Horace Mann Ins. Co. v. Hanke

372 Mont. 350

312 P.3d 429

HORACE MANN INSURANCE COMPANY, Plaintiff and Appellee,

v.Robert HANKE and Rebecca Hanke, Defendants and Appellants.

No. DA 12–0246.

Supreme Court of Montana.

Submitted on Briefs Sept. 11, 2013.

Decided Oct. 29, 2013.

For Appellant: Geoffrey C. Angel, Angel Law Firm; Bozeman, Montana.

For Appellee: G. Trenton Hooper, Eric N. Peterson, Crowley Fleck PLLP; Billings, Montana.

Justice BRIAN MORRIS delivered the Opinion of the Court.

[372 Mont. 351]¶ 1 Robert Hanke (Robert) and Rebecca Hanke (collectively the Hankes) appeal the order of the First Judicial District, Broadwater County, that granted summary judgment to Horace Mann Insurance Company (Horace Mann) on the insurance coverage issue, and the separate order that reimbursed Horace Mann and awarded attorney's fees to Horace Mann under the Uniform Declaratory Judgment Act. We affirm in part, reverse in part, and remand.

¶ 2 We address the following issues on appeal:

1. Whether the District Court properly granted summary judgment in favor of Horace Mann when it determined that the Hankes' insurance policy failed to cover the Warner dispute?

2. Whether the District Court properly determined that Horace Mann's decisions to provide a defense and to pay the settlement of Warner's claims nevertheless allowed Horace Mann to pursue reimbursement for the Hankes' share of the settlement?

[372 Mont. 352]3. Whether the District Court properly awarded attorney's fees to Horace Mann under the Uniform Declaratory Judgment Act's supplemental relief provision?

PROCEDURAL AND FACTUAL BACKGROUND

¶ 3 The dispute leading to the immediate appeal began when the Hankes offered space to Thomas Warner (Warner) to store personal belongings following Warner's eviction from his residence in Bozeman in 2004. Warner accepted the Hankes' offer. Warner stored his property in a small shed on the Hankes' property, near Three Forks in Gallatin County. Robert and Warner apparently made an oral agreement. Robert and Warner did not commit this agreement to writing. The Hankes maintained home insurancecoverage from Teachers Insurance, a subsidiary of Horace Mann during this time.

¶ 4 A fire completely destroyed the Hankes' home on April 20, 2005. As a result, Robert moved into a separate, larger shed on the property with his two sons. Rebecca Hanke and her daughter moved to a house in Belgrade. Robert and his sons began using Warner's personal property shortly thereafter. Robert sent Warner a letter in August 2005 in which he claimed that Warner had breached the agreement that the two previously had reached. Robert asserted ownership over Warner's property as a result of Warner's alleged breach.

¶ 5 Warner filed an action against the Hankes for theft, conversion, and negligence in withholding Warner's property on April 9, 2007. Warner also sought punitive damages. The Hankes retained private counsel and responded to Warner's allegations. The Hankes failed to file a claim with Horace Mann to request a defense at that time.

¶ 6 The Hankes finally filed a claim with Horace Mann to request a defense against Warner's suit on December 1, 2008. Horace Mann investigated a defense for the Hankes, with a full reservation of Horace Mann's rights. Horace Mann agreed to assume the defense after investigation, with a full reservation of rights. Horace Mann retained new counsel to defend the Hankes.

¶ 7 The new counsel that Horace Mann provided for the Hankes arranged for a settlement conference to attempt to resolve Warner's claims. Warner agreed to settle his claims for $54,000.00 at the conference. The Hankes agreed to pay $34,000.00 and Horace Mann agreed to contribute $20,000.00. The Hankes failed to obtain a loan to cover their $34,000.00 share. Horace Mann and the Hankes later reached an agreement whereby Horace Mann would advance the Hankes' $34,000.00 share. Horace Mann advanced the Hankes' contribution to the settlement subject to a full reservation of rights. The payment settled Warner's dispute with the Hankes.

¶ 8 Horace Mann filed a declaratory judgment action against the Hankes before the settlement conference. Horace Mann requested that the District Court determine whether the Hankes' insurance policy required Horace Mann to defend the Hankes. Horace Mann and the Hankes filed cross-motions for summary judgment in the declaratory judgment action.

¶ 9 The District Court determined that the Hankes' insurance policy excluded coverage for damage to Warner's personal property that had resulted from intentional acts. The District Court found that the Hankes intentionally had taken possession and intentionally had claimed ownership of Warner's property. The District Court also determined that “[t]he incidental liability coverage contains a similar exclusion.” The District Court further determined that the “Hankes' taking possession and claiming ownership of Warner's property was just such an intentional act.” The District Court concluded, therefore, that Horace Mann did not owe coverage to the Hankes for the Warner dispute.

¶ 10 Horace Mann requested that the District Court grant the costs of the defense that it had provided to the Hankes in the Warner dispute. Horace Mann further requested reimbursement for the $34,000.00 that Horace Mann had paid on behalf of the Hankes to settle the Warner dispute. Horace Mann lastly sought its attorney's fees and costs resulting from the declaratory judgment action.

¶ 11 The District Court denied Horace Mann any reimbursement of attorney fees and costs in the Warner dispute. The District Court awarded $34,000.00 to Horace Mann, however, to reimburse Horace Mann for its contribution to the settlement in the Warner dispute. The District Court further awarded $48,131.50 in attorney's fees to Horace Mann for the declaratory judgment action. The Hankes appeal.

STANDARD OF REVIEW

¶ 12 We review de novo a district court's ruling on a motion for summary judgment. Bailey v. State Farm Mut. Auto. Ins. Co., 2013 MT 119, ¶ 18, 370 Mont. 73, 300 P.3d 1149. This Court reviews for correctness a district court's decision as to whether legal authority exists to award attorney fees. Hughes v. Ahlgren, 2011 MT 189, ¶ 10, 361 Mont. 319, 258 P.3d 439. We review for an abuse of discretion a district court's order to grant or deny attorney fees if legal authority exists for the fees. Hughes, ¶ 10.

DISCUSSION

¶ 13 Whether the District Court properly granted summary judgment in favor of Horace Mann when it determined that the Hankes' insurance policy failed to cover the Warner dispute?

¶ 14 The District Court analyzed both the property coverage and liability coverage provisions of the Hankes' insurance policy to determine whether the Hankes' insurance policy covered their claim. The District Court also examined the policy exclusions under each source of coverage. The District Court concluded that Robert's intentional acts excluded the Hankes' claim under either provision. The Hankes assert that the District Court should have relied exclusively upon the incidental liability language that includes coverage for damage to other's property. We examine separately each potential source of coverage and the accompanying exclusions.

¶ 15 The personal property provision of the Hankes' insurance policy provides that “[Horace Mann] cover[s] personal property ... in the care of an insured.” The damaged property at issue undisputedly remained in the care of the Hankes. The relevant exception to the personal property provision excludes, however, “loss which results from an act committed by ... an insured. This includes any loss which is expected or intended by an insured.” The District Court determined that the Hankes intentionally appropriated and took control of Warner's personal property. These intentional acts, according to the District Court, led directly to the damage at issue.

¶ 16 The Hankes argue that the District Court should have examined another coverage relevant to their claim: “[r]egardless of an insured's legal liability, [Horace Mann] pay[s] for property of others damaged by an insured.” The Hankes argue that this provision applies “regardless of the Hankes' legal liability.” This claim requires us to examine the exclusion relevant to liability coverage in the Hankes' policy. The exclusion provides that “[Horace Mann] do[es] not pay for damage to property ... caused intentionally by an insured who has attained the age of 13.”

¶ 17 The Hankes contend that Horace Mann should have covered any damage to Warner's property under this standard. The Hankes suggest that the “underlying conduct” that caused the damage to Warner's personal property had not been intentional, but instead had resulted from negligent acts. The Hankes claim that much of the underlying conduct that caused damage to Warner's personal property had been the fault of the Hankes' young children. The exception for intentional acts applies only to “an insured who has attained the age of 13.” None of the Hankes' children “ha[d] attained the age of 13.”

¶ 18 Similar to the District Court, we need not determine whether the Hankes' young children acted negligently. Robert performed an intervening intentional act before his children allegedly damaged any of Warner's personal property. Robert claimed ownership of Warner's personal property in a letter to Warner on August 26, 2005, and further declared that the Hankes would use that property. The Hankes' children had access to Warner's personal property only due to the fact that Robert intentionally had claimed ownership and intentionally had used Warner's property for his own purposes.

¶ 19 The Hankes next argue that they potentially retained Warner's personal property with Warner's permission. The record directly contradicts this claim. The substance of Robert's August 26, 2005, letter to Warner makes clear that the Hankes' had taken Warner's property due to “[Warner's] default on our original agreement.” Robert clearly informed Warner that ...