Tidyman's Manangement Services Inc. v. Davis
2014 MT 205
| Mont. | 2014Background
- NUFI issued a 2006 D&O policy to Tidyman’s LLC, Davis, and Maxwell; NUFI defended them in federal ERISA litigation; after settlements, NUFI claimed no further coverage for the Montana state case filed May 21, 2010 against Davis, Maxwell, and Tidyman’s LLC.
- NUFI sent an August 5, 2010 coverage denial based on the Insured v. Insured Exclusion, though NUFI later asserted a reservation of rights and began defending under that reservation.
- An October 25–28, 2010 sequence culminated in stipulations resulting from insurer refusal to provide coverage, including a $29 million judgment against Davis and similar stipulations against Maxwell, TMSI, and the plaintiffs.
- NUFI moved to dismiss and then faced motions to approve stipulations for entry of judgment; the Montana district court coordinated summary judgment and approval of stipulations, ultimately ruling in favor of the plaintiffs on liability and prejudgment interest.
- NUFI appealed contending choice of law issues, duty to defend, reasonableness/collusion of settlements, and prejudgment interest timing; the district court and this Court undertook a complex choice-of-law analysis and reviewed standards for defense duties and settlement reasonableness.
- The Court affirmed in part, reversed in part, and remanded for proceedings consistent with its opinion, notably requiring a reasonableness hearing on the $29 million stipulated settlement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice-of-law governing the dispute | NUFI argues Washington law should apply | Court should apply Montana law under Restatement §188, Montana place of performance | Montana law applies |
| Whether NUFI breached the duty to defend without first analyzing policy coverage | NUFI had a duty to defend; denial breached the duty | Coverage analysis should precede a breach ruling; insurer can resist coverage | NUFI breached the duty to defend; estoppel/recovery for defense costs applicable |
| Need for a hearing on reasonableness and collusion of stipulations | Reasonableness/collusion require hearings and independent evidence | Montana precedent allows reviewing reasonableness but not mandatory hearing | Remand to hold a reasonableness hearing; collusion not required to be proven given breach finding |
| Prejudgment interest accrual | Interest should start earlier (Nov 5, 2010) | Interest should start when judgments are final or stipulated | Interest begins January 4, 2013 (court approval of stipulations) |
Key Cases Cited
- Independent Milk & Cream Co. v. Aetna Life Ins. Co., 68 Mont. 152 (Mont. 1923) (settlement reasonableness presumption and insurer burden to rebut)
- Keating v. Universal Underwriters Ins. Co., 133 Mont. 89 (Mont. 1958) (insurer not in position to criticize settlement absent excessiveness)
- Wash. Water Power Co. v. Morgan Elec. Co., 152 Mont. 126 (Mont. 1968) (insurer entitled to judgment where settlement paid in good faith after breach)
- State Farm Mut. Auto. Ins. Co. v. Freyer, 2013 MT 301 (Mont. 2013) (recognizing concerns about insurer incentives in stipulated settlements (distinguishable when defense provided))