Beaverhead Co. v. MACo

October 7 2014
DA 13-0853
IN THE SUPREME COURT OF THE STATE OF MONTANA
2014 MT 267
BEAVERHEAD COUNTY, a political
subdivision of the State of Montana,
Plaintiff and Appellant,
v.
MONTANA ASSOCIATION OF COUNTIES
JOINT POWERS INSURANCE AUTHORITY,
Defendant and Appellee.
APPEAL FROM: District Court of the Fifth Judicial District,
In and For the County of Beaverhead, Cause No. DV-13-13666
Honorable Brenda R. Gilbert, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Andrew P. Suenram, Adam M. Shaw, Erb & Suenram, PLLC; Dillon,
Montana
For Appellee:
Gary M. Zadick, Ugrin, Alexander, Zadick & Higgins, P.C.; Great Falls,
Montana
Submitted on Briefs: September 17, 2014
Decided: October 7, 2014
Filed:
Clerk
Justice Michael E Wheat delivered the Opinion of the Court.
¶1 Beaverhead County (County) appeals from the order of the Montana Fifth Judicial
District Court, Beaverhead County, granting summary judgment in favor of the Montana
Association of Counties Joint Powers Insurance Authority (MACo). We affirm.
ISSUES
¶2 We review the following issues:
1. Did the District Court err by granting summary judgment on the issue of MACo’s
duty to defend?
2. Did the District Court err by considering the insurance policy’s Exclusion 23
when granting summary judgment?
FACTUAL AND PROCEDURAL BACKGROUND
¶3 In 2009, the County invited interested persons to submit bids for the Blacktail Deer
Creek Stream Rehabilitation and Bridge Replacement Project. Coleman Construction
(Coleman) submitted a bid, and the County subsequently selected Coleman to complete the
project. However, Coleman was unable to finish the project on time or for the amount of
money that it originally estimated.
¶4 Coleman sued for damages, filing a complaint against the County on April 4, 2011.
Coleman asserted ten claims for relief. Seven of these claims expressly alleged a breach of
contract, asked for relief from the contract, or asked for reformation of the contract. The
other three claims, claims 1-3, stated:
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First Claim for Relief
(Negligent Misrepresentation)
. . .
37. Defendants knew or should have known that certain material
representations contained in the Contract Documents were not true.
. . .
41. Defendants’ negligent representations, both expressed and implied,
materially affected the cost and time necessary to perform the work . . . .
Second Claim for Relief
(Negligence)
. . .
43. Under applicable codes and industry standards, Defendants had a duty of
care to Coleman, as a general contractor and prospective bidder, to exercise
appropriate care when preparing Contract Documents for the purpose of
inviting the submission of secured bids.
44. Defendants[] each and severally breached their duty of care by preparing
and providing Contract Documents that contain material defects and were not
otherwise prepared in compliance with applicable codes or industry standards.
45. Defendants’ negligence materially impacted the cost and time actually
necessary to perform the work, causing Coleman to suffer damages, costs,
fees, and expenses . . . .
Third Claim for Relief
(Professional Negligence)
. . .
48. In order to have his bid considered Coleman was required under the terms
of the Contract Documents to follow plans and specifications prepared by
Defendants and to post and bond for bids and the performance of work, and to
comply with other specified conditions.
49. Coleman submitted a secured bid, obtained the required bond(s) and
satisfied other conditions imposed by Defendants on bidders for the Blacktail
Project.
50. Because Coleman was required to rely on and conform to the Contract
Documents, to provide a secure bid, bond its work, and otherwise comply with
Contract Documents prepared by Defendants, Defendants owed Coleman a
higher duty of care as professional engineers.
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¶5 On April 5, 2011, the County notified MACo, in writing, of Coleman’s complaint and
provided MACo with a copy of the complaint. MACo is a joint risk insurance pool
comprised of Montana counties, and the County carried an insurance policy with it. The
County’s letter requested that, pursuant to its insurance policy, MACo defend and indemnify
the County from the claims against it.
¶6 MACo’s attorney responded with a preliminary decision on April 13, 2011,
recommending that coverage be denied. MACo’s claims administrator confirmed the denial
with a final decision on April 20, 2011. In their communications, both MACo’s attorney and
its claims administrator cited Exclusions 12 and 15 of the MACo JPIA Manuscript Liability
Policy. Exclusion 12 reads: “This policy does not insure against: . . . . Any claim arising out
of a claimed breach of contract or for breach of contract against the Insured.” Exclusion 15
was applied to deny coverage to claim 10 of the complaint only. This denial was not
contested and is not relevant to the present action.
¶7 Both the preliminary and final decisions denying coverage reasoned that “[e]ach of
the claims for relief is clearly based on Beaverhead County’s contract with Coleman and
accordingly falls under this exclusion.” Although MACo recognized that the first three
claims in the complaint were labelled as requests for relief from negligence, it decided,
having examined the complaint and citing this Court’s decision in Town of Geraldine v.
Montana Mun. Ins. Auth., 2008 MT 411, 347 Mont. 267, 198 P.3d 796, that the acts giving
rise to the claims were based on contract, rather than tort. Accordingly, it denied coverage.
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¶8 Following MACo’s denial of coverage, the County hired an attorney to defend it
against Coleman’s claims. On June 27, 2011, that attorney sent a letter to MACo on the
County’s behalf. It included his analysis of Coleman’s complaint and asserted that it
triggered MACo’s duty to defend the County under the County’s insurance policy.
Follow-up letters were sent on August 10, 2011 and September 20, 2011. While discussing
MACo’s legal obligations, none of these letters provided any facts that were not already
included in Coleman’s complaint. Another letter was sent on May 23, 2012. It included
Coleman’s responses to interrogatories, in which he explained the factual basis for his claims
against the county. While enumerating the specific instances of breach, Coleman did not
change his position in the interrogatory responses. He continued to base his claims of
negligent misrepresentation, negligence, and professional negligence on representations in
the contract documents. The County sent a final letter to MACo on December 5, 2012, again
asking MACo to reconsider coverage and suggesting that the County could pursue legal
remedies if MACo did not defend and indemnify it in the action against Coleman.
¶9 MACo responded to these letters on December 10, 2012. It continued to contend that
the claims against the county were excluded from coverage based upon Exclusion 12.
MACo also cited Exclusion 23 as an additional basis for denying coverage of claims 1-3.
Exclusion 23 states that the policy does not insure against: “Any claim . . . for faulty
preparation of bid specifications or plans . . . .”
¶10 On January 16, 2013, the County filed a complaint against MACo in district court,
alleging, among other things, that MACo violated its duty to defend. On May 10, 2013,
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MACo filed a motion for summary judgment. The County filed its own motion for summary
judgment on May 23, 2013. Resolving these cross motions for summary judgment, the
District Court granted summary judgment in favor of MACo. It ruled that MACo did not
have a duty to defend, reasoning that Exclusions 12 and 23 each provided sufficient
independent bases for denying coverage. The County appeals.
STANDARD OF REVIEW
¶11 We review a district court's ruling on a motion for summary judgment de novo.
Newman v. Scottsdale Ins. Co., 2013 MT 125, ¶ 20, 370 Mont. 133, 301 P.3d 348. Doing so,
we apply the same rule as the district court, M. R. Civ. P. 56, which states that summary
judgment “should be rendered if the pleadings, the discovery and disclosure materials on file,
and any affidavits show that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” M. R. Civ. P. 56(c)(3); Newman, ¶ 20.
DISCUSSION
¶12 1. Did the District Court err by granting summary judgment on the issue of MACo’s
duty to defend?
¶13 The County argues that the District Court erred by granting summary judgment in
favor of MACo. It contends that MACo’s duty to defend was triggered because MACo
could not unequivocally demonstrate that the claim was not covered by the insurance policy,
based on Coleman’s complaint, the letters the County sent to MACo, and Exclusion 12. We
disagree.
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¶14 The duty to defend arises when a complaint against an insured alleges facts which, if
proved, would result in coverage under an insurance policy. Tidyman’s Mgmt. Servs. v.
Davis, 2014 MT 205, ¶ 22, 376 Mont. 80, 330 P.3d 1139; Farmers Union Mut. Ins. Co. v.
Staples, 2004 MT 108, ¶ 20, 321 Mont. 99, 90 P.3d 381. The insurer has no obligation to
look beyond the complaint in determining whether a claim is covered by a policy, but it
cannot ignore other information actually obtained. Newman, ¶ 56; Staples, ¶ 24. Unless it
unequivocally demonstrates, based on the information before it, that the claim against an
insured does not fall within the insurance policy’s coverage, the insurer has a duty to defend.
Tidyman’s, ¶ 23; Staples, ¶ 24.
¶15 Here, MACo had notice of Coleman’s complaint and, from the excerpts of Coleman’s
interrogatory responses, of some of the specific conduct that Coleman believed gave rise to
the allegations. Based on this information, there was an unequivocal demonstration that
Coleman’s claims against the County did not fall within MACo’s coverage.
¶16 In particular, claims 1-3, the only claims at issue in the present case, were not covered
by the policy, due to Exclusion 12. That provision of the insurance policy excluded from
coverage claims arising from breach of contract. Although claims 1-3 of Coleman’s
complaint were described as tort claims, this description alone does not influence our
analysis. We have held that the acts giving rise to the complaint, and not the complaint’s
legal theories or conclusory language, form the basis for coverage. Geraldine, ¶ 24. Since
claims 1-3 arose from breach of contract, they were not covered by the insurance policy.
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¶17 In Geraldine, we held that a breach of contract exclusion was properly relied upon to
deny coverage of claims that the insured asserted were claims of negligent misrepresentation
and constructive fraud. Reasoning that the statement that was allegedly negligent
misrepresentation was the same statement that created the insured’s contract, we held that
“the factual basis for [the negligent misrepresentation claim] is the . . . contract . . . and, as
such, defense of th[e] claim is excluded.” Geraldine, ¶ 25. We also held that the
constructive fraud claim was excluded from coverage as a breach of contract claim,
reasoning that constructive fraud requires a breach of duty and that any duty the insured
owed “arose from the contract.” Geraldine, ¶¶ 31-32.
¶18 Similarly, the factual basis for claims 1-3 in the present case was the contract between
the County and Coleman. In claim 1, ostensibly a claim for negligent misrepresentation,
Coleman alleged that the County “knew or should have known that certain material
representations contained in the Contract Documents were not true.” As in Geraldine, the
statement that allegedly constituted negligent misrepresentation was part of the contract.
Thus, the factual basis for claim 1 was the contract with Coleman, and coverage of claim 1
was properly denied as a breach of contract claim.
¶19 In claim 2, ostensibly a claim for negligence, Coleman alleged that the County owed
Coleman “a duty of care . . . as a general contractor and prospective bidder,” and that the
County breached that duty by “preparing and providing Contract Documents that contain[ed]
material defects and were not otherwise prepared in compliance with applicable codes or
industry standards.” The interrogatories provided to MACo enumerate the alleged defects.
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As in Geraldine, this claim was properly excluded from coverage as a breach of contract
claim. Even if there were industry standards and codes that specified the level of care due to
Coleman, any duty that the County owed to Coleman arose from their contractual
relationship. Additionally, the defects constituting the alleged breach were part of the
contract itself. Thus, as in Geraldine, the factual basis for claim 2 was the contract.
Coverage of claim 2 was properly denied as a breach of contract claim.
¶20 In claim 3, ostensibly a claim for professional negligence, Coleman alleged that
because he “was required to rely on and conform to the Contract Documents . . . prepared by
[the County], [the County] owed Coleman a higher duty of care as professional engineers.”
In the interrogatories provided to MACo, Coleman specified the instances in which he
thought the duty of care was breached. As with claim 2 and as in Geraldine, any duty owed
to Coleman arose from their contractual relationship. Even if the County owed Coleman the
level of care required of a professional engineer, the factual basis of claim 3, as in Geraldine,
was the contract and not custom, code, or common law. Coverage of claim 3 was properly
denied as a breach of contract claim.
¶21 For the foregoing reasons, there was an “unequivocal demonstration” that the claims
against the County were not covered by its insurance policy with MACo. No duty to defend
was ever triggered, and MACo’s denial of coverage was proper.
¶22 2. Did the District Court err by considering the insurance policy’s Exclusion 23
when granting summary judgment?
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¶23 Because Exclusion 12 provided an independently sufficient basis for the District
Court to grant summary judgment in favor of MACo, there is no need to address its
conclusion that Exclusion 23 provided an additional basis upon which to deny coverage and
to grant summary judgment. For this reason, we decline to reach the issue of whether
Exclusion 23 was properly considered by the District Court.
CONCLUSION
¶24 We hold that the District Court did not err by granting summary judgment. There was
no genuine issue of material fact that Coleman’s claims 1-3 were excluded from coverage by
Exclusion 12. We decline to reach the issue of whether Exclusion 23 should have been
considered as a basis for denying coverage. Affirmed.
/S/ MICHAEL E WHEAT
We Concur:
/S/ MIKE McGRATH
/S/ JAMES JEREMIAH SHEA
/S/ PATRICIA COTTER
/S/ JIM RICE
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