# Estate of Gleason v. Central United Life Insurance

> Montana Supreme Court · May 20, 2015 · 379 Mont. 219

URL: https://www.frixlaw.com/law-library/cases/2802271

## Case

- **Full name:** The ESTATE OF JUDITH K. GLEASON, and JAN GREGSON and JAMES GLEASON, as Personal Representatives of the Estate of Judith Gleason, Plaintiffs and Appellants, v. CENTRAL UNITED LIFE INSURANCE COMPANY, HELENA SCHOOL DISTRICT #1, GAIL MOONEY and DOES 1-10, Defendants, Appellees, and Cross-Appellant; CENTRAL UNITED LIFE INSURANCE COMPANY, Counter-Plaintiff, and Cross-Appellant, v. THE ESTATE OF JUDITH K. GLEASON, and JAN GREGSON and JAMES GLEASON, as Personal Representatives of the Estate of Judith Gleason, Counter-Defendants
- **Court:** Montana Supreme Court
- **Decided:** May 20, 2015
- **Citations:** 379 Mont. 219; 350 P.3d 349; 2015 MT 140; 2015 Mont. LEXIS 247
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Wheat, McKtnn, Rice, McGrath, Shea, Cotter, Baker
- **Nature of suit:** Direct Appeal
- **Cited by:** 19 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/2802271

## How later opinions describe it (automated extraction)

- holding that an insured was forced to assume the burden of legal action to recover the full benefit of the insurance contract even though the insurer submitted several payments before and during litigation
- stating that “without an award of compensatory damages, there can be no award of punitive damages”

## Opinion text

May 20 2015

DA 13-0644
Case Number: DA 13-0644

IN THE SUPREME COURT OF THE STATE OF MONTANA

2015 MT 140

THE ESTATE OF JUDITH K. GLEASON,
and JAN GREGSON and JAMES GLEASON,
as Personal Representatives of the
Estate of Judith Gleason,

Plaintiffs and Appellants,

v.

CENTRAL UNITED LIFE INSURANCE
COMPANY, HELENA SCHOOL DISTRICT #1,
GAIL MOONEY and DOES 1-10,

Defendants, Appellees, and Cross-Appellant.

----------------------------------------------

CENTRAL UNITED LIFE INSURANCE
COMPANY,

Counter-Plaintiff, and Cross-Appellant,

v.

THE ESTATE OF JUDITH K. GLEASON,
and JAN GREGSON and JAMES GLEASON,
as Personal Representatives of the
Estate of Judith Gleason,

Counter-Defendants.

APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis & Clark, Cause No. BDV 2011-707
Honorable Jeffrey M. Sherlock, Presiding Judge

COUNSEL OF RECORD:

For Appellants:

John M. Morrison (argued), Linda M. Deola, Morrison, Sherwood, Wilson
& Deola, PLLP; Helena, Montana
For Appellees:

Randall J. Colbert (argued), Robert C. Lukes, Garlington, Lohn &
Robinson, PLLP; Missoula, Montana

Argued and Submitted: November 18, 2014
Decided: May 20, 2015

Filed:

__________________________________________
Clerk

2
Justice Michael E Wheat delivered the Opinion of the Court.

¶1 Jan Gregson and James Gleason, as co-personal representatives of the Estate of

Judith Gleason (the Estate), appeal from various rulings by the First Judicial District,

Lewis and Clark County. Defendant Central United Life Insurance, Co. (CULI)

cross-appeals. We affirm in part, reverse in part, and remand for a new trial consistent

with this opinion.

PROCEDURAL AND FACTUAL BACKGROUND

¶2 In 1990, Judith Gleason (Judith) purchased a cancer benefit insurance policy from

Colonial Life & Accident Insurance Company, with an effective date of coverage of

February 22, 1990. In March 2002, Judith was diagnosed with breast cancer. She

underwent treatment until she died on March 28, 2010.

¶3 From the time she purchased the policy until her death, Judith paid all premiums

owed. The policy remained in effect when she died in 2010. Judith never submitted a

claim on the policy while she lived. After her death, Jan Gregson and James Gleason

were named co-personal representatives of her estate (PRs).

¶4 In 2004, CULI acquired the cancer insurance policy from Colonial Life. CULI

began servicing the policy in January 2002, and formally assumed the policy on or about

October 1, 2004.

¶5 On or about April 5, 2010, the PRs submitted a notice of potential claim under the

policy to CULI via phone call. The PRs then sent CULI a copy of Judith’s death

certificate, which attributed her death to cancer. CULI received the death certificate on

3
April 12, 2010. Medical bills and claim forms were sent to CULI in January 2011. On

January 24, 2011, CULI requested additional documentation related to certain services

provided from October 2009 through March 2010. On January 25, 2011, CULI issued an

explanation of benefits stating that claims not submitted within the policy’s notice period

were not payable. The policy required claims to be filed within one year plus 90 days of

the date of the claim. The PRs provided additional medical records to CULI in February

2011 and early March 2011.

¶6 On March 17, 2011, CULI paid certain claims arising within one year and 90 days

prior to January 11, 2013, the date the claim forms and medical bills were received by

CULI. This payment totaled $57,735.95. CULI reiterated that it would not pay for

claims submitted outside the policy time limit.

¶7 On April 11, 2011, the PRs advised CULI that the Estate was contesting the denial

of the untimely-filed claims. On June 24, 2011, CULI issued payment of a $5,000 death

benefit payable under the policy.

¶8 On June 24, 2011, CULI filed a declaratory judgment action in Montana Federal

Court. The Estate filed this action in State District Court on July 13, 2011. On

December 15, 2011, the Federal Court declined to exercise jurisdiction and the

declaratory judgment action was remanded to the State District Court for determination.

¶9 Over the next several months, both parties moved for summary judgment. On July

12, 2012, the District Court issued an order granting the Estate’s motion for partial

summary judgment and denying CULI’s motion for summary judgment. In its order, the

4
court ruled that CULI owed payment for the untimely-filed claims, provided it was not

prejudiced by the late notice. CULI admitted that it was not prejudiced because it had the

information necessary to consider the claims under the policy. The court also ruled that

the eight-year statute of limitations on written contracts barred claims for services

rendered prior to April 5, 2002. This ruling was later amended to bar claims for services

rendered prior to April 12, 2002.

¶10 In August 2012, CULI discovered that certain other medical expenses incurred

within the policy time limit should have been covered. Accordingly, on August 20 and

22, 2012, CULI issued payments to the Estate for those claims. These payments totaled

$17,195.28 and included prejudgment interest (calculated at 10% per annum) from

March 17, 2011 to the date of the payments.

¶11 On January 17, 2013, pursuant to the District Court’s July 12, 2012 order, CULI

issued payment to the Estate for the untimely-filed claims. The payment totaled

$539,717.90 and included prejudgment interest from March 17, 2011 to the date of the

payment. Shortly thereafter, CULI warned the PRs not to distribute the funds because it

intended to seek reimbursement of the payment on appeal. The PRs placed the funds in

trust pending the outcome of this dispute.

¶12 Prior to trial both parties filed motions in limine. On March 1, 2013, the District

Court issued an order on the motions. The court allowed CULI to present testimony

about cases decided after its denial of the PRs’ claim in order to “illustrate the unsettled

nature of Montana law” with regard to the notice issue. The court also allowed the PRs

5
to present testimony regarding CULI’s claim handling in other states and how other

insurance companies handle late notice claims in other jurisdictions.

¶13 The case was tried by jury from March 4-8, 2013. On March 4, 2013, prior to the

commencement of trial, the court entered a directed verdict in favor of the Estate on the

untimely-filed claims for the amount of $539,717.90. The court advised the jury that it

had directed a verdict on that issue and that CULI had paid that amount to the Estate.

¶14 At the conclusion of trial the court submitted a special verdict form to the jury.

The verdict form directed the jury to determine the amount of additional money CULI

owed under the policy, if any, and whether CULI had violated the Montana Unfair Trade

Practices Act (UTPA). If the jury found that CULI had violated the UTPA, it was to

determine the amount of damages suffered and, if it awarded damages, to consider

whether CULI had acted with malice. If the jury found CULI acted with malice it could

then determine whether to award punitive damages.

¶15 The jury returned a verdict finding that no additional money was due under the

policy. The jury found that CULI had violated the UTPA, but did not award damages.

The jury therefore did not consider whether CULI acted with malice.

¶16 Following trial, the District Court awarded trial costs to CULI, finding that it was

the prevailing party because the jury had awarded no contract or UTPA damages to the

Estate. The District Court awarded attorney’s fees and costs to the Estate for its recovery

under the policy.

6
¶17 The Estate timely appealed and CULI timely cross-appealed. The Estate contends

that the District Court erred when it: (a) required proof of UTPA damages in addition to

wrongfully denied benefits before allowing the jury to consider malice and punitive

damages, (b) failed to grant a directed verdict that CULI violated the UTPA, (c) allowed

the jury to consider judicial opinions related to the notice-prejudice rule with regard to

whether CULI had a reasonable basis in law to deny the claims, and (d) awarded trial

costs to CULI.

¶18 On cross-appeal, CULI maintains the District Court erred when it: (a) applied the

notice-prejudice rule and determined that the Estate’s claims were not barred by the

policy’s notice provision, (b) applied the statute of limitations from the time CULI

received notice of the Estate’s claims, (c) failed to dismiss the UTPA claim because

CULI had a reasonable basis in law to deny the claim, (d) allowed evidence of claim

handling practices by other insurers with regard to whether CULI had a reasonable basis

in law to deny the UTPA claim, and (e) awarded attorney’s fees and costs to the Estate.

¶19 Because of our holding here, we do not reach several of the issues raised by the

parties. We therefore restate the issues on appeal and cross-appeal and address them in

the following order:

1. Did the District Court err when it applied the notice-prejudice rule in finding
that CULI was liable to the Estate for the untimely-filed claims?

2. Did the District Court err when it instructed the jury that it must first find
UTPA damages beyond damages for failure to pay benefits under the policy
before considering malice and punitive damages?

7
3. Did the District Court err by failing to direct a verdict against CULI for
violating the UTPA?

4. Did the District Court err when it did not dismiss the UTPA claim because
CULI had a reasonable basis in law for denying the untimely filed claims?

5. Did the District Court err by applying the statute of limitations from the date
the PRs submitted their claim to CULI rather than from the date suit was filed?

6. Did the District Court err in allowing the Estate to present evidence of
out-of-state law and claim handling practices that were not directly related to
the case at hand and allowing CULI to present evidence of Montana cases
related to the notice-prejudice rule?

7. Did the District Court err in awarding trial costs to CULI where the jury found
that the UTPA was violated and the court entered a directed verdict in favor of
the Estate?

8. Did the District Court err in awarding attorney’s fees to the Estate?

STANDARDS OF REVIEW

¶20 We review a district court’s conclusions of law for correctness. Weter v.

Archambault, 2002 MT 336, ¶ 18, 313 Mont. 284, 61 P.3d 771. We review a district

court's ruling on a motion for summary judgment de novo, applying the same criteria as

the district court. Cole v. Valley Ice Garden, L.L.C., 2005 MT 115, ¶ 4, 327 Mont. 99,

113 P.3d 275. We review a district court’s jury instructions to determine whether the

instructions, as a whole, fully and fairly instruct the jury on the applicable law. State v.

Hudson, 2005 MT 142, ¶ 10, 327 Mont. 286, 114 P.3d 210. The instructions must

prejudicially affect a party’s substantial rights to constitute reversible error. Hudson,

¶ 10.

8
¶21 A district court abuses its discretion if it acts arbitrarily without the employment of

conscientious judgment or exceeds the bounds of reason, resulting in substantial injustice.

State v. Daniels, 2011 MT 278, ¶ 11, 362 Mont. 426, 265 P.3d 623.

DISCUSSION

¶22 1. Did the District Court err when it applied the notice-prejudice rule in finding
that CULI was liable to the Estate for the untimely-filed claims?

¶23 The “notice-prejudice” rule in the realm of insurance law provides that late notice

of a claim (i.e., notice outside the time limit established in the written insurance policy)

will not preclude coverage unless the insurer can demonstrate that it was prejudiced by

the lateness of the notice. We have previously applied elements of the notice-prejudice

rule in uninsured and underinsured motorist cases without explicitly adopting the rule.

We do so now in the context of first party insurance claims.

¶24 We begin our analysis with the proposition that if an insurance contract’s terms

are clear and unambiguous, we will enforce the terms as written unless the term violates

public policy. State Farm Mut. Auto. Ins. Co. v. Gibson, 2007 MT 153, ¶ 11, 337 Mont.

509, 163 P.3d 387. However, “a provision that defeats coverage for which valuable

consideration has been received violates Montana public policy.” State Farm, ¶ 11.

¶25 In Sorensen v. Farmer’s Ins. Exch., 279 Mont. 291, 927 P.2d 1002 (1996), we

considered a situation where an injured motorist, Sorensen, settled a third party claim and

executed a release with State Farm (the other driver’s insurer) before bringing an

underinsured motorist claim against her own insurer, Farmers Insurance Exchange.

Farmers denied coverage, citing a policy provision prohibiting Sorensen from doing
9
anything to prejudice Farmers’ subrogation rights. Farmers argued that by executing the

release against the liable parties and State Farm, Sorensen destroyed its subrogation

rights and breached the insurance contract.

¶26 Citing a plethora of cases from other jurisdictions, we adopted a “no prejudice”

rule, holding that, as a matter of public policy, “denying accident victims indemnification

based upon their action which can have no effect on the insurer’s ability to subrogate will

not further the purpose of underinsured motorist coverage.” Sorensen, 279 Mont. at

294-296, 927 P.2d at 1004-1005.

¶27 We followed Sorensen with Augustine v. Simonson, 283 Mont. 259, 940 P.2d 116

(1997). In Augustine, we considered “exhaustion” clauses in underinsurance policies.

Concluding that such clauses were against public policy, we stated: “[a]bsent some

showing of material prejudice to the underinsurance carrier, a claim for underinsured

motorist coverage may not be precluded on a technicality.” 283 Mont. at 264, 940 P.2d

at 119 (citing Sorensen, 279 Mont. at 295, 927 P.2d at 1004).

¶28 In Augustine, while not directly addressing the notice-prejudice rule, we also cited

§ 28-2-701, MCA, which provides an exception to enforcing an unambiguous contract

provision “if that term violates public policy or is against good morals.” 283 Mont. at

263-264, 940 P.2d at 119.

¶29 More recently, in Lee v. Great Divide Ins. Co., 2008 MT 80, 342 Mont. 147,

182 P.3d 41, we upheld a denial of coverage for violation of a notice provision after

discussing the ways the late notice had prejudiced the insurer. Lee, ¶¶ 20-21. Such

10
analysis would be unnecessary without the unstated possibility that a lack of prejudice

could have compelled a different result. These cases demonstrate our longstanding

inclination to require an insurer to establish prejudice by late notice of a claim before we

will enforce the coinciding exclusion.

¶30 Additionally, the notice-prejudice rule accords with Montana’s established

anti-forfeiture laws. Section 28-1-408, MCA, provides that a contract provision

involving a forfeiture “must be strictly interpreted against the party for whose benefit it is

created.” Section 28-1-104, MCA, provides that a party in danger of forfeiting the

benefits of a contract due to a failure to comply with a provision in the contract “may be

relieved from the obligation upon making full compensation to the other party, except in

case of a grossly negligent, willful, or fraudulent breach of duty.” These statutes are

particularly applicable to situations involving failures to comply with time limitations.

We have explained that § 28-1-104, MCA, was enacted “for the benefit of obligors whose

failure to punctually perform would result in loss to them in the matters in respect to

which they have contracted . . . . The intention of the law under this statute is that a

forfeiture should not be needlessly enforced.” Quigley v. Acker, 1998 MT 72, ¶ 31, 288

Mont. 190, 955 P.2d 1377 (quoting Yellowstone County v. Wight, 115 Mont. 411, 417,

145 P.2d 516, 518 (1943)) (emphasis added).

¶31 The statute prevents forfeiture where the party failing to comply with a contract

provision can fully compensate the other party for any injury caused by the failure. It

follows that if the aggrieved party does not suffer injury, no compensation is required to

11
avoid forfeiture except in the case of a grossly negligent, willful, or fraudulent breach of

duty, which is not alleged here.

¶32 Thus, in situations where the aggrieved party is not injured by the other party’s

failure to comply with a notice provision, the protections provided by the

notice-prejudice rule mirror those protections enumerated in our anti-forfeiture statutes.

Under the statutes, a party who fails to comply with a time limit provision may avoid

forfeiture without compensating the other party unless that other party is injured by the

failure. Likewise, under the notice-prejudice rule, an insured who fails to comply with a

notice provision may avoid having coverage defeated unless the insurer is prejudiced by

the failure.

¶33 On the other hand, if the aggrieved party/insurer can show that it was

injured/prejudiced by the other party’s failure, neither the anti-forfeiture statute nor the

notice-prejudice rule would protect the failing party from forfeiture/defeat of coverage.

¶34 These statutes establish the public policy of Montana that forfeiture should not be

enforced absent injury or prejudice. The similarities in both intent and effect between the

anti-forfeiture statute and the notice-prejudice rule support our adoption of the latter. In a

practical sense, the notice-prejudice rule could be viewed as an application

of the anti-forfeiture statute to situations where the potential injury to the aggrieved

party—prejudice—cannot be cured by compensation, and thus forfeiture may be avoided

only in the absence of injury.

12
¶35 Additionally, the notice-prejudice rule accords with the well-established contract

principle of non-material breach. Generally, a non-breaching party must continue to

perform its obligations under a contract unless the breach was material to the contract.

The Restatement (Second) of Contracts states: “[t]o the extent that the non-occurrence of

a condition would cause disproportionate forfeiture, a court may excuse the

non-occurrence of that condition unless its occurrence was a material part of the agreed

exchange.” Restatement (Second) of Contracts, § 229 (1979). A comment further

explains what constitutes a “disproportionate” forfeiture:

In determining whether the forfeiture is “disproportionate,” a court must
weigh the extent of the forfeiture by the obligee against the importance to
the obligor of the risk from which he sought to be protected and the degree
to which that protection will be lost if the non-occurrence of the condition
is excused to the extent required to prevent forfeiture. The character of the
agreement may, as in the case of insurance agreements, affect the rigor with
which the requirement is applied.

Restatement (Second) of Contracts, § 229, cmt. b. See also Flaig v. Gramm, 1999 MT

181, ¶ 25, 295 Mont. 297, 983 P.2d 396 (“in order for a breach to justify the injured

party’s suspending performance, the breach must be significant enough to amount to the

nonoccurrence of a constructive condition of exchange”) (quoting E. Allan Farnsworth,

Contracts § 8.16, at 611 (1982)). The notice-prejudice rule is an application of this

principle in the insurance context. The rule prevents insurers from suspending

performance due to the insured’s failure to comply with the policy notice provision

unless the insurer can establish prejudice and thus demonstrate that the failure was

material.

13
¶36 CULI argues that this Court rejected application of the notice-prejudice rule in

Steadele v. Colony Ins. Co., 2011 MT 208, 361 Mont. 459, 260 P.3d 145. We disagree.

In Steadele we considered a third party claim against an insurer where the insured had

failed to provide notice of the claim within the notice requirement in the policy. In our

analysis, we first cautioned that “[e]xclusions from coverage are to be narrowly and

strictly construed because they are contrary to the fundamental protective purpose of an

insurance policy.” Steadele, ¶ 18. We also noted that prior cases in Montana have

treated notice provisions as conditions precedent to coverage. Steadele, ¶ 22 (citing

LaBonte v. Mut. Fire & Lightning Ins. Co., 75 Mont. 1, 12, 241 P. 631, 635 (1925);

Riefflin v. Hartford Steam Boiler Inspection & Ins. Co., 164 Mont. 287, 293, 521 P.2d

675, 678 (1974)). In upholding the denial of coverage, however, we focused on the fact

that the lack of timely notice did in fact prejudice the insurer because “it was deprived of

the ability to investigate, to locate witnesses, to appoint counsel, to engage in discovery,

to negotiate a settlement, and to develop a trial strategy.” Steadele, ¶ 28. We also

explained that the failure to notify in that case was not “de minimus.” Steadele, ¶ 29.

These holdings are consistent with application of the notice-prejudice rule.

¶37 By expressly adopting the notice-prejudice rule, we reach the natural conclusion of

an ongoing trend in our jurisprudence. See XL Specialty Ins. Co. v. Patrol Helicopters,

Inc., 2009 U.S. Dist. LEXIS 118475 (D. Mont.) (affirming XL Specialty Ins. Co. v. Patrol

Helicopters, Inc., 2009 U.S. Dist. LEXIS 118580 (D. Mont.) (predicting this Court would

apply notice-prejudice rule based on public policy and previous decisions)). Our

14
willingness to adopt the notice-prejudice rule stems not only from public policy concerns,

but from anti-forfeiture protection principles codified by the Montana Legislature, and

from equitable principles established in contract law. In adopting the rule, we join a vast

majority of states that have done the same. See Prince George’s County v. Local Gov’t

Ins. Trust, 388 Md. 162, 183, n.9, 879 A.2d 81, 94, n.9 (Ct. App. Md. 2005) (collecting

cases). Our decision here reaffirms our commitment to upholding the “fundamental

protective purpose” of an insurance contract and ensures that a non-material, technical

breach of a notice provision will not deprive the insured of coverage for which valuable

consideration has been paid. Steadele, ¶ 18; State Farm, ¶ 11. “[P]ublic policy

considerations favor adequate compensation, even for non-mandatory coverage.”

State Farm, ¶ 21.

¶38 To restate: the notice-prejudice rule allows an insurer to deny coverage based on a

failure to comply with a policy notice provision only if the insurer can demonstrate that it

was prejudiced by the late notice. Here, CULI admitted to the District Court that it was

not prejudiced by late notice. The District Court thus found that CULI was prohibited

from denying the Estate’s claims on the basis of late notice.

¶39 The District Court’s application of the notice-prejudice rule in this case is hereby

affirmed and we formally adopt the notice-prejudice rule in the first party insurance

coverage context.

¶40 2. Did the District Court err when it instructed the jury that it must first find
UTPA damages beyond damages for failure to pay benefits under the policy before
considering malice and punitive damages?

15
¶41 The answer to this question hinges on our interpretation of § 33-18-242, MCA, of

the UTPA. We hold that when an insurer is found to have violated the UTPA, damages

due to denial of claims or delay in payment of claims in breach of the insurance contract

may constitute compensatory UTPA damages sufficient to present the question of malice

to the trier of fact.

¶42 Section 33-18-242, MCA, provides a cause of action against an insurer for

engaging in certain unfair claim settlement practices listed in § 33-18-201, MCA. These

practices include the one allegedly committed by CULI: “neglect[ing] to attempt in good

faith to effectuate prompt, fair, and equitable settlements of claims in which liability has

become reasonably clear.” Section 33-18-201(6), MCA. Section 33-18-242(4), MCA,

provides that, for violations of § 33-18-201(6), MCA, “[e]xemplary [(i.e. punitive)]

damages may also be assessed in accordance with 27-1-221.” Section 27-1-221, MCA,

allows for the award of punitive damages when a defendant is found to have committed

actual malice. Section 27-1-221(1), MCA.

¶43 In its instructions the District Court directed the jurors to determine whether CULI

had violated the UTPA and, if so, to determine what damages were caused by CULI’s

violation. If the jurors determined that CULI’s violation did not cause additional

damages they were directed not to answer the questions of whether CULI was guilty of

actual malice or whether CULI’s malicious behavior warranted an award of punitive

damages.

16
¶44 The Estate urges this Court to reverse and remand for a new trial because the

District Court’s jury instructions incorrectly required the jury to find UTPA damages in

addition to the damages proximately caused by the breach of the insurance contract

before it could consider the question of malice. The Estate asks that we clarify the

standard and hold that damages arising out of a breach of an insurance contract can

simultaneously comprise proximately caused UTPA damages that can give rise to

punitive damages if malice is shown.

¶45 CULI maintains that the special verdict form was correct because § 27-1-220(1),

MCA, predicates the award of punitive damages on an award of compensatory damages

and that § 27-1-220(2), MCA, expressly prohibits an award of punitive damages in

actions arising from a breach of contract. CULI asserts that, absent the jury finding

specific UTPA damages in addition to the damages resulting from the breach of contract,

a jury cannot consider the question of whether the insurer demonstrated malice sufficient

to award punitive damages. We disagree.

¶46 Section 27-1-220(2)(a), MCA, prohibits punitive damages in contract cases,

“[u]nless otherwise expressly provided by statute. . . .” Section 27-1-220(2)(b), MCA,

expressly states, “[s]ubsection (2)(a) does not prohibit recovery of punitive damages

in . . . an action arising under 33-18-201,” the UTPA statute at issue. Section 27-1-220,

therefore, does not foreclose the possibility of a recovery of punitive damages in a UTPA

action premised on a breach of the insurance contract.

17
¶47 CULI contends that we settled this issue in its favor by holding in Jacobsen v.

Allstate Ins. Co., 2009 MT 248, 351 Mont. 464, 215 P.3d 649, that, even under the

UTPA, compensatory damages are a prerequisite to punitive damages. We do not

disagree with CULI’s characterization of our holding, but we disagree that the case is

applicable to this situation. In Jacobsen, a third party (Jacobsen) brought a claim against

Allstate for damages arising out of a car accident caused by Allstate’s insured. After a

contentious settlement process, Jacobsen filed a complaint against Allstate, seeking

compensatory damages for, inter alia, violation of the UTPA and common law bad faith.

Jacobsen also sought punitive damages, alleging actual malice. Jacobsen, ¶¶ 2-3. A jury

found that Allstate committed common law bad faith and violated the UTPA. As

damages, the jury awarded Jacobsen the costs and fees incurred while settling the

underlying claim. The jury also found Allstate acted with actual malice and awarded

Jacobsen punitive damages. Jacobsen, ¶ 6.

¶48 On appeal, we reversed the award of compensatory damages because, absent a

specific exception, neither costs nor attorney’s fees are recoverable compensatory

damages in a claim for insurance bad faith. Jacobsen, ¶¶ 18-24. Having reversed the

compensatory damages we reversed the award of punitive damages because “without an

award of compensatory damages, there can be no award of punitive damages.” Jacobsen,

¶ 67.

¶49 Jacobsen is distinguishable from the case at hand. The question in Jacobsen was,

in relevant part, whether costs and attorney’s fees could function as compensatory

18
damages under the UTPA. Here, the question is whether the court’s award of benefits via

directed verdict served as an award of compensatory damages sufficient to place the

question of punitive damages before the jury without requiring the establishment of

additional damages. Our holding in Jacobsen, therefore, does not support CULI’s

argument.

¶50 Section 33-18-242, MCA, expressly provides for an award of punitive damages in

cases of certain UTPA violations. It does not condition the award of punitive damages on

a showing of compensatory damages beyond the damages arising out of the breach of the

insurance contract which gave rise to the UTPA action. The purpose of § 33-18-242,

MCA, is to provide an additional cause of action, beyond simply an action for breach of

contract, where an insurer violates the good faith claim settlement practices set forth in

§ 33-18-201, MCA. The fact that damages due to a breach of the UTPA may also be

damages arising out of a breach of contract should not preclude the award of punitive

damages if it can be shown that the insurer acted with malice.

¶51 In Lorang v. Fortis, 2008 MT 252, 345 Mont. 12, 192 P.3d 186, we held that

“Montana’s statutory law provides that punitive damages may be assessed against an

insurer which has committed the UTPA violations alleged here.” Lorang, ¶ 90 (citing

§ 33-18-242(4), MCA). We did not state that the insured must show damages beyond

those caused by the breach of contract to seek punitive damages. We further stated “[t]he

UTPA provides that, in addition to punitive damages, a claimant may recover the ‘actual

damages’ which were proximately caused by a UTPA violation.” Lorang, ¶ 192. Again,

19
we did not require damages beyond those caused by breach of the insurance contract.

The fact that we did not require non-contract based damages is significant since virtually

every UTPA claim arises from a breach of the insurance contract.

¶52 We do not hold that a party may seek punitive damages under the UTPA absent a

showing of compensatory damages. Nor do we hold that an insurer who breaches the

insurance contract has necessarily violated the UTPA. Rather, we hold that where an

insurer has been found to have violated the UTPA due to delay or refusal to pay benefits

in breach of the insurance contract, damages resulting from that violation may be

considered compensatory damages under the UTPA for purposes of pursuing punitive

damages.

¶53 Because we hold that, when an insurer is found to have violated the UTPA, breach

of contract damages can also constitute compensatory damages for that violation, we

conclude that the District Court’s jury instruction—which required the jury to find UTPA

damages beyond damages for denial of benefits and late payments before it could

consider the question of actual malice—did not fully and faithfully explain the law. The

instruction prejudicially affected the Estate’s right to seek punitive damages. We

therefore hold that the instruction constituted reversible error.

¶54 The jury in this case found that CULI violated the UPTA, and the court entered a

directed verdict in favor of the Estate for $539,717.90. We remand for a new trial on the

issue of malice and punitive damages with the instruction that the jury should consider

the amount of the directed verdict to constitute damages under the UTPA.

20
¶55 3. Did the District Court err by failing to direct a verdict against CULI for
violating the UTPA?

¶56 The Estate asks us to reverse the District Court’s failure to direct a verdict against

CULI for violating the UTPA because CULI denied that Judith’s death certificate was

sufficient proof of loss for the cancer treatment claims, and because CULI admitted that it

erroneously delayed payment on medical and death benefits. We decline to reach this

issue, however, because here the jury found that CULI did in fact violate the UTPA and,

on remand, the District Court will instruct the jury to that effect.

¶57 4. Did the District Court err when it did not dismiss the UTPA claim because
CULI had a reasonable basis in law for denying the untimely filed claims?

¶58 Section 33-18-242(5), MCA, provides that an insurer may not be held liable for

violating the UTPA if the insurer “had a reasonable basis in law” for contesting the claim.

CULI moved for partial summary judgment, arguing that the notice of loss provision in

its policy gave it a reasonable basis in law for contesting the claim. The District Court

examined the state of Montana law with regards to the notice-prejudice rule at the time

CULI made its coverage determination and concluded that the law was unsettled at the

time. The court then considered the Estate’s contention that CULI acted unreasonably

because it made its coverage determination without reference to Montana law and denied

the motion, concluding that factual issues remained to be determined at trial.

¶59 The relevant inquiry in determining whether an insurer acted unreasonably under

the UTPA is “how the insurer acted given the information available to it.” Peterson v.

Doctor’s Co., 2007 MT 264, ¶ 43, 339 Mont. 354, 170 P.3d 459 (emphasis in original).

21
CULI argues that we must consider the state of Montana law at the time CULI made its

coverage determination, and that, because we had not explicitly adopted the

notice-prejudice rule when CULI denied the claims, it was reasonable for CULI to rely

on the notice of loss provision in the policy in denying coverage to the Estate. In support

of this argument, CULI cites Redies v. Attys. Liab. Prot. Soc’y, 2007 MT 9,

335 Mont. 233, 150 P.3d 930.

¶60 In Redies, we addressed the question of whether a determination of “reasonable

basis in law” under § 33-18-242(5), MCA, was an issue of fact or law. In that case, an

insurer contested a claim on the basis that it owed no duty to a third party claimant.

Redies, ¶ 23. We reiterated the general proposition that questions of reasonableness were

factual matters properly answered by the finder of fact. Redies, ¶ 30. However, we also

pointed out that our prior jurisprudence had adopted two exceptions to this rule where the

insurer’s reasonableness is a question of law for the court to decide. First, we recognized

an exception in situations where there was clearly no insurance policy in effect at the

time the injury occurred. Redies, ¶ 31. Second, we recognized an exception where the

insurer’s basis in law was grounded on a legal conclusion and no issues of fact remained

in dispute. Redies, ¶ 32 (citing Watters v. Guaranty Nat. Ins. Co., 2000 MT 150, ¶ 69,

300 Mont. 91, 3 P.3d 626). Under the second exception, we held that the insurer had a

reasonable basis in law to deny the claim because Montana law at the time was unsettled

and could be reasonably interpreted to support the insurer’s denial. Redies, ¶¶ 53-58.

22
¶61 CULI points to this holding as dispositive authority for the proposition that it had a

reasonable basis in law for denying the claim, and thus the District Court should have

dismissed the UTPA claim as a matter of law. We disagree. We recognize that, despite a

trend in our jurisprudence toward adopting the notice-prejudice rule, that point of law

remained unsettled when CULI made its coverage decision. However, Redies is

distinguishable from the instant case in one crucial way. In Redies, we upheld the district

court’s determinations that no facts remained in dispute and that the question of

reasonableness hinged solely on whether the insurer’s decision to deny the claim was

“grounded on a legal conclusion.” Redies, ¶ 34. We explained that, “[w]hile the

assessment of reasonableness generally is within the province of the jury . . .

reasonableness is a question of law for the court to determine when it depends entirely on

interpreting relevant legal precedents and evaluating the insurer’s proffered defense under

those precedents.” Redies, ¶ 35 (emphasis added).

¶62 Here, the District Court found that the question of whether CULI had reasonably

grounded its denial on a legal conclusion was not entirely a matter of interpreting legal

precedents and therefore was an issue of fact for the jury to decide. In denying CULI’s

motion for summary judgment the court noted that “the propriety of the insurer’s action

must be based in light of the information possessed by the insurer at the time it adjusted

the underlying claim.” The court also explained that the Estate had raised questions

about whether “the claim here was rejected based on a nationwide policy that had little or

nothing to do with considerations of Montana law.” At trial both sides presented

23
evidence as to what CULI knew or did not know about Montana law when it denied the

claim. The parties introduced evidence ranging from the state of Montana law at the time

of denial to whether CULI’s claim denial policy was based on informed legal

conclusions. Such evidence was proper, because “[t]o determine whether an insurer had

‘a reasonable basis in law . . . for contesting the claim or the amount of the claim,’ it is

necessary first to survey the legal landscape as it existed during the relevant time period.”

Redies, ¶ 29 (quoting § 33-18-242(5), MCA). And, “[t]he legal advice which informed

[the insurer’s] decision to contest [the] claim is relevant to whether that decision was

grounded in ‘a reasonable basis in law.’” Redies, ¶ 57. The court instructed the jury on

the reasonable basis defense and the jury returned a verdict finding that CULI violated

the UTPA.

¶63 The District Court correctly applied our holding in Redies when it determined that

the reasonable basis defense issue in this case was not solely a matter of interpreting legal

precedent and allowed the jury to hear evidence about CULI’s knowledge and application

of Montana law. The District Court did not err when it denied CULI’s motion for

summary judgment.

¶64 5. Did the District Court err by applying the statute of limitations from the date
the PRs submitted their claim to CULI rather than from the date suit was filed?

¶65 The statute of limitations for commencing an action on a written contract,

including an insurance contract, is eight years from the date the claim accrues. Section

27-2-202(1), MCA. A claim accrues when all elements of the claim have occurred.

24
Section 27-2-102(1)(a), MCA. An action is commenced when the complaint is filed.

Section 27-2-102(1)(b), MCA.

¶66 In applying the statute of limitations to the oldest claims for medical benefits, the

District Court calculated the limitation period from the date CULI received Judith’s death

certificate, April 12, 2010. Under that calculation, any claims accruing prior to April 12,

2002, would be barred by the statute of limitations. CULI maintains that the District

Court should have applied the statute of limitations from the date CULI filed its

declaratory judgment action in Federal District Court, on June 24, 2011. Calculating

from that date would bar all the Estate’s claims prior to June 24, 2003. The Estate

requests that we affirm the District Court’s application of the statute of limitations.

¶67 In its order applying the statute of limitations from April 12, 2011, the District

Court correctly noted that a cause of action accrues, and the corresponding statute of

limitations begins to run, when “the right to maintain an action on the claim is complete.”

Section 27-2-102(1)(a)-(2), MCA. However, the court then wrote: “[in briefing, CULI]

admits that ‘an insurance claim does not accrue . . . until a claim is submitted . . . .’ citing

Mont. Petroleum Tank Release Comp. Bd. v. Capitol Indem. Co., 2006 MT 133, ¶ 18 . . .

Mont. Petroleum Tank Release Comp. Bd. v. Empire Fire & Marine Ins. Co., 2008 MT

195, ¶¶ 20, 24. . . .” Relying on CULI’s ‘admission,’ the court applied the statute of

limitations from the date the claim was submitted (i.e., the date CULI received notice of

the claim) rather than the date the action was filed.

25
¶68 A review of the record and our case law reveals the court to be in error. In its

briefing before the District Court, CULI stated, “the [Montana Supreme] Court rejected

the argument that an insurance claim does not accrue . . . until a claim is submitted. . . .”

(Emphasis added) (citations omitted). Our case law demonstrates that CULI was, and

remains, correct. We have repeatedly stated that the accrual of a cause of action does not

depend on when a claim is submitted to an insurer. Mont. Petroleum Tank Release

Comp. Bd. v. Capitol Indemnity, 2006 MT 133, ¶ 18, 332 Mont. 352, 137 P.3d 522

(Capitol Indemnity); Mont. Petroleum Release Comp. Bd. v. Empire Fire & Marine Ins.

Co., 2008 MT 195, ¶¶ 20, 24, 344 Mont. 54, 185 P.3d 1021 (Empire Fire). Rather, a

claim accrues when all elements of that claim have occurred. Section 27-2-102(1)(a),

MCA; Capitol Indemnity, ¶ 18; Empire Fire, ¶¶ 20, 24. In this case, a claim accrued for

each medical treatment when the treatment occurred and Judith incurred the costs

associated with that treatment.

¶69 CULI filed its declaratory judgment action on June 24, 2011. Thus under the eight

year statute of limitations for contract claims, any claims that accrued prior to June 24,

2003, are barred by the statute of limitations. On remand the District Court should

amend the judgment against CULI to reflect this calculation.

¶70 As a final matter, the Estate argues that we should adopt an equitable tolling

doctrine in first party insurance cases that would toll the statute of limitations during the

period after the insurer has received notice of the claim until formal denial is provided to

26
the insured.1 However, the Estate, in its opening brief, did not request that we reverse the

District Court and apply an equitable tolling doctrine with regard to the statute of

limitations issue. Despite substantial discussion of the issue in front of the District Court,

before this Court the Estate only raised the issue in answer to CULI’s cross-appeal

requesting us to apply the statute of limitations as we do now. We will not reach an issue

of such importance to our insurance jurisprudence without complete briefing on the issue

by the parties. Therefore, without precluding our application of a first party insurance

equitable tolling doctrine in the future, we decline to consider the issue here.

¶71 6. Did the District Court err in allowing the Estate to present evidence of
out-of-state law and claim handling practices that were not directly related to the case at
hand and allowing CULI to present evidence of Montana cases related to the
notice-prejudice rule?

¶72 The Estate argues that the District Court erred in allowing CULI to present

evidence of Montana judicial opinions related to the notice-prejudice rule. CULI

counters that the District Court erred by allowing the Estate to present evidence of laws

from other jurisdictions, evidence of unrelated actions against CULI, and evidence of

claim handling practices of other insurers.

¶73 As discussed in ¶¶ 54-59 above, CULI relied on the reasonable basis in law

affirmative defense provided in § 33-18-242(5), MCA, to avoid liability under the UTPA.

As part of its affirmative defense, CULI presented evidence of Montana judicial opinions

1
See, e.g., Peloso v. Hartford Fire Ins. Co., 56 N.J. 514, 267 A.2d 498 (1970); Prudential-LMI
Com. Ins. v. Superior Court, 51 Cal. 3d 674, 798 P.2d 1230 (1990); Guam Housing & Urban
Renewal Auth. v. Dongbu Ins. Co., 2001 Guam 24; Leonard J. Feldman et al, The Equitable
Tolling Doctrine in First Party Insurance Coverage Matters; Analysis, Benefits, and an
Illustrative Case Study, 41 Tort Trial and Ins. Practice L.J. 61 (Fall, 2005).
27
tending to show the unsettled nature of Montana law with regard to the notice-prejudice

rule. CULI attempted to demonstrate that its denial of the Estate’s claim was reasonable

because Montana law did not prohibit it from denying the Estate’s claim based on late

notice.

¶74 In arguing to the contrary, the Estate presented evidence that CULI disregarded

the laws of Montana and other states and comparative evidence of CULI’s and other

insurers’ claim handling practices to show that CULI did not have a reasonable basis to

deny the Estate’s claims.

¶75 Montana R. Evid. 401 provides that evidence is relevant if it “[has] any tendency

to make the existence of any fact that is of consequence to the determination of the action

more probable or less probable than it would be without the evidence.” As demonstrated

by our analysis in Redies, an insurer’s actual knowledge of the law and whether the

insurer relied upon a reasonable conclusion of law in denying a claim are both relevant to

the question of whether the insurer had a reasonable basis defense to the UTPA.

Redies, ¶ 57. It stands to reason that, in order to demonstrate that it had a reasonable

basis in law for denying a claim, an insurer should be able to present evidence as to the

state of the law when the denial was made. The insured, on the other hand, should be

allowed to present evidence of the insurer’s actual knowledge of the law and whether it

reasonably relied on that knowledge in denying the claim.

¶76 Here, the District Court fairly allowed both sides to present legal and factual

evidence relevant to CULI’s reasonable basis defense. The District Court exercised its

28
judgment within the bounds of reason. We hold that the District Court properly exercised

its discretion in allowing CULI to present evidence of cases addressing the

notice-prejudice rule that were decided after CULI denied the Estate’s claim. Those

cases demonstrated the unsettled nature of Montana law with regard to the

notice-prejudice rule at the time CULI denied the Estate’s claim. We further hold that the

District Court properly exercised its discretion in allowing the Estate to present evidence

of how CULI and other insurers handle untimely filed claims in other states. That

evidence was relevant in order to refute CULI’s affirmative defense that it had a

reasonable basis for denying the Estate’s claims. We affirm the District Court on this

issue.

¶77 7. Did the District Court err in awarding trial costs to CULI where the jury found
that the UTPA was violated and the court entered a directed verdict in favor of the
Estate?

¶78 A plaintiff is entitled to costs in an action for the recovery of money or damages

where the judgment is in the plaintiff’s favor and the plaintiff recovers over $50. Section

25-10-101(3), MCA. Conversely, when judgment is in the defendant’s favor costs must

be allowed to the defendant. Section 25-10-102, MCA. Here, the District Court granted

costs to CULI, reasoning that because the jury awarded no damages to the Estate, CULI

was the prevailing party.

¶79 We held above that the District Court erred by preventing the jury from reaching

the question of malice and we ordered the case remanded for a new trial on that issue.

Accordingly, we reverse the award of trial costs to CULI.

29
¶80 8. Did the District Court err in awarding attorneys’ fees to the Estate?

¶81 The District Court awarded the Estate attorney’s fees and costs based on the

contractual damages awarded in the directed verdict on the first day of trial. “Montana

follows the American Rule regarding attorney fees where each party is ordinarily

required to bear his or her own expenses absent a contractual or statutory provision to the

contrary. However, there are several equitable exceptions to this rule.” Winter v. State

Farm, 2014 MT 168, ¶ 31, 375 Mont. 351, 328 P.3d 665 (citing Mt. W. Farm Bureau

Mut. Ins. Co. v. Brewer, 2003 MT 98, ¶ 14, 315 Mont. 231, 69 P.3d 652). One of the

exceptions to the American Rule is the “insurance exception” which allows an insured to

recover attorney’s fees when she is forced to resort to legal action against the insurer to

obtain the full benefit of the insurance contract. Winter, ¶ 31.

¶82 The situation before us falls squarely within the insurance exception to the

American Rule. Having been forced to pursue legal action to obtain the full benefit of

the insurance contract, the Estate prevailed in recovering more than $500,000. The Estate

is entitled to attorney’s fees on its action against CULI.

¶83 CULI cites Sampson v. Nat’l Farmers Union, 2006 MT 241, 333 Mont. 541, 144

P.3d 797, for the proposition that attorney’s fees may not be awarded in UTPA actions.

CULI misstates our holding in Sampson. Sampson involved the question of whether

attorney’s fees could be awarded as damages in a UTPA action. We looked to the

construction of the UTPA and concluded that, because the legislature had not seen fit to

construct the UTPA to provide for the recovery of attorney’s fees, such fees were not

30
allowed as damages in a UTPA action. Sampson, ¶ 22. See also Jacobsen, ¶¶ 18-24.

However, we also restated our commitment to the insurance exception of the American

Rule. Sampson, ¶ 19. The insurance exception did not apply in Sampson, because the

prevailing party was not the insured. It applies to the Estate in this case.

¶84 The District Court’s award of fees and costs to the Estate is affirmed.

CONCLUSION

¶85 With our opinion today we affirm the District Court’s application of the

notice-prejudice rule and formally adopt the notice-prejudice rule in first party insurance

cases. We remand for a new trial on the issue of malice and punitive damages in

accordance with our holding that, when an insurer is found to have violated the UTPA, a

jury is not required to find compensatory damages beyond those for breach of the

insurance contract before considering malice and punitive damages under the UTPA.

¶86 We affirm the District Court’s refusal to dismiss the UTPA claim on the issue of

whether CULI had a reasonable basis in law to deny the claim. We remand for the

District Court to amend its order applying the statute of limitations consistent with our

opinion here. We reverse the District Court’s order awarding trial costs to CULI. We

affirm the court’s award of costs and attorney’s fees to the Estate.

¶87 Affirmed in part, reversed in part, and remanded for proceedings consistent with

this opinion.

/S/ MICHAEL E WHEAT

31
We Concur:

/S/ MIKE McGRATH
/S/ JAMES JEREMIAH SHEA
/S/ PATRICIA COTTER
/S/ BETH BAKER

Justice Laurie McKinnon, concurring in part and dissenting in part.

¶88 I agree with our adoption of the notice-prejudice rule, but would do so pursuant to

a different analysis. I am uncomfortable when we set forth a new rule which does not

provide adequate guidance or rationale to insureds and insurers in the handling of

insurance claims. Additionally, after examining our precedent regarding the

notice-prejudice rule, I am convinced our conclusion that CULI did not have a reasonable

basis in law to deny the untimely claims is contrary to our holdings in Redies v. Attorneys

Liability Protection Society, 2007 MT 9, 335 Mont. 233, 150 P.3d 930, Shilhanek v. D-2

Trucking, 2003 MT 122, 315 Mont. 519, 70 P.3d 721, and Watters v. Guaranty National

Insurance Co., 2000 MT 150, 300 Mont. 91, 3 P.3d 626, overruled in part on other

grounds by Shilhanek, ¶ 21. Despite a valid contract, the direction of Steadele v. Colony

Insurance Co., 2011 MT 208, 361 Mont. 459, 260 P.3d 145, and the “legal landscape”

supporting CULI’s denial of benefits, we have mistakenly interjected questions of fact

into what otherwise is a legal conclusion regarding our precedent. More importantly, we

are requiring CULI to prove reliance on a legal theory that would have supported

payment of the claim, rather than provided a basis to deny the claim. CULI did have a

reasonable basis in law to contest the claim—reliance upon the express terms of the
32
insurance contract—and did, in fact, rely upon the contract provision requiring that a

claim be presented within 90 days.

¶89 Further, in my opinion, it is improper to award the Estate attorney fees for the jury

trial of their UTPA claim. I would remand to the District Court for a determination of

those fees and costs attributable to litigation of the contractual claim, both at trial and on

appeal. In writing separately to address these concerns, I explain first the development of

the notice-prejudice rule in the context of the reasonable basis in law defense to a UTPA

claim, and second, my concerns regarding attorney fees. Finally, I will address the

damages necessary to support an independent UTPA action.

Reasonable Basis in Law

¶90 The Estate maintained that CULI’s denial of untimely filed claims was a violation

of § 33-18-201(6), MCA, which provides:

Unfair claim settlement practices prohibited. A person may not, with
such frequency as to indicate a general business practice, do any of the
following:
. . .
(6) neglect to attempt in good faith to effectuate prompt, fair, and equitable
settlements of claims in which liability has become reasonably clear . . . .

CULI moved for summary judgment on an affirmative defense of reasonable basis in law.

Pursuant to § 33-18-242(5), MCA, “[a]n insurer may not be held liable under this section

if the insurer had a reasonable basis in law or in fact for contesting the claim or the

amount of the claim, whichever is in issue.” The District Court, in denying CULI’s

motion, explained:

33
The result of this review of Montana law on the topic shows the
existence of no clear rule. One could argue that prior to this Court’s
decision, the no prejudice rule only in Montana applied in underinsured and
uninsured motorist coverage claims.
While this Court was happy to impose the no prejudice rule in cases
such as this, it certainly cannot agree with a contention that the law in
Montana was clear on the subject. Thus, the Court must use this
background in deciding the present motion for summary judgment.
The major problem with Central United’s motion is that the
propriety of the insurer’s action must be based in light of the information
possessed by the insurer at the time it adjusted the underlying claim. Here,
it appears that Central United had no reference to Montana law. The Court
does not expect the claims adjusters to have extensive legal training,
however it does appear that the claim here was rejected based on a
nationwide policy that had little or nothing to do with considerations of
Montana law. It is that policy that we must examine at trial to determine if
Central United’s actions were reasonable.

¶91 The Court adopts the District Court’s reasoning concluding that reasonable basis

in law is an issue to be determined by the trier of fact. In doing so, we essentially

conclude that although we adopt a new rule of law today, Opinion, ¶ 39, CULI’s failure

to nevertheless rely upon that legal theory, which would require payment of the claim,

defeats its reasonable basis in law defense. At best, this confuses the distinction

maintained in the statute between law and fact (“reasonable basis in law or fact,”

§ 33-18-242(5), MCA (emphasis added)); at worst, it simply makes no sense. As CULI

argues, this is akin to issuing a citation to a motorist driving within the legal speed limit

because she may not have known the exact speed limit when stopped. It also overlooks

that CULI’s reasonable basis in law defense was premised upon the unambiguous terms

of the insurance contract and not the precedent from this Court establishing notice as a

condition precedent to coverage.

34
¶92 An insurer asserting the defense of reasonable basis in law has the burden of

establishing the defense by a preponderance of the evidence. Redies, ¶ 28 (citing

Watters, ¶¶ 65, 67). The first step in determining whether an insurer has a reasonable

basis in law to contest a claim is to “survey the legal landscape as it existed during the

relevant time period.” Redies, ¶ 29 (citing Shilhanek, ¶¶ 24-31). Next, from this

perspective, the inquiry becomes whether there was a reasonable basis in law for the

insurer to contest the claims. It is important to distinguish, which I believe our precedent

and this Court today fail to do, between the affirmative defense of reasonable basis in law

set forth in § 33-18-242(5), MCA, and the specific violation of the UTPA set forth in

§ 33-18-201(4), MCA, requiring that the insurer conduct “a reasonable investigation

based upon all available information.” The former allows for a legal defense available at

the time the claim was handled that would be reasonable to pursue. In contrast, a claim

under § 33-18-201(4), MCA, examines the information available to the insurer to

determine whether it has acted unreasonably in adjusting the claim.

¶93 We have, on occasion, construed the reasonable basis in law defense and

attempted to draw a distinction between whether the issue presents a question of fact or a

question of law. Our earlier cases dealt primarily with determinations that were factually

driven, as compared to legal defenses, and we explained generally that these factual

questions are to be resolved by the trier of fact. In Dean v. Austin Mutual Insurance Co.,

263 Mont. 386, 389, 869 P.2d 256, 258 (1994), for example, we held that it was for the

trier of fact to “weigh the evidence and judge the credibility of the witnesses” in

35
determining whether the insurer had a reasonable basis for denying a claim pending the

outcome of a criminal trial. See also Dees v. Am. Natl. Fire Ins. Co., 260 Mont. 431,

441-42, 861 P.2d 141, 147-48 (1993).

¶94 We modified the Dean trier of fact rule in Watts v. Westland Farm Mutual

Insurance Co., 271 Mont. 256, 263, 895 P.2d 626, 630 (1995) and Bartlett v. Allstate

Insurance Co., 280 Mont. 63, 70, 929 P.2d 227, 231 (1996). In Watts, 271 Mont. at 263,

895 P.2d at 630, we affirmed the district court’s order granting summary judgment for

Westland and held that, as a matter of law, a binder that temporarily insured a cantaloupe

crop was not in effect at the time of a hailstorm and that there was a reasonable basis for

contesting the insured’s claim. We similarly concluded in Bartlett, 280 Mont. at 70, 929

P.2d at 231, that the district court did not err in granting summary judgment to the insurer

where the insured did not have an insurable interest in the property.

¶95 It was not until Watters that we dealt with a reasonable basis in law defense

premised upon unclear legal precedent. In Watters, ¶¶ 31-42, this Court had to reconcile

conflicting precedent regarding whether a “settlement” for policy limits was legally

possible without the insured executing a release. We held that “a plain reading of the

available case law at the time gave Guaranty a reasonable basis in law upon which it

could deny payment of the policy limits” and that, “at the time this dispute arose,

Juedeman [v. National Farmers Union Property & Casualty Co., 253 Mont. 278,

833 P.2d 191 (1992)] was the lone precedent” providing a reasonable basis in law to

contest the amount of the claim. Watters, ¶¶ 71-72. We explained that

36
the “trier of fact” rule set forth in Dean is not necessary in a summary
judgment proceeding where the underlying “basis in law” is grounded on a
legal conclusion, and no issues of fact remain in dispute. Here, therefore, it
is for the court, not the trier of fact, to determine whether our holding in
Juedeman sufficiently provides an absolute defense as a matter of law in
this instance.

We revisited the Watters analysis in Shilhanek, ¶ 30, where we held that D-2 Trucking’s

insurer, Canal Insurance Company, because it made its offer of settlement prior to our

decision in Watters, “had an arguably reasonable basis in law” for conditioning its

payment of policy limits on obtaining a release, and “[could] not be held liable for acting

in bad faith . . . .” We affirmed the district court’s grant of summary judgment to Canal.

Shilhanek, ¶ 31.

¶96 Our most recent pronouncement on the reasonable basis in law defense came in

Redies. We again tried to clarify the distinction between reasonable basis in law and

reasonable basis in fact and explained that “reasonableness is a question of law for the

court to determine when it depends entirely on interpreting relevant legal precedents and

evaluating the insurer’s proffered defense under those precedents.” Redies, ¶ 35. Our

conclusion was consistent both with the fundamental principle that a jury does not decide

the law and our obligation to honor the clear language of § 33-18-242(5), MCA (“An

insurer may not be held liable under this section if the insurer had a reasonable basis in

law . . . for contesting the claim.” (emphasis added)).

¶97 Turning then to the relevant “legal landscape,” Redies, ¶ 29, this Court must

examine whether CULI had a reasonable basis in law to deny the Estate’s claim.

Important to answering this question is how the question is actually framed. CULI
37
represented that they denied benefits to the Estate based upon the terms of the contract

requiring a claim for benefits to be submitted within 90 days of the insured’s loss.

Neither party disputes the validity or requirements of this notice provision. The Estate,

however, asks that it be relieved from this obligation because CULI has not suffered any

prejudice as a result of the late notice. CULI maintains that it relied upon the terms of the

contract in denying coverage. Thus, the real question is whether it was unreasonable for

CULI to rely on the terms of the contract; or, more to the point, whether Montana legal

precedent established a notice-prejudice rule for the payment of untimely benefits which

made it unreasonable for an insurer to rely on a specific limitations provision of the

insurance contract to deny a claim. Although the formal adoption of a notice-prejudice

rule for the first time today, Opinion ¶ 39, clearly establishes that an insurer may be

required to pay an untimely filed claim in the absence of prejudice, I will nevertheless

examine our precedent to demonstrate that at the time the Estate’s claims were submitted,

CULI had a reasonable basis in law to rely on the terms of its contract.

¶98 The most recent and binding authority regarding the notice-prejudice rule comes

from our recent decision in Steadele. We observed in Steadele that notice provisions in

insurance policies have been considered a “condition precedent” and requirement of the

policy from as far back as 1925. Steadele, ¶ 22 (citing La Bonte v. Mutual Fire &

Lightning Ins. Co., 75 Mont. 1, 12, 241 P. 631, 635 (1925) (notice requirement in an

insurance policy “is a condition precedent, and failure to comply therewith will bar a

recovery under the policy, unless the condition is waived by the company”) and Riefflin

38
v. Hartford Steam Boiler Inspection & Ins. Co., 164 Mont. 287, 293, 521 P.2d 675, 678

(1974) (“failure of the [insureds] to submit notifications of accident and proof of loss as

soon as practicable, as required by the policy, barred any claims for reimbursement . .

.”)). Based upon the language of the insurance contract, we concluded there was no

dispute that the Steadeles had not complied with the provisions requiring timely notice,

and therefore, they could not bring a suit against the insurer unless all provisions of the

policy’s terms had been complied with. Steadele, ¶¶ 23-27. In my opinion, Steadele

undisputedly provides CULI with a reasonable basis in law to deny the Estate’s claims

for violation of the contract’s notice provisions.

¶99 Nevertheless, the Court relies upon Sorensen v. Farmer’s Insurance Exchange,

279 Mont. 291, 927 P.2d 1002 (1996), Augustine v. Simonson, 283 Mont. 259, 940 P.2d

116 (1997), and Lee v. Great Divide Insurance Co., 2008 MT 80, 342 Mont. 147,

182 P.3d 41, to support its claim that we have a “longstanding inclination to require an

insurer to establish prejudice by late notice of a claim before we will enforce the

coinciding exclusion.” Opinion, ¶ 29. I have a serious problem with holding a party

accountable for nearly $1 million (including benefits, attorney fees and costs) based upon

an “inclination.” Moreover, all of the cases cited as authority by the Court involved

uninsured or underinsured motorist policies with different public interest concerns than a

general liability policy. In Lee, ¶ 21, which involved a claim of uninsured motorist

coverage, we concluded that there was untimely notice and a material breach of the

policy’s notice requirements that was sufficient to deny coverage. While the Court

39
characterizes this as an “unstated possibility that a lack of prejudice could have

compelled a different result,” Opinion, ¶ 29, we clearly stated that Lee’s policy expressly

required that he provide notice and that the failure to do so constituted a material breach,

Lee, ¶ 21. We held in Lee, ¶ 21, that “[t]hese omissions were a material breach of Lee’s

policy and are independently sufficient to deny coverage to Lee.”

¶100 The Court’s reliance on cases involving uninsured and underinsured motorists to

establish exceptions to a term of the contract imposing time limitations is similarly

misplaced. The notice-prejudice rule in Sorensen was limited to a claim filed by an

underinsured motorist and explained that, in addition to there being no prejudice to the

insured, “[t]he purpose of underinsured motorist insurance is to provide a source of

indemnification for accident victims when the tortfeasor does not provide adequate

indemnification.” Sorensen, 279 Mont. at 295-96, 927 P.2d at 1005. Such a purpose and

objective does not exist in a first-party contract for insurance. Additionally, Augustine,

283 Mont. at 264, 940 P.2d at 119, which the Court cites for an unknown proposition,

Opinion, ¶¶ 27-28, dealt with an exhaustion clause in an underinsurance policy and

whether it was enforceable as a matter of public policy. I am not sure what this provides

to the analysis regarding notice provisions contained within first-party contracts.

¶101 In my opinion, Steadele clearly establishes that CULI had a reasonable basis in

law to contest payment of the Estate’s untimely benefits and that no definitive authority

to the contrary existed within the “legal landscape.” Nevertheless, within the context of

the above-referenced authority, we must also consider the equally well-established

40
principle that if a contract’s terms are clear and unambiguous, the contract language will

be enforced. Section 28-3-401, MCA; Youngblood v. Am. States Ins. Co., 262 Mont. 391,

395, 866 P.2d 203, 205 (1993); Keller v. Dooling, 248 Mont. 535, 539, 813 P.2d 437, 440

(1991). This Court has held that the only exception to enforcing an unambiguous

contract is if the disputed term violates public policy or is against good morals. Section

28-2-701, MCA; Youngblood, 262 Mont. at 395, 866 P.2d at 205; Amsterdam Lumber,

Inc. v. Dysterhouse, 179 Mont. 133, 140, 586 P.2d 705, 709 (1978). Prior to today, there

was no definitive authority in this State indicating that enforcement of a limitations

period to bar an untimely claim was against public policy unless the insurer demonstrated

prejudice.

¶102 As a final comment, I believe we do a great disservice to the legal community and

public when we mischaracterize our legal precedent in order to support a new position

that the Court is considering. Steadele, after examining nearly 100 years of precedent,

clearly stated that a notice requirement in an insurance policy is a condition precedent to

coverage. Steadele, ¶ 22. Steadele has been relied upon by not only CULI, but other

courts to deny untimely claims. Atl. Cas. Ins. Co. v. GTL, Inc., 915 F. Supp. 2d 1169,

1176 (D. Mont. 2013) (“The more recent and pertinent binding authority [Steadele] is

contrary to the argument and authority of Defendants’ prejudice claims, which are

without merit.”). I have no problem with examining the propriety of adopting a new rule

of law; however, I do take issue with our mischaracterization of precedent in order to say

we have always been “inclin[ed],” Opinion, ¶ 29, or predisposed “without explicitly

41
adopting,” Opinion, ¶ 23, as if we have always applied the notice-prejudice rule. Our

precedent did not support a notice-prejudice exception to the timely filing of claims, and

CULI had a reasonable basis in law to deny the untimely claims presented by the Estate.

¶103 With the foregoing in mind, I would conclude that the District Court erred in

denying CULI’s motion for summary judgment on CULI’s reasonable basis in law

defense. CULI’s reasonable basis in law defense was improperly submitted to a jury for

resolution as a question of fact, when it clearly required a legal conclusion for a court to

decide. Our legal precedent establishes, as a matter of law, that CULI had a reasonable

basis to deny the Estate’s untimely benefits based upon the clear and unambiguous terms

of the contract’s notice requirements. CULI was not required to show reliance on an

exception to the notice requirements—not adopted by this Court—which advocated the

Estate’s theory for paying benefits. It was improper to require CULI to demonstrate that

it considered and relied upon legal theories that would support the payment of claims;

rather, CULI had to demonstrate it had a reasonable basis in law to deny the payment of

claims. In the absence of precedent adopting a notice-prejudice rule, CULI’s reasonable

basis in law to deny the untimely claims was the insurance contract itself. Having

concluded that CULI had a reasonable basis in law to deny the claims, I now set forth the

legal analysis I believe appropriate for our adoption of the notice-prejudice rule.

Notice-Prejudice Rule

¶104 Montana, like most states, recognizes the validity of conditions precedent for

insurance coverage. We have repeatedly stated that courts should construe an insurance

42
contract in the same manner as any other contract. Monroe v. Cogswell Agency, 2010

MT 134, ¶ 15, 356 Mont. 417, 234 P.3d 79 (citing Stutzman v. Safeco Ins. Co. of Am.,

284 Mont. 372, 376, 945 P.2d 32, 34 (1997)); Conlon v. N. Life Ins. Co., 108 Mont. 473,

498, 92 P.2d 284, 296 (1939). Moreover, it is the court’s duty to enforce contracts

according to their plain terms and the court may not create a new contract for the parties.

Monroe, ¶ 15; Estate of Irvine v. Oaas, 2013 MT 271, ¶ 14, 372 Mont. 49, 309 P.3d 986.

Regarding notice requirements, the result of this traditional approach has often been that

the insurer was relieved of liability which might otherwise be imposed. Nevertheless,

consistent with this traditional common law approach, this Court stated in Steadele, ¶ 22,

that notice was a condition precedent to recovery under the policy.

¶105 In support of today’s decision to depart from the strict contractual approach of our

past decisions, I would offer several reasons. I am happy to see that some of my rationale

has been adopted by the Court, but I will nevertheless set forth my complete analysis.

First, general principles of contract law concerning partial or immaterial breach support

adoption of a notice-prejudice rule. The Restatement (Second) of Contracts provides for

continued performance of a contract in cases when non-occurrence of a condition would

cause a disproportionate windfall, stating: “To the extent that the non-occurrence of a

condition would cause disproportionate forfeiture, a court may excuse the non-occurrence

of that condition unless its occurrence was a material part of the agreed exchange.”

Restatement (Second) of Contracts § 229 (1979). A comment to this section elaborates

this principle:

43
In determining whether the forfeiture is “disproportionate,” a court must
weigh the extent of the forfeiture by the obligee against the importance to
the obligor of the risk from which he sought to be protected and the degree
to which that protection will be lost if the non-occurrence of the condition
is excused to the extent required to prevent forfeiture. The character of the
agreement may, as in the case of insurance agreements, affect the rigor with
which the requirement is applied.

Restatement (Second) of Contracts § 229 cmt. b. Thus, a party is excused from failure to

perform a condition in the contract if an inequitable forfeiture would occur. However,

the court can only excuse performance of the condition if the condition was not a material

part of the contract. Hence, the notice-prejudice rule is an application of this principle by

excusing the non-performance of a procedural or non-material term of the contract. The

requirement of no prejudice ensures that notice is an immaterial condition. Our precedent

establishes that we have excused a condition of forfeiture where to give it effect would

have arbitrarily resulted in a windfall to the other party. See Quigley v. Acker, 1998 MT

72, ¶ 39, 288 Mont. 190, 955 P.2d 1377. Additionally, as set forth in ¶¶ 30-34 of our

Opinion, these principles of partial or immaterial breach accord with Montana’s

anti-forfeiture laws.

¶106 Another reason for adoption of the notice-prejudice rule is that there is no

justification for defeating coverage when the purpose behind the notice condition is

lacking. The requirement of notice of an accident or loss within a certain period of time

is to give the insurer an opportunity to acquire, through an adequate investigation, full

information about the circumstances of the case, on the basis of which it can proceed

through disposition, either through settlement or defense of the claim. 8 John Alan

44
Appleman & Jean Appleman, Insurance Law and Practice § 4731, 2-5 (rev. ed. 1981).

The purpose of the notice provisions has been described as follows:

The purpose of a policy provision requiring the insured to give the
company prompt notice of an accident or claim, is to give the insurer an
opportunity to make a timely and adequate investigation of all
circumstances. An adequate investigation often cannot be made where
notice is long delayed, because of the possible removal or lapse of memory
on the part of witnesses, the loss of opportunity for examination of the
physical surroundings and making of photographs thereof for use at trial,
and the possible operation of fraud, collusion, or cupidity. Such a
requirement tends to protect the insurer against fraudulent claims, and also
against invalid claims made in good faith. And further, if the insurer is thus
given the opportunity for a timely investigation, reasonable compromises
and settlements may be made, thereby avoiding prolonged and unnecessary
litigation.

Appleman & Appleman, supra, § 4731, at 2-5.

¶107 Prompt notice clauses therefore serve a significant purpose and cannot be merely

regarded as serving the competing interests between the particular insured and insurer.

The interests of the public generally may be better served by early and prompt

investigation, which reduces the risk of successful fraudulent claims and reduces the cost

of premiums by shortening the period and degree of uncertainty concerning the number

of claims and their amounts. See Robert E. Keeton & Alan I. Widiss, Insurance Law—A

Guide to Fundamental Principles, Legal Doctrines and Commercial Practices § 7.2(a),

749-52 (1988). Therefore, where the function and purpose of the notice provision has not

been frustrated by the insured—i.e., where there is no prejudice—the reason behind the

notice condition in the policy is lacking. In these cases, the notice clause should not

serve as a technical basis for the insurer to escape liability.

45
¶108 A third reason for departing from the strict traditional approach is that it ignores

the nature of the relationship between insurance companies and their insureds. An

insurance contract is not a negotiated agreement; rather, its conditions are by and large

dictated by the insurance company to the insured. Giacomelli v. Scottsdale Ins. Co.,

2009 MT 418, ¶ 42, 354 Mont. 15, 221 P.3d 666; Brakeman v. Potomac Ins. Co.,

371 A.2d 193, 196 (Pa. 1976). The only aspect of the conditions of an insurance policy

the insured can bargain for is the monetary amount of the coverage. This court has

recognized the unequal bargaining power of the parties to an insurance policy and

observed that they are contracts of adhesion. Giacomelli, ¶ 42. Hence, a proper analysis

of whether to enforce a notice condition requires that the unequal relationship between

the parties be considered.

¶109 Lastly, courts that have adopted the notice-prejudice rule have recognized the

public interest in enforcing insurance contracts to further the goal of compensating tort

victims. A significant point to observe, however, is that these public policy arguments

have been made in the context of uninsured and underinsured motorist coverage where

the legislature has enacted specific statutes to protect against financial loss visited upon

innocent traffic accident victims by negligent motorists. See § 33-23-201, MCA. By

enacting these statutes, the Montana legislature specifically sought to avoid inadequate

compensation to victims of automobile accidents. To defeat this purpose by enforcing

arbitrarily a forfeiture condition in an insurance contract would frustrate the policy as

declared by the legislature.

46
¶110 The Court states that the public policy of Montana is that a policy provision that

defeats coverage for which valuable consideration has been received should not be

enforced. Opinion, ¶ 24. In State Farm Mutual Automobile Insurance Co. v. Gibson,

2007 MT 153, ¶ 22, 337 Mont. 509, 163 P.3d 387, which the Court cites for this public

policy proposition, we extended the public policy considerations underlying uninsured

and underinsured motorist coverage articulated in Hardy v. Progressive Specialty

Insurance Co., 2003 MT 85, ¶ 21, 315 Mont. 107, 67 P.3d 892, and Bennett v. State

Farm Mutual Automobile Insurance Co., 261 Mont. 386, 389, 862 P.2d 1146, 1148

(1993), to address the stacking of medical payments coverage. The public policy,

however, underlying a statutory provision requiring uninsured motorist coverage, see

§ 33-23-201, MCA, does not necessarily extend to a contract’s provisions dealing with

notice. The requirement of notice also serves important public interest considerations. In

my opinion, it is normally more appropriate for the legislature to express the public

policy of Montana through the enactment of statutes. Were it not for the other

considerations which are consistent with contract principles and forfeiture, I would find it

difficult to alter the terms of a contract, the enforcement of which is equally supported by

public policy, absent more specific legislative direction. Indeed, an argument can be

made that the policy considerations of compensating innocent tort victims for injuries

caused by uninsured motorists are not implicated with general liability policies because

general liability policies are not mandated by the legislature and are voluntarily

purchased. Moreover, many state courts that have articulated the merits of the notice-

47
prejudice rule have done so in the face of legislative enactments adopting the rule and

announcing the public policy of the state to require an insurer to show prejudice before

disclaiming coverage. See Prince George’s Cnty. v. Local Govt. Ins. Trust, 879 A.2d 81,

96 (Md. 2005).

¶111 In spite of our primary reference to public policy of the state as a justification for

the notice-prejudice rule, I would, based on the foregoing analysis, join the

overwhelming majority of states1 and adopt a notice-prejudice rule in first-party

insurance contracts, consistent with principles of forfeiture and immaterial or partial

breach. I would evaluate prejudice in the context of the interests notice provisions are

designed to protect, as explained above. There remains, however, the question of how to

incorporate the consideration of prejudice into our analysis.

¶112 States that consider prejudice usually follow one of three different approaches: (1)

once it is shown that the insured has breached the notice provision, the contract is

nevertheless effective unless the insurer has shown that it has been prejudiced by the

delay; (2) once it is shown that the insured has breached the notice provision, a rebuttable

presumption exists that the insurer has been prejudiced by the delay; or (3) prejudice is

considered as a factor in the initial inquiry of whether the insured has provided timely

notice. See Alcazar v. Hayes, 982 S.W.2d 845, 853 (Tenn. 1998); Russ & Segalla, supra,

§ 193:25; Marvel, supra, §§ 3-5.

1
See 13 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 193:25 (3d ed. 2005); Charles
C. Marvel, Annotation, Modern Status of Rules Requiring Liability Insurer to Show Prejudice to
Escape Liability Because of Insured’s Failure or Delay in Giving Notice of Accident or Claim,
or in Forwarding Suit Papers, 32 A.L.R. 4th 141, §§ 3-5 (1984 & Supp. 2014).
48
¶113 While I can appreciate the rationale that it is the insured that is seeking to be

excused from terms of a contract provision, I would nevertheless require that the insurer

bear the burden of demonstrating prejudice. I believe this is the better-reasoned approach

and one that will more effectively handle incorporation of the rule. The prevailing view

among states incorporating prejudice is that once it is demonstrated that the insured

breached the notice provision, the burden of proof is allocated to the insurer to prove it

has been prejudiced by the breach. There are several justifications for imposing the

burden on the insurer. First, it is very difficult for the insured to prove a negative and

hence difficult or impossible to prove no prejudice. Second, the insurer is in a better

position to know the facts that would substantiate prejudice. See Clementi v. Nationwide

Mut. Fire Ins. Co., 16 P.3d 223, 231 (Colo. 2001). Third, it is the insurance company

that is choosing to disclaim its obligations under the policy. Brakeman, 371 A.2d at 198.

¶114 Lest my decision be perceived as encouraging dilatory tactics on the part of the

insured or as unfair to the insurer, I would impose a requirement that the insured, for the

period of delay beyond the limits of timeliness, show that he or she was acting in good

faith and that the delay was not purposeful. Equity dictates that a bad-faith delay in

notifying an insurer, even though no material prejudice results, should be considered

when deciding whether the policy should be enforced. See Great Am. Ins. Co. v. C. G.

Tate Constr. Co., 279 S.E.2d 769, 776 (N.C. 1981). Moreover, implicit in every contract

is the requirement that the parties act in good faith. Story v. Bozeman, 242 Mont. 436,

49
450, 791 P.2d 767, 775 (1990), overruled in part on other grounds by Arrowhead Sch.

Dist. No. 75 v. Klyap, 2003 MT 294, ¶ 54, 318 Mont. 103, 79 P.3d 250.

¶115 Therefore, I would adopt a two-step process for the evaluation of untimely claims.

This approach would require a preliminary determination of whether the insured’s notice

was timely. Such a determination should include an evaluation of the reasonableness of

the delay which would incorporate the insured’s reasons and the existence of good faith.

Once a court determines that an insured’s notice was untimely, and that the delay was

unreasonable, it should then turn to the issue of whether the insured was prejudiced by

such untimely notice. Such an approach is in accord with the majority of jurisdictions.

See Clementi, 16 P.3d at 231; Ouellette v. Maine Bonding & Cas. Co., 495 A.2d 1232,

1234 (Me. 1985); State Farm Mut. Auto. Ins. Co. v. Gregorie, 748 A.2d 1089, 1093 (Md.

Ct. Spec. App. 2000); Am. Cont’l Ins. Co. v. Phico Ins. Co., 512 S.E.2d 490, 494 (N.C.

Ct. App. 1999); Brakeman, 371 A.2d at 196.

¶116 Lastly, there may be a limited exception to the notice-prejudice rule allowing that

insurer prejudice will be presumed as a matter of law when an insured fails to notify the

insurer of a pending lawsuit against him until after a default judgment has been entered.

See Campbell v. Cont’l Cas. Co. of Chicago, 170 F.2d 669, 673 (8th Cir. 1948); Prince

George’s Cnty., 879 A.2d at 85-86; Members Ins. Co. v. Branscum, 803 S.W.2d 462, 466

(Tex. Ct. App. 1991). Normally, under the default exception to the notice-prejudice rule,

50
prejudice is presumed to be present even though, for example, the insurer has the option

of filing for a new trial. Branscum, 803 S.W.2d at 466.2

¶117 We adopt a new rule today that arguably conflicts with our prior jurisprudence and

departs from our traditionally strict interpretation of insurance contracts. A

notice-prejudice rule will significantly alter the handling of insurance claims in this State.

I therefore believe it is important to properly set forth the analysis upon which I have

arrived at my decision. In order to assist in the handling of these claims, I have discussed

how prejudice is to be incorporated into the burden of proof. In these proceedings, CULI

has admitted they have not suffered any prejudice by the insured’s late filing of claims. I

would therefore affirm the directed verdict entered by the District Court on the untimely

filed claims.

Attorney Fees for the Estate

¶118 Contrary to our characterization today of Sampson v. National Farmers Union

Property & Casualty Co., 2006 MT 241, 333 Mont. 541, 144 P.3d 797, it is my opinion

that this Court has definitively held that attorney fees are not recoverable in a UTPA

action. Sampson, ¶ 22; Jacobsen v. Allstate Ins. Co., 2009 MT 248, ¶ 23, 351 Mont. 464,

215 P.3d 649. Pursuant to the insurance exception to the American Rule, if a party

prevails on their contractual claims, they are entitled to attorney fees incurred in

obtaining those benefits. Mountain W. Farm Bureau Mut. Ins. Co. v. Brewer, 2003 MT

2
There is a third exception to the notice-prejudice rule observed by several courts. This
concerns “claims-made” policies as contrasted with policies based upon “occurrence.” Applying
the notice-prejudice rule to a claims-made policy would essentially convert it, so the rationale
goes, into an occurrence policy.
51
98, ¶ 14, 315 Mont. 231, 69 P.3d 652. The Estate is entitled to recover their attorney fees

on the contractual damages awarded by the District Court in its directed verdict.

¶119 In Sampson, ¶ 15, we restated the general rule in Montana “that a party is not

entitled to attorney’s fees absent a specific contractual provision or statutory grant.” We

further held in Sampson that “[t]he Legislature is capable of authoring and enacting

statutes which clearly permit tort victims to recover attorney fees.” Sampson, ¶ 21. We

next held that, “[t]his being so, we will not engage in a presumption that the Legislature

intended fees as an element of damages but simply neglected to so specify.” Sampson,

¶ 21.

¶120 I do not think Sampson could be any clearer. Moreover, other courts have relied

on our rule stated in Sampson that attorney fees are not recoverable in a UTPA action.

See Davis v. Progressive Cas. Ins. Co., 220 Fed. Appx. 708, 712 (9th Cir. 2007)

(“because attorney’s fees are not recoverable under the UTPA, the district court did not

abuse its discretion in denying Davis’s request for attorney’s fees”) (citing Sampson);

Colman Constr., Inc. v. Diamond State Ins. Co., No. CV 05-148-M-JCL, 2008 U.S. Dist.

LEXIS 44735, at *30 (D. Mont. June 5, 2008) (“a plaintiff cannot recover attorneys’ fees

as an element of damages attributable to a claim under the UTPA”) (citing Sampson).

Indeed, in Mungas v. Great Falls Clinic, 2009 MT 426, ¶ 44, 354 Mont. 50, 221 P.3d

1230, we observed that the Court had rejected claims in Sampson for an exception to the

American Rule concerning attorney fees.

52
¶121 There is no statutory basis for the award of attorney fees in a UTPA action. The

Court today has failed to indicate where in the UTPA statute recovery of attorney fees is

allowed and has not indicated how the insurance exception should include recovery

beyond the contractual claims. It is my opinion the Court has mischaracterized Sampson.

I would vacate the award of attorney fees to the extent it represents fees attributable to the

UTPA action, and remand for a determination of attorney fees incurred pursuant to the

contractual damages only.

Damages Necessary to Support UTPA Violation

¶122 Although I would not reach this issue given my decision on CULI’s reasonable

basis in law defense, I would be remiss if I failed to indicate my disapproval of the

Court’s decision to allow contract damages to serve as the actual damages for an

independent UTPA cause of action pursuant to § 33-18-242(1), MCA. Section

33-18-242(3), MCA, allows for an insured “who has suffered damages as a result of the

handling of an insurance claim” to bring an action for “breach of the insurance contract,

for fraud, or pursuant to this section . . .” (emphasis added). The UTPA provides an

“independent cause of action” against an insurer for damages “caused by the insurer’s

violation of . . . 33-18-201.” Section 33-18-242(1), MCA. This language is consistent

with defining the UTPA as an independent action in tort arising out of the insurance

contract. However, the “actual damages” which are “caused” by the tortious conduct are

separate and distinct from the contractual damages recovered from a breach of the

53
contract. And the damages sought “as a result” of the handling of the claim must be

based on the insurer’s tortious conduct and a specific violation of the UTPA.

¶123 This Court has not directly addressed whether damages resulting from a breach of

an insurance contract may serve as the actual damages for a tort violation pursuant to the

UTPA. It has been observed that UTPA damages include actual and punitive damages

which are distinct from damages for breach of insurance contract: “both kinds of

damages available in [a UTPA] action are different from damages which may be awarded

in a breach of contract claim for policy coverage.” Dees, 260 Mont. at 451, 861 P.2d at

153 (Gray, J., with Turnage, C.J., and Nelson, J., concurring). Moreover, damages are

always limited to those proximately caused by the violation or tortious conduct and, if

requirements otherwise applicable are met, punitive damages. See William T. Barker &

Ronald D. Kent, New Appleman Insurance Bad Faith Litigation § 11.04 (2d ed. 2014);

William M. Shernoff et al., Insurance Bad Faith Litigation § 8.05 (2009). Other

jurisdictions have rejected claims by the insured that actual damages under the UTPA

include damages for breach of the insurance contract and have required that the insured

establish a causal connection between the insurer’s bad faith and the loss or damage

suffered by the insured. See Guessford v. Pa. Natl. Mut. Cas., 983 F. Supp. 2d 652, 666

(M.D.N.C. 2013); Perera v. U.S. Fid. & Guar., 35 So. 3d 893, 903-04 (Fla. 2010); Jarvis

v. Farmers Ins. Exch., 948 P.2d 898, 900-01 (Wyo. 1997).

¶124 In my view, the trier of fact must find some damages, over and above the

contractual damages awarded, which are causally connected to the UTPA violation and

54
which support the actual and punitive damages recoverable under this separate cause of

action. I would affirm the District Court’s order, jury instruction, and special verdict

form which required the Estate to produce evidence of actual damages in addition to the

contractual damages arising from the breach of contract.

CONCLUSION

¶125 I concur with the Court’s decision to adopt the notice-prejudice rule, though I

would do so under different reasoning. I dissent from the Court’s conclusion that CULI

did not have a reasonable basis in law to deny the Estate’s claims and from the Court’s

decision to allow recovery of attorney fees in a UTPA claim.

/S/ LAURIE McKINNON

Justice Jim Rice, concurring in part and dissenting in part.

¶126 I join Paragraphs 90-121 of Justice McKinnon’s concurring and dissenting opinion

regarding the reasonable basis of law defense, the notice-prejudice rule, and attorney fees

for the estate.

/S/ JIM RICE

55

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2802271. Public record. Not legal advice.