CONTRACT: Claims that sculptor was deceived into accepting flat fees rather than royalties for horse figurine masters time-barred, not tolled by discovery, fraudulent concealment doctrines… bailment claim dismissed for failure to state claim… Christensen.

Phyllis Driscoll began sculpting figurines in 1996 for Kris & Ray Basta’s Singing Tree Farms. Singing Tree and Big Sky Carvers LLP merged in 1/00 to form Big Sky Carvers Inc. In early 2000, Kris Basta approached Driscoll about a new project that BSCI had with Montana Silversmiths. Driscoll agreed to create a horse sculpture for a flat fee. Basta told her that MSS did not pay a royalty. She said, “Montana Silversmiths will never pay a royalty on the horse sculptures. Don’t even ask because they will never pay a royalty.” Driscoll was accustomed to a royalty arrangement and said she would prefer a royalty rather than a flat fee. She asked Basta why MSS would not pay a royalty. Basta replied, “That’s just the kind of company Montana Silversmiths is.” In 4/00 Driscoll again asked if she could earn a royalty for the horse sculpt and Basta said, “No, this company will never pay a royalty, they just won’t, it’s Montana Silversmiths, they just will not pay a royalty.” Basta and other BSCI reps later repeated to Driscoll and her husband that “MSS does not pay royalties” and similar statements. Basta did not inform Driscoll that BSCI had entered into an agreement with MSS as of 1/00 in which BSCI agreed to provide services to develop a cowboy giftware line in exchange for an 8.5% royalty. This resulted in BSCI earning 8.5% on the sale of each of Driscoll’s horse sculpts. Each time Driscoll presented a horse sculpture to BSCI she was paid a flat fee and entered into a “Perpetual Grant of Reproduction Rights.” She understood that the rights she transferred to BSCI would be assigned to MSS as reflected in the bottom of each PGRR. Each PGRR provided: “Artists have been compensated in full for the Artist’s involvement in the Master and such Master shall not be, now or ever, subject to any royalty payments.”

In 5/11 Driscoll learned that MSS paid royalties to artists. She sued Defendants in 4/13 for fraud, constructive fraud, deceit, breach of the implied covenant, unjust enrichment, breach of contract/license, voidable title, bailment, copyright infringement, Lanham Act claims, and declaratory judgment. Defendants request summary judgment based on statute of limitations. Driscoll’s Statement of Disputed Facts, stretching over 53 pages, gives the erroneous impression that the material facts are hotly disputed. In reality, the relevant material facts for this motion are not in dispute and Driscoll’s Statement of Disputed Facts frequently exaggerates and unnecessarily complicates a straightforward set of undisputed facts.

It is undisputed that all of Driscoll’s claims are subject at most to an 8-year statute (2 years for fraud and other claims to 8 years for breach of contract or license). It is also undisputed that all alleged misrepresentations as to MSS’s royalty policy were between 2000 and 2004. Thus for Driscoll’s claims to be within any applicable period, tolling must be applicable.

Driscoll contends that the discovery rule should toll the periods on all of her claims until 2011 when she learned that MSS paid a royalty to artists for sculpts. “The discovery rule provides that a limitations period does not begin until the party discovers, or in the exercise of reasonable diligence, would have discovered, the facts constituting the claim.” Draggin Y (Mont. 2013). “However, this rule only applies when the facts constituting the claim are concealed, self concealing, or when the defendant has acted to prevent the injured party from discovering the injury or cause.” Id. The facts constituting Driscoll’s claims are not by their nature concealed or self-concealing. Basta represented that MSS did not pay a royalty, but Driscoll concedes that she never asked MSS whether it did or whether BSCI would receive a royalty for services it provided to MSS. (She provides no evidence that she would have been legally entitled to this information about the terms of the contractual relationship to which she was not a party.) Nor is there evidence that MSS would have concealed its royalty policy had she asked. In the end, Driscoll did not learn that MSS paid a royalty by uncovering some secret; she learned it through conversations with another artist and an MSS representative. It cannot be said that the truth about Basta’s representations was by its nature concealed or self-concealing. All she had to do was make a phone call to MSS and ask a simple question; “Does MSS ever pay a royalty?” It is not as if MSS was some shadowy company to which she had no access. She admits that she had its contact information all along. Nor did Defendants act to prevent her from discovering the facts underlying her claim. The best evidence she offers is that Basta told her, “Don’t even ask because they will never pay a royalty.” This is insufficient to toll the limitations period. She could still determine whether MSS paid a royalty simply by asking MSS. Basta did not tell her that MSS could not be contacted or attempt to obscure how it could be contacted. She had all the information necessary to discover the facts underlying her claim and the discovery rule does not apply. Nor does it matter that Basta repeated these misrepresentations. Driscoll had a duty to pursue discovery of the facts through reasonable diligence. Draggin Y; Osterman (Mont. 2003). Reasonable diligence in this arm’s-length business deal required Driscoll to go to the source and ask MSS whether it paid a royalty. Thus the statute was not tolled.

Driscoll also argues that the period is tolled by fraudulent concealment. “Fraudulent concealment consists of `the employment of artifice planned to prevent inquiry or escape investigation, and mislead or hinder acquisition of information disclosing a cause of action.” Cartwright (Mont. 1996); EW(Mont. 1988). But unlike Cartwright and other fraudulent concealment cases, there is no professional-client or similar relationship by which Driscoll was entitled to rely on the information about MSS’s royalty policy given to her by Basta. This was an arm’s-length transaction and Basta’s representations pertained to the royalty policy of some other entity. Driscoll was not entitled to rely on it in the same way an insured may rely on assurances from his agent about a confusing insurance policy, Cartwright, or a client is entitled to rely on assurances from his accountant about a complicated tax arrangement, Draggin Y. Driscoll knew from the beginning that she was dissatisfied with the arrangement. Consistent with most of her prior arrangements, she wanted a royalty and was not getting one. These circumstances were ample to trigger inquiry notice about Basta’s representations. Thus fraudulent concealment is inapplicable. Driscoll also contends that Defendants’ mere silence as to their royalty arrangement is sufficient to toll the statute. This theory is based on her unsupported allegation that a fiduciary relationship arose as a result of the “bailment relationship between Driscoll, as the bailor, and BSCI and MSS as the bailees.” She offers no evidence of any bailment relationship. In fact, the evidence is entirely to the contrary. She executed 25 nearly identical PGRR’s each time she presented a new sculpture to BSCI. The PGRRs assigned to BSCI “a perpetual exclusive right to … reproduce, manufacture, distribute, market, sub-license, reassign or otherwise use in any form thereof, the original piece of art,” and Driscoll was “compensated in full for [her] involvement in the Master and such Master shall not be, now or ever, subject to any royalty payments.” The contract also required her to “disclaim all rights of ownership to the Master, including ownership of copyrights, trademarks or other intellectual property associated with the Master.” Accordingly, Defendants owed no fiduciary duty such that mere silence could constitute fraudulent concealment.

Driscoll’s claim for bailment is also dismissed for failure to state a claim. Bailment generally requires one to return in proper condition the personal property that was “deposited” with them, or pay for any damages from wrongful use. MCA 70-6-201-214. The depositary must, “on demand,” return the property to the person who deposited it. There is no duty to deliver the property without a demand. §212; Gates (Mont. 1926); Viers (Mont. 1926). Driscoll’s complaint fails to allege that a demand was made by her or a refusal by any of the Defendants. Citing dicta from Viers, she contends that this omission is excused because she has alleged that the property was wrongfully acquired. However, the dicta is contrary to the requirement established by statute. Further, the PGRRs belie her complaint allegation that “her parting was temporary.” They granted a “perpetual exclusive” right of reproduction to BSCI, and Driscoll and her heirs “disclaim all rights of ownership to the Master.”

All claims dismissed with prejudice; the case is closed.

Driscoll v. Singing Tree Farms et al, 42 MFR 246, 2/11/15.

Julie McGarry (McGarry Law Firm), Bozeman, for Driscoll; Robert Lukes (Garlington, Lohn & Robinson), Missoula, for BSCI, Pierce, and Basta; Jean Faure (Faure Holden), Great Falls, and (formerly) Shane Coleman (Holland & Hart), Billings, for MSS and Group Montana.

ARBITRATION: Health care sharing ministry Member Guide is an insurance contract… Montana law prohibits arbitration clauses in insurance contracts and the McCarren-Ferguson Act reverse-preempts the FAA… HCSM providers’ motions to compel arbitration denied…. Haddon.

Plaintiffs’ claims.

Defendants sold catastrophic health coverage to Maria & Ron Moeller called CarePlus with a $10,000 deductible and 100% coverage of medical expenses after that deductible was met up to a $500,000 cap. They promised to cover expenses associated with cancer including chemotherapy. Defendants, covertly led by a man convicted of securities fraud and perjury but masquerading as an “ethical and religious” Christian sharing ministry, collected thousands of dollars in premiums from Moellers. In early 2019, more than a year after they left their Blue Cross plan to enroll in CarePlus Advantage, Maria was diagnosed with primary peritoneal cancer. She underwent chemotherapy and surgery, incurring more than $180,000 in medical bills. Defendants paid none of them. Instead they made bogus excuses that violated the written promises and terms of the CarePlus Advantage plan and ignored Plaintiffs’ appeals. Even after determining that they owed some part of the bills, they failed to make any payments, leaving hospitals and medical companies unpaid and Moellers exposed to severe financial harm as they fought a dreaded disease. They allege breach of contract, unfair claims settlement practices, fraudulent inducement, deceit, constructive fraud, negligent misrepresentation, common law bad faith, negligence, negligence per se in violation of §33-18-201 and common law to the extent that they should be found not to be an insurer within the meaning of §§ 33-18-242 and 33-1-201(6), breach of fiduciary duty, violation of the CPA, joint tortious enterprise, malice, promissory estoppel, equitable estoppel, and alter ego.

The Aliera Companies and Trinity Healthshare moved to compel arbitration. Hearing was held all day 4/12/21 and the morning of the next day.

Judge Haddon’s findings, conclusions, and order.

At issue is whether coverage and claim resolution disputes are subject to arbitration in Montana.

In 12/17, Ron Moeller applied for membership in Unity Healthshare LLC’s CarePlus Advantage health sharing plan administered by The Aliera Companies Inc. He and Maria were notified 12/17/17 that their membership was “active” and effective 1/1/18.

Unity functioned as a health care sharing ministry which marketed “plans” that were asserted to be exempt from healthcare insurance requirements of the ACA and by which members agreed to share in eligible medical costs and that, in several ways, functioned like traditional insurance.

Moellers moved from Texas to Helena in 3/18 and monthly “contributions” to Unity were continued.

Aliera emailed Moellers in late 2018 that it would be changing their HCSM provider to Trinity Healthshare but the plan would otherwise remain the same and “no action is needed” by Moellers. They received from Aliera a “2018-2019 Trinity Member Guide” which differed substantially from the Unity Member Guide including a mandatory and binding dispute resolution provision.

Trinity was chartered as a non-profit corporation in 6/18. Like Unity, it claimed to provide health sharing memberships administered by Aliera.

Contributions to the Trinity plan were to be used in part to pay covered medical expenses. Trinity previously conducted activities as “Trinity Healthshare.” It now operates under the name “Sharity Ministries Inc.

On 1/13/19 Aliera emailed Moellers that “until further notice” they were “not being transitioned to Trinity” and “your plan will remain a Unity HCSM plan at this time.” This statement in substance withdrew any offer by Aliera and Trinity to transition Moellers to coverage by Trinity.

Moellers took no action in response to receipt of the 2018-19 Trinity Member Guide or any other communications from Aliera, Unity, or Trinity through 1/13/19. No offer was made after 1/13/19 by Aliera or Trinity for Moellers to transition from Unity to Trinity nor was any such offer from Aliera or Trinity accepted by Moellers.

Aliera’s late 2018 email statement that “nothing changes on your plan except for the HCSM name” was flawed, inaccurate, and contained misrepresentations of fact.

26 USC 5000A(d)(2)(B) requires that an entity claiming to be an HCSM, or a predecessor entity, have existed and functioned “continuously and without interruption” since at least 12/31/99. Trinity did not exist 12/31/99. It does not qualify and never has qualified as an HCSM and could not claim to be such an entity when chartered in 6/18.

Moellers received an email from Aliera 4/30/19 stating: “Aliera is no longer selling your current health plan with the Aliera Healthcare/Unity HealthShare, LLC component” and “an affordable, seamless option – with the same benefits and services – exists.” On 5/2/19 Ron Moeller executed a Plan Update Authorization Form which stated: “I hereby authorize Aliera Healthcare to change my current Aliera/Unity plan to an equivalent Aliera/Trinity plan.”

Neither the 4/30/19 email from Aliera nor the 5/2/19 Plan Update Authorization Form executed by Moeller contained any reference to arbitration of contract disputes, or to the terms, conditions, content, or identity of any specific member guide, or to any of the many differences between the Unity Member Guide and the 2018-19 Trinity Member Guide.

Aliera emailed Moellers 6/18/19 of their transition from the Unity plan to a Trinity plan effective 6/1/19. Moellers then made monthly “contributions” to Trinity/Aliera while enrolled with Trinity until membership terminated 12/31/19. Unity Healthshare is not named as a party in this case, has not appeared as such, and is not before the Court.

It is also worthy of note that on 6/22/21 Northern Dist. Georgia Judge Amy Totenberg in a factual and legal issue setting remarkably similar to this case issued a thoughtfully reasoned and exhaustive Opinion & Order holding that Trinity did not qualify as an HCSM under the ACA, the contracts were contracts of insurance, and the contracts were not subject to mandatory resolution of disputes by arbitration.

Moellers’ execution of the Plan Update Authorization Form was not acceptance of an offer to contract for the plan in the 2018-19 Trinity Member Guide or the 2019 Trinity Member Guide. Any offer extended by Aliera and Trinity and based on the 2018-19 Trinity Member Guide had been withdrawn by Aliera’s and Trinity’s 1/13/19 email and had not been re-extended. Moellers never took any steps or action that expressed a willingness to accept the 2018-19 Trinity Member Guide plan. Moreover, there is no evidence that they ever received the 2019 Trinity Member Guide plan or that they accepted it.

Incorporation of an arbitration clause into the contract would have fundamentally altered the dispute resolution process, would not have offered the same benefits and services as the Unity plan, and would not have been “equivalent” to the Unity plan. The fundamental components of an offer and acceptance of the 2019 Trinity Member Guide plan were never agreed on.

The 2019 Trinity Member Guide was — notwithstanding disclaimer by Aliera and Trinity — an insurance contract (plan) under Montana law. Insurance in Montana is defined as “a contract through which one undertakes to indemnity another or pay or provide a specified or determinable amount of benefit upon determinable contingencies.” The terms contained language by which members paid a premium to be used along with premiums paid by other members to pay for eligible medical costs for members. Trinity maintained exclusive control over what medical costs qualified for payment and how premiums were to be distributed. The 2019 Trinity Member Guide evidenced a contract by which members paid premiums and Trinity indemnified them for determinable amounts upon determinable contingencies.

Trinity nevertheless asserts that the 2019 Trinity Member Guide contract was not a contract of insurance because Trinity is an HCSM and therefore exempt from insurance regulation. However, it does not and cannot qualify as an HCSM and it cannot avoid the determination by such an assertion that the contract is a contract of insurance.

Montana law prohibits arbitration of an insurance contract. MCA 27-5-114(2)(c). Defendants claim that the statute is both unconstitutional and preempted by the FAA. Both assertions are wrong.

The FAA directly conflicts with the McCarran-Ferguson Act which states that “no Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance unless such Act specifically relates to the business of insurance.”

The 9th Circuit has not spoken directly, by published opinion, to whether the MFA does reverse preempt the FAA with regard to state statutes that prevent arbitration of insurance contracts. Several other Circuits have consistently concluded that the MFA does reverse preempt application of the FAA in such cases. Moreover, the 9th Circuit, in an unpublished opinion, Technical Security Integration (9th Cir. 2018), held that the MFA reverse preempts the FAA. Precedent in opinions of other Circuits and guidance from Technical Security Integration are persuasive.

The plain specific language of the MFA reverse preempts application of the broad language of the FAA to Montana law barring arbitration clauses in contracts of insurance. The Montana statute is constitutional and — contrary to the FAA — applies to prohibit arbitration of insurance contracts in Montana.

It is an unfortunate reality that this case as now postured presents and leaves unanswered numerous significant issues, several of which have not been raised by the parties, that must be resolved before the case is positioned for merit disposition, including how this Court could lawfully consider or decide any contract dispute between Moellers and Unity — not a named party in this case — involving the Unity Healthshare CarePlus Advantage health sharing plan and whether either the 2019 Trinity Member Guide or the 2018-19 Trinity Member Guide would — without a final, valid, and specific ruling that binding resolution of disputes by arbitration was mandated and was a valid component of the contract — support a conclusion that a binding HCSM contract between Moellers and Trinity ever existed.

Ordered:

Moellers did not accept an offer to enter into a contract containing a binding arbitration clause, did not enter into a contract containing a binding arbitration clause, and are not parties to a contract containing a binding arbitration clause.

Trinity Healthshare’s motion to compel arbitration or dismiss claims and stay remaining litigation is denied.

Aliera’s motion to compel arbitration is denied.

Moeller v. The Aliera Companies, Trinity Healthshare, Timothy Moses, Shelley Steele, and Chase Moses, 44 MFR 245, 6/30/21.

John Morrison & Anne Sherwood (Morrison Sherwood Wilson Deola), Helena, for Moellers; Stefan Wall (Wall, McLean & Gallagher), Helena, Sara Craig (Burr & Forman), Tampa, and Elizabeth Shirley (Burr & Forman), Birmingham, for Aliera, Steele and Chase Moses; Nathan Schacht (Baker & Hostetler), Denver, and Jeffrey Baxter & Jacqueline Menk (Baker & Hostetler), Atlanta, for Trinity; Nathan Bilyeu & Sean Slanger (Jackson, Murdo & Grant), Helena, for Timothy Moses.

INSURANCE: Coverage and defense of oilfield waste pollution suits by Louisiana entities for activities in Montana precluded by failure to provide timely notice and by material misstatements in policy applications… Louisiana law applied in case transferred to Montana… Morris.

Admiral Ins. requests summary judgment that it has no duty to defend or indemnify Defendants under 6 policies issued in relation to 2 State Court suits, Harmon and DEQ, in Roosevelt Co. and 6 Violation Letters from DEQ relating to handling of oil field waste from the Bakken area in North Dakota to the Bainville, Montana site at issue. Defendants are Dual Trucking & Transport LLC (“DTT”), Dual Trucking of Montana LLC (“DTM”), Dual Trucking Inc. (“DTI”), and Anthony Alford. The Dual Entities’ principal places of business are in Houma, Louisiana. Alford, of Terrebonne Parish, Louisiana, was principal manager of DTM, managing member of DTT, and an officer of DTI.

DTI leased a tract in Montana from Garth Harmon and Wagner Harmon in 2011 and assigned its right to lease to DTM later that year. DTM and Harmons then terminated the original lease and DTM leased 3 tracts from Harmons. The DTM-Harmon leases included the entire portion of the original DTI-Harmon lease. The 3 leases, which constitute the “Bainville Site,” included a purchase option for DTM.

Montana DEQ sent a Warning Letter 9/17/12 to Alford advising that it had received a complaint that oil field exploration and production waste (Special Waste) had been placed on the Bainville Site without a Solid Waste Management Facility license which would constitute operating in violation of the Montana Solid Waste Management Act, MCA 75-10-212, 221. The letter required Defendants to within 15 days hire an environmental consultant and develop a corrective action plan and within 30 days the waste must be removed and disposed of and within 60 days Defendants must provide a “cleanup report” from their consultant. Defendants insist that the Warning Letter “merely reported an unsupported hearsay allegation barren of fact” and characterize it as “merely advisory.” Notably, the letter cautions that if Defendants fail to follow its requirements, DEQ stood “prepared to initiate a formal enforcement action that may include the assessment of penalties.”

Admiral issued 2 Environmental Impairment Liability Policies for coverage at the Bainville Site. The first listed a period 10/1/12-10/1-13 and the second for 10/1/13-10/1/14. They list DDT as the named insured. They are claims-made policies, designed to provide coverage for certain pollution conditions at a property that the named insured owns or controls. The application asks whether DTT operated in compliance with environmental laws and whether it knew of any conditions that might lead to a claim. DDT failed to include its receipt of the 9/17/12 Warning Letter in its 2012-13 application.

Admiral also issued 4 Contractor Pollution Liability Policies, 2 to DTI and 2 to DTT. They named DTM as an additional insured. The first 2 CPL policies listed a period of 10/1/12-10/1/13. The second 2 listed a period of 10/1/13-10/1/14.

DEQ sent Violation Letters in quick succession to representatives of the Dual Entities including Alford:

(1) 3/12/13, Solid Waste & Open Burning Complaint; referenced the 9/17/12 Warning Letter and detailed allegations that the Dual Entities were improperly storing and disposing of solid waste, dumping “Liquid Invert” and contaminated soil & water on the ground, and burning Tyvek suits and trash at the Bainville Site.

(2) 3/13/13, Violations of Solid Waste Mgmt. Act; DTT had not performed the required items listed in the 9/17/12 Warning Letter related to the unlicensed Solid Waste Management Facility that it was operating at the Bainville Site.

(3) 3/13/13, Liquid Invert Spill at Bainville; advised that a spill of 1,500 barrels of “Liquid Invert” qualified as an improper disposal of solid waste and constituted a violation of the SWMA.

DDT responded to the first 3 Violation Letters with a letter dated 3/20/13. DEQ on 6/10/13 received an application for a Solid Waste Management Facility license at the Bainville Site.

DEQ sent a 4th Violation Letter dated 8/2/13, Proposed Dual Trucking Treatment Facility — Bainville, Mont., Site Inspection Report, related to the unlicensed Solid Waste management Facility at the Bainville Site. It acknowledges that it had received DTT’s application for a Solid Waste Management Facility License 6/10/13 and notes that DTT was engaged in the ongoing management of solid wastes at the facility, an act that qualifies as operation of a Solid Waste Management Facility without a license in violation of the SWMA.

On 9/25/13 Harmons wrote Alford and DTM (“Breach of Contract Letter”) asserting that DTM had breached the 3 leases at the Bainville site because the Dual Entities had “caused environmental impairment to the Property” and “used the property in a manner that has caused pollution of waterways flowing through or underneath the property.”

DTT failed to attach any of the 4 Violation Letters or mention the pollution referenced in the Breach of Contract Letter when it renewed its 2013-14 EIL policy or CPL policies.

DEQ sent a settlement offer to DTT 12/4/13 seeking to address its violations of the SWMA. In response, DTT employed Hydro Solutions to prepare a Site Characterization & Environmental Condition Report (“2013 Site Report”) which DTT submitted to DEQ 12/13/13. It admitted in the report 3 “suspected or known release” events which it described as “Storm Water” related and as a berm breach lasting 3 hours. It prepared a revised report in 2/14 in which it admits that the 3 release events occurred in 7/13. DEQ and DTT then engaged in settlement negotiations and exchanged redline changes to different offers.

DEQ sent a 5th Violation Letter to the Dual Entities 4/22/14, Request to cease solid waste mgmt. operations at DTM; Mont. DEQ enforcement action for violations of Mont. SWMA, stating that DTT had illegally managed solid wastes at the Bainville Site without an SWMF license since at least 7/12. It acknowledged that DTT had applied for a SWMF license but stated that DEQ had found the application deficient and DTT had not responded adequately to the deficiency letter and the application had expired and DTT should submit a new application.

DTI responded to Violation Letter 5 by letter from Julius Hebert 4/25/14 and by letter from A. Joselyn 4/30/14 advising DEQ that it had ceased operations at the Bainville Site.

Counsel and representatives of DTT met with DEQ 5/6/14. DEQ advised that it believed the Dual Entities were responsible for water quality violations discovered in surface water samples taken from the Bainville Site.

Defendants and Harmons engaged in settlement negotiations regarding the contamination at the Bainville Site and DTM’s proposed purchase of the site. They detailed a number of payment terms in a 5/20/14 email chain. DTM later asserted that it owns the Bainville Site after paying $729,000 for it, equating to $25,000/acre for its surveyed size.

DEQ sent a 6th Violation Letter to the Dual Entities 6/26/14 related to the unlicensed Solid Waste Management Facility at the Bainville Site, Violations of the Water quality Act, referencing DTT’s 9/13/13 admission that it had 3 suspected or known waste or storm water releases at the site.

DTT canceled the 2013-14 EIL policy effective 7/1/14 and received a partial reimbursement of its premium. The policy entitles an insured to an automatic 30-day extended reporting period which “shall apply to Claims first made within the Automatic Extended Reporting Period but only with respect to Pollution Conditions that (a) are Discovered and reported during the Automatic Extended Reporting Period.” “Discovered” is defined as “the point in time at which any officer, director, executive or employee responsible for environmental compliance of an Insured becomes aware of the existence of a Pollution Condition.”

Admiral asserts that it had not received notice of any claims related to the Bainville Site by 7/1/14. The next day DTT provided the first notice of any claims related to the Bainville Site. The Notice of Claim indicates that the date of occurrence was 7/5/13 and seeks coverage under the 2012-13 EIL policy in effect at that time. It attached Violation Letter 6. DTI provided a Notice of Claim 7/3/14 asserting the same claim as stated in DTT’s notice.

On 11/25/14 DEQ filed the Montana DEQ action and included an application for an injunction against DTT related to its use of the Bainville Site as an unlicensed Solid Waste Management Facility which it alleges DTT operated 7/26/12-4/30/14. On 6/23/15 Harmons filed a 2nd amended complaint alleging that Defendants have operated an unlicensed Solid Waste Management Facility at the Bainville Site and have caused or allowed pollutants to remain on the site and migrate off the site to surrounding properties. They point to the allegations in Montana DEQ to support their contentions. DTM counterclaimed against Harmons and filed a quiet title action alleging that it had a lease-to-own agreement for the entire Bainville Site and that Harmons had received full payment for the site but refused to transfer title.

DTM hired Terracon Consultants to conduct testing at the Bainville Site in response to the pollution allegations, It concluded that no contamination migrated off the site onto neighboring property.

This case came before this Court upon transfer from the Eastern District of Louisiana. “The transferee district court must be obligated to apply the state law that would have been applied if there had been no change of venue.” Van Dusen (US 1964). A change of venue under 28 USC 1404(a) generally should constitute “but a change of courtrooms.” Id. Eastern District of Louisiana determined that the District of Montana should apply Louisiana law in interpreting the policies.

Admiral seeks a declaration that it maintains no obligation to continue paying Defendants’ defense costs and will not be obligated to indemnify them. Defendants counter that Admiral fails to present a justiciable claim.

Under Montana law, a justiciable controversy requires that parties have existing or genuine rights or interest as opposed to merely theoretical rights. The controversy must present issues that render the court’s judgment operative as distinguished from a debate or argument invoking a purely political, administrative, philosophical, or academic conclusion. And the controversy must require a judicial determination with the effect of a final judgment in law or equitable decree of the rights, status, or legal relationships of a real party. Northfield Ins. (Mont. 2000). Should the controversy lack these features, it still may prove justiciable where it involves issues “of such overriding public moment as to constitute the legal equivalent of each factor. Id.

Defendants insist that Admiral “fails to establish any of these requirements.” They allege that unresolved related issues remain in the underlying actions that ultimately may affect whether it owes a duty to identify them, rendering premature any ruling by this Court on its indemnity obligations. The Court disagrees. Admiral seeks a declaration that Defendants lost coverage under their 6 policies because alleged material misstatements in their applications violated policy terms, their purported knowledge of pollution at the Bainville Site before the policy periods and extended reporting periods violated policy terms, and the fact that they rented, occupied, or controlled the Bainville Site precludes coverage. These determinations may be made separate and apart from the conclusion of the underlying cases.

Admiral asserts that the Dual Entities failed to provide notice of any claim during the 2012-13 EIL policy period. They first provided notice of the pollution condition at the Bainville Site 7/2/14. The notice filed by DTT listed the “date of occurrence” as 7/5/13, which falls within the 2012-13 EIL period. DTT sought coverage for the 7/5/13 occurrence under the 2012-13 EIL policy. DTI provided notice of the pollution at the Bainville Site 7/3/14, the day after DTT had filed its notice. DTI also sought coverage under the 2012-13 EIL policy and listed the “date of occurrence” as 7/5/13.

Admiral describes the 2012-13 EIL policy as a “claims made” policy. It “provides coverage for certain pollution conditions only if the pollution condition was “Discovered and reported to [Admiral] during the Policy Period, the Automatic Extended Reporting Period or the Optional Extended Reporting Period, if any.” Admiral states in its Statement of Undisputed Facts that it “did not receive any notice of a claim related to the Bainville Site during the October 1, 2012 to October 1, 2013 policy period.” Defendants “dispute” that statement, citing the Declaration of Ronald Ronzello, VP of Claims for Berkley Custom Insurance Managers. Their sole basis for disputing Admiral’s statement was that “Admiral received notices of potential claims in July 2013 as admitted by Ronzello.” The Court has reviewed Ronzello’s declaration. It clearly states that Admiral “did not receive any notice of a claim related” to DTT’s facility at the Bainville Site during the 2012-13 policy period. He goes on to state that the first notice of claim that Admiral received was filed by DTT 7/2/14. Contrary to Defendants’ assertion, his statement supports Admiral’s claim that the Dual Entities failed to report any claim to Admiral during the 2012-13 EIL policy period.

Louisiana law provides that a policy limiting coverage to claims “made and reported during the policy period” delineates the scope of coverage bargained for by the insurer. Hood (La. 2008). “The purpose of a reporting requirement in a claims-made policy is to define the scope of coverage purchased by the insured by providing a certain date after which an insurer knows it is no longer liable under the policy.” Gorman (La. 2014). Under a claims-made policy, “the risk of a claim incurred but not made, as well as a claim made but not reported,” shifts to the insured. The insurer can “close its books” on that policy once the policy period and reporting period expire. Id.

The unambiguous policy terms provide that coverage under the 2012-13 EIL policy exists only if Defendants’ claim was discovered and reported within the policy period. Defendants have failed to show that a material dispute of fact arises from Admiral’s assertion that it received no notice of any claim related to the Bainville Site during the 2012-13 EIL policy period. They further fail to dispute that this failure to receive notice eliminates coverage under terms of the policy. Admiral is entitled to summary judgment that no coverage exists under the 2012-13 EIL policy for the pollution conditions at the Bainville Site. Admiral possesses no duty to defend Defendants for claims arising under the 2012-13 EIL policy.

Admiral next argues that no coverage exists for the 7/2/14 claim. It notes that DTT canceled the 2013-14 EIL policy 7/1/14. It claims that DTT provided its first notice of claim 7/2/14 during the automatic extended reporting period and that no coverage exists for the 7/2/14 claim because the Dual Entities discovered the pollution condition before the automatic extended reporting period began.

The 2013-14 EIL policy provides coverage for certain pollution conditions that may have been discovered during the policy period 10/1/13-10/1/14. DTT canceled the 2013-14 EIL policy effective 7/1/14 and received a partial reimbursement of its premium. Admiral received no notice of any claim related to the Bainville Site by 7/1/14 and as a result did not receive notice of any claim during the 2013-14 EIL policy period.

As to the automatic 30-day extended reporting period, DTT’s 7/2/14 notice of occurrence identified the date of the incident as 7/5/13. It sought coverage under the 2012-13 EIL policy, not the 2013-14 policy. Defendants acknowledge receipt of 4 Violation Letters and Harmons’ breach of contract letter before the 2013-14 EIL policy period and their awareness of the 7/13 stormwater releases before the 2013-14 EIL policy period and that they engaged in settlement negotiations with DEQ and received Violation Letter 5 before the 2013-14 EIL extended reporting period. Defendants fail to dispute that the 2013-14 policy period precludes coverage for any pollution condition that Defendants “discovered” before 10/1/13 or that they had knowledge of before the extended reporting period. They instead assert that “certainly coverage has not been requested by Dual with respect to” the 7/5/13 stormwater release. (Emphasis added). The 7/13 stormwater releases constitute the only claims that they made under either EIL policy during the extended reporting period. Beyond DTT’s 7/2/14 notice of claim and DTI’s 7/3/14 notice of claim, Admiral alleges that it received no notice of any other claim or possible claim before 8/1/14 after the 30-day extended reporting period had expired. Montana DEQ was not filed until 11/25/14, long after expiration of the extended reporting period. Harmon was not filed until 2015.

Admiral has provided a defense to Defendants in the underlying claims under the 2013-14 EIL policy because some of the allegations could relate to the 7/13 stormwater releases. However, Defendants concede that they do not seek coverage for these releases and that no timely claim was made under the 2013-14 policies. Under these facts, the Court agrees with Admiral that no basis exists for its continued defense of Defendants under the 2013-14 EIL policy. The Court declines to address Admiral’s alternative arguments that both EIL policies are void ab initio in light of its determination that the Dual Entities are precluded from coverage under both EIL policies.

Admiral argues that the Dual Entities made material misstatements in their 4 CPL policy applications by “failing to truthfully answer questions regarding their compliance with Montana environmental laws, their knowledge of Montana DEQ’s multiple Warning and Violation Letters, their knowledge of the Harmons’ allegations of pollution at the Bainville Site, and their knowledge of the pollution at the Bainville Site.” It asserts that it issued the CPL policies in specific reliance on representations in the applications. No coverage exists under Louisiana law if the Dual Entities made material misstatements in their CPL policy applications. Duffy (ED La. 1993). Misrepresentations are considered “material” if they affect the insurer’s decision to issue the policy. Id. Louisiana law does not require strict proof of fraud to show that an applicant acted with intent to deceive. Id. A court can determine an intent to deceive from the attending circumstances that tend to show the insured’s knowledge of the falsity of the representations in the application and his recognition of the materiality thereof or from circumstances that create a reasonable assumption that the insured recognized the materiality of the misrepresentations. Id.

The 2012-13 CPL applications asked whether, in the past 3 years, any member of the application firm was “aware of any circumstances that could result in a claim, suit or notice of incident being brought against them?” Both DTI and DTT checked the “no” box in 2012 and neither supplied Admiral with the 9/17/12 DEQ Warning Letter. In their 2013-14 applications they again responded that they were not “aware of any circumstances that could result in a claim, suit or notice of incident being brought against them” and neither provided the 9/17/12 DEQ Warning Letter or any of the first 4 Violation Letters, each of which the Dual Entities had received in advance of submission of the applications. They also failed to provide information regarding the 3 stormwater releases at the Bainville Site in 7/13 or apprise Admiral of Harmons’ breach of contract letter in which they allege environment impairment at the Bainville Site.

Admiral insists that the sheer number of nondisclosures by the Dual Entities in their CPL applications support a conclusion that they acted deliberately to conceal this information, in recognition of the materiality of their misstatements, and that it would have declined issuance of the policies had they truthfully answered the questions. The Court agrees that the Dual Entities materially misrepresented their knowledge of the pollution conditions at the Bainville site in both the 2012-13 and 2013-14 CPL applications. Under terms of the policies, any duties that Admiral owes to the Dual Entities shall “terminate” as a result of a material misstatement. Admiral is entitled to summary judgment that it owes no duties to the Dual Entities under the 4 CPL policies because of their material misstatements and no duty to defend or indemnify them under the policies. The Court’s decision that the policies are void ab initio necessarily encompasses any CPL claims related to property damage incurred on the Bainville site and the Court therefore will not address these arguments by Admiral.

Admiral Ins. v. Dual Trucking et al, 44 MFR 244, 5/5/21.

Emma Mediak & Charles McNeil (Garlington, Lohn & Robinson), Missoula, for Admiral; Linda Deola (Morrison, Sherwood, Wilson & Deola), Helena, and KD Feeback (Toole & Feeback), Lincoln, for Defendants.

MEDICAL LICENSING: Challenge of license restriction for overprescribing narcotics rejected pursuant to Younger, 11th Amendment immunity… Molloy.

A former employee made a complaint against physician Mark Ibsen to the Board of Medical Examiners accusing him of overprescribing narcotics. Following a protracted administrative process, the Board found him guilty of not providing proper medical documentation to two patients and restricted his license to a probationary license. On 1/6/21 he sued Board Pres. Ana Diaz, former Gov. Bullock, and the Dept. of Labor. He alleges procedural due process violations under §1983, a privacy claim under the Montana Constitution, and a state law claim for tortious interference with contractual & business relationships, and seeks declaratory & injunctive relief and $8 million monetary relief plus “monetary damages for corrective advertising” and attorney fees. Defendants seek to dismiss his complaint. In response, he indicates that he would like to file an amended complaint and seeks 60 days to pursue discovery to do so.

Ibsen’s claims of procedural due process violations of the 4th and 14th Amendments are barred by the Younger (US 1971) abstention doctrine. There is a strong policy against federal intervention in state judicial processes absent great & immediate irreparable injury to the federal plaintiff. Id.; Gooding (9th Cir. 1968). Younger directs federal courts to abstain from injunctive or declaratory relief that would interfere with state judicial proceedings. “Abstention in civil cases ‘is appropriate only when the state proceedings: (1) are ongoing, (2) are quasi-criminal enforcement actions or involve a state’s interest in enforcing the orders and judgments of its courts, (3) implicate an important state interest, and (4) allow litigants to raise federal challenges.’” Cook (9th cir. 2018). If these “threshold elements” are met, the Court must “consider whether the federal action would have the practical effect of enjoining the state proceedings and whether an exception to Younger applies.” ReadyLink (9th cir. 2014).

The “threshold elements” are met here. Ibsen is seeking judicial review of the Board’s decision in State Court as indicated by his filing a “Petition for Judicial Review, Motion to Stay Board’s Order pending Review, and Motion for Sanctions” before the 1st Judicial District Court dated 1/28/21. This is a noncriminal judicial proceeding where the State is a party and important state interests are implicated. And Ibsen has adequate opportunity in the State Court to raise federal questions and concerns that affect his federal rights. MCA 2-4-704(2)(a)(i) (permitting consideration of whether “the administrative findings, inferences, conclusions, or decisions are in violation of constitutional provisions”). It also appears that he has done so.

Younger principles apply and a stay is appropriate when a federal ruling on a §1983 claim would “determine whether the federal plaintiff’s constitutional rights were violated.” Gilbertson (9th Cir. 2004). But “Younger abstention is proper only when the federal relief sought would interfere in some manner in the state court litigation.” Meredith (9th Cir. 2003). A determination regarding whether Ibsen’s constitutional rights were violated would have the effect of interfering with the “state courts’ ability to enforce constitutional principles, and put the federal court in the position of making a premature ruling on a matter of constitutional law.” Gilbertson. To rule on the constitutional issues raised here would impermissibly risk interfering with Montana’s administration of its judicial system.

Because all 4 Younger prongs are satisfied the Court must abstain from adjudicating Ibsen’s claims unless exceptional circumstances exist. Middlesex (US 1982). The recognized exceptional circumstances are a “showing of bad faith, harassment, or some other extraordinary circumstance that would make abstention inappropriate.” Id. Ibsen has not alleged an exceptional circumstance sufficient to avoid abstention.

If abstention is appropriate under Younger and the federal plaintiff seeks monetary damages, the proper procedural remedy is to stay the federal proceedings pending the outcome of the state proceedings. If the federal plaintiff seeks only injunctive or declaratory relief, the proper procedural remedy is dismissal of the federal action. Roden (9th Cir. 2007). Accordingly, Ibsen’s claims for injunctive relief are dismissed, leaving only his claims for monetary relief.

The 11th Amendment bars claims for monetary damages against states and state officials acting in their official capacity. Will (US 1988); Hafer (US 1991) (“Suits against state officials in their official capacity should be treated as suits against the State.”). Ibsen has sued a state agency and 2 state officials in their official capacities. Because these claims are barred, they are also dismissed.

Ibsen could potentially sue the individual Defendants for monetary damages in their “individual capacities.” Hafer. But to do so he would need to adequately plead a connection between the constitutional violations and the specific behavior of each defendant. Suever (9th Cir. 2009). Even construing his complaint liberally and broadly, he fails to implicate the personal actions of either the Governor or Diaz insofar as his procedural due process rights are concerned. Nor can he state a viable claim against either. Ashcroft (US 2009). The Governor is not involved in the Board’s disciplinary process. And even if Diaz was involved, the nature of Ibsen’s claims regard potential actions during the disciplinary process, which would fall within the Board members’ absolute immunity. Olsen (9th Cir. 2004); Mishler (9th Cir. 1999) (“Holding hearings, taking evidence, and adjudicating are functions that are inherently judicial in nature.”). Accordingly, granting Ibsen leave to amend his complaint would be futile.

Defendants’ motions to dismiss as to Ibsen’s federal claims are granted. Absent any remaining claims over which this Court has original jurisdiction, it declines to exercise supplemental jurisdiction over his state law claims.

Ibsen v. Diaz et al, 44 MFR 424, 4/7/21.

Mark Ibsen, Helena, pro se; Michael King (Tort Defense Division).

INSURANCE: Injured driver of mail delivery truck was employee of insured entity under control test in complicated business relationships, coverage barred by employee exclusion… Morris.

Triple L maintains contracts with USPS to deliver mail to rural areas near East Glacier. The exact arrangement by which it satisfies its obligations proves complicated. It owns no trucks and claims to employ no drivers, but claims that it instead obtains trucks and drivers from 3rd parties.

Triple L leases its trucks from Penske. Triple L maintains a commercial auto policy with State Farm to insure the trucks. The policy states that State Farm will pay damages for which Triple L has become obligated to pay because of injuries to others caused by an accident involving a Penske truck. An employee exclusion bars coverage of damages for injury to Triple L’s employees that arise out of that employee’s employment. The work comp exclusion bars coverage of damages for injury that would otherwise be covered by a comp policy.

Triple L obtains its drivers from Phoenix RCM. Not surprisingly, the exact arrangement proves complicated. Jeffrey & Milka Love are married. Jeffrey is president of Triple L. Milka is president of Phoenix and also secretary/treasurer of Triple L. Both Triple L and Phoenix are registered and operated out of Loves’ personal residence and are registered with the Montana SOS under the same email address. Historically, Triple L employed directly the drivers it needed to perform its USPS contracts. Milka formed Phoenix in 2004 and shortly after Triple L transferred its drivers to Phoenix in part as a means of avoiding higher work comp rates that resulted from Jeffrey being injured while working for Triple L.

On 12/7/16 John Oeleis allegedly was injured while operating a tailgate lift on one of Triple L’s leased Penske trucks. He submitted a claim under Phoenix’s comp policy and sued Triple L and Penske in Gallatin Co. State Court alleging negligence against Triple L for violating Montana’s OSHA. State Farm issued a reservation of rights letter to Triple L and filed this declaratory action to determine coverage. It argues that Triple L employs Oeleis and therefore his injuries are excluded under the employee and work comp exclusions. Triple L argues that Phoenix employs Oeleis and therefore his injuries are covered under the policy.

Applicability of the employee exclusion hinges on whether Oeleis constitutes an employee of Triple L. The test in Montana asks whether the employer possessed the right to control details of one’s work. Carlson (Mont. 1983). The control test adopted in Sharp (Mont. 1978) sets out as factors direct evidence of a right to control, method of payment, furnishing of equipment, and right to fire. Employment status can be determined upon satisfaction of any one of these factors. Schrock (Mont. 1987).

There is strong evidence that Triple L maintained the right to control details of Oeleis’s work. Its contracts with USPS required it to control the details by which its drivers perform their deliveries including enforcing the schedule on which they were to make their deliveries including which days certain routes were to be taken and at what time they were to arrive at and depart each stop. Drivers were instructed to call Triple L if they had any questions about the schedule, route, or equipment. The contracts required that Triple L ensure that the drivers conducted and presented themselves in a manner consistent with standards in the contracts.

The record proves foggy regarding the precise method by which Oeleis received payment. It indicates that Phoenix issued paychecks to him. If the analysis focused solely on which entity wrote a paycheck, this factor would suggest that Oeleis does not qualify as an employee of Triple L. The Court must examine the broader method by which he receives payment. Triple L contends that Phoenix pays its drivers’ salaries and then bills Triple L for the use of its drivers and for a consulting and accounting fee. USPS then reimburses Triple L for certain employee charges related to performance of the USPS contracts. The record fails to identify precisely the services included in these consulting and accounting fees.

The nature of the business arrangement between Phoenix and Triple L makes analysis of this factor more difficult. Phoenix maintains no clients other than Triple L. Triple L obtains all of its drivers from Phoenix. On paper they constitute separate entities. The reality tells a different story. Loves serve as presidents of their companies. Milka also serves as secretary/treasurer of Triple l. Triple L and Phoenix are registered with the SOS to the same email address and same physical address — Loves’ personal residence. The record shows that they do not implement any measures to separate the business files, personnel records, or payroll information. It fails to explain whether they even maintain separate financial accounts. For purposes of analyzing the method by which Oeleis received payment, the Court will presume that they maintain separate financial accounts and will consider them as entirely separate entities despite the commingling. The Court must therefore conclude that the record does not sufficiently demonstrate that the method by which Oeleis received payment indicates an employment relationship with Triple L.

The Court would have more pause regarding the method of payment analysis if the record were to indicate that Phoenix charged Triple L exactly the amount that Phoenix pays its drivers, but existence of consulting and accounting fees suggests that Phoenix provides some other service then merely serving as a shell company by which Triple L pays its drivers. An entity should not escape the conclusion that the method of payment suggests an employment relationship simply by first funneling the money through a 3rd party.

An entity furnishing valuable equipment strongly suggests an employment relationship. Schrock. Triple L furnishes its drivers with all the equipment necessary to perform the USPS contracts including a delivery truck, a tailgate lift, and miscellaneous tools. Conversely, the record suggests that the only equipment provided to the drivers by Phoenix are cell phones. Schrock noted the lack of cases in which an entity provides an individual with a vehicle and the court determines that he was not an employee. “Any owner who furnishes equipment as valuable as a tractor and trailer naturally maintains an interest in its care and typically will retain a right to supervise its use.” Id. Triple L maintained some control of the equipment even after assigning it to the drivers. If they experienced any problems with the trucks, they were to report them to Triple L which would report them to the leasing company. Triple L trained its drivers to properly use this equipment. That Triple L furnished Oeleis with all the valuable equipment necessary to perform his job strongly indicates that he qualifies as an employee of Triple L. Id.

Triple L contends that Phoenix retained the sole authority to fire Oeleis. This ignores that Triple L remained solely responsible for ensuring that its drivers abided by the requirements and standards of the USPS contracts. Triple L must possess the authority to bar Oeleis from driving for Triple L if Oeleis were to make deliveries or conduct himself in a manner inconsistent with the requirements and standards of the USPS contracts. This authority exists even if Triple L could not technically terminate his employment with Phoenix. The end result remains that Triple L must maintain the authority under the USPS contracts to bar Oeleis from making deliveries under the contracts.

The business arrangement between Triple L and Phoenix again complicates this analysis. The Court wonders what the ultimate effect would be if Triple L barred Oeleis from making deliveries for Triple L under the USPS contracts given that Phoenix has no other clients. The Court cannot imagine that Phoenix would retain Oeleis as a driver after he had been barred from driving for the only company to whom Phoenix provides drivers.

The record also shows that Triple L participated in Oeleis’s initial hiring process. It had the USPS conduct a background check and review of his driving record. Triple L and Phoenix jointly interviewed him. Triple L’s investment in the hiring of the drivers indicates that it maintained some degree of authority regarding employment decisions. Triple L’s contractual authority and investment in the employment process indicate that it maintained the right to fire Oeleis. Sharp.

The control test applied to the record demonstrates that Oeleis qualifies as an employee of Triple L. It maintained the right to exercise significant control over details of his work. This control went as far as dictating the dates and times at which he must make specific deliveries to specific stops and the manner in which he would conduct himself at those stops. Triple L also provided all the equipment necessary to perform his job including a valuable delivery truck and tailgate lift. It maintained the authority effectively to terminate his employment. The uncertainty involving the method by which he received payment does not alter the Court’s determination because each Sharp factor on its own can prove sufficient to demonstrate that he qualifies as an employee of Triple L.

The determination that Oeleis qualifies as an employee of Triple L triggers the policy’s employee exclusion. The Court need not address State Farm’s argument that the work comp exclusion also applies. Summary judgment for State Farm.

State Farm Mutual Auto Ins. v. Triple L et al, 44 MFR 243, 4/27/21.

Bradley Luck & Leah Handelman (Garlington, Lohn & Robinson), Missoula, for State Farm; Matthew Haus (Tarlow, Stonecipher, Weamer & Kelly), Bozeman, for Triple L; Mark Kovacich, Ben Snipes, and Paul Collins (Odegaard Kovacich Snipes), Great Falls, for Oeleis.