Horace Mann Insurance v. Hanke
2013 MT 320
| Mont. | 2013Background
- The Hankes stored Thomas Warner’s belongings on their property after his eviction; Robert Hanke later claimed ownership and used Warner’s property. A 2007 suit by Warner alleged theft, conversion, negligence, and sought punitive damages.
- The Hankes had a homeowners policy from Horace Mann; they did not notify Horace Mann of the Warner suit until December 1, 2008, after retaining private counsel and defending initially on their own.
- Horace Mann investigated and accepted defense under a full reservation of rights, providing new counsel who mediated a settlement: $54,000 total (Horace Mann $20,000; Hankes $34,000).
- The Hankes could not fund their $34,000 share; Horace Mann advanced that $34,000 subject to reservation of rights and later filed a declaratory judgment action seeking a ruling that the policy provided no coverage and seeking reimbursement.
- The District Court held the policy excluded coverage (intentional-act and user-of-property exclusions), ordered the Hankes reimburse Horace Mann $34,000, and awarded Horace Mann $48,131.50 in attorney’s fees for the declaratory action.
- The Montana Supreme Court affirmed denial of coverage and reimbursement of the $34,000 advance, but reversed the award of attorney’s fees and remanded on that issue.
Issues
| Issue | Hankes' Argument | Horace Mann's Argument | Held |
|---|---|---|---|
| Whether policy covers Warner dispute (property or incidental liability coverage) | Coverage applies (incidental liability covers damage to others’ property regardless of insured’s liability; children’s negligence, not insured’s intent) | Policy exclusions bar coverage: intentional-act exclusion and exclusion for property used by an insured | Court: No coverage — Robert’s intentional taking/claim of ownership and use triggered exclusions; summary judgment for Horace Mann affirmed |
| Whether insurer may recover $34,000 advanced toward settlement after defending under reservation of rights | Horace Mann’s defense/settlement decisions bind insurer; should not be allowed reimbursement | Horace Mann reserved rights repeatedly and explicitly before/when advancing settlement funds; advanced funds under reservation and may recoup | Court: Horace Mann may be reimbursed $34,000 — award affirmed (majority); concurrence would deny reimbursement for lack of timely, specific pre-settlement notice |
| Whether Horace Mann may recover defense costs expended in Warner suit | Hankes argue insurer shouldn’t recoup defense costs where procedure or notice was deficient | Horace Mann seeks defense costs but District Court denied them for lack of timely notice; insurer cites reservation practice | Court: District Court correctly denied recovery of defense costs (lack of timely notice) |
| Whether attorney’s fees for declaratory judgment action are recoverable under §27-8-313, MCA | Horace Mann: equitable to award fees under declaratory relief supplemental powers | Hankes: fees not warranted; doctrine limits fee awards in declaratory actions unless equity strongly favors | Court: Reversed fee award; attorney’s fees not supported by equity under controlling precedents; remanded |
Key Cases Cited
- Travelers Cas. & Sur. Co. v. Ribi Immunochem Research, Inc., 326 Mont. 174, 108 P.3d 469 (insurer may recoup defense/indemnity costs where timely, explicit reservation and adequate notice given)
- Renville v. Farmers Ins. Exch., 324 Mont. 509, 105 P.3d 280 (rare circumstance where equity supported attorney-fee award in declaratory judgment action)
- United Nat. Ins. Co. v. St. Paul Fire & Marine Ins. Co., 352 Mont. 105, 214 P.3d 1260 (limits on awarding attorney’s fees under declaratory relief; require equitable support then necessary/proper showing)
- Trustees of Indiana Univ. v. Buxbaum, 315 Mont. 210, 69 P.3d 663 (attorney-fee awards fall within supplemental relief but require equitable analysis)
- Farmers Union Mut. Ins. Co. v. Staples, 321 Mont. 99, 90 P.3d 381 (insurer’s duty to defend arises when complaint presents a possibly covered claim; insurer may defend under reservation and seek declaratory relief)