Montana Petroleum Tank Release Compensation Board v. Crumleys, Inc.

January 3 2008

DA 06-0505

IN THE SUPREME COURT OF THE STATE OF MONTANA
2008 MT 2

MONTANA PETROLEUM TANK RELEASE
COMPENSATION BOARD,

Plaintiff, Appellee and Cross-Appellant,

v.

CRUMLEYS, INC., d/b/a KENECO PETROLEUM EQUIPMENT;
NORMAN EXCAVATING, INC.; D & L SERVICES, a General
Partnership and Its General Partners, DOUG DANDRO and
LEONARD WALLIS; and DOES 1-25,

Defendants,

FEDERATED SERVICE INSURANCE COMPANY.

Defendant and Appellant.

----------------------------------------------------------------------

FEDERATED SERVICE INSURANCE COMPANY,

Cross-Claimants,

v.

CRUMLEYS, INC., d/b/a KENECO PETROLEUM EQUIPMENT;
NORMAN EXCAVATING, INC., D & L SERVICES, a General
Partnership and Its General Partners, DOUG DANDRO and
LEONARD WALLIS,

Cross-Defendants.

APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. BDV 01-107,
Honorable Jeffrey M. Sherlock, Presiding Judge
COUNSEL OF RECORD:

For Appellant:

Christian T. Nygren and Michael J. Milodragovich, Milodragovich,
Dale, Steinbrenner & Nygren, P.C., Missoula, Montana

Laura J. Hanson, Meagher & Geer, PLLP, Minneapolis, Minnesota

For Appellee:

R. Allan Payne, Doney Crowley Bloomquist Payne Uda P.C.,
Helena, Montana

Submitted on Briefs: July 25, 2007

Decided: January 3, 2008

Filed:

__________________________________________
Clerk

2
Justice W. William Leaphart delivered the Opinion of the Court.

¶1 The Montana Petroleum Tank Release Compensation Board (“the Board”) brought

suit in the First Judicial District Court against Federated Service Insurance Company

(“Federated”), seeking to recover the costs of cleaning up a leak from an underground

diesel tank owned and operated by Visocan Petroleum Company (“Visocan”),

Federated’s insured. The District Court granted partial summary judgment to the Board,

and found that the Board, as Visocan’s subrogee, had the authority to assert Visocan’s

rights and claims against Federated. The District Court held that the leak was partially

covered under a portion of the insurance policy, and that Federated had breached its duty

to indemnify Visocan. The District Court also held that the Board could recover any other

damages that arose from Federated’s breach. A jury awarded the Board $25,317.50 in

administrative costs as consequential damages. Federated appeals from both the District

Court’s grant of partial summary judgment, and the jury’s award of consequential

damages. We affirm.

¶2 We restate the issues as follows:

¶3 I. Is the Board authorized to enter into subrogation agreements with

owner/operators for the purpose of seeking reimbursement from insurers and other liable

third parties?

¶4 II. Did the District Court err in concluding that diesel fuel was a pollutant as

defined in the policy?

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¶5 III. Did the District Court err in partially granting the Board’s motion for summary

judgment, and finding that the 120-hour notice provision did not bar coverage for the

leak?

¶6 IV. Did the District Court err in deciding that the Board, as a subrogee of

Visocan’s breach of contract claim, could recover its administrative costs as

consequential damages of Federated’s breach?

¶7 V. Was the evidence proferred by the Board at trial admissible and sufficient to

support the jury’s award of consequential damages?

¶8 VI. Did the District Court err in failing to award the Board, as the prevailing party,

its costs, attorneys’ fees, and pre- and post-judgment interest?

BACKGROUND

¶9 Visocan Petroleum Company owned and operated the Conoco Pop-Inn, a service

station located in Helena, Montana. In the fall of 1998, Visocan installed a new 4,000

gallon diesel fuel tank as part of an upgrade of the Pop-Inn station. The new system was

equipped with a leak detection monitor.

¶10 Roughly one week later, Visocan first noted discrepancies between the fuel levels

registered by the system’s leak detection equipment and the corresponding inventory and

sales records. Visocan contacted the tank’s installer, D & L Services, multiple times over

the next few months to report the ongoing discrepancies. D & L visited the site to check

the system several times. They concluded that there was no fuel leak, and that a

calibration error was responsible for the discrepancies.

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¶11 The discrepancies between the fuel levels and the inventory records persisted. On

February 12, 1999, Keneco (a subsequent purchaser of D & L) performed an on-site

“stick test.” The test determined that the tank had lost 500 gallons of fuel in two hours.

Visocan took the tank out of service the same day. On February 25, 1999, Steve Visocan,

the president of Visocan, received a letter from the DEQ demanding a response to the

diesel leak. The record does not reflect who reported the leak to the DEQ.

¶12 On March 3, 1999, Keneco dug up the storage tank. After entering the tank, an

investigator observed a twenty-two inch crack on the south cap of the tank. The crack

was the apparent source of the leak, but it was not conclusively determined what caused

the crack. Visocan speculated that the damage was done by a backhoe during the tank’s

installation in the fall of 1998. On March 8, 1999, Steve Visocan reported the leak to Pat

McCutcheon, Federated’s local agent.

¶13 Under Montana’s Comprehensive Environmental Cleanup and Responsibility Act,

§§ 75-10-705 – 75-10-729, MCA, Visocan was responsible for the payment of the clean-

up costs of the spill. Pursuant to the Petroleum Storage Tank Cleanup Act, §§ 75-11-301

– 75-11-321, MCA, and the Montana Underground Storage Tank Act, §§ 75-11-501 –

75-11-526, MCA, the Montana Petroleum Release Board would reimburse Visocan for

eligible corrective action costs not covered by Visocan’s insurance policy with Federated.

Visocan signed a subrogation agreement with the Board, as required by Admin. R. M.

17.58.332(5). This agreement transferred all of Visocan’s rights against third parties

liable for the leak and any claims it had against its insurers over to the Board. Visocan

reserved its right to seek reimbursement for costs not reimbursed by the Board.

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¶14 Visocan held general and umbrella commercial liability and property insurance

policies from Federated. These policies contained a standard absolute pollution-

exclusion clause which disclaimed all coverage for spills resulting from pollutants. The

policy defined “pollutants” to include “liquid . . . irritant[s] or contaminant[s].” Visocan

also held a coverage extension (hereinafter Endorsement CP-F-83), which provided for

up to $100,000 of coverage for “expense[s] to extract ‘pollutants’ from land or water

. . . .” This coverage extension contained a notice provision which required Visocan to

report any damage or loss to Federated within 120 hours of the occurrence of the loss.

¶15 Visocan sought reimbursement from Federated under its applicable policies, and

also submitted claims to the Board for reimbursement for the corrective action costs.

Federated denied Visocan’s claims for reimbursement via letter dated April 22, 1999,

citing Visocan’s failure to give timely notice under the 120-hour notice requirement.

¶16 The Board accepted Visocan’s claims for reimbursement for corrective action

costs, and its transfer of claims and rights against Federated and other third parties under

an agreement dated April 13, 2000. The Board then proceeded to seek reimbursement

from Federated for the cost of the clean-up. Federated denied all of the Board’s requests

for reimbursement.

¶17 This litigation ensued, and the Board sought recovery of the corrective action costs

from Federated, including administrative costs and fees. The District Court partially

granted the Board’s motion for summary judgment. The court held that no coverage

existed under the commercial general liability portion of the policy (hereinafter “CGL”)

or under the petroleum products distributors’ coverage forms. However, the District

6
Court did find that coverage for the leak existed under Endorsement CP-F-83. Thus, the

District Court found that Federated had breached its duty to indemnify Visocan’s loss

resulting from the leak.

¶18 The District Court also found that the Board, as Visocan’s subrogee, was entitled

to recover all damages resulting from Federated’s breach, including administrative costs.

A jury trial was then held to determine whether the Board incurred additional

administrative expenses for handling the Visocan claims as a result of Federated’s

breach, and which expenses it could recover as consequential damages. The jury found

that the Board did incur additional administrative expenses as a result of Federated’s

breach, and that it was entitled to $25,317.50 in additional damages.

¶19 Federated appeals the jury’s verdict and damage award, as well as multiple parts

of the District Court’s Order on Various Motions.

DISCUSSION

¶20 I. Is the Board authorized to enter into subrogation agreements with

owner/operators for the purpose of seeking reimbursement from insurers and other

liable third parties?

¶21 Federated challenges the validity of Admin. R. M. 17.58.332(5) (2001), which

authorizes the Board to enter into subrogation agreements with tank owners seeking

reimbursement. This rule establishes the Board’s right to “subrogation claim[s] against

insurance carriers whose policies cover . . . reimbursed costs.” Admin. R. M.

17.58.332(5) (2001). As a prerequisite to eligibility for reimbursement, the rule requires

tank owners and operators to subrogate their rights to any claims under their insurance

7
policies to the Board. Admin. R. M. 17.58.332(5) (2001). Federated argues that the

Board exceeded its authority in making this rule, because the Legislature only authorized

the Board to seek funding from a limited number of sources. The Legislature delineated

these sources in § 75-11-313(2)(a-e), MCA, and, Federated argues, intentionally did not

include subrogation among them.

¶22 The District Court rejected Federated’s argument, and found that the Board did

have authority to seek reimbursement of the corrective action costs from Federated. The

court based its holding on two alternative grounds: first, the court found, the Board had

the power to enter into subrogation agreements under the existing statutory scheme prior

to the 2001 amendment of Admin. R. M. 17.58.332. The court held that §§ 75-11-313

and 318, MCA, and Admin. R. M. 17.58.332 (1999) provide the Board with a right to

statutory subrogation that is independent of, and precedent to, the 2001 amendment to

Admin. R. M. 17.58.332. The court concluded that since “the Board had the right to seek

subrogation from Federated prior to the April 2001 amendment to ARM 17.58.332, it

may continue to do so in this case,” and denied Federated’s motion for summary

judgment.

¶23 The District Court did not end its discussion there, but went on to find that

Visocan had made a valid contractual assignment of its rights against Federated to the

Board. In an April 13, 2000, agreement, Visocan assigned to the Board all rights and

claims it had against its insurers, and any rights and claims it had against third parties

liable for the release. Visocan retained the right to seek reimbursement for costs not

reimbursed by the Board.

8
¶24 We agree with the District Court that the Board has a statutory right of

subrogation, and that the subrogation agreement between Visocan and the Board is valid.

The underlying statutory scheme gives rise to a right of statutory subrogation,

irrespective of the 2001 amendment. Admin. R. M. 17.58.332(5) (2001), which requires

owner/operators to enter into a subrogation agreement with the Board, is, nonetheless,

entirely consistent with the Board’s statutory right to seek reimbursement through

subrogation.

¶25 The Board’s authority to seek funding through subrogation is established in the

first instance through the statutory scheme laid out by the Legislature in Title 75, Chapter

11, MCA. To begin, § 75-11-313(2)(b), MCA, specifically directs the Board to deposit

“money received by the board in the form of . . . reimbursements . . . from any source”

into the Fund. The term “reimbursements” encompasses (and indeed, seems to

specifically contemplate) money the Board receives from insurers or other liable third

parties, whether by subrogation or other agreement. Section 75-11-318, MCA, delineates

the powers and duties of the Board. This section specifically authorizes the Board to

“undertake legal action.” Section 75-11-318(3), MCA. These references, individually

and taken as a whole, lead us to conclude that the Board possesses a statutory right to

seek reimbursement through subrogation, and to enforce its rights in a court of law.

Thus, prior to the 2001 amendment, the Board possessed the authority to seek

reimbursement through subrogation.

9
¶26 In 2001, the Board amended Admin. R. M. 17.58.332 to recognize its statutory

right to seek reimbursement through subrogation and to facilitate enforcement of that

right by requiring a written subrogation agreement from the owner/operator:

To the extent the board may reimburse or has reimbursed owners or
operators for eligible costs, the board has a subrogation claim against
insurance carriers whose policies cover the reimbursed costs and against
other third parties whose acts or omissions render them otherwise liable for
the reimbursed costs. An owner or operator who accepts reimbursement for
costs subrogates his rights to the board as against such insurance carriers
and other third parties to the extent of the accepted reimbursed costs. An
owner or operator, prior to receiving reimbursement of eligible costs, must
agree on a form provided by the board, to subrogate its claims to the board
to the extent of the accepted reimbursed costs.

Admin. R. M. 17.58.332(5) (2001).

¶27 The Board possessed clear authority to adopt this rule. The Legislature gave the

Board the ability to “adopt rules . . . governing submission of claims,” and to enact “other

rules necessary for the administration of this part.” Section 75-11-318(5)(a),(f), MCA.

Section 2-4-305, MCA, provides that “[w]henever by . . . statute a state agency has

authority to adopt rules . . . a rule is not valid or effective unless it is: (a) consistent and

not in conflict with the statute and (b) reasonably necessary to effectuate the purpose of

the statute.” Section 2-4-305(6), MCA. Admin. R. M. 17.58.332(5) (2001) meets both

those requirements. The rule, which requires owner/operators to subrogate their claims

against responsible parties to the Board, is consistent with the Board’s existing power of

statutory subrogation. Further, as discussed in more detail below, subrogation is

necessary to effectuate the purpose of the entire Act. Consequently, this rule (which

facilitates and requires subrogation agreements) is reasonably necessary to effectuate the

10
purpose of the statute. Thus, we conclude that under § 75-11-318, MCA, the Board has

the power to enact an administrative rule requiring owners to subrogate their claims

against insurers.

¶28 The dissent argues that the Board has overstepped its statutory authority by

requiring owners and operators to sign subrogation agreements, because administrative

agencies may not “engraft additional and contradictory . . . [or] additional, non-

contradictory requirements on the statute which were not envisioned by the legislature.”

Board of Barbers, etc. v. Big Sky College, etc., 192 Mont. 159, 161, 626 P.2d 1269, 1270

(1981) (citations and internal quotation marks omitted). However, § 75-11-307, MCA,

clearly states that “[s]ubject to the availability of money from the fund . . . an owner or

operator who is eligible under 75-11-308 and who complies with 75-11-309 and any

rules adopted to implement those sections must be reimbursed by the board . . . .”

Section 75-11-307, MCA (emphasis added). Thus, the Legislature, not the Board, made

compliance with §§ 75-11-308 – 75-11-309, MCA, and the accompanying administrative

rules a prerequisite to reimbursement.

¶29 Finally, Federated claims that Admin. R. M. 17.58.332(5) (2001) is invalid

because it is inconsistent with the purpose of the statutory scheme. To the contrary, we

conclude that subrogation serves the Legislature’s express stated purpose. Section 75-11-

301, MCA, states that the Act’s purpose is to “provide adequate financial resources and

effective procedures through which tank owners and operators may undertake and be

reimbursed for corrective action and payment to third parties for damages caused by

releases from petroleum storage tanks[.]” Through subrogation, the Board can replenish

11
the Fund by seeking reimbursement from liable insurers. This allows the Board to fulfill

the Act’s purpose of ensuring “adequate financial resources” are available to all eligible

tank owners and operators. Therefore, we conclude that subrogation is consistent with—

not contrary to—the Act’s purposes.

¶30 In sum, Title 75, Chapter 11, MCA, provides the Board with the statutory

authority to seek reimbursement of corrective action expenses through subrogation. By

virtue of this existing right to statutory subrogation, the Board had the authority to enact

Admin. R. M. 17.58.332(5) (2001). Thus, the subrogation agreement between Visocan

and the Board made pursuant to Admin. R. M. 17.58.332(5) (2001) is valid and

enforceable. Consequently, we hold that the District Court did not err in denying

Federated’s motion for summary judgment on this issue.

¶31 II. Did the District Court err in concluding that diesel fuel was a pollutant as

defined in the policy?

¶32 On cross-appeal, the Board argues that the District Court erred in determining that

diesel fuel was included in the policy’s definition of pollutant, and thus that the leak was

excluded from coverage under the CGL portion of the policy. We review a district

court’s grant of summary judgment de novo, using the criteria established by M. R.

Civ. P. 56(c). State Farm Mut. Auto Ins. Co. v. Gibson, 2007 MT 153, ¶ 9, 337 Mont.

509, ¶ 9, 163 P.3d 387, ¶ 9. The interpretation of an insurance contract is a question of

law for the court. State Farm, ¶ 9. We review a district court’s conclusions of law to

determine whether they are correct. State Farm, ¶ 9.

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¶33 A. Background principles of insurance contract interpretation

¶34 Several key principles guide us in interpreting insurance policies. First, in

interpreting an insurance policy, we read the policy as a whole, and “if possible, reconcile

its various parts to give each meaning and effect.” Farmers Alliance Mut. Ins. Co. v.

Holeman, 1998 MT 155, ¶ 25, 289 Mont. 312, ¶ 25, 961 P.2d 114, ¶ 25 (citations

omitted). If the parties dispute the meaning of a term, we determine whether the term is

ambiguous by viewing the policy from “the viewpoint of a consumer with average

intelligence but not trained in the law or insurance business.” Farmers Alliance Mut. Ins.

Co., ¶ 25 (citation omitted). An ambiguity exists “when a contract taken as a whole in its

wording or phraseology is reasonably subject to two different interpretations.” Jacobsen

v. Farmers Union Mut. Ins. Co., 2004 MT 72, ¶ 19, 320 Mont. 375, ¶ 19, 87 P.3d 995,

¶ 19 (citation omitted).

¶35 However, “[t]he counter-balance rule to the foregoing is that if the language is

clear and explicit this Court may not rewrite an insurance contract, but must enforce it as

written. . . . This Court has held, in fact, that expectations which are contrary to a clear

exclusion from coverage are not objectively reasonable.” Lee v. USAA Cas. Ins. Co.,

2001 MT 59, ¶ 30, 304 Mont. 356, ¶ 30, 22 P.3d 631, ¶ 30 (citations omitted). Further,

“[c]ourts should not . . . seize upon certain and definite covenants expressed in plain

English with violent hands, and distort them so as to include a risk clearly excluded by

the insurance contract.” Mecca v. Farmers Insurance Exchange, 2005 MT 260, ¶ 9, 329

Mont. 73, ¶ 9, 122 P.3d 1190, ¶ 9.

13
¶36 To begin, we note that the term “pollutant” appears in both Endorsement CP-F-83

and in the main CGL policy. In both places, the term is defined identically: “Pollutants

means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke,

vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be

recycled, reconditioned or reclaimed.” The Board essentially argues that we should

construe the term “pollutant” to include diesel under Endorsement CP-F-83, but exclude

it under the CGL policy. Logic will not permit such a result, however favorable to the

Board. The contract must be read as a whole, Farmers Alliance Mut. Ins. Co., ¶ 25, and

identical terms must be given the same meaning and construction throughout the policy.

The definition of “pollutant” must either include diesel or exclude diesel, and must be

read consistently throughout the policy.

¶37 B. Are the terms of the pollution-exclusion clause ambiguous?

¶38 As discussed above, the question of whether a term is ambiguous is viewed from

the standpoint of an average consumer not trained in the law or insurance business.

Farmers Alliance Mut. Ins. Co., ¶ 25. However, this Court will not read ambiguity into a

contract where there is none. Mecca, ¶ 9.

¶39 The clause at issue in the instant case is known in the industry as a “standard

pollution exclusion clause,” and is commonly used by insurers nationwide. We must

determine whether the term “pollutant” is ambiguous, and more specifically, whether

diesel fuel is included in its definition. Though many of our sister states have previously

considered this exact issue, the question is one of first impression for this Court. The

14
precedent of these other states, though not controlling, is instructive in our analysis of this

issue.

¶40 1. A survey of pollution-exclusion clause jurisprudence

¶41 Federated has defended the identical clause at issue in this case in multiple other

jurisdictions. Each court to consider the Federated pollution-exclusion clause has held

that it is not ambiguous, and that motor fuels are clearly included in the definition of

pollutant. Federated Mut. Ins. Co. v. Abston Petroleum, Inc., 967 So.2d 705, *7 (Ala.

2007); Harrison v. R.R. Morrison & Son, Inc., 862 So.2d 1065, 1072 (La. App. 2 Cir.

2003); North Georgia Petroleum v. Federated Mut. Ins. Co., 68 F. Supp. 2d 1321, 1327

(N.D. Ga. 1999); Legarra v. Federated Mut. Ins. Co., 42 Cal. Rptr. 2d 101, 106 (Cal.

App. 3 Dist. 1995); Crescent Oil Co. v. Federated Mut. Ins. Co., 888 P.2d 869, 873 (Kan.

App. 1995).

¶42 The same conclusion was reached by courts considering policies issued by

companies other than Federated, but with identical absolute pollution-exclusion clauses.

Wagner v. Erie Ins. Co., 801 A.2d 1226, 1232 (Pa. Super. 2002), aff’d, 847 A.2d 1274

(Pa. 2004); Owners Ins. Co. v. Farmer, 173 F. Supp. 2d 1330, 1332-33 (N.D. Ga. 2001);

Truitt Oil & Gas Co. v. Ranger Ins. Co., 498 S.E.2d 572, 574 (Ga. App. 1998); Millers

Mut. Ins. of Ill. v. Graham Oil, 668 N.E.2d 223, 228-29 (Ill. App. 2 Dist. 1996); Heyman

Assoc. v. Ins. Co. of State of Pa., 653 A.2d 122, 131-33 (Conn. 1995).

¶43 A minority of courts, by contrast, have found the same pollution-exclusion clause

to be ambiguous. State Auto Property & Cas. Ins. Co. v. Arkansas Dept. of

Environmental Quality, ___ S.W.3d ___ (Ark. 2007) (“[T]his court continues to believe

15
that the pollution-exclusion language is subject to different interpretations.”); Anderson

Gas & Propane v. Westport Ins. Co., 140 S.W.3d 504, 508-509 (Ark. App. Div. 2 2004)

(finding that the pollution-exclusion clause was ambiguous and reversing the grant of

summary judgment); Hocker Oil v. Barker-Phillips-Jackson, 997 S.W.2d 510, 518 (Mo.

App. 1 Dist. 1999).

¶44 In Hocker, the Missouri Court of Appeals applied a layman standard to determine

whether the clause was ambiguous: “Missouri’s criteria for determining whether an

insurance policy’s language is plain and unambiguous requires ascertainment of what the

layman who acquired the policy of insurance would ordinarily have understood.”

Hocker, 997 S.W.2d at 518. The court then reasoned:

Hocker is in the business of transporting, selling, and storing gasoline on a
daily basis. Gasoline is not a pollutant in its eyes. Gasoline is the product
it sells. Gasoline belongs in the environment in which Hocker routinely
works . . . . [I]n that environment, gasoline is not a pollutant.

Hocker, 997 S.W.2d at 518. The court found the provision to be ambiguous, and then

construed it in favor of the insured, holding that gasoline was not encompassed in the

definition of “pollutant.” Hocker, 997 S.W.2d at 518.

¶45 In sum, our survey of case law concerning the standard absolute pollution-

exclusion clause reveals that a clear majority of states have held that motor fuels are

included in the clause’s definition of “pollutant.” Missouri is one of two states to reach a

contrary result. At first glance, Missouri’s layman standard is similar to Montana’s

average consumer standard. However, an important difference exists between the two:

Montana’s standard is an objective one, while Missouri’s is subjective.

16
¶46 2. Is the term pollutant ambiguous from the viewpoint of the average consumer?

¶47 We have previously held that a policyholder’s expectations “which are contrary to

a clear exclusion from coverage are not objectively reasonable.” Lee, ¶ 30. The Missouri

Court of Appeals relied on the subjective expectation of the petroleum station owner to

reach its conclusion that petroleum was not a pollutant. By contrast, Montana’s “average

consumer” standard is an objective one. We view the term through the “objectively

reasonable” perspective of the average consumer, not through the eyes of Visocan, or any

other single policyholder. The policy defines “pollutants” to include “liquid . . .

irritant[s] or contaminant[s].” Visocan’s expectation that diesel fuel is not included in the

category of “liquid . . . irritant[s] or contaminant[s]” is contrary to the clear terms of the

policy.

¶48 Considering the issue from the objective viewpoint of a consumer with average

intelligence, we conclude that most consumers would consider diesel a pollutant when it

leaks into the ground and contaminates soil and groundwater. As the Supreme Court

recognized, even a valuable and useful product can become a pollutant when it

contaminates a natural resource. United States v. Standard Oil Co., 384 U.S. 224, 226, 86

S. Ct. 1427, 1428 (1966) (rejecting the argument that oil was not refuse, and holding that

it became a pollutant once it leaked into the river). Similarly, motor fuel—though

commercially valuable to the gas station owner and useful to consumers—becomes a

pollutant once it has leaked into the soil. Federated Mut. Ins. Co., 967 So.2d 705, at *6.

¶49 In sum, we hold that the terms of the pollution-exclusion clause are not

ambiguous. Viewed from the objective perspective of the average consumer, we

17
conclude that diesel is included in the clause’s definition of the term “pollutant.” This is

evidenced by both the clear language of the policy, and by the obvious hazards diesel fuel

poses to community health and safety once it has leaked into the soil. Thus, the District

Court did not err in concluding that diesel fuel was a pollutant as defined in the policy.

¶50 III. Did the District Court err in partially granting the Board’s motion for

summary judgment, and finding that the 120-hour notice provision did not bar

coverage for the leak?

¶51 The District Court granted summary judgment in favor of the Board, finding that

the leak was covered under Endorsement CP-F-83. The Endorsement required that

Visocan give notice of the leak to Federated within 120 hours of the occurrence; the

District Court found that Visocan satisfied this requirement. Alternately, the District

Court held, even if Visocan failed to give timely notice, the notice provision itself

violated public policy and could not be enforced.

¶52 We review a district court’s grant of summary judgment de novo, using the criteria

established by M. R. Civ. P. 56(c). State Farm, ¶ 9. The moving party bears the burden

of proving that no genuine issues of material fact exist, and as a result, that they are

entitled to judgment as a matter of law. State Farm, ¶ 9. In Montana, the interpretation

of an insurance contract is a question of law. State Farm, ¶ 9. We review a district

court’s conclusions of law to determine whether they are correct. State Farm, ¶ 9.

¶53 The Board argues that the 120-hour notice provision found in Endorsement CP-F-

83 violates public policy because it does not comply with the statutory requirements of

the Property and Casualty Insurance Policy Language Simplification Act, §§ 33-15-333 –

18
33-15-340, MCA (“Insurance Simplification Act”). Section 33-15-337(2), MCA,

provides that “[t]he policy must include a table of contents and notice section of

important provisions.” Federated admits that there is no mention of the 120-hour notice

provision in the policy’s table of contents, or in a special notice section of important

provisions. Federated’s failure to highlight the 120-hour notice provision in a table of

contents or notice section is a clear violation of § 33-15-337(2), MCA.

¶54 Federated concedes that the policy does not meet these statutory requirements, but

argues that the provision should be strictly enforced nonetheless because this Court has

previously upheld shorter notice periods. However, each case that Federated cites was

decided well before the Insurance Simplification Act was adopted. Further, the fatal

problem with the policy is its failure to conform to the requirements of the Act, not the

brevity of its notice period.

¶55 A contract provision that is “contrary to an express provision of law” is unlawful.

Section 28-2-701(1), MCA. Contract provisions which violate express statutes are

contrary to public policy and void. Belgrade Educ. Ass’n v. Belgrade School Dist., 2004

MT 318, ¶ 17, 324 Mont. 50, ¶ 17, 102 P.3d 517, ¶ 17 (citations omitted).

¶56 Courts will not enforce an illegal contract or contract provision. MPH Co. v.

Imagineering, Inc., 243 Mont. 342, 349-50, 792 P.2d 1081, 1086 (1990). By “refusing to

enforce such contracts the court does not act for the benefit, or for the preservation of the

alleged rights, of either party, but in the maintenance of its own dignity, the public good,

and the laws of the state.” McManus v. Fulton, 85 Mont. 170, 182, 278 P. 126, 131

(1929) (citation omitted).

19
¶57 Federated further argues that even if the 120-hour notice provision is void under

the Insurance Simplification Act, the Court has no power to enforce the Act. Section 33-

15-338(2), MCA, gives the Insurance Commissioner “sole authority to enforce the

provisions of 33-15-333 through 33-15-340 or to seek remedies for its violation.” This

provision may bar a private right of action under the Insurance Simplification Act, but

does not bar the courts of this state from performing their constitutionally designated

roles in interpreting and upholding the law. Mont. Const. art. VII, § 1; Best v. Police

Dept. of City of Billings, 2000 MT 97, ¶ 16, 299 Mont. 247, ¶ 16, 999 P.2d 334, ¶ 16 (“It

is the province and duty of the judiciary ‘to say what the law is’ . . . .”) (citing Marbury v.

Madison, 5 U.S. 137, 177 (1803)). The Act does not prevent this Court from determining

that the notice provision in the policy before us violates the laws of this State, and from

refusing to enforce it.

¶58 We agree with the District Court’s conclusion of law that the 120-hour notice

provision is void and unenforceable as a matter of public policy, because it is contrary to

statute. Because we conclude that the Endorsement’s notice provision violates public

policy, it is unnecessary to consider whether Visocan’s notice was timely.

¶59 IV. Did the District Court err in deciding that the Board, as a subrogee of

Visocan’s breach of contract claim, could recover its administrative costs as

consequential damages of Federated’s breach?

¶60 Federated appeals the portion of the District Court’s partial grant of summary

judgment in favor of the Board which found that Visocan was entitled to “all damages

resulting from Federated’s breach of contract, regardless of the fact that Federated only

20
breached one portion of the policy.” Specifically, Federated appeals the District Court’s

finding that Visocan (and thus the Board) could recover its administrative costs as

consequential damages. We review a district court’s grant of summary judgment de

novo. State Farm, ¶ 9. We review a district court’s conclusions of law to determine

whether they are correct. State Farm, ¶ 9.

¶61 A subrogee stands in the shoes of the subrogor, and thus cannot stand in any better

position than the insured. Petroleum Tank Release, ¶¶ 15, 31, 33 (citations omitted). To

determine whether the Board could recover its administrative expenses, we must first ask

what Visocan, the insured, was entitled to recover.

¶62 A. What damages is Visocan entitled to recover as a result of Federated’s breach?

¶63 Under Montana law, an insured is entitled to “all damages” which result from a

breach of contract by the insurer. Grindheim v. Safeco Ins. Co. of America, 908 F. Supp.

794, 808 (D. Mont. 1995) (applying Montana law). An insured’s remedies for breach of

duty to indemnify include both legal and equitable remedies. Mountain West v. Brewer,

2003 MT 98, ¶ 36, 315 Mont. 231, ¶ 36, 69 P.3d 652, ¶ 36 (awarding attorney’s fees to

insured); Safeco Ins. Co. v. Munroe, 165 Mont. 185, 192, 527 P.2d 64, 68 (1974) (holding

that insured was entitled to consequential damages).

¶64 Section 27-1-311, MCA, sets out the measure of damages for a breach of contract:

For the breach of an obligation arising from contract, the measure of
damages, except when otherwise expressly provided by this code, is the
amount which will compensate the party aggrieved for all the detriment
which was proximately caused thereby or in the ordinary course of things
would be likely to result therefrom. Damages which are not clearly
ascertainable in both their nature and origin cannot be recovered for a
breach of contract.

21
We have observed that this section generally permits recovery for two types of damages:

proximate and consequential. Martel Const., Inc. v. State, 249 Mont. 507, 511, 817 P.2d

677, 679 (1991) (citation omitted). Consequential damages are those damages “within

the contemplation of the parties when they entered into the contract, and such as might

naturally be expected to result from its violation.” Martel, 249 Mont. at 511, 817 P.2d at

679 (citation omitted).

¶65 B. Do the administrative costs of the corrective action qualify as consequential

damages?

¶66 Visocan is entitled to recover its administrative costs as consequential damages if

the costs were contemplated by both parties at the time the contract was entered into, and

if they might naturally be expected to result from Federated’s refusal to indemnify. In

Safeco, we held that in the context of a similar insurance policy, the term damages was

used “without limitation.” Safeco, 165 Mont. at 192, 527 P.2d at 68. We rejected the

insurer’s argument that the policy did not contemplate the award of consequential

damages, noting that the policy did not contain any provision explicitly excluding

consequential damages. Safeco, 165 Mont. at 192, 527 P.2d at 68. Similarly, the policy

at issue here does not contain any provision excluding consequential damages.

¶67 1. At the time of the contracting, did the parties contemplate the administrative

costs of corrective action?

¶68 The language of the policy indicates the parties did in fact contemplate the

coverage of the administrative costs of a clean-up. Endorsement CP-F-83 states:

22
 This Additional Coverage Extension does not apply to costs to test for,
monitor or assess the existence, concentration or effects of “pollutants”.
[sic] But we will pay for testing which is performed in the course of
extracting the “pollutants” from the land or water.

This clause shows that Federated expected to reimburse Visocan for more than the cost of

just the extraction. Coverage under the policy included management and oversight costs

such as testing performed over the course of the clean-up. Further, the terms of policy

are worded broadly: “We will pay your expense to extract ‘pollutants’ from land or water

. . . .” The policy does not qualify or limit the term “expense,” except to place a

$100,000 ceiling on the coverage. In sum, the terms of the policy itself suggest that both

parties expected that coverage would include the administrative costs of a clean-up.

¶69 2. Are the administrative costs incurred by the Board a natural consequence of

Federated’s breach?

¶70 Next, we consider whether the Board’s administrative costs might naturally be

expected to arise from Federated’s breach. As parties with experience in either insuring

or operating stations with underground petroleum tanks, both Visocan and Federated

could have expected that a clean-up effort would require some administrative oversight

and coordination. Section 75-11-309, MCA, details the administrative procedures and

oversight involved in a petroleum tank leak clean-up. If Federated did not assume these

duties, they would have inevitably been assumed by Visocan or the Board. Thus, the

administrative costs are a natural consequence of Federated’s breach.

¶71 The administrative costs are recoverable as consequential damages because they

were anticipated by the parties at the time of contracting, and they might naturally be

23
expected to result from Federated’s breach. Thus, the District Court did not err in its

conclusion of law that the Board was entitled to recover its administrative costs as

consequential damages.

¶72 V. Was the evidence proferred by the Board at trial admissible and sufficient

to support the jury’s award of consequential damages?

¶73 In support of its claim for consequential damages, the Board offered into evidence

Exhibit 2, a chart containing the average cost per clean-up claim received and cost per

claim paid for the fiscal years 1999 through 2005. The Board offered this summary of its

own data pursuant to M. R. Evid. 1006. Federated objected to the admission of this

summary chart on the grounds that it was inadmissible hearsay, speculative, and that the

proper foundation was not laid. The court overruled the objection and allowed the chart

to be introduced. On appeal, Federated argues that the chart should have been excluded

from evidence because it did not meet the proper foundation requirements for M. R. Evid.

1006, and that it contained inadmissible hearsay. Federated also challenges the

sufficiency of the evidence.

¶74 A. Was the summary contained in Exhibit 2 admissible?

¶75 District courts have broad discretion in controlling the admission of evidence at

trial. Seltzer v. Morton, 2007 MT 62, ¶ 65, 336 Mont. 225, ¶ 65, 154 P.3d 561, ¶ 65

(citations omitted). When reviewing a district court’s evidentiary ruling, we do not

evaluate whether we would have made the same decision. Seltzer, ¶ 65. Rather, we

review only for abuse of discretion. Seltzer, ¶ 65. A trial court abuses its discretion when

it “act[s] arbitrarily without conscientious judgment or exceed[s] the bounds of reason.”

24
Lopez v. Josephson, 2001 MT 133, ¶ 14, 305 Mont. 446, ¶ 14, 30 P.3d 326, ¶ 14. We

will not reverse the district court’s ruling unless the abuse of discretion constitutes

reversible error. Seltzer, ¶ 65. Reversible error occurs when a substantial right of the

appellant is affected, or when the challenged evidence affected the outcome of the trial.

Seltzer, ¶ 65.

¶76 M. R. Evid. 1006 provides that:

The contents of voluminous writings, recordings, or photographs which
cannot conveniently be examined in court may be presented in the form of a
chart, summary, or calculation. The originals, or duplicates, shall be made
available for examination or copying, or both, by other parties at a
reasonable time and place. The court may order that they be produced in
court.

To date, we have not formally recognized any foundation requirements for M. R. Evid.

1006. Barrett v. Larsen, 256 Mont. 330, 337-38, 846 P.2d 1012, 1017 (1993), overruled

in part on other grounds, Giambra v. Kelsey, 2007 MT 158, 338 Mont. 19, 162 P.3d 134,

(holding that the plain language of the rule does not impose any foundational requirement

to make the underlying documents available before trial).

¶77 However, the Commission on Rules of Evidence notes that M. R. Evid. 1006 is

“identical” to Fed. R. Evid. 1006. M. R. Evid. 1006 advisory comm. nn. As both parties

point out, Fed. R. Evid. 1006 conditions admissibility of summaries upon a showing of

two foundational requirements. First, the underlying materials upon which the summary

is based must be admissible into evidence. Second, the underlying materials must be

made available to the opposing party for inspection. We now adopt these foundational

requirements, and consider whether they were satisfied in the instant case.

25
¶78 1. Were the underlying documents independently admissible?

¶79 The Board argues that the underlying documents and records were independently

admissible pursuant to three hearsay exceptions: the M. R. Evid. 803(6) business activity

exception, the M. R. Evid. 803(8) public agency records exception, and the M. R. Evid.

803(24) hearsay “catch-all” exception. Exhibit 2 summarizes the Board’s expenditures

and number of claims it received and paid from fiscal year 1999 to fiscal year 2005. This

information is commonly available as a matter of public record. M. R. Evid. 803(8)

provides for the admission of:

[R]ecords, reports, statements, or data compilations in any form of a public
office or agency setting forth its regularly conducted and regularly recorded
activities, or matters observed pursuant to duty imposed by law and as to
which there was a duty to report, or factual findings resulting from an
investigation made pursuant to authority granted by law.

¶80 Federated argues that because the summary contains information from

“unidentified accountants,” the exhibit was based on inadmissible hearsay. However, the

Board’s foundation witness testified that the data in the summary was pulled from

records kept regularly by the DEQ and the state accounting system. The records of

requests for reimbursements and records of expenditures were kept by the agency and its

accountants as records regularly kept and matters observed pursuant to the duties

imposed by §§ 75-11-301 – 75-11-321, MCA. Section 75-11-318(7), MCA, specifically

requires the Board to make an annual report containing, among other things, an analysis

of “trends in fund revenue and expenditure activity.” The Board, of course, is a “public

office or agency” within the meaning of M. R. Evid. 803(8). Section 2-15-2108, MCA.

Thus, the documents underlying the summary are admissible pursuant to M. R. Evid.

26
803(8) because they qualify as “records, reports, statements, or data compilations in any

form of a public office or agency setting forth . . . matters observed pursuant to duty

imposed by law and as to which there was a duty to report . . . .” M. R. Evid. 803(8).

¶81 Having concluded that the underlying evidence is independently admissible

pursuant to M. R. Evid. 803(8), we need not consider its admissibility under either M. R.

Evid. 803(6) or 803(24). We now turn to the second foundational requirement: whether

the Board made the documents available to Federated.

¶82 2. Were the documents made available?

¶83 Federated argues that the Board did not make the underlying documents available;

however, the record belies this claim. The Board first announced its intention to

introduce summaries of data pursuant to M. R. Evid. 1006 in its June 3, 2005, Disclosure

of Lay Witnesses and Exhibits. In the Disclosure, the Board specifically noted that the

summaries would be drawn from the Board’s reimbursement files, the DEQ Site &

Facility File, and “others as needed.” The Board also had two boxes of the underlying

documents (those specifically pertaining to the Visocan claims) present in court at trial.

Further, all of the underlying documents were available as a matter of public record, and

could have easily been obtained by Federated before the trial.

¶84 Some of the documents underlying Exhibit 2 were present in the courtroom. Yet

Federated did not use these to cross-examine the Board’s foundation witness or to

challenge the summary. Further, Federated did not request that the other underlying

documents be made available, or ask the District Court to order the materials to be

produced in court.

27
¶85 In sum, the documents underlying the summary were independently admissible,

and were made available to Federated both before and during trial. Thus, we conclude

that Federated has failed to show that the District Court abused its discretion in admitting

the summary contained in Exhibit 2.

¶86 B. Was the jury’s verdict supported by substantial, credible evidence?

¶87 Our review of a jury verdict in a civil case is necessarily very limited, out of

deference to the jury’s constitutionally sanctioned decisional role. Mont. Const. art. II,

§ 26; Kneeland v. Luzenac America Inc., 1998 MT 136, ¶ 53, 289 Mont. 201, ¶ 53, 961

P.2d 725, ¶ 53. Our task on review “is simply to determine whether the verdict is

supported by substantial credible evidence, which is defined as evidence that a reasonable

mind might accept as adequate to support a conclusion.” Seltzer, ¶ 93 (citations omitted).

Evidence will be considered substantial even where i t is “inherently weak and

conflicting” and “less than a preponderance.” Seltzer, ¶ 93. However, it must be “more

than a mere scintilla” and must not be “trifling or frivolous.” Seltzer, ¶ 93. We view the

evidence in the light most favorable to the prevailing party, who is entitled to any

reasonable inference that can be drawn from the facts. Seltzer, ¶ 93.

¶88 Federated argues that the damage award issued by the jury was too speculative.

Speculative damages “are not clearly ascertainable in both their nature and origin [and]

cannot be recovered for a breach of contract.” Section 27-1-311, MCA. Cut Bank School

Dist. No. 15 v. Rummel provides an instructive illustration of speculative evidence. 2002

MT 248, ¶ 9, 312 Mont. 143, ¶ 9, 58 P.3d 159, ¶ 9. There, the only evidence that the

non-breaching party offered to support its claim for damages was the testimony of the

28
contractor, who when asked to give a rough estimate of the cost to complete the project,

said: “I don’t know off the top of my head . . . between three and 4,000 [sic] total,

maybe.” Cut Bank School Dist. No. 15, ¶ 9. We concluded that without further evidence

of actual cost, “such speculation is insufficient to prove damages to a reasonable degree

of certainty.” Cut Bank School Dist. No. 15, ¶ 9.

¶89 By contrast, the Board presented one witness and two exhibits to support its claim

for consequential damages. The witness was a manager of the Board, and had worked for

the Board for thirteen years. In his role as a manager, he oversaw Visocan’s claims for

reimbursement and clean-up efforts. He testified at length and in detail about the

Visocan claims and clean-up efforts specifically, and about the Board’s operation and

claim review process more generally.

¶90 The Board’s exhibits consisted of a record of 190 claims arising from the Conoco

Pop-Inn spill (Exhibit 1), and a summary of the average cost per claim received and cost

per claim paid for the fiscal years 1999 to 2005 (Exhibit 2). Exhibit 1 was an actual

record from the Visocan case, while Exhibit 2 was a summary of the Board’s cumulative

claims data over the past six years. The Board’s witness used these exhibits to testify that

the average cost to the Board of processing a claim in the year 1999 was $1,179. The

witness then testified that the first ten claims that Visocan submitted in 1999 represented

about $100,000 in clean-up expenses. Using the average claim cost of $1,179 as a

benchmark, the witness multiplied $1,179 by ten, reaching a total of $11,790. The Board

only sought to recover the administrative costs associated with the first $100,000 of

Visocan’s 1999 claims because Endorsement CP-F-83 only provided $100,000 of

29
coverage for the leak. The Board’s witness then used the same calculation method to

estimate that it had incurred a total of $193,172 in costs for processing all 190 of the

claims Visocan had submitted so far. Thus, relying on both the actual Visocan claims

and the Board’s summary claim data, the Board requested $11,790 in administrative

costs.

¶91 We have held that “[a] plaintiff will not be denied recovery simply because it is

too difficult to ascertain the amount of his damages, as long as the amount can be proven

with a reasonable degree of certainty.” Sack v. A.V. Design, Inc., 211 Mont. 147, 153,

683 P.2d 1311, 1315 (1984). The plaintiff bears the burden of providing the trier of fact

with “[a] reasonable basis for computation and the best evidence obtainable under the

circumstances . . . which will enable the [trier of fact] to arrive at a reasonably close

estimate of the loss . . . .” Sack, 211 Mont. at 153, 683 P.2d at 1315 (citations omitted).

Here, the Board’s witness testified that a more precise calculation of costs was not

possible, and that the averaging method used by the Board produced the best and most

reasonable estimate that could be identified. Federated presented no evidence to

challenge this testimony.

¶92 We have made it clear that “[r]ecovery of damages will not be denied, even if the

mathematical precision of the figure is challenged, provided the evidence is sufficient to

afford a reasonable basis for determining the specific amount awarded.” Hallenberg v.

General Mills Operations, Inc., 2006 MT 191, ¶ 32, 333 Mont. 143, ¶ 32, 141 P.3d 1216,

¶ 32 (citation omitted). Notably, Federated challenges the method of calculation used by

the Board, not the accuracy of the figures quoted in the exhibits. As in the Sack case,

30
“Appellant simply claims the award is speculative, and offers no alternative method for

computing damages.” Sack, 211 Mont. at 153, 683 P.2d at 1315. Every award of

damages is grounded, to some degree, upon speculation. Sack, 211 Mont. at 153, 683

P.2d at 1315.

¶93 Viewing the evidence in the light most favorable to the Board, and giving the jury

its due deference, we hold that there is substantial evidence to support the jury’s verdict.

Though the Board’s proferred method of calculating the damages may not be the most

mathematically precise, it provides a reasonable basis for computation. The Board also

offered the best evidence obtainable under the circumstances to support the award of

damages. If Federated disagreed with the method used to arrive at the damage award, it

should have presented an alternate method of calculation.

¶94 VI. Did the District Court err in failing to award the Board, as the prevailing

party, its costs, attorneys’ fees, and pre- and post-judgment interest?

¶95 A. As the prevailing party, is the Board entitled to its costs and attorneys’ fees?

¶96 On cross-appeal, the Board argues that it is entitled to costs, attorneys’ fees, and

pre- and post-judgment interest as the prevailing party. However, at trial, the Board’s

own witness testified that the legal fees incurred by the Board in processing Visocan’s

claims were included in the administrative costs it requested as consequential damages.

The Board’s witness testified the first line item in Exhibit 2 (entitled “All Expenses”)

included the Board’s legal services and contracts. Upon cross-examination, the witness

testified that this line item specifically included the costs and fees charged by Mr. Payne

31
and his law firm for representing the Board in outside litigation. The witness further

testified this average even included the cost of document production.

¶97 The Board submitted a request for an award of consequential damages for its

administrative costs, which by its own witness’s admission, included the legal fees and

costs incurred in processing the Visocan claims. Since the jury’s award of administrative

costs specifically included attorneys’ fees and costs, any post-trial award of costs or fees

would constitute an impermissible double recovery.

¶98 B. Is the Board entitled to pre- or post-judgment interest?

¶99 When the amount of recovery is capable of being made certain, a prevailing

plaintiff is entitled to recover prejudgment interest. Section 27-1-211, MCA. There are

three prerequisites to recovery under this statute. First, an underlying monetary

obligation must exist. Second, the amount of recovery must be capable of being made

certain. Third, the right to recover must vest on a particular day. Albers v. Bar ZF

Ranch, Inc., 229 Mont. 396, 408, 747 P.2d 1347, 1354 (1987). Prejudgment interest is

inappropriate, however, when the amount of a party’s damages is uncertain or disputed.

Northern Montana Hosp. v. Knight, 248 Mont. 310, 320, 811 P.2d 1276, 1282 (1991).

¶100 Here, the amount of damages that the Board was entitled to as a result of

Federated’s breach was not conclusively determined until the date that the jury returned

the verdict—April 24, 2006. This judgment was made final by the court’s order on May

16, 2006. We have consistently refused to award pre-judgment interest in cases where

“the amount of damages due upon breach was not clearly ascertainable until determined

by the trial court.” Northern Montana Hosp., 248 Mont. at 321, 811 P.2d at 1282

32
(citation omitted). Further, we have interpreted § 27-1-211, MCA, to mean that “no

interest can run until a fixed amount of damages has been arrived at, either by agreement,

appraisal, or judgment.” Northern Montana Hosp., 248 Mont. at 321, 811 P.2d at 1282

(citation omitted).

¶101 Because the amount of damages due upon breach was not certain until judgment

was entered by the trial court, the Board is not entitled to pre-judgment interest.

However, the Board is entitled by statute to post-judgment interest, at the rate of 10

percent per annum. Sections 25-9-204 – 25-9-205, MCA.

CONCLUSION

¶102 In conclusion, we hold that Title 75, Chapter 11, MCA, provides the Board with

statutory authority to seek reimbursement of corrective action expenses through

subrogation. Thus, the Board had the authority to enact Admin. R. M. 17.58.332(5)

(2001). As Visocan’s subrogee, the Board was entitled to seek reimbursement for a

portion of the clean-up cost from Federated and recover its administrative costs arising

from Federated’s breach. We affirm the District Court’s finding that diesel fuel was

included in the policy’s definition of pollutant, and that Endorsement CP-F-83 provides

$100,000 of coverage for the leak.

¶103 We also affirm the District Court’s partial grant of summary judgment in favor of

the Board, and hold that the Endorsement’s 120-hour notice provision is void and

unenforceable as a matter of law. The notice provision is contrary to the express

requirements for insurance policies that the Legislature adopted in the Insurance

33
Simplification Act, §§ 33-15-333 – 33-15-340, MCA. Thus, Federated may not use the

notice provision to deny Visocan coverage for the leak.

¶104 We conclude that the evidence submitted by the Board in support of its claims for

consequential damages was admissible pursuant to M. R. Evid. 1006, and that it was

sufficient to support the jury’s award of consequential damages to the Board. We hold

that the administrative costs that the Board recovered as consequential damages included

its costs and attorneys’ fees, and thus it may not seek to recover these costs and fees

separately. Finally, we conclude that the Board is entitled to post-judgment interest, but

not to pre-judgment interest, because the amount of damages was not sufficiently certain

until the jury reached its verdict.

/S/ W. WILLIAM LEAPHART
We concur:

/S/ PATRICIA COTTER
/S/ JAMES C. NELSON
/S/ BRIAN MORRIS

Justice Jim Rice dissenting.

¶105 The Court’s conclusion that the Board acted within its statutory authority when it

required Visocan to assign its contractual rights against Federated in order to obtain

reimbursement from the fund ignores our precedent and well-settled rules of statutory

interpretation to draw a contrived meaning of the applicable statutes. Indeed, the Court

concludes that the Legislature authorized the Board to pursue subrogation litigation on

34
the basis of one single, solitary word in the statutory scheme. The conclusion is

untenable, and I dissent.

¶106 As a preliminary matter, it should be noted that the Board argues that Federated

lacks standing to challenge the Board’s subrogation of Visocan’s claims. The Court

ignores this threshold issue. An obligor has the inherit right to challenge the underlying

assignment of claims because subrogation, as a form of assignment, is governed by

contract law and subject to the same requisites for validity as are other contracts. 6 Am.

Jur. 2d Assignments § 118 (2007). Accordingly,

[w]hen suit is brought against the defendant by a stranger to his
contract, he is entitled to proof that the plaintiff is the owner of the claim
against him. This protection must be afforded to the defendant. Otherwise,
the defendant might find himself subjected to the same liability to the
original owner of the cause of action, in the event there was no assignment.

McGuire Performance Solutions, Inc. v. Massengill, 904 A.2d 971, 975-76 (Pa. Super.

2006) (emphasis in original omitted) (citing Brown v. Esposito, 42 A.2d 93, 94 (Pa.

Super. 1945)). Therefore, “[i]n order for the assignee of contractual rights to maintain a

cause of action, he must plead and prove the validity of his ownership of the claim.”

Federal Deposit Ins. Corp. v. Barness, 484 F. Supp. 1134, 1150 (D. Pa.1980). The

validity of an assignment hinges on whether there was an assignable right. Restatement

(Second) of Contracts § 324 (Comment a) (1981). Generally, contractual rights can be

assigned unless (1) they materially alter the duty of the obligor, (2) the assignment is

validly precluded by contract, or (3) the assignment is forbidden by statute or is

otherwise inoperative on grounds of public policy—the exception at issue here.

Restatement (Second) of Contracts § 317(2) (1981). Where the contractual right is

35
unassignable, the assignment is invalid. 6 Am. Jur. 2d Assignments § 8 (2007) (“[o]nly

those assignments that are not contrary to express law, public policy, or good morals are

valid”). The local law of the state governs whether the contractual right is assignable.

Restatement (Second) of Conflict of Laws, §§ 208, 209 (1971).

¶107 Here, Visocan was required by the Board to assign any rights it had against its

insurer, Federated, to the Board. Accordingly, Visocan became the assignor and the

Board the assignee. Federated remained the obligor. The Board, as assignee,

subsequently brought suit against Federated for reimbursement of corrective costs

expended by the Board and covered under the insurance policy. Because an assignment

occurred, thereby incorporating a stranger into the original insurance contract, Federated

could rightfully challenge the validity of the assignment. Allowing the current suit to

proceed without determining the assignment’s validity may expose Federated to multiple

suits on the same claim. Under the tenets of contract law, Federated, as the obligor, has

the inherent right to challenge the validity of the subrogation on the basis that the

assignment violates Montana law, i.e., that the statute does not permit the Board to

subrogate Visocan’s contractual rights.

¶108 Turning to the merits of the subrogation issue, reaching the correct legal

conclusion first requires a review of our law on this issue, which the Court largely

ignores. When adopting a rule, the agency must comply with the requisites for rule

validity codified in § 2-4-305, MCA, of the Montana Administrative Procedure Act. This

section provides that “[w]henever by . . . statute a state agency has authority to adopt

rules[,] . . . a rule is not valid or effective unless it is: (a) consistent and not in conflict

36
with the statute and (b) reasonably necessary to effectuate the purpose of the statute.”

Section 2-4-305(6), MCA. In interpreting this statute, we have stated:

The courts have uniformly held that administrative regulations are “out of
harmony” with legislative guidelines if they (1) “engraft additional and
contradictory requirements on the statute” (citation omitted); or (2) if they
engraft additional, noncontradictory requirements on the statute which were
not envisioned by the legislature. [Emphasis added.] [Citation omitted in
original.]

Board of Barbers v. Big Sky College, 192 Mont. 159, 161, 626 P.2d 1269, 1270 (1981)

(citation omitted). Moreover, we have held that “[r]ules adopted by administrative

agencies which conflict with statutory requirements or exceed authority provided by

statute, are invalid.” Haney v. Mahoney, 2001 MT 201, ¶ 6, 306 Mont. 288, ¶ 6, 32 P.3d

1254, ¶ 6 (internal quotations omitted). See also State ex. rel. Swart v. Casne, 172 Mont.

302, 564 P.2d 983 (1977) (holding agency rules void because a statute cannot be changed

by administrative regulations), overruled on other grounds, Trs. of Ind. Univ. v.

Buxbaum, 2003 MT 97, 315 Mont. 210, 69 P.3d 663.

¶109 In first determining the statutory mandate given by the Legislature, it becomes

particularly important to recall that our role “is simply to ascertain and declare what is in

terms or in substance contained therein, not to insert what has been omitted or to omit

what has been inserted.” Section 1-2-101, MCA. For what the Legislature did not enact

we may not allow the agency to implement. Thus, “we must pursue the intent of the

Legislature and that intent is determined by interpreting the plain meaning of the

language used.” Saari v. Winter Sports, 2003 MT 31, ¶ 22, 314 Mont. 212, ¶ 22, 64 P.3d

37
1038, ¶ 22. Where the language used in the statute is “clear and unambiguous, the statute

speaks for itself and we will not employ other means of interpretation.” Saari, ¶ 22.

¶110 With these principles in mind, I turn to the Court’s conclusions. The Court finds

that Board’s authority to pursue subrogation “is established in the statutory scheme”

which granted the Board “clear authority” to adopt its subrogation rule, Admin. R. M.

17.52.332(5). Opinion, ¶ 27. The entire basis for this “clear authority” is a single word

within § 75-11-313(2)(b), MCA, a financial accounting provision which creates the

special revenue fund necessary to strictly account for the Board’s funds pursuant to § 17-

2-102, MCA. This provision requires any grants, gifts and “reimbursements” to be

deposited into that special revenue account. It is this accounting directive to deposit

“reimbursements” into a special revenue account upon which the Court’s entire

conclusion rests, for thereafter it simply points to the Board’s general ability to take legal

action. However, the Board cannot conduct legal action for things it has not been

authorized to do.

¶111 In its scouring of the statute for a word or snippet which could reflect the

Legislative authority it desperately seeks, the Court misses the obvious: within the pages

of details about the functions of the Board and the program, subrogation is simply not

discussed and authorized. “Subrogation” is not mentioned at all, even within the

provisions one would expect to find it: those enumerating the powers or duties of the

Board and authorizing the Board to adopt rules. See § 75-11-318, MCA. Nor is there

any other discussion anywhere in the statutes about the Board pursuing claims against

insurers which could be deemed to be in the nature of subrogation. Claims against an

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owner’s insurer are simply not contemplated. Indeed, a “claim” is defined only as “a

written request prepared and submitted by an owner or operator” for the “reimbursement

of expenses caused by an accidental release[,]” § 75-11-302(5), MCA, and a “corrective

action” is defined as the “investigation, monitoring, cleanup, restoration, abatement,

removal and other actions necessary to respond to a release.” Section 75-11-302(6),

MCA. “Third parties” are mentioned by the statute only for the purpose of authorizing

reimbursement to owners who have made damage payments to third parties because of a

spill. Section 75-11-301(6)(b), MCA.

¶112 Yet—on the basis of this one word, “reimbursement” (in an accounting

mechanism statute)—the Court concludes that the Legislature “clearly authorized” the

Board to force owners to transfer their insurance rights in order to qualify for

reimbursement from the fund, and that the Board was thereafter authorized to pursue

subrogation litigation on the basis of those assigned rights. Opinion, ¶ 27. If this is

“clear authority,” then agencies have just been released to do just about whatever they

want.

¶113 Of course, i t is not “clear authority.” The action by the Board to require

assignment of contract rights from owners is not authorized at all. Although the Court

finds solace in the statute’s authorization for the Board to adopt “other rules [as]

necessary,” § 75-11-318(5)(f), MCA, this general provision does not expand the

substantive powers delegated to the agency, but rather authorizes the adoption of rules for

implementation of truly clear powers. In short, the Court has gone outside its duty “to

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ascertain and declare what is in terms or in substance contained” in the statute. Section

1-2-101, MCA .

¶114 Here, the reimbursement provision of the Act provides that, subject to the

availability of funds, an owner, eligible under § 75-11-308, MCA, and compliant with

both § 75-11-309, MCA, “and any rules adopted to implement those sections must be

reimbursed by the board . . . .” Section 75-11-307(1), MCA (emphasis added). Section

75-11-307, MCA, clearly and unambiguously requires the Board to reimburse owners

suffering an eligible spill so long as they have complied with §§ 75-11-308 and 309,

MCA, and rules which would be properly adopted to implement these sections.

¶115 Admin. R. M. 17.58.332 is inconsistent with these statutory provisions and does

not “implement” either § 75-11-308 or § 75-11-309, MCA. Regulation 17.58.332

contains the following provisions:

(1) Prior to receiving payment for any claim for reimbursement, an
owner or operator who is determined to be eligible under 75-11-308,
MCA shall thoroughly investigate the existence of any policy of
insurance or other similar instrument which may indicate insurance
coverage for some or all of the eligible costs arising from a release.

....

(5) To the extent the board may reimburse or has reimbursed owners or
operators for eligible costs, the board has a subrogation claim against
insurance carriers whose policies cover the reimbursed costs and against
other third parties whose acts or omissions render them otherwise liable
for the reimbursed costs. An owner or operator who accepts the
reimbursement for costs subrogates his rights to the board as against
such insurance carriers and other third parties to the extent of the
accepted reimbursed costs. An owner or operator, prior to receiving
reimbursement of eligible costs, must agree on a form provided by the
board, to subrogate its claims to the board to the extent of the accepted
reimbursed costs. [Emphasis added].

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Admin. R. M. 17.58.332.

¶116 The above-highlighted portions of Admin. R. M. 17.58.332 illustrate the

inconsistency between the Board’s adopted rule and the statutory requirements for

reimbursement. Pursuant to Admin. R. M. 17.58.332, in order to receive reimbursement

for an eligible claim, the owner must subrogate its claims against any insurance carriers

or third parties to the Board. However, § 75-11-307, MCA, plainly has only four

requirements prior to reimbursement: (1) there are funds available (not at issue here); (2)

there was an eligible spill (not at issue here); (3) the owner complied with § 75-11-309,

MCA, which maps the procedures for reimbursement of eligible costs (also not at issue

here); and (4) the owner complied with any other rules adopted to “implement” §§ 75-11-

308 and 309, MCA. There is no statutory requirement that prior to reimbursement an

owner must assign his insurance claim to the Board.

¶117 Thus, contrary to the Court’s opinion, Admin. R. M. 17.58.332, does not

“implement” either §§ 75-11-308 or 309, MCA. The term “implement” means “to carry

out or perform.” American Heritage Dictionary 880 (4th ed. 2000). The term

“implement” refers to the procedural tools the Board may use in effectuating §§ 75-11-

308 and 309, MCA. Admin. R. M. 17.58.332 does not concern the procedural

mechanisms the Board uses to “implement” either §§ 75-11-308 or 309, MCA, but rather

adds an additional requirement that owners must fulfill prior to receiving reimbursement

from the Board. Consequently, Admin. R. M. 17.58.332 conflicts with the statute and is

invalid pursuant to § 2-4-305(6), MCA. Therefore, based on the plain language and

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meaning of § 75-11-307, MCA, the Board should have reimbursed Visocan for eligible

costs without requiring Visocan to surrender its insurance claims to the Board.

¶118 The record reveals that the Board enforced Admin. R. M. 17.58.332 against

Visocan—informing Visocan that further reimbursements would not be approved unless

it assigned its insurance claims to the Board. While the Board’s purpose in enacting the

rule is arguably an important interest in preventing “double dipping,” the Board lacks the

statutory authority to enforce Admin. R. M. 17.58.332. Under this Court’s precedent, the

Board has engrafted additional requirements not envisioned by the authorizing statute.

See Board of Barbers, 192 Mont. at 161, 626 P.2d at 1270. The Board has overstepped

its statutory authority by requiring that owners subrogate its insurance claims to the

Board before the Board reimburses eligible costs. Moreover, the Board’s rule frustrates

the legislative purpose of reimbursement in numerous respects. For instance, the rule

prevents an owner from exercising his contractual right to seek reimbursement from his

insurer for costs not covered by the fund, such as here, Visocan’s statutory deductible of

$17,500. This result was not envisioned by the Legislature. As such, Admin. R. M.

17.58.332 is invalid.

¶119 Consequently, any subrogation effected by the Board pursuant to Admin. R. M.

17.58.332 is invalid, including the assignment between Visocan and the Board. See

Restatement (Second) of Contracts § 317(2)(b) (1981) (stating contractual rights are

unassignable if forbidden by statute). Therefore, the remaining issues on appeal are moot

because the Board cannot sustain a cause of action on the basis of an invalidly assigned

contractual right.

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¶120 I would reverse the District Court.

/S/ JIM RICE

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