NO. 95-511
IN THE SUPREME COURT OF THE STATE OF MONTANA
1996
MICHAEL PERIS, Personal Representative
of the Estate of George Peris, Deceased,
Plaintiff and Respondent,
v.
SAFECO INSURANCE COMPANY,
Defendant and Appellant.
CERTIFIED QUESTION FROM:
The United States Court of Appeals for the Ninth Circuit,
Honorable Stephen Reinhardt, San Francisco, California
COUNSEL OF RECORD:
For Appellant:
Shelton C. Williams and Mark S. Williams (argued),
Williams and Ranney, Missoula, Montana
For Respondent:
James L. Jones (argued) and John G. Crist, Dorsey
and Whitney, Billings, Montana
Heard: March 28, 1996
Submitted: April 11, 1996
Decided: May 17, 1996
Filed:
Chief Justice J. A. Turnage delivered the Opinion of the Court.
The United States Court of Appeals for the Ninth Circuit has
certified two questions to this Court herein, pursuant to Rule 44,
M.R.App.P. The certified questions concern the effect, under
Montana law, of certain terms of a motor vehicle insurance policy.
Our answer to the first question is "yes" and to the second, "no."
The certified questions are:
1. IS an insured entitled to maintain a cause of action under
§§ 33-18-201 and -242, MCA, for the insurance company's breach of
its statutory obligation prior to either an adjudication of the
underlying claim of the third party against the insured, or a
written agreement by the insurance company settling the case,
notwithstanding the "No Action" clause in the insured's policy?
2. Is the insured barred by a "No Action" clause in his
insurance policy from maintaining an action under §§ 33-18-201 and
-242, MCA, where he has entered into a settlement without objection
from the insurance company and where the insurance company has
contributed its policy limits to the settlement?
The Ninth Circuit Court of Appeals has submitted the following
statement of facts:
Plaintiff Michael Peris is the representative of the
estate of George Peris, Safeco's insured. In December
1990, George was involved in an automobile accident in
which John Stepan was injured. In the underlying action,
Stepan sued George for his injuries. There was no
question that the policy covered the accident and that
George was responsible.
During 1991 and 1992, upon receiving more informa-
tion about Stepan's worsening condition, Safeco made a
number of settlement offers, increasing in amount, which
Stepan rejected and countered with his own offers.
First, in September 1991, Safeco offered to settle with
Stepan for $8,960; Stepan offered to settle the claim for
$100,000. Safeco responded by renewing its offer for
$8,960 but offering up to $1,000 for any additional
medical expenses to be incurred over the next I2 months.
In November 1991, Stepan lowered his settlement offer to
$65,000. In December 1991, Stepan was diagnosed with a
potentially lifelong ailment, which led Safeco to
increase its offer to $13,086. In January 1992, Stepan
retained counsel and filed suit against Peris. In
February 1992, Stepan offered to settle for $100,000, the
limit on Peris' Safeco policy; in return, Safeco offered
to settle for $15,000. In March 1992, Peris told Safeco
that he was concerned about an excess verdict and would
hold Safeco responsible if it failed to settle the case
within its policy limits; Safeco increased its offer to
$25,000.
In September 1992, Peris again asked Safeco to
settle the case within policy limits or to accept
responsibility for an excess verdict. In February 1993,
Stepan offered to settle for $165,000. On March 12,
1993, Vucurovich--counsel whom Safeco had hired to
represent Peris in the case--advised Safeco that "[tlhere
are significant dangers that this case could possibly
exceed the policy limits." Safeco then offered to settle
for $100,000. Stepan countered with a demand for
$150,000. Safeco refused to pay more than $100,000 and
advised Peris that he would be responsible for any excess
verdict over that amount.
On March 22, 1993, Peris and his personal attorney
met with Vucurovich. They discussed the various risks
involved. When the question of Peris' entering into a
direct settlement with Stepan came up, Vucurovich told
Peris, "It's your call." Peris then entered into
negotiations with Stepan and made an offer of $140,000,
which Stepan's attorney agreed to recommend to his
client. Peris asked Safeco to split the amount over
$100,000 up to $140,000 on a 50-50 basis; Safeco refused.
Peris then settled the case by paying $135,894.85,
consisting of $100,000 from Safeco and $35,894.85 from
Peris' estate. Peris again asked Safeco to pay half of
the excess and Safeco again refused.
Peris sued Safeco in the Butte Division of the United States
District Court, alleging that Safeco violated Montana statutes
prohibiting unfair claim settlement practices by insurance
companies. The Ninth Circuit Court's statement of facts continues:
3
At the end of the trial, the jury returned a verdict
of $35,894.85 compensatory and $250,000 punitive damages.
On appeal, Safeco argues that plaintiff's claim is barred
by the "NO Action" clause of the policy which states in
relevant part:
§ 5 The insured shall not except at
his own cost, voluntarily make any payment
other than for such immediate medical
and surgical relief to others as shall be
imperative at the time of accident.
s 6 . . No action shall lie against the
company until after full compliance with all
the terms of this policy nor until the amount
of the insured's obligation to nay shall have
been finally determined either by judqment
aqainst the insured after actual trial or by
written aqreement of the insured, the claimant
and the comnanv. (Emphasis added.)
Safeco argues that the emphasized language in the policy
bars plaintiff's action since he unilaterally settled the
case with Stepan. Plaintiff contends that Safeco's
defense is barred by, inter alia, the Montana Unfair
Claims Settlement Practices Act. Mont. Code Ann. § 33-
18-242(1), (3)
Safeco appealed to the Ninth Circuit Court of Appeals, which has
certified to this Court the following questions of Montana law.
Issue 1
Is an insured entitled to maintain a cause of action under
§§ 33-18-201 and -242, MCA, for the insurance company's breach of
its statutory obligation prior to either an adjudication of the
underlying claim of the third party against the insured, or a
written agreement by the insurance company settling the case,
notwithstanding the "No Action" clause in the insured's policy?
The statutes cited are part of Title 33, Chapter 18, MCA,
which is entitled "Unfair Trade Practices" (the Act). The purpose
of the Act is to define and prohibit unfair methods of competition
4
and unfair or deceptive acts or practices in the insurance
business. Section 33-18-101, MCA
Section 33-18-201, MCA, provides, in relevant part:
Unfair claim settlement practices prohibited. No person
may, with such frequency as to indicate a general
business practice, do any of the following:
(4) refuse to pay claims without conducting a
reasonable investigation based upon all available
information;
(6) neglect to attempt in good faith to effectuate
prompt, fair, and equitable settlements of claims in
which liability has become reasonably clearI.
Section 33-18-242, MCA, provides:
Independent cause of action--burden of proof. (1) An
insured or a third-party claimant has an independent
cause of action against an insurer for actual damages
caused by the insurer's violation of subsection (l), (41,
(51, (6), (9), or (13) of 33-18-201.
(7.) In an action under this section, a plaintiff is
not required to prove that the violations were of such
frequency as to indicate a general business practice.
(3) An insured who has suffered damages as a result
of the handling of an insurance claim may bring an action
against the insurer for breach of the insurance contract,
for fraud, or pursuant to this section, but not under any
other theory or cause of action. An insured may not bring
an action for bad faith in connection with the handling
of an insurance claim.
(4) In an action under this section, the court or
jury may award such damages as were proximately caused by
the violation of subsection (11, (4), (S), (61, (9), or
(13) of 33-18-201. Exemplary damages may also be assessed
in accordance with 27-L-221.
(5) An insurer may not be held liable under this
section if the insurer had a reasonable basis in law or
in fact for contesting the claim or the amount of the
claim, whichever is in issue.
5
(6) (a) An insured may file an action under this
section, together with any other cause of action the
insured has against the insurer. Actions may be bifur-
cated for trial where justice so requires.
ib) A third-party claimant may not file an action
under this section until after the underlying claim has
been settled or a judgment entered in favor of the
claimant on the underlying claim.
(7) The period prescribed for commencement of an
action under this section is:
(a) for an insured, within 2 years from the date of
the violation of 33-18-201; and
(b) for a third-party claimant, within 1 year from
the date of the settlement of or the entry of judgment on
the underlying claim.
(8) As used in this section, an insurer includes a
person, firm, or corporation utilizing self-insurance to
pay claims made against them.
Safeco argues that the above provisions are not invoked in this
case because Peris' payment under settlement with Stepan occurred
without the entry of a judgment in Stepan's favor. Safeco's
position is that such a "voluntary" payment is outside the
protections of the Act.
Safeco cites Fode v. Farmers Ins. Exchange (1986), 221 Mont.
282, 719 P.2d 414, as authority for its position. In -
FodeI this
Court held that proceedings in a bad faith case against an insurer
alleging statutory violations which require a showing that
liability be reasonably clear may not be conducted until "the
liability issues of the underlying case have been determined either
by settlement or Fode
judgment." ~, 719 P.2d at 417.
However, 5 33-18-242, MCA, was not enacted until a year after
Fade was decided. Because this Court did not interpret the statute
here at issue in Fode, Fode is not controlling. "Although both
parties rely heavily on L-1, we conclude that § 33-18-242, MCA,
6
enacted in 1987, is controlling." Lough v. Insurance Co. of North
America (1990), 242 Mont. 171, 173, 789 P.Zd 576, 578.
The purpose of a court's interpretation of a statute is to
effectuate the intent of the legislature. Pretty On Top v. Snively
(1994), 266 Mont. 45, 47, 879 P.2d 49, 50. If the intent of the
legislature can be determined from the plain meaning of the words
used, the court may not go further or apply other means of
construction. Wunderlich v. Lumbermens Mut. Cas. Co. (1995), 270
Mont. 404, 410, 892 P.2d 563, 567. When the language of a statute
is plain, unambiguous, direct and certain, the statute speaks for
itself and there is nothing left for the court to construe. State
v. Mummey (1994), 264 Mont. 272, 277, 871 P.2d 868, 871.
In analyzing the question before us, we first focus our
attention on subsection (6) of 5 33-18-242, MCA. Part (b) of that
subsection prohibits a third-party claimant from filing an action
under the Act until the underlying claim has been settled or a
judgment has been entered in favor of the claimant on the underly-
ing claim. Part (a) of subsection (6) is addressed to claims filed
by the insured. In contrast to part (b), part (a) does not
prohibit an insured from filing an action prior to settlement or
judgment upon the underlying claim.
If, as Safeco argues, the legislature had wanted to subject
insureds' claims requiring a showing that liability is reasonably
clear to the same restrictions as the legislature placed on third-
party claims, it could easily have done so. It did not. The
existence of such a statutory restriction on third-party claims,
7
and its absence as to any claims by insureds, indicates that the
legislature did not intend to require the adjudication or settle-
ment of the underlying claim as a precondition to the insured's
filing of a claim for violation of the Act.
The text of subsection (6) (a) supplies additional information
on the intent of the legislature. Subsection (6) (a) provides that
actions including claims under the Act “may be bifurcated for trial
where justice so requires." Section 33-18-242(6) (a), MCA. If, as
Safeco argues, a statutory claim may never be brought until the
underlying claim is resolved, it would be pointless for the
legislature to give courts the discretion to bifurcate the
insured's statutory claim from the underlying action. This Court
presumes that the legislature does not pass meaningless legisla-
tion. Crist v. Segna (19811, 191 Mont. 210, 212, 622 P.2d 1028,
1029.
Further, the legislature has established different statutes of
limitation for claims by insureds and claims by third parties. An
insured must bring his claim within two years of the date of the
violation. Section 33-18-242(7) (a), MCA. A third-party claimant
must bring his claim within a year of the date of "settlement of or
the entry of judgment on the underlying claim." Section 33-18-
242(7) (b), MCA. By creating two different statutes of limitation,
the legislature has accommodated the concept that third-party
claims may not be brought until the settlement or adjudication of
the underlying claim, while claims by the insured may be brought at
any time.
8
We conclude that under the plain language of 5 33-18-242, MCA,
it is not necessary that settlement be approved by the insurer or
judgment be rendered before an insured may file a cause of action
against his or her insurer alleging violation of the Act. We now
proceed to examine the effect, if any, of the "No Action" clause in
Safeco's insurance policy.
Safeco argues that the "No Action" clause in the insurance
contract, §§ 5 and 6 set forth in the statement of facts above,
creates a requirement which limits its liability under the Act.
However, Montana law does not allow an insurer to change statutory
requirements by creating new hurdles in its contracts
All contracts which have for their object, directly or
indirectly, to exempt anyone from responsibility for his
own fraud, for willful injury to the person or property
of another, or for violation of law, whether willful or
negligent, are against the policy of the law.
Section 28-2-702, MCA. The Safeco insurance policy itself
provides, at paragraph 19 under Conditions:
Terms of Policy Conformed to Statute. Terms of this
policy which are in conflict with the statutes of the
State wherein this policy is issued are hereby amended to
conform to such statutes.
Section 33-18-242, MCA, clearly overrides the "No Action" clause of
the insurance policy.
We hold that the answer to the Ninth Circuit Court's first
certified question is "yes." Under Montana law, an insured is
entitled to maintain a cause of action under the Act prior to
either an adjudication of the underlying claim of the third party
against the insured or a written agreement by the insurance company
9
settling the case, notwithstanding a "No Action" clause in the
insured's policy.
Issue 2
Is the insured barred by a "No Action" clause in his insurance
policy from maintaining an action under §s 33-18-201 and -242, MCA,
where he has entered into a settlement without objection from the
insurance company and where the insurance company has contributed
its policy limits to the settlement?
Neither party has argued any particular effects of the absence
of objection by Safeco to the settlement entered, or of Safeco's
contribution of its policy limits to the settlement. In its
arguments under this certified question, Safeco instead contends
that Peris' interpretation of the Act places control of the
settlement process in the hands of the insured. Safeco asserts
that this encourages collusion between insureds and injured third
parties, and that it automatically makes the insurer responsible
for voluntary payments by the insured.
Safeco's arguments overlook the requirement that, to prevail
under the Act, an insured has the burden of proving violation
thereof to an impartial finder of fact. Here, Safeco passed up
several opportunities to settle within policy limits. It informed
Peris, as to the advisability of direct settlement, that "It's your
call." Nevertheless, Safeco's own attorney opined prior to
settlement that a trial posed "significant dangers that this case
could possibly exceed the policy limits." Safeco was aware of the
settlement offer and of Peris' decision to accept it. Finally, and
10
critically, a jury in the Butte Federal District court has
determined, after hearing all the evidence, that Safeco's practices
violated the Act.
Good policy reasons exist for allowing an insured to file a
claim against the insurer prior to approved settlement or judgment.
Following an insurer's breach of its duty to settle, the
only condition precedent to a cause of action is damages.
There is no logical reason why those damages must take
the form of an excess judgment as opposed to a reasonable
settlement in excess of the policy limits. In fact, to
so hold would penalize an insured for merely acting
prudently. The insured, being faced with the potential
of an adverse judgment in excess of policy limits, should
not be forced to ignore advantageous settlement offers on
the grounds that to accept such an offer would deprive
the insured of extracontractual rights against the
insurer.
Allen D. Windt, Insurance Claims and Disputes 5 5.17 at p. 333
(1995).
Safeco makes a bald assertion that to allow Peris' suit
against it is contrary to the Contract Clause of the United States
Constitution because the charge impairs the essence of the
insurance contract. Safeco provides no authority for this
assertion.
Safeco also cites case law from California and other jurisdic-
tions concerning when an insured may file a bad faith claim against
his insurer. E.g.1 Messersmith v. Mid-Century Ins. Co. (Cal.App.
4 Dist. 19951, 43 Cal.Rptr.Zd 871. We point out that our answers
to the questions here presented are based upon the Montana statutes
discussed above. Case law from other jurisdictions concerning the
common law tort of bad faith, in which the above statutes do not
control, is of minimal persuasive value.
11
We conclude that the "No Action" clause does not bar Peris'
action against Safeco under §§ 33-18-201 and -242, MCA, where there
was no objection by Safeco to the settlement and where Safeco
contributed the policy limits to the settlement. The answer to the
Ninth Circuit Court of Appeals' second question is "no."
We concur:
Y Justices