NO. 93-212
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
TRUSTEES, MISSOULA COUNTY SCHOOL
DISTRICT NO. 1,
Plaintiff and Respondent,
VS.
PACIFIC EMPLOYER'S INSURANCE COMPANY,
a corporation,
Defendant and Appellant,
and
WESTERN STATES INSURANCE AGENCY, INC.,
a Montana corporation,
Defendant and Respondent.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable Douglas G. Harkin, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Shelton C. Williams, Richard Ranney; Williams &
Ranney, Missoula, Montana
For Respondent:
Brian L. Delaney: Mulroney, Delaney & Scott,
Missoula, Montana
Patrick Frank, Esq.: Worden, Thane & Haines,
Missoula, Montana
Submitted on Briefs: November 18, 1993
Decided: December 28, 1993
Filed:
Justice John Conway Harrison delivered the Opinion of the Court.
This appeal arose in the Fourth Judicial District, State of
Montana, in and for the County of Missoula, the Honorable Douglas
Harkin presiding. We affirm in part and remand.
This Court, in the case of Trustees, Missoula County Sch.
Dist. No. 1 v. Anderson (1988), 232 Mont. 501, 757 P.2d 1315, set
forth the background facts of this case. Therein we found that a
teacher, Carol Anderson (Anderson), was improperly dismissed for
incompetence based on poor performance following four interviews
upon her return to teaching following a sabbatical leave. The
opinion of this Court reversed the district court's decision which
set aside the findings of fact and conclusions of law of the State
Superintendent and the County Superintendent. We directed the
court to reinstate the decision of the State and County
Superintendent.
One year after this Court returned the case to the District
Court to implement our decision, Anderson and the Trustees entered
into a settlement agreement and a release. That settlement
agreement involved payments to Anderson as follows:
2. Payments. In consideration of the Release set
forth above[,] the District hereby agrees to pay a sum
totaling $81,585.07 as negotiated and compromised by
Anderson and the District which is the sum of the
following amounts:
Total Wet Annual Income $64,473.74
Total Interest $12,023.81
Total Medical $ 5,387.81
Receipt of $81,885.36 is expressly acknowledged.
The District further agrees to pay the interest
2
required by [the Teachers ' Retirement System] in addition
to the [Teachers' Retirement System] contribution.
The District agrees to pay the federal income tax,
state income tax and FICA deducted from gross salary to
the appropriate state and federal agencies.
With these facts, we now consider the problem of who is going
to pay the settlement.
In 1984, the Trustees of the Missoula School District No. 1
(Trustees), purchased a School Professional Legal Liability
Insurance Policy from an insurance representative of Western States
Insurance Agency, Inc. (Western States). The policy came through
Pacific Employers Insurance Company (Pacific): the effective dates
were from December 1, 1984 to December 1, 1987. Prior to
purchasing the policy, and upon inquiry whether there were any
lawsuits outstanding, a trustee informed the Western States
representative that a "tenured teacher's [Anderson] dismissal is
being challenged at this time through the regular channels, now in
the hands of the County State Superintendent of Schools."
Upon being presented the above amounts, Pacific denied
coverage of the claims on the grounds that the policy provided an
exclusion for claims made against the insured for "any amounts due
under the terms of any contractual obligation. . . ." Pacific
characterized the payment agreement between the School District and
Anderson as one arising out of a "contractual obligation." The
Trustees argue that the School District's settlement with the
dismissed teacher was based upon negligent firing and, therefore,
the clause which provides for coverage for errors, omissions, and
claims made "(a) by reason of any act, error, or omission in
3
services rendered in the discharge of the School District . . . .*I
applies.
Several issues are set forth; two by the respondent Trustees:
1. Whether the District Court erred by holding that the
"contract exclusiont8 provision of the insurance
agreement, authored by Pacific, was not applicable to
preclude coverage under the insurance agreement.
2 . Whether the District Court's Memorandum and Order of
January 12, 1993, (as opposed to its February 19, 1993,
entry of Rule 54(b) Judgment) has any effect on the
viability of the third and fourth affirmative defenses
raised by Pacific's answer.
Western States responds to the second issue as set forth by the
appellants as:
3 . Did the District Court properly grant partial summary
judgment to the Trustees on the "contract exclusion"
issue without addressing several coverage defenses set
forth in Pacific's answer?
Plaintiff Trustees filed an action in District Court naming as
defendants Pacific and Western States. The Trustees alleged that
they were entitled to declaratory relief and to the benefits of
coverage under a Pacific insurance policy issued to the school
district. Pacific denied coverage for sums the Trustees paid to
Carol Anderson after she successfully appealed her dismissal as a
tenured teacher. The Trustees also alleged in the amended
complaint that Western States had been negligent in advising them
to purchase the~pacific policy.
The parties filed cross-motions for partial summary judgment
addressing whether the "contract exclusion" in Pacific's policy
precluded coverage for sums that the Trustees paid to Anderson.
The District Court granted partial summary judgment to the
4
Trustees, ruling that the contract exclusion did not apply and that
Pacific had breached its obligation to provide coverage under the
insurance policy. Pacific and Western States were represented by
the same counsel during the summary judgment proceedings and
thereafter separate counsel represented Western States which
aligned itself with the Trustees for the purpose of this appeal.
This Court uses the same standard in reviewing a denial of
summary judgment as the District Court used in denying the motion.
Frazier Educ. Ass'n, MEA/FEA v. Board of Trustees, Valley County
Elementary Sch. Dist. No. 2 (1993), 256 Mont. 223, 225, 846 P.2d
267, 269; see also Graham v. Montana State University (1988), 235
Mont. 284, 287, 767 P.2d 301, 303. In order for summary judgment
to issue, and to be affirmed on appeal, there can be no "genuine
issue as to all facts deemed material in light of the substantive
principles that entitle [the movant] to a judgment as a matter of
law." Cereck v. Albertson's Inc. (1981), 195 Mont. 409, 411, 637
P.2d 509, 511; and Rule 56(c), M.R.Civ.P.
Whether the District Court erred by holding that the
"contract exclusion" provision of the insurance
agreement, authored by Pacific, was not applicable to
preclude coverage under the insurance agreement.
In the case before us, there is no factual dispute which is
material to the determination of the contract exclusion issue.
Based on the briefs that have been submitted to the District Court
and to this Court, the parties agree that Pacific's exclusion must
be construed in the context of Anderson's appeal of her dismissal.
5
While the parties may supply differing interpretations of the
contextual facts, the facts themselves are undisputed. Thus the
real issue on appeal is whether the District Court correctly
determined, as a matter of law, that the exclusion did not apply,
which entitled the Trustees to partial summary judgment.
In reaching the principal issue in this appeal, we must first
decide how to characterize Anderson's challenge to her dismissal.
Appellant Pacific repeatedly characterizes the challenge as one for
breach of contract in order to bring it within the ambit of the
contract exclusion. Western States argues that Pacific
misperceives the nature of Anderson's claim. “1. Montana authority
establishes that Carol Anderson's claim was for dismissal without
good cause in violation of her rights under section 20-4-207,
M.C.A."
Montana school laws generally embody a legislative effort to
balance the rights of teachers with those of trustees. Anderson,
757 P.2d at 1318; and Massey v. Argenbright (1984), 211 Mont. 331,
336, 683 P.2d 1332, 1334. The rights of tenured teachers are
treated with solicitude because "tenure is a substantial, valuable,
and beneficial right which cannot be taken away except for good
cause." Anderson, 757 P.2d at 1318.
Our cases have also looked to the obligation and rights of
school trustees in maintaining the integrity of their schools.
Anderson 757 P.2d at 1318. Article X, § 8 of the Montana
Constitution provides that "[t]he supervision and control of
schools in each school district shall be vested in a board of
6
trustees . . . .'I Section 20-3-324, MCA, enumerates the specific
powers and duties of the trustees, including the power to employ
and to dismiss personnel. We have held that trustees must exercise
discretion in deciding whom they will employ and whom they will
dismiss. See Kelsey v. School Dist. No. 25 (1929), 84 Mont. 453,
458, 276 P. 26, 26.
Section 20-4-207, MCA (1983), which governed the dismissal of
Anderson, reflected the tension between the competing rights of
teachers and trustees. The statute provided:
(1) The trustees of any district may dismiss a
teacher before the expiration of his employment contract
for immorality, unfitness, incompetence, or violation of
the adopted policies of such trustees.
(2) Any teacher who has been dismissed may in
writing within 10 days appeal such dismissal to the
county superintendent. Following such appeal a hearing
shall be held within 10 days. If the county
superintendent, after a hearing, determines that the
dismissal by the trustees was made without good cause, he
shall order the trustees to reinstate such teacher and to
compensate such teacher at his contract amount for the
time lost during the pending of the appeal.
This statute covers the appellate procedure and established the
measure of Anderson's damages and is conceded by Pacific. However,
Pacific insists that her claim was "strictly and solely a claim for
breach of the employment contractt' and that the damages she
received were for breach of that contract. As noted previously,
Western States disagrees.
This Court has distinguished the remedial process that is
afforded a teacher who is dismissed while under contract from an
action for breach of contract. Kelsey, 276 P. at 26-27: see also
Wyatt v. Sch. Disk. No. 104 (1966), 148 Mont. 83, 89, 417 P.2d 221,
7
224. These cases show the differences between a statutory appeal
of a dismissal and an action for breach of contract, noting that a
teacher is not free to choose between an appeal and an action for
contractual damages: the proceedings are not interchangeable. In
the absence of exceptional circumstances a teacher must exhaust his
or her administrative remedies under Montana school law. See
Throssell v. Board of Trustees of Gallatin County Sch. Dist. No. 7
(1988) I 232 Mont. 497, 499, 757 P.2d 348, 349-50.
However, under Montana law, the remedies that are available in
a statutory appeal of dismissal are not necessarily the same as
those available in a breach of contract action. Section 20-4-
207 (2) , MCA (1983), limits the relief that is available to a
wrongfully dismissed teacher to reinstatement and to compensation
"at his contract amount for the time lost during the pending of the
appeal."
The decision of this Court supports characterizing Anderson's
proceedings as one vindicating her statutory rights as a teacher
rather than a breach of contract case. As noted in Western
States's brief an analogy may be drawn with a proceeding to
vindicate the rights of a protected person who has suffered a
discriminatory termination of employment. See Title VII, Civil
Rights Act (1964), 42 U.S.C. 5 2000e-2(a)(l); and the Montana Human
Rights Act, 9 49-2-303(1)(a), MCA. Both types of proceedings are
originally consigned to administrative agencies by statute and with
limited exceptions, exhaustion is required. Both kinds of
proceedings feature remedies prescribed by statute, which may
8
include reinstatement and compensation or back pay. The fact that
compensation or back pay is calculated by reference to a contract
amount does not convert the proceeding from one for violation of
statute to one for breach of contract.
As previously noted, the undisputed facts here establish that
Anderson's claim was for dismissal without good cause in violation
of her statutory rights. Her claim establishes that she was
dismissed without good cause rather than a breach of contract.
Here all the proceedings, both the administrative appeals, and both
district court and Supreme Court decisions, are consistent with
characterizing Anderson's claim as one for a violation of the
Montana statute that protects teachers under a contract from
dismissal without good cause. Section 20-4-207, MCA (1983). We
find that neither the law nor the facts support Pacific's assertion
that Anderson's claim was "strictly and solely a claim for breach
of her employment contract."
As a general rule, an insurance company must look to the
allegations of a complaint to determine if a loss is covered.
"Coverage is based upon the act [or conduct that] giv[es] rise to
the claims, not necessarily upon the language of the complaint" or
other pleading that initiates a proceeding. New Hampshire Ins.
Group v. Strecker (1990), 244 Mont. 478, 482, 798 P.2d 130, 132;
see Burns v. Underwriters Adjusting Co. (1988), 234 Mont. 508, 510,
765 P.2d 712, 713.
Here, Anderson initiated an administrative proceeding by
submitting a form "appeal" to the County Superintendent of Schools,
9
designating g 20-4-207, MCA, as the basis for her appeal.
Therefore, § 20-4-207, MCA, must be read into her appeal. The
statute and interpretive precedent establish that although trustees
may dismiss a teacher who is under contract, they may not do so
without good cause. Johnson v. Beaverhead County High Sch. Dist.
(1989), 236 Mont. 532, 534, 771 P.2d 137, 138; Anderson, 757 P.2d
at 1318; and Trustees, Lincoln County Sch. Dist. No. 13 v. Holden
(1988), 231 Mont. 491, 495-96, 754 P.2d 506, 509.
The conduct that gave rise to Anderson's claim was an
omission--failure of the Trustees to consider and to weigh all of
the available evidence before dismissing her. The omission
constituted a violation of the Trustees' statutory obligation to
dismiss only for good cause. At the same time, the omission
constituted a violation of Anderson's statutory rights. She filed
her appeal to vindicate those rights and to secure reinstatement to
her teaching position. The record demonstrates that she did not
explicitly seek compensation in the immediate aftermath of her
dismissal.
Under the insurance agreement, Pacific promised to pay all
sums which the Trustees became legally obligated to pay as damages
as a result of claims first made during the policy period "by
reason of any act, error, or omission in services rendered in the
discharge of School District duties. . . . II Clearly, the Trustees
became obligated to pay Anderson damages after this Court
reinstated the decisions of the State and County Superintendents.
There is also no question that Anderson's claim arose by reason of
10
an omission in services rendered in the discharge of the Trustees'
duties. Thus, for purposes of the issue before this Court,
Pacific's insurance agreement provided coverage for the conduct
that gave rise to Anderson's claim.
While Pacific contends that the damages Anderson "sought and
received were 'for . . . amounts due [her] under the terms of [the
School District's] contractual obligation' with her," the exclusion
provides that the claim must be for amounts due under the terms of
a contractual obligation. Western States argues that Pacific
misperceives the nature of Anderson's claim and that Pacific's
position is untenable if her claim is viewed as anything other than
one for breach of contract. We agree.
The facts of this case indicate that Anderson was discharged
from her employment from the School District in good faith, but
this Court later found that she should not have been. The School
District was not acting maliciously in discharging her, as it felt
that there were sufficient grounds. As it turned out it was a
mistake, but in this case, and many other wrongful discharge cases
where a negligent termination occurred, they did not know what they
had done was negligent until it was finally determined to be so by
a higher court. Under these circumstances, the School District
should not be denied the coverage which it had bargained for.
A very similar situation is presented in the case of United
Pacific Ins. Co. v. First Interstate Bancsystems (D. Mont. 1987),
664 I?. Supp. 1390, where there was an insurance coverage dispute
involving a wrongful termination claim. There, in discussing the
11
unique nature of the wrongful discharge claim, the court stated:
Likewise, in wrongful termination, there is an intent to
terminate but injuries are not compensable unless a Court
or a jury establishes that the termination was wrongful.
. . .
An employer may not know that his or her conduct is
wrongful until liability is established. Because the
purpose of liability insurance is to protect against
risk, this Court should not deny employers the protection
of insurance coverage . . . .
United Pacific, 664 F.Supp. at 1394.
We note that in the United Pacific case, the claim for damages
was for loss of compensation, loss of future earning capacity,
physical and emotional stress and humiliation, loss of benefits,
and loss of work life earnings. While the claim obviously involved
damages which were tied to the employment contract, nowhere in the
United Pacific decision is the claim stated to be a claim arising
out of a contractual obligation. There, the court was clearly of
the opinion that the claim was for tortious wrongful termination
and for personal injury such as emotional stress and humiliation.
United Pacific, 664 F.Supp. at 1394.
As is the case here, in United Pacific, First Interstate was
seeking reimbursement from its insurer related to a settlement of
a wrongful termination claim. In this regard, the court noted:
Although the settlement does not distinguish the grounds
for settlement, Schroeder's complaint provided the
potential for damages based on negligence and plaintiff
would have a duty to indemnify defendants.
United Pacific, 664 F.Supp. at 1393.
In this case, as in United Pacific, the settlement document
does not specifically identify the grounds for settlement in terms
12
of theories of liability (although virtually all of the claims
released by Anderson sound in tort). At a minimum, "the potential"
for damages based on pure negligence, even though subject to a
specific statutory remedy, was there. Thus, there is a clear
obligation in this case for Pacific to cover the loss, subject to
other defenses which were not at issue here.
It is obvious that the contract exclusion portion of the
insurance agreement is ambiguous as applied in this case. Although
the exclusion had its purpose, and legitimately could fulfill its
purpose in a case where the facts were supportive of that position-
-this is not one of them. The ambiguity of the exclusionary
provision in an insurance agreement should be construed against the
facts of the matter presented. Considering the facts in this
instance, the District Court's decision clearly does not have the
effect of "eliminating the contract exclusion" from the policy
entirely, as alleged by Pacific. In fact, nothing could be further
from the case.
From the statement of the facts, the insurance agreement
claims to provide a wide range of coverage for negligent acts,
errors, or omissions rendered in the discharge of School District
duties. It then goes on to exclude coverage for "any amounts due
under the terms of any contractual obligation." As we have noted
before, here, the Anderson obligation was not due under the terms
of a contractual obligation. In this case, a contractual
obligation exclusion is most certainly unclear. It purportedly
* . .
applies without limitation to construction and demolition contracts
13
and purportedly to other contractual obligations, but as to non-
construction or non-demolition contracts, the insurance company
agrees to cover fees, costs, etc., resulting from the School
District's failure to perform or breach of contract. Nowhere in
this exclusion is it apparent that the exclusion applies in
anything other than contracts the School District entered into with
third parties outside of the School District for goods and
services. There is no specific mention in the exclusion clause for
internal contractual obligations within the School District, or
more importantly of liability by termination of employment.
If it was the intent of the policy drafters to exclude
coverage related to negligence, or even intentional wrongful
termination of employment, appropriate language could have been
inserted. The policy was very carefully drafted and, as such, the
fact that an incident is not specifically excluded, conclusively
demonstrates that it was not intended to be. Here the ambiguity
was created by the policy and must be construed against the company
as a matter of law. The District Court very acutely and properly
noted:
The agreement does not address issues such as those
presented in this case where damages sustained are a
result of errors made by school officials in terminating
a contract. Therefore, the terms of the insurance
contract need to be construed according to the entirety
of its terms and conditions as set forth in the policy.
See, 5 33-15-316, M.C.A.; and United Pacific . . . . A
particular clause of a[n insurance] contract must always
be subordinate to the contract's general intent. § 28-3-
307, M.C.A.
The general intent of the policy in the present case is
to insure the School District from liability for errors
14
in the discharge of their duties. The exclusions or
words of limitations in the policy must be construed
against the insurer: Bauer Ranch v. Mountain West Farm
BureauMutual Insurance, (1985), 215 Mont. 153, 695 P.2d
1307, 1309, as an insured is entitled to all the coverage
he may "reasonably expect" to be provided in a policy
under the "reasonable expectation" doctrine subscribed to
in this state. [Citation omitted.]
See also, Farmers Union Mut. Ins. Co. v. Oakland (1992), 251 Mont.
352, 356-57, 825 P.2d 554, 556-67; and Bauer Ranch v. Mountain West
Farm Bureau Mut. Ins. Co. (1985), 215 Mont. 153, 156, 695 P.2d
1307, 1309.
Whether the District Court's Memorandum and Order of
January 12, 1993, (as opposed to its February 19, 1993,
entry of Rule 54(b) Judgment) has any effect on the
viability of the third and fourth affirmative defenses
raised by Pacific's answer.
Last, but not least, the question of the viability of
Pacific's third and fourth defenses has been raised for discussion.
The District Court's Rule 54(b) Judgment indicated that in ruling
on the merits of the partial summary judgment motions which were
presented through its memorandum and order of January 12, 1993,
"there was coverage for the Plaintiffs' [sic] losses under the
subject insuring agreement." Both the School District and Western
States agree with Pacific that the viability of its third and
fourth affirmative defenses have not yet been subject to a court
determination. The solution to this problem can be resolved by
holding that a Rule 54(b) judgment is, in essence, the "judgment to
be appealed from here." The practical effect of the Rule 54(b)
judgment is to certify the District Court Judge's previous
memorandum and order adjudicating the partial summary judgment
15
motion of January 12, 1993, as a "final order." We hold that this
is the *'judgment appealed from." We find that the District Court
reached the proper result in its memorandum and order of January
12, and in so doing we hold that the contract exclusion had no
effect on the coverage under the insurance policy as construed
against the background history and the underlying facts of the
settlement of Anderson's claim.
The District Court is affirmed on issue one and the case is
remanded to conform to this opinion as to the third and fourth
affirmative defenses.
We concur:
Chief Justice
Justices
16
I respectfully dissent.
This is a difficult case. Notwithstanding, I believe that the
more persuasive reasoning supports the position of Pacific
Employers Insurance Company (Pacific), and for that reason I would
reverse.
The opinion of the Court holds that Carol Anderson (Anderson)
was "vindicating" her statutory rights by making a claim for
dismissal without good cause in violation of § 20-4-207, MCA. That
conclusion ignores the plain language of the statute which leads
inevitably to the conclusion that, without a breach of her
employment contract, Anderson would have no claim against the
Trustees of Missoula County School District No. 1 (School
District), nor would she have any rights, statutory or otherwise,
to vindicate.
The statute provides in pertinent part that:
The trustees of any district may dismiss a teacher before
the exviration of his emvlovment contract for immorality,
unfitness, incompetence, or violation of the adopted
policies of such trustees. (emphasis added)
Section 20-4-207(l), MCA. The statute does not provide a right
against wrongful dismissal separate and apart from the underlying
contract. The statute presupposes that there is an employment
contract in the first place, and it is the breach of that contract,
by firing the teacher for other than good cause -- immorality,
unfitness, incompetence or violation of adopted policies -- that
gives rise to a violation of the statute. For that reason, I
cannot conclude that Anderson's claim against the School District
was anything but for sums due under her contract. Simply put, she
17
wanted the benefit of her contract. She wanted employment, and she
wanted to be paid for her employment in accordance with the terms
of her contract.
Here, the exclusion in the insurance policy applies to any
claims made against the School District for "any amounts due, under
the terms of any contractual obligation." While Anderson argues
that she filed her claim to vindicate her statutory rights, thereby
avoiding the exclusionary language in the policy, the exclusion
does not limit itself to excluding claims for damages only if
presented under a breach of contra&theory. The exclusion applies
if the claimed damages are in fact "amounts due under the terms of
any contractual obligation," regardless of how the theory of
liability is characterized.
Anderson's rights to employment, compensation and fringe
benefits did not arise from the statute. Those rights arose from
the contract obligations assumed by the parties, the breach of
which gave rise to the very damages claimed by Anderson and the
very damages paid by the School District.
In actuality, Anderson was not vindicating her statutory
rights: she had none apart from her contract. She was, in truth,
vindicating her contract rights under her teacher's contract and
the collective bargaining agreement which incorporated the statute
that allowed the School District to dismiss her if she was found to
be immoral, unfit, incompetent, or if she violated the trustees'
adopted policies. The only rights Anderson had were those arising
out of her contract with the School District. The fact that this
particular contract was subject to a special statute which required
18
administrative appeals as opposed to court action as the means of
enforcement does not change the essence of the claim itself -- one
arising out of the contact.
As pointed out in the Court's opinion, 5 20-4-207(5), MCA,
limits the relief that is available to a wrongfully-dismissed
teacher to reinstatement and compensation "at [her] contract amount
for the time lost during the pending of the appeal." The statute
itself makes clear that the amounts due Anderson were amounts due
under her contractual obligation with the School District. Here,
Anderson received a settlement which included amounts exactly equal
to the types and amounts of compensation that she should have
received under her contract, with interest.
She received her salary, and she received the medical benefits
she would have received under her health insurance policy with the
School District. In addition, the School District contributed to
the Teachers' Retirement System, with interest, and paid the
federal and state income tax and FICA which would have been
deducted from Anderson's gross salary. The settlement exactly
matched what Anderson would have received under her contract, with
interest. The settlement agreement and release broke out the
amounts paid in precisely the manner that those amounts would have
been paid had the School District not breached its agreement with
Anderson and had it not wrongfully terminated her employment.
These amounts were due because of Anderson's employment
contract which the School District breached when it discharged
Anderson during the term of her contract without good cause.
Clearly, even if this action is characterized as one where Anderson
19
was "vindicating her statutory rights," the amounts the School
District paid Anderson were precisely the "amounts due under the
terms of [her] contractual obligation,*' and are thus excluded from
coverage by the terms of the policy with Pacific.
Effectively, this Court has turned a simple breach of contract
action, for which there is no insurance coverage, into a tort case
for which there is, under the guise of the teacher "vindicating her
statutory rights." This is a breach of contract case and the
amounts due and paid arose under the contractual obligation of the
School District to Anderson and are, therefore, excluded from
coverage under the insurance policy.
Similarly, I cannot agree with the opinion of the Court which
characterizes the policy contract exclusion as "ambiguous." The
contract exclusion, while broad, is very specific -- it applies to
amounts due under any contractual oblisation. There are no
exceptions to this exclusion. There is no language in the
exclusion that limits its application to only third-party
contracts, to construction or other special-type contracts, to
contracts under which an obligation of indemnity is assumed, or to
"internal contractual obligations." This Court reads into the
exclusion limiting language, by the expedient of finding that the
limitations are not there. That turns the rules of construction
upside down. I do not believe that the policy contract exclusion
at issue here even requires construction, much less that it be
construed against Pacific on the theory that it is ambiguous. The
exclusion may be broad; it is not, however, ambiguous. When the
language of a contract is clear and unambiguous, as it is in this
20
case, the contract does not require the application of the rules of
construction, and it is this Court's duty to enforce the contract
as made by the parties. Keller v. Dooling (1991), 248 Mont. 535,
539, 813 P.2d 437, 440.
Finally, the potential for mischief which will be generated by
the Court's opinion is disturbing, to say the least. Under this
opinion, school districts with similar insurance policies will have
free rein to discharge tenured teachers under contract, knowing
that their liability insurer will have to pay all attorney's fees
to defend the administrative appeals, and will then have to pay all
compensation and fringe benefits ultimately awarded if it turns out
that the termination was not for good cause. This is a win-win,
no-risk situation for the school district: there is simply no
incentive not to roll the dice and fire teachers where good cause
might be questionable or, perhaps, lacking altogether.
The School District can breach an employment contract by
firing the teacher without regard to whether there is good cause or
not. If the teacher loses the administrative appeal, then the
teacher is gone and the school district does not have to pay salary
and benefits from and after termination. If the teacher wins the
administrative appeal, then the teacher is gone or reinstated and
the school district does not have to pay salary and benefits from
and after termination or, at least from and after termination
through the point of reinstatement.
If, as the Court points out, citing United Pacific Insurance
co. v. First Interstate Bancsystems of Montana, Inc. (D. Mont.
1987), 664 F. Supp. 1390, 1394, "the purpose of liability insurance
21
is to protect against risk," I am hard pressed to discover where,
under the facts of this case, the School District assumed or
incurred any risk at all. It paid in settlement exactly what it
would have paid (interest excluded) had it not breached Anderson's
employment agreement and had it, instead, continued her employment.
Pacific is now required to indemnify the School District for the
costs, attorney's fees and damages associated with the improper
termination. And, the School District got rid of an unwanted
teacher. There is no risk in that for the School District!
Worse, that scenario certainly does not provide any incentive
to a school board of trustees and to a school administration to
insure that there is good cause before terminating a teacher's
employment. In fact, quite the opposite is true. I cannot believe
that it was realistically in the contemplation of either the
insured or insurer that the referenced policy exclusion would be
interpreted to allow such an absurd result. I do suspect, however,
that there may be a few teachers in shaky relationships with their
boards and administrations who should now begin looking over their
shoulders.
For the foregoing reasons, I would reverse the District Court
and hold that the contract exclusion bars the School District's
claim.
Justice Karla M. Gray concurs
Justice Fred J. Weber concurs in the foregoing dissent with
the exception that he does not concur in the last four paragraphs
of the dissent with regard to the potential for mischief which may
be generated by the Court's opinion.
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