No. 85-426
IN THE SUPREME COURT OF THE STATE OF MONTANA
1987
ROWAN OGDEN,
Plaintiff and Respondent,
-vs-
MONTANA POWER COMPANY,
Defendant and Appellant.
APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable Joel G. Roth, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Jardine, Stephenson, Blewett & Weaver; Lon Holden
argued, Great Falls, Montana
For Respondent:
Erik B. Thueson argued, Great Falls, Montana
For Amicus Curiae:
Robert F. James, argued for Montana Assoc. of Defense
Counsel, Great Falls, Montana
Submitted: November 20, 1987
Decided: December 15, 1987
Filed: Fjkc 151987
Clerk
Mr. Justice R. C. McDonough delivered the Opinion of the
Court.
Defendant Montana Power Company (MPC) appeals a jury
verdict from the District Court of the Eighth Judicial Dis-
trict in and for the County of Cascade awarding compensatory
and punitive damages for negligence and bad faith. MPC also
appeals the lower court's denial of various pretrial motions
and jury instructions. Ogden cross-appeals the decision of
the jury's original special verdict and for a determination
on Ogden's motion for sanctions.
A decision was entered by this Court on February 23,
1987. Ogden v. Montana Power Co. (Mont. 1987), 44 St.Rep.
330. MPC petitioned the Court for a reconsideration under
Rule 34 M.R.Civ.P. The petition was briefed by the parties
and an amicus curiae brief was filed on behalf of the Montana
Association of Defense Counsel. We granted oral argument.
We now withdraw the original opinion and issue this opinion
in its place.
Having considered the arguments and briefs we affirm in
part and reverse i n part the District Court and remand for
.
further proceedings.
The following issues were raised on appeal and
cross-appeal:
1. Did the District Court err in granting partial
summary judgment to Ogden on the issue of liability?
2. Does the Unfair Trade Practices Act of the Montana
Insurance Code apply to MPC, a self-insured corporation, and
was the evidence sufficient to uphold a jury verdict for
breach of the implied covenant of good faith and fair dealing
against appellant?
3. Did the District Court err in denying MPC's motion
for separate trials on the property damage claim and bad
faith claim?
4. Did the District Court err in reducing the Special
Verdict award?
5. Did the District Court err in failing to impose
economic sanctions upon MPC for alleged dilatory, obstruc-
tive, and threatening actions by MPC's attorney?
On December 19, 1979 a fire occurred at Ogden's ranch.
It burned 40 acres of vegetation and destroyed the ranch
house, barn, sheds and corrals. It is conceded that the only
possible cause of the fire was a "floater1I,which is a power
line owned by MPC that became detached from a supporting pole
and came in contact with another power line. Pieces of hot
and molten metal heated by the contact dropped to the ground
and ignited the vegetation and ultimately the buildings and
improvements.
Negotiations between the parties as to the amount of
property damage failed and Ogden sued for damages caused by
the alleged negligence of MPC. MPC filed an answer, discov-
ery proceeded and Ogden filed a motion for partial summary
judgment together with a memorandum and affidavit relative to
liability. MPC opposed the motion by briefs, attached affi-
davits and argument at the hearing. The District Court
granted the partial motion raising the first issue.
I
Did the District Court err in granting partial summary
judgment to Ogden on the issue of liability?
The only possible question remaining on the motion for
partial summary judgment was whether the damage by the float-
er happened because MPC had negligently inspected and main-
tained the subject power line. In other words, did MPC
breach its duty to inspect and maintain the line? The duty
of care owed by an electric utility is presented in a thor-
ough discussion in Bourke v. Butte Electric & Power Co.
(1905), 33 Mont. 267, 83 P. 470. In Bourke, this Court held
that the owner or operator of an electric plant owes a duty
of reasonable care in creating pole lines, selecting appli-
ances, insulating accessible wires and in maintaining a
system of inspection. Bourke, 83 P. at 473. In discussing
this duty of reasonable care the Bourke court favorably
quotes a number of sources:
'Reasonable care is all that is required. But this
must be proportionate to the risks to be appre-
hended and guarded against.'
Bourke, 83 P. at 474 (quoting Hoye v. Chicago M. & St. P.
Ry. Co., 46 Minn. 269, 48 N.W. 1117.)
Later in the opinion, the Bourke court approved a jury
instruction which stated in part as follows:
... the care required is measured by and equal to
the danger. When anyone handles a force of utmost
danger, a very great care is required. What would
be care in handling a force of little danger might
not be care in handling a force of great danger,
and might be negligence in handling such a force.
As the danger increases, so the degree of care
increases which is required of persons who are
handling the force. The degree of care required is
proportionate to the danger of the force; . . .
Bourke, 83 P. at 474.
The standard of care from Bourke applies to this case.
The standard is one of reasonable care under the circumstanc-
es which is measured by and equal to the danger of those
circumstances. Farnum v. Montana-Dakota Power Co. (1935), 99
Mont. 217, 43 P.2d 640.
Section 69-4-201, MCA, adopts the National Electrical
Safety Code (NESC) as Montana law. Section 214 A2 of NESC
provides: "Lines and equipment should be inspected from time
to time at such intervals as experience has shown to be
necessary."
MPC had no policy or procedural manual which provided
guidelines for inspections. There had been no maintenance on
the line in the fire area. The linecrew chief, Corcoran
stated the only time linemen will inspect this type of line
is when there is a "problem on them or something goes wrong
then you patrol." MPC admits in its reply brief that the
District Court had evidence before it that the subject power
line was not in good repair at the time of the fire. The
employees involved had no recollection of when they last
visited the area and MPC did not come forward with anything
in writing indicating when any inspection or maintenance had
been done on the Zorce line involved. The power line at the
time was not being used but the energy was not cut off.
These facts could very well fail to meet the general
standard of care as set out in the Bourke case. However, MPC
states that a critical fact was lost in the shuffle. Strong
winds had hit the area about two weeks prior to the fire and
could have caused the fire. MPC, by affidavit, comes forward
with statement and daily time tickets on December 2, 1977,
that the Adel line in the same general area to which the
Zorce line is attached, was "all out" and the employee con-
ducted a "patrol & rep. floater". As stated i n Bourke, a
.
utility should inspect its property so that:
... any change which has occurred in the physical
condition surrounding the plant, poles or lines of
wire, which would tend to create or increase the
danger to persons lawfully in pursuit of their
business or pleasure, may be reasonably discovered.
Bourke, 83 P. 2d at 473. By their own admission the strong
winds are such a change. MPC had knowledge but no inspection
was done.
At this point, to raise a question of fact, MPC was
obligated to come forward with substantial evidence that it
had exercised due care under the circumstances. Harland v.
Anderson (1975), 169 Mont. 447, 548 P.2d 613. This it did
not do. All it could do was speculate that the high winds
caused the floater, it did not come forward with any facts or
evidence to rai-se an issue of fact as to its duty. The
evidence appeared overwhelming and the District Court did not
err in finding MPC's liability was essentially uncontradicted
by its evidence.
We find partial summary judgment was correctly granted.
I1
Does the Unfair Trade Practices Act of the Montana
Insurance Code apply to MPC, a self-insured corporation, and
was there sufficient evidence to uphold a jury verdict for
breach of the implied covenant of good faith and fair dealing
by MPC?
Ogden's amended complaint alleges appellant breached the
implied covenant of good faith and fair dealing and violated
the Unfair Trade Practices Act S 33-18-201 et seq., MCA,
(Act). MPC moved to dismiss these counts contending that the
Act did not apply to self-insurers. The District Court
denied this motion and subsequent similar motions. At trial
the 1-ower court instructed the jury that certain duties from
the Act applied to MPC:
Instruction No. 21
The Montana Power Company is subject to the laws of
Montana which state that no person may, with such
frequency as to indicate a general business prac-
tice, do any of the following:
(1) Fail to acknowledge and act reasonably prompt-
ly upon communications with respect to claims; or
(2) Fail to adopt and implement reasonable stan-
dards for the prompt investigation of claims; or
(3) Refuse to pay claims without conducting a
reasonable investigation based upon all available
information; or
(4) Neglect to attempt in good faith to effectuate
prompt, fair, and equitable settlements of claims
in which liability has become reasonably clear.
If you determine that Montana Power Company has
violated one or more of the above duties, you
should determine that the defendant has not com-
plied with its duties under the laws of the State
of Montana.
A general business practice can be shown by multi-
ple violations occurring in the same claim, or
violations of the law in different cases, or from
persons having knowledge of the company's general
business practices.
GIVEN :
District Judge
The jury found that MPC fa.iled to act reasonably and in good
faith with respect to Ogden's claim.
MPC claims the District Court erred in imposing the
duties of the Act upon it and in instructing the jury to that
effect. MPC contends the Act does not apply to it as a
self-insurer and that it did not violate any duty to Ogden.
Ogden contends that the jury was correctly instructed because
MPC had both a common law duty to act in good faith and a
similar statutory duty under the Act.
The Montana Insurance Code's Unfair Trade Practices Act
does not apply to a self-insured entity like MPC. The legis-
lature enacted the Montana Insurance Code, Title 33, MCA, to
govern and regulate the business of insurance. The Unfair
Trade Practices Act, Section 33-18-101 et seq., MCA, as a
part of the Montana Insurance Code and by virtue of its own
stated purpose was enacted to govern and regulate trade
practices in the business of insurance. Section 33-18-1.01,
MCA, provides:
The purpose of this chapter is to regulate trade
practices in the business of insurance in accor-
dance with the intent of congress as expressed in
P.L. 79-15 ...
P.L. 79-15 is codified at 15 U.S.C. 5 1011 and states a
declaration of policy by Congress "that the continued regula-
tion and taxation by the several States of the business of
insurance is in the public interest, . . . " Hence, 5
33-18-101, MCA, explicitly and by reference to 15 U.S.C. S
1011 expresses the legislative intent to regulate the busi-
ness of insurance.
Section 33-1-201(6), MCA, provides: "'Insurer' includes
every person engaged as indemnitor, surety, or contractor in
the business of entering into contracts of insurance." MPC
is primarily in the business of providing power and utilities
to customers, although it insures itself. The legislature
did not intend a self-insured entity to be subject to all the
technical Montana insurance industry regulations. The Act
therefore, does not apply to MPC in this case.
There is also no common law basis for the application of
the duties imposed upon MPC as contained in the instruction.
Although judicial modification of the common law is sometimes
required to prevent great injustice or to ensure that common
law is consonant with changing needs of society, see Miller
v. Fallon County (Mont. 1986), 721 P.2d 342, 43 St.Rep. 1185,
it is not warranted here. These are adversarial relation-
ships and a sudd.en major change of this sort in the law can
best be done by legislative enactment as was done with
insurance companies. We note that the most recent Montana
Legislative Session enacted 5 33-1-317, MCA, (effective date
July 1, 1987), which applies specific parts of the Unfair
Trade Practices Act to actions brought by third party claim-
ants against self-insurers.
We therefore reverse on the issue of MPC's duty of good
faith and fair dealing and Instruction No. 21 and further
dismiss the second, third and fourth counts of plaintiff's
amended complaint for failure to state a claim. Appellant's
motion below to dismiss these counts should have been
granted.
I11
Did the District Court err in denying MPC's motion for
separate trials on the property damage claim and bad faith
claim?
This issue concerns whether it was error to deny MPC's
motion for separate trials on the property damage claim and
on the had faith claims. MPC argues that denial of the
motion resulted in confusion and severe prejudice to appel-
lant. We again affirm. MPC contends the reasoning of Fode
v. Farmers Insurance Exchange (Mont. 1986) , 719 P.2d 414, 43
St.Rep. 814, requiring separation should be applied here.
Fode does not control in this case. Separation of the bad
faith claim in this case would have been appropriate only
until the liability issue of the underlying case has been
determined. Here the liability of the defendant had already
been determined. The property damage issue was not complex
and the danger of prejudice was minimal. The District Court
correctly exercised its discretion which is authorized by
Rule 42(b) M.R.Civ.P. See State v. District Court of Eighth
Judicial District (Mont. 1985), 703 P.2d 148, 42 St.Rep.
1061. The property damage verdict should stand.
IV
Did the District Court err in reducing the Special
Verdict award? In light of this opinion, the question of
changing the original jury verdict is moot.
v
Did the District Court err in failing to impose economic
sanctions upon MPC for alleged dilatory, obstructive and
threatening actions by MPC's attorney? We remand and request
the District Court to enter its decision on the motion for
sanctions.
In summary, we affirm the motion for summary judgment on
liability for property damages. We will not disturb the
jury's verdict of $62,000 for property damages. We dismiss
the second, third and fourth counts in the amended complaint
for failure to state a claim and set aside the verdicts based
thereon and we remand to the District Court to rule on motion
for sanctions.
We Concur:
Justices
Mr. Justice William E. Hunt, Sr., dissenting:
I agree with the majority opinion insofar as affirming
the issues of MPC's liability and upholding the original jury
verdict of $62,000 for property damage. I also agree with
remanding to the District Court for a ruling on Ogden's
motion for sanctions.
I disagree, however, with the majority's reversal of the
award for punitive damages for a violation of good faith and
fair dealing.
The record is replete with instances of MPC's discovery
violations and intentional delays. Although a self-insured
company, such as MPC, did not fall under Montana Insurance
Code's Unfair Trade Practices Act at the time of this fire,
it should not be thereby freed from a responsibility to act
in good faith and fair dealing with persons stating claims
against the company. We note that the Montana legislature
has just passed a statute which imposes this duty of good
faith and fair dealing on self-insurers.
Instruction no. 21, which in the majority opinion
requires a reversal of the punitive damages award, does not
impose strict or outlandish stand.ards of good faith and fair
dealing on MPC. "Reasonable" is the standard of duty
enumerated in Instruction No. 21. The jury was entitled to,
and did in fact find that MPC failed to "attempt" to act in
good faith based on a "reasonable" standard of prompt
communication, prompt investigation and payment of valid
claims after such "reasonable investigation." I would affirm
the jury's finding of bad faith and uphold the jury award for
all punitive damages.
- -- - -
.-
Mr. Justic:e John C. Sheehy John C. Harrison
concur in the foregoing di