NO. 95-543
IN THE SUPREME COURT OF THE STATE OF MONTANA
1996
SHERMAN BARTLETT,
Plaintiff and Appellant,
ALLSTATE INSURANCE COMPANY.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable John W. Larson, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Roderick K. Ermatinger; Attorneys, Inc.;
Missoula, Montana
For Respondent:
Steven S. Carey; Carey, Meismer & McKeon;
Missoula, Montana
Submitted on Briefs: September 12, 1996
Decided: December 10, 1996
Filed:
Clerli
Justice Charles E. Erdmann delivered the opinion of the Court.
Sherman Bartlett appeals from opinions and orders issued by
the Fourth Judicial District Court, Missoula County, granting
summary judgment in favor of Allstate Insurance Company. We affirm
in part and reverse in part.
We address the following issues on appeal:
1. Did the District Court err in determining that Bartlett
did not have an insurable interest in the property at the time of
loss?
2. Did the District Court err in determining that Bartlett
did not have colorable claims for unfair trade practices or for
fraud, constructive fraud, or punitive damages?
3. Did the District Court err in managing discovery or in
awarding costs?
On appeal, the appellant also raised the issue of whether the
District Court erred in ruling that material misrepresentations on
the application for insurance precluded recovery. However, we
affirm the District Court's grant of summary judgment to Allstate
on the basis of our holding in Issue 1, and therefore determine it
is not necessary to discuss this issue.
FACTS
In November 1990, Bartlett entered into a buy-sell agreement
with the Montana Bank of Mineral County to purchase a residence and
one acre of land in Missoula for $31,000. The Bank agreed to close
the transaction on November 28, 1990, and instructed Bartlett that
he must obtain an insurance binder on the property before closing.
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On November 27, 1990, Bartlett met with an agent from Allstate
Insurance Company, Surilda Hanks, to obtain the insurance binder.
Hanks prepared an application for a landlord's package policy in
which Allstate agreed to insure the property, naming Bartlett as
the insured and the Bank as loss payee under the policy as first
mortgagee. Hanks completed the application in Bartlett's presence
based upon information Bartlett provided to her. The completed
application indicated that the purchase price for the property was
$50,000 and that the property had not been vacant for more than
thirty days. Allstate insured the dwelling for $68,000 and
Bartlett's personal property for $3,400. Bartlett signed the
application and the insurance was to become effective on
November 28, 1990.
On November 28, 1990, Bartlett and the Bank president met to
transfer the deed and trust indenture. The Bank had discovered a
prior lien against Bartlett for a $10,000 child support judgment
and was concerned that this lien would attach to the property and
therefore declined to proceed with the closing. Bartlett notified
Hanks the same day that the transaction had not closed. As a
result, Hanks did not submit the binder to Allstate and Allstate
never processed the policy. Bartlett never paid a premium for
insurance coverage.
On December 23, 1990, a fire completely destroyed the home
Bartlett intended to purchase. In January 1991, Bartlett made a
demand upon Allstate requesting the full policy limits of $71,400
plus interest. Allstate denied Bartlett's demand, stating that the
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binder was intended to become effective at the time of closing,
which never occurred. Allstate claimed that Bartlett had cancelled
the policy prior to the fire when he called Hanks to inform her
that the closing had not taken place, and that, in any event, the
Bank had assumed the risk of loss. In October 1992, the Bank
assigned any interest it may have had in the insurance policy to
Bartlett.
On November 24, 1992, Bartlett filed a complaint and demand
for jury trial against Allstate seeking to recover for wrongful
denial of the insurance proceeds. In April 1994, Bartlett filed an
amended complaint alleging that, in addition to the original
claims, Allstate violated § 33-18-201, MCA, which is Montana's
prohibition against unfair trade practices. Each party filed
motions for summary judgment, and on August 31, 1994, the District
Court issued an opinion and order granting summary judgment in
Allstate's favor and dismissed all of Bartlett's claims. The
District Court determined that the policy was void abinitio because
of material misrepresentations, that the buy-sell agreement did not
provide Bartlett with an insurable interest, and that the Bank's
assignment of its interest in the policy to Bartlett failed. The
court dismissed Bartlett's claims, including those for fraud,
constructive fraud, and unfair trade practices, and determined that
Bartlett had no claim for punitive damages.
On the same day the court issued its summary judgment ruling,
it issued an order in response to motions filed by each party.
Allstate had moved the court for a protective order on discovery
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related to the unfair trade practices claim, alleging that Bartlett
was pursuing discovery beyond the limits allowed by the Montana
Rules of Civil Procedure. Bartlett had also filed a motion to
compel the production of a statement given by Hanks after the
insurance binder had been signed. The District Court granted
Allstate's motion and stayed further discovery, and denied
Bartlett's motion. The court also awarded Allstate certain costs
for depositions which had been taken.
Bartlett subsequently filed a motion to amend or alter the
District Court's summary judgment order. On November 4, 1994, the
court issued an opinion and order reaffirming its decision on
summary judgment but vacating its summary judgment ruling on the
unfair trade practices claim. The court continued its protective
order concerning discovery on that claim. On December 22, 1994,
the District Court issued an opinion and order awarding costs to
Allstate in the amount of $1,414, and on July 14, 1995, the court
granted Allstate's motion for summary judgment on the unfair trade
practices claim. This appeal followed.
STANDARD OF REVIEW
Our standard of review in appeals from summary judgment is
de now. Motarie v. Northern Mont. Joint Refuse Dist. (19951, 274
Mont. 239, 242, 907 P.2d 154, 156; Mead v. M.S.B., Inc. (1994), 264
Mont. 465, 470, 872 P.2d 782, 785. When we review a district
court's grant of summary judgment, we apply the same evaluation as
the district court based on Rule 56, M.R.Civ.P Bruner v.
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Yellowstone County (1995), 272 Mont. 261, 264, 900 P.2d 901, 903.
In Bruner we set forth our inquiry:
The movant must demonstrate that no genuine issues of
material fact exist. Once this has been accomplished,
the burden then shifts to the non-moving party to prove
by more than mere denial and speculation that a genuine
issue does not exist. Having determined that genuine
issues of material fact do not exist, the court must then
determine whether the moving party is entitled to
judgment as a matter of law. We review the legal
determinations made by the district court as to whether
the court erred.
Bruner, 900 P.2d at 903.
ISSUE 1
Did the District Court err in detertiining that Bartlett did
not have an insurable interest in the property at the time of loss?
Bartlett argues that he had an insurable interest in the
property at the time of the loss. He claims that the buy-sell
agreement between him and the Bank was legally binding on both
parties. The agreement obligated the Bank to transfer title to the
property to Bartlett and in turn Bartlett was obligated to purchase
the property. Bartlett argues that at the time of the loss the
buy-sell agreement was still legally enforceable since neither
party had terminated it
Bartlett also contends that he is entitled to the Bank's
interest under the binder, relying on the fact that the Bank
assigned its interest in the binder to him in October 1992.
Bartlett argues that even if his interest was voided due to
material misrepresentations on the insurance application, a
mortgagee's interest remains protected. He claims he is entitled
6
to receive from Allstate the Bank's monetary interest in the
policy.
Section 33-15-205, MCA, provides that no contract of insurance
shall be enforceable except for the benefit of persons having an
insurable interest in the property at the time of the loss.
Subsection (2) defines "insurable interest" as any actual, lawful,
and substantial economic interest in the safety or preservation of
the property insured. A purchaser of real estate may have an
insurable interest in property to which he or she does not hold
title if an enforceable executory contract has been executed which
gives the purchaser the right to possess the property. See
Musselman v. Mountain West Farm Bureau Mut. Ins. Co. (1992), 251
Mont. 262, 824 P.2d 271.
1n the present case, the buy-sell agreement executed by the
parties stated that Bartlett would execute a promissory note in
favor of the Bank and that the property would be secured with a
first position trust indenture. The terms of the buy-sell
agreement clearly made the sale contingent upon the Bank holding a
first position trust indenture. When the Bank discovered a $10,000
unsatisfied child support judgment against Bartlett, it could not
be assured of a first position security interest. Bartlett did not
eliminate the judgment lien and the condition precedent to the
buy-sell agreement becoming effective was not met. The agreement
was therefore terminated and the Bank was the unconditional owner
of the property.
MOreOVer, our examination of the record substantiates the fact
that Bartlett did not believe he owned the property at the time of
the loss. Hanks testified that Bartlett called her and told her
that the deal did not go through and that he did not need the
insurance. Hanks testified that following the fire Bartlett called
her to ask about the insurance. She said she had done nothing
"because you told me not to." Bartlett responded by stating
'I [wlell, that's a good thing because the house burned down last
night." Scott Waldron, the Fire Chief who responded to the fire,
testified that he spoke with Bartlett at the scene of the fire.
According to Waldron, Bartlett said he had not been there that
night, that he did not own the property, and the Bank was the one
with the problem.
Finally, Bartlett's attempt to bootstrap into the Bank's
rights to recover under the policy is baseless. The record clearly
indicates that the Bank took the unequivocal position that it had
no interest in the policy because the deal had never gone through.
In fact, the record indicates that the Bank looked to its own
blanket insurance policy for coverage. The Bank had no interest in
the binder which it assigned to Bartlett and therefore neither did
Bartlett as the assignee.
We conclude that the District Court did not err when it
concluded that Bartlett did not have an insurable interest in the
property at the time of loss, and on that basis affirm the court's
summary judgment ruling.
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ISSUE 2
Did the District Court err in determining that Bartlett did
not have colorable claims for unfair trade practices or for fraud,
constructive fraud, or punitive damages?
The District Court granted summary judgment to Allstate on
Bartlett's unfair trade practices claim, stating that no policy
coverage existed and Allstate therefore had a reasonable basis in
law or fact to deny coverage. Bartlett, however, argues that
discovery is essential to determine whether Allstate had a
reasonable basis to deny the insurance claim and therefore requests
this Court to reverse not only the District Court's grant of
summary judgment to Allstate but also to reverse the court's order
which precluded discovery on the matter.
Bartlett argues that § 33-18-242, MCA, entitles him to
maintain a third-party action against Allstate for unfair trade
practices. He argues that his claim is based only in part on the
existence of the insurance policy and therefore even if the
insurance policy is found to be void, his claim survives.
We first note that in the context of bad faith tort actions,
a third-party claimant is typically a person who has a claim
against the insured party for certain injuries. See O'Fallon v.
Farmers Ins. Exchange (1993), 260 Mont. 233, 859 P.2d 1008; Klaudt
v. Flink (1982), 202 Mont. 247, 658 P.2d 1065. Here, that is not
the case since Bartlett alleges he is a third-party claimant even
though he also claims to be the insured party. Without addressing
the question of whether Bartlett is or is not a third-party
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claimant, as that term is used in § 33-18-242, MCA, we determine
that his claim must fail
Section 33-18-242(5 ) , MCA, states that an insurer may not be
held liable for unfair trade practices if the insurer had a
reasonable basis in law, 33< in fact for contesting the claim or the
amount of the claim, whichever is at issue. Here, we have affirmed
the District Court's determination that Bartlett did not have an
insurable interest in the property and, on that basis, Allstate
clearly had a reasonable basis for not paying Bartlett's claim for
insurance proceeds. We therefore conclude that the District Court
did not err when it determined that Bartlett did not have a
colorable claim against Allstate for unfair trade practices.
With respect to Bartlett's claim for fraud, Rule 9(b),
M.R.Civ.P., requires that the circumstances constituting fraud must
be stated with particularity in the pleadings. In order to prove
fraud, the plaintiff must establish nine elements: (1) a
representation; (2) its falsity; (3) its materiality; (4) the
speaker's knowledge of its falsity or ignorance of its truth; (5)
the speaker's intent that it should be relied on; (6) the hearer's
ignorance of falsity of the representation; (7) the hearer must
rely on the representation; (8) the hearer's right to rely on the
representation; and (9) consequent and proximate injury caused by
reliance on the representation. Pipinich v. Battershell (1988),
232 Mont. 507, 511, 759 P.2d 148, 151.
This Court has held that if the specific facts constituting
the alleged fraud are not stated with particularity, the claim must
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be dismissed. See Pioinich, 759 P.2d at 150-51; Martin v. Dorn
Equip. CO. (1991), 250 Mont. 422, 429, 821 P.Zd 1025, 1029.
Bartlett's amended complaint simply stated that "Defendant is
liable to Plaintiff for fraud for reasons set forth herein." The
amended complaint clearly fails to set forth the allegation of
fraud with sufficient specificity. We therefore conclude that the
District Court did not err when it dismissed Bartlett's claim for
fraud.
Bartlett also alleges constructive fraud based upon the
allegation that Hanks created a false impression that he was
insured and that she failed to disclose that information provided
by Bartlett concerning the package deal and vacancy would likely
cause Allstate to void the policy.
Section 28-2-406, MCA, defines constructive fraud as (1) any
breach of duty which, without an actually fraudulent intent, gains
an advantage to the person in fault or anyone claiming under him by
misleading another to his prejudice or to the prejudice of anyone
claiming under him, or (2) any such act or omission as the law
especially declares to be fraudulent, without respect to actual
fraud. Here, the record does not support Bartlett's claim for
constructive fraud.
Hanks testified that she told Bartlett that Allstate did not
insure vacant houses. She also testified that on November 30,
1990, two days after Bartlett had initially informed her that the
closing had not occurred, Bartlett informed her "I don't have a
deal, the deal is done, there's nothing going on, I don't need the
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insurance. I' Furthermore, Bartlett's own actions indicate he did
not believe he needed insurance. He cannot now be allowed to claim
that Hanks misrepresented information to him causing him to believe
he was insured. We therefore conclude that the District Court did
not err when it dismissed Bartlett's claim for constructive fraud.
Finally, we determine that the District Court did not err in
dismissing Bartlett's claim for punitive damages. Section
27-l-221, MCA, allows for an award of punitive damages if the
defendant is found liable for fraud or actual malice. In light of
our holdings above, we conclude that the court correctly rejected
Bartlett's claim for punitive damages.
ISSUE 3
Did the District Court err in managing discovery o r i n
awarding costs?
Bartlett argues that the District Court erred by issu.ing its
protective order staying discovery related to the unfair trade
practices claim. He also argues that the court erred when it
denied his request to compel the production of a recorded statement
made by Hanks to Allstate in January 1991.
We have stated that the district court has inherent
discretionary power to control discovery under its authority to
control trial administration and that the lower court is in a
better position than this Court to supervise the day-to-day
operations of discovery. State ex rel. Guarantee Ins. Co. v.
District Court (19811, 194 Mont. 64, 67-68, 634 P.2d 648, 650. We
have stated that the objective of the district court in controlling
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and regulating discovery is to ensure a fair trial to all
concerned, neither according one party an unfair advantage nor
placing the other at a disadvantage. Hobbs v. Pacific Hide & Fur
Depot (1989), 236 Mont. 503, 512, 771 P.2d 125, 131.
Here, in light of our holding above that Allstate had a
reasonable basis for denying Bartlett's claim due to the lack of an
insurable interest, we determine that the District Court did not
abuse its discretion when it issued the protective order concerning
discovery with respect to the unfair trade practices claim.
However, we conclude that the District Court abused its
discretion when it denied Bartlett's motion to compel Hanks'
statement. Rule 612, M.R.Evid., provides that if, before
testifying, a witness uses a writing to refresh his or her memory,
then the adverse party is entitled to have the writing produced.
Here, both Jeffery Mann, Allstate's underwriter, and Hanks reviewed
Hanks' January 1991 statement prior to testifying in their
depositions and the court, therefore, erred in not compelling the
production of Hanks' statement. Nevertheless, in light of our
holdings above, we determine that the court's error in this regard
is harmless.
Bartlett also argues that the District Court erred in awarding
costs in the amount of $1,414 to Allstate. Specifically, Bartlett
claims that he should not be required to pay the transcription
costs of the video taped depositions of Hanks and Mann. Bartlett
relies on Rule 30(h), M.R.Civ.P., which allows for an audio-visual
or tape recorded deposition without a stenographic record.
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We have stated that the court is empowered to award costs to
the prevailing party on summary judgment and to include the costs
of depositions as long as they are reasonable in amount and
necessary to the summary judgment. Harrison v. Chance (1990), 244
Mont. 215, 227, 797 P.2d 200, 207. Section 25-10-103, MCA,
provides that the court has the discretionary power to apportion
costs between the parties, and § 25-lo-201(2), MCA, lists expenses
of taking depositions as allowable costs.
In this case, the District Court granted summary judgment to
Allstate based not only on the fact that Bartlett did not have an
insurable interest in the property, but also because the
application for insurance contained material misrepresentations.
However, since our holding is based only on the fact that Bartlett
did not have an insurable interest, we determine that the court's
award of costs should reflect only those costs which were necessary
for that purpose. We therefore reverse the District Court's award
of costs and remand the case to the court for a determination of
which costs were necessary for summary judgment on the basis of
Bartlett's lack of an insurable interest in the property.
Affirmed in part, reversed in part, and remanded for further
proceedings consistent with this opinion.
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I We concur: