West v. United Services Automobile Ass'n

11/09/2016

DA 16-0097
Case Number: DA 16-0097

IN THE SUPREME COURT OF THE STATE OF MONTANA
2016 MT 285

ELIZABETH WEST, as Guardian Ad Litem for PETER LEE,

Plaintiff and Appellee,

v.

UNITED SERVICES AUTOMOBILE ASSOCIATION (USAA),
an Unincorporated Reciprocal Inter-Insurance Exchange,
and USAA CASUALTY INSURANCE COMPANY,

Defendants and Appellants.

APPEAL FROM: District Court of the Eighth Judicial District,
In and For the County of Cascade, Cause No. ADV-15-075
Honorable Gregory Pinski, Presiding Judge

COUNSEL OF RECORD:

For Appellants:

David M. McLean (argued), Ryan C. Willmore, McLean & Associates,
PLLC, Missoula, Montana

For Appellee:

Alexander (Zander) Blewett, III, Anders Blewett (argued), Hoyt &
Blewett PLLC, Great Falls, Montana

Argued and Submitted: September 28, 2016

Decided: November 9, 2016

Filed:

__________________________________________
Clerk
Justice Beth Baker delivered the Opinion of the Court.

¶1 Elizabeth West, acting as Guardian Ad Litem for Peter Lee, and United Services

Automobile Association and USAA Casualty Insurance Company (collectively USAA)

dispute the effect of TRICARE medical payment liens on USAA’s responsibility to

promptly pay Lee’s liability settlement claim against its insured. Lee asserted that USAA

acted in bad faith by conditioning payment on resolving the TRICARE liens. The Eighth

Judicial District Court agreed and held USAA liable for its insured’s $1,464,000 consent

judgment.

¶2 We conclude that USAA had a reasonable basis in law to condition its payment of

policy limits upon resolution of the TRICARE liens, and we therefore reverse.

PROCEDURAL AND FACTUAL BACKGROUND

¶3 In December 2012, Lee and three other passengers were injured in a single vehicle

accident. Lee sustained catastrophic injuries. The driver, Julian Perez, held a USAA

insurance policy. All of the passengers were military servicemen covered by TRICARE,

a government insurance program for military members and their families. TRICARE

paid medical benefits for the passengers and therefore had a statutory right to recover the

benefits it paid. TRICARE’s liens for the passengers’ combined medical expenses

totaled over $215,000; more than $204,000 of the total were for Lee’s expenses alone.

¶4 USAA insured Perez under an automobile liability policy with coverage limits of

$50,000 per person and $100,000 per accident. After conducting a liability investigation,

USAA determined that Perez was 100% at fault for the accident. Because of the extent

2
of Lee’s injuries, USAA informed Perez that he may be potentially liable for damages

exceeding his coverage limits.

¶5 On August 21, 2013, Lee’s counsel—who represented all four injured

passengers—made a settlement demand on USAA for Perez’s $100,000 policy limits.

The letter stated that the offer would be withdrawn and that the claimants would seek to

recover all of their damages from USAA if USAA did not agree to pay the policy limits

in twenty days. One week later, USAA’s claims examiner contacted Lee’s counsel and

offered to pay the full policy limits, provided that the TRICARE liens were addressed.

Lee’s counsel immediately responded with a letter stating that his clients would

indemnify and hold USAA harmless from any responsibility for the TRICARE liens.

¶6 On September 9, 2013, USAA responded, stating that the offer to indemnify was

not sufficient to protect Perez or USAA from the TRICARE liens. USAA confirmed in

writing its offer to pay the policy limits, provided either that TRICARE be included as a

payee on the settlement check or that Lee’s counsel first secure lien releases from

TRICARE. Lee’s counsel followed with a letter two days later, stating that his clients

would indemnify both USAA and Perez from any responsibility for the TRICARE liens.

The letter gave USAA a deadline of September 21. USAA did not respond by the

deadline. In the meantime, both USAA and Lee’s counsel attempted to determine the

status of TRICARE’s liens. In early November 2013, USAA received letters from the

Air Force providing notice of its claims and requesting payment of the liens pursuant to

3
42 U.S.C. § 2651. TRICARE finally agreed to waive its liens at the end of January 2014,

and USAA issued a check for the policy limits of $100,000 six weeks later.

¶7 Lee had filed suit against Perez in October 2013, and he continued his suit after

receiving the policy limits payment from USAA. In January 2015, Perez agreed to a

consent judgment in the amount of $1,464,000, and assigned his claims against USAA to

Lee. On behalf of Lee, West filed a separate suit that same month alleging bad faith

against USAA. The District Court granted West summary judgment, concluding that

USAA did not have a reasonable basis in law for conditioning payment of the settlement

check. The court held therefore that USAA was liable to Lee for the consent judgment.

USAA filed a motion to alter or amend the judgment that was deemed denied when the

District Court did not rule. USAA appeals.

STANDARD OF REVIEW

¶8 We review summary judgment rulings de novo, applying the standards set forth in

M. R. Civ. P. 56(c)(3). Citizens for a Better Flathead v. Bd. of Cnty. Comm’rs, 2016 MT

256, ¶ 10, 385 Mont. 156, ___ P.3d ___; accord State Farm Mut. Auto. Ins. Co. v.

Freyer, 2013 MT 301, ¶ 22, 372 Mont. 191, 312 P.3d 403. Generally, questions of

reasonableness are factual matters properly answered by the finder of fact. Estate of

Gleason v. Cent. United Life Ins. Co., 2015 MT 140, ¶ 60, 379 Mont. 219, 350 P.3d 349;

Freyer, ¶ 48. But an insurer’s reasonableness is a question of law for the court to decide

4
when the insurer’s basis in law is grounded on a legal conclusion and no issues of fact

remain in dispute.1 Estate of Gleason, ¶ 60; Freyer, ¶ 48.

DISCUSSION

¶9 Whether the District Court correctly concluded that USAA did not have a
reasonable basis in law for conditioning the settlement check upon resolution of the
TRICARE liens.

¶10 Because insurers have the authority under their policies to settle third-party claims,

insurers in Montana have a duty to accept reasonable settlement offers within the policy

limits. Freyer, ¶ 46. When an insurer acts in bad faith and “fails to settle a bona fide

third party liability claim against its insured, within policy coverage limits,” that insurer

“takes the risk of a judgment by the trier of fact in excess of the coverage limits.”

Freyer, ¶ 47 (citation and internal quotations omitted). An insurer does not act in bad

faith, however, and therefore is not liable, “for failing to settle within policy limits when

it had a reasonable basis in law or fact for contesting coverage.” Freyer, ¶ 47. In

determining whether an insurer has a reasonable basis in law for contesting coverage, “it

is first necessary to survey the legal landscape as it existed during the relevant time

period.” Freyer, ¶ 48 (citation and internal quotations omitted). The “determinative

question” in our inquiry “is whether the law in effect at the time, caselaw or statutory,

provided sufficient guidance to signal to a reasonable insurer that its grounds for denying

the claim were not meritorious.” Freyer, ¶ 48. We are not to ask whether we agree “with

the plaintiff’s theories of liability in the underlying suit but, rather, whether the insurer’s

1
Throughout the case, West has contended that no fact issues exist and that the case presents
only questions of law. During oral argument before this Court, counsel for USAA agreed.
5
grounds for contesting those theories were reasonable under existing law.” Freyer, ¶ 48

(citation and internal quotations omitted).

¶11 Soon after filing her complaint in this action, West moved for summary judgment.

She argued that USAA acted in bad faith by failing to promptly settle the claim. USAA

responded, arguing on the authority of Freyer that it had a reasonable basis in law to

condition payment of the settlement upon resolution of the TRICARE liens. USAA

contended that federal law—specifically 42 U.S.C. § 2651—and our decision in Conway

v. Benefis Health Systems, Inc., 2013 MT 73, 369 Mont. 309, 297 P.3d 1200, established

TRICARE as a secondary payer and obligated USAA either to include TRICARE as a

co-payee or to secure a waiver of the liens before making payment to West. Despite

Justice Cotter’s assertion to the contrary, Dissent, ¶ 30, USAA has asserted throughout

litigation that the principal issue is whether its grounds for conditioning the settlement

payment were reasonable under existing law because TRICARE is a secondary payer.

¶12 The District Court recognized as much, identifying the issue before it as follows:

“Did USAA engage in bad faith settlement practices by refusing to pay an admitted

liability settlement unless TRICARE was named as a co-payee on Lee’s settlement check

or TRICARE waived its statutory lien?” The court ruled that USAA lacked a reasonable

basis in law to delay payment of policy limits because of the TRICARE liens. The court

focused its analysis on USAA’s condition to include TRICARE as a payee on the

settlement check. The court first noted that the parties had not identified any cases

“addressing this narrow issue.” It rejected USAA’s reliance on Conway, finding the case

6
not directly on point. The court similarly rejected USAA’s comparison of TRICARE to

Medicare because it concluded that Medicare and TRICARE statutes and regulations are

distinct. Specifically, the court noted that “unlike the automatic first payer liability

imposed . . . on Medicare, there is no corresponding provision under TRICARE.”

Finally, the court rejected USAA’s reliance on 42 U.S.C. § 2651, which governs the

United States’ right to recover incurred medical costs from liable third parties and their

insurers.

¶13 The court determined that the federal statute would apply only if the United States

had commenced litigation or intervened to enforce its liens; in that case, “USAA would

have a compelling argument it properly included TRICARE on the settlement check.”

The court also determined that although TRICARE sent USAA notice of its claim and

requested payment of the liens, “there is no obligation in the TRICARE regulations

requiring USAA to protect the government lien.” “Most pertinently,” the court specified,

“there is no requirement that USAA name TRICARE on Lee’s settlement check.” As

such, the court concluded that “USAA’s unilateral decision [to include TRICARE as a

payee on the settlement check] is without support in statute, regulation, or common law.”

¶14 Further, the court noted that Lee expressly agreed to indemnify USAA, but that

“USAA made the unilateral decision to condition its legal obligation to settle Lee’s

claims on including TRICARE as a settlement check payee.” Such a condition, the

District Court concluded, went against Montana’s public policy regarding settlement of

insurance claims. The court emphasized, “When an insurer unilaterally adds a payee to a

7
claimant’s settlement check, the insurer substantially delays settlement, imposes onerous

obligations not required by law, and creates unreasonable burdens on a claimant to

receive funds the insurer is legally obligated to pay.” Such a result, the court concluded,

“is hardly what the Montana legislature intended when it obligated insurers to ‘attempt in

good faith to effectuate prompt, fair, and equitable settlements of claims in which liability

has become reasonably clear.’” (Quoting § 33-18-201(6), MCA.) The court therefore

held that “USAA’s decision to condition payment on naming TRICARE as a payee of the

settlement funds is unreasonable under applicable law.” As a result, the District Court

ordered USAA to pay the entire consent judgment.

¶15 First, the District Court correctly recognized that “a TRICARE lien arises under

the Medical Care Recovery Act, 42 U.S.C. § 2651(a).” The Air Force’s November 2013

letters to USAA referenced this section in asserting the United States’ “independent right

to recover costs.” But the court incorrectly interpreted the statute. The statute broadly

provides that, whenever the United States furnishes benefits to a beneficiary who is

injured

under circumstances creating a tort liability upon some third person . . . to
pay damages therefor, the United States shall have a right to recover
(independent of the rights of the injured or diseased person) from said third
person, or that person’s insurer, the reasonable value of the care and
treatment so furnished, to be furnished, paid for, or to be paid for and shall,
as to this right be subrogated to any right or claim that the injured
[beneficiary] . . . has against such third person.

42 U.S.C. § 2651(a). By bestowing upon the United States a right to recover from Perez

or USAA, 42 U.S.C. § 2651(a) obligated Perez or USAA to honor the TRICARE liens.

8
The same statute allows the United States to enforce its right to recover by

“interven[ing]” in or “institut[ing] and prosecut[ing] legal proceedings against the third

person who is liable for the injury . . . or the insurance carrier . . . responsible for the

payment or reimbursement of medical expenses.” 42 U.S.C. § 2651(d). Contrary to the

District Court’s conclusion, USAA’s obligation to honor the liens under § 2651(a) did not

depend upon the United States already having pursued judicial enforcement under

§ 2651(d).

¶16 Second, we disagree with the District Court that Conway offers no guidance here.

We concluded in Conway that “federal regulations mandate that TRICARE functions as a

secondary payer.” Conway, ¶ 32 (citing 32 C.F.R. § 199.8(a)). TRICARE’s status as a

secondary payer means that “where the medical treatment at issue is necessitated as a

result of the negligence of an insured third party, any payment originally made by

TRICARE must be reimbursed.” Conway, ¶ 32 (citing 32 C.F.R. § 199.8(a), (b)(3))

(emphasis added). TRICARE benefits therefore are not “available to a TRICARE

beneficiary where there is third party insurance available to pay the expenses of medical

treatment.” Conway, ¶ 32. Conway supports USAA’s contention that it had an

obligation to reimburse TRICARE given TRICARE’s status as a secondary payer.

9
¶17 Third, our conclusion finds additional support in other TRICARE statutes and

regulations in effect at the time.2 The federal statute governing contractor payment of

certain claims under TRICARE provides:

(a) Payment of claims.

(1) The Secretary of Defense may authorize a contractor under the
TRICARE program to pay a claim described in paragraph (2) before
seeking to recover from a third-party payer the costs incurred by the
contractor to provide health care services that are the basis of the claim to a
beneficiary under such program.

(2) A claim under this paragraph is a claim --

(A) that is submitted to the contractor by a provider under the
TRICARE program for payment for services for health care
provided to a covered beneficiary; and

(B) that is identified by the contractor as a claim for which a third-
party payer may be liable.

(b) Recovery from third-party payers. The United States shall have the
same right to collect charges related to claims described in subsection (a) as
charges for claims under [10 U.S.C. § 1095].

(c) Definition of Third-Party Payer. In this section, the term “third-party
payer” has the meaning given that term in [10 U.S.C. § 1095(h)], except
that such term excludes primary medical insurers.

2
We are unpersuaded by West’s argument that we cannot consider statutes and regulations that
were not cited by USAA in its briefing on summary judgment. Although we generally do not
address an issue raised for the first time on appeal or a party’s change in legal theory, “we have
permitted parties to bolster their preserved issues with additional legal authority or to make
further arguments within the scope of the legal theory articulated to the trial court.” State v.
Montgomery, 2010 MT 193, ¶ 12, 357 Mont. 348, 239 P.3d 929. TRICARE’s lien rights and
USAA’s corresponding obligations were the focus of the legal theory that USAA presented to
the trial court. And the District Court is not confined in its summary judgment review—nor is
this Court on appeal—to authorities presented in the parties’ briefs. See Junkermier, Clark,
Campanella, Stevens, P.C. v. Alborn, Uithoven, Riekenberg, P.C., 2016 MT 218, ¶ 22,
384 Mont. 464, ___ P.3d ___. Besides, as explained above, the District Court erred in its
analysis of the legal authority that USAA did present.
10
10 U.S.C. § 1095b. Federal regulations confirm that “10 U.S.C. [§]1095b establishes the

statutory obligation of third-party payers to reimburse the United States the costs incurred

on behalf of TRICARE beneficiaries who are also covered by the third-party payer’s

plan.” 32 C.F.R. § 199.12(a).

¶18 In turn, 10 U.S.C. § 1095 provides that “the United States shall have the right to

collect from a third-party payer reasonable charges for health care services incurred by

the United States on behalf of [a person who is a covered beneficiary].” 10 U.S.C.

§ 1095(a)(1); accord 42 U.S.C. § 2651(a). Section 1095 defines a “third-party payer” as

“an entity that provides an insurance, medical service, or health plan by contract or

agreement, including an automobile liability insurance or no fault insurance carrier.”

10 U.S.C. § 1095(h)(1). USAA is clearly a “third-party payer” pursuant to both

10 U.S.C. § 1095b(c) and 10 U.S.C. § 1095(h)(1). These statutes make clear that the

United States had “the right to collect from [USAA] reasonable charges for health care

services incurred by the United States on behalf of [Lee].” 10 U.S.C. § 1095(a)(1);

accord 10 U.S.C. § 1095b(b); 42 U.S.C. § 2651(a).

¶19 More, the federal TRICARE regulations provide: “The only way for a third-party

payer to satisfy its obligation under 10 U.S.C. [§]1095b is to pay the United States or

authorized representative of the United States. Payment by a third-party payer to the

beneficiary does not satisfy 10 U.S.C. [§]1095b.” 32 C.F.R. § 199.12(d)(3). The United

States’ right to recover costs incurred on behalf of a TRICARE beneficiary “includes the

authority under 10 U.S.C. [§]1095(e)(1) for the United States to institute and prosecute
11
legal proceedings against a third-party payer to enforce a right of the United States under

10 U.S.C. [§]1095b and this section.” 32 C.F.R. § 199.12(g)(1). The United States may

also “compromise, settle or waive a claim” of its right to reimbursement. 32 C.F.R.

§ 199.12(g)(2); 10 U.S.C. § 1095(e)(2).

¶20 These statutes and regulations, “in effect at the time” of USAA’s negotiations with

Lee’s counsel, Freyer, ¶ 48, obligated USAA to reimburse TRICARE for the costs

TRICARE incurred on behalf of Lee. So USAA issuing a settlement check to Lee would

“not satisfy” its statutory obligation. 32 C.F.R. § 199.12(d)(3). Rather, the only way

USAA could meet its obligation to reimburse TRICARE was “to pay the United States or

authorized representative of the United States.” 32 C.F.R. § 199.12(d)(3). If USAA

did not satisfy its statutory obligation, the United States could “institute and prosecute

legal proceedings against” USAA to enforce its right to reimbursement. 32 C.F.R.

§ 199.12(g)(1); 10 U.S.C. § 1095(e)(1); 42 U.S.C. § 2651(d). Based on the plain

language of the governing statutes and regulations, we conclude that the District Court

incorrectly determined that “there is no obligation in the TRICARE regulations requiring

USAA to protect the government lien.”

¶21 Justice Cotter takes issue with our reliance on these statutes and regulations

because they were not presented to the District Court, nor to West at the time USAA

responded to her demand for policy limits. Dissent, ¶¶ 31, 34. USAA’s failure to cite

specific statutes and regulations does not mean that those requirements were not part of

the “legal landscape as it existed” when USAA conditioned payment of the settlement

12
check upon resolution of the TRICARE liens. Freyer, ¶ 48. Our role is to assess

objectively whether it was reasonable for USAA to condition payment—i.e., its

“proffered defense”—“in light of that legal landscape.” Freyer, ¶ 48 (emphasis added).

West’s argument, in any event, is that because Lee made an offer to indemnify USAA

and Perez, the law did not obligate USAA to address the TRICARE liens before settling

Lee’s third-party claim, a position that Justice Cotter does not appear to embrace.

¶22 Contrary to West’s argument, neither Lee’s offer to indemnify nor his obligation

pursuant to 32 C.F.R. 199.12(h)(3) to “cooperate” with the United States in any

reimbursement action by the United States against USAA affects USAA’s statutory

obligation to reimburse TRICARE, nor do they impact the United States’ right to recover

medical payments from USAA. Any agreement between Lee’s counsel and USAA

would not bind the government or exempt USAA from federal law.3

¶23 The District Court was correct that “there is no requirement that USAA name

TRICARE on Lee’s settlement check.” As the District Court pointed out, if USAA had

tendered the settlement check with TRICARE as a payee, the check would not have been

negotiable until an authorized government agent endorsed it, and Lee could have been

denied the insurance proceeds he was entitled to receive. As the District Court also

3
We note that the State Bar of Montana Ethics Committee recently issued an ethics opinion
concluding that an attorney should not agree in a settlement release to personally indemnify an
insurer from any lien claims against the settlement proceeds for a plaintiff’s medical expenses.
M. Bar Ass’n, Ethics Op. 131224 (2013). The opinion notes that “[t]his practice presents a
number of professional responsibility challenges” and potentially violates multiple rules under
the Montana Rules of Professional Conduct. M. Bar Ass’n, Ethics Op. 131224, at 3-7. Because
our resolution of the appeal does not turn on the issue of indemnification, we do not discuss the
ethics opinion here.
13
observed, Lee’s attorney could not have deposited “the check in his . . . IOLTA account

until fully endorsed, making it impossible to comply with the Montana Rules of

Professional Conduct.”

¶24 As the District Court’s order recognized, USAA did not, however, just condition

payment of Lee’s settlement on including TRICARE as a payee on the check—it also

gave Lee’s counsel the option of “obtain[ing] waivers of any lien or negotiat[ing] the

liens.” USAA also followed up with the government to determine the status of the liens.

Federal law expressly provides that the United States may “compromise, settle or waive a

claim” of its right to reimbursement. 32 C.F.R. § 199.12(g)(2); 10 U.S.C. § 1095(e)(2).

The District Court erred in not considering USAA’s request for lien waiver before

concluding that USAA did not have a reasonable basis in law to condition payment of the

settlement.

¶25 Justice Wheat also misses the import of USAA’s alternative offers for resolving

the TRICARE liens. In remarking that USAA “had no lawful basis to refuse to settle

Lee’s claim based upon the status of TRICARE’s lien,” Dissent, ¶ 40, Justice Wheat

quotes only from the District Court’s observation regarding USAA’s offer to include

TRICARE as a settlement check payee. See supra ¶¶ 13-14. His conclusion that “USAA

had no legal obligation to protect TRICARE’s lien,” Dissent, ¶ 40, fails to acknowledge

the governing law.

¶26 The District Court properly invoked Freyer as the correct framework for analysis.

Applying that framework to determine whether USAA had a reasonable basis in law for

14
contesting Lee’s claim, we have “survey[ed] the legal landscape as it existed during the

relevant time.” Freyer, ¶ 48 (emphasis added). That landscape compels a conclusion

that USAA did have a reasonable basis in law to condition its settlement payment on

waiver of the TRICARE lien from the United States. The “only way” for USAA to

satisfy its statutory obligation to TRICARE—the secondary payer—was to pay the

United States, not to pay Lee. 32 C.F.R. § 199.12(d)(3); see Conway, ¶ 32. If USAA had

not honored the lien, the United States presumably still could have gone after USAA to

enforce its right to reimbursement. 32 C.F.R. § 199.12(g)(1); 10 U.S.C. § 1095(e)(1); 42

U.S.C. § 2651(d). The law “provided sufficient guidance to signal to a reasonable insurer

that its grounds . . . were . . . meritorious.” Freyer, ¶ 48. This is especially so given “the

absence of caselaw on point.” See Freyer, ¶ 48. Accordingly, we hold that USAA’s

“grounds [for conditioning payment] were reasonable under existing law.” Freyer, ¶ 48.

¶27 Although USAA did not move for summary judgment before the District Court,

“[w]e require no cross-motion . . . when the moving party had a full and fair opportunity

to consider the proposition and all other criteria for summary judgment are met.” Watson

v. Dundas, 2006 MT 104, ¶ 30, 322 Mont. 164, 136 P.3d 973 (citing Canal Ins. Co. v.

Bunday, 249 Mont. 100, 108, 813 P.2d 974, 979 (1991)). West had a full and fair

opportunity to argue the law applicable to her bad faith claim, there are no genuine issues

of material fact, and USAA is entitled to judgment as a matter of law. We therefore

reverse the District Court’s grant of summary judgment in favor of West and order it to

15
enter summary judgment in favor of USAA. See Bunday, 249 Mont. at 108, 813 P.2d at

979.

CONCLUSION

¶28 The District Court’s order granting summary judgment to West is reversed and the

case is remanded to the District Court for entry of judgment in favor of USAA.

/S/ BETH BAKER

We concur:

/S/ MIKE McGRATH
/S/ LAURIE McKINNON
/S/ JAMES JEREMIAH SHEA
/S/ JIM RICE

Justice Patricia Cotter, dissenting.

¶29 I dissent. I begin by reciting significant facts that the Court has omitted from its Opinion.

First, USAA consented to Perez entering and filing the consent judgment, and had no objection

to the amount of the judgment which does represent actual damages sustained by Lee. In

addition, USAA agreed not to raise any policy defenses to preclude Perez from filing the consent

judgment. There is therefore no issue of collusion or unreasonableness of the settlement amount

before us.

¶30 Second, USAA’s legal theories have been a moving target from the beginning. As

addressed below, the legal authorities it relied upon when dealing with West and then presented

to the District Court were different than those raised on appeal and upon which the Court now

relies. In addition, after arguing in its opening brief before this Court that it was required to
16
include TRICARE on the settlement check, USAA asserted in its reply brief that it was not

required to include TRICARE as a payee on the settlement check. In short, USAA’s legal

arguments have been scattershot. These inconsistencies matter because the sole question before

the Court is whether USAA had reasonable grounds under the law at the time it imposed the

conditions at issue upon the settlement with West.

¶31 In a footnote on ¶ 17, n. 2, the Court rejects West’s argument that we should not consider

statutes and regulations that were not cited by USAA in its briefing on summary judgment in the

District Court, citing our decision in Junkermier, Clark, Campanella, Stevens, P.C. v. Alborn for

the proposition that we are not confined on appeal to authorities that were presented in the

parties’ briefs. While that general proposition may be true, it is wholly misplaced in this case

because, as the Court states at ¶ 10, the focal question here is whether the insurer’s grounds for

contesting plaintiff’s theories were reasonable under existing law at the time it imposed the

conditions at issue on the settlement. We must therefore “assess the insurer’s proffered defense”

that was presented to West in 2013. Freyer, ¶ 48.

¶32 When it refused to pay the settlement without TRICARE’s name on the check or lien

waivers in 2013, USAA did not “proffer a defense” to West premised on 10 U.S.C. § 1095 or

TRICARE regulation 32 C.F.R. § 199 and its various sub-parts upon which this Court centers its

decision. The statute and the regulations were never mentioned to West, and USAA did not cite

these statutes and regulations as authority in its briefing before the District Court. These facts

compel the inevitable conclusion that USAA did not at the time it conditioned the settlement

have reasonable legal grounds under existing law for contesting plaintiff’s theories. Freyer,

¶ 48.

17
¶33 The Court places much emphasis upon USAA’s reference to 42 U.S.C. § 2651 in its

dealings with West and its brief opposing summary judgment before the District Court. 42

U.S.C. § 2651 is a general public health and welfare statute that permits the United States to

recover sums paid to persons injured in cases where the injury is the responsibility of a third-

party. This statute does not reference TRICARE nor does it contain any provision requiring

insurance companies to protect government liens. It is 10 U.S.C. § 1095 that addresses medical

expenses paid on behalf of members of the military. As 32 C.F.R. § 199.12(a)(1) states, “10

U.S.C. [§] 1095b establishes the statutory obligation of third-party payers to reimburse the

United States the costs incurred on behalf of TRICARE beneficiaries.” In point of fact, the

Court grounds its detailed analysis upon this statute and the supporting regulations set forth in 32

C.F.R. § 199, and not upon 42 U.S.C. § 2651. See Opinion, ¶¶ 17-20, 22, 24, 26.

¶34 After extensive review of 10 U.S.C. § 1095 and 32 C.F.R. § 199 and its subparts, the

Court states at ¶ 20: “Based on the plain language of the governing statutes and regulations, we

conclude that the District Court incorrectly determined that ‘there is no obligation in the

TRICARE regulations requiring USAA to protect the government lien.’” The problem with this

conclusion of course is that USAA did not present these statutes and regulations to the District

Court for its consideration. The District Court rightly premised its decision upon the authorities

submitted by the parties; it was under no obligation to scour the legal landscape to assist USAA.

As we have stated, we will generally “‘not address either an issue raised for the first time on

appeal or a party’s change in legal theory. The basis for the general rule is that it is

fundamentally unfair to fault the trial court for failing to rule correctly on an issue it was never

given the opportunity to consider.’” Becker v. Rosebud Operating Servs., Inc., 2008 MT 285,

18
¶ 17, 345 Mont. 368, 191 P.3d 435 (quoting Unified Industries, Inc. v. Easley, 1998 MT 145,

¶ 15, 289 Mont. 255, 961 P.2d 100 (internal citations and quotations omitted)).

¶35 I disagree with the Court’s conclusion at ¶¶ 17 and 21 that because the TRICARE statutes

and regulations were part of the existing legal landscape at the time the settlement was in

dispute, USAA had a reasonable basis in law to condition the settlement upon resolution of the

TRICARE liens. Respectfully, USAA did not know these TRICARE regulations and statute

existed when it conditioned the settlement. It stands to reason that in order to have a reasonable

basis in law for a position, one must know what the law is.

¶36 We err in supplying legal authority for USAA’s defense long after the fact. In a case in

which the intent and knowledge of the insurer at the time it conditioned the settlement is

dispositive, we have no business providing retroactive support for a decision USAA made three

years ago without citing the governing law, and no business providing USAA with a lifeline now

premised upon legal authorities it did not present to the District Court. Given the sparse legal

authority USAA provided to the District Court in opposition to West’s motion for summary

judgment, the District Court did not err in granting summary judgment in favor of West. That is

the decision we should be reviewing, not USAA’s decision to present new legal authorities on

appeal. I therefore dissent from our decision overturning the District Court’s order and directing

the entry of judgment in favor of USAA.

/S/ PATRICIA COTTER

Justice Michael E Wheat joins in the foregoing dissent.

/S/ MICHAEL E WHEAT

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Justice Michael E Wheat, dissenting.

¶37 I join the Dissent of Justice Cotter, but provide additional reasons for separating

myself from the reasoning of the majority.

¶38 On December 1, 2012, Peter Lee and three others were injured when Julian Perez,

the driver of the car in which they were passengers, caused a high-speed rollover

collision. Lee’s injuries were particularly catastrophic. Perez was insured by USAA.

Importantly, by mid-December USAA knew without question that Perez’s negligence

caused the crash and was absolutely liable for all damages to the injured parties, which

would probably exceed policy limits given the extent of the injuries to the parties. More

importantly, by this time USAA also knew, or should have known, that TRICARE would

be paying some or all of the medical expenses of the injured parties, especially Lee, and

would have a subrogation interest in the policy proceeds.

¶39 On June 4, 2013, the Blewett firm notified USAA that they were representing Lee

and that policy limits would be inadequate. On August 21, 2013, Blewett offered to settle

for policy limits, in exchange for a full release, and placed a 20-day trigger on the offer.

On August 28, 2013, USAA agreed by phone to pay, but only if TRICARE was named as

a payee or a lien waiver was produced. On September 9, 2013, USAA confirmed its

position in writing, and several days later Blewett extended the deadline for settlement

and again reiterated a full and final release would be provided to Perez. On October 17,

2013, Lee filed suit against Perez, and shortly thereafter Perez, with the assistance of

counsel, entered into a consent judgment with Lee to protect himself from an excess

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judgment. On March 14, 2014, USAA paid policy limits after Lee provided a TRICARE

lien waiver.

¶40 Therefore, by mid-December 2012, USAA knew it was statutorily obligated “to

attempt in good faith to effectuate prompt, fair, and equitable settlement” of all claims

covered by Perez’s policy. Section 33-18-201(6), MCA. At the same time USAA had a

duty to defend and protect Perez against any claims and/or judgments resulting from his

clear negligence. Additionally, and simultaneously, USAA apparently believed, for its

own protection, it was required to protect TRICARE’s subrogation interest. This last

conclusion, however, was incorrect. As noted by the Alabama Supreme Court in Mut.

Assur., Inc. v. Schulte, 970 So. 2d 292 (Ala. 2007), “the inquiry relevant to a claim

alleging bad faith failure to settle is whether the insurer’s failure to settle had any ‘lawful

basis,’ that is, whether the insurer had any ‘legitimate or arguable reason for failing to

pay the claim.’” Schulte, 970 So. 2nd at 296 (citations omitted). In the case before us,

the District Court, based upon the arguments presented to it as discussed in Justice

Cotter’s Dissent, concluded that USAA’s “unilateral decision” to protect TRICARE’s

lien, was “without support in statute, regulation, or common law.” In other words,

USAA had no legal obligation to protect TRICARE’s lien; consequently, it had no lawful

basis to refuse to settle Lee’s claim based upon the status of TRICARE’s lien.

¶41 Moreover, if TRICARE’s lien status posed significant problems to USAA’s

settlement determination, upon USAA’s realization of its obligation to settle Perez’s

claim, it should have undertaken actions in December 2012 to insure that TRICARE’s

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subrogation interest would not hinder settlement rather than delaying settlement and

imposing the obligation to obtain a TRICARE lien waiver on Lee.

¶42 Under these facts, I submit that USAA violated its obligations to its insured and to

the injured parties to exercise good faith to enter into a prompt, fair and equitable

settlement. Instead, it delayed until a demand was made and then unilaterally imposed a

requirement that TRICARE be named as a co-payee or that Lee obtain a lien release,

equally for its own benefit and protection, even though Lee’s attorneys offered to fully

release and indemnify both USAA and Perez. At the expense of Perez and Lee, USAA

demanded that Lee’s attorneys agree to protect USAA, when USAA did nothing to

protect itself, and was obligated to do so.

¶43 For these reasons and the reasons expressed by Justice Cotter, I dissent.

/S/ MICHAEL E WHEAT

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