NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS FEB 27 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
NORTHLAND CASUALTY COMPANY, a No. 16-35731
Connecticut corporation,
D.C. No. 9:13-cv-00232-DLC
Plaintiff-Appellee,
v. MEMORANDUM*
NORTHWEST LOG HOMES, LLC;
DUANE KEIM,
Defendants-Appellants,
JOSEPH S. MULROY, DBA Yorlum
Ranch, DBA Yorlum Ranch, Ltd.,
Defendant-cross-claim-3rd-
party-plaintiff-Appellant.
Appeal from the United States District Court
for the District of Montana
Dana L. Christensen, Chief Judge, Presiding
Argued and Submitted February 6, 2018
Seattle, Washington
Before: FISHER, GOULD, and PAEZ, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
In 2006, Joseph Mulroy hired Duane Keim and Keim’s company, Northwest
Log Homes (“Northwest”), to build him the shell of a log home and to remodel
parts of his guest house. Keim purchased standing spruce logs from a log broker in
Striker, Montana for the project. Unbeknownst to Keim, however, there were
powder post beetles and larvae inside the logs. Unfortunately, Keim did not treat
the logs with insecticide before using them for Mulroy’s project. As a result, the
insects grew and matured, and started to make their way around Mulroy’s home.
Mulroy first became aware of the infestation a year or two after construction was
completed, when the powder post beetles began to bore out of the logs. At that
point, the beetles had completely infested the logs, and removing them was
estimated to cost upwards of $200,000.
Mulroy filed suit in state court against Keim and Northwest for damages
associated with the beetle infestation. Keim and Northwest had a commercial
general liability insurance policy (the “Policy”) with Northland Casualty Company
(“Northland”), and sought coverage from Northland for the damages caused by the
powder post beetles. Northland declined coverage, but agreed to defend Keim and
Northwest under a reservation of rights. Later, without Northland’s consent, Keim
and Northwest entered into a settlement agreement with Mulroy in the state court
action, under which they admitted liability and assigned their claims against
Northland to Mulroy.
2
While the state court action was proceeding, Northland filed this case in
federal court, seeking a declaratory judgment that it had no obligation to indemnify
Keim and Northwest. Mulroy counterclaimed. Both Northland and Mulroy moved
for summary judgment. The district court granted summary judgment to Northland
and denied a subsequent motion for reconsideration.
The basis for the district court’s grant of summary judgment to Northland
was the Policy’s restriction on coverage to instances where there had been an
“occurrence,” which was defined as an accident. The district court concluded that
Keim had made an intentional choice not to treat the logs, and thus there had been
no accident. Mulroy, Keim, and Northwest appealed.
Under Montana law, an event is an occurrence or accident unless the act
causing the event “was intentional” and “the consequence or resulting harm
stemming from the act was [objectively] intended or expected from the actor’s
standpoint.” Emp’rs Mut. Cas. Co. v. Fisher Builders, Inc., 371 P.3d 375, 378
(Mont. 2016). There are material disputes of fact both as to whether Keim knew
about the industry practice of treating logs with insecticide and consciously chose
not to treat the logs and as to whether the beetle infestation should have been
reasonably expected. For these reasons, we conclude that the district court erred
by granting summary judgment for Northland on these questions. We therefore
reverse the district court’s ruling that there was no occurrence.
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Northland argues that even if the beetle infestation was an “occurrence,” one
of the Policy’s exclusions applies to preclude coverage. Northland also contends
that even if there was coverage initially, it was relieved of any coverage
obligations under the Policy when Keim and Northwest entered into a settlement
without Northland’s consent. We remand for the district court to consider in the
first instance Northland’s argument that assuming coverage existed initially, such
coverage was lost when the settlement was made without Northland’s consent.
The district court should also consider in the first instance whether any of the
Policy’s exclusions bar coverage, if it is determined that coverage otherwise
existed.
REVERSED in part; VACATED in part; and REMANDED.
4