Draggin' Y Cattle Co. v. Junkermier, Clark, Campanella, Stevens, P.C.
2019 MT 97
Mont.2019Background
- Plaintiffs (Roger & Carrie Peters and Draggin' Y Cattle Co.) sued their accountant/firm (Addink and Junkermier) for a failed §1031 tax exchange that led to large tax liability and alleged lost profits; plaintiffs claimed up to $12M in damages.
- New York Marine insured Junkermier and provided defense counsel under a reservation of rights, disclaiming coverage for fraud and punitive damages but continuing to defend throughout the litigation.
- Plaintiffs demanded policy limits ($2M) in June 2014; New York Marine counteroffered $100K and declined to accept the $2M demand; insurer told insured it would not assume risk of excess verdict after rejecting limits demand.
- Days before a summary-judgment hearing and trial, plaintiffs and insureds executed a stipulated settlement: $10M judgment, covenant not to execute against insureds, and assignment allowing plaintiffs to pursue insurer; settlement required court approval as "fair and reasonable."
- New York Marine intervened to challenge reasonableness; district court found the settlement reasonable (applying a presumption under Tidyman's) and entered $10M judgment against Junkermier; Supreme Court reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a pretrial stipulated judgment entered without insurer consent may be presumed reasonable when insurer provided defense under reservation of rights but allegedly failed other duties | Insureds/plaintiffs: insurer’s reservation of rights, failure to confirm coverage or file a declaratory action, refusal to accept policy‑limits settlement, and misstatements about erosion of limits amounted to effective abandonment—so Tidyman's presumption applies | Insurer (New York Marine): it never breached duty to defend; providing a defense precludes applying Tidyman's presumption and insurer cannot be bound by an insured’s unilateral settlement | Court: Reversed. When insurer defends, Tidyman's presumption of reasonableness does not apply; insureds must pursue separate breach‑of‑contract or UTPA claims and prove damages. |
| Whether an insurer’s alleged violations of UTPA or contract (other than failing to defend) justify unilateral confessed judgment binding insurer absent separate adjudication | Plaintiffs: UTPA and contract violations are cumulative and justify unilateral settlement with presumption of reasonableness against insurer | Insurer: defending the insured means the settlement cannot be presumed to reflect insurer’s conduct; statutory remedies and common‑law claims exist and must be litigated separately | Court: Insurer’s alleged UTPA/contract breaches are remedies for insureds, but do not equate to abandonment; insureds cannot unilaterally impose a presumptive damages measure on a defending insurer. |
| Whether an insurer must file declaratory judgment to avoid being deemed to have unreasonably withheld coverage | Plaintiffs: failure to file declaratory action after reservation of rights shows improper refusal to affirm coverage | Insurer: reservation of rights did not necessarily require declaratory action; coverage disputes may be limited and declaratory action not always required | Court: Declining to require a declaratory action as a per se rule; failure to sue for declaratory relief might be relevant to a UTPA claim but is not abandonment that permits a presumption in the liability case. |
| Whether the district court properly placed burden on insurer to rebut presumption of reasonableness | Plaintiffs: burden shift appropriate under Tidyman's where insurer abandoned insured | Insurer: burden shift improper because Tidyman's presumption applies only when insurer breached duty to defend | Court: Burden shift improper here—the presumption attaches only when insurer fails to defend; insurer defending throughout retains right to contest damages and defenses in separate first‑party actions. |
Key Cases Cited
- Tidyman's Mgmt. Servs. Inc. v. Davis, 376 Mont. 80 (Mont. 2014) (establishes presumption of reasonableness for unilateral settlements when insurer abandons insured by breaching duty to defend)
- State Farm Mut. Auto. Ins. Co. v. Freyer, 372 Mont. 191 (Mont. 2013) (a defending insurer cannot later be bound by a unilateral stipulated judgment as the presumed measure of damages)
- Abbey/Land, LLC v. Glacier Constr. Partners, LLC, 394 Mont. 135 (Mont. 2019) (discussion of when insurer breach of duty to defend binds insurer to insured’s settlement)
- Gibson v. W. Fire Ins. Co., 210 Mont. 267 (Mont. 1984) (insurer who in bad faith refuses to settle within limits may be liable for excess judgment)
- Farmers Union Mut. Ins. Co. v. Staples, 321 Mont. 99 (Mont. 2004) (duty to defend and its effects on insurer's obligations and defenses)