No. 92-387
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
PAGE WELLCOME; PAGE WELLCOME,
PROFESSIONAL SERVICE CORP.,
Plaintiffs and Appellants,
-vs-
THE HOME INSURANCE COMPANY,
Defendant and Respondent.
ORIGINAL PROCEEDING
COUNSEL OF RECORD:
For Appellants:
Page Wellcome, Attorney at Law, San Diego,
California
For Respondent:
Dennis McCafferty; James, Gray & McCafferty, Great
Falls, Montana
Submitted on Briefs: January 28, 1993
Decided: March 25, 1993
Justice Karla M. Gray delivered the Opinion of the Court.
This case is before us on certified questions from the United
States Court of Appeals for the Ninth Circuit concerning
interpretation of insurance policy provisions.
A Montana trial court imposed sanctions against Page Wellcome
(Wellcome), a Montana attorney, for disregarding its orders
regarding voir dire, examination of witnesses and argument. The
court ordered Wellcome and the insurer for his client to pay the
sanctions. The sanctions, either as ordered or as compromised,
ultimately were paid by Page Wellcome and Aetna Insurance Company.
Wellcome submitted a claim for the amount of the sanction to
The Home Insurance Company (Home) under his professional liability
policy. Home denied the claim on the basis of a provision
ines or statutory penalties whether imposed
excluding payment for f l f
by law or otherwise. ... II
Wellcome filed a diversity action in the United States
District Court asserting a breach of the insurance contract and
seeking a declaration of the parties1 rights thereunder. Home
pleaded as affirmative defenses both the I1Eines or statutory
penaltiesu exclusion and an exclusion for "deliberately wrongful
acts or omissions committed by the Insured.ll The parties filed
cross-motions for summary judgment. Wellcome sought summary
judgment on the grounds that: (1) the term i e l in the policy was
nl
ambiguous and, therefore, should be construed against Home; and (2)
coverage should be required under the 81reasonableexpectationsRf
doctrine. The U.S. District Court granted summary judgment to Home
2
on the basis of the @Ifineslfexclusion, concluding that the term was
not ambiguous. On that basis, the court determined that the
reasonable expectations principle did not apply. The court did not
rely on the "wrongful actsu exclusion.
Wellcome appealed to the United States Court of Appeals for
the Ninth Circuit. Stating that no clear controlling precedent in
Montana judicial decisions existed on questions determinative of
the case, the Ninth Circuit certified questions to this Court. We
accepted jurisdiction of the certified questions by order dated
August 25, 1992.
The following two questions are certified from the Ninth
Circuit:
(1) Was there ambiguity in the contract language that
should be construed against Home to require it to provide
coverage for the sanctions imposed against Wellcome?
(2) Does the doctrine of reasonable expectations require
Home to provide coverage for the sanctions imposed against
Wellcome?
The interpretation of an insurance contract is a question of
law in Montana. Truck Ins. Exchange v. Waller (19921, 252 Mont.
328, 331, 828 P.2d 1384, 1386. Well-established principles guide
our interpretation. The language of the policy governs if it is
clear and explicit. Waller, 828 P.2d at 1386. Ambiguities are
construed against the insurer. Bauer Ranch v. Mountain W. Farm
Bur. Mut. Ins. (1985), 215 Mont. 153, 156, 695 P.2d 1307, 1309.
Furthermore, exclusions from coverage will be narrowly and strictly
construed because they are contrary to the fundamental protective
purpose of an insurance policy. Farmers Union Mut. Ins. Co. v.
Oakland (1992), 251 Mont. 352, 356, 825 P.2d 554, 556.
W i t h these principles of insurance policy interpretation in
mind, we turn to the policy at issue and the question of whether
the I1finesor statutory penaltiesv1language is ambiguous, thereby
requiring Home to provide coverage for the sanctions imposed
against Wellcome. In so doing, we note that Home's alternative
basis for excluding coverage, the I1deliberately wrongful actst1
exclusion, is not before us and, therefore, is not addressed
herein.
Pursuant to the claims made policy between Wellcome and Home,
Home generally undertook to pay on Wellcome's behalf all sums in
excess of the deductible amount which Wellcome became lvfegally
obligated to pay as damages. .. .If The specific provision under
which the U.S. District Court granted summary judgment to Home
defines damages as follows:
Damages, whenever used in this policy, means a monetary
judgment or settlement and does not include fines or
statutory penalties whether imposed by law or otherwise,
nor the return of or restitution of legal fees, costs and
expenses arising therefrom.
The court agreed with Wellcome that the monetary sanction was not
imposed pursuant to statutory authority, and focused on the term
lffine.Ii It determined that the term was not reasonably subject to
differing interpretations, "[rlather, the term, whether used in a
formal context or in ordinary parlance, means the payment of money
imposed upon a person for miscondu~t.~Because the Montana trial
court imposed a payment of money on Wellcome for misconduct, the
court concluded that the imposed sanctions were excepted from
coverage under the policy.
On appeal to the Ninth Circuit, and before this Court,
Wellcome argues that sanctions are sanctions and are not fines,
penalties or any other type of punishment. He asserts that the
term "fines" is used in Montana statutes only in the context of
criminal matters and, therefore, that a Montana attorney reasonably
could understand the exclusion for "fines" in his professional
liability policy to exclude only criminal fines. Home contends
that the policy clearly informed Wellcome that coverage was not
available if a court ordered him to pay money as a result of his
misconduct.
We conclude that the term "fines," as used in the policy
before us, is not ambiguous and excludes coverage for the sanctions
imposed by the state trial court. We note first that the
"statutory penalty" language does not apply here; it was not the
basis forthe trial court's imposition of sanctions. However, that
language would include penalties of all kinds imposed under
authority of statute or rule, including a criminal fine, an "excess
costs" penalty pursuant to 5 37-61-421, MCA, a statutory contempt,
or a sanction imposed under the Montana Rules of Civil Procedure.
Here, the trial court imposed the sanctions for Wellcome's
violation of certain of its orders during trial, pursuant to its
inherent authority. The sanctions were a penalty or punishment for
Wellcome's misconduct, notwithstanding the fact that they did not
come within any specific statutory authority so as to constitute a
statutory penalty under the policy. Black's Law Dictionary (4th
Ed. Rev.) defines a fine as a penalty; it defines the verb "fine"
5
as I1to impose a pecuniary punishment. . . ." In our view, this is
the commonly understood and clear meaning of the word ''fine.
well come*^ attempt to restrict the term to the criminal context is
hypertechnical; it would produce an absurd result in that sanctions
imposed pursuant to statute or rule would be excluded from
coverage, while sanctions imposed pursuant to a court's inherent
authority to do so would be covered.
We turn next to the llreasonable
expectations" doctrine, first
recognized by this Court in Transamerica Ins. Co. v. Royle (19831,
202 Mont. 173, 656 P.2d 820. In that case, we held that a policy
exclusion was invalid due to its failure to "honor the reasonable
expectationsll of the purchaser of the policy. Rovle, 656 P.2d at
824. We quoted Keeton, Insurance Rights at Variance with Policy
Provisions, 83 Haw. L.Rev. 961, 967 (1970), for the proposition
that the objectively reasonable expectations of the purchaser would
be honored notwithstanding the fact that a "painstaking study1I of
the policy would have negated the expectations. Rovle, 656 P.2d at
824. The reasonable expectations doctrine is in accord with our
strong public policy that insurance is intended to serve a
fundamental protective purpose; to this extent the doctrine goes
hand in hand with our rule of strictly construing policy
exclusions. See Oakland, 825 P.2d at 556.
We next considered, and declined to apply, the reasonable
expectations doctrine in Passage v. Prudential-Bache Securities,
Inc. (198&), 223 Mont. 60, 727 P.2d 1298. In Passase, plaintiffs
contended that the arbitration clause in their client agreement
form, printed in the same typeface as the other agreement
6
provisions, was unenforceable as outside their reasonable
expectations, Stating that there was nothing in the record to
indicate that the arbitration clause was not within the parties'
expectations, we affirmed the enforceability of the clause.
Passaqe, 727 P.2d at 1302.
We most recently addressed the reasonable expectations of an
insured in State Farm v. Estate of Braun (1990), 243 Mont. 125, 793
P.2d 253. There, the underinsured policy at issue specifically
provided that coverage extended to Canada. Canadian law severely
restricted damages in wrongful death tort actions. We determined
that, given the policy's specific extension of coverage for
accidents occurring in Canada, a reasonable average insured would
not be aware that, in relation to Montana law, Canadian law
severely restricted damages. Braun, 793 P.2d at 256. We noted
that accepting the insurer's position would produce the result that
State Farm sold, and collected premiums for, coverage in Canada
that was worthless to the insured. Braun, 793 P.2d at 256.
Nothing in our cases supports the applicability of the
reasonable expectations doctrine in this case. In neither Rovle
nor Braun did we apply the doctrine to require coverage where clear
policy language excluded the coverage. We decline to do so here.
Expectations which are contrary to a clear exclusion from coverage
are not "objectively reasonablew as we used that term in Rovle.
We have concluded herein that the definition of damages in
Wellcome' s pol icy w i t h Home which excludes f inas" clearly and
unambiguously excluded coverage under the facts of this case. To
require Home to provide coverage where the policy manifests a clear
intent to do otherwise would violate our most basic contract law
and rules of interpretation. See, e.g., 5 28-3-401, MCA, and
Waller, 828 P.2d at 1386. We conclude, therefore, that the
doctrine of reasonable expectations does not require Home to
provide coverage for the sanctions imposed against Wellcome.
Based on the above discussion and conclusions, we answer the
certified questions as follows:
"First, was there ambiguity in the contract language that
should be construed against Home to require it to provide coverage
for the sanctions imposed against Wellcome?" No.
llSecond,
does the doctrine of reasonable expectations require
Home to provide coverage for the sanctions imposed against
Wellc~me?~~
No.
We concur:
March 25, 1993
CERTlFICATE OF SERVICE
I hereby certify that the following order was sent by United States mad, prepaid, to the following
named:
Page Wellcome
Attorney at Law
4365 Executive Dr., Ste. #700
San Diego, CA 92121
Dennis McCaferty
James, Gray & McCafferty
P.O. Box 2885
Great Falls, MT 59403
ED SMITH.
CLERK OF THE SUPREME COURT
STATq OF MONTANA
BY: --lkk--