Tidyman's Management Services Inc. v. National Union Fire Insurance, 2016 Mont. LEXIS 783

NUFI refused to defend its insureds (Davis and Maxwell) in underlying litigation; District Court found NUFI breached duty to defend and was estopped from denying coverage.
Davis and Maxwell stipulated a $29 million settlement with Plaintiffs in exchange for a covenant not to execute; District Court initially approved the stipulated judgment.
This Court in Tidyman’s I affirmed breach/estoppel but reversed approval of the $29M amount and remanded for a reasonableness hearing, placing burden on NUFI to show unreasonableness.
On remand the District Court held a three-day hearing, largely excluded merit-based valuation evidence (holding insurer had lost right to litigate merits), and again approved the $29M judgment as supported by "reliable evidence."
NUFI appealed the remand outcome, arguing the court used the wrong test (subjective/reliable-evidence), should have offset ESOP payouts, and that interest was mischaracterized.
The Supreme Court (lead op.) reverses in part: remands for a second reasonableness hearing using an objective standard that considers both the merits and the value to a prudent uninsured defendant; rejects required ESOP offsets; and clarifies interest entitlement (postjudgment interest only if judgment is affirmed on remand).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether court erred by using a "reliable evidence" (subjective) test for reasonableness	Settlement was reasonable from insureds' perspective given exposure and loss of defense	District Court should assess reasonableness objectively based on merits/valuation, not just insureds' subjective view	Remanded: court must apply an objective standard (what a reasonably prudent uninsured defendant would settle for considering merits, damages, and risk)
Whether ESOP payouts should be deducted from the $29M judgment	$29M measures harm to TMSI; ESOP distributions are separate ERISA issues and not offsets to a stipulated settlement	ESOP recipients already received payments; deduct to avoid double recovery	Court did not err in declining to deduct ESOP payouts at this stage; court may consider them as part of reasonableness analysis on remand but not as automatic offsets to the stipulated judgment
Whether prejudgment interest from Jan 4, 2013 was proper	Plaintiffs claimed interest from district court’s original approval date	NUFI argued interest entitlement depends on final judgment status after remand	Court clarifies error: Plaintiffs are not entitled to prejudgment interest from Jan 4, 2013; if new judgment entered on remand, postjudgment interest runs from date of that new judgment

Tidyman’s Management Services v. Davis, 330 P.3d 1139 (Mont. 2014) (prior opinion: affirmed breach/estoppel and remanded to assess settlement reasonableness)
State Farm Mut. Auto. Ins. Co. v. Freyer, 312 P.3d 403 (Mont. 2013) (insurer that wrongfully refused defense may not later litigate merits to avoid consequences)
Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982) (objective "prudent defendant" standard for settlement reasonableness adopted)
Abbey/Land LLC v. Interstate Mechanical, Inc., 345 P.3d 1032 (Mont. 2015) (insurer entitled to district court determination of settlement reasonableness even after breaching duty to defend)
Woods v. Burlington N. & Santa Fe Ry. Co., 104 P.3d 1045 (Mont. 2004) (when appellate reversal results in new money judgment, interest on new judgment accrues from date new judgment is entered)
First Bank (N.A.) v. District Court for Fourth Judicial Dist., 737 P.2d 1132 (Mont. 1987) (consent judgment construed as contract between parties)