On Behalf of | Jan 12, 2021 | Insurance Law

Upon a certified question, the Montana Supreme Court recently found that when liability for an automobile accident is reasonably clear and it is also reasonably clear that the amount of the loss exceeded the available policy limits, that the insurance company could not condition its payment of its policy limits on obtaining a release of its insured.

In High Country Paving, Inc. v. Union Fire and Casualty Co., 2019 Mt. 297, 454 P.3d 1210 (Mt. Dec. 2019) the insured had purchased various policies from United Fire and Casualty Co. (CGL coverage with a $1 million per occurrence limit/$2 million aggregate; commercial automobile liability coverage with a $1 million limit; and commercial umbrella coverage with a $2 million limit).  The case involved an accident that occurred when an equipment trailer attached to the insured’s vehicle became unhitched while in motion, thereby colliding with another vehicle.  The driver of the other vehicle was killed in the accident and a passenger in the other vehicle was critically injured.  Counsel for the injured victims sent the insured a demand letter seeking payment of the auto and umbrella coverage limits without allowance for a release of the insured.  The injured victims claimed economic damages of well over $1.5 million and general damages totaling $2.5 million which, combined, were in excess of the $3 million policy limits.  Defense counsel hired by the insurance company demanded that no settlement be made unless part of the settlement included a release of the insured.  Thereafter, the insurance company offered its $3 million policy limits on behalf of the insured in exchange for a release of the insured.  However, this offer was rejected.  The attorney for claimants then demanded the $3 million policy limits plus an additional $2.5 million from the insured in exchange for the requested release.  Following this counteroffer, the insurance company paid its $3 million policy limits without obtaining a release.  Thereafter, the insured negotiated for a complete settlement with a release for an additional payment of $1,275,000.  The insured then demanded that the insurance company either pay the additional $1,275,000 or to reject the proposed settlement and continue to defend the insured without a reservation of rights.  The insurer refused to pay any further amounts under its policy but agreed to continue to defend under a reservation.  The insured then settled with the injured parties for $1,275,000 in exchange for a release.

The insured sued the insurance company, alleging that the insurance company had committed unfair claim settlement practices, breach of contract, and violated the policy’s implied covenant of good faith and fair dealing.  The case was removed to federal court.  The federal court certified the issue to the Montana Supreme Court.  The following question was certified for submission to the Montana Supreme Court:

Where liability is reasonabl[y] clear, is it a breach of an insurer’s duty to its insured to pay policy limits to a third party in a motor vehicle accident without a release of its insured where claimed special damages are below policy limits but total damages (including general damages) exceed policy limits?

The Montana Supreme Court accepted the certified question.  The Montana Supreme Court then held that in situations where liability for an accident is reasonably clear and where the total damages caused by the accident are reasonably proven to exceed the policy limits, it would not be a breach of the duty of the insurance company to its insured if the insurance company paid the limits of the policy to the injured party without obtaining a release.  Conditioning payment of the policy limits under those circumstances on obtaining a release would violate the Unfair Trade Practices Act.