NO. 92-314
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
IN RE THE MATTER OF THE CLAIM OF
MARY JANE KOWALSKI
ANDREA "ANDY" BENNETT, State
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Auditor and Commissioner of 1: L
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Insurance of the State of Montana,
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Petitioner and Appellant, I . ;
a Montana corporation,
Respondent and Respondent.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Jeffrey M. Sherlock, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Allen B. Chronister, Chronister, ~riscoll
and Moreen, Helena, Montana
For Claimant:
Otis M. Underwood, Underwood & Associates,
Inc., Oxford, Michigan; and Thomas A. Budewitz,
Attorney at Law, Helena, Montana
Submitted on Briefs: December 10, 1992
Decided: September 2, 1993
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
Claimant Mary Jane Kowalski filed a claim against Glacier
General Assurance Company, in liquidation, pursuant to 5 33-2-1364,
MCA. That claim was denied by the Commissioner of Insurance who
had been appointed liquidator, and was, therefore, referred for a
hearing to the referee appointed by Montana's District Court for
the First Judicial District in Lewis and Clark County. After a
hearing, the referee rendered an opinion, including findings of
fact and conclusions of law. He recommended that the District
Court order the liquidator to accept claimant as a Class 3 claim
under 5 33-2-1371(3), MCA, for payment of $163,696. Over the
liquidator's objection, the District Court accepted the referee's
opinion, findings of fact, and recommendation. The Commissioner of
Insurance appeals from that order. We affirm the order of the
District Court.
The issue on appeal is whether Mary Jane Kowalski, as a
third-party claimant in the liquidation of Glacier General
Assurance Company, was precluded by a judgment entered in her favor
against Glacier's insured from claiming damages in an amount
greater than the amount for which the judgment was entered.
FACTUAL BACKGROUND
Following the hearing conducted by the referee appointed by
the District Court, the referee made and entered detailed factual
findings. Those findings were not challenged by the liquidator in
her objections filed with the District Court, and are not
challenged on appeal. Furthermore, the liquidator has provided
this Court with no transcript from which this Court could
independently evaluate the testimony submitted by the parties.
Therefore, the following factual summary is based upon the
referee's findings.
On May 8, 1980, Robert I. Lubin, a doctor of podiatry,
performed a surgical procedure on claimant's right foot. That
surgery was performed negligently. As a result, claimant had to
undergo additional surgical procedures, has suffered continuous
pain in her right foot, and now has significant physical impairment
to her foot, as well as her right knee and hip. She has had to
discontinue her former employment and is now limited to occupations
which require no standing.
Claimant was 42 years old at the time of Dr. Lubin's surgery,
and as a result of her physical impairment which was caused by that
surgery, her earning capacity was significantly reduced.
From January 31, 1980, to January 30, 1981, Dr. Lubin was
insured against professional liability by a policy issued by
Glacier General Assurance Company.
On November 27, 1984, claimant filed suit against Dr. Lubin in
Oakland County, Michigan, alleging that she had been injured due to
his professional negligence.
On November 12, 1985, Glacier General Assurance Company was
declared insolvent and ordered into liquidation by order of the
District Court in Lewis and Clark County, Montana. Andrea Bennett,
the State Auditor and Commissioner of Insurance, was appointed
liquidator and notice of the insolvency and liquidation was sent to
Glacier General's policy holders and third-party claimants.
On April 28, 1986, the liquidator received a claim from
claimant in compliance with 5 33-2-1365, MCA, and on June 17, 1986,
she also received a claim from Dr. Lubin, Glacier General's
insured.
No response, nor additional information, was provided by the
liquidator to claimant until her claim was denied.
On August 18, 1988, claimant concluded her litigation against
Dr. Lubin in Michigan by settlement for $35,000. That settlement
was formalized by the entry of a consent judgment against Dr. Lubin
in the Circuit Court for the County of Oakland in the State of
Michigan. However, claimant did not execute a release in favor of
either Dr. Lubin, Glacier General Assurance Company, or the
liquidator. The insurer who insured Dr. Lubin after January 30,
1981, paid $17,500 of the judgment, and the other half of the
judgment was to be paid by Dr. Lubin personally within three years
from the date of judgment.
When the consent judgment was entered, the liquidator
recommended that Dr. Lubin's claim be allowed in the amount of
$17,500 and that claimant's claim be denied.
Claimant, through her attorney, objected to the liquidator's
recommendation and the contested claim was, therefore, referred to
Mr. Jon Ellingson, the referee appointed by the District Court to
hear contested claims in the Glacier General liquidation pursuant
to 5 33-2-1368(2), MCA.
In the proceedings before the referee, the liquidator defended
her denial of claimant's claim on the basis that Glacier General's
obligation under the terms of its policy with Dr. Lubin was limited
to any sums that he was legally obligated to pay as damages, and
that the amount he was legally obligated to pay had been
conclusively established by the consent judgment previously entered
in Michigan. The liquidator contended that since half of that
judgment had been already satisfied by another insurer, and since
she had agreed to indemnify Dr. Lubin for the remainder of that
judgment, Glacier General had no further obligation to claimant.
Claimant responded that she settled with Dr. Lubin on the
first day of trial because he had demonstrated that he was
impecunious and she had been led to believe that Glacier General
was so deep in debt that there was no insurance coverage with which
to satisfy a judgment against him. She contended that it was not
until 1989, after the consent judgment was entered, that she was
first notified that there may be some funds available to pay her
claim.
Claimant also pointed out that pursuant to 5 33-2-1365(4),
MCA, judgments entered against an insured, after a successful
petition for liquidation, need not be considered as evidence of
liability, or the amount of damages. The liquidator provided no
authority to the contrary, and the referee, therefore, concluded
that the value of claimant's claim was not conclusively established
by the previous consent judgment. The referee concluded that,
unlike other jurisdictions which had adopted statutes based on the
5
Model Insurers Supervision, Rehabilitation, and Liquidation Act,
5 33-2-1367(1), MCA, of Montana's Act did not preclude a
third-party claimant from filing a claim against an insured and a
subsequent claim with the liquidator. He also concluded that res
judicata was not applicable because of the nature of the judgment
entered in Michigan and pointed out that there was no danger of
double recovery in this case because 5 33-2-1371(3), MCA, provides
that the liquidator shall receive credit for any indemnification
previously provided to claimant.
Based on these conclusions and the previous facts, the referee
recommended that the liquidator be ordered to accept claimant's
claim.
The referee's proposed order was issued on December 20, 1991.
On January 9, 1992, the liquidator filed her objection to that
recommendation in the District Court. New counsel was substituted
to represent the liquidator in District Court, and additional
arguments, including collateral estoppel, statutory estoppel, and
equitable estoppel were asserted as bases for denying claimant's
claim in liquidation. The District Court concluded that the new
defenses were subsumed in the defense of res judicata, and that res
judicata was not applicable based on 5 33-2-1365(4), MCA. The
District Court, therefore, accepted the recommendation of the
referee and ordered the liquidator to accept claimant's claim in
the amount recommended.
DISCUSSION
Mary Jane Kowalski's claim in this matter is governed by the
terms of Montana's Insurers Supervision, Rehabilitation, and
Liquidation Act found at § 33-2-1301 through -1388, MCA. That Act
provides that the Insurance Commissioner may petition a district
court for an order directing the Commissioner to liquidate a
domestic insurer like Glacier General, when, among other reasons,
the insurer is insolvent so that its continued operation would be
detrimental to policy holders, creditors, or the public. Section
33-2-1341, MCA. When an order to liquidate an insurer is entered,
the Commissioner serves as liquidator, takes possession of the
insurer's assets, and administers the assets under the supervision
of the court. Section 33-2-1342, MCA.
Notice of the insurer's insolvency and liquidation must be
given to policy holders and third-party claimants, among others.
Section 33-2-1346, MCA. Those persons with claims against the
insolvent insurer may file claims with the liquidator who, based
upon the assets available, may pay claims according to the
statutory priorities provided for in 5 33-2-1371, MCA.
Upon issuance of the order appointing a liquidator, existing
actions against the insured can no longer be maintained,
5 33-2-1348, MCA, and judgments entered after an order of
liquidation are not considered evidence of liability or the quantum
of damages for which the insolvent insurer is responsible. Section
33-2-1265(4), MCA.
When the liquidator denies a claim, the Act provides for a
procedure for proving liability and the value of the claim.
section 33-2-1368, MCA. That procedure was followed in this case
and resulted in the order from which the liquidator brings this
appeal.
The liquidator does not challenge the findings of fact which
were entered by the referee and adopted by the ~istrictCourt. The
liquidator appeals from the District Court's conclusions of law.
The scope of our review of questions of law is to determine
whether the District Court's conclusions were correct. United First
Federalv. W!-zite-Stevens (1992), 253 Mont. 242, 248, 833 P.2d 170, 174.
The legal issue we have been asked to decide is simply whether
Mary Jane Kowalski, as a third-party claimant in the liquidation of
Glacier General Assurance Company, was precluded by a consent
judgment entered in her favor against Glacier's insured from
claiming damages in this liquidation proceeding in an amount
greater than the amount for which the judgment was entered.
In addition to those arguments made to the referee, the
liquidator, on appeal, contends that claimant's claim was barred by
equitable estoppel pursuant to our decisions in Plouffev.BN (1986),
224 Mont. 467, 730 P.2d 1148, and Dagelv. CityofGreatFalls (lggl), 250
Mont. 224, 819 P.2d 186. However, these arguments were not made to
the referee who had the initial responsibility for considering
factual evidence and resolving this dispute, and we will not review
an issue raised for the first time on appeal. Hares v. Nelson (198l),
195 Mont. 463, 466-67, 637 P.2d 19, 21.
Therefore, we turn our attention to the liquidator's primary
argument which was presented to the referee as the basis for the
liquidator's objection to claimant's claim. The liquidator
contends that Glacier General's obligation to claimant is limited
by the terms of its policy with its insured, Dr. Lubin. Pursuant
to that policy, Glacier General became obligated to pay claimant
only those amounts that "the insured shall become legally obligated
to pay as damages during the policy period." The argument
continues that the amount Dr. Lubin was obligated to pay was
conclusively established by the consent judgment entered in the
Circuit Court for the State of Michigan, and that pursuant to the
principles of res judicata, claimant cannot relitigate the amount of
her claim by claiming a greater amount in the liquidation
proceeding in Montana. Under this theory, the liquidator contends
that, in order to arrive at the recommendation that he made, the
referee had to conclude that some terms of Glacier General's policy
with its insured were "effectively altered" while others remained
in effect, and that for that reason, future claimants, insureds,
and liquidators will have no objective basis for evaluating claims
made under any given policy.
It is true that the principles of resjudicata normally preclude
the relitigation of issues previously litigated between the same
parties, or persons in privity with those parties. Baertschv.County
ofLew.kandClark (1986), 223 Mont. 206, 727 P.2d 504. However, the
principle of res judicata is a rule of common law which cannot be
followed when inconsistent with clear statutory law. Section
1-1-108, MCA, provides that:
In this state there is no common law in any case where
the law is declared by statute. But where not so
declared, if the same is applicable and of a general
nature and not in conflict with the statutes, the common
law shall be the law and rule of decision.
Claimant's claim against Glacier General has been presented
pursuant to our statutory procedures for claims against insurers
which have been declared insolvent and ordered into liquidation.
To determine the effect of any prior judgment entered in her favor
against a Glacier General insured, we must first refer to the terms
of the liquidation statute, and only secondarily to case law. In
this case, the liquidation statute very clearly addresses this
issue. Section 33-2-1365(4), MCA, provides that:
No judgment or order against an insured or the
insurer entered after the date of filing of a successful
petition for liquidation and no judgment or order against
an insured or the insurer entered at any time by default
or by collusion need be considered as evidence of
liability or of quantum of damages. No judgment or order
against an insured or the insurer entered within 4 months
before the filing of the petition need be considered as
evidence of liability or of the quantum of damages.
In this case, the consent judgment on which the liquidator
relied was entered after the successful petition for Glacier
General's liquidation.
Had the claimant agreed to a consent judgment of $1 million
(Dr. Lubin's policy limits), rather than $35,000, there can be
little doubt that, based upon 5 33-2-1365(4), MCA, the liquidator
would not have felt compelled to honor her claim in that amount.
The liquidator argues that the statute can only be raised by her in
defense of claims. Yet, there is nothing in the plain language of
that statute nor its legislative history, nor any authority
provided to this Court, to suggest that it exists solely for the
benefit of the liquidator. It is just as reasonable to conclude
that its protection was intended for claimants who settle with
impecunious insureds for less than their claim is worth, not
knowing whether insolvent insurance companies will end up with
sufficient assets with which to satisfy the full amount of their
claims.
Therefore, we hold that pursuant to the statutory rules which
control claims presented in liquidation, claimant's prior judgment
did not conclusively establish the quantum of claimant's damages
caused by Glacier General's insured, Dr. Lubin. The only procedure
by which claimant could have established the amount that Dr. Lubin
was legally obligated to pay her, once her claim was denied by the
liquidator, was to present proof of those damages to the referee.
This is what she did.
When the District Court ordered that claimant's claim be
accepted in the amount proven to the duly appointed referee, it did
not "effectively alter1' the terms of Dr. Lubin's policy with
Glacier General. It simply established what Dr. Lubin's obligation
was pursuant to the only procedure provided for under Montana's
Insurers Supervision, Rehabilitation, and Liquidation Act.
We hold that for these reasons claimant's claim in liquidation
was not barred by the previous consent judgment entered in her
favor in Michigan, and the District Court is affirmed.
We concur:
Chief Justice
Chief Justice J. A. Turnage dissenting:
The majority fails to point out that the referee clearly erred
in ruling that the doctrine of res judicata does not apply to
consent judgments. "A judgment by stipulation is as binding as any
judgment or verdict, no more or less. 'I Schillinger v. Brewer
(1985), 215 Mont. 333, 338, 697 P.2d 919, 922.
Further, the peculiar result of this case is that the insurer,
Glacier General, is being held liable on a covered claim for a
greater amount than is its insured, Dr. Lubin. I invite the
Montana Legislature to consider whether that is indeed the correct
interpretation of 5 33-2-1365(4), MCA, and of the Insurers
Supervision, Rehabilitation, and Liquidation Act.
The existence of the insurance policy purchased by Dr. Lubin
is the only reason Glacier General has any liability to plaintiff
Kowalski. Section 33-2-1342(2), MCA, provides that the rights and
liabilities of an insurer become fixed as of the date of
liquidation of the insurer. This would seem to indicate that
limitations on liability set forth under the terms of the insurance
policy are fixed as of the date of liquidation.
Indeed, in affirming the decision of the referee, the majority
upholds the referee's determination that Glacier General shall only
be liable for damages incurred during the policy period. That
determination honors one limitation under the policy of insurance.
However, the majority then refuses to honor the insurance policy
limitation providing that the insurer is only liable to pay sums
"which the Insured shall become legally obligated to pay." This
refusal is based on the majorityts conclusion that honoring the
contract term which incorporates the Michigan judgment against the
insured would violate the provision of 5 33-2-1365(4), MCA, that
It[n]o judgment or order entered within 4 months before the filing
of the petition [for liquidation] need be considered as evidence of
liability or of the quantum of damages."
I would limit the scope of 5 33-2-1365(4), MCA, to direct
consideration of judgments or orders entered within four months of
the filing of a petition for liquidation. I would hold that 5 3 3 -
2-1365(4), MCA, does not prohibit indirect recognition of such
judgments or orders where they are relevant under a contract term.
This would minimize the statute's interference with contracts and
with the doctrine of res judicata, where, contrary to the position
of the majority, such interference is not clearly required under
the statute.
I therefore respectfully dissent from the majority opinion.
Justice Karla M. Gray:
I join in the dissent of Chief Justice Turnage.