Westchester Surplus Lines Insurance v. Keller Transport, Inc., 2016 MT 6

Keller leased a tanker from Wagner; the tanker overturned in 2008, spilling 6,380 gallons of gasoline and causing property damage and cleanup/litigation claims by homeowners.
Primary insurer CCIC had Auto limits $1M per accident and CGL limits $1M per occurrence with a $2M general aggregate; CCIC’s duty to defend ended when its limits were exhausted.
Westchester issued an excess policy with limits stated as $4M each occurrence and $4M general aggregate, incorporated the underlying CCIC coverages “in like manner,” disclaimed an affirmative duty to defend but reserved the right to associate in defense, and carried an MCS-90 endorsement.
CCIC exhausted its Auto limits; Westchester defended under reservation of rights and paid about $4M in cleanup and defense costs, then ceased defending when it believed its excess limits were exhausted; CCIC later resumed defense payments.
Homeowners obtained confessions of judgment against Keller and Wagner for about $13M (offset by other recoveries) and assigned policy claims to Homeowners; Missoula declaratory action considered whether CCIC and Westchester owed additional CGL/excess coverage and whether insurers breached defense duties.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Westchester’s $4M “general aggregate” applies per underlying coverage (so an extra $4M CGL) or is a single policywide limit	Homeowners: term undefined and policy structure (Schedule A + “in like manner”) makes it reasonably susceptible to reading the $4M aggregate as applying per underlying coverage (so CGL gets an additional $4M)	Westchester: “general aggregate” commonly means the insurer’s total liability for the entire policy; Item 6 fixes a single $4M aggregate cap	Court: Policy ambiguous as a whole and ambiguity construed for coverage; Westchester must provide additional $4M excess for CGL (affirmed)
Whether Westchester breached a duty to defend by withdrawing after it paid about $4M	Homeowners: Westchester assumed a continuing duty by defending under reservation and breached it by withdrawing before all additional limits that might apply were exhausted, prejudicing insureds	Westchester: it disclaimed an independent duty to defend, only agreed to defend until its limits were exhausted; once limits were (reasonably) exhausted it could withdraw; insureds remained represented and defense costs were paid	Court: Westchester’s voluntary assumption of defense can create a duty, but here Westchester did not unjustifiably refuse or abandon the defense (insureds continuously represented; payments resumed by CCIC; no bad faith); reversed as to liability for the confessed judgments

Tidyman’s Mgmt. Servs. v. Davis, 330 P.3d 1139 (Mont. 2014) (insurance-contract interpretation reviewed de novo)
Fisher v. State Farm Mut. Auto. Ins. Co., 305 P.3d 861 (Mont. 2013) (ambiguity construed against insurer)
State Farm Mut. Auto. Ins. Co. v. Freyer, 312 P.3d 403 (Mont. 2013) (consequential damages and enforcement of stipulated judgments against insurers)
Lee v. USAA Cas. Ins. Co., 86 P.3d 562 (Mont. 2004) (insurer unjustifiably refusing to defend becomes liable for defense costs and judgments)
Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868 (10th Cir.) (MCS-90 is a surety obligation, not a policy-term modification)
Canal Ins. Co. v. Carolina Cas. Ins. Co., 59 F.3d 281 (1st Cir.) (MCS-90 protects injured third parties where policy coverage is lacking)
Weyerhaeuser Co. v. Commercial Union Ins. Co., 15 P.3d 115 (Wash. 2000) (aggregate limit construed as insurer’s total liability where policy language was precise)