No. 91-491
IN THE SUPREME COURT OF THE STATE OF MONTANA
CINDY JUEDEMAN, Individually, CINDY JUEDEMAN, Conservatrix of
the Estate of ERICH BURKSTRAND and CHARLES MESSLER,
Plaintiff and Appellant,
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NATIONAL FARMERS UNION PROPERTY AND CASUALTY COMPANY,
an insurance corporation,
23 j992]
-
Defendant and Respondent.
APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable Thomas M. McKittrick, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Lawrence A. Anderson and Howard F. Strause,
Attorneys at Law, Great Falls, Montana.
For Respondent:
Dennis P. Clarke; Smith, Walsh, Clarke and
Gregoire, Great Falls, Montana.
submitted on Briefs: January 16, 1992
Decided: June 23, 1992
Filed:
Justice Fred J. Weber delivered the Opinion of the Court.
Plaintiff Cindy Juedeman, mother of Erich Burkstrand, brought
suit individually, and as conservator of the estate of Erich
Burkstrand against National Farmers Union Property and Casualty
Company (Farmers Union) for bad faith under S 33-18-201, which
prohibits unfair claims settlement practices. The Eighth Judicial
District Court, Cascade County granted summary judgment in favor of
the defendant, Farmers Union. Plaintiff appeals. We affirm.
The issues on appeal are restated a s follows:
1. Did the District Court properly grant defendant's motion
for summary judgment on plaintiff s claim of vlleveragingl*
in
violation of 5 33-18-201(13), MCA?
2. Did the District Court properly grant defendant's motion
for summary judgment on plaintiff's claim for failure to settle in
violation of 33-18-201(6), MCA?
At age eleven, Erich Burkstrand, passenger in a truck involved
in a one vehicle accident, was severely injured. The vehicle was
driven by Robert Bennyhoff, deceased. Bennyhoff was insured by
Farmers union which provided liability coverage of $100,000 bodily
injury per person and $ 3 O O , O O O per occurrence. Farmers Union does
not dispute that Burkstrandls bodily injury claim exceeded the
$100,000 maximum amount payable under the policy.
Did the District Court properly grant defendant's motion for
summary judgment on plaintiff ' s claim of llleveragingll violation
in
of § 33-18-201(13), MCA?
Plaintiff contends Farmers Union engaged in unfair claims
settlement practices by conditioning its $100,000 settlement offer
for Erich Burkstrandls bodily injury claim upon Juedeman's
agreement to release Bennyhoff 's estate from a future claim of loss
of consortium. Plaintiff contends this is leveraging and is
prohibited under 1 33-18-201(13), MCA, which provides:
No person may, with such frequency as to indicate a
general business practice, do any of the following:
* * * * * * *
(13) Fail to promptly settle claims, if liability has
become reasonably clear, under one portion of the
insurance policy coverage in order to influence
settlements under other portions of the insurance policy
coverage. ...
Under Rule 56(c), M.R.Civ.P., summary judgment is appropriate
where there exists no genuine issue of material fact and the movant
is entitled to judgment as a matter of law. Here, we conclude that
the trial court properly granted summary judgment in favor of
Farmers Union.
Juedeman presented no factual basis supporting her contention
that Farmers Union engaged in leveraging. On the contrary, the
record shows that Farmers Union was willing to settle for the
maximum amount of policy coverage in exchange for a release of all
claims which fell under that bodily injury coverage. Since the
trial court previously declared that Juedeman's loss of consortium
claim arose out of Erich's loss, her claim was limited to Erich's
$100,000 bodily injury coverage. While plaintiff does not contest
this declaratory ruling, she insists Farmers Union violated T, 33-
18-201(13), MCA, by conditioning payment of Erich's bodily injury
upon a release of Juedeman's individual claim for loss of
consortium.
We disagree with plaintiff's interpretation. Leveraging under
5 33-18-201(13), MCA, requires an insurer's manipulation of two
coverages. The insurer must withhold prompt settlement of a
reasonably clear liability claim under one coverage, in order to
influence a claim arising out of another coverage. Here, Erich's
bodily injury claim and Juedeman's claim for loss of consortium
fall within the same policy coverage. Here, Farmers Union offered
to settle both claims falling under that coverage for the maximum
amount allowed under the policy. Thus, we hold the court properly
found that Farmers Union did not violate 5 33-18-201(13), MCA, and
properly granted defendant's motion for summary judgment.
II
Did the District Court properly grant defendant's motion for
summary judgment on plaintiff's claim for failure to settle in
violation of § 33-18-201(6), MCA?
Next, plaintiff contends Farmers Union failed to make a good
faith attempt to effectuate a prompt fair settlement by insisting
Juedeman release Bennyhoff's estate. Section 33-18-201(6), MCA,
provides :
No person may, with such frequency as to indicate a
general business practice, do any of the following:
* * * * * * *
(6) Neglect to attempt in good faith to effectuate
prompt, fair, and equitable settlements of claims in
which liability has become reasonably clear. ...
In this case, plaintiff refusedto release Bennyhofflsestate
from liability in return for payment of the policy limits. In a
letter dated July 16, 1984, plaintiff's attorney Richard Bottomly
stated: "We have steadfastly refused to give a full release to
any parties in exchange for the payment to Burkstrand, and we will
not now do so." This letter demonstrates plaintiff's unwillingness
to settle.
In substance, this Court has held that without an agreement to
release, there is no offer for settlement. Thompson v. State Farm
Mutual Automobile Ins. Co. (1973), 161 Mont. 207, 219-220, 505 P.2d
423, 430. Here, the plaintiffts conduct prevented Farmers Union
from effectuating a prompt, fair and equitable settlement.
Finally, this Court has previously rejected a claim of
insurance bad faith where the plaintifflsconduct caused the delay
in payment, Spadaro v. Midland Claims, Inc. (1987), 227 Mont. 445,
451, 453, 740 P.2d 1105, 1109, 1110. Similarly, here, Juedeman's
refusal to release Bennyhoffgsestate delayed the insurer's payment
of claims owing to Erich. Accordingly, the plaintiff has no bad
faith claim against Farmers Union.
We h o l d Farmers Union did not v i o l a t e 5 33-18-201(6), MCA, and
the trial court properly granted defendant's motion for summary
judgment .
Affirm.
We Concur:
, r I
' Chief Justice
Justices
Justice Terry N. Trieweiler dissenting.
I dissent from the opinion of the majority.
To understand why I disagree with the conclusions arrived at
by the majority, it is necessary that a more complete recitation of
the facts be set forth.
Cindy Juedeman is the mother and legal guardian of Erich
Burkstrand and Charles Messler.
On September 5, 1983, Erich and Charles were passengers in a
vehicle being driven by Robert Bennyhoff when, because of the
extremely negligent manner in which the vehicle had been operated,
it was driven off the road and was involved in a violent crash.
Bennyhoff was killed as a result of the crash. Erich and
Charles were both seriously injured. Erich was so seriously
injured that he was permanently paralyzed from the waist down and
at all times since the accident has been confined to a wheelchair.
His mother is responsible for his care and support.
The defendant in this case admitted that there was no question
about Bennyhoffvs negligence or liability for the injuries to
Erich, Charles, and a third individual who was also a passenger in
the Bennyhoff vehicle.
National Farmers Union Property and Casualty Company insured
Bennyhoff against liability for the operation of his vehicle.
Coverage "Amr of that policy required the insurer to pay on behalf
of the insured all sums which became due as damages because of
bodily injury sustained by any person as a result of Bennyhofffs
6
negligence. The declaration page indicated that the maximum
coverage available for injuries to any individual under that policy
was $100,000, and that the maximum coverage for each occurrence
insured under that policy was $300,000.
In addition, under the same Coverage "A, the policy requires
the company to defend any s u i t alleging bodily injury, even if the
allegations of the suit are groundless. However, the policy gives
the defendant complete authority to settle any claims made against
Bennyhoff if the company deems it expedient. There was no
requirement that Bennyhoff approve any settlement.
The defendant in this case admitted that Burkstrand's damages,
and the damages incurred by a third passenger in Bennyhoffls
vehicle, exceeded the $100,000 of coverage available to each of
them. There apparently was some question about whether Messlerus
damages would have exhausted the remaining $100,000 of coverage
available under the policy. In addition, Cindy claimed damages to
herself personally as a result of injuries to her son Erich.
On December 15, 1983, Burkstrand's lawyer sent a letter
demanding the defendant pay the policy limits that were available
to Burkstrand ($100,000) . At that time, the defendant and its
attorney were aware that Erich had been rendered paraplegic and was
confined to a wheelchair; they were aware that his job prospects
were significantly reduced; and by that time, a little over three
months following the accident, they knew that Erich had incurred
medical bills in excess of $40,000. Liability was not contested
7
and the defendant was well aware that Burkstrand's damages exceeded
the $100,000 of coverage that was available for him.
Whether or not the defendant responded to that letter is
unclear. However, on February 3, 1984, Burkstrand's attorney again
wrote to the defendant's attorney and advised him that if the
amount of coverage available was paid to his client he would
release the defendant from further liability under the policy for
Burkstrand's injuries.
The defendant responded that it would pay the policy limits
only if it received a release from Cindy of any claim she may have
had under the policy, and a release from Erich and Cindy which
released the Bennyhoff estate from any further liability for
damages to either of them. At that time, Cindy contended that she
might be entitled to recovery under Coverage "A" of the policy as
a separate person in addition to the maximum amount that was
available to Erich as "a person." In other words, it was her
contention that if Messler's damages did not amount to $100,000,
she was entitled to recover her damages under that part of
Coverage " A . "
On February 9, 1984, when the defendant responded to the
plaintiff's settlement demand it was aware that unless it received
a release which included Cindy's claims and fully released the
estate, the lawsuit would continue and it would incur the
additional defense costs which were a separate obligation under the
policy, even though it had paid the amount of coverage available.
8
The parties continued to exchange correspondence through the
first half of 1984 in which the plaintifffs attorney demanded
unconditional payment of the coverage that was available and the
defendant continued to insist on releases for the estate which
included Cindy's separate claim. During those exchanges,
plaintiff Is attorney agreed to waive any claim by ~ i n d yto the
amount of coverage that was available to Erich, and to release the
estate from any further liability to her son. However, the
defendant continued to insist that cindy relinquish any claim that
she might have under Coverage ''A1' of the insurance policy in
exchange for the payment of $100,000. It also continued to insist
that she personally release the Bennyhoff estate from any further
liability.
Through all of these exchanges, it was the position of
defendant's attorney that in addition to its obligation to pay
damages and defend the Bennyhoff estate, the defendant had a duty
to secure a release for the estate before paying the policy firnits
available for injuries to Erich. However, there was no such
requirement in the policy and the defendant has failed to provide
any authority from Montana or any other jurisdiction which would
impose such an obligation.
At any rate, the defendant's theory is suspect in light of the
fact that on July 23, 1984, after suit was filed, it tendered the
full amount of coverage available to Erich into court without any
release from Cindy and without any preconditions to the tender.
9
That amount was subsequently distributed by the court to Erich, his
attorney, and apparently other creditors who had an interest in it.
This is clearly a case where the defendant attempted to
resolve Cindy's personal claim against Coverage "A1' under its
insurance policy by withholding amounts that were undisputedly due
to Erich under the same coverage. That is a violation of
§ 33-18-201(13), MCA, which provides as follows:
No person may, with such frequency as to indicate a
general business practice, do any of the following:
(13) fail to promptly settle claims, if liability
has become reasonably clear, under one portion of the
insurance policy coverage in order to influence
settlements under other portions of the insurance policy
coveraqe .. . . [Emphasis added.]
The majority changes the plain language of subsection (13)
when it states that:
The insurer must withhold prompt settlement of a
reasonably clear liability claim under one coverase, in
order to influence a claim arising out of another
coveraqe. [Emphasis added.]
The majority then goes on to reason that because rich's claim
and Cindy's claim arose under the same coverage that leveraging did
not occur under subsection (13). However, subsection (13)
prohibits leveraging of a claim "under one portion of the insurance
policy coverage in order to influence settlements under other
portions of the insurance policy coverage.I1 (Emphasis added.)
That is exactly what happened in this case. It was Coverage "Au
that provided payment of damages for injury under the Bennyhoff
policy. However, because there are at least three, and arguably
four, persons who s u s t a i n e d damages a s a result of this accident,
there were three separate portions available under Coverage " A . "
The maximum t h a t could be paid under each portion was $100,000.
Cindy conceded that she would waive any claim under the portion
attributable to Erichl injuries, but contended that she was
s
entitled to payment as a separate person under a different portion
of Coverage A . The insurance company denied payment of the
undisputed amount due Erich under his portion because Cindy would
not release her separate claim under the other portion. There
could never be a clearer example of a violation of the literal
terms of subsection (13) than e x i s t s in t h i s case.
The majority goes on to reason that because the District Court
subsequently issued a declaratory judgment t o the effect that Cindy
was not a separate person and had no claim under other portions of
the policy for damages which were derived from Erichqs injury, she
was not, therefore, making a separate claim. However, subsection
(13) says nothing about the merits of Cindy's claim under the
separate portion of the policy. The merits were decided, as they
should have been, in the declaratory judgment action. What
subsection (13) prohibits is an arbitrary decision by the insurer
about the merits of Cindy's separate claim and an effort to impose
that arbitrary decision by withholding amounts that are clearly due
some other individual like Erich. A clear example of this point is
11
our p r i o r decision in Hawis v. American General Life Xrunrafzce Co. ( 1983 ) , 2 02
Mont. 393, 658 P.2d 1089.
In that case, the defendant insurer had issued a $10,000 life
insurance policy to the plaintiff I s son. An additional $10,000 of
coverage was available if the son died by accident. Plaintiff's
son died under circumstances that suggested the possibility of
suicide.
The defendant sent plaintiff a check for the amount due under
the basic policy, but conditioned payment on a release of claims
due under the accidental death portion of the policy. plaintiff
filed suit for payment under both portions and for punitive
damages. After suit was filed (as in this case) defendant mailed
the check back to the plaintiff without the restrictive
endorsement. However, after a jury trial a verdict was returned
denying recovery under the accidental benefits portion of the
policy, but awarding $30,000 in punitive damages to the plaintiff.
This Court sustained the punitive damage award under the same
§ 33-18-201(13), MCA, with which we are concerned in this case. We
did so based on the defendant's refusal to pay under an undisputed
portion of the policy without a release from liability under the
disputed portion. The fact that a jury subsequently found that the
defendant had no liability under the disputed portion was not
determinative. The controlling facts were that one claim, which
was undisputed, was withheld to leverage resolution of another
claim that was disputed. That is exactly what happened in this
case. The only difference between Hnr* and this case is the
personnel who participated in this Court's decision. The author of
this decision dissented from the Harris decision because of his
disagreement that subsection (13) gave rise to an action in tort.
The plain language of 1 33-18-201(13), MCA, and our decision
in Harris, create a cause of action for the plaintiff under the
undisputed facts in this case. I would reverse the District
Court's order granting summary judgment on the plaintiff's claim of
"leveragingw and I would remand this case to the District Court for
a trial to determine the merits of that claim.
II
It is equally clear that the defendant violated the plain
language of 5 33-18-201(6), MCA, when it refused to pay the limits
of coverage available to Erich for over seven months because of his
refusal to release the Bennyhoff estate from further liability.
Liability was reasonably clear immediately after defendant
completed its investigation of the accident. By December 15, 1983,
when demand was first made for payment of the policy limits, the
defendant was aware that Erich's damages greatly exceeded the
amount of coverage available. It had complete authority under the
terms of the policy to pay the amounts of coverage available and
there was no obligation in the language of the policy that it
obtain a release of its insured in exchange for satisfying its
undisputed obligation.
The insurance policy was entered into for the protection of
Bennyhoff and his estate, but only to the extent that the terms of
the policy provided such protection.
Section 33-18-201(6), MCA, on the other hand, was enacted for
the protection of third persons like Erich, and he was entitled to
its full protection.
Neither Bennyhoff's insurance policy with the defendant, nor
the statutory protection afforded to the plaintiff, provide that
proceeds from a liability insurance policy which are undeniably due
a third party, can be used to leverage that third party into
releasing a tortfeasor from obligations which exceed the amount of
coverage he has purchased. However, that is the result arrived at
by the majority's erosion of the protection provided for by the
legislature.
The majority's opinion depends on its interpretation of the
word "settlement1' used in subsection (6). The Unfair Trade
Practices Act, itself, does not define the term "settlement."
However, settlement is defined in Websterrs New Collegiate
Dictionary 1053 (1979) as Ifanact of bestowing or giving possession
under legal sanction . . . ." If the defendant had an obligation
to pay plaintiff pursuant to the terms of its policy with
Bennyhoff, settling that obligation clearly should not require
obtaining greater protection for Bennyhoff than he was entitled to,
based on the amount of coverage he had purchased.
The majority relies on Thomnpsor~v. Slate h m z Mulrral I~zsuraizceCo.
(1973), 161 Mont. 207, 505 P.2d 423, for the proposition that
settlement requires an agreement to release the settlor. However,
using that case as precedent for the result arrived at in this case
is an example of lifting language from one context and transposing
it to a totally unrelated set of circumstances for a totally
different purpose. That case had nothing to do with the issue in
this case.
The issue in Thompsolt was whether or not an insurer had damaged
its insured by failing to settle a claim against its insured within
the policy limits. The evidence was that the third party making
the claim against the insured had never offered to release the
insured, even if the policy limits had been paid. Therefore, any
damage to the insured was not a result of the insurer's failure to
settle.
A release was never discussed in Tlzornpson in the context of
what "settlement" means. A release was only discussed in Thompsorz
in the context of whether the defendant's conduct had in fact
caused damage to its insured.
The discussion of settlement in that context has no relevance
to defining the meaning of settlement under the statutory duty
created in this case. Obviously the release was critical to the
duty that the insured sought to impose on its insurer in ~zompson.
A release has nothing to do with the obligation imposed on the
insurer to pay amounts of coverage available under 5 33-18-201(6),
MCA .
The only case cited to this Court by either party which
appears to be remotely on point in determining the defendant's
obligation in the circumstances is Woosler v Midceizt~iry
. .
lizs[lranceCo. (Cal
App. 4 Dist. 1990) 271 Cal. Rptr. 6 6 4 . For some reason, this case
is not even discussed in the majority opinion.
In Wooster, the plaintiff alleged that he had purchased an
automobile liability insurance policy from the defendant which
required that the defendant not only pay damages on his behalf, but
also defend him. He alleged that while defending him, his
insurance company entered into a settlement agreement to pay the
policy limits without obtaining a release of all claims that the
third party who had been injured had against him. He contended
that this conduct breached the duty of good faith that the insurer
was negligent. That claim was dismissed by summary judgment in the
trial court and appealed to the California Court of Appeals for the
Fourth District. On appeal, it was the plaintiff's contention that
his insurer had an obligation to take advantage of the claimant's
position of financial distress and use the proceeds available under
the insurance policy to extract a release from the claimant which
would protect the insured from any further obligations he had to
the claimant.
The California Court of Appeals remanded to the trial court
because the insurer had failed to keep its insured informed of
settlement negotiations which would have allowed the insured to
resolve his personal liability at the same time that the insurer's
obligations were satisfied. That court held that:
An insurer's failure to give an insured a chance to
participate in negotiating a joint settlement of the
policy limits and any amounts in excess of the policy
limits which will have to be paid by the insured
personally may constitute a breach of a duty owed to the
insured.
Woosler, 271 Cal. Rptr. 668.
However, more importantly for purposes of this case, that
court found when applying an identical provision of California's
own Unfair Trade Practices Act, that absence of a release would not
excuse an insurer's duty to pay policy proceeds which were
indisputably due. In language relevant to this decision, that
court stated:
Contrarytothe implications of defendants' concerns
in this regard, we have not held that the insurer must
withhold either partial or complete payment of policy
limits from an injured claimant so as to allow the
insured an unlimited amount of time to coerce the
claimant into settlement of both the policy limits and
in-excess-of-policy-limits amounts. Such a holding would
fly in the face of statutory duties imposed upon insurers
by the Insurance Code. Although claimants no longer have
a private cause of action under Insurance Code section
790.03 (Moradi-Slzalal v. Firernan 1 s Fund Ins. Cornpnnies ( 1988) , 4 6
Cal.3d 287, 250 Cal. Rptr. 116, 758 P.2d 58), insurers
still have a duty, under subdivision (h)(5) of that
section, to !'attempt[] in good faith to effectuate
prompt, fair, and equitable settlements of claims in
which liability has become reasonably clear."
Instead we have merely held that an insurer, when it
is faced with a claim for amounts over the policy limit,
and when it is unable to obtain a general release of its
insured even if it pays the policy limits, must let its
insured know that it intends to pay the policy limits, or
the final portion thereof, and must cooperate with the
insured and give the insured a reasonable opportunity to
participate in an attempt to make a joint settlement of
the claim.
Wooster, 271 Cal. Rptr. 673-74.
I agree with the California court t h a t to allow an insurer to
withhold payment of policy limits injured claimant for the
sole purpose of coercing a claimant into settlement of amounts that
he may be entitled to over and above t h e policy limits, violates
the spirit and the letter of § ,
33-18-201 (6) MCA. However, that is
exactly what the majority has accomplished with its opinion in this
case.
Bennyhoff purchased insurance coverage that protected him
against claims by Erich in the amount of $100,000. When he did
that he assumed personal liability for any damages he might cause
Erich in excess of t h a t policy.
When the defendant sold the policy to Bennyhoff it assumed a
responsibility under Montana law to pay the amounts due under that
policy when liability was reasonably clear. It had no obligation,
nor any right under either the policy nor Montana law to withhold
those undisputed amounts in order to leverage an injured claimant
into settlement or waiver of amounts that might be due from
Bennyhoff over and above the policy proceeds.
As a result of this decision, the majority of this Court has
again rewritten statutory law so that it accords with its own
notions of public policy. Those notions, once again, afford
greater protection to wrongdoers than to innocent victims.
For these reasons, I dissent from the opinion of the majority.
I would remand this case to the District Court for trial on the
merits of plaintiff's claims under 5 5 33-18-201(6) and (13), MCA.
Justice William E. Hunt, Sr. , concurs in the foregoing dissent
of Justice Trieweiler.
June 23, 1992
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
Lawrence A. Anderson, Esq.
Howard F. Strause, Esq.
P.O. Box 2608
Great Falls, MT 59403
Dennis P. Clarke, Esq.
Smith, Walsh, Clarke & Gregoire
P.O. Box 2227
Great Falls, MT 59403-2227
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA
BY:
Deputy