Marshall v. Safeco Ins. Co. of Ill. , 390 Mont. 358 ( 2018 )

03/13/2018
DA 17-0384
Case Number: DA 17-0384
IN THE SUPREME COURT OF THE STATE OF MONTANA
2018 MT 45
MARCIA MARSHALL,
Plaintiff and Appellant,
v.
SAFECO INSURANCE COMPANY OF ILLINOIS,
and MID-CENTURY INSURANCE COMPANY,
Defendants and Appellees.
APPEAL FROM: District Court of the Sixth Judicial District,
In and For the County of Park, Cause No. DV 13-169
Honorable Brenda Gilbert, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Lawrence A. Anderson, Attorney at Law; Great Falls, Montana
Daniel P. Buckley, Buckley Law Office, P.C.; Bozeman, Montana
For Appellees:
Paul N. Tranel, Bohyer, Erickson, Beaudette & Tranel, P.C.; Missoula,
Montana
Nicholas J. Pagnotta, Williams Law Firm, P.C.; Missoula, Montana
Submitted on Briefs: February 6, 2018
Decided: March 13, 2018
Filed:
__________________________________________
Clerk
Justice Ingrid Gustafson delivered the Opinion of the Court.
¶1 Marcia Marshall (Marshall) appeals a June 8, 2017 order of the Sixth Judicial
District, Park County, granting Safeco Insurance Company and Mid-Century Insurance
Company’s (collectively, the Defendants) motion to dismiss. We reverse and remand.
¶2 We restate the issue on appeal as follows:
1. Whether the District Court erred in granting the Defendants’ motion to dismiss
pursuant to M. R. Civ. P. 12(b)(6).
FACTUAL AND PROCEDURAL BACKGROUND
¶3 This case arises from a motor vehicle accident in Park County on February 14, 2010.
Marshall was riding as a passenger in a car driven by Kevin Gallivan. Another individual,
Peter Kirwan, owned the vehicle driven by Gallivan. Marshall alleged Gallivan’s
negligence caused the motor vehicle accident. Marshall suffered severe injuries resulting
from the accident. Defendant Safeco insured Kirwan, the car owner. Defendant
Mid-Century insured Gallivan, the driver. The Defendants provided liability coverage
under each separate policy. The Defendants and Marshall entered into a settlement
agreement prior to trial resolving the underlying claim.
¶4 Marshall filed an amended complaint against the Defendants on November 2, 2016.
Marshall brought claims seeking declaratory judgment and violations under the Unfair
Trade Practices Act (UTPA). Marshall alleged the Defendants have utilized and relied
upon the collateral source statute or its principles to take a reduction against damages
sustained and owed to their insureds or claimants in violation of Montana law.
Specifically, Marshall alleged the Defendants used the collateral source statute to justify
2
reduction in her damages notwithstanding the collateral source statute was inapplicable.
Further, Marshall’s complaint attacks the constitutionally of the collateral source statute
under § 27-1-308, MCA.
¶5 The Defendants filed a joint motion to dismiss on January 20, 2017. The District
Court granted the Defendants’ motion to dismiss. The District Court found our decision in
Miller v. State Farm Mut. Auto. Ins. Co., 2007 MT 85, 337 Mont. 67, 155 P.3d 1278,
controlling. The District Court construed “the holding of Miller as providing that an
insurer’s consideration of a potential future offset under the collateral source doctrine
during settlement negotiations does not create a justiciable controversy.” Relying on
Miller, the District Court concluded Marshall’s claim under the UTPA and the Declaratory
Judgment Act should be dismissed. Marshall timely appeals.
STANDARD OF REVIEW
¶6 We review de novo a district court’s ruling on a motion to dismiss pursuant to
M. R. Civ. P. 12(b)(6). Western Sec. Bank v. Eide Bailly LLP, 2010 MT 291, ¶ 18, 359
Mont. 34, 249 P.3d 35. We construe the complaint in the light most favorable to the
plaintiffs when reviewing an order dismissing a complaint under M. R. Civ. P. 12(b)(6). A
district court should not dismiss a complaint for failure to state a claim unless it appears
beyond doubt the plaintiff can prove no set of facts in support of his claim that would entitle
him to relief. Jones v. Mont. Univ. Sys., 2007 MT 82, ¶ 15, 337 Mont. 1, 155 P.3d 1247.
A district court’s determination that a complaint has failed to state a claim for which relief
3
can be granted is a conclusion of law which we review for correctness. Sinclair v.
Burlington Northern & Santa Fe Ry., 2008 MT 424, ¶ 25, 347 Mont. 395, 200 P.3d 46.
DISCUSSION
¶7 1. Whether the District Court erred in granting the Defendants’ motion to dismiss
pursuant to M. R. Civ. P. 12(b)(6).
¶8 Marshall argues the District Court erred in dismissing her declaratory judgment
claim. Marshall asserts the District Court incorrectly applied Miller to conclude Marshall
did not allege a justiciable controversy. Marshall contends that Miller is distinguishable
due to the procedural posture. The Defendants maintain the District Court correctly
dismissed Marshall’s declaratory judgment claim. The Defendants argue Miller is
controlling and therefore Marshall’s declaratory judgment claim failed to allege a
justiciable controversy.
¶9 The District Court concluded declaratory judgment could not be granted without a
justiciable controversy and, based on our decision in Miller, concluded a justiciable
controversy did not exist. The Uniform Declaratory Judgments Act provides a district
court with the “power to declare rights, status, and other legal relations whether or not
further relief is or could be claimed.” Section 27-8-201, MCA. A district court “may
refuse to render or enter a declaratory judgment or decree where such judgment or decree,
if rendered or entered, would not terminate the uncertainty or controversy.” Section
27-8-206, MCA. A justiciable controversy must exist before a court may exercise
jurisdiction under the Declaratory Judgments Act. Northfield Ins. Co. v. Ass’n of Counties,
2000 MT 256, ¶ 10, 301 Mont. 472, 10 P.3d 813.
4
¶10 The test to determine whether a justiciable controversy exists requires the following:
First, a justiciable controversy requires that parties have existing and
genuine, as distinguished from theoretical, rights or interests. Second, the
controversy must be one upon which the judgment of the court may
effectively operate, as distinguished from a debate or argument invoking a
purely political, administrative, philosophical or academic conclusion.
Third, it must be a controversy the judicial determination of which will have
the effect of a final judgment in law or decree in equity upon the rights, status
or legal relationships of one or more of the real parties in interest, or lacking
these qualities be of such overriding public moment as to constitute the legal
equivalent of all of them.
We apply the justiciable controversy test to actions for declaratory judgment
to prevent courts from determining purely speculative or academic matters,
entering anticipatory judgments, providing for contingencies which may
arise later, declaring social status, dealing with theoretical problems,
answering moot questions, or giving abstract or advisory opinions.
Northfield Ins., ¶ 12 (internal citations omitted).
¶11 In Miller, we determined Miller’s declaratory judgment action failed to allege a
justiciability controversy. Miller, ¶ 19. Miller was involved in a motor vehicle accident
resulting in injury. Miller brought suit against the negligent driver. Miller, ¶ 3. State Farm
and Miller engaged in settlement negotiations. State Farm offered to settle the claim with
Miller. State Farm’s offer reflected a reduction based on the collateral source statute.
Miller, ¶ 4. The parties did not enter into a settlement agreement. Miller, ¶¶ 4, 16, 18.
Miller then filed an action for declaratory judgment arguing State Farm impermissibly
considered the collateral source statute during settlement negotiations. Miller, ¶ 4. Miller
did not allege UTPA violations. Miller, ¶¶ 13, 16. State Farm moved for summary
judgment arguing a justiciable controversy did not exist. The District Court granted State
Farm’s motion. Miller, ¶ 4.
5
¶12 On appeal, we held Miller’s declaratory action claim failed to allege a justiciable
controversy. Miller, ¶ 19. We determined Miller improperly brought the declaratory action
while settlement negotiations were still ongoing. Miller, ¶ 16. We recognized Miller did
not allege any UTPA violations, and thus, was not litigating a claim under any existing
rights or interests provided for by the UTPA.1 Miller, ¶¶ 13, 16. We further refused to
dictate what factors a party may or may not consider while engaging in a voluntary
settlement process because our opinion would be advisory. Miller, ¶¶ 16, 18. Accordingly,
a judgment would not have the effect of a final judgment on any rights, status or legal
relationship of the parties because State Farm could simply withdraw its offer and provide
a different basis for its offer and Miller could still refuse the offer. Miller, ¶ 18. Thus, our
analysis was contingent on the fact Miller and State Farm were engaged in ongoing
settlement negotiations when Miller sought the court’s intervention.
¶13 The procedural posture of this case distinguishes it from Miller. Unlike Miller,
Marshall is litigating a claim under existing rights or interests provided for in the UTPA.
Marshall and the Defendants entered into and completed a settlement. Once the
Defendants entered into a settlement with Marshall, the insurers became subject to the
UTPA. Under the UTPA, insurers have duties and obligations regarding their settlement
practices to an insured or third-party claimant. Section 33-18-201, MCA. Thus, the parties
1
A threshold requirement to file an action alleging UTPA violations is that the underlying claim
has been settled. Section 33-18-242(6)(b), MCA. In Miller, the underlying claim had not been
settled and therefore Miller could not file an action alleging any UTPA violations. Miller, ¶ 16.
6
have existing and genuine rights arising from the UTPA. Therefore, we determine the first
requirement to find a justiciable controversy is met.
¶14 Moreover, a judgment in this case would determine the parties’ respective rights
and obligations. Unlike Miller, Marshall is not seeking a declaratory judgment too early
in the proceedings, which would only serve as an advisory opinion. A declaratory
judgment rendered in Miller would not have resolved the controversy because State Farm
could have offered something different and Miller could have still rejected the offer. Here,
settlement was agreed upon by the parties. Marshall received the settlement. A judgment
in Marshall’s case would determine the parties’ rights, status, or legal relationship by
deciding whether the Defendants reduced Marshall’s damages by applying the collateral
source statute pursuant to § 27-1-308, MCA. Assuming the insurers unlawfully reduced
Marshall’s damages by relying on the collateral source rule, she would be able to seek
recovery. Thus, Marshall’s declaratory judgment claim is procedurally different from
Miller and presents a justiciable controversy. We hold that the District Court erred in
concluding a justiciable controversy did not exist.
¶15 Next, Marshall argues the District Court erred in dismissing her UTPA claim.
Marshall alleges a justiciable controversy exists and she has sufficiently pled her UTPA
claim. The Defendants argue the District Court properly dismissed Marshall’s UTPA claim
relying on Miller. The Defendants further contend the District Court properly found that
Marshall’s UTPA claim does not constitute an independent cause of action. Lastly, the
Defendants argue they had a reasonable basis in law for their actions.
7
¶16 The District Court’s reliance on Miller to dismiss Marshall’s UTPA claim is
misplaced. The District Court interpreted Miller as this Court’s refusal to interfere with
the settlement negotiation process. However, a UTPA violation under § 33-18-201, MCA,
is a claim against an insurer’s settlement practices. To hold courts cannot adjudicate an
insurer’s settlement practices is contrary to the UTPA and our case law. Section 33-18-
201(1)-(14), MCA; see Jacobsen v. Allstate Ins. Co., 2009 MT 248, ¶ 2, 351 Mont. 464,
215 P.3d 649 and Jacobsen v. Allstate Ins. Co., 2013 MT 244, 371 Mont. 393, 310 P.3d
452 (challenging Allstate’s policies and guidelines designed to promote quick settlement
with unrepresented claimants); Lorang v. Fortis Ins. Co., 2008 MT 252, ¶ 89, 345 Mont.
12, 192 P.3d 186 (challenging Fortis’s general settlement practices regarding prosthetic
claims); Peterson v. Doctors’ Co., 2007 MT 264, ¶ 26, 339 Mont. 354, 170 P.3d 459
(challenging the insurer’s conduct during the settlement process). Further, Miller has no
bearing on Marshall’s UTPA claim. In Miller we specifically noted, “Miller has a right to
fair treatment under the UTPA, Miller has not asserted a violation under the UTPA.”
Miller, ¶ 16 (emphasis added). Therefore, we determined Miller based solely on the
declaratory judgment claim. The District Court misinterpreted Miller as controlling for
Marshall’s UTPA claim.
¶17 We now turn to whether Marshall sufficiently pled her UTPA claim. While the
settlement process belongs to the parties, courts can enforce a settlement agreement and
have jurisdiction under the UTPA to oversee claims of unfair settlement practices. Miller,
¶¶ 14, 15. The UTPA provides an insured or third-party claimant an independent cause of
8
action against an insurer’s violations under § 33-18-201(1), (4), (5), (6), (9), or (13), MCA.
Section 33-18-242(1), MCA. As a threshold matter, a third-party claimant may not file an
action under this section until after the underlying claim has been settled. Section 33-18-
242(6)(b), MCA. However, an insurer may not be held liable under the UTPA if the insurer
had a reasonable basis in law or in fact for their actions with regard to settlement. Section
33-18-242(5), MCA.
¶18 As a threshold, the underlying claim was settled. Marshall’s complaint alleged an
independent cause of action under the UTPA for the Defendants’ violations of their duties
and obligations under § 33-18-201(1), (4), (6), and (13), MCA, all relating to the
Defendants use of the collateral source statute as an offset to reduce compensation to
Marshall. Specifically, Marshall alleged the Defendants failed to conduct an investigation
into whether the collateral source statute applied and whether Marshall would be fully
compensated. Section 33-18-201(1), MCA. Marshall further alleged the Defendants failed
to properly consider the application of the collateral source statute as a deduction; refused
to pay claims without conducting a reasonable investigation based upon all available
information; and neglected to attempt in good faith to effectuate prompt, fair, and equitable
settlements of claims in which liability has become reasonably clear. Section 33-18-201
(4), (6), MCA. Marshall alleged she was entitled to relief by recovering full payment of
her damages because the Defendants unlawfully reduced her damages. Taking Marshall’s
complaint as true, only for purposes of a Rule 12(b)(6) motion to dismiss, we conclude that
Marshall has sufficiently pled a claim under the UTPA for which relief may be granted.
9
¶19 The District Court further made a sweeping statement that, even if Marshall had an
independent cause of action, “the claim must fail because the Defendants had a reasonable
basis in law for the position they took on the collateral source issue.” Section 33-18-242(5),
MCA, provides that an insurer may not be held liable for violating the UTPA if the insurer
had a reasonable basis in law for their actions. Questions of reasonableness are generally
factual matters properly answered by the finder of fact. Redies v. Attys. Liab. Prot. Soc’y,
2007 MT 9, ¶ 30, 335 Mont. 233, 150 P.3d 930. However, this Court has adopted two
exceptions to this rule where the insurer’s reasonableness is a question of law for the court
to decide: (1) where there was clearly no insurance policy in effect at the time the injury
occurred; and (2) where the insurer’s basis in law was grounded on a legal conclusion and
no issues of fact remained in dispute. Redies, ¶¶ 31-32 (citing Watters v. Guaranty Nat.
Ins. Co., 2000 MT 150, ¶ 69, 300 Mont. 91, 3 P.3d 626). The applicable exception in this
case would be the second exception.
¶20 Here, it was improper for the District Court to determine whether the Defendants
acted reasonably absent a determination the Defendants reasonable basis was solely
grounded on a legal conclusion and no issues of fact remained in dispute. Even if the
Defendants had a reasonable basis to apply the collateral source statute based on Miller
and Winstead v. State Farm,2 the District Court failed to consider the plain language of the
2
The Ninth Circuit cited Miller for the proposition that “consideration of the collateral source
statute during settlement negotiations is not actionable under the UTPA.” Winstead v. State Farm
Mut. Auto. Ins. Co., 669 Fed. Appx. 910, 2016 U.S. App. LEXIS 19276. However, this is a
misstatement of Miller. In Miller, we did not address whether consideration of the collateral source
statute was an actionable UTPA violation because no UTPA violations were alleged by Miller.
Miller, ¶¶ 13, 16.
10
collateral source statute and whether it was applicable in Marshall’s case. It is
inappropriate for this Court to resolve the question here; such determination is more
appropriate on a motion for summary judgment. Accordingly, we determine Marshall had
sufficiently pled an independent cause of action under the UTPA to overcome the
Defendants’ joint motion to dismiss.
CONCLUSION
¶21 For these reasons, we reverse the judgment of the District Court which dismissed
Marshall’s complaint pursuant to M. R. Civ. P. 12(b)(6), and remand for further
proceedings consistent with this opinion.
¶22 Reversed and remanded.
/S/ INGRID GUSTAFSON
We concur:
/S/ MIKE McGRATH
/S/ JAMES JEREMIAH SHEA
/S/ DIRK M. SANDEFUR
/S/ LAURIE McKINNON
11