Source: Montana Law Week

INSURANCE: Uncertainty and unresolved facts & claims in sewer line easements suit make this declaratory action as to defend/indemnify duties unripe for summary
judgment… Gilbert.

Gardiner-Park Co. Water & Sewer Dist. claims that Donald & Gina Knight constructed 2 homes on their property that improperly overlay and endanger its sewer line. It claims that they constructed a house for their son Landon in 2014 over its sewer lines despite its objections. It claims that this house could crush the old clay tile line, causing disruption or leakage into the Yellowstone River. It claims that they constructed a 2nd
house over the line subsequent to and in violation of a 2015 easement signed by Donald Knight. Knights contest validity of his signature, claiming that he signed following surgery and while under the influence of medication. The District alleges that prior to construction it agreed to pay for and construct a new manhole to reroute the line and accommodate the 2nd house.

This rerouting allegedly involved obtaining another easement from Knights’ neighbors, Obers. Both easements prohibited construction within 5 feet of the line without the District’s permission. However, the District’s underlying suit claims that Knights constructed the 2nd house over the line in violation of both easements. A survey prepared for the District concluded that parts of both homes were within the easements. The District also alleges that Knights caused a retaining wall to collapse, threatening support for part of the line above the river. Its underlying suit accordingly brought claims of intentional trespass, intangible trespass, public & private nuisance, negligence/strict liability, and breach of contract against Knights. Its underlying
suit seeks a declaration that Knights violated the easements, an award of damages, costs, and attorney fees, and an order directing removal of structures threatening the line and violating the easements (both homes and a shed) at Knights’ expense.

Knights counterclaimed against the District alleging that it was aware of placement of the homes and improperly waited to raise concerns until 4/16. They dispute validity of the 2015 easements, claiming that Donald Knight was taking strong pain killers at
the time of signing. They claim that the District improperly forced them to remove parts of the 2nd home’s roof & porch, causing damage to their property. They request damages, attorney  fees & costs, denials of the District’s claims, and injunctive orders prohibiting removal of any structures and directing that the homes “remain in place.”

MACo Joint Powers Insurance Authority filed a declaratory action asking the Court to declare that it has no duty to defend or indemnify the District based on “clear exclusions” in the policy. MACo and the District request summary judgment. The Court heard argument 2/11/19. A notice and affidavit of Todd Shea filed 2/8/19 indicate that the District has filed a contribution & indemnification claim against Standish Excavation as a 3rdparty Defendant in the underlying suit. Further, there are expected amendments to the pleadings by some or all of the parties as a result of this and further discovery is anticipated.

The District raises the issue of ripeness, relying on cases holding that “where there remain unresolved relevant issues in the underlying case, inseparable from the issues presented in the declaratory judgment action, the duty to indemnify is not ripe for resolution.” American Reliable (D.Mont. 2018); Skinner (Mont. 2005). The concern is that ruling on the duty to indemnify before allowing the facts to be determined in an underlying action fails to be a final adjudication on the indemnification issue. Such
a ruling may be subject to amendment or nullification when the underlying case is finally resolved. Northfield v. MACo (Mont. 2000).

MACo responds that its summary judgment motion seeks a ruling that it is not obligated to defend or indemnify the District. It points out that there is a long line of Montana cases that have decided whether coverage exists by analyzing whether the allegations of the underlying complaint trigger the duty to defend. Further, since the duty to defend is broader than the duty to indemnify, if there is no duty to defend, the underlying claim
falls outside the scope of coverage. Twite (Mont. 2008). “Put another way, while an insurer’s duty to defend is triggered by allegations, an insurer’s duty to indemnify hinges not on the facts the claimant alleges and hopes to prove but instead on the facts, proven, stipulated or otherwise established that actually create the insured’s liability.” Freyer (2003). MACo further relies on Grindheim (D.Mont. 1995) (“An insurer’s duty to defend
its insured arises when the insurer, through reference to pleadings, discovery, or final issues declared ready for trial, has received notice of facts representing a risk covered by the terms of the policy.”). Thus, MACo argues, if a claim falls unequivocally outside the policy’s coverage, there is no basis for imposing a duty to defend. MACo contends that the District is attempting to eliminate the duty to defend analysis by merging it into the
narrower duty to indemnify analysis. It points to case law holding that an insurer “had no duty to defend [the insured] because the complaint cannot be construed to give rise to a claim under the terms of the policy.” Weitzel (Mont. 2016). It rejects the District’s argument that unresolved factual issues preclude a determination of coverage, since the Supreme Court has recognized that “factual disputes between the parties relevant to
coverage must be resolved in favor of coverage.” Id. It argues that Northfield and American Reliable are not on point because they addressed only the issue of indemnification and did not analyze the duty to defend.

The District counters that MACo misconstrues its ripeness argument. It relies on authority that where there are unresolved relevant issues in the underlying case that are inseparable from the issues in the declaratory action, the duty to indemnify is not ripe. It argues that there are unresolved issues here that are inseparable from MACo’s summary judgment motion seeking a ruling that it is not obligated to defend or indemnity the District for Knights’ claims. It takes issue with MACo’s effort to distinguish Northfield as only addressing indemnification since the opinion notes at the outset that MACo had already assumed the defense, so the duty to defend was not at issue. It reiterates
that it relies on Northfield for the holding denying Northfield’s request for a declaratory ruling on its potential indemnification obligations because there were unresolved factual issues in the underlying case. Northfield also relied on the DJA, which authorizes a court to refuse to enter a declaratory ruling if doing so “would not terminate the uncertainty or controversy giving rise to the proceeding.” §27-8-206. In Northfield, MACo successfully
defended against Northfield’s motion by contending that the plaintiffs in the underlying case could subsequently amend their complaint and therefore Northfield’s motion seeking declaratory relief on its indemnification obligation was premature. The District maintains that American Reliable ultimately determined that it could not rule on whether there was an occurrence under the policy because of ongoing factual issues in the underlying case. Given this decision, it determined that American Reliable’s duty to defend was ongoing.

There are not only unresolved factual issues in the underlying litigation here, but also claims that have not been filed. This case is not to the stage where there is sufficient finality of pleadings, discovery, or final issues declared ready for trial, such that the Court can determine MACo’s duty to indemnify or defend. If the Court ruled on the summary judgment motions at this juncture, such rulings may be subject to nullification or amendment after further amendment of the pleadings, further discovery, or further proceedings. The Court is cognizant of MACo’s desire to have a ruling based on the state of the pleadings at the time it filed its summary judgment motion. However, doing so “would not terminate the uncertainty or controversy giving rise to the proceeding.” There is sufficient basis to deny MACo’s motion in keeping with the DJA §27-8-206.

The parties are preparing amended pleadings, most significantly Knights’ assertion of a 3rd-party claim which, if filed, would be crucial to MACo’s assessment of its position and the Court’s determination of the matters presented by the summary judgment motions now before the Court. The District has just recently asserted a 3rd-party contribution & indemnification claim, bringing a new party into the underlying case. Discovery has already been extended into 5/19,  and the addition of a new party may give rise to further requests for amendment of the Scheduling Order. The procedural status
puts this case beyond the level of uncertainty and unresolved facts in Northfield or American Reliable.

MACo’s motion for summary judgment and the District’s cross-motion for summary judgment must be denied.