SCHEDULING ORDER: Ongoing discovery dispute, recent developments in Montana insurance law, not good cause for amending order… Molloy.

ACE seeks to amend the 11/6/14 Scheduling Order in light of an ongoing discovery dispute and recent developments in Montana insurance law. Greytak(Mont. 2015) (insurer required to show prejudice from untimely notice).

“Good cause” under Rule 16(b)(4) must exist before the scheduling order can be amended. Good cause is shown when the schedule cannot reasonably be met despite the diligence of the party seeking the extension. Coleman (9th Cir. 2000). That requirement has not been met. Neither the parties’ inability to amicably engage in discovery nor a legal decision that was issued 7 months prior to trial provide good cause for amending the order.

The order also cautions that motions to amend deadlines following the discovery deadline “will not be granted absent compelling reasons.” ACE fails to make such a showing. It should also be noted that Greytakwas certified to the Montana Supreme Court as early as 6/25/14 and submitted on the briefs 1/14/15.

ACE’s motion is denied.

Talmage et al v. ACE Property & Casualty Ins., 43 MFR 95, 9/1/15.

James Moore (Moore Law Office), Kalispell, and Gabriela Pirana & Meghan Moore (Ver Ploeg & Lumpkin, Miami, for Plaintiffs; David Clukey & Peter Habein (Crowley Fleck), Billings, for ACE.

ARBITRATION award of $213,194 on notes due, $10,037 pre-judgment interest, $31,251 fees/costs confirmed over untimely challenge by terminated employee that notes were in favor of predecessor entity, not successor which is non-FINRA member… Ostby.

Global Wealth Management Group of Morgan Stanley & Co. and Smith Barney Div. of Citigroup Global Markets combined in 6/09 as Morgan Stanley Smith Barney Holdings. Paul Stafford was employed 3/23/09-11/12/12 by Morgan Stanley and then MSSB. On 3/23/09 he signed Note A in favor of Morgan Stanley for $265,650 at 2%, to be repaid at $29,516.67/yr by 3/18. On 6/2/09 he signed Note B for $57,750 at 2.25% to be repaid at $7,218.75/yr by 5/17. Both provided that Morgan Stanley shall declare them immediately due if his employment terminates for any reason. Both provide for arbitration under Financial Industry Regulatory Authority rules. Stafford did not pay the balance on either note upon his termination, and MSSB submitted the matter to arbitration. A 3-arbitrator panel determined that Stafford was liable for $177,100 principal on Note A and $36,094 on Note B plus $10,017 pre-judgment interest and post-judgment interest from 7/22/14 on both notes, plus $29,755 attorney fees and $1,496 costs. It denied Stafford’s counterclaims. MSSB petitioned to confirm the award.

Stafford argues that the arbitrators exceeded their powers because the balance of the notes is owed to MSSB — not Morgan Stanley — and MSSB is not a FINRA member; the decision did not draw its “essence” from the contract and should be vacated because one party was a non-FINRA member; the arbitrators “manifestly disregarded the law” by not explaining their decision even though they had been provided contract law; the Court may modify the award because it is imperfect in form in that it does not consider that he is unable to pay the debt; he has timely claimed relief under Montana law for fraud or mistake because he was not aware that he was being required to pay a party that was not shown to be the party he had originally agreed to pay and was not aware that one of the parties was not a FINRA member and thus not an acceptable assignee of rights; and under Montana law, because he believed “in the present existence of a thing material to the contract [that did] not exist,” the Court should vacate, modify, or correct the award even though the 3-month limitations period has passed.

Stafford did not serve notice of a motion to vacate, modify, or correct the award, and thus has not effected service within 3 months as required by 9 USC 12. Thus he, as “an unsuccessful party at arbitration, who did not move to vacate the award within the prescribed time may not subsequently raise, as affirmative defenses in a suit to enforce the award, contentions that [he] could have raised in a timely petition to vacate the award.” Teamsters (9th Cir. 1983). He is thus precluded from arguing that his notes were with MSSB’s predecessor, that he never agreed to arbitrate with MSSB, and that he is unable to pay the award. His excuse is that:

Everyone told me trying to get an arbitration vacated was a waste of time. I thought that FINRA’s decision to allow me to practice due to my bona fide inability to pay would be sufficient for MSSB and that they would not pursue further legal actions.

He cites no authority that excuses compliance with a statutory limitations period on the basis that one believes it would be futile or that his inability to pay the award permits the Court to decline to confirm it. Because he has provided no other basis for tolling the limitations period, the Court declines to further consider his arguments seeking vacation, modification, or correction.

Pursuant to the parties’ agreements in the notes and under 9 USC §9, MSSB properly seeks confirmation of the award and entry of judgment. It filed its motion well within the 1-year limitations period of §9. Because Stafford failed to timely challenge the award under §12, he is barred from raising the statutory bases provided in §§ 10 & 11. Because these sections provide the only bases for challenging the award, the Court is bound by §9 to confirm the award.

Morgan Stanley Smith Barney v. Stafford, 43 MFR 73, 8/5/15.

Todd Shea (Shea Law Firm), Bozeman, for MSSB; Paul Stafford, Billings, pro se.

INSURANCE: No coverage under CGL policy for cosmetics students’ bodily injuries (physical manifestations of emotional distress) from boorish behavior by instructors and expulsion after filing complaints because they stem from purposeful acts… insurer previously held not bound by $4 million consent judgment entered after it accepted defense under reservation… Christensen.

Students of Dahl’s College of Beauty in Great Falls sued in 8/12 alleging that they were wrongfully expelled after filing complaints of unprofessional conduct by instructors, sexual harassment, occupational health & safety violations, violations of policies & procedures, violations of licensing rules & regulations, and failure to conform to accrediting standards. Dahl’s was insured under a Maryland Casualty CGL policy with a $4 million aggregate limit for bodily injury & property damage and personal & advertising injury. Dahl’s tendered defense to Maryland 9/7/12. Maryland denied a defense 10/23, but ultimately agreed to provide a defense under full reservation of rights. Plaintiffs and Dahl’s agreed to settle through Dahl’s confession of judgment for $4 million and assignment to Plaintiffs, and the Court dismissed the case against Dahl’s. Plaintiffs then instituted this action against Maryland 10/29/13 seeking a declaration that the policy provided coverage for their claims against Dahl’s and that it is consequently liable for the consent judgment. The Court previously recognized that Maryland timely accepted a defense of Plaintiffs’ claims against Dahl’s and did not breach its duty to indemnify Dahl’s because coverage for Plaintiffs’ alleged bodily injuries had not been established and disposed of other claims and ruled that Maryland was not bound by the stipulated judgment which was entered after it informed Dahl’s of its acceptance under reservation of rights. (MLW 11/22/14). The only remaining issue is whether the policy provides coverage for Plaintiffs’ alleged bodily injuries.

Plaintiffs claim bodily injuries as described in their 8/13 expert disclosure of social worker Katy Nicholls:

[Plaintiffs] suffered physical manifestations of emotional distress. Physical manifestations is the bodily response to negative emotion. The physical manifestations reported are somewhat varied in intensity and longevity. At a minimum, the women reported feeling nauseous or sick when they knew they had to go into school. This is a common response to fear or strain. Bodily response to anger is reported as a quickening of the heartbeat, flushed skin and shortness of breath. These are common responses and meet the criteria for physical manifestation of emotional distress based on the information that has been provided to me. Some of the more extreme physical responses to the emotional distress include panic attacks, bouts of deep depression, onset/increase of migraine headaches, vomiting, weight gain, weight loss, and insomnia. A number of [Plaintiffs] reported feeling hopeless and helpless, a feeling that is often described commonly as depressed. They felt they had lost their will to go on.

In conclusion, it is my opinion that, based on a reasonable degree of professional certainty, each of the students suffered emotional distress and the physical manifestation of such distress in one form or another.

The question of whether the CGL policy covers these alleged injuries turns on the nature of the conduct claimed to have caused them.

The policy provides coverage for “bodily injury” caused by an “occurrence.” “Bodily injury” refers to “bodily injury, sickness or disease sustained by a person … includ[ing] mental anguish, mental injury, shock, fright or death resulting from bodily injury, sickness or disease.” An “occurrence” “means an accident, including continuous or repeated exposure to substantially the same harmful conditions.”

Whether coverage exists for a particular loss is a narrower question than that of the duty to defend. “Unlike an insurer’s duty to defend, which arises when a complaint against an insured alleges facts, which if proven, would result in coverage, an insurer’s duty to indemnify arises only if coverage under the policy is actually established.” Freyer(Mont. 2013). “An insurer thus breaches the duty to indemnify by failing to provide coverage when (1) the established facts trigger coverage under the terms of the policy, and (2) the extent of the claimant’s damages are undisputed or clearly exceed policy limits.” Id. “`Established facts’ in this context are facts that are either undisputed or are initially disputed but subsequently determined by the fact finder.”Id. When evaluating coverage pursuant to the above definition of “occurrence,” “the proper focus is on whether [the insured’s] deliberate operation … is covered — not whether [the insured] intended the resulting damages allegedly stemming from the operation.” Blair (Mont. 2007).

There is no material factual dispute that the Dahl’s defendants’ conduct was intentional, volitional, and not a covered occurrence. Plaintiffs allege that they failed to instruct them as promised, cheated them out of their tuition, made inappropriate comments and unsavory esthetic demands, and generally harassed them. Although Plaintiffs’ collective emotional distress, and the physical manifestations accompanying it, was likely unforseen and unintended by the Dahl’s defendants, that is simply not the focus of the coverage analysis. As a matter of Montana insurance law, there is no coverage for Plaintiffs’ alleged injuries because they stem from purposeful, albeit distasteful, acts by the Dahl’s defendants.

Summary judgment is granted for Maryland and the case is closed.

Walden et al individually and as assignees of Dahl’s College of Beauty v. Maryland Casualty, 43 MFR 114 , 10/7/15.

PRODUCT LIABILITY: Pre-trial rulings on experts & defenses in Mazda Protegé automatic shoulder belt/ manual lap belt case with small-stature passenger suffering abdominal injuries in near head-on… Christensen.

Incarnacion Speaks was a passenger in a 1994 Mazda Protegé with her husband Kevin driving. A vehicle attempting an improper turn struck the Protegé nearly head-on. Speaks suffered lacerations to her pancreas and duodenum. She was 49 and 110 lbs. She maintains that she was properly wearing the manual lap belt and automatic shoulder belt and that the Protegé’s passive restraint system fails to properly restrain people of small stature. Mazda has moved to exclude design defect expert Stephen Syson and causation expert Michelle Hoffman underDaubert and Rule 702 and for summary judgment under Geier (US 2000) preemption. Speaks requests summary judgment on several of Mazda’s affirmative defenses, some of which it has agreed to withdraw.

Mazda contends that Syson’s opinions — generally that the restraint system results in excessive torso loading in frontal collisions — are rooted in irrelevant studies. However, his partial reliance on these tests does not compel the conclusion that his opinions are so unreliable as to require exclusion of his testimony altogether. Mazda’s criticism of his reliance on tests involving occupants wearing only the shoulder belt is undercut by its own expert’s admission that for vehicles using automatic belting designs, “occupant kinematics [are similar] whether the manual lap belt is in use or not.” Mazda’s other criticisms clearly amount to impeachment evidence appropriately raised during cross. For instance, it points out that none of the testing Syson relies on specifically demonstrates or discusses pancreatic and/or duodenal injuries. But it admits that at least some of the testing and/or scientific literature he relied on shows that the automatic belting design can cause torso and/or abdominal injuries. Mazda’s criticism of Syson’s reliance on testing focused on drivers and crashes that are more severe serves as grist for a vigorous cross, not a reason for exclusion. Moreover, although the testing he relies on does not exactly duplicate the MVA, “peer reviewed scientific literature [on a specific topic] may be unavailable because the issue may be too particular, new, or of insufficiently broad interest to be in the literature.” Primiano(9th Cir. 2010). Mazda also challenges Syson’s opinions because he did not personally perform any testing. Admissibility of expert testimony does not depend on the expert personally testing. Rule 702. Mazda asserts that Syson’s opinions are deduced from data not properly produced with his report. The Court previously held that he may rely on peer-reviewed literature cited in his report. Mazda concedes that he cited NHTSA tests. Mazda attempts to require that each conclusion be read in a vacuum without reference to the rest of the report. The Court declines to take this bait. The report must be read in its entirety to asses reliability and admissibility. While his report can be criticized for being generalized and lacking precise or easy-to-follow citation practice, the Court does not have all of the referenced materials or a precise understanding of how his background, experience, and review of the literature and test data inform his opinions. Although certainly impeachable through skillful cross, none of his opinions appear to rest on mere “cushions of air” that would require exclusion in limine. Mazda’s motion to exclude Syson’s opinions and testimony is denied.

Mazda contends that Hoffman’s opinions are inadmissible under Rule 702 andJoiner (US 1997) because they are not based on sufficient facts or data and are not the product of reliable principles and methods, and also that she is not qualified to offer design defect opinions. At the center of its critique is its argument that she erroneously relies on Speaks’s testimony to support her opinion that the shoulder belt was properly applied. Relying on its own experts, it contends that it is impossible that it was properly routed. However, Hoffman’s causation opinions are based on her experience & training and review of accident reports, deposition transcripts, photos of the vehicle, information about the vehicles, Speaks’s medical records, site photos, an inspection of the Protegé, a study of how the seatbelt was likely positioned, a review of relevant literature, and Speaks’s and the paramedic’s deposition. While this may be subject to impeachment, it does not violate the scientific method and Mazda offers nothing to show that a biomechanical engineer is constrained by some inviolable standard from relying in part on testimony of one involved in a crash to establish certain facts. The only one who knows with certainty whether the belt was properly placed is Speaks. The physical evidence may call into question her veracity on this subject, but that does not preclude Hoffman from relying on her testimony in forming her opinions. There are certainly other explanations for how Speaks sustained her injuries, but this unremarkable circumstance does not make Hoffman’s theory inadmissible; it simply creates a factual dispute for the jury to sort out. Based on literature and testing that demonstrates high torso loading in automatic belting systems, Speaks’s and others’ testimony about the routing, Speaks’s body type, and the direction & severity of forces, Hoffman concluded that the properly applied shoulder belt caused Speaks’s abdominal injuries. Her opinion is not airtight, but is based on sufficient facts & data and sufficiently reliable analysis to be admissible. Indeed, outside of the disagreement as to routing of the belt, her opinion is entirely consistent with that of Mazda’s experts. Unlike in Joiner, the causation expert is not tasked with determining to a reasonable degree of medical science something as elusive as whether alleged low-level exposure to a particular chemical “promoted” development of lung cancer. Further, while the experts in Joiner could cite no literature supporting their causation theory, Hoffman relies on literature & testing that indicates that occupants of vehicles with automatic 2-point belt systems sustain high torso loads, which increased with seats forward of the mid-position. Mazda’s motion to exclude Hoffman’s causation opinions is denied.

Mazda contends that Speaks’s design defect claim is “merely a cleverly disguised criticism of the passive nature of the design” and therefore preempted by Geier.Speaks counters that her claim is not based on Mazda’s decision in the abstract to utilize an automatic seatbelt passive restraint system, but for execution of that decision in the manner of design. The Court agrees that her claim is more nuanced than Mazda contends, and therefore denies its motion for summary judgment based on preemption. Contrary to Mazda’s assertion, her claim does not depend on obligating Mazda to have installed an airbag as opposed to some other form of passive restraint system or on declaring that every automatic seatbelt design is inherently defective. In fact, Speaks presents evidence that safer and technologically feasible designs for passive belting systems were available and should have been used. Mazda’s extensive citation of conflicting expert testimony as to whether a safer alternative design is possible only demonstrates that there is a fact question for a jury. Mazda essentially attempts to rebrand Speaks’s case by submitting expert testimony which, taken at face value, questions some of her expert opinions. While her expert opines that the Protegé’s belting design supplies inadequate lap belt restraint, Mazda’s experts opined that minimal lap belt restraint is inherent in all automatic shoulder belt designs. This only highlights the factual disputes. The success of her suit does not depend on the jury finding that every passive belting system is inherently defective, but only that Mazda’s particular design was defective. Mazda is unable to point to anything in FMVSS 208 which required it to design its system in the precise manner that it chose. Its motion for summary judgment on preemption is denied.

Mazda asserts unreasonable misuse as an affirmative defense pursuant to MCA 27-1-719(5), contending that Speaks was wearing her shoulder belt under her armpit. Speaks, citing warnings against under-the-arm use in the owner’s manual, contends that it was reasonably foreseeable to Mazda and thus not unreasonable misuse. “If it is reasonably foreseeable to a defendant that its product can be or is being used in a specific manner, and a consumer is injured by using the product in that manner, the defendant cannot argue that the plaintiff had misused its product.” Kenser (Mont. 2014). “The defense of misuse refers to use not foreseen by the manufacturer of the product.” Hart-Albin (Mont. 1994). “Evidence of foreseeability can be found in the warnings that [a manufacturer] included” with its product. Dunn (39 MFR 69). It is abundantly clear that Speaks’s alleged “misuse” by routing the belt under her arm was foreseeable to Mazda. In fact, it actually foresaw it. The Protegé’s owner’s manual specifically warned against routing it under the arm. Its strenuous argument that it did not or could not foresee that she might route the belt under her arm fails.

Mazda has withdrawn its affirmative defense of contributory negligence, but only to the extent that it relates to the conduct of 3rd parties. It maintains that the defense is proper to the extent that it allows it to contest causation by presenting evidence that Speaks was wearing the shoulder belt under her arm. “Contributory negligence is not a defense” in product liability cases. MCA 27-1-719(5); Lutz(Mont. 1994). Mazda may not argue that Speaks was negligent for routing the belt under her arm or that her negligence contributed to her injuries. This does not preclude it from contesting her design defect claim on the element of causation. If the jury is instructed that routing the belt under the arm is neither misuse nor negligence, and any evidence of such routing is admitted only for allowing Mazda to contest causation, it may be admitted to the extent that Speaks’s theory for design defect is based on improper fit on people of small stature even when properly worn. Evidence that she was wearing it under her arm would tend to disprove her claim that it was poor fit that caused her injuries. The ultimate admissibility of evidence related to under-the-arm routing will depend on how she presents her design defect claim.

Speaks contends that she is entitled to summary judgment on Mazda’s affirmative defense that the Protegé was manufactured in compliance with all statutes, regulations, and standards. It recognizes that Malcolm (Mont. 2009) prohibits evidence of compliance with government standards in defense of a product liability case, but contends that it should be allowed to introduce evidence of the federal regulatory background pertaining to passive restraint systems at the time of the Protegé’s manufacture to provide the jury with “the proper context and framework to evaluate the passive seatbelt design.” As the Montana Supreme Court has consistently reiterated, “the focus in design defect cases shines on the condition of the product, rather than the manufacturer’s conduct or knowledge.”Id. Because compliance with regulations and standards would not defeat Speaks’s claim, she is entitled to summary judgment on this defense.

Citing Sternhagen (Mont. 1997), Speaks requests summary judgment on Mazda’s affirmative defense that the Protegé conformed to state of the art as to similar products at the time it was sold. Mazda maintains that the defense is proper to the extent that it allows it to rebut Syson’s opinion that technologically feasible and practical alternatives existed before the Protegé was designed and manufactured. Mazda again swims against the tide of settled Montana law, and thus tries to turn Speaks’s motion for summary judgment on an affirmative defense into an evidentiary motion. Sternhagenstated: “We expressly reject the state-of-the-art defense, as this defense is contrary to the doctrine of strict products liability.” It concluded that “state-of-the-art evidence is used to establish whether the manufacturer knew or through the exercise of reasonable human foresight should have known of the dangers inherent in his product” and that it is admissible because it “raises issues of reasonableness and foreseeability” which would “sever Montana’s strict products liability law from the core principles for which it was adopted.” It rejected the argument that because a plaintiff may put on evidence of alternative designs, the defendant should also be allowed to. It clarified that although in prior cases it had allowed plaintiffs to put on evidence of existing alternative designs, it “did not require it as part of the plaintiff’s prima facie case.” Mazda may still rebut testimony that an alternative design is safer or was actually feasible or available at the time of the Protegé’s manufacture. Exclusion of state-of-the-art evidence and the effect of this Court’s ruling on Mazda’s state-of-the-art defense is primarily concerned with precluding evidence suggesting that it had no way of knowing the dangers of its shoulder belt design due to the state of science and technology at the time of the Protegé’s manufacture.

There is some evidence suggesting that Speaks’s theory of design defect wades into a preempted zone by contending that the 2-point automatic shoulder belt with manual lap belt design is inherently defective. To the extent that her evidence at trial wades into this preempted zone, Mazda is entitled to assert its affirmative defense that such a claim is preempted by Geier. Her motion for summary judgment on preemption is denied.

Speaks v. Mazda, 43 MFR 20, 8/7/15.

Dennis Conner & Keith Marr (Conner & Marr), Great Falls, Robert Palmer (PalmerOliver), Springfield, Mo., and Steve Fletcher, Missoula, for Speaks; Ronald Bender & Matthew Cuffe (Worden Thane), Missoula, David Kelly & Michael Carey (Bowman & Brooke), Minneapolis, and Jeffrey Gorcyca (Bowman & Brooke), Bloomfield Hills, Mich., for Mazda.

INSURANCE: CGL insurer did not breach duty to defend or settle beetle infestation claims against log home builder… decision not to treat logs with insecticide was not covered “occurrence”… insurer not liable for $328,825 consent judgment… Christensen.

Joseph Mulroy hired Duane Keim and his Northwest Log Homes to construct a home on Mulroy’s property in Trego in 6/06. Northwest was primarily responsible for the “log shell,” while subcontractors were to perform the remaining work. It purchased the logs from a broker out of Striker, who purchased them from loggers in NW Montana. They were standing dead timber. Northwest peeled, notched, pressure washed, and sorted them, but did not treat them with insecticide. It completed the project which included a remodel of a guest house in 2008. Mulroy and his wife began noticing insect bore holes and track marks in the shell through 2009 & 10. He unsuccessfully attempted to treat the logs. He made a claim to Northland Casualty, which had insured Northwest under a CGL policy with $1 million per occurrence and $2 million aggregate limits. Northland advised Keim and Northwest 7/5/11 that there was no coverage because Mulroy’s claims were for “breach of contract and faulty workmanship” and thus did not constitute “property damage” caused by an “occurrence.” It further identified exclusions which it contended would preclude coverage even if the claims met the “occurrence” definition. It advised Mulroy of its position 7/18/11. Mulroy responded 10/19 urging Northland to accept Northwest’s tender of a defense. Northland again declined a defense 11/16. Mulroy sued Keim and Northwest in 12/11 in Lincoln Co. alleging negligence, negligent misrepresentation, and breach of warranty. Northland accepted defense under reservation of rights in 3/12, stating the same coverage concerns as it had in its initial denial letter. After 19 months of litigation in the underlying action, which included a $490,000 demand from Mulroy, Northland filed this declaratory action in 11/13. The parties attended a settlement conference 10 days later but failed to resolve the case and trial was set for 1/28/14. Judge Wheelis then granted Mulroy’s motion to vacate the trial date, and on 1/22 Northland sent a 2nd reservation of rights letter to Keim and Northwest with the same coverage analysis as its previous letters and further reminded Northwest that it “may not voluntarily make a payment, assume any obligation, or incur any expense” without Northland’s consent. Northland had then been providing a defense to Northwest for nearly 2 years. On 3/19/14 — without notifying Northland — Mulroy, Keim, and Northwest entered into a settlement agreement providing for Northwest’s “admission of liability and agreement to hold a hearing on damages in exchange for a covenant not to execute and assignment of all right relating to insurance.” Northwest was represented in this settlement and assignment by different counsel (Todd Glazier) than had been provided by Northland since 3/12. The hearing contemplated in the settlement agreement took place before Wheelis 8/6/14, the same day the parties filed pretrial conference documents in this case. Northwest elected to be represented at the hearing by an attorney (Shane MacIntyre) from the law firm (Brown Law Firm) which Northland had retained to represent the interests of its insured. Mulroy presented testimony from log home restoration specialist William Finley as to remedying the infestation and real estate broker Terry Comstock as to diminution in value of the home even if remediation was successful. Northwest presented testimony of MSU entomologist David Weaver as to characteristics of the beetles and that they “were in the timber when harvested, when it was delivered, and when construction occurred.” Keim did not attend the hearing. Wheelis concluded 8/29/14 that Northwest and Keim were liable on all 3 counts in Mulroy’s complaint, as stipulated, and awarded $208,824.58 remediation damages and $120,000 diminution damages for a total of $328,824.58.

The parties on 3/20/15 requested summary judgment on coverage and Northland’s duty to defend.

Defendants’ motion for summary judgment as to Northland’s duty to defend is denied. Defendants contend that Northland breached its duty to defend Northwest and Keim, not by actually denying a defense in the underlying action, but “by failing to consider the interests of its insured and attempt settlement of the underlying action for an amount well within the policy limits, despite opportunities to do so.” They also contend that because Northland breached the duty to defend by breaching the purported duty to settle, it is liable for the amount of the consent judgment. Their argument is not supported by Montana law online project management. They recognize that the duty to settle derives from the implied covenant of good faith & fair dealing — not from express terms of the policy — but urge the Court to evaluate whether the duty to settle was breached through a binary lens — settlement equals compliance with the policy, refusing to settle equates to a breach of the policy — rather than through the “reasonableness” lens normally attending questions of good faith. They cannot have it both ways insofar as they cannot import the extra-contractually duty to settle into the policy without also allowing Northland to justify why it refuses to settle. It is clear that Northland breached neither the duty to defend nor the duty to settle. It expressed its reservations in its 7/11 letter pre-dating Mulroy’s suit, but did accept a defense and informed Northwest of the acceptance under reservation of rights within 2½ months.The reservation letter was timely and consistent with industry practice. Couch (citing cases where courts found that reservation letters sent 5 weeks, 2 months, and 120 days after the duty to defend was triggered were timely, and stating that a reservation notice must fairly inform the insured of the insurer’s position); PPL(Mont. 1993) (reservation letters must inform the insured of all policy defenses). The record does not indicate precisely what occurred in the underlying case 3/12-11/13, but by that time the parties were prepared for a settlement conference. The settlement master’s report shows that they negotiated for over 5 hours. They dispute why they were unable to break the impasse, but the fact is that Northland participated and made a tactical decision not to settle that day. Whether Mulroy, Keim, and Northwest believe that its participation was meaningful or not is irrelevant, since any obligation to settle depended on the reasonableness of Northland’s coverage evaluation. Its basis for contesting coverage was more than reasonable — it was entirely correct.

Defendants’ motion for summary judgment as to coverage is denied. Pursuant to the settlement agreement, Keim and Northwest admitted liability to the counts in Mulroy’s complaint, which included negligence, negligent misrepresentation, and breach of the implied warranty of habitability. The complaint stated that “reasonable and prudent standards in the construction of log homes include the chemical treatment of logs for beetle larvae and insects prior to installation.” Finley testified that had Keim treated the logs with pesticide prior to installation, at a cost of $1,200, neither the home nor the guest house would have had the insect issues. The decision not to treat the logs is the basis for the claims, and cannot reasonably be characterized as an “occurrence” as it was a volitional act and business choice by Keim. Weaver’s testimony does not change the calculus — whether the beetles were in the timber at the time of harvest does not transform Keim’s decision against treating the logs into an accident. The notion that they could go undetected from harvest through construction and for several years thereafter simply highlights the need to treat the logs as a matter of course in the industry prior to their use in a finished home. Failure to do so is not an “occurrence” under the policy.

Mulroy’s counterclaims related to Northland’s coverage representations and his 3rd-party claims against Glacier Ins. of Libby remain pending. The Court’s rulings here do not appear to affect these claims.

Northland Casualty v. Mulroy dba Yorlum Ranch, Northwest Log Homes, and Keim; Mulroy v. Glacier Ins. of Libby; 43 MFR 1, 7/21/15.

Marshal Mickelson (Corette Black Carlson & Mickelson), Butte, for Northland; Joseph Casillas & Trent Baker (Datsopoulos, MacDonald & Lind), Missoula, for Mulroy; Perry Schneider & Tim Dailey (Milodragovich, Dale & Steinbrenner), Missoula, for Glacier.