Roberts v. Empire Fire & Marine Insurance

No 96-127

IN THE SUPREME COURT OF THE STATE OF MONTANP.
1E
"S

Nip-RK N. ROBERTS.

Plaintiff and Appellant,

APPEAL FROM: District Court of the Eighteenth Judicial District.
In and for the County of Gallatin,
The ~ o n o r a b ~ e
Larry Moran, Judge presiding.

COUNSEL OF RECORD:
For Appellant :
L. Randall Bishop, Jarussi 6 Bishop, Billings,
.
Montana; Stephen D. Roberts, Bozeman, Montana
For Respondent:
Steve Reida, Laindoe, Brown, Planalp & Braaksma,
Bozeman, Montana

Submitted cn Brlefs: j u n e 24, 1936

~ ~ ~ i d ~ d : 11, 1996
September
Filed:
District Court, Gallatir. Cocnty, setting a-side the entry o f a
default judgm.ent on the issue of liability and the subsequent final
ju.d.gment on aamages against respondent, Empire Fire and Marire

Insurance Company.
we reverse.
The issue in this case is:
Did the District Court manifestly abuse its discretion when it
issued its order setting aside the default judgments of iiability
and damages entered against Empire Fire and Marine Insurance
Company?
FACTS

In November 1992, ~ i r k . ~ i n k l e the appellant, Mark Roberts
and
(Roberts) were involved in an accident at an uncontrolled
intersection in Bozeman, Montana. Following the accident, Winkle's
insurer, Empire Fire and Marine Insurance Company (Empire), offered
to pay 75% of Roberts' property damage based upon its opinion that
Roberts was contributorily negligent. Roberts rejected Empire's
offer and filed suit against Empire for vehicle damage as well as
damages for the inconvenience caused by the loss of use of his
vehicle. After Roberts filed suit, Empire filed an offer of
judgment which Roberts then later accepted.
On March 3 , 1995, Roberts again filed suit against Empire
alleging unfair claims settlement practices. Service o f process
was made upon the Montana Commissioner of Insurance (MCI) on March

2
9, i995. MCI f c r w a r d e l 3. coyer letter, she Summons, the Conplaint

and Fi~rst Discovery Reqccsts to 2mpirei corporate of (ice
s in

Nebraska.
Empire's receptionist received these documeats ori March 13,
1995. ilrrr:irels
maii room iog-in sheets reflect that the documents
were then routed to Ms. Amy Bones, corporate counsel for Empire.
Ms. Bones is designated as receiver for service of process from the
State of Montana. Although Ms. Bones contends that she never saw
the documents, the record shows that it was normal procedure for
Ms. Bones to hand-deliver papers from her office to the claims

department.
In any event, the documents did reach Empire's claims
department and from there were hand-delivered to Mr. David
Sedlacek. Mr. Sedlacek is responsible for supervising Enpire's
claims unit and for assigning new claims. Mr. Sedlacek wrote notes
on the documents indicating his awareness of their contents, and
intended that they be forwarded to Dennis Magnuson, one of Empire's
"file handl.ersV and also an attorney.
In Mr. Sedlacek's affidavit, he stated that in all likelihood
he handed the documents to Ms. Heidee Dorr, a claims clerk who at
that time had been employed by Empire for only a few days. Ms.
Dorr stated in h e r affidavit that if she was in the claims
department at all on March 1 3 , 1995, it would have been her first
day there and she would not yet have received any training. Mr.
Sedlacek speculated that Ms. Dorr, rather than pullins the 1992
file that had been prepared in the Roberts v. Hinkle case and
deliveiixg t h e file an3 the dccurnects to Mr. Magsusoc, filed t h e
documents in that clcsed g.~it-,bl~~s,--:j.. Hinkle file.
Aware of the concents of t h e docments, Mr. SedLacek did not
"fl.agV them as important, as was his duty; did f a con£irm that Mr.
it
Maqnuson received the docunents; and did not inquire as to the
progress being made oc tbc,matter. Mr. Sedlacek and Mr. Magnuson
work across the hall from one another and often see each other
severai times daily.
On April 25, 1995, the clerk of court entered a default
judgment on liability against Empire in Montana's Eighteenth
Judicial District Court. Pursuant to Rule 55(b?,M.R.Civ,P.,the
determination of damages was set for a later date. On October 2,
1995, the District Court held an evidentiary hearing. Following
this hearing, the court entered a $615,000.00 final judgment
against Empire, including $15,000.00 in compensatory damages and

$600,000.00 in punitive damages. Roberts then filed this judgment
with the District Court in Douglas County, Nebraska, on November
27, 1995.

After learning of the default judgment on December 1, 1995,
Etnpire found Roberts' complaint inside the closed Roberts v. Hinkle
file. Empire then filed a Motion for Relief, citing to Rules
60 (b?(1; and 6C (5)( 6 ), M.R.Civ.P . This motlor? was la-e amended. tc
include Rule ii(cj, M.R.Civ.P. Affidavits and depositions were
filed with the District Court, and a hearing was held on January
30, 1996. By order dated February 2, 1996, the District Court
granted Empire's Motion to Set Aside the Default Judgment.
 On February 5, 1996, Roberts filed an appeal with this Court.
On March 28, 1996, Zmpire filed a motion to dismiss Robertst appeal

for Lack c f jurisd~iction,claiw5ng tha.t an order granting a cotion
to vacate a default is nonappealabie. Based on the lanq~ageof
Ruie i (b)(21, M.K.App.P., this Court determined that it had
jurisdiction over the matter and therefore, Empire's motion to
dismiss was denied. Roberts v. Empire Fire and Ma-rine Insurance Co.
(Mont. 19961, 915 P.2d 872, 53 St.Rep. 359. This appeal followed.
DISCUSSION

Did the District Court manifestly abuse it-sdiscretion when it
issued its order setting aside the default judgments of liability
and damages entered against Empire Fire and Marine Insurance
Company?
In this matter, the District Court granted Empire's motion
based on Rile 60 (b)(11, M.R.Civ. This rule provides:
P.
On motion and upon such terms as are just, the court may
relieve a party or a party's legal representative from a
final judgment, order, or proceeding for the following
reasons: (1) mistake, inadvertence, surprise, or
excusable neglect;. . . .

The standard of review used by this Court when reviewing a district
court's decision to grant a motion to set aside a default judgment
is whecher the court has manifestly abused its discretion. Siewing
v. Pearson Co. !1987), 225 Mont. 458, 461, 736 E.2d 120, 122
(citing Lords v. Newman !1984!, 212 Mont. 359, 365-66, 688 P.2d
290, 293-94). Therefore, our discussion will center on whether

Roberts has shown a manifest abuse of discretion by the District
n
~ 5 U r t ~xhichwould require reversal. First National Bank 3
: a t 3ank
7 ~ . Springs !19873, 225 Mcr~t.62, 55, 731 p.2d 332, 334.
I z is Roberts' position on appeal that, although ;he extent of
2alr judgment necessar;, t~ reflect a "manifest abuse o f discretion:'
bas not been cleariy defined by this Court, there are previous
decisions that have established the standard for setting aside a
"
default. See, e.g., In re Marriage of McDonald 11993), 261 Mont.
466, 468, 863 P.2d 4G1, 402. And, although no Xontana case law
clearly establishes the parameters of "manifest abuse of
discretion," Roberts argues that the Ninth Circuit Court of .Appeals
has recognized that a court may abuse its discretion if it does not
apply the law correctiy or if it erroneously assesses the facts.
United States . Rahm 19th Cir. 19931, 993 F.2d. 1405, 1410;
Northern Alaska Environmental Center v. Liljan (9th Cir. 1992), 961
F.2d 886, 889. Extending this argument to the instant case,
Roberts contends that the District Court did not apply the law

correctly, and therefore the court manifestly abused its discretion
in setting aside the default judgment
Roberts urges this Court to consider several cases involving
instances of neglect or inattentiveness in an office setting in
which this Court has affirrced a district court's refusai to set
aside a default. See Slewinq, 735 P.2d 120; Myers V. All West
Tramport (19881, 235 Mont. 233, 766 P.2d 864; Paxson v . Rice
11985), 217 Mont. 521, 700 P.2d 123; Griffin v . Scott (1985), 218
Mont. 4i0, 710 P.2d 1337.
 ,~
In Siewin~,a cox-" ~ vice-president rece- -
n y ,Ired a surnn-,o~s
and
complaint. Shortly thereafter, the vice-president resigned his
pasicion with the c % a r , am? the documents remained undiscovered
opr;-
.--+ ' 7
u~.,li a month Later. This C a r t affirrnez3 the district court and
held that none of the evLdence provided at trial estsblished
excusable neglect. Siewing, 735 P.2d at 122. In m,this Court
affirmed the district court's conclusion that the defendant's
inattention to mail did not establish excusable neglect. Myers,
766 P.2d at 867 (citing Siewinq, 736 P.2d at 122).
In Paxson, an attorney intended to file an answer but
postponed its preparation. This Court stated that this was not a
factual situation where "reasonable minds might conclude" that the
conduct of the attorney was excusable. Paxson, 706 P.2d at 126.
Following Paxson, this Court affirmed the district court in
Griffin. There, the district court determined that the failure of
counsel to read his mail .did not establish excusable neglect.
Griffin, 710 P.2d at 1338.
Roberts contends it is clear that this Court has consistently
held that a party's inattention or failure to respond to mail does
not establish excusable neglect. Therefore, Roberts asserts that
Empire's inattention to lioberts' conplaint cannot be excused by
setting aside the d e f a n l t judgment. We agree.
This Court is aware of the importance of p~ttini;an end to
litigation and establishing the respective rights of the parties
once and for all, if necessary, through a default judgment. Karlen
v. Evans (Mont. 1996), 915 P.2d 232, 235, 53 St.Rep. 33'7, 338.
abundance of cases from both sides that discussed "specific reasons

why relief should or should not be granted." The District Court
noted that there had been Little if any discussion regarding the
,
fundamental purpose of Rule 60 (b)(1) M.R.Civ.P. The District
Court then stated that in its view:
Rule 50(b)(i) provides a basic correction system for
protecting the legal process from errors caused by
neglect, inadvertence, and mistake - - clearly, improper
foundations upon which to base legal judgments.

In its conclusion, the District Court concurred with a
statement from a 1978 case in which this Court held:
Each case must be determined upon its own facts; and when
the motion is rrade promptly and is supported by a showing
which leaves the court in doubt or upcn which reasonable
minds miqht reach different conclusionsr the doubt should
be resolied in favor of the motion.

Clute v. A . 3 . Concrete (19781, 179 Mont. 475, 479, 587 P.2d 392,
395 (citing Nash v. Treat (1912), 45 Mont. 250, i22 P. 745). The
District Court determined that "on the facts of this case,"
Empire's failure to respond to Roberts' summons and conplaint
stemmed from the type of "mistake" co~templatedby Rule SO(b) (I!,

This Court is aware tha.t default judgmects are not favored,
but is equally aware of the limited set of factual circumstances in
which we kave co~sist~rrtly p h e l 6 z district c ~ u r c ' sorder of
~

defau1.z. Collectiveiy, the cases embodying these factual
circuxstances show, as appeilanc argues, that evidence of office
mismanagement, neglect, and inatte~tivenesson the part of high-
ievel employees can support a default judgment. Individually, each
of these cases in which we upheld a default order contain facts
establishing careless conduct bordering on willful ignorance. In
addition, in McDonald, supra, we stated that pursuant to Rule
55(c), M.R.Civ.P., a default judgment may be overturned according
tc Rule 60ib); M.R.Civ.P., oniy if certain "good cause" criteria
are met by the moving party. McDonald, 863 P.2d at 402 (citing
Blume v. Metropolitan Ldfe Insurance Co. (1990),242 Mont. 465, 79i
P.2d 784). In that case, we concluded that the appellant "failed
to satisfy the threshold requirement of excusable neglect which
would justify setting aside the default decree." McDonald, 863
P.2d at 403. Citing In re Marrlage of Castor (l99l), 249 Mont.
'
495, 817 P.2d 665, we declared that "'mistake', 'inadvertence, and
'excusable neglect' generally require some justification for an
error beyond mere carelessness . . . . " McDonald, 863 P.2d at 403.
Clearly, the facts here establish careless conduct amounting
to inexcusable neglect, the type of conduct we have consistently
teid to scpport a defaclt. The District Court determined that the

facts showed the kind of excusable mistake contemplated by %tie
6 0 ( h ! (11, M.R.Civ.P.,apparently focusing on Ms. Dcrr's mlsflllng

of the documents. While we agree that a low-level employee who
misfiled documents on her first day of work committed an excusable
m :, "
a . , we fail " c~derstacd how this mistake could excend cc

excuse the neglectf~~l
and inattentive conduct of na.nag&ff.ent-levsi
aware of the importance of the doc~mentsfrom the moment
ern.pl~y8-es

they :were recei-ved.
Because the law and facts so clearly support a default
judgment, we hold that the District Court manifestly abused its
discretlon in setting the defanlt judgment aside.
We reverse.

We Concur:
;usrice Jznes C . Nelscn specially concurs
1 concur in our opinion. I write separately only tc set forth
what I believe is further snpport acd grounds for our decision that
the Cistrict Cour>ranifestly abused its discretion in setting
aside the default 5u~dgmentectered in favor of Roberts.
At the outset it is important to note that the District Court
entered the default judgment against Empire foll.ewing a hearing and
the receipt of testimony and evidence. Even acknowledging the
obvj.ous--i.e. that Empice was not in court to present
countervailing evidence or to rebut Roberts' evidence--the tenor
and detail of the trial court's findings of fact and conclusions of
law and of the court's comments regarding Empire's treatment of
Roberts and the handling of his claim (covering some 19 pages) are
telling.
One cannot get the true flavor of the court's complete
exasperation and frustration at Empire's conduct without reading
the court's entire October 19, 1995 decision. Some examples serve

to make the point, however.
Among other things, the court found and concluded on the basis

of the evidence, testimony, discovery and record, fally referenced
and cited in detail in its cpinior;, that the liability of Empire's
:-.-,
was at a i l times reasonably clear; that Empire refused ri;
lILildred
pay Roberts' claim without conducting a reasonable investigation
based upon all available information; that the insurer's claim that

Roberts was contributorily negligent was entirely without basis in
fact or in law; that Empire neglected to attempt in good faith to
prclanged afixiety, w c r r y ; frcserazion and anger; and that h p i r e
intentionally disrcsarded facts that created 3. certairty of injury
to Roberts and dellberateiy proceeded to act with total
iadifferenee to the fact that such injury would be suffered.
Conciusions of Law numbers 6 and 15, perbaps, best epitomize
~che court @ s outrage. in Conclzslon ot Law number 6, the court

stated:
Montana has provided its citizens a remedy for
insurance bad faith because the claims settlement process
is filled with potential for abuse. See Holmgren v. State
Farm Mutual Automobile Insurance Company, 976 F.2d 573,
578 (9th Cir. 1992). This case is an extreme example of
just such abuse. As this Court stated in its ruling
following the evidentiary hearing on damages:
I can tell you quite plainly, Counsel, that I
have not seen a clearer case of insurer
misconduct in the years that i have been on
the bench.
There is no question in the Court's mind that
the misconduct was based upon an intent to
abuse the citizens of the state of Montana,
including this plaintiff, and that it also was
the effort of the insurer to completely negate
the requirements of the Montana Claims
Practices regulations.
They failed to discharge the duties of a
legitimate insurer. Their effort, quite
plainly in the eyes of the Court, was to rip
off an innocent -~ictim that it couid prcfit
so
by not discharging the obligations that it had
under its contract, and it fully and
cov.pletely failed to investigate and settle
this claim as a reasonable insurer ought to.
I think the evidence ind~icates that the
defeildant %as misconstrued the morality and
the ethics and the law that govern the
activities of insarance companies, and in
 essence, what it did in this case was to
practice extortion, a direct and unequivocal
act of extortion.
Tn a similar vein is the caurc's Conclusion of Law number 15:

Empire Fire zctempted tc i s delay and leverage to
ie
extort a discc:mt of 25% off the admitted value o f Mark
Roberts' claim. By comparison to the total amount of his
property damage ciain,.the 25% discounr, which Empire Fire
tried to extract from Mark Roberts amounted to slightly
more than $600.09. This is a comparatively small sum of
money when viewed in isolation, but a potentially huge
source of profit when applied to the many thousands of
claims resolved each year throughout the far-flung
operations of this insurer.
Given the references to the record in the court's findings of
fact and conclusions of law, it appears that the court based its
findings on substantial supporting evidence and that it did not
come to its conclusions of law idly or without justification.
What is truiy remarkable, however, is that in granting
Empire's motion to set aside the default judgment for excusable
~ze~lect,
the court did not in the least discuss its previous

findings of fact and conclusions of law or offer any hint that its
prior decision might have been open to question because of argument
or evidence placed before the court in support of Empire's Rule
5 0 (b! (1) motion. In fact, with the exception of an indirect
reference to neglect, inadvertence and mistake, the court's
February 20, 1996 memorandum and order granting Empire's motion did
rot actually address or conclude that Empire had met any of che
four elements of its burden to show good cause, as hereinafter
discussed
Rather, the court simply went from concluding in its findings
of fact and conclusions of law that Empire was guilty of the most
egreqious claims h x 6 l i n g practices in the court's experience on
the henoh-- in fact, irlsircr,kict amo7iii.tirL~to !'er,'ccrticnv t c setring
-

aside tha~tsame decis%on because "each case must be de~er-iined
upon
its 3wn facts."
'The point is that if each case must be determined on its own
facts (Clute v. Concrete (1978), 179 Mont. 475, 479, 587 P.Zd 392,
395) and if the facts were as the court focnd them. to be in its

initial decision--and there is nothing in the court's subsequent
decision calling those findings into question--then default or no
default, the court's judgment against Empire for compensatory and
punitive damages was fully justified and should not, as a matter of

iaw, have been set aside under any circumstances.
A defau.lt judgment may only be set aside "for good cause
shown." IE order to establish good cause for purposes of Rule
60(b) (I), M.R.Civ.P., among the various burdens imposed upon a
defaulted party, (establishing excusable neglect being simply one
of four) is the requirement that the defaulted party also make a
prima facie demonstration that it has a meritorious defense to the
claim--here Roberts' bad faith claim. In Re Marriage of McDonald
(19933, 261 Mont. 466, 468, 863 P.2d 401, 402 (citing Blume v.

Netropclitan Life Ins. Co. (1990), 242 Mont. 465, 467, 791 2 . 2 a
784, 786).

in support of its Rule 60 (5)(I) motion, Empire strenuous~y

argued it had various defenses to Roberts' bad faith claim--i.e.
Empi,re advarced matters with respect to Roberts' property damage
claim that, in Empire's view, justified the way it handled that
 - .
aiarn, thus establishisp a reasccable basis p-drsuant ro 5 33-18-
242 (51, MCA, for contesting the claim. The dissent makes reference

ts these defenses

In opposition ro Empire's :notion, Roberts; with epai

1ntens:~tyargued that on the basis of the record and disco*rery in

his property damage claim, Empi.relsdefenses were not meritorious.
Moreover, Roberts contended that, as a matter of law, Empire could

not demonstrate a meritorious defense because, in the underlying
case, pursuant to Rule 68, M.R.Civ.P., Empire had made an
unconditional offer of judgment for $3,000, an amount in excess of

Roberts' liquidated property damage claim, which offer was accepted
by Roberts. As a result, Roberts contends that Empire admicted
liability thus precluding any present argument that liability was
not clear in the underlying case.
While this argumenr is not directly raised as an issue on

appeal, I do note that ic interpreting Rule 6 5 , M.R.c;v.P., we have
stated that:
It would be inconsistent to allow a procedure designed to
facilitate settlement and avoid litigation costs to be
used to challenge liability and, thereby, extend
litigation.

Rule 68 specifies that an offer of judgment made
after a finding of liability but before determination of
damages shall have the same effect as an offer made
before trial. That effect, if the offer is accepted, is
to render the issue of liability w.oot.
Weston v. Runtz i1981!, 194 Mont. 52, 57-58, 535 P.2d 269, 272-73

!emphasis added). See also, Matter of Certair. Custice Court
Expenses !1994), 264 Mont. 510, 513, 872 P.2d 795, 797
 . . -
Yv czly ~ c i c ti? ralsrfiq t h i s is that in the contsxt of this
case, given that liability and damage issues are reridered mcoL by
an accepted offer of judgment; gi~ren the -~igorousrecord-based

argilmsnts cn both sides of this aspect of Enpire's motion; and
given the trial court's scathing findings of fact and conclusions
of law, as referred t-o above, the court's failure to even address
this aspect of Empire's burden of proof, let alone conclude that it
had esrablished, prima facie, a meritorious defense to Roberts' bad
faith action, leaves a void in the court's decision that cannot be
simply ignored.
The District Courtl having failed to rule that Empire had met
this aspect of its burden to show good cause for setting Roberts'
default judgment aside, we are left to conclude that the court was
not satisfied that Empire had made a prima facie showing of a

meritorious defense. Again, in the context of the trial court's
findings of fact and conclusions of law and the accepted offer of
jildgclent, chat conclusion is more consistent than.any assumption to
the contrary.
More importantly, the court's failure to conclude that Empire
had shown prima facie a meritorious defense begs the question that,
in the face of the court's findings of fact and conclusions of law,
none of which were in any way called into qjiestion by the court,
how, as a clatter of law, could Empire possibly have defended
Roberts' bad faith claix? An insurer cannot at once be guilty of
"a direct and unequivocal acc of extortion" in its settlement of a
legitimate claim and at the same time prevail in a defense that its
c m d u c t was rt;ascn&le ufizer ehe unfair claim sertlerrect prscrrices

provisions of Title 33, Chapter 18 of the Nnntana Code.
-- d e r such circu~.szarxes - zne u ~ i q u efacts 3 f
m and
.
t h i s case, if

the trial court detereined that it was appropriate to set aside

Roberts' default judgment for excusable neglect, then it also had
the obligation to conclude that its initial decision was at least
questionable and that Empire had net its burden to establish a
prima facie meritorious defense o
' Roberts' bad faith claim.
in failing to do that, I can come to no other conclusion than
that the court was not satisfied that Empire had demonstrated all
four of the elements of good cause to set aside Roberts' default
judgment and that, as a consequence, it manifestly abused its
discretion in granting Empire's Rule

i
J1~sticesTerry N. Trieweil d W. William Leaphart join in rhe
foregoing special concurrence.
Justice Charles E. Erdmann dissenticg.
I respectfully dissent from the Court's opinion.
This Court has stated that an underlying concern to any review
of default is ihat every litigated case should be tried on the
merits and that judgments by default are not favored. Lords v.
Newman (1984), 212 Mont. 359, 363, 688 P.2d 290, 293. This
principle is the cornerstone of appellate review of default.
Lords, 688 P.2d at 293. A second principle that constantly appears
in our case law is that trial courts are vested with a certain
amount of discretion when they consider a motion to set aside a
default. Lords, 688 P.2d at 293.
Two standards of review have emerged from our attempt to
observe these guiding principles of review on motions to set aside
a default, Lords, 688 P.2d at 293. One standard applies when the
trial court has denied a motion to set aside the default. In these
instances the resulting standard of review is that "no great abuse"
or only "slight abuse" is sufficient to reverse an order refusing
to set aside a default. , 688 P.2d at 293.
The second standard arises in situations like the present case
when the trial court has sranted the motion to set aside the
default judgment. In these circumstances, a stricter standard of
review emerges due to the combined policy considerations of letting
the parties have their day in court and our respect for the trial
court's sound discretion. The action of the trial court will only
be set aside upon a showing of "manifest abuse" and an order
setting aside a default judgment will be reversed only in

18
exceptional cases. , 588 P.2d at 293 (citing McCLurg v .
Flathead Cty. Comm'rs il98C?, 188 Mcnt. 20, 610 P.2d 1153; Kootenai
Corp. v. Dayton (1979), 184 Mont. 19, 602 P.2d 47; Holen v . PbeLps
i;957i, 131 Mont. 146, 308 P.2d 6243.
The record in the present case indicates that the summons,
complaint, and first discovery requests were received at Empire's
corporate office in Nebraska on March 13, 1995. The documents were
routed to Empire's claims department and were hand delivered to
David Sedlacek, who is responsible for supervising and assigning
claims. Sedlacek's handwriting appears on the documents and he
testified that his notes on the documents reflect that he looked up
the claim on the computer, found the date of loss, claim number,
and identity of the claim handler. The computer claim information
also indicated that the claim was closed.' Sedlacek stated that
his normal procedure, at that point, would have been to hand the
summons and complaint to the claims clerk and instruct him or her
to pull the closed file from basement storage and deliver it to the
claims handler. Heidee Dorr was Sedlacek's newly hired claims
clerk at the time. Apparently, Dorr improperly filed the documents

' This case began on November 30, 1992, with an accident at an
uncontrolled intersection in Bozeman. That accident resulted in a
lawsuit captioned "Mark Roberts v. Dirk Hinkle," Gallatin County
Cause No. DV 93-174. In that cause of action, Roberts accepted an
offer of judgment of $3000 on September 12, 1994. The District
Court also awarded Roberts atcorney fees, and on February 21, 1995,
Hinkle's insurer (Empire) paid Roberts the fee award. The present
claim, alleging unfair claims settlement practices by Empire, was
filed on March 3. 1995.
in the closed file and Sedlacek indicated it was his belief that
Corr's actions were the resuit cf rriscommunication.
Empire did not respond to the complaint and on April 25, 1995,
the clerk of court ordered a default judgment on liability ayainsc
Empire. A hearing on damages was held on Occober 2, 1995, for

which Empire was not provided notice and in which Empire obviously
did not participate. Following the hearing, the court entered a
final judgment against Empire for $15,000 in compensatory damages
and $600,000 in punitive damages for its liability for bad faith in
defending a slow-speed, noninjury intersection accident which was
settled for $3,000.
Roberts filed the final judgment in Nebraska on November 27,
1995. On December 4, 1995, Empire filed a motion for relief from
judgment citing Rule 60(b) (1) and (6), M.R.Civ.P., and the
following day filed an amended motion citing the additional
authority of Rule 55(c), M.R.Civ.P.
Rule 60(b), M.R.Civ.P., provides in pertinent part:
On motion and upon such terms as are just, the court may
relieve a party or a party's legal representative from a
final judgment, order, or proceeding for the following
reasons: (1) mistake, inadvertence, surprise, or
excusable neglect . . . or (6) any other reason
justifying relief from the operation of the judgment.
Empire argued to the District Court that Roberts' complaint was
misfiled through mistake, inadvertence, or excusable neglect and
therefore relief was appropriate under Rule 60 (b)(11, ~.R.Civ.p.
in che aiternatlve, Empire argued that Rule 60(b) 161, M.R.Civ.P.,

should be applied to grant relief due to the extraordinary
circumstances of the case, iccludi-g the substantial amount of
money awarded. La granting Empireis mcticn, the Cistrict Court
stated that:
There is very little, if any, discussion of the
fundamental purpose of Rule 60 (b)(I! and why such a Rule
is absolutely necessary to the law and to the
administration of justice. As the Court views the
matter, Rule 60(b) (1) provides a basic correction system
for protecting the legal process from errors caused by
neglect, inadvertence, and mistake--clearly, improper
foundations upon which to base legal judgments.
In its conclusion, the District Court concurred with this Court's
holding in Clute v. A.B. Concrete (19781, 197 Mont. 475, 587 P.2d

Each case must be determined upon its own facts; and when
the motion is made promptly and is supported by a showing
which leaves the court in doubt or upon which reasonable
minds might reach different conclusions, the doubt should
be resolved in favor of the motion.

The majority correctly notes that no Montana case clearly
establishes the parameters of "manifest abuse of discretion." The
majority adopts Robertsr argument that the District Court
manifestly abused its discretion by not applying the law correctly.
However, the test for abuse of discretion is whether the trial
court acted arbitrarily without employment of conscientious
judgment or exceeded the bounds of reason resulting in substantial
injustice. Gaustad v. City of Columbus (19951, 272 Mont. 486, 488,
90i P.2d 565, 567. "Manifest" is defined as: "obvious to the
understanding, evzdent to the mind, not obscure or hidden and is
synonymous with open, clear, visible, unmistakable . . . and
self-evident." Black's Law Dictionary 962 (6th ed. 1991). T h s ,
under a "manifest abuse of discretion" standard of review, this
Court may only reverse a Lower court i f it is obvious that the
court abused its discr-etion.
This Court has defined "mistake" as some unintentional act,
omission or error arising from ignorance, surprise, imposition or
misplaced confidence. in re Marriage of Eroere (19941, 263 Mont.
207, 209, 867 P.2d 1092, 1094. The present case involves a mistake
in Empire's office procedures--a mistake that should not be fatal
to its defense of the bad faith tort claim. Dorr was supposed to
pull the closed Roberts v. Hinkle file and transfer the suit papers
to a claims handler. Instead, the complaint mistakenly ended up in
the closed file. Dorr misunderstood her instructions, or the
instructions were not clearly given, and the "mistake" that
resulted was due to an omission or error arising from misplaced
confidence between members of the organization. The record before
the District Court clearly established a breakdown in office
procedures resulting in a misfiled complaint. The court did not
manifestly abuse its discretion when it determined that the facts
of the case fell within the meaning of "mistake" under Rule
60 (b)(l), M.R.Civ.P.
Rule 55(c), M.R.Civ.P., states that a court may set aside an
entry of default for "good cause shown" and this Court has set
forth four elements to determine when such good cause exists. The
defendant is required to show (a) excusable neglect; (b) that he or
she proceeded with diligence; (c) that the judgment, if permitted
to sta-nd,will affect him or her injuriously; and i d ) that there is
a defense to the plaintiff's cause of action u p n t h e merits.

Blume v. Metropolitan Life Ins. Co. !1990), 242 Mont. 465, 467, 791
P.2d 784, 786 (citing Kootenai, 601 P.2d at 5i).
The majority states that "[cllearly, the facts here establish
careless conduct amounting to inexcusable neglect." I disagree.
Under the facts of this case, including the fact that the initial
claim had been settled, paid, and closed out, Empire's conduct
demonstrates excusable neglect. Prior to receiving the complaint,
Empire had not received any notice of Robertsr intention to file an
unfair claims settlement practices action. Dorr was in her second
week of work on March 13, 1995. She was trained by Empire and
recognized to be competent at performing her duties at the end of
her first week on the job. Even though the complaint apparently
was not "flagged" as is standard procedure in this type of case,
there is no evidence that this was anything more than an oversight
--a mistake--which was compounded by the misfiling of the
complaint. In this regard, this case is similar to Keller v.
Hanson (19711, 157 Mont. 307, 485 P.2d 705, where a default
judgment was initially entered but later set aside pursuant to
Rule 60ib) (11, M.R.Clv.P. On appeal, thls Court affirmed the
district court and noted that:
[Dlefendants' attorney after receiving plaintiff's
complaint had somehow misfiled it under defendant Ben
Hanson's name in another file as there were 3 other
actrve files in the office pending at that time in Ben
Hanson's name.
Hanson, 485 P.2d at 706
 Empire also acted with due diligence upon lea-rning of the
default judgment. Expire learned of its defaalt on Friday
afternoon, December 1, 1915, and on Monday, December 4, 1995,
Empire filed its motion for relief frotr '..
a ~udgment. Furthermore, it

is difficult to argue that a $615,000 judgment will not have an
a-dverse affect on Empire.
The record indicates that Empire was not without meritorious
defenses to Roberts' claim. Throughout the underlying case, Hinkle
asserted contributory negligence by Roberts and contested clear
liability in his answer, interrogatory answers, and deposition. In
addition to contesting total liability, Empire stated in its brief
in support of its motion for relief from judgment that, contrary to
Roberts' allegations, it did not misrepresent pertinent facts, fail
to conduct a reasonable investigation, or fail to effectuate a fair
and equitable settlement.
Empire disputed Roberts' allegation that he could not obtain
repair of his vehicle due to Empire's unfair claims settlement
practices and that Empire intentionally deprived Roberts of
property and legal rights entitling him to punitive damages.
Empire also denied Roberts' claim for emotional distress damages
relying on this Court's holding in Sacco v. High County Independent
Press (1995), 271 Mont. 209, 896 P.2d 411, where we stated that
such claims require a showing that the plaintiff's distress is so
severe chat no reasonable person could be expected to endure it.
Section 33-18-242(51,MCA, states that an insurer may not be
held liable for unfair trade practices if it had a reasonable basis
in law or in fact for contesting the claim or the amount of the
claim. The record indicates that Empire had asserted a reasonable
basis for contesting both its liability for the bad faith claim, as
weii as he damages assessed, and therefore had raised a
meritorious defense to Roberts' cause of action. I would therefore
conclude that Empire satisfied the four elements of the Blume test
and demonstrated good cause for setting aside the default judgment
pursuant to Rule 55(c), M.R.Civ.P.
In his special concurrence, Justice Nelson emphasizes the
incongruity between the scathing nature of the District Court's
findings of fact and conclusions of law from the evidentiary
hearing on damages and its order granting Empire's motion to set
aside the default judgment. However, it must be remembered that
Empire did not appear at either the hearing on liability or the
hearing on damages to present its defense to the bad faith tort
claim. Furthermore, the District Court's failure to reconcile the
two rulings does not rise to the level of manifest abuse of
discretion. Perhaps the court itself was troubled by the fact that
its earlier ruling was based on only one side of the story.
I am no less concerned about abuse of Montana citizens by
out-of-state insurers than anyone else. However, the bigger issue
here is that Empire did not have its deserved day in court, just as
we a.11 would hope courts in other states would allow Montana
litigants to be heard. Moreover, here the District Court
determined, after reviewing Empire's motion and supporting brief,
that the case should proceed toward trial. Such a determination
lies within the sound discretion of the District Court and under
the fzcts of t h e present case I carmot conclude that the District
Court manifestly abused its discrecinn in granting Empire's mocion
to sec aside the detauit judgment
I would therefore affirm the District Court.

Justice