet the definition of Total Disability and benefits are denied.

“Own Occupation” is not defined in the policy or rejection letter. They define “Elimination Period” as

the number of consecutive days of Disability, shown in the Benefit Highlights, which must be completed before we will pay you the benefit. No benefits will be paid to you for any portion of your Disability that occurs during your Elimination Period.

Maulolo’s Elimination Period ran 1/29/17 through 3/29/18. The policy defines “Total Disability” and “Totally Disabled” as

during the Elimination Period and the next 24 months you are unable to perform one or more of the material and substantial duties of your Regular Occupation.

After 24 months of receiving Total and Partial Disability benefits combined, Total Disability and Totally Disabled means you are unable to perform with reasonable continuity any Gainful Occupation for which you are or could become reasonably qualified for by education, training and experience.

Total Disability must be caused by an Accident or Sickness and must commence while you are insured under the Policy.

Maulolo appealed 3/22/18 and included medical records from 10 additional providers which Sun Life forwarded to Dr. Germaine Rowe who noted that the clinical evidence supported her physical condition as functionally impaired and concluded that “from the perspective of Pain Medicine, the medical data supports that the claimant has remained functionally impaired from 12/29/17 to the present.” But she also found that Maulolo had the ability to perform certain activities such as sitting 6 hours per 8-hour day; walking & standing 60 minutes/hr at a time, 8 hours total per day; and lifting & carrying 50 pounds occasionally and 25 pounds frequently. (Sun Life also referred Maulolo’s records for a psychiatric opinion but denial of benefits based on psychiatric conditions is not raised in this action.)

Maulolo’s appeal was denied 7/3/18 on grounds of insufficient evidence to support continuous “Total Disabled” throughout the Elimination Period. The denial omitted Rowe’s finding that the medical data supported functional impairment 12/18/17 onward. Maulolo contacted Sun Life to dispute the decision and to assert that Dr. Barolat had additional records supporting her disability. Sun Life agreed to consider Barolat’s records and arrange for Rowe to speak with him. Barolat later confirmed the contents of his discussion with Rowe but corrected a mischaracterization, circling the statement “You stated that the claimant can work a job with prolonged sitting or lifting” and hand-wrote: “I believe I stated that the claimant needs a FCE to evaluate the extent of her work capabilities/limitations.” Rowe confirmed Maulolo’s functional impairment from 12/29/17 to 7/23/18.

Maulolo told Sun Life that she would try to obtain an FCE from Schabacker on her next visit. On 9/1/18 he noted that “it is apparent she is substantially limited functionally.” He appears to write that an FCE was not necessary but the note is unclear: “I do not believe that FCE is nothing very.” Sun Life did not request Maulolo to undergo an FCE and she never underwent one.

Rowe issued an addendum 10/3/18 which included Barolat’s additional reporting but did not alter Rowe’s conclusion relating to the Elimination Period which included sitting 6 hours per 8-hour workday; walking & standing 60 minutes/hr at a time and 8 hours total per 8-hour workday; lifting & carrying 50 pounds occasionally & 25 pounds frequently; and bending, squatting, climbing, kneeling frequently.

Sun Life denied Maulolo’s appeal 10/9/18 based “on the opinion of Dr. Rowe,” concluding that while Maulolo had experienced 2 closed periods of disability she failed to demonstrate disability during the Elimination Period and she was ineligible because her coverage had ended 12/28/17, the last full day of work, and she was no longer “actively at work.” It also concluded that her medical limitations “would not prevent you from performing the duties of your Regular Occupation as an Administrative Assistant (classified as requiring a sedentary physical exertion level).” It also explained that she had exhausted her administrative remedies regarding the disability decision “from a physical condition(s) perspective.

Maulolo sued 6/13/19 seeking relief from wrongful denial of benefits under 29 USC 1132(a)(1)(B).

Maulolo has met her burden to establish total disability, that is, “during the elimination Period and the next 24 months [she was] unable to perform one or more of the material and substantial duties of [her] Regular Occupation.”

Her Elimination Period ran 12/29/17 through 3/29/18. She provided records for 7 visits with healthcare providers during the period. After her initial denial she submitted additional records when she realized she was not limited to only 3 records (the number of spaces on the form). The records depict chronic back problems including surgical removal of a cyst and installation of a spinal stimulator and severe pain. Chronic pain clearly affected her ability to work, especially when accommodations were no longer helpful or feasible, by 1/18. Thus she decided to leave Billings Clinic “due to feeling she is unable to manage work physically.” Billings Clinic denied her final request for accommodation (work from home) because her position as “Medical Education Specialist requires you to attend meetings, take minutes, cover phones and escort medical students and residents.” Thus she was no longer capable of performing “one of more of the material and substantial duties” of her job.

The records also extensively document her discomfort with sitting and preference to stand amid pain & discomfort for periods as short at 10 minutes, casting doubt on Sun Life’s finding on her ability to do sedentary work. Her pain physician Dr. Schabacker further explicitly supported her claimed disability, and SSA separately determined her disabled and entitled to SSD. A plan administrator’s disregard for SSA’s contrary determination is another of the case-specific factors courts may weigh when reviewing a benefit determination. Montour (9th Cir. 2009). Maulolo’s condition appears to have been substantially unchanged from when she left her employment through the final rejection of her claim.

Sun Life’s supposition that Maulolo was capable of sedentary work — that she could sit for 6 hours; lift, carry, pull, and push 50 pounds occasionally; and frequently bend, squat, climb, and kneel — is directly contradicted by her medical records. Multiple physicians observed her discomfort with sitting and preference to stand amid pain & discomfort. Sun Life itself reported in its initial denial letter that she may:

occasionally walk, sit, push, pull. May not bend, squat, climb, twist, kneel or crawl. Lift/carry indicated 0 lbs. Comments must be able to change positions every 10 minutes, sit to stand. Dr. Kale also noted despite surgery pain continues has difficulty maintaining position >10 minutes.

Her medical records clearly state that she cannot sit 6 hours a day; lift or carry 50 pounds occasionally; or bend, squat, climb, twist, kneel, or crawl frequently,” as Sun Life’s reviewing physician Dr. Rowe suggests.

Sun Life proffers no evidence to contradict Kale, Schabacker, or NP Lisa Guthrie’s observations relating to Maulolo’s discomfort sitting or disability. In fact, its own private investigator appears to confirm her transformation from a “very active and health-conscious individual” to someone with back issues who “may go on long term disability.” While this observation is not medical by nature, contemporaneous observations by neighbors support her change in circumstances.

Sun Life’s denial of Maulolo’s claim did not apply the same definition of “Total Disability and Totally Disabled” found in Billings Clinic’s policy as stated in the rejection letter. The policy clearly requires the claimant to be “unable to perform one or more of the material and substantial duties of your Regular Occupation.” The rejection letter states: “The medical evidence does not support that you would be precluded from performing the Material and Substantial Duties of your Own Occupation.”

Maulolo’s debilitating pain prevented her from performing “one or more” of the duties in her Regular Occupation-equivalent as an Administrative Assistant, which typically requires sedentary exertion. She could not sit for 6 hours/day or bend, squat, climb, twist, kneel, or crawl. Further, the difference in the amount of duties she could not perform — “one or more” v. “material and substantial duties” — is inaccurate per plan language.

Sun Life’s proposition that Maulolo’s records were devoid of any objective evidence of functional impairment and consisted entirely of self-reported pain, which her physicians then adopted to support her claim of disability is unconvincing and contrary to 9th Circuit precedent. “A disability insurer cannot condition coverage on proof by objective indicators where the condition is recognized yet no such proof is possible.” Holmgren v. Sun Life (ND Cal. 2018) (Cruz-Baca (9th Cir. 2017)). Indeed, Sun Life’s reliance on objective evidence to deny benefits for a claimant with chronic pain was roundly rejected in Holmgren and is no more convincing here. Holmgren noted that “the Ninth Circuit has found that chronic pain, like that of which plaintiff complains, ‘is an inherently subjective condition.'” (Quoting Cruz-Baca).

Chronic pain is clearly one condition for which courts have not required objective evidence and the 9th Circuit has repeatedly held that “the lack of objective physical findings” is in and of itself insufficient to justify denial of disability benefits. Eisner (ND Cal. 2014) (citing Salomaa (9th Cir. 2011)). Other circuits agree. “It has long been the law of this Circuit that ‘the subjective element of pain is an important factor to be considered in determining disability.'” Valentine (ED NY 2015); Connors (2nd Cir. 2001).

Maulolo has met her burden of proof by a preponderance of the evidence that she was totally disabled and entitled to disability benefits for the 24 months ending 3/29/20. Sun Life’s denial applied the wrong definition of “Total Disability and Totally Disabled.” Maulolo was unable to perform one or more material and substantial dues of her Regular Occupation. Its denial based on her proffering of subjective evidence combined with a perceived lack of objective evidence runs contrary to case law.

Maulolo’s Long Term Disability claim must be remanded to Sun Life for a determination of whether she met the policy’s “any occupation” definition of “total disability” after the 24 months ending 3/29/20. Saffle (9th Cir. 1996).

Judgment is entered in Maulolo’s favor for total disability benefits for the 24 months ending 3/29/20 with reasonable attorney fees, costs, and prejudgment interest under 29 USC 1132(g)(1).

Maulolo v. Billings Clinic and Sun Life Assurance of Canada, 44 MFR 254, 9/9/21.

Caitlin Boland Aarab & Samir Aarab (Boland Aarab), Great Falls, for Maulolo; Mikel Moore (Moore, Cockrell, Goicoechea & Johnson), Kalispell, for Sun Life.

INSURANCE: Putative class Plaintiffs’ request for declaratory judgment as to GEICO’s subrogation practices preempted by UTPA, but amendment permitted to bring proper UTPA claim… Molloy.

James Lee Const. and James & Tracy Lee seek to represent a putative class challenging subrogation practices of GEICO and related entities by utilization of its Payment Recovery Unit. GEICO seeks a judgment on the pleadings pursuant to Rule 12(c) insofar as Plaintiffs “seek, on behalf of themselves and a putative class, declaratory, injunctive, and supplemental relief by reason of Defendants’ alleged ‘wrongful subrogation.’” According to GEICO, the “wrongful subrogation” claim derives from the handling of their insurance claim and is therefore preempted by MCA 33-18-242(3). GEICO is correct.

UTPA §33-18-242(3)limits claims an insured can bring against an insurer:

An insured who has suffered damages as a result of the handling of an insurance claim may bring an action against the insurer for breach of the insurance contract, for fraud, or pursuant to this section, but not under any other theory or cause of action.

This Court previously determined that because Plaintiffs’ wrongful subrogation claim qualifies as claims handling, their originally pled conversion claim was preempted. GEICO argues that their claim for declaratory & injunctive relief based on wrongful subrogation is similarly preempted. That argument is persuasive.

This Court has repeatedly “found declaratory relief to be an unavailable cause of action for statutory bad faith violations.” Woodman (D.Mont. 2021) (collecting cases); Drange (D.Mont. 2020) (“The UTPA neither creates a right of action for declaratory judgment, nor does it allow for declaratory or injunctive relief.”). Bateman (9th Cir. 2011) affirmed this Court’s dismissal of a declaratory judgment claim on the ground that “Plaintiffs seek a declaration that Defendant violated the UTPA, a statute that provides relief only in the form of money damages.”

Plaintiffs insist the caselaw is more nuanced and that the Montana Supreme Court distinguishes between a declaration of rights & duties under the UTPA (potentially allowed) and the declaration of a violation of the UTPA (not allowed). They are correct insofar as it has permitted a declaratory action to proceed to determine when a UTPA claim may be brought. Safeco (Mont. 2000) (interpreting MCA 33-18-242(6)(b) which provides that a “third-party claimant may not file an action under this section until after the underlying claim has been settled or judgment entered in favor of the claimant on the underlying claim”). Plaintiffs are misguided in their attempt to fit this case into a similar category. Because they seek a declaration that GEICO’s operation of the Property Recovery Unit violates Montana’s made-whole rule, a claims handling matter, their claim runs afoul of §33-18-242(3).

As argued by Plaintiffs, Safeco rejected Safeco’s attempt to argue that the plaintiff’s declaratory judgment action was “nothing more, really, than a UTPA claim under a different name.” Rather, it concluded that the declaratory action was limited to a determination of “those medical expenses, under Ridley, a third-party claimant is unequivocally entitled to prior to settlement or entry of judgment.” It cautioned that

the District Court did not determine that Safeco violated UTPA, or acted in bad faith, or that the ordered payment of advance medical payments constitutes a money judgment for “damages” in the ordinary sense. To the contrary, the District Court merely removed all uncertainty and controversy over the issue of when the inevitable policy proceeds are due.

In contrast, Plaintiffs specifically seek a declaration that GEICO’s operation of its PRU violates the UTPA. The references to such relief are legion. More specifically, they seek declarations that:

(a) the contract provision under which GEICO asserts their subrogation claim does not permit subrogation not conforming to Montana’s made-whole rule; (b) the statutes which authorize subrogation by insurers do not permit subrogation not conforming to Montana’s made whole rule; (c) all subrogation amounts taken before the insureds’ losses were accounted for and the insureds were made whole, together with interest or earnings thereon, are and remain the property of the insured; (d) GEICO’s subrogation taken in violation of the requirements of Montana’s made-whole rule are improper invasion of and impairment of the rights of Plaintiffs and each member of the Class; (e) GEICO’s subrogation practices constitute violations of the duties enumerated above; (f) GEICO has been unjustly enriched by wrongful subrogation; (g) GEICO holds the proceeds of the wrongful subrogation in constructive trust for the owners of the tort claim.

Plaintiffs’ argument about the time of the unlawful conduct does not change the nature of their claim. Even assuming that a request for prospective relief avoids UTPA’s bar on declaratory actions, no such request is made here. Because their claim is an argument under the UTPA — not an argument about the UTPA — it is barred by §33-18-242(3).

That conclusion is consistent with this Court’s recent case law. In Woodman, the insured filed an action for declaratory relief seeking full long-term disability benefits under her policy. Her insurer argued that her claim for declaratory relief was preempted by the UTPA: “because Woodman seeks a declaration that her interpretation of the policy language is correct, she is requesting nothing more than a judicial determination that her claims for violation of the UTPA and breach of contract have merit.” Notably, her claim for declaratory relief neither cited the UTPA nor requested a declaration that specific provisions had been violated. Nevertheless, the Court found that “the substance of Woodman’s request for declaratory relief attacks Standard’s handling of her insurance claim” and therefore a declaration to that effect would impermissibly tread the same ground covered by the UTPA. The same is true here.

Plaintiffs further argue that even if their declaratory action falls under the limitations of §33-18-242(3), it is really a breach of contract claim that can proceed under the UTPA. They may be right if they had pled a breach of contract claim. They did not.

Ultimately, Plaintiffs’ request for declaratory relief is preempted by the UTPA. While they present good arguments for how a claim could avoid the statutory bar, those arguments are immaterial based on how their claim is currently pled. And because they cannot bring this claim on their own behalf, they are precluded from bringing it on behalf of a putative class. Moe (D.Mont. 2020); Standford (9th Cir. 2010) (“When a named plaintiff has no cognizable claim for relief, he cannot represent others who may have such a claim.”). Nevertheless, GEICO failed to articulate a legitimate reason why Plaintiffs should not be given the opportunity to bring a proper UTPA claim. Accordingly, this count is dismissed with leave to amend.

Because Plaintiffs’ class claim does not survive the above ruling, their motion for certification is denied as moot. Nevertheless, 2 observations are appropriate. First, it is rare that a case can be read only one way and recognizing that fact can only strengthen an advocate’s position. Second, regardless of whether such circumstances exist here, subrogation is lawful in certain circumstances pursuant to VanOrden (Mont. 2014). Thus Plaintiffs can neither presume that GEICO’s subrogation recoveries equate to numerous class members nor define their class to include all instances of subrogation. Their putative class does both.

James Lee Const. v. GEICO, 44 MFR 253, 9/9/21.

Alan Lerner (Lerner Law Firm), Kalispell, Allan McGarvey & Jinnifer Mariman (McGarvey Law), Kalispell, Brian Joos & Judah Gersh (Viscomi, Gersh, Simpson & Joos), Whitefish, and Evan Danno (Danno Law Firm), Kalispell, for Plaintiffs; Courtney Henson (Snell & Wilmer – Tucson), Sheila Carmody (Snell & Wilmer – Phoenix), and Ian McIntosh & William Morris (Crowley Fleck), Bozeman, for GEICO.

OFFICERS SHOOTING: §1983 claim against City officers who killed erratic, aggressive, threatening person barred by qualified immunity… state law tort claims barred by MCA 2-9-305(5) immunity from individual liability… Cavan/Watters.

Magistrate Cavan’s findings & recommendations.

On the evening of 1/2/16 at 7:40 p.m. Livingston Officers Kevin Engle and Andrew Emanuel were having dinner when they received a radio call and were dispatched to Shopko. The dispatcher stated that “a 911 caller says she is the general manager — a girl at the front said a guy came in with a dark jacket — he said if you haven’t called the cops, you better call the cops, cuz I’m gonna shoot someone — he is now out front in the bushes.” (Plaintiffs contend that the dispatcher’s statements are hearsay and should not be considered. Their objection is overruled. The statements, which were set forth in the officers’ affidavits are not hearsay since they are offered to establish what they heard from dispatch, not to establish the truth of the dispatcher’s statements.) The dispatcher also said, “be advised he had his hand inside his jacket like he was holding something. He is in front in the parking lot with people walking around right now.” (Defendants submitted a recording & transcript of the dispatcher’s statements with their reply brief. Plaintiffs move to strike the submission as improperly submitted new evidence. The motion is denied as moot. The Court has determined that the dispatcher’s statements are not hearsay and are properly before the Court through the officers’ original affidavits.)

Engle arrived first and entered the parking lot in his patrol car and drove toward the north end of the building. Emanuel arrived shortly thereafter and drove toward the south end. Both cars were equipped with Watchguard video and audio recording equipment, so that audio of the entire encounter was captured from Engle’s car and most of it can be seen on the video from Engle’s car. Part of it was also captured on Emanuel’s video. The entire encounter lasted less than 1 minute.

Engle stopped in a driveway on the north side of the lot. It had large patches of ice & snow. Sean O’Brien was standing behind bushes at the front of the store north of the entrance. After Engle stopped he said, “he’s here” and got out of his vehicle. O’Brien emerged from the bushes and began to move toward Engle. Engle states that he saw a red-handled 3-4-inch folding knife in his hand. Plaintiffs assert that it was a Craftsman utility knife that he carried every day for work. The blade was not open. Engle shouted “stop, stop” and pulled out his service weapon with his right hand. O’Brien responded, “fuck you” and continued walking toward Engle. Engle states that he became concerned for his safety and drew his Taser with his left hand and fired it at O’Brien 15-20 feet away. O’Brien grunted in apparent pain but the taser did not stop him. Engle yelled “get down, on the ground, get on the ground.” O’Brien ran away, into the view of the video on the front of Engle’s car. Engle pulled the trigger on the Taser a 2nd time but it did not stop O’Brien, who can be heard grunting as he continued to run away.

When Emanuel heard Engle say “he’s here” he drove toward the north end of the building. Engle and O’Brien came into view on his video. He states that he saw that Engle had deployed his taser and it was not effective. Emanuel’s video also appears to show Engle taser O’Brien without effect. After the taser was not effective, Engle holstered his gun and attempted to holster his taser as he ran after O’Brien yelling “get on the ground, get on the ground.” He was unable to holster the taser and dropped it. O’Brien continued to run away and yelled “fuck you,” then stopped and turned to face Engle. Engle contends that O’Brien stated “shoot, shoot dammit.” Plaintiffs dispute this. The audio is unclear on this point.

As O’Brien turned to face Engle, Emanuel pulled his vehicle into the driveway ahead of Engle’s vehicle. As he was stopping, O’Brien made 2 feints toward Engle and said “little fucker.” Engle took a couple steps back and yelled “get on the ground.” O’Brien responded “fuck you” and waved his arms, perhaps in an attempt to dislodge the taser wires. Engle again yelled “get on the ground.” O’Brien started to walk north across the driveway in the direction of Engle waving his arms and again responded “fuck you.” Engle moved back across the driveway, maintaining distance between them. Plaintiffs assert that O’Brien was circling around or “flanking” Engle in an attempt to escape.

As O’Brien reached the north side of the driveway and stepped onto a snowy berm in a field Engle yelled “pull [sic] your hands up, put the knife down, put the knife down.” O’Brien switched it from his right hand to his left and then reached into his coat with his right hand. Engle remained in the driveway and stepped back. O’Brien continued to move with his hand in his coat and Engle yelled “show me your hands, put the knife down, stop.” O’Brien took 2 quick steps to his left with his hand in his coat. Emanuel got out of his vehicle and walked to the front with his gun drawn. He states that he heard Engle yell “drop the knife” more than once and O’Brien yelling “fuck you.” He saw that O’Brien was holding a metallic object in his hand the way one would hold a knife. Emanuel yelled, “put the knife down, put it down.”

As Engle yelled “stop” O’Brien pulled his hand out of his jacket, hunched forward slightly, and started to run in Engle’s direction. The parties dispute whether he was running toward Engle or trying to run past him. He had his left arm extended with something metallic in his hand, possibly keys, and the knife in his right hand. Engle stepped back. O’Brien continued to run, saying “fuck you.” As he ran in the direction of Engle, Emanuel fired his weapon, hitting O’Brien. Engle fired immediately thereafter, also hitting him. O’Brien fell near where Engle had been standing when O’Brien started running. Plaintiffs assert that his direction of travel was altered by the bullets striking him.

Engle states that he fired when O’Brien was 7-10 feet away to protect himself. He explains that he was concerned that O’Brien was reaching for a firearm or other weapon when he reached into his coat and by the dispatcher’s statement that he said he was going to shoot someone and also was afraid he was going to be stabbed. Although the blade was not deployed, he said he knew that a blade could be quickly deployed. He was also concerned about his footing because it was icy and the possibility that O’Brien, who was much larger, could have gotten on top of him.

Emanuel states that he fired to protect Engle when O’Brien continued to run toward Engle. He explains that he also saw O’Brien put his hand in his coat and pull it back out, causing concern because the original call made reference to him stating that someone was going to get shot. He further states that he was extremely afraid that O’Brien was going to stab Engle when he started running. He states that the distance between O’Brien and Engle was closing fast and there was insufficient time to protect Engle from an edged weapon. He was also concerned because Engle was backing up on snow & ice. O’Brien was bigger than Engle, and if Engle fell, O’Brien would have been on him very quickly.

Engle and Emanuel move for summary judgment on the ground that qualified immunity bars Plaintiffs’ §1983 claim and MCA 2-9-305(5) bars their state law tort claims. Plaintiffs argue that there are fact issues that should first be resolved by a jury and that §305(5) immunity does not apply until after there has been a recovery against a governmental entity.

The relevant question as to §1983 qualified immunity is whether it was clearly established under existing precedent that the officers’ use of deadly force was excessive and violated the 4th Amendment. Neither Supreme Court nor 9th Circuit precedent on similar facts would have put Engle and Emanuel on notice that their actions violated the law. Rather, case law indicates the opposite. Like the police in Kisela v. Hughes (US 2018), Engle and Emanuel received a report of an individual acting erratically and stating “if you haven’t called the cops you better call the cops cuz I’m gonna shoot someone.” Thereafter, he engaged in more aggressive and threatening conduct than Hughes, who got close to another woman with a knife but appeared calm. In contrast, O’Brien was tased with no impact, ran from Engle and then turned and made movements toward him, called him a “little fucker,” yelled “fuck you” 5 times, clearly indicating that he did not intend to comply, reached into his coat as though reaching for a weapon, and ran in Engle’s direction holding a knife. In Kisela, Hughes ignored 2 commands to drop the knife, while O’Brien ignored 4 commands to “stop,” 4 commands to “get down on the ground,” 3 commands to “put down the knife,” and 2 commands to “show his hands” or “put them up.” Both cases involved situations where the officer believed that force was necessary to prevent a serious threat to another. The officers in Kisela were not in apparent danger as they were separated from Hughes by a chain link fence, while Engle stated that he was afraid he was going to be stabbed by O’Brien who was 3-4 inches taller and 40-50 pounds heavier and was 10 feet away on icy ground. In both cases the events unfolded in less than 1 minute. Kisela found that the officer’s use of force did not violate clearly established law. Thus it is far from obvious that Engle and Emanuel would have been on notice that their use of deadly force — where they faced more threatening circumstances — was unlawful. Cases from the 9th Circuit likewise illustrate that Engle and Emanuel should be granted qualified immunity.

Plaintiffs do not cite, discuss, or attempt to distinguish any of these recent cases, but cite Glenn (9th Cir. 2011) to attempt to establish that Engle and Emanuel were on notice that they would not be justified in using deadly force against a suspect who is holding a knife and refusing to comply with their instructions. But the facts in Glenn are plainly distinguishable. In Glenn, police responded to a report that an intoxicated individual was threatening to harm himself. When the officers arrived the suspect was not threatening them or any other person at the scene, but only threatening himself by standing in a fixed position in the driveway holding a knife to his own neck. At most, Glenn indicates that under its facts it was possible that the use of force violated a constitutional right. It did not “clearly establish” that Engle’s and Emanuel’s actions would violate O’Brien’s constitutional rights.

Recommended, Engle’s and Emanuel’s motion for summary judgment as to Plaintiffs’ §1983 claim should be granted.

Summary judgment as to Plaintiffs’ common law claims of negligence, survivorship, wrongful death, and assault & battery should also be granted pursuant to §2-9-305(5). Plaintiffs rely on Story (Mont. 1993) in support of their argument that §305(5) only applies after there has been a recovery against a governmental entity. However, Griffith (Mont. 2010) held that “§2-9-305(5) serves as a complete bar to holding individual employees liable because it provides immunity from suit to individually-named defendants for actions performed within the course and scope of the official’s employment.” See also Germann (Mont. 2006) (“The explicit grant of immunity in the second sentence of §2-9-305(5) belies the plaintiff’s contention that the statute serves merely as an anti-double recovery state.”); Kiely (Mont. 2002) (“We conclude the first sentence of §2-9-305(5) is on its face, a complete bar to holding the individual council members liable.”). Recent authority from this District likewise recognized that §305(5) provides immunity from suit.

For immunity to attach under 205(5) the plaintiff must name a governmental entity as a defendant and the entity must acknowledge or be bound by a judicial determination that the employee’s conduct arose out of the course and scope of his employment. The City of Livingston is a named defendant. All of Plaintiffs’ allegations against Engle and Emanuel are based on actions they performed while in the course & scope of their employment. The City has also acknowledged that they were acting in the course & scope of their employment when they shot O’Brien.

 

 

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Judge Watters’s order adopting Cavan’s F&R.

Plaintiffs make a lone objection:

To the extent the Findings and Recommendation state that if Engle and Emanuel are found to be entitled to qualified immunity, the City does not have to defend and indemnify them for civil rights violations, the Plaintiffs object. The Plaintiffs maintain, as articulated in prior briefing, that the City has a duty to defend and indemnify Engle and Emanuel for any and all tortious conduct or civil rights violations for which they are found to be liable at trial.

The Court overrules the objection. Engle and Emanuel cannot be found liable for a civil rights violation at trial because the Court previously granted them qualified immunity from §1983 liability.

Judge Cavan’s findings & recommendation are adopted in full.

Summary judgment is granted for Livingston Police Chief Dale Johnson on all claims. Summary judgment is granted to the City as to Counts I, II, and VI, and as to Count III to the extent that it is based on negligent hiring & supervision and negligent adoption and/or enforcement policies; it is denied as to Count III to the extent that it is based on the negligent conduct of Engle and Emanuel; and it is denied to the City as to Counts IV & V. (See the subsequent verdict for the City below.)

Estate of O’Brien v. City of Livingston, Engle, Emanuel, and Johnson, 44 MFR 251 (Cavan’s F&R), 1/22/20, 44 MFR 252 (Watters’s adoption order), 6/16/20.

Nathan Wagner (Sullivan Wagner Lyons), Missoula, for Plaintiffs; Randall Nelson (Nelson Law Firm), Billings, for the City; Harlan Krogh (Crist, Krogh, Alke & Nord), Billings, for the officers; Livingston City Atty. Courtney Lawellin.

OFFICERS SHOOTING: §1983 claim against City officers who killed erratic, aggressive, threatening person barred by qualified immunity… state law tort claims barred by MCA 2-9-305(5) immunity from individual liability… Cavan/Watters.

Magistrate Cavan’s findings & recommendations.

On the evening of 1/2/16 at 7:40 p.m. Livingston Officers Kevin Engle and Andrew Emanuel were having dinner when they received a radio call and were dispatched to Shopko. The dispatcher stated that “a 911 caller says she is the general manager — a girl at the front said a guy came in with a dark jacket — he said if you haven’t called the cops, you better call the cops, cuz I’m gonna shoot someone — he is now out front in the bushes.” (Plaintiffs contend that the dispatcher’s statements are hearsay and should not be considered. Their objection is overruled. The statements, which were set forth in the officers’ affidavits are not hearsay since they are offered to establish what they heard from dispatch, not to establish the truth of the dispatcher’s statements.) The dispatcher also said, “be advised he had his hand inside his jacket like he was holding something. He is in front in the parking lot with people walking around right now.” (Defendants submitted a recording & transcript of the dispatcher’s statements with their reply brief. Plaintiffs move to strike the submission as improperly submitted new evidence. The motion is denied as moot. The Court has determined that the dispatcher’s statements are not hearsay and are properly before the Court through the officers’ original affidavits.)

Engle arrived first and entered the parking lot in his patrol car and drove toward the north end of the building. Emanuel arrived shortly thereafter and drove toward the south end. Both cars were equipped with Watchguard video and audio recording equipment, so that audio of the entire encounter was captured from Engle’s car and most of it can be seen on the video from Engle’s car. Part of it was also captured on Emanuel’s video. The entire encounter lasted less than 1 minute.

Engle stopped in a driveway on the north side of the lot. It had large patches of ice & snow. Sean O’Brien was standing behind bushes at the front of the store north of the entrance. After Engle stopped he said, “he’s here” and got out of his vehicle. O’Brien emerged from the bushes and began to move toward Engle. Engle states that he saw a red-handled 3-4-inch folding knife in his hand. Plaintiffs assert that it was a Craftsman utility knife that he carried every day for work. The blade was not open. Engle shouted “stop, stop” and pulled out his service weapon with his right hand. O’Brien responded, “fuck you” and continued walking toward Engle. Engle states that he became concerned for his safety and drew his Taser with his left hand and fired it at O’Brien 15-20 feet away. O’Brien grunted in apparent pain but the taser did not stop him. Engle yelled “get down, on the ground, get on the ground.” O’Brien ran away, into the view of the video on the front of Engle’s car. Engle pulled the trigger on the Taser a 2nd time but it did not stop O’Brien, who can be heard grunting as he continued to run away.

When Emanuel heard Engle say “he’s here” he drove toward the north end of the building. Engle and O’Brien came into view on his video. He states that he saw that Engle had deployed his taser and it was not effective. Emanuel’s video also appears to show Engle taser O’Brien without effect. After the taser was not effective, Engle holstered his gun and attempted to holster his taser as he ran after O’Brien yelling “get on the ground, get on the ground.” He was unable to holster the taser and dropped it. O’Brien continued to run away and yelled “fuck you,” then stopped and turned to face Engle. Engle contends that O’Brien stated “shoot, shoot dammit.” Plaintiffs dispute this. The audio is unclear on this point.

As O’Brien turned to face Engle, Emanuel pulled his vehicle into the driveway ahead of Engle’s vehicle. As he was stopping, O’Brien made 2 feints toward Engle and said “little fucker.” Engle took a couple steps back and yelled “get on the ground.” O’Brien responded “fuck you” and waved his arms, perhaps in an attempt to dislodge the taser wires. Engle again yelled “get on the ground.” O’Brien started to walk north across the driveway in the direction of Engle waving his arms and again responded “fuck you.” Engle moved back across the driveway, maintaining distance between them. Plaintiffs assert that O’Brien was circling around or “flanking” Engle in an attempt to escape.

As O’Brien reached the north side of the driveway and stepped onto a snowy berm in a field Engle yelled “pull [sic] your hands up, put the knife down, put the knife down.” O’Brien switched it from his right hand to his left and then reached into his coat with his right hand. Engle remained in the driveway and stepped back. O’Brien continued to move with his hand in his coat and Engle yelled “show me your hands, put the knife down, stop.” O’Brien took 2 quick steps to his left with his hand in his coat. Emanuel got out of his vehicle and walked to the front with his gun drawn. He states that he heard Engle yell “drop the knife” more than once and O’Brien yelling “fuck you.” He saw that O’Brien was holding a metallic object in his hand the way one would hold a knife. Emanuel yelled, “put the knife down, put it down.”

As Engle yelled “stop” O’Brien pulled his hand out of his jacket, hunched forward slightly, and started to run in Engle’s direction. The parties dispute whether he was running toward Engle or trying to run past him. He had his left arm extended with something metallic in his hand, possibly keys, and the knife in his right hand. Engle stepped back. O’Brien continued to run, saying “fuck you.” As he ran in the direction of Engle, Emanuel fired his weapon, hitting O’Brien. Engle fired immediately thereafter, also hitting him. O’Brien fell near where Engle had been standing when O’Brien started running. Plaintiffs assert that his direction of travel was altered by the bullets striking him.

Engle states that he fired when O’Brien was 7-10 feet away to protect himself. He explains that he was concerned that O’Brien was reaching for a firearm or other weapon when he reached into his coat and by the dispatcher’s statement that he said he was going to shoot someone and also was afraid he was going to be stabbed. Although the blade was not deployed, he said he knew that a blade could be quickly deployed. He was also concerned about his footing because it was icy and the possibility that O’Brien, who was much larger, could have gotten on top of him.

Emanuel states that he fired to protect Engle when O’Brien continued to run toward Engle. He explains that he also saw O’Brien put his hand in his coat and pull it back out, causing concern because the original call made reference to him stating that someone was going to get shot. He further states that he was extremely afraid that O’Brien was going to stab Engle when he started running. He states that the distance between O’Brien and Engle was closing fast and there was insufficient time to protect Engle from an edged weapon. He was also concerned because Engle was backing up on snow & ice. O’Brien was bigger than Engle, and if Engle fell, O’Brien would have been on him very quickly.

Engle and Emanuel move for summary judgment on the ground that qualified immunity bars Plaintiffs’ §1983 claim and MCA 2-9-305(5) bars their state law tort claims. Plaintiffs argue that there are fact issues that should first be resolved by a jury and that §305(5) immunity does not apply until after there has been a recovery against a governmental entity.

The relevant question as to §1983 qualified immunity is whether it was clearly established under existing precedent that the officers’ use of deadly force was excessive and violated the 4th Amendment. Neither Supreme Court nor 9th Circuit precedent on similar facts would have put Engle and Emanuel on notice that their actions violated the law. Rather, case law indicates the opposite. Like the police in Kisela v. Hughes (US 2018), Engle and Emanuel received a report of an individual acting erratically and stating “if you haven’t called the cops you better call the cops cuz I’m gonna shoot someone.” Thereafter, he engaged in more aggressive and threatening conduct than Hughes, who got close to another woman with a knife but appeared calm. In contrast, O’Brien was tased with no impact, ran from Engle and then turned and made movements toward him, called him a “little fucker,” yelled “fuck you” 5 times, clearly indicating that he did not intend to comply, reached into his coat as though reaching for a weapon, and ran in Engle’s direction holding a knife. In Kisela, Hughes ignored 2 commands to drop the knife, while O’Brien ignored 4 commands to “stop,” 4 commands to “get down on the ground,” 3 commands to “put down the knife,” and 2 commands to “show his hands” or “put them up.” Both cases involved situations where the officer believed that force was necessary to prevent a serious threat to another. The officers in Kisela were not in apparent danger as they were separated from Hughes by a chain link fence, while Engle stated that he was afraid he was going to be stabbed by O’Brien who was 3-4 inches taller and 40-50 pounds heavier and was 10 feet away on icy ground. In both cases the events unfolded in less than 1 minute. Kisela found that the officer’s use of force did not violate clearly established law. Thus it is far from obvious that Engle and Emanuel would have been on notice that their use of deadly force — where they faced more threatening circumstances — was unlawful. Cases from the 9th Circuit likewise illustrate that Engle and Emanuel should be granted qualified immunity.

Plaintiffs do not cite, discuss, or attempt to distinguish any of these recent cases, but cite Glenn (9th Cir. 2011) to attempt to establish that Engle and Emanuel were on notice that they would not be justified in using deadly force against a suspect who is holding a knife and refusing to comply with their instructions. But the facts in Glenn are plainly distinguishable. In Glenn, police responded to a report that an intoxicated individual was threatening to harm himself. When the officers arrived the suspect was not threatening them or any other person at the scene, but only threatening himself by standing in a fixed position in the driveway holding a knife to his own neck. At most, Glenn indicates that under its facts it was possible that the use of force violated a constitutional right. It did not “clearly establish” that Engle’s and Emanuel’s actions would violate O’Brien’s constitutional rights.

Recommended, Engle’s and Emanuel’s motion for summary judgment as to Plaintiffs’ §1983 claim should be granted.

Summary judgment as to Plaintiffs’ common law claims of negligence, survivorship, wrongful death, and assault & battery should also be granted pursuant to §2-9-305(5). Plaintiffs rely on Story (Mont. 1993) in support of their argument that §305(5) only applies after there has been a recovery against a governmental entity. However, Griffith (Mont. 2010) held that “§2-9-305(5) serves as a complete bar to holding individual employees liable because it provides immunity from suit to individually-named defendants for actions performed within the course and scope of the official’s employment.” See also Germann (Mont. 2006) (“The explicit grant of immunity in the second sentence of §2-9-305(5) belies the plaintiff’s contention that the statute serves merely as an anti-double recovery state.”); Kiely (Mont. 2002) (“We conclude the first sentence of §2-9-305(5) is on its face, a complete bar to holding the individual council members liable.”). Recent authority from this District likewise recognized that §305(5) provides immunity from suit.

For immunity to attach under 205(5) the plaintiff must name a governmental entity as a defendant and the entity must acknowledge or be bound by a judicial determination that the employee’s conduct arose out of the course and scope of his employment. The City of Livingston is a named defendant. All of Plaintiffs’ allegations against Engle and Emanuel are based on actions they performed while in the course & scope of their employment. The City has also acknowledged that they were acting in the course & scope of their employment when they shot O’Brien.

 

 

– – – 

 

Judge Watters’s order adopting Cavan’s F&R.

Plaintiffs make a lone objection:

To the extent the Findings and Recommendation state that if Engle and Emanuel are found to be entitled to qualified immunity, the City does not have to defend and indemnify them for civil rights violations, the Plaintiffs object. The Plaintiffs maintain, as articulated in prior briefing, that the City has a duty to defend and indemnify Engle and Emanuel for any and all tortious conduct or civil rights violations for which they are found to be liable at trial.

The Court overrules the objection. Engle and Emanuel cannot be found liable for a civil rights violation at trial because the Court previously granted them qualified immunity from §1983 liability.

Judge Cavan’s findings & recommendation are adopted in full.

Summary judgment is granted for Livingston Police Chief Dale Johnson on all claims. Summary judgment is granted to the City as to Counts I, II, and VI, and as to Count III to the extent that it is based on negligent hiring & supervision and negligent adoption and/or enforcement policies; it is denied as to Count III to the extent that it is based on the negligent conduct of Engle and Emanuel; and it is denied to the City as to Counts IV & V. (See the subsequent verdict for the City below.)

Estate of O’Brien v. City of Livingston, Engle, Emanuel, and Johnson, 44 MFR 251 (Cavan’s F&R), 1/22/20, 44 MFR 252 (Watters’s adoption order), 6/16/20.

Nathan Wagner (Sullivan Wagner Lyons), Missoula, for Plaintiffs; Randall Nelson (Nelson Law Firm), Billings, for the City; Harlan Krogh (Crist, Krogh, Alke & Nord), Billings, for the officers; Livingston City Atty. Courtney Lawellin.

INSURANCE: Seeking declaratory judgment as to duty to defend defective siding claims does not constitute direct or anticipatory repudiation breach of contract but is endorsed by Montana Supreme Court… duty to indemnify for insured’s out-of-pocket settlements brokered without insurer’s consent not plausible breach of contract… plaintiff in underlying State Court suit against siding Defendant not a necessary party to declaratory action under rationale forged by this Court in light of open question in 9th Circuit… Landis stay of declaratory action granted as to on-the-merits determination of whether claims in State Court suit are covered by Policy, denied in all other respects… Christensen.

Various persons have asserted claims against Northwest Painting alleging that defective siding was installed on their property. Michelle Desjarlais has sued Northwest in Montana State Court. Northwest notified Cincinnati Ins. of this claim under its CGL policy and Cincinnati is providing a defense under reservation. None of the other claims “have been filed in court,” but other claims continue to “pour in” and Northwest has “paid out-of-pocket” to settle “certain claims.” Cincinnati seeks a declaration that it has no duty to indemnify or defend Northwest as to the Desjarlais suit. She was not named as a party to Cincinnati’s declaratory action. Northwest has counterclaimed alleging that Cincinnati breached or engaged in an anticipatory repudiation of its duty to defend and breached its duty to indemnify. Before the Court is Northwest’s motion to join necessary party and stay proceedings and Cincinnati’s partial motion to dismiss.

To state a direct or anticipatory repudiation breach of contract claim under Montana law the insured must first allege existence of a contract that contains a duty to defend. For a direct breach of contract claim it must allege that the insurer failed to furnish a defense after a complaint was filed against the insured that alleges facts which, if proven, would result in a covered liability under the contract. For an anticipatory breach of contract claim it must allege facts plausibly establishing that the insurer has entirely, absolutely, and unequivocally repudiated its contractual obligation to provide a defense for future claims. Northwest succeeds in the first regard by alleging that it and Cincinnati are parties to an insurance contract containing a duty to defend. It is in the 2nd regard where its direct breach of contract claim loses its plausibility.

As Cincinnati argues, the allegations in Northwest’s counterclaim demonstrate that the only claim possibly triggering the duty to defend is the Desjarlais suit. Northwest’s allegations further establish that Cincinnati has been providing a defense subject to a reservation of rights. In other words, taking Northwest’s counterclaim as alleged, Cincinnati has not breached its contractual duty to defend; it is actively fulfilling it. Under these allegations, Northwest cannot plausibly state a claim for direct breach of contract. This claim will be dismissed.

Northwest’s anticipatory repudiation breach of contract fares no better. The problem is not so much with Northwest’s allegations, but their implausible application to Montana’s law regarding anticipatory repudiation claims. Northwest claims that Cincinnati is liable for anticipatory repudiation because it filed the declaratory action, asserted it has no duty to defend, and reserved its right of reimbursement. Cincinnati argues that it is just following the procedure endorsed by the Montana Supreme Court when a suit triggers the duty to defend but the insurer maintains that it ultimately presents an uncovered claim. The Court agrees.

Montana law unambiguously outlines the path an insurer should follow when its insured is named in a suit but contests its obligation to provide a defense. First, an insurer should initially provide a defense, because if it incorrectly withholds one it will be liable for all “natural and ordinary consequences of the breach,” including the value of any settlement, costs, and attorney fees. Independent Milk (Mont. 1923). Second, if an insurer intends to recoup the costs incurred in defending its insured it should timely and explicitly reserve “its right to recoup defense costs.” Ribi (Mont. 2005). Finally, the insurer should expeditiously file a separate declaratory action so the dispute regarding the contractual duty to defend can be resolved. Tidyman’s (Mont. 2014); Freyer (Mont. 2013) (noting that in situations akin to that presented here the Montana Supreme Court has “repeatedly admonished insurers” to “defend the insured and file a declaratory judgment action to discern coverage”). Such conduct is not the anticipatory repudiation of a contractual duty to defend, but is the strict adherence to various teachings from the Montana Supreme Court.

Northwest’s allegations that Cincinnati has furnished a defense against the Desjarlais suit under reservation and then filed a declaratory action on the issue is not the sort of entire, absolute, and unequivocal repudiation of a contractual obligation necessary to state a claim. Under the facts that Northwest itself alleges, the only plausible theory advanced is that Cincinnati has conditionally repudiated its duty to defend (while actively continuing to honor it) with such repudiation only becoming entire, absolute, and unequivocal upon a favorable ruling in the instant declaratory action. The Court will grant Cincinnati’s motion to dismiss as to both of Northwest’s breach of contractual duty to defend counterclaims.

Northwest’s remaining breach of contract counterclaim complains that Cincinnati flouted its duty to indemnify by refusing to settle claims by other claimants, which Northwest was forced to then settle at its own cost, out of pocket. Cincinnati agues that this claim should be dismissed because the Policy prohibits settlement of claims by Northwest without Cincinnati’s consent. It maintains that it is proper to examine the Policy, an outside material, in adjudicating this 12(b)(6) motion because Northwest’s counterclaim references it. Northwest endorses this approach and does not directly contest Cincinnati’s position regarding the Policy’s prohibition on unapproved settlements by the insured.

The Policy’s CGL and umbrella coverages provide that “no insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without the insurer’s consent.” Under Cincinnati’s view, because Northwest’s breach of contractual duty to indemnify counterclaim fails to establish that Northwest’s out-of-pocket settlements were reached with Cincinnati’s consent, it fails to state a claim. Northwest puts up little resistance in response. Instead, it argues that Cincinnati has anticipatorily repudiated its duty to indemnify by filing this declaratory action. Additionally, it confusingly devotes significant argument in its response brief to the notion that Cincinnati has breached the covenant of good faith & fair dealing by failing to properly investigate claims. Neither of these arguments accurately reflects the claims in Northwest’s counterclaim or otherwise contests the substance of Cincinnati’s argument regarding the duty to indemnify claim.

Unlike the breach of contractual duty to defend claim, Northwest does not premise its breach of the contractual duty to indemnify counterclaim on a theory of anticipatory repudiation. Its counterclaim does not mention the duty of good faith at all, let alone assert a stand-alone claim couched under an ostensible failure to investigate. Accordingly, the Court will disregard those arguments as they either distort the pleadings, are an attempt to assert new claims, or have no bearing on whether Northwest has plausibly pled a claim for breach of the contractual duty to indemnify. Provencio (ED Cal. 2009) (“Raising a completely new theory of liability, with only attenuated connection to the complaint, in a brief in opposition to a motion to dismiss” can only be accomplished after requesting leave to file an amended complaint).

Left with little else, the Court has no choice but to adopt Cincinnati’s argument. Morrissey (9th Cir. 2003) (it is not a court’s job to develop a party’s arguments). The Policy, upon which Northwest’s counterclaim necessarily relies, establishes that a duty to indemnify for out-of-pocket settlements only arises if such settlements are brokered with Cincinnati’s consent. Northwest’s counterclaim does not contain any allegations that it obtained consent from Cincinnati prior to entering into the out-of-pocket settlements. Consequently, Northwest’s breach of the contractual duty to indemnify counterclaim lacks facial plausibility and will be dismissed.

Northwest maintains that Desjarlais, the plaintiff in the only underlying suit against Northwest, must be joined as an indispensable party to Cincinnati’s declaratory action. Cincinnati does not oppose joining her but disagrees that she must be joined as an indispensable party.

To determine whether a party must be joined pursuant to Rule 19 this Court “must determine: (1) whether an absent party is necessary to the action; and then, (2) if the party is necessary, but cannot be joined, whether the party is indispensable such that in equity and good conscience the suit should be dismissed.” Roberts (9th Cir. 2020). As to whether the party is necessary, the Court must determine whether: “complete relief can be afforded if the action is limited to the existing parties;” or “the absent party has a ‘legally protected interest’ in the subject of the action and, if so, whether the party’s absence will ‘impair or impede’ the party’s ability to protect that interest or will leave an existing party subject to multiple, inconsistent legal obligations with respect to that interest.” White (9th Cir. 2014). “If the answer to either of those questions is affirmative, then the party is necessary and must be joined.” Id. The parties hone their arguments on the legally protected interest prong, so the Court will focus its attention there as well.

Whether an injured 3rd-party claimant is a necessary party to a declaratory action between an insurer and its insured appears to be an open question in the 9th Circuit. Authority from other courts is numerous and conflicting. District courts within the 9th Circuit have generally found them to be necessary parties when the subject of the action is whether the 3rd-party claim is covered by available insurance proceeds. Despite the weight of this persuasive authority, the Court elects to forge its own path given the circumstances here. Bakia (9th Cir. 1982) (“there is no precise formula for determining whether a particular nonparty should be joined under Rule 19(a)” and the “determination is heavily influenced by the facts and circumstances of each case”). The Court is skeptical that Desjarlais has a legally protected interest in the Rule 19(a) sense. The 9th Circuit has been clear that a mere “financial stake” in the outcome is insufficient to constitute a legally protected interest. Cachil Dehe (9th Cir. 2008). It is hard to see how her interest in this suit extends beyond a mere financial interest.

She obviously has an interest in a favorable coverage determination because without one she will possibly be left with an uncovered judgment. But this interest is nothing more than “speculation about a future event,” mainly that she will possibly prevail in the underlying action and then possibly be unable to collect on a judgment against Northwest because of a lack of attachable assets. This is insufficient to constitute a legally protected interest under Rule 19(a). Moreover, this Court has rejected the notion that anyone has a legally protected interest in having their judgments covered by insurance. Philadelphia Indemnity (D.Mont. 2021) (“The law, as a general matter, does not entitle one to have an actionable claim covered by insurance.”). Moreover, the Court is skeptical that even if Desjarlais had a legally protected interest it would not be protected without joinder or that either Northwest or Cincinnati would be subject to multiple, inconsistent legal obligations with respect to that interest. Rule 19(a)(1)(B). The parties correctly focus this inquiry on whether she, if absent from this action, would be bound by any judgment of this Court regarding availability of coverage for her claim. Northwest maintains that she “would not necessarily be bound by the outcome of this Court’s determination of coverage liability.” Cincinnati contends that there is no risk of double, multiple, or otherwise inconsistent obligations because “collateral estoppel and/or res judicata would apply to Desjarlais and the property owners without their joinder because they are in privity with Northwest on the issue of coverage.”

Neither claim (res judicata) nor issue (collateral estoppel) preclusion will apply “to a party that was not a party in the prior proceeding” unless they are in privity with a party to that proceeding. Denturist Association (Mont. 2016). The question thus becomes whether Desjarlais is in privity with either Cincinnati or Northwest such that a coverage determination in this action would be binding on her and thus eliminate the risk of double, multiple, or inconsistent obligations. Ultimately, privity is a “factual determination of substance, not mere form,” requiring a “consideration of the realities of litigation.” Id.

The interests of Desjarlais and Northwest are sufficiently aligned to justify the conclusion that collateral estoppel or res judicata would likely bar relitigation of this coverage dispute in a subsequent action. They seek the same endgame — coverage for a potential liability event on the part of Northwest. There is no reason to conclude that Northwest will advance different or worse arguments than Desjarlais as to the issue of coverage when they are after the same outcome. Consequently, even if she had a legally protected interest within the meaning of Rule 19(a)(1)(B) (which she does not), her absence would neither impede her ability to protect this interest nor create a risk of double, multiple, or inconsistent legal obligations.

Having concluded that Desjarlais is not a necessary party, the Court will deny Northwest’s motion to join her as an indispensable party. The Court also declines to join her simply because Cincinnati does not oppose this result. The Court will not thrust a party into this suit on the basis of an agreement of the parties. Either party is free to move for leave to amend their pleadings to advance a claim against Desjarlais. She is also free to move for leave to intervene under a theory of mandatory or permissive joinder.

Northwest urges the Court to stay this action pursuant to Landis (US 1936) pending resolution of the underlying Desjarlais suit. Cincinnati disputes that Landis governs, instead relying on Brillhart (US 1942) and in any event opposes a stay.

The Court is persuaded by Northwest’s argument that Landis applies. Brillhart is not a good fit for several reasons. First, it arose in the context of a parallel state court proceeding “presenting the same issues, not governed by federal law” and “between the same parties.” The Desjarlais suit neither raises identical issues nor has identical parties. Second, Brillhart governs situations in which a party urges a district court to decline jurisdiction over an otherwise proper declaratory claim. Robinson (9th Cir. 2005). It applies when a party urges the court to dismiss or remand a declaratory claim altogether, not when a party simply requests that adjudication be stayed. Dizol (9th Cir. 1998). Finally, the 9th Circuit has made clear that Brillhart is inappropriate when an action presents at least one independent non-declaratory judgment claim. Dizol. A “claim is independent if it would continue to exist if the request for a declaration simply dropped from the case.” Scotts (9th Cir. 2012). While declaratory claims predominate here, at least one non-declaratory counterclaim is brought by Northwest under Montana’s UTPA.

Under Landis this Court possesses the “discretionary power to stay proceedings in its own court.” Lockyer (9th Cir. 2005). A Landis stay is inappropriate unless the party seeking it makes out “a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay will work damage to someone else.” Id. The 9th Circuit has distilled the Landis inquiry into a weighing of “the competing interests which will be affected by the granting or refusal to grant a stay,” including “the possible damage which may result from the granting of a stay, the hardship or inequity which a party may suffer in being required to go forward, and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay.” Id.

Northwest argues that any hardship imposed on Cincinnati by having to continue expending defense costs is insufficient to preclude a stay while it will be forced to litigate on 2 fronts in this action and the Desjarlais suit and the orderly course of justice will be impeded should this Court wade into unresolved factual issues regarding coverage that will necessarily be resolved by the State Court adjudicating the Desjarlais suit. In Cincinnati’s view, both parties benefit if the duty to defend and indemnification issues in this action are resolved without delay. It also maintains that a stay is improper because the issues in this action — whether it has a duty to defend or indemnify Northwest against certain property owner claims — are ultimately distinct from the issues in the Desjarlais suit, which advances myriad claims against various parties. Weighing the factors itself, the Court concludes that there is an appropriate middle ground.

Before diving into the factors, the Court finds it prudent to discuss the circumstances surrounding this case, which underscore the need for a stay of some but not all parts. The parties agree that multiple property owners have put Northwest on notice of claims, that more claims are possible, and that only one (Desjarlais) has actually proceeded to court. Cincinnati seeks various declarations including that it has no duty to defend or indemnity Northwest with respect to the Desjarlais suit, it has no duty to defend or indemnity Northwest with respect to all other property owner claims including an administrative complaint, and it need not reimburse or indemnify Northwest for out-of-pocket settlements entered into without its consent. Northwest seeks counter declarations and advances a UTPA claim.

It is proper to split this dispute into 2 analytical categories for assessing whether a stay should be imposed. On one side are the declaratory claims that relate to the Desjarlais suit. On the other side are the declaratory claims related to other property owners’ claims, the issue of reimbursement or indemnification for out-of-pocket settlements, and the UTPA claim. Essentially, there are the Desjarlais claims and everything else. A limited stay of the Desjarlais claims is proper but the Court will not stay any other part of the case.

The Court will address the first 2 Landis factors in tandem because both involve weighing possible ill effects occasioned on the parties by either staying or refusing to stay this action. As Northwest points out, an insurer’s continued expenditure of defense costs during a stay is generally insufficient to constitute “damage” in the Landis context. Bottini (SD Cal. 2020) (“Arguments concerning defense costs have been rejected by courts to support any prejudice to the non-moving party on a motion to stay.”). The logic behind this is that because insurers are “in the business of advancing defense costs,” they cannot complain about having to do so, Ou (CD Cal. 2019), and can often recoup wrongfully expensed defense costs from the insured, Zurich (ND Cal. 2019). Consequently, the Court agrees that Cincinnati’s continued expenditure of defense costs as to the Desjarlais suit is not sufficient reason to deny Northwest’s request for a stay.

But the Court is concerned that Cincinnati will be harmed if it is unable to begin discovery into the aspects of this case that involve other claimants than Desjarlais. This weighs against staying this action in its entirety. As to Northwest, the difficulties attendant to fighting the Desjarlais suit claim on 2 fronts weighs in favor of a stay on the part of Cincinnati’s claim that involves its duty to indemnify the claims advanced in that action. Zurich. However, this risk of harm does not translate to the other aspects of this case which do not depend on resolution of the Desjarlais suit. The first 2 Landis factors weigh in favor of staying the Desjarlais suit duty to indemnify claim but not any other claims advanced in this action.

The Court reaches a similar conclusion as to the 3rd factor — the orderly course of justice. While Cincinnati’s Desjarlais suit duty to indemnify claim may require this Court to wade into factual issues that will ultimately be resolved in the Desjarlais suit, this is the State Court’s prerogative and this Court will not “risk making factual determinations that may conflict with the state court’s findings” on these issues. Id. Additionally, if a stay were not granted as to the Desjarlais suit duty to indemnify claim Cincinnati would be incentivized to improperly posture itself in a manner adverse to Northwest’s interest in that proceeding. Home Indemnity (D.Or. 2001). Both of these considerations weigh in favor of entering a stay as to the Desjarlais suit duty to indemnify claim. As with the other considerations, however, these concerns are not implicated by any other part of this case.

After weighing the foregoing factors, the Court concludes that it should stay adjudication of Cincinnati’s declaratory claim regarding its duty to indemnify Northwest in the Desjarlais suit, but refuses to stay any other aspect of the case. Cincinnati’s remaining declaratory claims may proceed without delay, including the Desjarlais suit duty to defend claim, because resolution of that issue presents a question of law resolvable without a factual record. Deck (Mont. 2016) (to determine whether there is a duty to defend, one need only examine the underlying complaint to asses if it “alleges facts, which if proven, would result in coverage”).

Cincinnati Ins. v. Northwest Painting, 44 MFR 250, 7/26/21.

Kristine Beal & Ian Gillespie (Beal Law Firm), Missoula, for Cincinnati; J.R. Casillas & Trent Baker (Datsopoulos, MacDonald & Lind), Missoula, for Northwest.