Beaverhead Co. v. MACo

2014 MT 267

• Court: Montana Supreme Court
• Decided: October 7, 2014
• Docket: 13-0853
• Status: Published

Opinion

October 7 2014

DA 13-0853

IN THE SUPREME COURT OF THE STATE OF MONTANA

2014 MT 267

BEAVERHEAD COUNTY, a political subdivision of the State of Montana,

Plaintiff and Appellant,

v.

MONTANA ASSOCIATION OF COUNTIES JOINT POWERS INSURANCE AUTHORITY,

Defendant and Appellee.

APPEAL FROM: District Court of the Fifth Judicial District, In and For the County of Beaverhead, Cause No. DV-13-13666 Honorable Brenda R. Gilbert, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Andrew P. Suenram, Adam M. Shaw, Erb & Suenram, PLLC; Dillon, Montana

For Appellee:

Gary M. Zadick, Ugrin, Alexander, Zadick & Higgins, P.C.; Great Falls, Montana

Submitted on Briefs: September 17, 2014 Decided: October 7, 2014

Filed:

Clerk Justice Michael E Wheat delivered the Opinion of the Court.

¶1 Beaverhead County (County) appeals from the order of the Montana Fifth Judicial

District Court, Beaverhead County, granting summary judgment in favor of the Montana

Association of Counties Joint Powers Insurance Authority (MACo). We affirm.

ISSUES

¶2 We review the following issues:

1. Did the District Court err by granting summary judgment on the issue of MACo’s

duty to defend?

2. Did the District Court err by considering the insurance policy’s Exclusion 23

when granting summary judgment?

FACTUAL AND PROCEDURAL BACKGROUND

¶3 In 2009, the County invited interested persons to submit bids for the Blacktail Deer

Creek Stream Rehabilitation and Bridge Replacement Project. Coleman Construction

(Coleman) submitted a bid, and the County subsequently selected Coleman to complete the

project. However, Coleman was unable to finish the project on time or for the amount of

money that it originally estimated.

¶4 Coleman sued for damages, filing a complaint against the County on April 4, 2011.

Coleman asserted ten claims for relief. Seven of these claims expressly alleged a breach of

contract, asked for relief from the contract, or asked for reformation of the contract. The

other three claims, claims 1-3, stated:

2 First Claim for Relief (Negligent Misrepresentation) . . .

37. Defendants knew or should have known that certain material representations contained in the Contract Documents were not true. . . .

41. Defendants’ negligent representations, both expressed and implied, materially affected the cost and time necessary to perform the work . . . .

Second Claim for Relief (Negligence) . . .

43. Under applicable codes and industry standards, Defendants had a duty of care to Coleman, as a general contractor and prospective bidder, to exercise appropriate care when preparing Contract Documents for the purpose of inviting the submission of secured bids. 44. Defendants[] each and severally breached their duty of care by preparing and providing Contract Documents that contain material defects and were not otherwise prepared in compliance with applicable codes or industry standards. 45. Defendants’ negligence materially impacted the cost and time actually necessary to perform the work, causing Coleman to suffer damages, costs, fees, and expenses . . . .

Third Claim for Relief (Professional Negligence) . . .

48. In order to have his bid considered Coleman was required under the terms of the Contract Documents to follow plans and specifications prepared by Defendants and to post and bond for bids and the performance of work, and to comply with other specified conditions. 49. Coleman submitted a secured bid, obtained the required bond(s) and satisfied other conditions imposed by Defendants on bidders for the Blacktail Project. 50. Because Coleman was required to rely on and conform to the Contract Documents, to provide a secure bid, bond its work, and otherwise comply with Contract Documents prepared by Defendants, Defendants owed Coleman a higher duty of care as professional engineers.

3 ¶5 On April 5, 2011, the County notified MACo, in writing, of Coleman’s complaint and

provided MACo with a copy of the complaint. MACo is a joint risk insurance pool

comprised of Montana counties, and the County carried an insurance policy with it. The

County’s letter requested that, pursuant to its insurance policy, MACo defend and indemnify

the County from the claims against it.

¶6 MACo’s attorney responded with a preliminary decision on April 13, 2011,

recommending that coverage be denied. MACo’s claims administrator confirmed the denial

with a final decision on April 20, 2011. In their communications, both MACo’s attorney and

its claims administrator cited Exclusions 12 and 15 of the MACo JPIA Manuscript Liability

Policy. Exclusion 12 reads: “This policy does not insure against: . . . . Any claim arising out

of a claimed breach of contract or for breach of contract against the Insured.” Exclusion 15

was applied to deny coverage to claim 10 of the complaint only. This denial was not

contested and is not relevant to the present action.

¶7 Both the preliminary and final decisions denying coverage reasoned that “[e]ach of

the claims for relief is clearly based on Beaverhead County’s contract with Coleman and

accordingly falls under this exclusion.” Although MACo recognized that the first three

claims in the complaint were labelled as requests for relief from negligence, it decided,

having examined the complaint and citing this Court’s decision in Town of Geraldine v.

Montana Mun. Ins. Auth., 2008 MT 411, 347 Mont. 267, 198 P.3d 796, that the acts giving

rise to the claims were based on contract, rather than tort. Accordingly, it denied coverage.

4 ¶8 Following MACo’s denial of coverage, the County hired an attorney to defend it

against Coleman’s claims. On June 27, 2011, that attorney sent a letter to MACo on the

County’s behalf. It included his analysis of Coleman’s complaint and asserted that it

triggered MACo’s duty to defend the County under the County’s insurance policy.

Follow-up letters were sent on August 10, 2011 and September 20, 2011. While discussing

MACo’s legal obligations, none of these letters provided any facts that were not already

included in Coleman’s complaint. Another letter was sent on May 23, 2012. It included

Coleman’s responses to interrogatories, in which he explained the factual basis for his claims

against the county. While enumerating the specific instances of breach, Coleman did not

change his position in the interrogatory responses. He continued to base his claims of

negligent misrepresentation, negligence, and professional negligence on representations in

the contract documents. The County sent a final letter to MACo on December 5, 2012, again

asking MACo to reconsider coverage and suggesting that the County could pursue legal

remedies if MACo did not defend and indemnify it in the action against Coleman.

¶9 MACo responded to these letters on December 10, 2012. It continued to contend that

the claims against the county were excluded from coverage based upon Exclusion 12.

MACo also cited Exclusion 23 as an additional basis for denying coverage of claims 1-3.

Exclusion 23 states that the policy does not insure against: “Any claim . . . for faulty

preparation of bid specifications or plans . . . .”

¶10 On January 16, 2013, the County filed a complaint against MACo in district court,

alleging, among other things, that MACo violated its duty to defend. On May 10, 2013,

5 MACo filed a motion for summary judgment. The County filed its own motion for summary

judgment on May 23, 2013. Resolving these cross motions for summary judgment, the

District Court granted summary judgment in favor of MACo. It ruled that MACo did not

have a duty to defend, reasoning that Exclusions 12 and 23 each provided sufficient

independent bases for denying coverage. The County appeals.

STANDARD OF REVIEW

¶11 We review a district court's ruling on a motion for summary judgment de novo.

Newman v. Scottsdale Ins. Co., 2013 MT 125, ¶ 20, 370 Mont. 133, 301 P.3d 348. Doing so,

we apply the same rule as the district court, M. R. Civ. P. 56, which states that summary

judgment “should be rendered if the pleadings, the discovery and disclosure materials on file,

and any affidavits show that there is no genuine issue as to any material fact and that the

movant is entitled to judgment as a matter of law.” M. R. Civ. P. 56(c)(3); Newman, ¶ 20.

DISCUSSION

¶12 1. Did the District Court err by granting summary judgment on the issue of MACo’s

¶13 The County argues that the District Court erred by granting summary judgment in

favor of MACo. It contends that MACo’s duty to defend was triggered because MACo

could not unequivocally demonstrate that the claim was not covered by the insurance policy,

based on Coleman’s complaint, the letters the County sent to MACo, and Exclusion 12. We

disagree.

6 ¶14 The duty to defend arises when a complaint against an insured alleges facts which, if

proved, would result in coverage under an insurance policy. Tidyman’s Mgmt. Servs. v.

Davis, 2014 MT 205, ¶ 22, 376 Mont. 80, 330 P.3d 1139; Farmers Union Mut. Ins. Co. v.

Staples, 2004 MT 108, ¶ 20, 321 Mont. 99, 90 P.3d 381. The insurer has no obligation to

look beyond the complaint in determining whether a claim is covered by a policy, but it

cannot ignore other information actually obtained. Newman, ¶ 56; Staples, ¶ 24. Unless it

unequivocally demonstrates, based on the information before it, that the claim against an

insured does not fall within the insurance policy’s coverage, the insurer has a duty to defend.

Tidyman’s, ¶ 23; Staples, ¶ 24.

¶15 Here, MACo had notice of Coleman’s complaint and, from the excerpts of Coleman’s

interrogatory responses, of some of the specific conduct that Coleman believed gave rise to

the allegations. Based on this information, there was an unequivocal demonstration that

Coleman’s claims against the County did not fall within MACo’s coverage.

¶16 In particular, claims 1-3, the only claims at issue in the present case, were not covered

by the policy, due to Exclusion 12. That provision of the insurance policy excluded from

coverage claims arising from breach of contract. Although claims 1-3 of Coleman’s

complaint were described as tort claims, this description alone does not influence our

analysis. We have held that the acts giving rise to the complaint, and not the complaint’s

legal theories or conclusory language, form the basis for coverage. Geraldine, ¶ 24. Since

claims 1-3 arose from breach of contract, they were not covered by the insurance policy.

7 ¶17 In Geraldine, we held that a breach of contract exclusion was properly relied upon to

deny coverage of claims that the insured asserted were claims of negligent misrepresentation

and constructive fraud. Reasoning that the statement that was allegedly negligent

misrepresentation was the same statement that created the insured’s contract, we held that

“the factual basis for [the negligent misrepresentation claim] is the . . . contract . . . and, as

such, defense of th[e] claim is excluded.” Geraldine, ¶ 25. We also held that the

constructive fraud claim was excluded from coverage as a breach of contract claim,

reasoning that constructive fraud requires a breach of duty and that any duty the insured

owed “arose from the contract.” Geraldine, ¶¶ 31-32.

¶18 Similarly, the factual basis for claims 1-3 in the present case was the contract between

the County and Coleman. In claim 1, ostensibly a claim for negligent misrepresentation,

Coleman alleged that the County “knew or should have known that certain material

representations contained in the Contract Documents were not true.” As in Geraldine, the

statement that allegedly constituted negligent misrepresentation was part of the contract.

Thus, the factual basis for claim 1 was the contract with Coleman, and coverage of claim 1

was properly denied as a breach of contract claim.

¶19 In claim 2, ostensibly a claim for negligence, Coleman alleged that the County owed

Coleman “a duty of care . . . as a general contractor and prospective bidder,” and that the

County breached that duty by “preparing and providing Contract Documents that contain[ed]

material defects and were not otherwise prepared in compliance with applicable codes or

industry standards.” The interrogatories provided to MACo enumerate the alleged defects.

8 As in Geraldine, this claim was properly excluded from coverage as a breach of contract

claim. Even if there were industry standards and codes that specified the level of care due to

Coleman, any duty that the County owed to Coleman arose from their contractual

relationship. Additionally, the defects constituting the alleged breach were part of the

contract itself. Thus, as in Geraldine, the factual basis for claim 2 was the contract.

Coverage of claim 2 was properly denied as a breach of contract claim.

¶20 In claim 3, ostensibly a claim for professional negligence, Coleman alleged that

because he “was required to rely on and conform to the Contract Documents . . . prepared by

[the County], [the County] owed Coleman a higher duty of care as professional engineers.”

In the interrogatories provided to MACo, Coleman specified the instances in which he

thought the duty of care was breached. As with claim 2 and as in Geraldine, any duty owed

to Coleman arose from their contractual relationship. Even if the County owed Coleman the

level of care required of a professional engineer, the factual basis of claim 3, as in Geraldine,

was the contract and not custom, code, or common law. Coverage of claim 3 was properly

denied as a breach of contract claim.

¶21 For the foregoing reasons, there was an “unequivocal demonstration” that the claims

against the County were not covered by its insurance policy with MACo. No duty to defend

was ever triggered, and MACo’s denial of coverage was proper.

¶22 2. Did the District Court err by considering the insurance policy’s Exclusion 23

9 ¶23 Because Exclusion 12 provided an independently sufficient basis for the District

Court to grant summary judgment in favor of MACo, there is no need to address its

conclusion that Exclusion 23 provided an additional basis upon which to deny coverage and

to grant summary judgment. For this reason, we decline to reach the issue of whether

Exclusion 23 was properly considered by the District Court.

CONCLUSION

¶24 We hold that the District Court did not err by granting summary judgment. There was

no genuine issue of material fact that Coleman’s claims 1-3 were excluded from coverage by

Exclusion 12. We decline to reach the issue of whether Exclusion 23 should have been

considered as a basis for denying coverage. Affirmed.

/S/ MICHAEL E WHEAT

We Concur:

/S/ MIKE McGRATH /S/ JAMES JEREMIAH SHEA /S/ PATRICIA COTTER /S/ JIM RICE