Murray v. Montana Insur. Guaranty Assoc.

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.