Kilby Butte Colony, Inc. v. State Farm Mutual Automobile Insurance Co.

10/10/2017

DA 17-0162

Case Number: DA 17-0162

IN THE SUPREME COURT OF THE STATE OF MONTANA

2017 MT 246

KILBY BUTTE COLONY, INC.,

Plaintiff and Appellant,

v.

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY,

Defendant and Appellee.

APPEAL FROM: District Court of the Fourteenth Judicial District,

In and For the County of Musselshell, Cause No. DV-14-81

Honorable Randal I. Spaulding, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Torger S. Oaas, Attorney at Law, Lewistown, Montana

For Appellee:

Guy W. Rogers, Jon A. Wilson, Brown Law Firm, P.C., Billings, Montana

Submitted on Briefs: August 2, 2017

Decided: October 10, 2017

Filed:

__________________________________________

Clerk

Justice James Jeremiah Shea delivered the Opinion of the Court.

¶1 Plaintiff Kilby Butte Colony, Inc., (“Kilby Butte” or “Colony”) appeals the order

by the Fourteenth Judicial District Court, Musselshell County, denying its summary

judgment motion and granting summary judgment to Defendant State Farm Mutual

Automobile Insurance Company (“State Farm”). We address the following issue:

Whether the District Court erred by granting summary judgment to State Farm on

the grounds that the Stahls did not qualify as insureds under Kilby Butte Colony’s

State Farm Policy.

¶2 We affirm.

PROCEDURAL AND FACTUAL BACKGROUND

¶3 On December 15, 2013, Mary Ann and Ivan Stahl were injured in an automobile

accident when traveling in Saskatchewan, Canada. At the time of the accident, the

Stahls were passengers in a motor vehicle owned by a Canadian Hutterite Colony.

Another individual was at fault for the accident.

¶4 The Stahls are members of the Kilby Butte Hutterite Colony. Kilby Butte is a

Montana religious corporation with a community treasury that engages in business for the

common benefit of its members. Hutterite colony members own assets of the community

collectively; therefore, the Stahls cannot own a vehicle in their individual capacities.

Kilby Butte owns multiple vehicles all titled and insured in the Colony’s name. All of

the Colony’s auto insurance policies were purchased through State Farm at State Farm’s

agency office in Lewistown. No individual Colony members were listed as named

insureds on any vehicle owned by the Colony.

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¶5 The Colony submitted a claim to State Farm on behalf of the Stahls under its 2006

Freightliner Policy (“Policy”) that provided underinsured motorist coverage (“UIM

Coverage”) in the amount of $50,000 per person and $100,000 per accident. State Farm

declined the Stahls’ claim because the Stahls were not occupying the Freightliner at the

time of their accident and did not meet the definition of “insured” under the Policy. The

declaration page for the Policy listed the named insured as “Kilby Butte Colony.” The

UIM Coverage is detailed in Policy Form 9826A “State Farm Car Policy Booklet” as

follows (emphasis in the original):

Insuring Agreement

We will pay compensatory damages for bodily injury an insured is

legally entitled to recover from the owner or driver of an

underinsured motor vehicle. The bodily injury must be:

1. sustained by an insured; and

2. caused by an accident that involves the operation, maintenance, or

use of an underinsured motor vehicle as a motor vehicle.

Policy Form 9826A defines “insured” as follows in regards to UIM Coverage (emphasis

in the original):

Insured means:

1. you;

2. resident relatives;

3. any other person who is not insured for underinsured motor vehicle

coverage under another vehicle policy and only while that person is

occupying a car:

a. that is used within the scope of your consent;

b. the ownership, maintenance, or use of which is provided

liability coverage by one of the State Farm Companies; and

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c. that is either:

(1) owned by:

(a) the first person shown as a named insured on

the Declarations Page or that named insured’s

spouse who resides primarily with that named

insured; or

(b) any resident relative; or

(2) a temporary substitute car.

Such other person occupying a vehicle used to carry persons for a charge is

not an insured; and

4. any person who has not sustained a bodily injury but is entitled to

recover compensatory damages as a result of bodily injury to an

insured as defined in 1., 2., or 3. above.

Policy Form 6926A.2 “Amendatory Endorsement” amends the definition of “insured” in

regards to UIM Coverage as follows (emphasis in the original):

6. UNDERINSURED MOTOR VEHICLE COVERAGE

a. Additional Definitions

Item 3. of Insured is changed to read:

3. any other person who is not insured for

underinsured motor vehicle coverage under

another vehicle policy and only while that

person is occupying a vehicle that would

qualify as:

a. “your car”,

b. a “newly acquired car”, or

c. a “temporary substitute car”

as defined in Definitions of any vehicle policy

providing Liability Coverage issued by the

State Farm companies to you or any resident

relative. Such vehicle must be used within the

scope of your consent. Such other person

occupying a vehicle used to carry persons for a

charge is not an insured. . . .

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The Policy is also subject to Policy Form 6030BF.1 “Business Named Insured,” which

provides in pertinent part (emphasis in the original):

This endorsement is a part of the policy. Because of the type of named

insured shown on the Declarations Page of this policy and the changes

made below, all references to resident relatives and non-owned cars in

the policy are deleted. Except for the changes this endorsement makes, all

other provisions of the policy remain the same and apply to this

endorsement.

You or Your is changed to read:

You or Your means the named insured or named insureds shown on

the Declarations page.

Policy Form 6030BF.1 amends the definition of insured in regards to UIM Coverage as

(emphasis in the original):

4. UNINSURED MOTOR VEHICLE COVERAGE and

UNDERINSURED MOTOR VEHICLE COVERAGE

Additional Definitions

Insured is changed to read:

Insured means:

1. any person while occupying:

a. your car;

b. a newly acquired car; or

c. a temporary substitute car.

Such vehicle must be used within the scope of your

consent. Such person occupying a vehicle used to

carry persons for a charge is not an insured; and

2. you or any person entitled to recover compensatory

damages as a result of bodily injury to an insured

defined in item 1. above.

Policy Form 9826A defines “newly acquired car,” “occupying,” “owned by,” “temporary

substitute car,” and “your car” as (emphasis in the original):

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Newly Acquired Car means a car newly owned by you.

. . .

Occupying means in, on, entering, or exiting.

. . .

Owned By means:

1. owned by;

2. registered to; or

3. leased, if the lease is written for a period of 31 or more consecutive

days, to.

. . .

Temporary Substitute Car means a car that is in the lawful possession of

the person operating it and that:

1. replaces your car for a short time while your car is out of use due to

its:

a. breakdown;

b. repair;

c. servicing;

d. damage; or

e. theft; and

2. neither you nor the person operating it own or have registered.

. . .

Your Car means the vehicle shown under YOUR CAR on the Declarations

Page. Your Car does not include a vehicle that you no longer own or lease.

¶6 After State Farm declined the Colony’s UIM claim submitted on behalf of the

Stahls, the Colony filed suit. The parties filed cross-motions for summary judgment, and

the District Court held oral arguments on April 23, 2015. On March 1, 2017, the District

Court granted State Farm’s Motion for Summary Judgment, denied the Colony’s Motion,

and determined that the Stahls did not qualify for UIM Coverage because the Stahls did

not satisfy the definition of an “Insured” within the terms of the policy. Relying on

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Hanson v. Emp’rs Mut. Cas. Co., 336 F.Supp.2d 1070 (D. Mont. 2004), Am. States Ins.

Co. v. Flathead Janitorial & Rug Servs., 2015 MT 239, 380 Mont. 308, 355 P.3d 735,

and Stonehocker v. Gulf Ins. Co., 2016 MT 78, 383 Mont. 140, 368 P.3d 1187, the

District Court held that “so long as an insurance policy is unambiguous, a claimant must

satisfy the policy definition of an insured in order to qualify for UIM Coverage. It is not

a violation of a claimant’s reasonable expectations for a corporate insurance policy to

restrict the class of insureds for which its policy provides coverage.”

STANDARDS OF REVIEW

¶7 We review a district court’s entry of summary judgment de novo. Stonehocker,

¶ 9 (citing McClue v. Safeco Ins. Co., 2015 MT 222, ¶ 8, 380 Mont. 204, 354 P.3d 604).

“Summary judgment is appropriate when the moving party demonstrates both the

absence of any genuine issues of material fact and entitlement to judgment as a matter of

law.” Stonehocker, ¶ 9 (citing M. R. Civ. P. 56). When there are cross-motions for

summary judgment, a district court must evaluate each party’s motion on its own merits.

Halenga v. Schwein, 2007 MT 80, ¶ 18, 336 Mont. 507, 155 P.3d 1242. On

cross-motions for summary judgment, where the district court is not called to resolve

factual disputes and only draw conclusions of law, we review the district court’s

conclusions of law to determine whether they are correct. Bud-Kal v. City of Kalispell,

2009 MT 93, ¶ 15, 350 Mont. 25, 204 P.3d 738.

¶8 The interpretation of an insurance contract is a question of law that we review de

novo to determine whether the district court is correct. Stonehocker, ¶ 10 (citing

Tidyman’s Mgmt. Servs. v. Davis, 2014 MT 205, ¶ 13, 376 Mont. 80, 330 P.3d 1139).

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DISCUSSION

¶9 Whether the District Court erred by granting summary judgment to State Farm on

the grounds that the Stahls did not qualify as “insureds” under Kilby Butte

Colony’s State Farm Policy.

¶10 We use the following approach to interpret insurance contracts:

General rules of contract law apply to insurance policies and we construe

them strictly against the insurer and in favor of the insured. Courts give the

terms and words used in an insurance contract their usual meaning and

construe them using common sense. Any ambiguity in an insurance policy

must be construed in favor of the insured and in favor of extending

coverage. An ambiguity exists where the contract, when taken as a whole,

reasonably is subject to two different interpretations. Courts should not,

however, seize upon certain and definite covenants expressed in plain

English with violent hands, and distort them so as to include a risk clearly

excluded by the insurance contract.

Mecca v. Farmers Ins, Exch., 2005 MT 260, ¶ 9, 329 Mont. 73, 122 P.3d 1190 (quoting

Travelers Cas. and Sur. Co. v. Ribi Immunochem Research, Inc., 2005 MT 50, ¶ 17,

326 Mont. 174, 108 P.3d 469). We read insurance policies as a whole and reconcile the

policy’s various parts to give each part meaning and effect. Section 33-15-316, MCA;

Newbury v. State Farm Fire & Cas. Co. of Bloomington, Ill., 2008 MT 156, ¶ 19, 343

Mont. 279, 184 P.3d 1021. We recognize the reasonable expectations doctrine and have

consistently held that the objectively reasonable expectations of insurance purchasers

regarding their policy terms should be honored, even if a painstaking study of the policy

negates expectations. When applying the doctrine, an insurance contract is to be

interpreted from the viewpoint of a consumer with average intelligence, with no training

in the law or insurance. Flathead Janitorial, ¶ 22 (citing Leibrand v. Nat’l Farmers

Union Prop. & Cas. Co., 272 Mont. 1, 7, 898 P.2d 1220, 1224 (1995)).

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¶11 Simply because a party claims a contract provision is ambiguous or disagrees with

the meaning of a provision does not make it so. Giacomelli v. Scottsdale Ins. Co., 2009

MT 418, ¶ 32, 354 Mont. 15, 221 P.3d 666. Courts will not distort the language of a

contract provision to create an ambiguity that does not exist. Giacomelli, ¶ 32.

¶12 The Colony contends that the Policy and its endorsements limit UIM Coverage to

injured persons who both own and occupy an insured motor vehicle. The Colony argues

that individual Colony members can never qualify for UIM Coverage because Colony

members cannot own Colony motor vehicles. Thus, the Colony contends the Policy’s

UIM Coverage is illusory. The Colony asserts the Stahls are entitled to the UIM

Coverage based on public policy considerations espoused in Chaffee v. U.S. Fidelity &

Guaranty Co., 181 Mont. 1, 591 P.2d 1102 (1979), and Bennett v. State Farm Mut. Auto.

Ins. Co., 261 Mont. 386, 389, 862 P.2d 1146, 1148 (1993) (“The public policy embodied

in these decisions is that an insurer may not place in an insurance policy a provision that

defeats coverage for which the insurer has received valuable consideration.”).

¶13 The Colony maintains UIM Coverage is “personal and portable” and is provided

even if the UIM claimant is not occupying an insured vehicle. See Mitchell v. State Farm

Ins. Co., 2003 MT 102, ¶ 40, 315 Mont. 281, 68 P.3d 703. An exception to this rule,

however, exists for corporate or business auto insurance policies that require occupancy

of the corporate owned vehicle as a condition of coverage. The problem with this

exception as applied to this case, the Colony argues, is that most individuals can purchase

UIM Coverage for themselves through their personal auto insurance policies. See

Stonehocker, ¶ 17; Flathead Janitorial, ¶¶ 18, 23; Chilberg v. Rose, 273 Mont. 414, 903

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P.2d 1377 (1995). Because Colony members, like the Stahls, cannot purchase personal

UIM Coverage, the Colony contends the Policy’s UIM Coverage remains illusory for

individual Colony members.

¶14 State Farm responds that the Stahls do not satisfy the Policy definition of

“insured” because they were not occupying a vehicle that satisfies the Policy definition of

“your car,” a “newly acquired car,” or a “temporary substitute car” at the time of their

accident. State Farm contends that corporate policies, such as the Colony’s, may restrict

the class of beneficiaries for which UIM Coverage is provided to individuals occupying

covered vehicles. See Stonehocker, ¶¶ 15-17; Flathead Janitorial, ¶¶ 18, 23; Hanson,

336 F.Supp.2d at 1076. State Farm also contends this restriction is not a violation of the

Colony’s reasonable expectations under the plain language of the Policy. See Flathead

Janitorial, ¶ 22. Because the Stahls would be entitled to recover UIM Coverage had they

been occupying a vehicle that satisfies the Policy definition of “your car,” a “newly

acquired car,” or a “temporary substitute car” at the time of the accident, State Farm

argues the Policy does not provide illusory coverage. We agree.

¶15 The Stahls do not satisfy any definition of “insured” under the Policy. Nor were

the Stahls occupying a covered vehicle at the time of the accident. The Stahls would

qualify for UIM coverage under the Policy if they were occupying a Colony covered

vehicle at the time of the accident; thus, the Policy is not illusory, as the Colony claims.

The requirement that a Colony member occupy a covered vehicle to obtain UIM

Coverage is not a violation of its reasonable expectations of the Policy terms, even when

interpreting the Policy from the Colony’s viewpoint. Flathead Janitorial, ¶ 22. The

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Policy is a business or corporate policy, and “as long as it is legal for an insurer to sell an

automobile liability policy to a corporation, which is the named insured, it is legal for the

insurer to limit the class of covered individuals to those who are occupying covered

vehicles at the time they are injured.” Hanson, 336 F.Supp.2d at 1076. “We have not

expanded coverage to injured persons involved in the corporation who are not occupying

vehicles covered under the policy at the time of the accident.” Stonehocker, ¶ 17

(quoting Lee v. Great Divide Ins. Co., 2008 MT 80, ¶ 16, 342 Mont. 147, 182 P.3d 41).

UIM Coverage is not so personal and portable that insurers are required to sell UIM

Coverage irrespective of an auto insurance policy. Hanson, 336 F.Supp.2d at 1076.

CONCLUSION

¶16 The Colony contracted with State Farm for UIM Coverage to insure occupants of

its covered vehicles. The fact that the Stahls do not meet the definition of “insured”

because they were not in a covered vehicle at the time of their accident does not defeat

coverage and render any coverage State Farm promised to provide illusory. See

Newbury, ¶¶ 20, 27. The District Court did not err in finding the Stahls do not satisfy the

unambiguous definition of “insured” under UIM Coverage in the Policy and that they are

not entitled to those benefits. The District Court was correct in determining the Policy

did not provide illusory coverage. We affirm the District Court’s order granting State

Farm’s motion for summary judgment and denying the Colony’s motion for summary

judgment.

/S/ JAMES JEREMIAH SHEA

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We Concur:

/S/ MICHAEL E WHEAT

/S/ DIRK M. SANDEFUR

/S/ BETH BAKER

/S/ JIM RICE

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