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No. 99-507
IN THE SUPREME COURT OF THE STATE OF MONTANA
2000 MT 48
298 Mont. 292
995 P. 2d 460
THOMAS MILFRED PABLO and CLIFFORD DURAN,
Plaintiffs and Respondents,
v.
SCOTT ALLEN MOORE, GABE LORENTZ, K.G. PAVING, INC.,
a Montana corporation; and ROD TINSETH & ASSOCIATES, an
assumed business name for a Montana business entity, and FIRST
FINANCIAL INSURANCE COMPANY, a foreign corporation,
Defendants and Appellants.
********************************
THOMAS MILFRED PABLO, LYNN PABLO and CLIFFORD DURAN,
Plaintiffs,
v.
THE STATE OF MONTANA,
Defendant and Third-Party Plaintiff,
v.
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SCOTT ALLEN MOORE, K.G. PAVING, INC., a Montana corporation,
and K. G. CONTRACTING, INC., a Montana corporation,
Defendants and Third-Party Defendants.
APPEAL FROM: District Court of the Twentieth Judicial District,
In and for the County of Lake,
Honorable C. B. McNeil, Judge Presiding
COUNSEL OF RECORD:
For Appellants:
Kimberly L. Towe, Browning, Kaleczyc, Berry & Hoven, Helena, Montana
For Respondents:
James A. Manley, Law Offices of Manley & O'Rourke-Mullins,
Polson, Montana
Ann Brodsky, Special Assistant Attorney General, Helena, Montana
Dana Christensen, Christensen, Moore, Cockrell & Cummings,
Kalispell, Montana
F. Lloyd Ingraham, Ingraham Law Firm, Ronan, Montana
Daniel W. Hileman and Shelly F. Brander, Kaufman, Vidal &
Hileman, Kalispell, Montana
Gary Kalkstein, Axelberg & Kalkstein, Missoula, Montana
Jack Jenks, Phillips & Boyer, P.C., Missoula, Montana
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Submitted on Briefs: January 6, 2000
Decided: February 24, 2000
Filed:
__________________________________________
Clerk
Chief Justice J. A. Turnage delivered the Opinion of the Court.
¶1.The Twentieth Judicial District Court, Lake County, entered summary judgment in
favor of the plaintiffs, Thomas and Lynn Pablo and Clifford Duran, concluding that K.G.
Paving, Inc.'s, general commercial liability insurance policy with First Financial Insurance
Company provided coverage for the plaintiffs' injuries sustained in a motor vehicle
accident. We affirm.
¶2.The issue is whether the District Court erred in granting summary judgment to the
plaintiffs on the coverage issue.
¶3.This case arose out of a September 12, 1996 motor vehicle accident on U.S. Highway
93 in Pablo, Montana. The accident occurred when a truck driven by Scott Allen Moore
struck the rear end of an automobile which Thomas Milfred Pablo was driving and in
which Lynn Pablo was a passenger. The impact forced the Pablo vehicle into an oncoming
vehicle driven by Clifford Duran.
¶4.At the time of the accident, Moore was transporting a landscaping tractor for his
employer, K.G. Paving, Inc., a Montana corporation. Gabe Lorentz was the principal
owner and operator of K.G. Paving. Lorentz and K.G. Paving were covered by a First
Financial Insurance Company commercial general liability insurance policy which
provided liability insurance for negligent acts of the corporation or its employees,
including Lorentz. The policy was purchased through Rod Tinseth & Associates.
¶5.The Pablos and Duran filed complaints, which were joined in District Court, alleging
that they sustained serious injuries in the accident. They allege that Lorentz was negligent
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in his hiring, training, and supervision of Moore. The plaintiffs also allege that Lorentz
negligently failed to warn of a known danger, in that Lorentz drove past the accident site
approximately ten minutes before the accident and saw a large cloud of dust created by a
State of Montana highway broom truck which obscured visibility on the road. The
plaintiffs allege that Lorentz was negligent in failing to use his cellular phone to notify his
employee, Moore, of the hazardous road condition ahead. The plaintiffs have further
alleged that Lorentz and K.G. Paving are liable for damages under a theory of respondeat
superior.
¶6.The First Financial insurance policy provides, in relevant part:
We will pay those sums that the insured becomes legally obligated to pay as damages
because of bodily injury or property damage to which this insurance applies. We will have
the right to defend against "suit" seeking damages.
First Financial conceded that the claim arose during the policy period and fell within the
definitions of bodily injury and occurrence. Therefore, the policy would provide coverage
for Lorentz and K.G. Paving unless coverage is denied by an exclusion.
¶7.The insurance policy excludes coverage for:
"Bodily injury" or "property damage" arising out of the ownership, maintenance, use or
entrustment to others of any aircraft, "auto" or watercraft owned or operated by or rented
or loaned to any insured. Use includes operation and "loading or unloading."
The policy further excludes coverage for:
"Bodily injury" or "property damage" arising out of:
(1) The transportation of "mobile equipment" by an "auto" owned or operated by or rented
or loaned to any insured[.]
The term "arising out of" is not defined in the policy.
¶8.The plaintiffs moved for summary judgment that the First Financial insurance policy
provides coverage for Lorentz and K.G. Paving on their negligence claims. They argued
that Lorentz's negligent hiring, training, supervision, and his negligent failure to warn did
not "arise out of" the ownership, maintenance, use or entrustment of an auto. In the
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alternative, they argued that the term "arising out of" is ambiguous and must be construed
in their favor.
¶9.First Financial cross-moved for summary judgment, contending that the policy of
insurance is a general commercial liability policy, not an automobile liability policy, and
was not intended to cover the plaintiffs' injuries sustained in a motor vehicle accident. It
argued that coverage was excluded under both the exclusion for damages arising out of the
use of an automobile and the exclusion for damages arising out of the transportation of
mobile equipment.
¶10.The District Court ruled that the term "arising out of" is ambiguous. Construing the
instrument against the drafter-insurer, the court then ruled that coverage for this accident is
not excluded under the above policy language. The court certified its partial summary
judgment as final for purposes of appeal pursuant to Rule 54(b), M.R.Civ.P.
Standard of Review
¶11.This Court reviews an appeal from summary judgment de novo, based on the same
criteria applied by the district court. Counterpoint, Inc. v. Essex Ins. Co., 1998 MT 251,
¶ 7, 291 Mont. 189, ¶ 7, 967 P.2d 393, ¶ 7. Under Rule 56(c), M.R.Civ.P., if there are no
genuine issues of material fact, then summary judgment is proper if the moving party is
entitled to a judgment as a matter of law.
¶12.The interpretation of an insurance contract is a question of law. Wellcome v. Home
Ins. Co. (1993), 257 Mont. 354, 356, 849 P.2d 190, 192. This Court reviews a conclusion
of law to determine whether it is correct. Steer, Inc. v. Department of Revenue (1990), 245
Mont. 470, 474, 803 P.2d 601, 603.
Discussion
¶13.Did the District Court err in granting summary judgment to the plaintiffs on the
coverage issue?
¶14.On appeal, First Financial first argues that its insurance policy is not ambiguous and
that it clearly excludes coverage for this accident under both the "auto" exclusion and the
"transport of mobile equipment" exclusion. This hinges upon whether the phrase "arising
out of," as used in both exclusions is ambiguous. The District Court characterized this as a
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question of first impression in Montana.
¶15.In that regard, we note that this Court has recently declared that the phrase "arising out
of the use" is ambiguous in another insurance context. In Wendell v. State Farm Mut.
Auto. Ins. Co., 1999 MT 17, 293 Mont. 140, 974 P.2d 623, this Court construed the phrase
"arising out of the use" in an uninsured motorist benefit provision of an automobile
liability insurance policy. The Court ruled that the phrase, which was not defined in the
policy, was ambiguous because it is reasonably subject to more than one interpretation.
Wendell, at ¶ 53. The Court also stated that a split of authority from courts attempting to
construe a phrase demonstrates that the phrase has more than one reasonable
interpretation. Wendell, at ¶ 29.
¶16.A similar rationale may be applied to the words "arising out of" as used in both
exclusionary clauses at issue in the present case. As the District Court stated, "First
Financial, having declined to define the term, is not well-positioned to argue that the term
is only capable of the one interpretation suggested by First Financial." The phrase is
reasonably subject to more than one interpretation. This is also demonstrated by the split
of authority, described in the parties' briefs and the District Court's findings, conclusions,
and order, on the meaning of the words "arising out of" in exclusionary clauses relating to
the use of motor vehicles. We conclude that, like in Wendell, the phrase "arising out of" as
used but not defined in the First Financial insurance policy, is ambiguous.
¶17.In interpreting an ambiguous clause, we are guided by general principles regarding
contract law as applied to insurance contracts. If the terms of an insurance policy are
ambiguous, obscure, or open to different constructions, the construction most favorable to
the insured or other beneficiary must prevail, particularly if an ambiguous provision
attempts to exclude the liability of the insurer. Head v. Central Reserve Life of N. Am. Ins.
Co. (1993), 256 Mont. 188, 200, 845 P.2d 735, 742.
¶18.In Wendell, the Court adopted an expansive fact-intensive test to determine whether
an accident "arose out of the use" of a vehicle for purposes of uninsured motorist
insurance coverage. The Court then remanded for a factual determination of whether the
appellant's injuries "originated from, or grew out of, or flowed from the use of [the]
vehicle." Wendell, at ¶ 58. The expansive test was justified because it effected the
remedial purposes of uninsured motorist coverage. Wendell, at ¶ 54. In the present case,
however, that justification for a broad interpretation of the clause is not present-in fact,
here, the plaintiffs benefit from a narrow interpretation of the clause, since it determines
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the extent to which insurance coverage is excluded.
¶19.First Financial argues that even if this Court concludes that the insurance policy is
ambiguous, the Court should look to the predominate factual cause of the injuries to
determine whether the policy exclusions apply. First Financial cites the majority rule as
expressed in Oakley Transport, Inc. v. Zurich Ins. Co. (Ill. App. Ct. 1995), 648 N.E.2d
1099. In that case, the plaintiffs filed a complaint for declaratory judgment against the
commercial general insurer of a business whose employee had driven a truck off the road
and into a number of houses. The plaintiffs alleged that the insurance policy covered their
damages under their theories of negligent entrustment and negligent supervision, despite a
policy provision excluding injury or damages "arising out of" the use of an auto.
¶20.The Oakley court ruled that the insurance policy was clear on its face in excluding
claims for negligent entrustment. The court stated that the premium charged for standard
commercial liability policies reflects the underwriting objective of placing auto accidents
beyond the scope of such coverage. Oakley, 648 N.E.2d at 1107. In relation to the issue
remaining in the present case, the court then went on to rule that the commonly understood
meaning of the term "arising out of" the use of an auto precluded not only coverage for a
direct claim of an employee's negligent driving of a motor vehicle, but also coverage for
negligent supervision. Oakley, 648 N.E.2d at 1107. The court reasoned that negligent
supervision "also 'arises' out of the employee's 'use' of the vehicle because the negligent
supervision is derivative of, and dependent upon, the underlying negligent use of the
vehicle." Oakley, 648 N.E.2d at 1107.
¶21.First Financial contends that interpreting exclusions according to a tort theory of
liability as opposed to the factual cause of injuries is contrary to Montana's policy of
interpreting insurance policies in accordance with reasonable consumer expectations. It
also points out that this Court has expressly stated that "[c]ontract law conditions [an
insurer's] obligation under the insurance contract, not tort law." State Farm Mut. Auto. Ins.
Co. v. Estate of Braun (1990), 243 Mont. 125, 129, 793 P.2d 253, 255. First Financial
further asserts that requiring insurers to list all possible theories of tort liability which are
excluded under exclusionary clauses is in fact an impossible requirement, given that new
theories of tort liability are adopted as the law develops.
¶22.First Financial's approach, however, effectively resolves ambiguity in favor of the
insurer which drafted the language and failed to define the term. Such a result is
inconsistent with the general rules in Montana on interpretation of ambiguities in
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insurance contracts.
¶23.In looking at the cases from other jurisdictions dealing with the use of the phrase
"arising out of" in exclusionary clauses for use of a motor vehicle, the District Court
adopted the minority rule as expressed in Marquis v. State Farm Fire and Cas. Co. (Kan.
1998), 961 P.2d 1213. There, the plaintiff brought suit against an insurance provider for
the employer of the driver who had allegedly caused the plaintiff's injuries in a motor
vehicle accident. The court repeated a prior holding that unlike other states, Kansas does
not look to the underlying cause of the injury to determine coverage, but to the specific
theory of liability." Marquis, 961 P.2d at 1223, citing Catholic Diocese of Dodge City v.
Raymer (Kan. 1992), 840 P.2d 456, 461. In interpreting the contractor's insurance policy
which excluded claims "arising out of" the use of a motor vehicle, but which did not
clearly and unambiguously exclude claims for negligent supervision, hiring, or retention
of an at-fault driver, the Kansas court stated:
Where a policy seeks to exclude coverage for an accident arising out of the use of an
automobile, coverage will still be found if the theory of liability establishes negligence
independent of the use of the automobile, which negligence is covered under the policy.
Marquis, 961 P.2d at 1221. The plaintiff's theories of liability in Marquis included a claim for
negligent hiring, retention, and supervision of the employee driver allegedly at fault. The court affirmed
summary judgment that coverage was owed on the plaintiff's claim for negligent supervision. Marquis,
961 P.2d at 1223.
¶24.Like the insurance policy in Marquis, the First Financial policy in the present case
does not clearly and unambiguously exclude coverage for the theories of liability pled by
the plaintiffs. Negligent hiring, training, and supervision and negligent failure to warn are
not clearly and unambiguously excluded from coverage under the First Financial policy.
¶25.Having declared the phrase ambiguous, we must give it the construction most
favorable to the insured or other beneficiary. We conclude that the exclusionary clauses of
the First Financial insurance policy do not exclude damages for negligent hiring, training,
and supervision and negligent failure to warn. We therefore affirm the summary judgment
entered by the District Court.
/S/ J. A. TURNAGE
We concur:
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/S/ JAMES C. NELSON
/S/ JIM REGNIER
/S/ TERRY N. TRIEWEILER
/S/ W. WILLIAM LEAPHART
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