No. 89-261
I N THE SUPREME COURT OF THE STATE O F MONTANA
1990
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY,
P l a i n t i f f and R e s p o n d e n t ,
-vs-
THE ESTATE O F GARY NELSON BRAUN,
D e c e a s e d , and CHESTER V. BRAUN,
P e r s o n a l R e p r e s e n t a t i v e of t h e E s t a t e
of G a r y N e l s o n B r a u n , D e c e a s e d ,
D e f e n d a n t and A p p e l l a n t .
APPEAL FROM: D i s t r i c t C o u r t of t h e E i g h t e e n t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e C o u n t y of G a l l a t i n ,
T h e H o n o r a b l e T h o m a s A. O l s o n , J u d g e p r e s i d i n g .
COUNSEL O F RECORD:
For Appellant:
O ' C o n n e l l a r g u e d ; Moore, O ' C o n n e l l , R e f l i n g
B a r r y G.
& Moon, B o z e m a n , Montana
F o r Respondent:
L y m a n H. B e n n e t t , 111, a r g u e d ; M o r r o w , Sedivy & Bennett,
B o z e m a n , Montana
Submitted: December 1 2 , 1989
Decided: May 2 4 , 1990
Filedt
fWY
Clerk
Justice John Conway ~arrisondelivered the opinion of the Court.
This is an appeal from a grant of summary judgment in favor
of State Farm regarding an insurance coverage dispute. The
Eighteenth Judicial District c'ourt, Gallatin County, Montana,
determined that Canada's wrongful death damage limitation governed
the damages available to appellants. The District Court held that
State Farm had no obligation to appellants under either the
uninsured or underinsured motorist provisions of the deceased
insured's policy. We reverse and remand for further proceedings
consistent with this opinion.
Appellants raise two issues for review:
1. Should Canadian law or Montana law govern the damages
available to appellants for Braun's wrongful death given that
Canada's wrongful death damage limitation conflicts with Montana
law?
2. Does State Farm have an obligation to appellants
under either the uninsured or underinsured motorist provisions of
Braun's policy?
The parties stipulated to an agreed statement of facts.
Briefly, the decedent, Gary Braun, died as a result of a motor
vehicle accident that occurred near Creston, British Columbia. The
driver of the vehicle in which Braun was a passenger was found
liable for the accident. A Canadian insurance company, Alberta
Motor Association Insurance Company, insured the vehicle with
policy limits of $200,000. In wrongful death tort actions,
Canadian law severely restricts damages and under the circumstances
2
of this case, Alberta Motor has advised appellants that it would
not pay any claims in excess of funeral expenses.
At his death, the decedent was an insured of State Farm. The
insurance contract was made in ` all at in County and the decedent's
vehicle, to which the insurance contract applied, was principally
garaged in Gallatin County. The insurance policy provided the
decedent with uninsured and underinsured motorist coverage. The
decedent paid a separate premium for each coverage. Also the
policy provided that the coverages purchased extended to Canada.
I
his case presents a controversy between an insurer and an
insured over the interpretation of an insurance contract. As such
the dispute sounds in contract and should be resolved by contract
law. The question of whether Montana law or Canadian law should
govern the measure of damages available to appellants is a conflict
of laws question regarding tort law. However, tort law only
incidentally enters this dispute because the insurance policy
requires that the tort-feasorts fault must be established before
the insured can invoke the policy's underinsured motorist
protection. No dispute regarding fault exists. As this dispute
must be resolved by application of contract law, Issue I1 is
dispositive and we need not discuss Issue I. Further, no question
exists that Montana law governs the interpretation of the insurance
contract at issue here and neither party argues to the contrary.
While we agree with respondent that appellants cannot recover
under the uninsured motorist provision, we hold that the appellants
can recover under the underinsured motorist provision of the
decedent's insurance contract.
The insured purchased underinsured motorist coverage from
respondent for which he paid a separate premium. Regarding
underinsurance coverage, the policy provided as follows:
We will pay damages for bodily injury and
insured is leqally entitled to collect from
the owner or driver of an underinsured motor
vehicle. (Emphasis added.)
The pertinent part of the definition of an underinsured motor
vehicle is the following:
Underinsured Motor Vehicle -- means a land
vehicle:
(2) Whose limits of liability for bodily
injury liability:
a. are less than the amount of the insured's
damages; or b. have been reduced by payments
to persons other than the insured to less than
the amount of the insured's damages.
(Emphasis added.)
Also at issue is the following policy language:
There is no coverage until the limits of
liability of all bodily injury liability bonds
and policies that apply have been used up by
payments of judgments or settlement.
(Emphasis added.)
Appellants contend that the District Court erred in
determining that appellants were legally entitled to collect only
the damages allowed by Canadian law. According to appellants, the
language "legally entitled to collectw simply means that the
insured must have a cause of action against the tort-feasor and
must be able to establish fault and the existence of damages.
Further, appellants aver that the I1limits of liabilityttlanguage
is contrary to an insured's reasonable expectations and to fully
compensating injured parties for their losses. We agree.
Initially, respondent contends that the Canadian damage
limitation operates as a limited immunity that is available to
respondent because it is available to the Canadian tort-feasor.
Analogizing to Hubbel v. Western Fire Ins. Co. (1985), 218 Mont.
21, 706 P.2d 111, respondent argues that the ~anadian damage
limitation is similar to the immunity provided under the Workers1
Compensation statutes to employers and coemployees of injured
workers. Workerst Compensation statutes and similar statutes deny
a cause of action to an injured party in certain circumstances.
Contrary to respondent's assertion, reliance on Hubbel is
misplaced. Hubbel involved an employee's heirs trying to collect
under an allegedly negligent coemployeets uninsured motorist
coverage. In Hubbel, we interpreted the language Illegally entitled
to recover damagesw contained in the coemployee's uninsured
motorist policy. We held that because the Worker's Compensation
Act provided the exclusive remedy to an employee, Hubbel was not
legally entitled to recover damages from the coemployee. Hubbel,
706 P.2d at 112-113. The Worker's Compensation statutes denied the
employee a cause of action under the facts of that case.
Distinguishable from the Hubbel facts, the appellants in this case
possess a cause of action against the tort-feasor. Canadian law
5
does not deny injured parties a cause of action, it only restricts
the damages recoverable.
Respondent also erroneously argues that the Canadian damage
limitation shields respondent because it is available to the tort-
feasor. In essence, respondent asserts that it is the tort-
feasor's alter ego. However, tort law is relevant only as far as
the fault requirement is concerned. Once an insured demonstrates
a legal entitlement to damages, principles of contract law define
the coverage afforded by an underinsurance motorist provision.
The instant case is similar to Karlson v. City of Oklahoma
City (Okla. 1985), 711 P.2d 72. In Karlson, the Oklahoma Supreme
Court had to interpret the phrase Itlegallyentitled to recovertt
in
underinsurance motorist provision. The plaintiffs sued the city
for wrongful death arising out of a collision with a city police
vehicle. Because the Oklahoma Political subdivisions Tort Claims
Act limits the Cityts liability, the plaintiffs joined their
underinsurance carrier as a defendant and sought to recover their
excess damages under the underinsurance coverage. Karlson, 711
P.2d at 73. In reversing summary judgment for the insurer, the
court held that the intention of the parties governed.
When the insured and Allstate entered
into their contract, they contemplated a
situation where Allstate might be required to
pay for injuries caused by some tortfeasor
where the tortfeasor was not able to make full
compensation for those injuries. Whether the
tortfeasorts inability to make full
compensation results from lack of sufficient
insurance, insolvency, or for other reason, is
irrelevant.
The intention of the parties at the time
of their contracting was that Allstate, not
its insured, would assume the risk that the
insured might suffer a loss for which a
tortfeasor could not make compensation. Our
holding here merely gives effect to that
intent.
In summary, we hold that in a situation
where liability of a tortfeasor is
limited.. .to an amount which will not
compensate an insured for all his proven
losses suffered in an automobile accident,
that insured may recover from his insurer
through the uninsured/underinsured motorist
provisions of his automobile liability
insurance, according to the terms thereof.
Karlson, 711 P.2d at 75. Thus, in spite of the damage limitation
imposed by the Political Subdivisions Tort Claims Act, the Karlson
plaintiffs were able to recover under their underinsurance
coverage. The same reasoning guides our decision that respondent
cannot take advantage of the Canadian damage limitation just
because it is available to the tort-feasor. Contract law
conditions respondent's obligation under the insurance contract,
not tort law.
Respondent also argues that the language lllimitsof liability"
contained in the definition of 'Iunderinsured vehicle1' in the
insured's policy plainly means the tort-feasor's stated policy
limits, $200,000 in this instance. Also, according to the policy
terms, the limits of liability must be expended before an insured
can recover under the underinsurance provision.
In insurance contract actions, the reasonable expectations of
an insured regarding the scope of coverage has been recognized.
Transamerica Ins. Co. v. Royle (1983), 202 Mont. 173, 180-181, 656
P.2d 820, 824. Under the facts of this case, the insured could
reasonably expect the accident vehicle to qualify as underinsured,
particularly because the policy specifically provides that
coverages purchased extend to Canada. A reasonable average insured
is not going to be aware that Canadian law restricts damages
severely in relation to Montana law. If State Farm's position is
accepted, then State Farm sold to its insured and collected
premiums for coverage in Canada that was worthless to the insured.
To allow State Farm to take advantage of Canadian damage law
would negate the insured's reasonable expectations under its policy
contract with the insurer. The insured could reasonably expect to
recover the difference between what he could collect from the tort-
feasor's policy and his proven damages, up to the policy limits
purchased.
The purpose of underinsured motorist insurance is to provide
a source of indemnification for accident victims when the tort-
feasor does not provide adequate indemnification. Coverage under
the terms of the policy at issue here should be predicated on an
insured's damages excluding the indemnification actuallv available
from the tort-feasor's liability insurance. In this case, even
though the tort-feasor has $200,000 liability limits, that amount
is not actually available because of Canadian damage restrictions.
According to Alberta Motors Insurance Company, funeral expenses
constitute the extent of its liability. Because the insured's
damages will certainly exceed funeral expenses, the tort-feasor
cannot provide adequate indemnification. As far as the appellants
are concerned, the tort-feasorls remaining liability insurance is
illusory. Therefore, we hold that appellants may recover under the
insured's underinsurance motorist provision that he selected and
8
for which he paid if adequate compensation is not actually
available from the insured tort-feasor because of the limitation
of damages under Canadian law.
Our holding is not without precedent in other jurisdictions.
Although Montana does not statutorily require that insurance
companies offer underinsurance coverage, many states do. The
statutes fall into three categories which are based on comparisons
of the tort-feasor8sliability insurance with either the amount of
underinsured motorist insurance, the amount of uninsured motorist
insurance or the damages or injuries sustained by the insured. In
a number of those states, either the statute itself, or court
interpretation of the statute, requires that the relevant
comparison be made with the amount of the tort-feasor8s liability
coverage that is actually available to an insured rather than to
the stated liability limits that are theoretically available.
Thus, through both express statutory definition and judicial
statutory interpretation, underinsurance claimants have recovered
in various situations which differ from simple comparison of stated
coverage limits. These statutes and court opinions recognize, as
does our holding, that a tort-feasor8s liability coverage is
deficient if it does not actually provide adequate compensation to
the injured party. This deficiency may arise in various ways, the
most common of which, as the instant policy recognizes, occurs
through reduction or exhaustion of a tort-feasor's policy through
'Included in these states are Texas, Maryland, Ohio, Florida,
North Carolina, Iowa and Oklahoma. See A. Widiss, Uninsured and
Underinsured Motorist Insurance (2d ed. 1987).
payment to others. Significantly, deficiencies can also arise
through damage limitations imposed by law.
In summary, we hold that the appellants can recover under the
underinsured motorist provision of the insured's insurance policy
with respondent. Appellants are legally entitled to collect
damages from the Canadian tort-feasor because the tort-feasor's
fault is established and damages exist. Respondent cannot avail
itself of the Canadian damage limitation because contract law
governs its relationship to appellants, not tort law.
We reverse and remand for further proceedings consistent with
this o~inion.
We concur:
C
Chief Justice
Justices
Justice Fred J. Weber dissents as follows:
I respectfully dissent. The majority concludes that Montana
contract law governs the interpretation of the insurance contract,
including the insurance company's obligation under that contract.
I conclude the majority holding directly conflicts with Montana
contract law.
The District Court concluded that the defendants were legally
entitled to collect only the damages allowed by Canadian law. The
defendants argued that Illegally entitled to collectf1simply meant
that the insured must have a cause of action and must be able to
establish fault and the existence of damages. The majority agreed
with that contention. The plain language of the contract does not
support such a conclusion. The contract stated:
We will pay damages for bodily injury an insured is
legally entitled to collect from the owner or driver of
an underinsured motor vehicle.
That contract provision makes no reference to a theory of
having a cause of action, establishing fault and the existence of
damages. Under the contract terms the insurance company has agreed
with the insured to pay damages for bodily injury which the insured
is Illegally entitled to collectn from the driver of the
underinsured motor vehicle. The venue of any action by the insured
to recover damages for bodily injury against the driver of the
other vehicle clearly is British Columbia, Canada. No factual or
statutory basis has been established under which the insured could
have sued the driver of the other vehicle in Montana. As a result,
11
we must look to the law of British Columbia to determine the
damages which the insured is legally entitled to collect from the
driver of the other vehicle. Here the defendants, as the
representatives of the deceased insured, are legally entitled to
collect only funeral expenses in British Columbia.
In disregarding the clear and explicit meaning of the above
contractual provision, the majority has disregarded the provisions
of 5 28-3-401, MCA, which states:
EXTENT TO WHICH LANGUAGE GOVERNS INTERPRETATION. The
language of a contract is to govern its interpretation
if the language is clear and explicit and does not
involve an absurdity.
I conclude that under the clear and explicit provisions of this
contract, the defendants are entitled to recover only the amount
which they could legally collect from the driver of the other
vehicle in British Columbia.
Do other contract provisions contradict the foregoing
interpretation? I conclude they do not. As set forth in detail
in the majority opinion, another clause provides there is no
coverage until the limits of liability of other policies "have been
used up." The minimum liability limits under the Canadian policy
were $200,000 and have not "been used up." That plain and concise
language is also consistent with my previous interpretation.
I conclude that contract law theory contradicts rather than
supports the majority opinion. In addition to contract law theory,
the majority opinion bases its conclusions on the reasonable
expectations of an insured. I emphasize that Montana law does not
require underinsured coverage in an automobile policy, as do many
states. As a result, we have no legislative declaration of
underinsurance requirements in Montana. No evidence was submitted
showing the actual expectations of the deceased insured. In the
absence of contrary requirements as established by Montana
legislation, I can find no reasonable basis for this Court to
disregard the clear and explicit provisions of the contract.
I would affirm the District C