Murray v. Montana Insur. Guaranty Assoc. , 175 Mont. 220 ( 1977 )


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  •                               No. 13835
    IN THE SUPREME COURT OF THE STATE OF MONTANA
    DONALD MURRAY,
    Plaintiff and Respondent,
    MONTANA INSURANCE GUARANTY ASSOCIATION
    an urbcorporated legal entity,
    Defendant and Appellant,
    and
    NATIONAL FARMERS UNION INSURANCE COMPANY,
    a corporation,
    Defendants and Respondents.
    Appeal from:         District Court of the Fifth Judicial District,
    Honorable Frank E. Blair, Judge presiding.
    Counsel of Record:
    For Appellant:
    Keller, Reynolds and Drake, Helena, Montana
    Paul T. Keller argued, Helena, Montana
    For Respondents:
    Landoe, Gary & Planalp, Bozeman, Montana
    Joseph B. Gary argued, Bozeman, Montana
    Schulz, Davis and Warren, Dillon, Montana
    Submitted:   December 7, 1977
    Decided: DEf:   38 12;;
    Filed:     . ' 3 .,
    1 .      \977
    Mr. Justice John C. Harrison delivered the Opinion of the Court.
    Plaintiff Donald Murray instituted this action against the
    Montana Insurance Guaranty Association (hereinafter referred to as
    "the Association"), and alternatively against National Farmers Union
    Insurance Company, to recover a settlement claim of $6,500.                 The
    Association appeals from the judgment of the District Court, Beaver-
    head County, dismissing the action as to Farmers Union and the denial
    of a motion to dismiss submitted by the Association.
    On July 15, 1974, a logging truck owned by Nice Log Hauling
    was proceeding north on Highway 91 near Divide, Montana.              The driver
    made a left turn causing an oncoming car to go out of control and
    strike a car in which plaintiff was a passenger.              Plaintiff was
    injured in the accident.
    Plaintiff commenced negotiations for a settlement with
    Manufacturers and Wholesalers Indemnity Exchange, the insurer
    for Nice Log Hauling.          On November 15, 1975, a settlement was
    reached under which Manufacturers           &   Wholesalers agreed to pay
    plaintiff the sum of $6,500.           Before any payment was made, Manu-
    facturers   &   Wholesalers was declared insolvent in the State of
    Colorado.
    The Association took over claims against the insolvent
    company pursuant to the provisions of sections 40-5701 et seq.,
    R.C.M. 1947.       It disallowed plaintiff's claim on the ground
    that section 40-5712, R.C.M. 1947, provides for nonduplication
    of recovery, and that plaintiff could recover the full amount
    of the claim under his own "uninsured motorist" policy issued
    by Farmers Union.         The policy provides, in pertinent part:
    (c)    ' u e u r e d automobile ' means :
    "(1)       an automobile with respect to the ownership,
    maintenance or use of which there is, in at
    least the amounts specified by the financial
    responsibility law of the state in which the
    insured automobile is principally garaged,
    no bodily injury liability bond or insurance
    policy applicable at the time of the accident
    with respect to any person or organization
    legally responsible for the use of such auto-
    mobile, or with respect to which there is a
    bodily injury liability bond or insurance
    policy applicable at the time of the
    accident but the company writing the same
    denies coveraae thereunder: * * * " . (Emphasis added
    The Association contends that the insurer denied coverage
    within the meaning of the policy when it became unable to pay
    the settlement due to insolvency.    This is a question of first
    impression in Montana.
    In interpreting the phrase "denies coverage" we are mind-
    ful of the general rule that "The words of a contract are to
    be understood in their ordinary and popular sense, rather than
    according to their strict legal meaning   * * *."         Section 13-710,
    R.C.M. 1947.   Webster's Third New International Dictionary defines,
    in part, the word "deny" at p. 603:
    " * * * to refuse to recognize or acknowledge:
    withhold acknowledgement from: disclaim con-
    nection with, allegiance to, or responsibility
    to or for * * * "  .
    Clearly, as used in its ordinary and popular sense, the phrase
    "denies coverage" connotes some type of affirmative activity
    by the insurer.    A consistent and logical definition is found
    +-1
    in Seabaugh v. Sisk, 
    413 S.W.2d 602
    , 609 (Mo;.1967), quoting
    Uline v. Motor Vehicle Accident Indeminification Corp., 28
    "'to deny coverage' (i.e. 'to take the position
    that for some reason or other the policy does not
    encompass the particular accident') * * *."
    Here it is plain that Manufacturers        &   Wholesalers did not
    deny coverage.    For over a year, the company negotiated with
    plaintiff and finally agreed to settlement under which it expressly
    admitted that it owed plaintiff the sum of $6,500.          Only the
    insurer's inability to pay prevented plaintiff from recovering
    the full amount of the settlement. We do not think it tenable
    that Farmers Union, by contracting to cover situations in which
    the original insurer "denies coverage", agreed to be responsible
    for a claim that is sixteen months old and has already been
    negotiated and settled with the original insurer.
    An ambiguous insurance contract will be liberally construed
    against the insurer.   Mountain West Farm Bureau v. Neal (1976), 
    169 Mont. 317
    , 
    547 P.2d 79
    , 33 St.Rep. 193.      However, there is no am-
    biguity here.   We cannot equate the phrase "denies coverage",
    with "becomes unable to pay the claim due to insolvency".       Sea-
    baugh v. Sisk, supra; Farkas v. Hartford Accident     &   Indemnity Co.,
    
    285 Minn. 324
    , 
    173 N.W.2d 21
     (1969).
    We are aware that a majority of jurisdictions facing this
    issue have reached the opposite conclusion.      See, e.g.:   Winans
    v. Hartford Accident Indenmity Co., 
    25 Mich. App. 75
    , 
    181 N.W.2d 17
     (1970); McCaffery v. St. Paul Fire   &   Marine Ins. Co., 
    108 N.H. 373
    , 
    236 A.2d 490
     (1967); Katz v. American Motorist Insurance
    Co., 
    244 Cal. App. 2d 886
    , 
    53 Cal. Rptr. 669
     (1966); State Farm Mutual
    Automobile Ins. Co., v. Brower, 
    204 Va. 887
    , 
    134 S.E.2d 277
     (1964).
    The reasoning of these decisions is generally that coverage is
    just as effectively denied when the insurer is unable to pay as
    when the insurer voluntarily refuses to pay.      Running through all
    of these decisions is the theory that the insurance policy in
    question must be liberally construed in light of the remedial pur-
    poses of the uninsured motorist statutes.      Since the paramount
    concern of this legislation is the protection of the public from
    losses caused by uninsured motorists, insurance policies issued
    in conformance with such legislation have often been interpreted
    liberally to effectuate this goal.
    Such compelling legislative direction does not exist in
    this State regarding this question.    Motorists have the protection
    of a requirement that uninsured motorist coverage be offered but
    they also have the option to decline such coverage.      Section
    40-4403, R.C.M.   1947.   Situations involving the insolvency of
    an insurer are more directly covered by the Montana Insurance
    Guaranty Association Act.    The purpose of this act is expressed
    in section 40-5702, R.C.M.    1947:
    "Purpose. The purpose of this act is to pro-
    vide a mechanism for the payment of covered
    claims under certain insurance policies to
    avoid excessive delay in payment and to avoid
    financial loss to claimants or policyholders
    because of the insolvency of an insurer, to
    assist in the detection and prevention of
    insurer insolvencies, and to provide an assoc-
    iation to assess the cost of such protection
    among insurers."
    This act is to be liberally construed to effectuate its
    stated purpose.   Section 40-5704, R.C.M.   1947.   The application
    of this act to cases such as the one presented here protect the
    innocent victim of a tortfeasor whose insurance company is rendered
    insolvent just as effectively as a strained judicial construction
    of the phrase "denies coverage" in the victim's uninsured motorist
    policy.
    We find that the subsequent insolvency of the insurer is
    not a denial of coverage within the meaning of this policy.
    The judgment of the District Court is affirmed.