A recent Supreme Court decision, High Country Paving, Inc. v. United Fire & Cas. Co., 2022 MT 72, ¶ 1, answered in the negative a question certified by a federal district court regarding tensions inherent in Montana’s Property and Casualty Insurance Policy Simplification Act (“PSA”). The Ninth Circuit had submitted the following state law question to this Court:
Whether, when an insurance policy does not include either a table of contents or a notice section of important provisions, in violation of Mont. Code Ann. § 33-15-337(2), the insurer may nonetheless rely on unambiguous exclusions or limitations to the policy’s coverage, given that § 33-15-334(2) provides that § 33-15-337(2) is “not intended to increase the risk assumed under policies subject to” its requirements?
The high court’s “no” response said that failure to meet formatting requirements in the PSA do not expand the risk assumed under a liability policy where unambiguous terms define it. It, further delineated a boundary to its former holding, Mont. Petroleum Tank Release Comp. Bd. v. Crumleys, Inc., 341 Mont. 33, 174 P.3d 948, 959 (2008) (“Crumleys”), which it distinguished, and which held that an absence of a table of contents listing a contractual limitation period prohibited the insurer from enforcing that limitation. The Court indicated that imposing CGL coverage here would represent changing the risk insured, whereas compliance with the contractual limitations provision in Crumleys has no impact on the scope of the underlying risk.
Factual and Procedural Background
This coverage dispute arises from an accident involving the transportation of construction equipment with an insured’s truck and trailer. High Country Paving, Inc. (“High Country”) purchased a liability insurance policy (the “Policy”) from United Fire & Casualty Company (“United Fire”). The Policy provided commercial general liability (“CGL”) coverage in the amount of $1 million per occurrence; commercial auto liability coverage in the amount of $1 million; and an umbrella policy with coverage in the amount of $2 million.
As a result of an accident caused by an employee of High Country, one person died and another was critically injured. United Fire asserted there was no coverage for the accident under the CGL policy based on two exclusions: the Aircraft, Auto, or Watercraft exclusion, and the Multiple Liability Coverages Limitation endorsement. Thereafter, over High Country’s objection, United Fire paid the $3 million combined limits of the commercial auto and umbrella policies without a release. United Fire agreed to – and did – continue to provide High Country with a defense of the claims against it. High Country then paid an additional $1.275 million to the Claimants to get a release.
High Country then brought an action against United Fire for breach of contract, which United Fire removed to the United States District Court for the District of Montana. The district court granted partial summary judgment to High Country and partial summary judgment to United Fire. 2020 WL 42722. The district court decided that (1) the provisions were unambiguous and excluded coverage, but that (2) the provisions were unenforceable based on a plain reading of Crumleys because the provisions were not listed in a table of contents or notice section of important provisions in violation of requirements of the PSA.
Both parties appealed. On United Fire’s motion, the Ninth Circuit certified to the Montana Supreme Court the question of whether, when an insurance policy does not include either a table of contents or notice section of important provisions, in violation of state statute, the insurer may nonetheless rely on unambiguous exclusions or limitations to coverage.
In Crumleys, the commercial liability policy provision required the insured to report any damage or loss to the insurer within 120 hours of the of the occurrence or loss. Crumleys, 174 P.3d at 954. The insured had denied coverage based on the insured’s failure to meet this requirement. Crumleys, 174 P.3d at 954. On appeal, the court concluded the provision was void and unenforceable because it was not included in a table of contents or notice section and thus failed to conform with the requirements of the PSA.
United Fire argued, and the Montana Supreme Court agreed, that Crumleys was distinguishable from the issue presented under the United Fire Policy because Crumleys concerned a notice provision that did not impact the extent of the risk insured under the policy, while reading the exclusions out of the United Fire Policy would result in a substantively different risk than was contemplated upon the issuance of the Policy. The reason that the scope of the risk was relevant is that the PSA itself “expressly limits policies subject to its requirements from increased risk.” To invalidate an express exclusion for “a technical violation of the PSA’s requirements” would undermine one of the PSA’s express limitations. Thus, “High Country’s coverage unambiguously excludes the risk it now asks this Court to impose upon United Fire” which would “increase the risk assumed” by United Fire in contravention to the state’s PSA.