Trustees of Indiana University v. Buxbaum

No. 01-723

IN THE SUPREME COURT OF THE STATE OF MONTANA

2003 MT 97

TRUSTEES OF INDIANA UNIVERSITY,

Plaintiff and Respondent,

v.

DOUGLAS A. BUXBAUM, as Personal Representative
of the Estate of Christopher D. Jones; BRUCE M. BITTNER,
Co-Personal Representative of the Estate of Derek T. Krueger;
OTTO KRUEGER, Individually and as Co-Personal Representative
of the Estate of Derek T. Krueger; and JILL J. KRUEGER, Individually,

Defendants and Appellants.

APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark, Cause No. BDV-2000-284,
The Honorable Jeffrey M. Sherlock, Judge presiding.

COUNSEL OF RECORD:

For Appellants:

Monte D. Beck, John J. Richardson (argued), Beck, Richardson & Amsden,
PLLC, Bozeman, Montana

For Respondent:

Tom W. Stonecipher (argued), John H. Tarlow, Tarlow & Stonecipher,
Bozeman, Montana

Michael R. Fruehwald, Barnes & Thornburg, Indianapolis, Indiana

For Amicus Montana Trial Lawyers Association:

Dane J. Durham, Attorney at Law, Missoula, Montana

For Amicus Montana Defense Trial Lawyers, Inc.:

James A. Donahue, Davis, Hatley, Haffeman & Tighe, Great Falls, Montana

Orally Argued and Submitted: September 10, 2002
Decided: April 24, 2003
Filed:
__________________________________________
Clerk
Justice Jim Regnier delivered the Opinion of the Court.

¶1 In the summer of 1998, three Indiana University students traveled to Montana to assist

an Indiana University professor with an instructional project devoted to forest habitat. While

in Montana, the three students and a fourth Indiana resident were involved in a single vehicle

accident on Interstate 90 between Cardwell and Three Forks, Montana. The accident

resulted in the deaths of Christopher Jones, Michael Bowling, and Derek Krueger. Multiple

lawsuits ensued, including a suit filed by the Krueger Estate against the Respondent Indiana

University and the Appellant Jones Estate. The Jones Estate demanded that the University,

a self-insured entity which purported to insure the vehicle in question, defend it against the

negligence suit filed by the Krueger Estate.

¶2 The University subsequently filed a declaratory judgment action in the First Judicial

District Court, Lewis and Clark County, to ascertain whether it had a duty to indemnify the

Jones Estate. The District Court concluded that the University owed a duty to the Jones

Estate to indemnify it of any liability arising out of the automobile accident. However, the

District Court denied the Jones Estate’s request for attorney fees incurred in the declaratory

judgment action. The Jones Estate appeals from the District Court’s judgment with regard

to the denial of attorney fees. We reverse and remand.

¶3 The sole issue on appeal is whether the District Court erred when it denied the Jones

Estate’s request for attorney fees incurred in the declaratory judgment action.

BACKGROUND

¶4 Since the 1940s, Indiana University has owned and operated a geological field station

near Cardwell, Montana. The University utilizes the field station to further its geology

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students’ studies during the summer months. Each spring, geology students from the

University drive a fleet of vehicles to the field station. At the end of each summer, the

students return the vehicles to the University motor pool in Bloomington, Indiana. In 1994,

the University permanently transferred a University-owned 1989 Chevrolet Suburban (“Old

No. 3”), a vehicle licensed and registered in the state of Indiana, to the field station.

¶5 In the summer of 1998, Dr. Raymond Russo, a biology professor from the University,

visited the field station while on sabbatical to conduct a research project, called the Virtual

Forest Project. The Virtual Forest Project was administered by the University and grant

funded by the Indiana Forestry Education Foundation. Dr. Russo conducted the Virtual

Forest Project to create an instructional CD-ROM program devoted to forest habitat. To aid

with the project development, Dr. Russo recruited three project assistants from Indiana,

Christopher Jones, Michael Bowling, and Anicca Brumbaugh. When Dr. Russo recruited

the assistants, they were all undergraduate or graduate students at the University. The

assistants traveled from Indiana to the field station in their own vehicles. However, the field

station director, Professor James Brophy, permitted Dr. Russo and the assistants to use Old

No. 3 while residing at the field station.

¶6 On July 12, 1998, Jones, Bowling, Brumbaugh, and Brumbaugh’s visiting boyfriend,

Derek Krueger, departed the field station in Old No. 3 for a white water rafting trip. While

en route, the driver, Jones, lost control of the vehicle when the tread allegedly separated from

one of the vehicle’s tires on Interstate 90 between Cardwell and Three Forks, Montana. The

single vehicle accident resulted in the deaths of Jones, Bowling, and Krueger. Brumbaugh

survived the accident but sustained significant injuries.

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¶7 At the time of the accident, Old No. 3 was not covered by a traditional automobile

insurance policy. However, in 1987, the University established a self-insurance program to

assume the risk of liability, up to $1 million, for certain kinds of incidents, including the type

of accident that occurred on July 12, 1998. The University also purchased a $15 million

excess liability policy from TIG Insurance Company which was in effect at the time of the

accident. The University never filed a certificate of self-insurance with the state of Indiana

or Montana.

¶8 In November 1999, several parties (“Krueger Estate”), individually and as personal

representatives of the estate of Derek Krueger, filed suit against multiple defendants,

including the University and the Jones Estate.1 On December 30, 1999, the Jones Estate

demanded that the University defend it against the negligence claim brought by the Krueger

Estate. The University, under a reservation of rights, retained independent counsel to defend

the Jones Estate against the allegations. On May 8, 2000, the University filed a declaratory

judgment action against the Jones Estate and the Krueger Estate. The University argued that

it maintained no obligation to defend or indemnify the Jones Estate.

¶9 On December 4, 2000, all three parties, the University, the Jones Estate, and the

Krueger Estate, filed motions for summary judgment. The Jones Estate argued that the

University must defend and indemnify it based on the doctrine of equitable estoppel and

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Multiple lawsuits were filed following the July 12, 1998, accident, in addition to the
claims filed by the Krueger Estate. The University filed a cross-claim against the Jones Estate in
the Krueger Estate action. Brumbaugh and the Bowling Estate filed claims against the University
and the Jones Estate. The Jones Estate filed a negligence action against the University. Further,
the Jones Estate, the Krueger Estate, the Bowling Estate, and Brumbaugh filed product liability
claims against various tire manufacturers and recappers. However, none of those claims are
relevant to the case at bar.

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because insurance coverage existed pursuant to (1) a resolution passed by the Trustees of

Indiana University in 1971, (2) the University’s Self-Insurance Fund Document, and (3) the

University’s Self-Insurance Fund Policy on Auto Coverage. The Krueger Estate also argued

that the University should indemnify the Jones Estate, under similar theories. The University

claimed that, under the circumstances presented, no contractual, common law, or statutory

authority existed which obligated it to defend and indemnify the Jones Estate against the

claims filed by the Krueger Estate.

¶10 On February 8, 2001, the District Court denied all of the motions for summary

judgment. In so doing, the District Court concluded that: the University was under no

common law duty to indemnify the Jones Estate, i.e., neither promissory nor equitable

estoppel apply; the 1971 resolution does not impose a duty on the University to indemnify

the Jones Estate; the University does not constitute an insurance company, therefore, the

statutory obligations imposed upon insurance companies have no application here; Jones was

not a third-party beneficiary of the University’s risk management policy; Jones was a

University employee during his time at the field station; the University is self-insured but the

“guidelines” developed by the director of the Risk Management Office, Larry Stephens, are

“ambiguous, confusing, and frequently contradictory”; a factual due process question

remains regarding whether the University appropriately applied its risk management practices

to this case in denying coverage; and a factual question remains as to whether Jones waived

any right to indemnity in the Assumption of Risk form. The case proceeded to a non-jury

trial on March 19, 2001.

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¶11 Following the non-jury trial, the District Court entered its Findings of Fact,

Conclusions of Law, and Order on May 17, 2001. The District Court concluded that the

University’s self-insurance documents intended to provide coverage for permissive users of

University vehicles, such as Jones. The court concluded that Jones did not waive the right

to indemnification when he signed the Assumption of Risk form. Therefore, the Jones Estate

maintained a property interest in the indemnification. The court found that the University

relied upon “[un]ascertainable, ambiguous, and confusing” standards in administering its

self-insurance program. In handling the Jones Estate’s demand for coverage, the District

Court found the University’s “application of the ‘standards’ to be arbitrary and capricious.”

Accordingly, the District Court concluded that the University had to “provide self-insurance

coverage and indemnification to the Jones Estate as a result of the July 12, 1998, automobile

accident . . . .” The District Court also initially awarded the Jones Estate costs, expenses,

and attorney fees incurred in defending the declaratory judgment action.

¶12 On July 27, 2001, pursuant to Rule 59(g), M.R.Civ.P., the University moved the

District Court to alter its judgment to strike the award of attorney fees and expenses. The

University argued that no statutory or contractual basis existed to support such an award.

Further, the University insisted that none of the common law doctrines authorizing an award

of attorney fees applied to this case.

¶13 The District Court agreed with the University that no statutory or contractual

provisions existed to support an award of attorney fees and expenses. The court noted a

court’s equitable power to enter such an award pursuant to Foy v. Anderson (1978), 176

Mont. 507, 580 P.2d 114. However, the District Court also recognized the “frivolous or

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malicious action” caveat placed upon its equitable power to award attorney fees, as stated

in National Cas. Co. v. American Bankers, 2001 MT 28, 304 Mont. 163, 19 P.3d 223. The

District Court concluded that the University did not force the Jones Estate to defend against

a frivolous or malicious action. Therefore, the court struck the award of attorney fees and

expenses from its May 17, 2001, ruling.

¶14 On September 27, 2001, the Jones Estate filed a notice of appeal from the District

Court’s order with regard to the Rule 59(g), M.R.Civ.P., motion. This appeal implicates the

award of attorney fees and expenses only. The University has not appealed from the May

17, 2001, judgment in favor of the Jones Estate and Krueger Estate.

STANDARD OF REVIEW

¶15 A district court’s underlying decision as to whether legal authority exists to award

attorney fees is a conclusion of law. Braach v. Graybeal, 1999 MT 234, ¶ 6, 296 Mont. 138,

¶ 6, 988 P.2d 761, ¶ 6. We review conclusions of law to determine whether the district

court’s interpretation of the law is correct. Trifad Entertainment, Inc. v. Anderson, 2001 MT

227, ¶ 27, 306 Mont. 499, ¶ 27, 36 P.3d 363, ¶ 27. Further, a district court’s grant or denial

of attorney fees is a discretionary ruling which we review for abuse of discretion. National

Cas. Co., ¶ 27.

DISCUSSION

¶16 Did the District Court err when it denied the Jones Estate’s request for attorney fees

incurred in the declaratory judgment action?

¶17 As indicated above, the District Court initially awarded attorney fees and expenses

to the Jones Estate because it found the University’s “application of the [self-insurance]

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‘standards’ to be arbitrary and capricious.” However, upon consideration of the University’s

Rule 59(g), M.R.Civ.P., motion, the District Court retracted the award. It did so for two

reasons–it concluded that (1) no statutory or contractual provision authorizes such an award

and (2) the equitable exception to the American Rule recognized in Foy does not apply as

the University did not force the Jones Estate to defend against a frivolous or malicious

action. As for the Jones Estate’s entreaties to modify the existing state of the law, the

District Court stated:

[T]he Jones Estate suggests that it is about time that the courts of Montana
made provision for the award of attorney fees in cases such as this. However,
this Court is constrained to follow the orders it has received from the Montana
Supreme Court. If this indeed is such a time for a change in the law, then the
Jones Estate can make that argument to the Montana Supreme Court.

¶18 The Jones Estate cites three reasons why the District Court abused its discretion when

it rescinded the award of attorney fees and expenses. First, the Jones Estate argues that

statutory authority exists to support such an award, i.e., §§ 27-8-311 and -313, MCA, of the

Uniform Declaratory Judgments Act (“UDJA”). Second, the Jones Estate maintains that we

should overrule Yovish v. United Services Auto. Ass’n (1990), 243 Mont. 284, 794 P.2d 682,

and afford attorney fees in declaratory judgment actions where an insured prevails on a duty

to indemnify issue, under a breach of contract theory.2 Finally, the Jones Estate submits that

the District Court’s finding of “arbitrary and capricious” conduct is tantamount to the

“frivolous or malicious” caveat imposed upon a court’s equitable powers to award attorney

2
Essentially, the Jones Estate requests that we expand one of the exceptions to the
American Rule. Such an expansion would entitle insureds to relief in the form of attorney fees in
situations where an insurer breaches its duty to indemnify under a similar rationale employed in
breach of the duty to defend cases, such as Home Insurance Company v. Pinski Brothers, Inc.
(1972), 160 Mont. 219, 500 P.2d 945, and its progeny.

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fees. See National Cas. Co., ¶ 28. Irrespective of which rationale prevails, the Jones Estate

maintains that equity compels an award because:

The present case is a good example of the unfairness of the current law.
The Jones Estate incurred $51,417.05 in fees and expenses because Indiana
University chose to bring a declaratory judgment action in which the District
Court found that it acted arbitrarily and capriciously in denying coverage.
Because of the exceptionally high standard set by the Foy exception, the Jones
Estate cannot be made whole without the further delay and expense of a bad
faith action against the University.

¶19 Montana follows the general American Rule that a party in a civil action is not

entitled to attorney fees absent a specific contractual or statutory provision. Mountain West

Farm Bureau v. Hall, 2001 MT 314, ¶ 13, 308 Mont. 29, ¶ 13, 38 P.3d 825, ¶ 13. However,

we have recognized equitable exceptions to the American Rule. See, e.g., Mountain West,

¶ 14 (awarding attorney fees when a party incurs legal fees to establish a common fund

which avails non-participating beneficiaries); National Cas. Co., ¶ 28 (awarding attorney

fees where a party has been forced to defend against a wholly frivolous or malicious action);

School Trust v. State ex rel. Bd. of Com’rs, 1999 MT 263, ¶ 67, 296 Mont. 402, ¶ 67, 989

P.2d 800, ¶ 67 (awarding attorney fees pursuant to the private attorney general theory).

¶20 On appeal, the Jones Estate does not suggest entitlement to attorney fees on account

of a contractual provision. In fact, in its Order on Cross-Motions for Summary Judgment,

the District Court found:

[T]here is no contract involved in Indiana University’s self-insurance
operation. It is true that the risk management office assesses costs of the self-
insurance fund to various departments, but those departments are not separate
legal entities that contract for insurance. Rather, they budget a portion of their
funds towards the services of their risk management office.

....

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 In the view of this Court, there is no contract in this case since Indiana
University has not contracted with anyone. As noted by the Trustees of
Indiana University there is one legal entity and that is the Trustees of Indiana
University. The arrangements that Indiana University may have with its
various departments are not contracts since the departments are not separate
entities apart from Indiana University. Thus, since there is no “contract,” there
can be no third-party beneficiary of that “contract.” [Citations omitted.]

¶21 Likewise, the District Court concluded:

In our quest to see if there is any duty of indemnity owed by Indiana
University, we must determine if Indiana University is acting as an insurance
company. The Court is able to rule that Indiana University is not an insurance
company nor is it an insurer. . . .

Defendants in this case have not cited this Court any persuasive
authority that would make the Trustees of Indiana University insurers or an
insurance company because they are self-insured or have a risk management
office. . . . [S]elf-insurance is the antithesis of insurance. . . . Further, there is
no contract involved in Indiana University’s self-insurance operation.

....

[T]he Court hereby rules that the Trustees of Indiana University are not
operating as an insurance company or offering an insurance policy through the
operation of their risk management office. Thus, rules that place statutory
requirements on insurance companies have no application here. [Citations
omitted.]

The Jones Estate has not challenged these findings on appeal. Thus, since the District Court

concluded that no contract exists and that this case is not an insurance case, we decline to

examine an award of attorney fees within the context of the insurance exception announced

in Pinski Brothers.

¶22 Conversely, the Jones Estate maintains that statutory authority supports an award of

attorney fees. The Jones Estate submits that the plain language of the UDJA, specifically

§§ 27-8-311 and -313, MCA, vests discretionary authority in district courts to award attorney

fees in declaratory judgment actions. The University counters that (1) the Jones Estate failed

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to assert the UDJA arguments before the District Court and we should, therefore, refuse to

address those issues on appeal and, alternatively, (2) this Court has repeatedly held that no

section of the UDJA authorizes an award of attorney fees. We will address each of the

University’s contentions in turn.

¶23 The University claims that we “should not consider this line of argument, for the

Appellant never raised it in the trial court.” In its answer to the Complaint for Declaratory

Judgment, the Jones Estate requested that the District Court “[a]ward the Defendant his fees

and costs in defending this action; and . . . [a]ward the Defendant such other relief as the

Court may deem just and proper.” At one juncture, the Jones Estate referred the court to

§ 27-8-311, MCA, with regard to the recovery of costs, but, as the University indicates, the

Jones Estate never explicitly referenced § 27-8-313, MCA.

¶24 Regardless of whether the Jones Estate expressly invoked §§ 27-8-311 and -313,

MCA, the parties clearly litigated the underlying coverage dispute within the confines of the

UDJA. In fact, they did so at the University’s behest. Further, the Jones Estate notified all

of the interested litigants of its request for attorney fees at the action’s inception. Now, the

party which once sought refuge from the UDJA seeks to preclude consideration of particular

discretionary provisions of the act, provisions which a court might arguably invoke sua

sponte pursuant to Rule 54(c), M.R.Civ.P.3 See In re Estate of Bayers, 1999 MT 154, 295

Mont. 89, 983 P.2d 339. The intimation that we should observe select portions of the UDJA

3
Rule 54(c), M.R.Civ.P., provides in pertinent part that “[e]xcept as to a party against
whom a judgment is entered by default, every final judgment shall grant the relief to which the
party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the
party’s pleadings.”

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in declaratory judgment actions and eschew others is not well taken. Moreover, as a matter

of fairness, both parties have had the opportunity to fully brief and argue the provisions’

application on appeal. Therefore, we reject the University’s attempts to bar consideration

of §§ 27-8-311 and -313, MCA, with respect to an award of attorney fees.

¶25 Alternatively, the University cites three cases for the proposition that “no section of

the [UDJA] . . . authorizes an award of attorney fees,” State ex rel. Dept. of Health v. Lincoln

Cty. (1978), 178 Mont. 410, 584 P.2d 1293, McKamey v. State (1994), 268 Mont. 137, 885

P.2d 515, and Dorwart v. Caraway, 1998 MT 191, 290 Mont. 196, 966 P.2d 1121. In State

ex rel. Dept. of Health, the State Department of Health and Environmental Sciences

(“DHES”) filed a complaint against Lincoln County and its commissioners to preclude them

from violating the open burning permit requirements. The district court entered an order

which permanently enjoined the Lincoln County commissioners from violating the permit

requirements. Further, the district court awarded DHES its attorney fees and costs incurred

in the action.

¶26 On appeal, Lincoln County raised several issues, including the legitimacy of the

attorney fee award. This Court affirmed the award of attorney fees, stating that “[t]he award

of attorney fees is consistent with prevention of future repetitions of similar actions . . . .”

State ex rel. Dept. of Health, 178 Mont. at 418, 584 P.2d at 1298. However, we also stated:

The award of attorney fees could have been eliminated entirely had Lincoln
County in the first instance filed an action for declaratory judgment to test the
validity of the Board’s rule on open burning and the permit requirements.
There is no provision for an award of attorney fees in a declaratory judgment.

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State ex rel. Dept. of Health, 178 Mont. at 418, 584 P.2d at 1297-98. The opinion does not

cite any authority for this proposition, other than a general citation to the UDJA, or undertake

any analysis in arriving at this conclusion. The opinion provides no indication that either

party raised §§ 27-8-311 or -313, MCA, or their predecessors. In fact, the opinion is devoid

of any specific reference to either provision.

¶27 In McKamey, Joseph McKamey, a civilian firefighter employed by the State of

Montana, Department of Military Affairs, filed suit against the state. McKamey sought

declaratory, injunctive, and equitable relief from a military service requirement endorsed by

the Personnel Division of the State of Montana which exempted certain employment

positions from the wage requirements of the State Compensation Plan. The district court

granted summary judgment in favor of McKamey and ordered each party to pay their

respective attorney fees and costs. McKamey appealed the attorney fee issue to this Court.

¶28 McKamey cited §§ 25-10-711 (award of costs against a governmental entity when the

suit or defense is frivolous or pursued in bad faith) and 27-8-311, MCA, as authority for an

award of attorney fees and costs. We indicated that § 27-8-311, MCA, authorizes a court

to award costs, as may seem equitable and just, in a declaratory judgment action. McKamey,

268 Mont. at 148, 885 P.2d at 522. We then cited State ex rel. Dept. of Health for the

proposition that “[t]here is no provision for an award of attorney fees in an action for

declaratory judgment” and affirmed the denial of attorney fees and costs. McKamey, 268

Mont. at 148, 885 P.2d at 522. McKamey does not reference or analyze § 27-8-313, MCA.

Instead, in the absence of bad faith, McKamey affirmed the denial of attorney fees based

solely on the perfunctory conclusion announced in State ex rel. Dept. of Health.

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¶29 In Dorwart, we reiterated the prohibition against recovery of attorney fees in

declaratory judgment actions, citing the rule announced in State ex rel. Dept. of Health. See

Dorwart, ¶ 133. However, again, we did so without referencing or analyzing §§ 27-8-311

or -313, MCA. Our research indicates that two additional cases articulate a prohibition

against recovery of attorney fees in declaratory judgment actions. See State ex rel. Swart v.

Casne (1977), 172 Mont. 302, 310, 564 P.2d 983, 987; State ex rel. Leach v. Visser (1988),

234 Mont. 438, 443, 767 P.2d 858, 861. Likewise, these cases fail to reference or analyze

§§ 27-8-311 or -313, MCA. As the case at bar squarely presents the issue of whether

§§ 27-8-311 and -313, MCA, permit an award of attorney fees in declaratory judgment

actions, and as the above referenced cases do not entertain such an analysis, we deem it

necessary to revisit the alleged proscription.

¶30 Section 27-8-311, MCA, the costs provision of the UDJA, provides that “[i]n any

proceeding under this chapter the court may make such award of costs as may seem equitable

and just.” It is well-settled in Montana that attorney fees “are not allowed as costs under

statutory provisions for costs in ordinary litigation, that they are not, in any proper sense, a

part of the costs in a case.” Kintner v. Harr (1965), 146 Mont. 461, 480, 408 P.2d 487, 498.

See also Martin v. Randono (1981), 191 Mont. 266, 270, 623 P.2d 959, 962 (“The statutory

term ‘costs’ does not include attorney fees.”).

¶31 In Schillinger v. Brewer (1985), 215 Mont. 333, 697 P.2d 919, we addressed whether

attorney fees were “costs” in a mechanic’s lien foreclosure case. We noted that § 25-10-501,

MCA, did not say that fees were costs and that the “costs generally allowable” provision,

§ 25-10-201, MCA, does not acknowledge attorney fees as a recoverable cost. Schillinger,

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215 Mont. at 337, 697 P.2d at 922. Likewise, § 27-8-311, MCA, does not expressly equate

attorney fees with costs. Further, nothing in the UDJA or plain language of § 27-8-311,

MCA, suggests that we should construe “costs” in declaratory judgment actions differently

than our historical interpretation of the term. Therefore, we hold that § 27-8-311, MCA,

does not authorize an award of attorney fees.

¶32 Section 27-8-313, MCA, provides:

Supplemental relief. Further relief based on a declaratory judgment
or decree may be granted whenever necessary or proper. The application
therefor shall be by petition to a court having jurisdiction to grant the relief.
If the application be deemed sufficient, the court shall, on reasonable notice,
require any adverse party whose rights have been adjudicated by a declaratory
judgment or decree to show cause why further relief should not be granted
forthwith.

While we have not examined § 27-8-313, MCA, within the context of attorney fees, we have

stated the following about the provision:

The statute enables the District Court to retain jurisdiction to grant
further relief as it deems necessary and proper to enforce the declaratory
judgment. The supplemental relief should be designed to provide complete
relief to the parties, which may include a monetary judgment or coercive relief
or both. In fashioning the remedy, the court is not bound by the relief
requested in the complaint but may order any relief needed to effectuate the
judgment.

Goodover v. Lindey’s, Inc. (1990), 246 Mont. 80, 82, 802 P.2d 1258, 1260 (citations

omitted).

¶33 Following the 1990 Goodover decision, the district court ordered Lindey’s to pay

Goodover $10,761.86 in attorney fees. Lindey’s appealed and we reversed the award in

Goodover v. Lindey’s, Inc. (1992), 255 Mont. 430, 843 P.2d 765. The University contends

that the district court awarded attorney fees to Goodover pursuant to § 27-8-313, MCA.

15
Thus, it argues that our reversal of that award proves dispositive to the case at bar. However,

in the 1992 opinion we noted:

The District Court did not rely on any statute or rule of civil procedure in its
award of attorney’s fees. Instead, the District Court first relied on a United
States Supreme Court decision that discussed the powers of the federal district
court to assess attorney’s fees as an appropriate sanction under the “bad faith”
exception to the general rule. The District Court then concluded that its
general equity power to make a party whole in some cases included the right
to award attorney’s fees, and that Lindey’s bad faith and malicious behavior
towards Goodover merited such an award.

Goodover, 255 Mont. at 445-46, 843 P.2d at 774. Ultimately, we reversed the award

because the action presented “neither a statutory nor a contractual basis for the award of

attorney’s fees, nor [did] it fall within one of the narrow exceptions to the [American Rule].

. . .” Goodover, 255 Mont. at 449, 843 P.2d at 776. As neither the parties, nor the district

court advanced a statutory argument in favor of the award, our reversal of the award proves

inapplicable to the case at bar.

¶34 Likewise, contrary to the University’s contention, Yovish proves inapplicable to the

statutory analysis at hand. In Yovish, we reversed an award of attorney fees in a declaratory

judgment action because we “hesitate[d] to expand the exception to the [American Rule]

without legislative authority.” Yovish, 243 Mont. at 291, 794 P.2d at 686. However, we

expressly indicated that “[t]his action presents neither a statutory nor a contractual basis for

an award of attorney fees.” Yovish, 243 Mont. at 290, 794 P.2d at 686. As this Court was

presented with a different issue in Yovish, it should not preclude our consideration of the

statutory issues proffered sub judice.

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¶35 Whether § 27-8-313, MCA, authorizes an award of attorney fees is an issue of first

impression in Montana. Therefore, we find it useful to review other jurisdictions’ treatment

of the uniform “supplemental relief” provision to aid in our interpretation and application of

§ 27-8-313, MCA.

¶36 While the “uniform” supplemental relief provision of the UDJA has experienced

widespread adoption, research indicates that construction and application of the provision

remains anything but harmonious. However, several jurisdictions have interpreted their

respective supplemental relief provisions to authorize attorney fee awards in declaratory

judgment actions. See, e.g., Security Ins. Co. of New Haven v. White (10th Cir. 1956), 236

F.2d 215, 220 (providing that the grant of power contained in the supplemental relief

provision authorizes a court to award attorney fees where it is necessary or proper to

effectuate relief); Advertiser Co. v. Auburn University (Ala. Civ. App. 1991), 579 So.2d 645,

647 (awarding of attorney fees is discretionary in declaratory judgment actions under the

“further relief” provision); Elliott v. Donahue (Wis. 1992), 485 N.W.2d 403, 409 (“[T]he

supplemental relief under [the UDJA] may include a recovery of attorney fees incurred by

the insured in successfully establishing coverage under an insurance policy.”); State Farm

Fire and Cas. Co. v. Sigman (N.D. 1993), 508 N.W.2d 323, 326 (stating that the supplemen-

tal relief provision provides an independent ground for the award of attorney fees).

¶37 Prior to September 1999, the Ohio Declaratory Judgments Act contained a

supplemental relief provision virtually identical to § 27-8-313, MCA, as discussed in greater

detail below. In Motorists Mut. Ins. Co. v. Brandenburg (Ohio 1995), 648 N.E.2d 488, 490,

pursuant to its then existing supplemental relief provision, the Ohio Supreme Court held that

17
“a trial court has the authority under [the UDJA] to assess attorney fees based on a

declaratory judgment issued by the court.” In September 1999, the Ohio Legislature codified

R.C. 2721.16 to supercede Brandenburg and prohibit the award of attorney fees in

declaratory judgment actions, with certain exceptions. However, there exists no similar

statutory prohibition in Montana. Although the holding has been superceded by statute, we

find the Ohio Supreme Court’s interpretation of the supplemental relief provision in

Brandenburg compelling.

¶38 In Brandenburg, following a “multiple-vehicle chain-reaction accident,” Billie

Brandenburg submitted a claim to his insurance company for uninsured motorist coverage.

The insurance company denied the claim and subsequently filed a declaratory judgment

action seeking a declaration of rights under the insurance policy. The trial court concluded

that Brandenburg was entitled to coverage under the uninsured motorists provision of the

policy. Further, the trial court awarded Brandenburg his attorney fees incurred in the

declaratory judgment action. The Ohio Court of Appeals reversed the award of attorney fees

on the grounds that the insurance company did not act in bad faith or breach its duty to

defend. The Ohio Court of Appeals did not address whether the UDJA authorized the award.

Brandenburg appealed the Ohio Court of Appeals’ decision to the Ohio Supreme Court.

¶39 The Ohio Supreme Court analyzed the award of attorney fees within the context of

the supplemental relief provision of Ohio’s Declaratory Judgments Act. That provision, R.C.

2721.09, which was virtually identical to § 27-8-313, MCA, provided:

[W]henever necessary or proper, a court of record may grant further relief
based on a declaratory judgment or decree previously granted under this
chapter. The application for the further relief shall be by a complaint filed in

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 a court of record with jurisdiction to grant the further relief. If the application
is sufficient, the court, on reasonable notice, shall require any adverse party
whose rights have been adjudicated by the declaratory judgment or decree to
show cause why the further relief should not be granted forthwith.

Brandenburg argued that “regardless of the specific duties imposed upon an insurer and

irrespective of the insurer’s conduct, a trial court, as incidental to a declaration of an

insurer’s obligations to its insured, has the discretion under R.C. 2721.09 to permit a

recovery of attorney fees by the insured.” Brandenburg, 648 N.E.2d at 490. The Ohio

Supreme Court agreed.

¶40 In holding that the supplemental relief provision authorized an award of attorney fees,

the Ohio Supreme Court concluded:

R.C. 2721.09 plainly permits a trial court, following a binding judicial
interpretation of an insurance policy based upon a declaratory judgment
action, to provide relief which the court deems “necessary or proper.”

By its clear terms, the intent of R.C. 2721.09, affording further relief
in declaratory judgment actions, is to provide a trial court with the authority
to enforce its declaration of right. . . . Nowhere in R.C. Chapter 2721 is there
any provision which narrows the broad authority conferred by R.C. 2721.09.
Moreover, R.C. 2721.09 does not place any legal significance on the insurer’s
conduct nor is the operation of the section conditioned on which party actually
prevails in the underlying action. Rather, the only limitation placed on the
trial court is that the relief must be “necessary or proper.” Hence, this court
should not create a blanket limitation precluding an award of attorney fees
based upon conduct of a party and/or who wins or who loses. . . .

Accordingly, we hold that a trial court has the authority under R.C.
2721.09 to assess attorney fees based on a declaratory judgment issued by the
court. The trial court’s determination to grant or deny a request for fees will
not be disturbed, absent an abuse of discretion.

Brandenburg, 648 N.E.2d at 490. In examining whether the trial court abused its discretion

when it awarded attorney fees, the Ohio Supreme Court observed:

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 [I]t is evident that the trial court recognized the anomalous result that may
arise in these types of cases. Here, appellants were covered by an insurance
policy they had purchased. They sought to have their own insurance company
compensate them (pursuant to uninsured motorists coverage) for losses they
incurred. Subsequent to the court of appeals’ previous decision mandating
coverage, the parties (appellee and appellants) apparently settled appellants’
claims for $2,000. To effect this recovery, appellants were forced to retain
counsel and expend at least $10,339.15. Under these circumstances,
appellants would have been better off if they had been without insurance.

Brandenburg, 648 N.E.2d at 490-91. Accordingly, the Ohio Supreme Court reversed the

judgment of the Ohio Court of Appeals and reinstated the award of attorney fees.

¶41 As in Brandenburg, Montana’s Declaratory Judgments Act contains no provision

which narrows the broad, discretionary authority conferred by § 27-8-313, MCA. In fact,

the Montana Legislature has expressly issued a mandate to the contrary. Section 27-8-102,

MCA, provides:

Purpose–liberal construction. This chapter is declared to be remedial;
its purpose is to settle and to afford relief from uncertainty and insecurity with
respect to rights, status, and other legal relations; and it is to be liberally
construed and administered.

We believe that the absence of prohibitive language in the UDJA, coupled with the liberal

construction directive, compel a Brandenburg-like interpretation of § 27-8-313, MCA. Such

an interpretation further comports with our statement in Goodover that “[t]he supplemental

relief should be designed to provide complete relief to the parties, which may include a

monetary judgment or coercive relief or both.” Goodover, 246 Mont. at 82, 802 P.2d at

1260.

¶42 Admittedly, Brandenburg and most of the cases from other jurisdictions cited above

analyze the supplemental relief provisions within the context of a traditional insurer/insured

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relationship. However, we need not limit application of the above rationale to the typical

insurance arrangement. For, § 27-8-313, MCA, draws no distinction between declaratory

judgment actions adjudicating the rights of an insured against an insurer and those actions

adjudicating rights outside the confines of an insurance policy. Based on the rationale

articulated in Brandenburg, we hold that § 27-8-313, MCA, authorizes a court to award

attorney fees when the court, in its discretion, deems such an award “necessary or proper.”

¶43 We realize the “necessary or proper” language presents a somewhat nebulous standard

for trial courts attempting to exercise their discretionary powers. We offer the following

analysis of the Ohio Court of Appeals, not to define the exclusive circumstances justifying

an award, but to articulate some tangible parameters for trial courts forging through

declaratory judgment actions hereafter.

¶44 Following Brandenburg, the Ohio Court of Appeals sought to define the “necessary

or proper” limits in McConnell v. Hunt Sports Ent. (Ohio Ct. App. 1999), 725 N.E.2d 1193.

In McConnell, the court acknowledged the “anomalous result” circumstance, present in

Brandenburg, as one situation satisfying the “necessary or proper” requirement:

Had no attorney fees been awarded [in Brandenburg], the insureds would have
been worse off than if a declaration of their rights had never been made. In
this situation, the trial court’s authority to enforce its declaration would have
been meaningless. Further, litigation was required in order for the insureds to
obtain coverage.

McConnell, 725 N.E.2d at 1224. The court also recognized that a party might recover

attorney fees incurred in a declaratory judgment action, when no other alternative was

available, to “remove the cloud from title to . . . property.” McConnell, 725 N.E.2d at 1225

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(citing Culberson Transp. Serv., Inc. v. John Alden Life Ins. Co. (Ohio Ct. App. 1997), 1997

WL 358857).

¶45 The court justified the awards in the above circumstances based on the following:

In Brandenburg and Culberson, the bases for finding attorney fees were
necessary or proper lay in the fact that without a declaration, the insureds in
Brandenburg would not have coverage under their insurance policy and the
plaintiffs in Culberson would have a cloud on their title. In those cases, the
insurance company and the mortgagee essentially “possessed” what the
insureds and plaintiffs sought in the litigation. Therefore, the insureds and
plaintiffs in Brandenburg and Culberson needed a declaration that they were
entitled to such “property” (in Brandenburg, the insureds sought, as a practical
matter, $2,000 and in Culberson, the plaintiffs sought to lift the cloud from
their title). In short, the declarations sought in those cases were necessary in
order to change the status quo. Attorney fees expended in acquiring such
declarations were necessary or proper to afford meaningful relief.

McConnell, 725 N.E.2d at 1225. In McConnell, the Ohio Court of Appeals reversed an

award of attorney fees, awarded in favor of the party which filed the declaratory judgment

action, because the filing party commenced the declaratory judgment action for purely

tactical reasons. The court concluded:

While such decisions may have proved resourceful, they were not necessary
in order to change or preserve the status quo. . . . Simply because appellees
made a tactical move and filed a declaratory judgment action does not
automatically mean they are entitled to attorney fees under R.C. 2721.09.
Tactical decisions do not equal necessary or proper as contemplated by the
statute.

McConnell, 725 N.E.2d at 1225. Again, we do not intend for the above examples to

constitute exhaustive factual scenarios. We simply offer McConnell’s analysis for guidance

in future applications of § 27-8-313, MCA.

¶46 In summary, § 27-8-311, MCA, does not authorize an award of attorney fees in

declaratory judgment actions. To the extent State ex rel. Dept. of Health, McKamey,

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Dorwart, State ex rel. Swart, and State ex rel. Leach are consistent with this conclusion, they

are affirmed. However, § 27-8-313, MCA, does provide discretionary authority for an award

of attorney fees. Therefore, to the extent State ex rel. Dept. of Health, McKamey, Dorwart,

State ex rel. Swart, and State ex rel. Leach suggest otherwise, they are overruled. For the

foregoing reasons, we hold that the District Court erred when it concluded that it lacked

authority to award attorney fees. We remand this matter for the District Court to determine,

pursuant to § 27-8-313, MCA, whether an award of attorney fees is “necessary or proper,”

and, if so, the amount of such award.

¶47 Reversed and remanded for further proceedings consistent with this Opinion.

/S/ JIM REGNIER

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We Concur:

/S/ PATRICIA COTTER
/S/ TERRY N. TRIEWEILER
/S/ W. WILLIAM LEAPHART
/S/ JIM RICE

/S/JOE L. HEGEL
Judge Joe Hegel sitting for Chief Justice Gray

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¶48 Justice James C. Nelson concurs and dissents.

¶49 I concur in the result reached by the majority. I cannot, at this time, however, agree

in the majority’s analysis with respect to § 27-8-313, MCA. I do not believe that this is an

appropriate case to apply § 27-8-313, MCA, because, as the majority concedes, the Jones

Estate failed to argue this section in the District Court.

¶50 Rather, based upon the record before us, I conclude that the University was acting as

and should be deemed to be a de facto insurer. I also conclude that the District Court erred,

as a matter of law, in its determination that Indiana University was not an insurer.

¶51 In support of my conclusion the following facts are relevant. In 1987, the University

began a self-insurance program by which it retained the risk of its liability up to $1 million.

The University also purchased a $15 million excess liability policy from TIG Insurance

Company.

¶52 The University’s Risk Management Office administers the self-insurance fund,

operating like an insurance company within the University system. The University

departments make payments to the Risk Management Office. The money is used to pay

claims and run the Risk Management Office.

¶53 The Risk Management Office employs claims adjusters who handle internal claims

within the University and external claims against the University. The Risk Management

Office runs a loss prevention program and purchases commercial insurance as needed. It

also purchases and administers coverage for independent corporations and entities associated

with the University.

25
¶54 Larry Stephens, the Director of the Risk Management Office, created a 230 page

document styled “Indiana University, Operation of the Indiana University Self Insurance

Fund.” This document contains policies which risk management adjusters use as guidelines

to adjust claims. Additionally, Mr. Stephens drafted a five-page document styled “Indiana

University Office of Risk Management, I.U. Self-Insurance Fund (IUSIF), Policy on Auto

Coverage.” This document was reviewed and approved by Indiana University’s legal

department and by a vice president. The University claimed that its adjusters used these

documents as references in adjusting claims and in advising its insureds concerning coverage.

The University claimed that these were only guidelines and did not bind the University in

any manner.

¶55 According to COUCH ON INSURANCE 3D:

Whether a self-insured party is considered to be providing “insurance”
depends in large part on (1) the purpose of the analysis, (2) whether the
arrangement described as self-insurance is, in reality, an effort by the party to
assume insurable risks or merely amounts to a “deductible,” and (3) whether
the entity has made a conscious, calculated decision to estimate its risk and set
aside sufficient funds to cover expected losses, or simply and somewhat
offhandedly decided to save the cost of purchasing insurance by merely hoping
that no losses would occur.

1 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON INSURANCE 3D, § 10:2 (1997).

¶56 I conclude that each of these three tests is satisfied based upon the record in this case.

Indiana University was, indeed, acting as an insurer. The University clearly was assuming

insurable risks in the same way that an insurance company would, and it was conducting its

insurance operations in the same way that a commercial insurance company would. It is also

clear that the University made a conscious, calculated decision to estimate its risks and to set

26
aside sufficient funds to cover those expected losses rather than simply and somewhat

offhandedly attempt to save the cost of purchasing insurance by hoping that no losses would

occur.

¶57 Since the University was a de facto insurer and since the question at issue in this

appeal involves whether a first-party insurer's improper refusal to indemnify will give rise

to a claim for attorney fees and non-statutory costs, I conclude that the appropriate analytical

construct in this case should be that adopted by this Court in Mountain West Farm Bureau

Mut. Ins. Co. v. Brewer, 2003 MT 98, ¶¶ 8-36, 43-53, ___ Mont. ___, ¶¶ 8-36, 43-53, ___

P.3d ___, ¶¶ 8-36, 43-53 (Trieweiler, T, concurring and dissenting).

¶58 While I agree with the majority’s analysis of our prior case law as set forth in ¶¶ 25-

29, I nonetheless believe that the attorney fees and costs question in the case at bar is better

analyzed and resolved under the insurance exception discussed in Mountain West and the

concurrence, rather than on the basis of § 27-8-313, MCA--a statute and theory that was not

argued in the District Court.

¶59 Accordingly, I concur in the result of our Opinion but not in our application of § 27-8-

313, MCA.

/S/ JAMES C. NELSON

27