NO. 88-189
IN THE SUPREME COURT OF THE STATE OF MONTANA
1988
DALY DITCHES IRRIGATION DISTRICT,
a public corporation,
Plaintiff and Appellant,
-VS-
NATIONAL SURETY CORPORATION, one of
Fireman's Fund Insurance Companies,
Defendant and Respondent.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Ravalli,
The Honorable John S. Henson, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Sam Haddon; Boone, Karlberg & Haddon; Missoula,
Montana
For Respondent:
Gregory 8. Murphy; Moulton, Rellingham, Longo & Mather,
Billings, Montana
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Submitted on Briefs: Sept. 29, 1988
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-. Decided: November 29, 1988
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File
Clerk
Mr. Justice R. C. McDonough delivered the Opinion of the
Court.
This appeal from the Fourth Judicial District, in and
for the County of Ravalli, involves an insurer's refusal to
defend its insured. The appellant, Daly Ditches Irrigation
District (Daly), appeals the decision of the District Court
that the insurance policy provided by respondent, National
Surety Corporation (Surety), carried no coverage for a claim
made against Daly. We affirm.
The relevant facts are as follows: Daly ' s former
employee sued Daly for breach of the covenant of good faith
and fair dealing, and for discharge from employment in
violation of the public policy of the State of Montana. The
employee alleged that Daly terminated his employment in
retaliation for his refusal to violate the laws of Montana,
and he claimed damages for lost income, lost benefits, and
emotional and mental distress. Daly tendered the suit to
Surety, and Surety refused to defend.
Surety's policy provides Daly coverage for:
bodily injury or property damage .. . caused by an
occurrence ... .
The policy defines occurrence as:
"occurrence" means an accident, including
continuous or repeated exposure to conditions,
which results in bodily injury or property damage
neither expected nor intended from the standpoint
of the insured.
Daly brought this action to establish that the alleged
wrongful termination and accompanying damages fell within
coverage for bodily injury and property damage from an
occurrence. The District Court held for Surety concluding:
While the Court recognizes that insurance
policies are to be interpreted most strongly in
favor of the insured and any doubts as to coverage
are to be resolved in favor of the insured, this
does not apply where the terms of the insurance
contract are not ambiguous, and the Court must
therefore construe the terms according to their
plain and ordinary meanings. ... In the case at
bar, the terms "bodily injury", "property damage",
and "occurrence" are not ambiguous and the Court
will not participate in a forced construction of
these words in order to extend coverage of the
claims made by [the employee] against Plaintiff
Daly Ditches.
We affirm on the basis that the claimed injury falls outside
the policy's definition of an "occurrence".
Daly presents the following issues for review:
(1) Did the District Court err in ruling that the tort
claim of wrongful discharge asserted against Surety was not
covered by the policy?
(2) Did the District Court err in ruling that it is
against public policy for the tort of wrongful discharge to
be covered by liability insurance?
(3) Did the District Court err in ruling Surety had no
duty to investigate and defend the claim asserted in the suit
filed against its insured?
I.
Daly argues that a breach of the covenant of good faith
and fair dealing constitutes an occurrence under the policy.
The intentional nature of the firing of Daly's employee
should not preclude finding coverage because the consequences
of the employment termination were neither expected nor
intended, according to Daly.
Surety responds that persuasive authority holds that
discharge from employment is not an accident under the policy
language at issue here. See Mary & Alice Ford Nursing Home
v. Fireman's Insurance (1982), 446 N.Y.S.2d 599. In
Mary & Alice Ford Nursing Home, an employer contended that
its insured owed a duty to defend a suit brought by an
employee who alleged that she was illegally discharged due to
disability. The definition of occurrence in the policy at
issue here is identical to the policy definition of
occurrence in Mary & Alice Ford Nursing Home. In construing
the language, the Court stated:
If, in fact, plaintiff discharged Kathleen Wood
from her employment because of her disability, it
cannot be said that the mental and emotional
injuries alleged by the Woods as flowing directly
from plaintiff's intentional discriminatory
practice were unexpected and unforeseen by
plaintiff, the insured. Whi1.e "it is not legally
impossible to find accidental results flowing from
intentional causes, i.e., that the resulting damage
was unintended although the original act or acts
leading to the damage were intentional" (McGroarty
v. Great Arner. Ins. Co., 36 N.Y.2d 358, 364, 368
N.Y.S.2d 485, 329 N.E.2d 172), such is not the case
here, for the damages alleged in the Woods'
complaint are the intended result which flows
directly and immediately from plaintiff's
intentional act, rather than arising out of a chain
of unintended though foreseeable events that
occurred after the intentional act ...
Mary & Alice Ford Nursing Home, 446 N.Y.S.2d at 601, see
also, Commercial Union Ins. Co. v. Superior Court (Cal. App.
The rule in California goes further in restricting the
definition of occurrence:
An intentional termination is not an "occurrence"
under the policy because it is not an accident.
The definition of "accident" halts any argument
that real party [the employer] intended his act but
not the resulting harm.
Commercial Union Insurance Co., 242 Cal.Reptr. at 456.
Daly responds that the cited cases cannot be reconciled
with this Court's determinations holding that an occurrence
resulted where intentional conduct allegedly lead to
unintended injuries. Daly argues that emotional and mental
injury was not the intended or expected consequence of the
discharge.
Montana has employed the reasoning referred to in
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Mary & Alice Ford Nursing Home to conclude that an
intentional act may nevertheless constitute an occurrence
where the alleged injuries were not the expected or intended
result of the insured's intentional conduct. Lindsay
Drilling v. United States Fidelity & Guaranty Co. (19841, 208
Mont. 91, 676 P.2d 203; Millers Mutual Insurance Co. v.
Strainer (1983), 204 Mont. 162, 663 P.2d 338; Northwestern
Casualty Co. v. Phalen (1979), 182 Mont. 448, 597 P.2d 720.
However, here, as in Mary & Alice Ford Nursing Home, the
alleged intentional conduct of Daly could be expected to
cause the injury claimed by the employee. The allegation is
that Daly fired the employee for refusing to violate Montana
law. Damages for emotional and mental suffering may he
expected to flow directly as injuries from such a discharge.
There is no injury alleged which could not be expected to
flow from the termination. Thus, we affirm the decision of
the District Court that the intentional conduct exclusion
applies.
Daly argues that the District Court erred in holding
that public policy favored application of the intentional
conduct exclusion. The lower court reasoned that Montana
policy weighs against allowing employers to insure against
violations of the tort of good faith and fair dealing.
Surety responds that the lower court's analysis of
Montana policy provides no grounds for reversal because the
decision rested primarily on analysis of the intentional
conduct exclusion. We agree with Surety.
Our resolution of issue one affirms the lower court's
decision to find no coverage based on the intentional conduct
exclusion. This case may be properly resolved on the finding
that the exclusion applies. Thus, any issue on the lower
court's further reasoning is moot.
Daly argues that Surety relied exclusively on the
complaint to deny coverage, and that Surety's failure to take
further action violated its positive duty to investigate
claims against its insured. Daly also argues that the duty
to investigate under 5 33-18-201, MCA, mandated greater
action on the part of Surety.
Surety responds that the allegations in the complaint
provided sufficient information to refuse coverage.
Furthermore, Surety contends, it responded promptly to the
demand for coverage, and explained why no coverage existed.
Surety also responds to Daly's argument for application
of § 33-18-201, MCA, by contending that an insurer has a duty
to investigate only covered claims under the statute, and
here the claim obviously fell outside the coverage provided
by the policy.
Insurers have the duty to investigate "claims and.
coverage promptly". Tynes v. Bankers Life Co. (Mont. 1986) ,
730 P.2d 1115, 1124, 4 3 St.Rep. 2243, 2254. Thus, we do not
agree that an insurer has only the duty to investigate
covered claims.
However, there is no evidence that Surety failed to
properly investigate the claim at issue. Surety inspected
the allegations of the complaint and determined that the
employee sought damages flowing from intentional conduct on
the part of the insured. Ordinarily, where the allegations
of a complaint demonstrate that no coverage exists, the
insurer has no duty to indemnify or defend. McClear v. St.
Paul Insurance Companies (1972), 158 Mont. 452, 456, 493 P.2d
331, 3 3 4 . Because the complaint demonstrated that no
coverage existed, Surety fulfilled its duty to investigate
be provided. AFFIRMED.
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when it read the complaint and informed Daly no defense would
Justice
Mr. Justice John C. Sheehy did not participate in this matter.