O'Fallon v. Farmers Insurance Exchange , 50 State Rptr. 1022 ( 1993 )

No. 92-024
IN THE SUPREME COURT O F THE STATE O F MONTANA
1993
COLLIN J. OqFALLON and
HAROLD CASE,
Plaintiffs and Appellants,
v.
FARMERS INSURANCE EXCHANGE, a
reciprocal or interinsurance
exchange, TERRY FALCON and
JOHN DOES 1, 2 , 3 , and 4 ,
Defendants and Respondents.
APPEAL FROM: District Court of the Fourth ~ u d i c i a lDistrict,
In and for the County of M i s s o u l a ,
The Honorable E d McLean, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Alexander Blewett, 111, Hoyt & Blewett,
Great Falls, Montana; Michael J. McKeon,
McKeon & Anderson, P.C., Butte, M o n t a n a
For Respondents:
Shelton C. williams and Richard Ranney,
Williams & Ranney, P.C., Missoula, Montana
Submitted on ~riefs: June 11, 1992
Decided: August 30, 1993
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
plaintiffs brought this action to recover damages based upon
defendants' alleged violation of 5 33-18-201, MCA, and for
malicious prosecution. The District Court dismissed both claims
pursuant to Rule 12 (b)(6), M.R.Civ.P., for failure to state a claim
upon which relief can be granted. Plaintiffs appeal from the
judgment entered pursuant to the District Court's order of
dismissal. We reverse the District Court.
The issues are:
1. Did the District Court err when it dismissed, with
prejudice, plaintiffs' claim for malicious prosecution?
2. Did the District Court err when it dismissed, with
prejudice, plaintiffs' claim for damages pursuant to 5 5 33-18-201
and -242, MCA?
3. Did the District Court err when it held that Terry
Falcon, the claims adjuster employed by Farmers Insurance Exchange,
was individually liable for his bad faith adjustment of plaintiffs'
claim pursuant to S 33-18-201, MCA?
FACTUAL BACKGROUND
The following facts are taken from plaintiffs' complaint; and
for purposes of reviewing the District Court's order dismissingthe
complaint pursuant to Rule 12(b)(6), M.R.Civ.P., they are assumed
to be true. Hovelandv.Petaja (1992), 252 Mont. 268, 270-71, 828 P.2d
392, 393.
On August 31, 1990, Collin J. O'Fallon and Harold Case were
operating their motor vehicles in the City of Missoula and were
2
stopped in a line of cars waiting for a red light to change at the
intersection of Orange Street and ~hirdAvenue South. Alfreda Case
was riding as a passenger in Haroldts car.
While plaintiffs were waiting for the light to change, Teddy
Burgmaier approached them from behind in an extremely intoxicated
condition and smashed into the Case vehicle, causing it to smash
into O*Fallontsvehicle. As a result of the collision, both
O1Fallon and Alfreda sustained physical injuries.
At the time of Burgmaierlscollision with plaintiffs, he was
insured against liability arising out of the operation of his motor
vehicle by defendant Farmers Insurance Exchange- Defendant Terry
Falcon was a claims agent f o r Farmers who had the responsibility
for investigating this collision and adjusting the claims against
Burgmaier .
On February 8, 1991, O'Fallon and Alfreda filed a complaint
against Farmers and Burgmaier in the District Court for the Fourth
Judicial District in Missoula County in an effort to recover
damages for their physical injuries.
On March 25, 1991, the attorneys hired by Farmers filed a
counterclaim against OIFallon,alleging that he negligently caused
the collision and requesting contribution or indemnity for any
damages that ~urgmaier would be liable to pay as a result of
Alfreda1s claim against him. A third-party complaint alleging
similar grounds for relief was filed against Harold.
In this case, plaintiffs allege that the counterclaim and
third-party complaint filed in the underlying personal injury
action were instigated by Farmers and Falcon and were filed with
malice and without probable cause. They also allege that those
claims were terminated in favor of plaintiffs and that they
suffered damages as a result of defendants1 malicious prosecution.
For a second cause of action, plaintiffs allege that the
conduct of Farmers and Falcon, as set forth above, violated their
statutory duties pursuant to 5 33-18-201(4) and (6), MCA, to
conduct a reasonable investigation and settle their claims in good
faith after liability had become reasonably clear.
Both defendants moved to dismiss plaintiffs1 complaint for
failure to state a claim upon which relief can be granted. On
September 13, 1991, the plaintiffs' claims were dismissed without
prejudice by the District Court because the underlying personal
injury action was still pending. The District Court concluded,
therefore, that the favorable termination requirement for a
malicious prosecution claim could not be satisfied, and that the
statutory bad faith claim was barred pursuant to 5 33-18-242, MCA.
Plaintiffs moved for reconsideration, and on October 23, 1991,
the counterclaim and the third-party complaint were dismissed with
prejudice in the underlying personal action. However, on
October 31, 1991, the District Court entered a second opinion and
order in this case dismissing plaintiffs1 complaint. This time the
complaint was dismissed with prejudice pursuant to Rule 12(b)(6),
M.R.Civ.P.
In its opinion, the District Court explained that since the
underlying counterclaim and third-party complaint had been
dismissed pursuant to defendantst motion to dismiss, rather than
pursuant to plaintiffs' motion for summary judgment, the dismissal
must have been pursuant to settlement, and therefore, the
underlying proceeding did not terminate favorably for plaintiffs.
The District Court relied on our previous decision in Vehrs v. fiquette
(19841, 210 Mont. 386, 684 P.2d 476.
The ~istrictCourt dismissed the statutory bad faith claim,
but gave no explanation for dismissing that claim. Falcon's motion
to dismiss the bad faith claim against him on the basis that he was
not subject to personal liability under 5 1 33-18-201 and -242, MCA,
had been denied by the District Court on September 13, 1991.
Plaintiffs have appealed from the District Court's order
dismissing their complaint, and defendant Falcon has cross-appealed
from the District Court's preliminary order to the effect that he
could personally be sued for statutory bad faith pursuant to
§§ 33-18-201 and -242, MCA.
On appeal, plaintiffs contend that because defendantsgmotions
were made pursuant to Rule 12 (b) (6), M . R . Civ.P. , the District Court
was limited to the four corners of the complaint; that it should
not have considered information other than the pleadings; and that
assuming the allegations in plaintiffs' complaint are true,
plaintiffs have stated two claims against both defendants for which
relief can be granted under Montana law.
In their original brief filed in this Court, defendants
suggested that since the District Court considered matters outside
the pleadings, we should consider plaintiffst appeal to be from an
5
order granting summary judgment pursuant to Rule 56, M.R. C ~ V P,
. In
response to that suggestion, plaintiffs moved this Court for an
order clarifying the scope of our review and requesting that if
this matter was being reviewed pursuant to Rule 56, that plaintiffs
be allowed to bring to our attention the results of additional
discovery that was conducted while this case was pending in the
District Court.
Defendants objected to our consideration of anything other
than the pleadings in this case, and the court file in the
underlying personal case; and in response to plaintiffs1 motion,
submitted authorities for the principle that information which is
part of the public record may be considered by a ~istrictCourt in
addition to the pleadings when ruling on a motion to dismiss
pursuant to Rule 12(b) (6), M.5t.Civ.P. StiZhnanv. FergusCounty (1986),
220 Mont. 315, 316, 715 P.2d 43; Washingtonv. m c e o f Cornprr~llerof
Currency
(11th Cir. 1988), 856 F.2d 1507; Fudgev. PenthoweInt*ZLtd. (1st Cir.
1988), 840 F.2d 1012, cr. denied, 488 U.S. 821; 2A Moore's Federal
et
Practice 12.07 (2.-5) pp. 12-68 (2d ed. 1990) .
On ~ p r i l28, 1992, we issued an order stating that:
This case shall be considered as an appeal from a
ruling on a motion to dismiss pursuant to Rule 12 (b)(61,
M.R.Civ. P., and in the course of that appeal, this Court
will take judicial notice of O1Fallon, et al. v.
Burgmaier, Cause No. 73915, Missoula County.
While this order would seemingly expand the scope of materials
which can be considered pursuant to a motion to dismiss under
,
Rule 12 (b) (6) M.R. Civ. P., we need not decide that issue in this
case because we hold that with or without consideration of the
District Court file in the personal injury action, defendants1
motion to dismiss should have been denied.
MALICIOUS PROSECUTION
Did the District Court err when it dismissed, with prejudice,
plaintiffs1 claim for malicious prosecution?
In FirstBank (N.A.)-Billingsv.Clark (1989), 236 Mont. 195, 204-05, 771
P.2d 84, 90, we set forth the essential elements of a claim for
malicious prosecution. They are as follows:
1. A judicial proceeding commenced against the
party alleging malicious prosecution;
2. the other party's responsibility for
instigating the proceeding;
3. a want of probable cause for the other party's
action;
4. the existence of malice as the motivator behind
the other party's action;
5. the termination of the proceeding in favor of
the alleging party; and
6. damages suffered by the party alleging
malicious prosecution.
In this case, all six of the above elements have been alleged
in plaintiffs' complaint, and if we assume those allegations to be
true, then plaintiffs have stated a claim upon which relief can be
granted under Montana law. Furthermore, nothing found in the
public record of the underlying personal injury action requires a
different conclusion. The facts apparent from that record are as
follows:
O'Fallon and Alfreda filed a complaint for damages based on
their personal injuries on February 8, 1991. Defendant Burgmaier
answered that complaint on March 25, 1991. As part of his answer,
he filed a counterclaim against OqFallon, and a third-party
complaint against Harold, claiming that they were responsible for
plaintiffsf injuries and asking for contribution, or in the
alternative, complete indemnification from them for any damages
that Burgmaier might be found liable to pay.
OfFallon and Harold both then retained new attorneys who
appeared on their behalf and responded to the counterclaim and
third-party complaint. On April 23, 1991, they took Burgmaierls
deposition. On the following day, they moved the District Court to
dismiss the counterclaim and third-party complaint by summary
judgment. In support of that motion, plaintiffs represented to the
court that in Burgmaier's deposition and response to their requests
for admissions he admitted that he had been intoxicated at the time
of the collision; that he had been careless and reckless in the
operation of his motor vehicle; and that he also admitted that
neither OtFallon nor Harold were negligent. That motion was
originally scheduled to be heard on May 9, 1991. On the day before
t h a t motion was scheduled t o be heard, Burgmaier moved the c o u r t to
dismiss the counterclaim and third-party complaint that he had
filed. Both motions were eventually argued before the District
Court on May 23, 1991. On October 23, 1991, the District Court
dismissed Burgmaiertscounterclaim and third-party complaint with
prejudice. However, that order provided no explanation of the
District Court's basis for the dismissal of those claims.
The District Court, in this case, concluded that the claims
must have been dismissed as part of the overall settlement in the
underlying personal injury action, and therefore, were not
terminated in favor of plaintiffs. However, there is no factual
basis for concluding that the claims were dismissed as a result of
settlement. It is just as reasonable to conclude from the record
before us that they were dismissed because they had no merit and
plaintiffs had moved for summary judgment. However, even if the
claims had been dismissed as part of an overall settlement, that
fact alone would not preclude a finding that they were terminated
in favor of plaintiffs.
The District Court relied on our decision in Vehrs. However,
the facts in Vehrs are clearly distinguishable from those in this
case, and we do not find it controlling. In Vehrs, the plaintiff
had been charged with three criminal offenses, all arising from
alleged improprieties while he served as Director of the Food
Service at the University of Montana. After a jury trial, he was
acquitted of one charge, and two others were dismissed in exchange
for his agreement to plead guilty to a substituted charge. We held
that under those circumstances, #*the
prosecution cannot be said to
have terminated favorably for the defendant." Vehrs, 684 P.2d at
479.
However, there is no indication in this case that OtFallonts
or Alfreda's claims were compromised in consideration for dismissal
of the counterclaim and third-party complaint. Neither is there
any indication that OIFallon or Alfreda contributed anything to
Burgmaierls settlement of the underlying personal injury claims.
The only thing clear from the record before us is that, after
taking Burgmaier's deposition, plaintiffs moved for summary
judgment and defendants beat them to the courthouse in an effort to
get the counterclaim and third-party complaint dismissed.
Under these facts, we find the decision of the Supreme Court
.
of Arizona in Bradshaw v. State Farm Mutual Auto litsurance (Ariz 198 8) , 758
P.2d 1313, more on point and more persuasive. 1n Bradshaw,
plaintiff was a deputy sheriff who was responding to a fellow
officer's distress call when he was struck by William Ivie while
passing through an intersection. At the time of the collision, his
siren and overhead flashing lights were activated. Ivie died as a
result of injuries sustained in the collision. State Farm insured
Ivie at the time of the collision. The police report concluded
that Ivie had failed to yield the right-of-way. Apparently, all
witnesses to the accident agreed with that conclusion.
When State Farm was unable to settle Bradshaw1sclaim for his
personal injuries, it sought and received permission from Ivie' s
widow to file an action on behalf of his estate against Bradshaw in
Federal District Court. Mrs. Ivie at first objected, but later
agreed, so long as there was no litigation expense incurred by the
estate.
Bradshaw answered that claim and counterclaimed for his own
injuries. After the completion of discovery, the case was
completely resolved when State Farm paid $60,000 to Bradshaw in
settlement of his claim.
Bradshaw subsequently brought an action against State Farm
alleging malicious prosecution. After a jury trial, he was awarded
compensatory and punitive damages.
On appeal, State Farm contended, as defendants contend in this
case, that since the wrongful death claim had been concluded by
settlement, rather than judgment, there had not been a termination
in favor of the plaintiff. The Arizona Supreme Court disagreed and
held that:
The wrongful death case was concluded by settlement,
rather than judgment. Ivie's complaint and the
Bradshawsl counterclaim were dismissed with prejudice.
Notwithstanding dismissal of the action, settlement may
be a favorable termination. See Ft v Stoneman, 150 Ariz.
ry .
106, 110-11, 722 P.2d 274, 278-79 (1986). The true
facts, not the form of disposition, are determinative.
Id. In this case, State Farm withdrew Ivielsaction, paid
the Bradshaws $60,000 and stipulated to the dismissal of
the wrongful death complaint with prejudice. Under these
facts, the jury could conclude that Iviels lawsuit was
terminated favorably to the Bradshaws. Id.; s e a h
e
Restatement ! 674 comment j (favorable termination may
j
arise from "the withdrawal of the proceedings by the
person bringing them1#).
Bradshaw, 758 P.2d at 1321.
Likewise, we hold that under the facts before us the jury
could conclude that Burgmaierls counterclaim and third-party
complaint were terminated favorably to plaintiffs. Therefore, we
reverse the District Court's judgment dismissing plaintiffs'
complaint for malicious prosecution and remand to the District
Court for the resolution of that factual issue.
11.
BAD FAITH CLAIM
Did the District Court err when it dismissed, with prejudice,
plaintiffs' claim for damages pursuant to 5 5 33-18-201 and -242,
MCA?
There was no explanation in the District Court's opinion and
order explaining its dismissal of plaintiffst claim against
defendants for bad faith violation of § 33-18-201, MCA.
Furthermore, plaintiffst complaint clearly sets forth sufficient
facts to state a claim pursuant to that statute for which relief
can be granted. However, on appeal, defendants contend that the
District Court's dismissal should be affirmed because neither
plaintiff has sued in his or her capacity as an Itinsuredtt
nor
"third-party claimant" as those terms are used in 5 33-18-242, MCA;
and that, therefore, plaintiffs have no standing to bring this
action under the Unfair Trade Practices Act found at 55 33-18-201
to -1005, MCA.
Section 33-18-201, MCA, provides in relevant part that:
No person may, with such frequency as to indicate a
general business practice, do any of the following:
(4) refuse to pay claims without conducting a
reasonable investigation based upon all available
information;
( 6 ) neglect to attempt in good faith to effectuate
prompt, fair, and equitable settlements of claims in
which liability has become reasonably clear . ...
Section 33-18-242, MCA, provides for an independent cause of
action when 5 33-18-201, MCA, has been violated. It states that:
An insured or a third-party claimant has an
independent cause of action against an insurer for actual
damages caused by the insurerls violation of subsection
(1), ( 4 , ( 5 ) , ( 6 ) , ( 9 ) , or (13) of 33-18-201. [Emphasis
added. ]
It is clear that the Legislature intended to distinguish
between people making claims for bad faith against their own
insurer as opposed to people who are damaged by an insurance
company's conduct but have no contractual relationship to that
company. Other than that distinction, there definition of
"third-party claimantw in the Unfair Trade Practices Act.
We conclude that where plaintiffs have alleged a violation of
subsections (4) and (6) of $j 33-18-201, MCA, and where they have
further alleged that they were personally damaged as a result of
those violations, they are third-party claimants within the meaning
of B 33-18-242, MCA, and have properly set forth a claim for
violation of Montana's Unfair Trade Practices Act.
In this case, Farmers contends that if it had unreasonably
denied O'Fallon8s claim it could be subject to liability under the
Act. However, it argues that filing a frivolous counterclaim for
the sole purpose of establishing leverage with which to negotiate
settlement of his claim is not prohibited by the Act. To accept
Farmerst position would exalt form over substance and we are not
inclined to do so. Furthermore, if, as plaintiffs allege, Harold
had to retain an attorney to represent him as a third-party
defendant based on a complaint filed against him for the sole
purpose of improving Farmersg bargaining position with his wife, it
is of no consequence that he had not originally filed a claim for
personal injuries. The purpose of these provisions in the Unfair
Trade Practices Act is to protect members of the public from damage
caused by an insurerls unreasonable efforts to avoid the
obligations it assumed when it accepted premiums for insurance
coverage.
For these reasons, w e reverse the District Court's dismissal
of plaintiffs1 second cause of action in which they sought damages
for bad faith pursuant to 5 5 33-18-201 and -242, MCA.
111.
LIABILITY OF TERRY FALCON
Did the District Court err when it held that Terry Falcon, the
claims adjuster employed by Farmers Insurance Exchange, was
individually liable for bad faith adjustment of plaintiffs' claim
pursuant to 1 33-18-201, MCA?
In addition to the reasons set forth above, Falcon moved the
District Court to dismiss the complaint against him on the basis
t h a t he was not an wlinsurerlt
under the provisions of the Unfair
Trade Practices Act, and therefore, not subject to liability for
violation of its terms. However, in its opinion and order dated
September 13, 1991, the District Court concluded that the
definitions in the Unfair Trade Practices Act were broad enough to
bring Falcon "under the provisions of both 33-18-242 and
5 33-18-201, MCA .. .I and held that "Count I1 is a valid claim
'
against that defendant." Falcon cross-appeals from that
conclusion.
Section 33-18-201, MCA, provides that "no personw may engage
in the prohibited conduct. Person is defined in 33-1-202(3),
MCA, as "an individual, insurer, company . . . or any other legal
entity." [Emphasis added.]
In Klaudtv. Flink (1983), 202 Mont. 247, 658 P.2d 1065, we held
that § 33-18-201, MCA, did confer an obligation on those covered by
the Act to deal reasonably with claimants and that a civil action
could be maintained for breach of that obligation. It is clear
from the language of § 33-18-201, MCA, that not just insurers, but
also claims adjusters, are prohibited from engaging in the acts
that are prohibited. It is clear from our decision in Maudt that
a common law cause of action exists to redress violations of the
Act's provisions set forth in 5 201. That part of the klaudt
decision has never been reversed nor modified by any subsequent
decision of this Court.
In the 1987 session of the Legislature, Representative Fred
Thomas introduced House Bill No. 240 which was subsequently passed
and codified as 33-18-242, MCA. As amended and voted upon, House
Bill No. 240 was entitled:
AN ACT PROVIDING A CAUSE OF ACTION FOR AND THE
SUSPENSION OF LEGAL PROCEEDINGS IN CERTAIN INSURANCE
CLAIMS SETTLEMENT CASES; INCREASING THE FINE THAT MAY BE
IMPOSED FOR VIOLATION OF THE INSURANCE CODE; AMENDING
SECTION 33-18-317, MCA; REPEALING SECTION 33-18-241, MCA;
AND PROVIDING AN APPLICABILITY DATE AND AN EFFECTIVE
DATE.
The substance of House Bill No. 240 provided a direct cause of
action against llinsurersfl violate certain parts of 5 33-18-201,
who
MCA, and provided that contrary to our decision in H a d , an action
brought pursuant to this statutory cause of action would not
require that violations of the code Itwereof such frequency as to
indicate a general business practice." The bill also limited the
types of claims that could be brought based on claim settlement
practices, defined with greater particularity the conduct which
would form the basis for this statutory claim, required that a
third-party complaint not be filed until the underlying claim was
resolved, and established a statute of limitations for the newly
created statutory claim. However, nothing in the title of the
bill, nor in the text of the newly created statute, suggested that
the bill would limit the parties against whom the common law claim
established by Klaudt could be brought. either is there anything
in the bill's legislative history to suggest that that was the
Legislature's intent.
When testifying in support of his bill, Representative Thomas
stated that its purposes were to limit the types of claims that
could be brought against insurers, to protect insurers where they
had a reasonable basis for denying a claim, to postpone third-party
claims under the statute until the underlying claim had been
resolved, and to increase the fine that could be assessed against
companies that violate provisions of the Act. No other purpose was
articulated. Neither did any of the supporters of House Bill No.
240 suggest that its purpose was to in any way limit the 8vpersons1s
against whom the common law cause of action provided for in Maudt
could be brought. All of the testimony in support of House Bill
No. 240 related to the bill's provision to increase the statutory
penalty, its provision for separate trials, and its limits on the
type of violations for which third-party actions could be brought.
When the common law, as established by the decisions of this
Court, is not in conflict with the statutes, the common law shall
be the law. Section 1-1-108, MCA. We conclude that our decision
in Klaudt, which authorized a direct cause of action against
"persons" who violate § 33-18-201, MCA, is not in conflict with
5 33-18-242, MCA, which provides for a statutory cause of action
against ninsurers,llbut does not otherwise limit previously created
common law causes of action.
Based on the foregoing history, we conclude that individuals,
as well as insurers, are prohibited from engaging in the unfair
trade practices set forth in 5 33-18-201, MCA, and that when an
individual breaches the obligations imposed by that statute, the
claimant who is damaged by that breach has a common law cause of
action against that individual. However, the statutory cause of
action provided for in § 33-18-242, MCA, and the different standard
of proof which that statute provides for, apply only to insurers as
defined in F, 33-1-201(6), MCA.
For these reasons, we affirm the District Court's conclusion
that Falcon is subject to liability for any personal violations of
F, 33-18-201, MCA. However, we conclude that the burden of proof in
the action against Falcon is the burden set forth in Maudt, while
the burden of proof in plaintiffst claim against Farmers Insurance
Exchange is governed by the terms of F, 33-18-242, MCA.
This case is reversed in part, affirmed in part, and remanded
to the District Court for resolution of the factual issues raised
by the pleadings in this case.
We concur:
August 31, 1993
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
Alexander Blewett, I11
Hoyt & Blewett
P.O. Box 2807
Great Falls, MT 59403-2807
Michael J. McKeon
Attorney at Law
P.O. Box 3329
Butte, MT 59702
Richard Ranney & Shelton C. Williams
Williams & Ranney, P.C.
P.O. Box 9440
Missoula, MT 59807
ED SMITH
CLERK O F THE SUPREME COURT
STATE QF MONTANA'