National Indemnity Co. v. St. Paul Fire & Marine Insurance

No. 13850
IN THE SUPREME COURT OF THE STATE OF MONTANA
1978
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NATIONAL INDEMNITY COMPANY,
Plaintiff and Appellant,
ST. PAUL FIRE AND MARINE INSURANCE
COMPANY, a corporation,
Defendant and Respondent.
Appeal from: District Court of the Eighteenth Judicial District,
Honorable W. W. Lessley, Judge presiding.
Counsel of Record:
For Appellant:
Anderson, Symmes, Brown, Gerbase, Cebull and Jones,
Billings, Montana
James L. Jones argued, Billings, Montana
For Respondent :
Alexander, Kuenning, Miller and Ugrin, Great Falls,
Montana
Neil Ugrin argued, Great Falls, Montana
Submitted: March 7, 1978
Decided :
MAR 2 9 1978
Mr. Justice John C. Harrison delivered the Opinion of the Court.
Plaintiff National Indemnity Company brought this action
against defendant St. Paul Fire & Marine Insurance Company for
a declaratory judgment holding defendant liable for an insurance
loss arising out of an accident at the Montana State University
Field House. The District Court, Gallatin County, found plaintiff
liable for the loss. Plaintiff appeals.
The 1972 Montana Constitution, effective July 1, 1973,
abolished the doctrine of sovereign immunity in Montana. In
response, the liontana legislature passed the Montana Tort Claims
Act, providing for the purchase by the State of a statewide com-
prehensive liability policy to be effective July 1, 1973. National
Indemnity was awarded the bid June 25, 1973, and a binder was
issued June 27, 1973.
For a number of years, Waite & Co., a Bozeman insurance
agency, represented MSU in insurance matters through its agent,
Don Ferron. In January, 1973, B S maintained two liability pol-
IU
icies through Waite & Co.; a broad liability policy with Safeco
Insurance Company and a specific liability policy covering the
Field House with St. Paul.
In April, 1973, two officers of MSU, business manager
Tom Nopper and assistant treasurer Lee Nelson, became aware of
the impending statewide comprehensive liability plan. As they
were uncertain of the extent of the coverage, they contacted
Ferron and requested that he cancel, effective July 1, 1973, any
St. Paul or Safeco coverage that would be duplicated under the
new plan. The concerns of the MSU officials were two-fold: to
avoid duplicate coverage which would be accompanied by duplicate
premiums, and to avoid gaps in coverage should the St. Paul policy
cover risks not covered by the new plan. Ferron, however, was
unable to make the comparison because the National ~ndemnity
policy was not yet available. Thereafter, Nopper, Nelson, and
Ferron entered into an oral agreement which is the subject of
this dispute. Generally speaking, the parties agreed to cancel,
effective July 1, 1973, any portions of the St. Paul policy
which duplicated the coverage under the new plan. When the
National Indemnity policy became available at some later date,
a determination could be made of the areas of duplication and
any excess premium paid would be refunded to MSU. St. Paul's
coverage would extend to all risks not covered by the new policy,
until its expiration in 1974. There is no dispute that Ferron
was the agent for St. Paul and as such had the authority to bind
St. Paul with respect to the cancellation agreement.
MSU did not receive a copy of the new National Indemnity
policy until August 28, 1973. Shortly thereafter, a copy of
the policy was delivered to Ferron.
On October 23, 1973, Douglas Reeves, an MSU student, was
electrocuted while taking a whirlpool bath in the Field House.
Soon thereafter, Nopper notified Ferron of the accident. Ferron
advised Nopper to report the accident to the National Indemnity
adjusters. Ferron, in turn, notified St. Paul of the death.
On November 29, 1973, Ferron prepared a "Lost Policy
Certificate and Release" on the St. Paul policy, with July 1,
1973 as the "effective date of cancellation", and personally
delivered it to Nelson at MSU for his signature. Nelson immediately
signed the certificate and release.
Following an investigation of the death, on or about
March 18, 1974, a $125,000 settlement was reached between the
Reeves family and National Indemnity. The agreement, contain-
ing a covenant not to sue, was formally executed May 22, 1974.
National Indemnity first learned of the existence of the
St. Paul policy in April, 1974. It was discovered that the St.
Paul policy provided for primary insurance on the ~ i e l dHouse
up to a policy limit of $1,000,000, while the National Indem-
nity policy covered, in the case of duplicate insurance, the
excess only. After learning of the cancellation, National
Indemnity requested that St. Paul participate in the loss. St.
Paul refused, precipitating the instant action for a declaratory
j udgment .
The case was submitted to the District Court on stipulated
facts and depositions. The court found, in pertinent part:
"FINDING OF FACT NO. 9
"That prior to July 1, 1973, acting upon a request
by MSU, St. Paul (and Safeco) acting through Ferron,
entered into an agreement with MSU which would
terminate coverage effective July 1, 1973 on any
areas that would duplicate the National Indemnity
coverage."
"CONCLUSIONS OF LAW
"That the coverage previously afforded by St. Paul
on the MSU Field House was cancelled by mutual
consent of the parties effective July 1, 1973 by
an agreement made between MSU and St. Paul prior
to July 1, 1973. See Dill v. Lumbermen's Mutual
Ins. Co., 50 S.E.2d 923 (S.E. 1948); 45 CJS,
Insurance, 5444B, page 71.
"Alternatively, it is held that the existing
St. Paul policy was modified orally by the
parties. R.C.M. 1947, 540-3717, even if
otherwise applicable, is rendered meaningless
by 840-3726! R.C.M. 1947, 549-105, R.C.M. 1947,
549-102, R.C.M. 1947. "
The issues presented for review are: (1) whether the
District Court erred in finding that the St. Paul policy had been
cancelled by mutual agreement; and (2) whether the court erred
in its alternative finding that the St. Paul policy had been
effectively modified.
National Indemnity contends that the St. Paul policy
covering the Field House had not been cancelled by the date
of the accident, October 23, 1973, and that no cancellation
occurred until November 29, 1973, when the "Lost Policy Certifi-
cate and Release" was signed. This they argue would not be an
effective cancellation with respect to the claim in question
since interests in insurance vest at the time of the loss.
See 45 C.J.S. Insurance S444, p. 72; McLane v. Farmers Insurance
Exchange, (1967), 150 Mont. 116, 432 P.2d 98.
St. Paul responds that there was a valid mutual agreement,
prior to July 1, 1973, to cancel any duplicate policies and that
such policies were effectively cancelled July 1, 1973. There-
fore, the result in this case ultimately depends upon the effect
of the oral agreement made by Ferron, representing St. Paul, and
Nelson and Nopper, representing MSU, sometime prior to July 1,
1973.
In this State, a written contract may be cancelled by
the mutual consent of the parties, and such cancellation may be
made orally. Section 13-903, R.C.M. 1947; West River Equipment
Co. v. Holzworth Construction Co., (1959), 134 Mont. 582, 587,
335 P.2d 298. While there appears to be no direct authority in
Montana regarding the mutual cancellation of insurance policies,
the rules are well established in other jurisdictions, as set
forth in Dill v. Lumbermen's Mut. Ins. Co., (1948), 213 S.C. 593,
50 S.E.2d 923, 926:
"Whether cancellation by mutual agreement
has been effected depends on the intention
of the parties as evidenced by their acts,
conduct and words, taken in connection
with the attendant circumstances. There
must be a meeting of minds, or mutual
assent, to constitute a valid cancellation,
and each party must act with knowledge of
the material facts. If both parties agree
that a policy is to be cancelled, transactions
with reference thereto are to be construed
reasonably and fairly and in accordance
with the evident understanding of the parties
at the time. Incomplete negotiations looking
toward a contract for cancellation do not
effect cancellation. Interstate Life & Acci-
dent Co. v. Jackson, 71 Ga.App. 85, 30 S.E.2d
208. And the burden of proving that there has
been a cancellation of a policy rests on the
party asserting it. 45 C.J.S., Insurance,
5461, page 129. "
See also 45 C.J.S. Insurance S444, pp. 70-71; Gavin v. North
Carolina Mutual Insurance Co., (1975), 265 S.C. 206, 217 S.E.
2d 591, 596; Pitner v. Federal Crop Insurance Corporation, (1971),
94 Idaho 496, 491 P.2d 1268, 1271; Fox v. Bankers Life & Casualty
Co., (1963), 61 Wash.2d 636, 379 P.2d 724, 726.
What did the parties agree to prior to July 1, 1973?
National Indemnity characterizes the agreement as one to con-
tinue the St. Paul policies until such time as a determination
of the areas of duplicate coverage could be made. It is urged
that the situation was merely incomplete negotiations looking
toward a contract of cancellation and that the parties lacked know-
ledge of the material facts essential for a cancellation by
mutual agreement. In support of this theory, National Indem-
nity refers to various statements by Nelson, Nopper and Ferron
in their depositions. National Indemnity also points out the
existence of memoranda and letters from St. Paul's files in-
dicating that some of St. Paul's agents, at times subsequent
to the accident, did not consider the policy cancelled.
By reference to the same depositions of Nelson, Nopper
and Ferron, St. Paul argues that they mutually agreed that any
St. Paul policies duplicating the coverage of the National
Indemnity policy would be cancelled as of July 1, 1973. All
that remained to be accomplished after that date was the physical
determination of the areas of duplication, the signing of the
Lost Policy Certificate, and the return of any excess premiums
paid.
This Court is not a trier of fact and will not disturb
findings made by the trial court unless there is a clear
preponderance of evidence against such findings. Merritt
v. Merritt, (19741, 165 Mont. 172, 177, 526 P . 2 d 1375. An
examination of the entire record supports the theory advanced
by St. Paul and adopted by the trial court. There is no
dispute that the whole purpose of the agreement was to: (1)
avoid duplicate coverage and duplicate premiums; and (2) avoid
cancelling existing coverage that would not be duplicated.
There is no dispute that in furtherance of these goals, all
duplicate coverage would be cancelled effective July 1, 1973.
While the physical comparison of the policies, the return of
unearned premiums, and the signing of the "Lost Policy Certifi-
cate and Release" still had not been carried out, we do not
think this detracts from the substance of the original agree-
ment. Because, at the time of the agreement, the National
Indemnity policy was not available for comparison, the parties
comprised a simple formula: all duplicate coverage would be
cancelled as of the effective date of the National Indemnity
policy. There was a meeting of the minds and all the material
facts necessary to construct this formula were before the parties.
To hold that on October 23, 1973, there indeed was duplicate
coverage would be contrary to the manifest and undisputed in-
tentions of all the parties to the agreement.
In view of our decision upholding the District Court's
conclusion of law No. I, there is no need to discuss the court's
alternative conclusion.
The judgment is affirmed.
We concur:
Hon.
Judge, sitting in the vacant seat
on the Court.