February 3 2009
DA 07-0596, DA 08-0073, DA 08-0074, DA 08-0278
IN THE SUPREME COURT OF THE STATE OF MONTANA
2009 MT 28
MONTANA PETROLEUM TANK RELEASE
COMPENSATION BOARD,
Plaintiff and Appellee,
v.
NORTHWESTERN NATIONAL CASUALTY
COMPANY, a member of Highlands Insurance
Company; and DOES 1-25,
Defendants and Appellants.
MONTANA PETROLEUM TANK RELEASE
COMPENSATION BOARD,
Plaintiff and Appellee,
v.
NORTHWESTERN NATIONAL CASUALTY
COMPANY, a member of Highlands Insurance
Company; ACE PROPERTY & CASUALTY
INSURANCE COMPANY, formerly AETNA
INSURANCE COMPANY, and DOES 1-25,
Defendants and Appellants.
APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis and Clark, Cause No. ADV-2003-126,
Honorable Dorothy McCarter, Presiding Judge;
Cause Nos. CDV-2004-834 and CDV-2005-161,
Honorable Thomas C. Honzel, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Robert C. Lukes, Garlington, Lohn & Robinson, PLLP, Missoula,
Montana
For Appellee:
R. Allan Payne, James L. Shuler, Doney, Crowley, Bloomquist Payne
Uda P.C., Helena, Montana
Submitted on Briefs: December 31, 2008
Decided: February 3, 2009
Filed:
__________________________________________
Clerk
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Justice Patricia O. Cotter delivered the Opinion of the Court.
¶1 Northwestern National Casualty Company, Employers Mutual Casualty Company,
and Ace Property & Casualty Insurance Company (collectively Northwestern) appeal
several orders entered in the First Judicial District. These orders were entered in two
cases before the Honorable Thomas C. Honzel (Cause Numbers CDV-2005-161 and
CDV-2004-834), and one before the Honorable Dorothy McCarter (Cause Number ADV-
2003-126). These three District Court orders involved essentially the same parties,
addressed the same legal issues, and reached the same legal conclusions; therefore, we
have consolidated them for purposes of appeal. The effect of these orders was to require
Northwestern to post bond or obtain a certificate of authority (COA) pursuant to
§ 33-1-615, MCA, if it wished to file any pleadings in response to the actions instituted
against it in First Judicial District by the Montana Petroleum Tank Release Compensation
Board (Board). For the reasons set forth below, we reverse these three orders and remand
these causes to their respective District Courts for further proceedings consistent with this
Opinion.
FACTUAL AND PROCEDURAL BACKGROUND
¶2 On May 30, 2003, Northwestern merged with Highlands Insurance Company
(Highlands). Highlands had obtained a COA to transact insurance in Montana on July 6,
1964. Sometime in 2003, Highlands/Northwestern went into receivership in Texas. On
July 8, 2003, the Montana Insurance Commissioner suspended the COA held by
Highlands/Northwestern. After the COA was suspended, Highlands/Northwestern
stopped paying its annual certificate renewal fees. This COA was subsequently
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terminated for non-payment of fees on May 31, 2005. It is undisputed that the insurance
contracts at issue in this case, as discussed directly below, were issued by Highlands
while it was authorized to transact insurance business in the state of Montana.
¶3 The Board is a statutorily-created environmental advisory board which is
authorized to reimburse owners and operators of petroleum tanks from the Montana
Petroleum Tank Release Fund for eligible costs and expenses they incur in responding to
releases of petroleum products from their storage tanks. Highlands/Northwestern has, at
separate times, provided insurance coverage to the following entities for the following
sites: (1) Maverik Country Stores, Inc., for a convenience store and service station
located in Great Falls, Montana; (2) the Treasure County Board of Commissioners for the
Treasure County Road Shop in Hysham, Montana; and (3) Jack and Kathryn Northway
d/b/a Northway Oil for a service station and bulk plant on state highway 287, just north
of Ennis, Montana. All of these sites have had petroleum releases at one point or another,
and in each instance the Board compensated the respective owners or their successors in
interest for the costs associated with responding to those releases. After paying these
costs, the Board filed the complaints at issue against Northwestern seeking subrogation
and compensation under the insurance policies Highlands had previously issued to these
owners and operators. These complaints were originally filed in March of 2003,
November of 2004, and March of 2005. When the State Auditor’s Office attempted
service it initially used an incorrect address for Northwestern. This problem was later
corrected and Northwestern was properly served in all three actions on May 8, 2007.
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¶4 On May 31, 2007, default was entered against Northwestern in Cause Numbers
CDV-2004-834 and CDV-2005-161 before Judge Honzel, and in Cause Number ADV-
2003-126 before Judge McCarter. On June 4, 2007, the Board obtained default judgment
against Northwestern in cause number ADV-2003-126 before Judge McCarter.
Northwestern then filed a motion to set aside the default judgment, and the Board
responded by moving to strike Northwestern’s motion. Judge McCarter issued a ruling
on July 24, 2007, granting the Board’s motion to strike.
¶5 The basis for Judge McCarter’s ruling is as follows. The Montana Insurance
Code, Title 33, MCA, controls and regulates the practice of insurance in Montana. Prior
to transacting insurance business in Montana, an insurer must become an “authorized
insurer” and obtain a COA from the Montana Insurance Commissioner. Authorized
insurers are required to appoint the Insurance Commissioner to receive service of process
pursuant to § 33-1-601, MCA. This statute reads as follows:
33-1-601. Commissioner — attorney for service of process. (1)
Each insurer applying for authority to transact insurance in this state shall
appoint the commissioner as its attorney to receive service of legal process
issued against it in Montana. Service of legal process under this section
means a summons and a complaint. The appointment must be made on a
form designated and furnished by the commissioner. The appointment is
irrevocable, binds the insurer and any successor in interest or to the assets
or liabilities of the insurer, and remains in effect as long as there is in force
in Montana any contract made by the insurer or obligations arising from a
contract.
(Emphasis added.)
¶6 By contrast, the insurance code defines an “unauthorized insurer” as “an insurer
not authorized by a certificate of authority issued by the commissioner [of insurance] to
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transact insurance in this state.” Section 33-1-201(10), MCA. Service of process upon
unauthorized insurers is accomplished pursuant to §§ 33-1-612, -6131 and -615, MCA,
which read in pertinent part as follows:
33-1-612. Commissioner — process agent for unauthorized
insurer doing business in state. Delivery, effectuation, or solicitation of
any insurance contract, by mail or otherwise, within this state by an
unauthorized insurer, or the performance within this state of any other
service or transaction connected with such insurance by or on behalf of
such insurer, shall be deemed to constitute an appointment by such insurer
of the commissioner and his successors in office as its attorney, upon whom
may be served all lawful process issued within this state in any action or
proceeding against such insurer arising out of any such contract or
transaction, and shall be deemed to signify the insurer’s agreement that any
such service of process shall have the same legal effect and validity as
personal service of process upon it in this state.
33-1-615. Defense of action by unauthorized insurer. (1) Before
an unauthorized insurer shall file or cause to be filed any pleading in any
action or proceeding instituted against it under 33-1-612 and 33-1-613,
such insurer shall:
(a) procure a certificate of authority to transact insurance in this
state;
b) deposit with the clerk of the court in which such action or
proceeding is pending cash or securities or file with such clerk a bond with
good and sufficient sureties, to be approved by the court, in an amount to be
fixed by the court sufficient to secure the payment of any final judgment
which may be rendered in such action.
¶7 As is clear from these statutes, unauthorized insurers are prohibited from filing
pleadings in response to any actions or proceedings until they either obtain a COA, or
post bond. Because Northwestern did not have a COA at the time it sought to respond to
the default judgment, the Board argued that Northwestern was an unauthorized insurer
within the meaning of § 33-1-615, MCA, and thus was required to post bond or obtain a
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Section 33-1-613, MCA, describes the mechanics of providing service of process upon
unauthorized insurers and is not relevant in the case at bar.
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COA as a precondition to responding to suit. Judge McCarter agreed and held that
Northwestern could not participate in the suit against it because it did not have a current
COA and had not posted any bond with the clerk of court. As stated by Judge McCarter:
The statutes pertaining to this issue are easily interpreted
harmoniously so that each is meaningful and effective: The insurer is
generally not required to maintain certification with respect to insurance
policies issued while it was certified for the policies to remain valid and
enforceable. However, in the event the insurer becomes involved in
litigation involving the policies, such as the present lawsuit, it must either
obtain certification or post bond in accordance with Section 33-1-612,
MCA.
¶8 Northwestern had also moved to set aside the default judgments entered in the two
cases before Judge Honzel. The Board replied to these motions as it had to
Northwestern’s motion in Judge McCarter’s court, by moving to strike the motions in
both cases. On December 26, 2007, Judge Honzel granted the Board’s motions in both of
the cases before him on grounds similar to that of Judge McCarter’s, holding that
§ 33-1-615, MCA, applied to Northwestern and required it to either post bond or obtain a
valid COA as a prerequisite to responding to the Board’s suit. Judge Honzel stated his
holding in both cases as follows:
Section 33-1-601, MCA, requires that an insurer appoint the State
Auditor as its attorney to receive service of legal process issued against it in
Montana. Section 33-1-612, MCA, appoints the State Auditor, by operation
of law, to receive service of legal process if an unauthorized insurer
transacts business in Montana. An unauthorized insurer is “an insurer not
authorized by a certificate of authority issued by the commissioner [State
Auditor] to transact insurance in this state.” Section 33-1-201(10), MCA.
Here, Northwestern is an unauthorized insurer. Its certificate of
authority lapsed May 30, 2003. Accordingly, Section 33-1-615, MCA,
applies, and Northwestern must either obtain a certificate of authority in
Montana, or deposit sufficient security or post a pond with the court prior to
filing a pleading. While Northwestern contends that Section 33-1-601,
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MCA, states that the initial appointment of the Statue Auditor to receive
service of process is irrevocable, that statute applies to an authorized insurer
transacting business in Montana.
¶9 In the meantime, on October 4, 2007, Northwestern appealed Judge McCarter’s
decision in Cause Number ADV-2003-126 to this Court. Northwestern maintained that it
had recently obtained a COA and should therefore be permitted to respond to the Board’s
suit. After considering the matter, we remanded the case to Judge McCarter on January
16, 2008, to determine Northwestern’s status with respect to its authority to defend itself
in the suit. In a separate order dated February 6, 2008, we dismissed Northwestern’s
appeal without prejudice. That same day, Northwestern filed a notice of appeal in the
two cases before Judge Honzel.
¶10 Upon remand, Judge McCarter once again determined that Northwestern was
required to comply with § 33-1-615, MCA, if it wished to respond to suit. In her
findings, Judge McCarter noted that Northwestern/Highlands paid all of its past-due fees,
and had its COA reinstated to suspended status on December 10, 2007. However,
because Northwestern’s COA was in suspended status, Judge McCarter held that it would
be unable to rely on or use the COA for any purpose—including participation in the
lawsuit. Judge McCarter noted that the Montana Insurance Code itself defined “suspend”
as “to bar the use of a person’s license for a period of time.” Section 33-17-102(22),
MCA. Judge McCarter also noted that Black’s Law Dictionary defined suspend as “to
cause to cease for a time,” or “to discontinue temporarily, but with an expectation or
purpose of resumption.” Based on these statutory and dictionary definitions of the term
“suspend,” Judge McCarter affirmed her previous order granting the Board’s motion to
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strike on May 21, 2008, and held that Northwestern was required to post pond in
accordance with § 33-1-615(1), MCA, if it wished to respond to suit.
¶11 Northwestern has now timely appealed this final ruling of Judge McCarter, as well
as the similar rulings of Judge Honzel. We state the sole issue presented by these three
cases as follows:
¶12 Issue: Did the District Courts err in concluding that Northwestern was required
to comply with the requirements of § 33-1-615, MCA, prior to responding to suit?
STANDARD OF REVIEW
¶13 We review a district court’s conclusions of law for correctness. In re Charles M.
Bair Family Trust, 2008 MT 144, ¶ 28, 343 Mont. 138, 183 P.3d 61.
DISCUSSION
¶14 Northwestern argues that the District Courts in each case erred in granting the
Board’s motions to strike and holding that it was required to post bond or obtain a current
COA as a prerequisite to responding to suit. Northwestern points out that the
Northwestern/Highlands COA was first obtained in the 1960’s. When it obtained this
COA, Northwestern/Highlands was required to appoint the Insurance Commissioner to
accept service of process on its behalf pursuant to § 33-1-601, MCA. Northwestern notes
that by the plain language of the statute this appointment, once made, is “irrevocable . . .
and remains in effect as long as there is in force in Montana any contract made by the
insurer or obligations arising from a contract.” Section 33-1-601(1), MCA. Here, the
Board has sued to collect money under insurance contracts issued by
Northwestern/Highlands while it had a valid COA. Thus, it argues, the Board’s suit is
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controlled by § 33-1-601, MCA, and the requirements of § 33-1-615, MCA, simply do
not apply.
¶15 Although Northwestern and the Board raise other arguments both for and against
the District Courts’ decisions, we find the foregoing argument as advanced by
Northwestern to be dispositive. The bond and COA requirements of § 33-1-615, MCA,
are triggered only when service is effectuated pursuant to §§ 33-1-612 and -613, MCA.
In this case, the suits against Northwestern/Highlands are all based on insurance
contracts, and accompanying contractual obligations, that were executed under valid
COAs while it was an authorized insurer. As § 33-1-601, MCA, makes clear,
appointment of service under these contracts is “irrevocable” as long as any of the
contracts or corresponding obligations executed by Northwestern/Highlands remain in
force. Indeed, the Board’s suits are premised on the notion that these insurance contracts
have given rise to obligations which are still in force and permit the Board to seek
subrogation and compensation. The Board is not suing Northwestern based on insurance
contracts it issued while it was an unauthorized insurer. Thus, service of process for suits
based on these contracts must have occurred under § 33-1-601, MCA, and not
§§ 33-1-612 or -613, MCA. The significance of the termination or suspension of
Northwestern’s COA is that it is not currently authorized to transact insurance in
Montana. See § 33-1-201(5), (9), (10), MCA. However, Northwestern’s current inability
to transact insurance in Montana does not mean or even imply that its previous
“irrevocable” appointment of service under § 33-1-601, MCA, for insurance transactions
completed while it was an authorized insurer is somehow revoked or suspended. Thus,
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Northwestern is not required to post bond or obtain a COA in order to respond to the
Board’s suit.
CONCLUSION
¶16 We conclude that the District Courts erred in holding that § 33-1-615, MCA,
applied in the instant case, requiring Northwestern either to post bond or obtain a current
COA. As these suits were instituted based on alleged contractual obligations which arose
while Northwestern/Highlands was an authorized insurer, service of process in these suits
was controlled by § 33-1-601, MCA. Accordingly, we reverse and remand these cases to
their respective District Courts for further proceedings consistent with this Opinion.
/S/ PATRICIA COTTER
We concur:
/S/ JOHN WARNER
/S/ JAMES C. NELSON
/S/ W. WILLIAM LEAPHART
/S/ JIM RICE
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