No. 93-152
IN THE SUPREME COURT OF THE STATE OF MONTANA
1994
JAMES R. DEAN and LINDA M. DEAN
Plaintiffs,
-v-
AUSTIN MUTUAL INSURANCE COMPANY,
Defendant.
CERTIFIED QUESTION FROM: United States District Court for the
District of Montana, Missoula Division
TheHonorable Leif B. Erickson, Magistrate
COUNSEL OF RECORD:
For Plaintiffs:
Jeffrey D. Ellingson, Ellingson Law Offices,
Kalispell, Montana
For Defendant:
Gary R. Christiansen, Warden, Christiansen, Johnson
& Berg, Kalispell, Montana
Submitted on Briefs: February 3, 1994
Decided: February 15, 1994
Filed:
Cl&k
--
Justice James C. Nelson delivered the Opinion of the Court.
This case is before us on a certified question from the United
States District Court for the District of Montana, Missoula
Division, concerning the interpretation of § 33-18-242(5), MCA. We
accepted certification pursuant to Rule 44 of the M.R.App.P.
The following facts were presented to this Court in the
certification order as relevant to the question posed by the
federal district court.
A fire destroyed James and Linda Dean's (the Deans) residence
in Olney, Montana, on July 5, 1989. The Deans made demand upon
their insurance company, Austin Mutual Insurance Company (Austin
Mutual), for payment of their losses. That policy provided for
coverage for damages to the Deans' residence, as well as their
personal property, destroyed by the fire.
Austin Mutual hired an independent investigator to attempt to
determine the cause of the fire. During the same period of time,
the State Fire Marshal and the Flathead County Attorney's Office
conducted a similar investigation, which resulted in criminal arson
charges being filed against the Deans in August, 1989. A
preliminary hearing was held before the Flathead County Justice of
the Peace, who found probable cause to bind the Deans over to the
District Court for trial on the charge of felony arson.
In December, 1989, the Flathead County Attorney's Office filed
a motion seeking leave of the District Court to file an Amended
Information adding a count of conspiracy to commit arson, a felony.
The presiding judge found probable cause to believe the Deans had
2
committed the offense alleged in the second count and granted the
motion to file the Amended Information.
Pending the outcome of the criminal trial, Austin Mutual
refused to make any payments under the policy, except for a small
payment used by the Deans to clear away debris from the fire, which
was preventing the operation of a water system serving several
buildings in the immediate vicinity of the fire.
The Deans were acquitted of the criminal charges in March of
1990, and, on March 26, 1990, Austin Mutual paid the Deans the
balance of their policy limits for the dwelling coverage under the
policy. Prior to this time, Austin Mutual had paid the outstanding
balance due under a mortgage on the Deans' property to the
mortgagee. In June of 1990, the Deans demanded additional
compensation under the policy with the result that Austin Mutual
paid some of the items but contested payment of others.
On February 4, 1991, the Deans filed an action in the United
States District Court, alleging a number of violations of 3 33-18-
201, MCA, and setting forth several separate claims for relief.
The Deans took the deposition of Clinton Weekley, the
Assistant Vice-President for Claims for Austin Mutual. In that
deposition, Mr. Weekley stated that "the claim was denied initially
because criminal charges were brought." He also stated that
"Austin Mutual did not have information to indicate that the Deans
contributed in any way to burning their house down."
The parties filed cross-motions for summary judgment. The
Deans requested a "[rluling as a matter of law that Austin Mutual's
refusal to pay any policy benefits pending the Deans' criminal
acquittal was 'unreasonable': and was therefore a violation of
Montana's Unfair Claims Settlement Practices Act. . . .I1 Austin
Mutual contended that, with regard to the alleged violations of 5
33-18-201, MCA, it had a complete defense under 5 33-18-242(5),
MCA, as it had a reasonable basis for denying the claim.
In their briefs filed with this Court, the Deans cite Britton
v. Farmers Ins. Group (1986), 221 Mont. 67, 721 P.2d 303, and
contend that Austin Mutual had no reasonable basis in law or fact
for denying their claim because the fact that criminal arson
charges were filed against them was "inadmissible evidence." In
Britton, we held that an insurer was outside the bounds of the duty
of good faith if it relied on inadmissible evidence to deny a claim
and force the insured to take court action to collect the proceeds
of the claim. Britton, 721 P.2d at 316.
Austin Mutual responds to this contention with the argument
that Britton was a "bad faith" case and thus is not applicable to
this action, citing the special concurring opinion in Dees v. Am.
Nat'1 Fire Ins. Co. (Mont. 1993), _ P.2d _t 50 St. Rep. 1068,
which stated that § 33-18-242(3), MCA, explicitly prohibits
bringing an action for bad faith in connection with the handling of
an insurance claim and thus had no application to the statutory
cause of action. -I 50 St. Rep. at 1076.
Dees
The statute atissue, § 33-18-242, MCA, provides, in pertinent
part:
(5) An insurer may not be held liable under this section
if the insurer had a reasonable basis in law or in fact
4
for contesting the claim or the amount of the claim,
whichever is in issue.
The "reasonable basis" for denying a claim is a defense to
liability under § 33-18-242, MCA. The Deans brought an action
under this statute and alleged violations of 5 33-18-201, MCA;
therefore, if Austin Mutual had a "reasonable basis in law or in
fact" for denying the Deans' claim, that basis will serve as a
defense to the Deans' action.
The Deans desire a ruling that, as a matter of law, Austin
Mutual's refusal to pay policy benefits pending the criminal
acquittal was unreasonable. On the other hand, Austin Mutual
desires a ruling that, as a matter of law, denying the payment of
policy benefits pending the outcome of the criminal trial was
reasonable.
However, reasonableness is generally a question of fact:
therefore, it is for the trier of fact to weigh the evidence and
judge the credibility of the witnesses in determining whether the
insurer had a "reasonable basis" for denying a claim. This is not
a determination that can be made "as a matter of law," as requested
by the Deans and by Austin Mutual. Rather, whether an insurer has
a reasonable basis in law or in fact for contesting a claim or the
amount of a claim is to be determined as any other disputed issue
of fact based upon the evidence and circumstances of each case.
See -I 50 St. Rep. at 1077 (Gray, J., special
Dees concurrence).
Based upon the above discussion, we answer the certified
question:
Whether, as a matter of law, an insurer has a "reasonable
5
basis in law or in fact" for contesting a claim or the
amount of the claim as set forth in § 33-18-242(5), MCA,
for alleged violations of 5 33-18-201, MCA, based solely
on the fact that the insureds have been charged with
felony arson
as follows:
No; whether the insurer had a "reasonable basis in law or in
fact" is an issue properly presented for determination to the trier
of fact.
We Concur:
AT7,zlyyL
Chief Just