Newman v. Scottsdale Insurance
370 Mont. 133
| Mont. | 2013Background
- Karlye Newman died at Spring Creek Lodge Academy, a WWASP-affiliated facility; Newman sued owner Lichfield, directors, Teen Help, and related entities for wrongful death and related claims.
- After mediation, Teen Help assigned to Newman $3 million in insurance coverage settlement, later reduced to judgment.
- Newman II (declaratory/breach action) against Scottsdale and National Union sought defense/indemnity for Newman I settlement; insurers denied coverage.
- District court granted summary judgment finding breaches of defense duty and awarded $3,000,000 plus fees and interest; appeals followed.
- Policy issues centered on Scottsdale’s designated operations and professional services exclusions and National Union’s umbrella coverage and notice provisions; Montana law applied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the district court err by considering evidence beyond the Third Amended Complaint for duty-to-defend analysis? | Newman: insurer duty to defend triggered by allegations; exclude post-pleading evidence. | Scottsdale: only the Complaint and exhibits should govern; post-pleading materials are inadmissible. | No reversible error; duty to defend triggered by allegations; evidence beyond pleadings not fatal. |
| Did Scottsdale’s exclusions bar coverage despite a duty to defend? | Newman: exclusions are ambiguous and should be construed narrowly; duty to defend exists. | Scottsdale: professional services and designated operations exclusions preclude coverage. | Exclusions ambiguous; duty to defend affirmed based on pleadings; policy language construed against insurer. |
| Did the district court err in awarding attorney’s fees to Newman? | Newman: assignee may recover fees; contingency agreement appropriate; Stimac factors apply. | Scottsdale: fees must reflect first-party fees in Teen Help’s declaratory action, not Newman I contingency. | Reversed; remand to recalculate reasonable fees based on services in Newman II as Teen Help’s assignee. |
| Did Montana law govern the declaratory action? | Newman: Montana law governs contract interpretation; no material difference with Utah law. | Scottsdale: Utah law should apply as policy issued there; most significant relationship test applies. | Montana law applies; decision affirmed on law application. |
Key Cases Cited
- Farmers Union Mut. Ins. Co. v. Staples, 2004 MT 108 (Mont. 2004) (insurer liable for defense costs when unjustified refusal to defend)
- Pinski Bros., 160 Mont. 219, 500 P.2d 945 (Mont. 1972) (insurer must defend when complaint alleges covered risk)
- Steadele v. Colony Ins. Co., 2011 MT 208, 361 Mont. 459, 260 P.3d 145 (Mont. 2011) (waiver of notice principles when insurer denies coverage on other grounds)
- Skauge v. Mountain States Tel. & Tel. Co., 172 Mont. 521, 565 P.2d 628 (Mont. 1977) (assignment of claim transfers rights to assignee; fee recovery principle)
- Tucker v. Farmers Ins. Exch., 2009 MT 247, 351 Mont. 448, 215 P.3d 1 (Mont. 2009) (attr. choice of law and de novo review for law questions)