High Country Paving, Inc. v. United Fire & Cas. Co.

365 F.Supp.3d 1093

HIGH COUNTRY PAVING, INC., Plaintiff,

v.UNITED FIRE & CASUALTY CO., Defendants.

CV 18–163–M–DLC

United States District Court, D. Montana, Missoula Division.

Signed February 4, 2019

Jeffrey J. Tierney, Robert K. Baldwin, Trent M. Gardner, Goetz, Baldwin & Geddes, P.C., Bozeman, MT, for Plaintiff.

Jon T. Dyre, Crowley Fleck PLLP, Billings, MT, for Defendants.

ORDER

Dana L. Christensen, Chief Judge

Before the Court is the Motion to Dismiss Count II of Complaint (Doc. 2) filed by Defendant United Fire & Casualty Co. ("United Fire"). United Fire seeks to dismiss Count II of the Complaint filed by Plaintiff High Country Paving, Inc. ("High Country"). (Id. ) United Fire asserts that Count II, which alleges breach of the implied covenant of good faith and fair dealing, is barred by statute. (Doc. 3 at 4.) The Court construes United Fire's Motion as seeking dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, United Fire's Motion will be denied.

Rule 12(b)(6) motions test the legal sufficiency of a pleading. Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Generally, courts may only consider the allegations in the complaint when ruling on a motion to dismiss. Branch v. Tunnell , 14 F.3d 449, 453 (9th Cir. 1994)overruled on other grounds by Galbraith v. Cnty. of Santa Clara , 307 F.3d 1119 (9th Cir. 2002). "All allegations of material fact are taken as true and construed in the light most favorable to the plaintiff." SmileCare Dental Group v. Delta Dental Plan of California, Inc. , 88 F.3d 780, 782–83 (9th Cir. 1996). Nonetheless, a court may dismiss a complaint if it lacks a cognizable legal theory. Id. at 783. Thus, in order to survive a motion to dismiss, the "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks and citations omitted). A claim has facial plausibility when a court can draw a "reasonable inference" from the facts alleged that the defendant is liable for the misconduct alleged. Id.

BACKGROUND

Pursuant to the Complaint, United Fire insured High Country in August 2016, when one of High Country's vehicles was involved in an accident which killed Christine Fogerty and seriously injured her passenger, Mary Elgen. Thereafter, Fogerty's estate and Elgen, represented by the law firm of Edwards Frickle & Culver ("Edwards"), demanded payment of United Fire's combined $3,000,000 policy limits under a $1,000,000 primary commercial auto policy and a $2,000,000 commercial umbrella policy, without a release of its insured, High Country. United Fire engaged attorney Nick Pagnotta ("Pagnotta") to be High Country's defense counsel for this claim and encouraged High Country to engage independent counsel in the event the case proceeded to trial and there was a verdict in excess of the policy limits.

Edwards' demand letter specified that the damages suffered included $283,991.09 for Elgen's actual medical expenses, $609,486.36 in Fogerty's estimated lost future income had she lived, $595,342.91 in estimated cost of future assisted-living arrangements for Elgen, and $61,060.89 in assisted-living arrangements as of the date of the demand, with the remaining demand being comprised of non-economic damages such as pain and suffering and loss of consortium. The demand letter also indicated an intent to seek punitive damages.

In light of Edwards' demand letter, High Country informed United Fire that the payment of policy limits without a release of liability for High Country was not legally supported. High Country claimed that only undisputed special damages such as Elgen's actual medical expenses needed to be paid prior to negotiating a release of liability for High Country. Pagnotta then responded to Edwards' demand letter, arguing that High Country was entitled to a release in exchange for payment by United Fire of the $3,000,000 limit, because the undisputed damages did not exhaust the policy limits. Thus, Pagnotta counter-offered to pay the $3,000,000 demand provided High Country obtained a release.

Edwards rejected Pagnotta's counter-offer and renewed the original $3,000,000 demand without a release for High Country, subject to a 10-day response deadline. Edwards then made a separate $2,500,000 demand on High Country. A few days later, High Country received word from United Fire indicating that it was considering accepting Edwards' renewed offer and inviting High Country to consider a contribution of its own.

High Country's independent counsel promptly contacted United Fire to discuss this suggestion and discovered that United Fire intended to accept the $3,000,000 offer. During this conversation, High Country reiterated its position, as previously stated by Pagnotta, that there was no legal basis for United Fire to accept the limits offer without securing a release for High Country because the undisputed special damages were less than 10 percent of the policy limits.¹ Nonetheless, United Fire proceeded to accept the offer for policy limits without a release of High Country.

Alone, High Country sought a separate settlement agreement from Edwards. After some negotiation, High Country contacted United Fire to communicate that High Country's negotiating position had been so compromised as a result of United Fire's settlement with Edwards that High Country was forced to accept an offer to pay $1,275,000 in cash and assign certain legal claims to the claimants in exchange for a release. High Country explained that it planned to pursue recourse against United Fire unless United Fire agreed to pay the $1,275,000 cash component of the settlement or to defend and fully indemnify High Country in litigating the matter. After United Fire refused this offer, High Country performed on the agreement with Edwards.

Thereafter, High Country communicated with United Fire and reiterated the problems caused by United Fire's decision to settle for policy limits without a release, and demanded $1,450,000 in compensation. United Fire responded without analysis of High Country's legal arguments and rejected High Country's demand. (Doc. 1-1 at 3–18.)

DISCUSSION

Based on the above, High Country alleges claims for unfair claim settlement practices (Count I) and breach of the implied covenant of good faith and fair dealing (Count II). Again, United Fire's Motion focuses solely on Count II. Defining the implied covenant of good faith and fair dealing as requiring " ‘honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade,’ " High Country alleges that United Fire deprived it of its reasonable expectations by settling with Edwards without a release for High Country and without "investigat[ing] and faithfully apply[ing] the law in ascertaining and discharging its obligations to its insured." (Id. at 21–22 (quoting Bridger Del Sol, Inc. v. Vincentview LLC , 389 Mont. 415, 406 P.3d 460, 463 (2017).) Because this action was removed to federal district court under diversity jurisdiction, (Doc. 1 at 1), we apply the substantive law of Montana, the forum state, in our analysis of whether High Country has stated a claim upon which relief may be granted. Med. Lab. Mgmt. Consultants v. American Broadcasting Companies, Inc. , 306 F.3d 806, 812 (9th Cir. 2002).

I. Montana Unfair Trade Practices Act

United Fire asserts that Montana's Unfair Trade Practices Act ("MUTPA"), codified at Montana Code Annotated § 33–18–101 through § 33–18–1006, "mandates dismissal of Count II." (Doc. 3 at 7.) Montana Code Annotated § 33–18–242(3) provides that:

An insured who has suffered damages as a result of the handling of an insurance claim may bring an action against the insurer for breach of the insurance contract, for fraud, or pursuant to this section, but not under any other theory or cause of action. An insured may not bring an action for bad faith in connection with the handling of an insurance claim.

(2017). United Fire asserts that this bar on bad faith actions operates to preclude High Country's claim for breach of the implied covenant of good faith and fair dealing.

High Country responds that § 33–18–242(3) operates merely to bar the "common law tort of bad faith" which is not premised on the implied covenant of good faith and fair dealing that is present in every contract. High Country asserts that the implied covenant provides the basis for an action for breach of contract that is specifically allowed by § 33–18–242(3). Accordingly, High Country asserts that the MUTPA only bars bad faith claims sounding in tort, not contract. Therefore, because High Country's claim sounds in contract and not in tort, High Country argues that United Fire's Motion must be denied. (Doc. 5 at 2–9.) The Court agrees.

In Story v. City of Bozeman , 242 Mont. 436, 791 P.2d 767, 775 (1990)overruled on

other grounds by

Arrowhead School District No. 75 v. Klyap , 318 Mont. 103, 79 P.3d 250 (2003), the Montana Supreme Court set out to "reassess the covenant of good faith and fair dealing and to provide more workable guidelines for the future." In so doing, the Court distinguished the "bad faith tort," with its inherently indefinite damages, from an action for breach of the implied covenant of good faith and fair dealing. Because damages arising out of "the separate tort of bad faith" are "excessive" in contract cases, the Court held that the "Uniform Commercial Code model should be extended to cover all contracts and that the bad faith tort should be used only when the parties have a special relationship." Id. To this end, the Montana Supreme Court held that "every contract, regardless of type, contains an implied covenant of good faith and fair dealing. A breach of the covenant is a breach of the contract." Id.

The Montana Supreme...