duty to defend the ruling was incorrect because the district court applied a rule twelve standard and evaluated the actual merits of the complaint in determining whether a duty to defend existed as opposed to the actual duty to defend standard that asked whether the allegations give rise to potential liability or possible coverage under the policy in fact the duty to defend was never disputed already issue between the parties in this coverage case then why why why do we care about this standard business your attorney letter and april of two thousand and fifteen told houston casually we don't need you to defend and we're brief starts out by saying th the duty to defend it only if it only comes into play after the after liberty settles out so i don't understand why you go on and on in your brief about two thousand and twelve and two thousand and thirteen investigations that's a big so what is not now your honor respectfully no the reason why the duty to defend is relevant in this appeal is because the district court resolved this issue the entire case the coverage and the b on the duty to the film based based on its conclusion there was no coverage there's no duty to defend if there's no coverage your honor with respect we i disagree with that i've read the opinion you've read the opinion we disagree about it fine but in my view the district court decision is based on the coverage question quite properly and to the extent your side muddied the water by arguing or pleading the duty  so the district court felt compelled to make a reference to it it did so based upon no coverage no duty to defend in your honor and our coverage our coverage you claimed was what you've got to deal with with me that's because it seems to me that you have no duty to defend damages at the at unless you had your client had refused to settle i mean in settlement if the duty to defend includes a duty to lead in that settlement but liberty took care of that and in the settlement conference then your houston was asked to contribute so to speak and it declined based on its view coverage liberty settlement all right now if your client refuses to settle them the if the liberties policy limits don't satisfy the plaintiff and your client is unwilling to go further and the case goes on ok now hewson casualties duty to defend would presumably kick in but that didn't happen and i rerun well there's no duty to defend in this case i agree your honor and that's why the district court's ruling is a new york because it resolved the entire case on a duty to defend question and having  not our case either aren't our case is that houston casually breached the duty to indemnify however even when when when would houston's duty kick in if the liberty policy was never exhausted and what are the facts that indicate he stands policy was exhausted triggering the access your honor i agree that that liberty was defending strata all the way through the august twenty sixt conference and and our position is is that the policy was exhaustive through a below limits what are the facts of what are the that's your position but what are the facts that indicate that what was the policy limit and how much did they pay so the policy limits there was a five hundred thousand dollars limit policy for the workers comp employer liability policy it was exhausted through below limit settlement which is so there's what did they pay liberty paid one hundred fifty thousand dollars so that doesn't that doesn't reach a half million dollars pursuant to your on a pursuant to the settlement assume the remaining amount to trigger the limits of the policy this particular type of settlement is a below limits policy settlement and is permitted by so you're saying case and have made up the difference correct and so by what is permitted by longstanding case law the the z case out of the second circus your honor has never been an issue in this case no no no i would say i would say the the the artificial manufacturing of policy limits in order to drag the excess it sure has to be reasonable by an extension of the mill doctrine and its counterparts in most state laws in actually your honor and the north dakota law applied in this particular case in that's the governing law that the district court found applied in this case but with respect to the the exhaustion doctrine we've cited those cases in our brief and the primary policy can be exhausted on this basis and once it's exhausted then the excess policy kicks in strata after that policy was exhausted through the settlement which we contend is permitted by law and it's permitted for good reason to promote public policy to encourage settlements and to it it doesn't really impact the excess carriers ability under its contract so they say you do get over that hurdle then you write another hurdle of the exclusion what what's and correct about the argument made by the insurer here that there's no coverage for intentional injury exclusion indorsement that is part of the liberty mutual policy and it's not a pure intentional act exclusion it actually replaces the intentional act exclusion in the policy the latter is broader than the former in your honor i think it hears the argument with respect to that is that the actual endorsement says it does not cover bodily injury caused by your intentional malicious or deliberate act whether or not the act was intended to cause injury to the employee injured or whether or not you had actual knowledge that an injury was certain to occur if you look at the with respect to the alexander decision what strata faced in this case was that that the montana supreme court in that decision in other cases in montana have held that direct proof of an intentional act that caused injury to the employee is not required and actually may be inferred from facts indicating that the employer knew that an employee was being harmed failed to warn the employee of that harm and you continue to expose the employee to that harm but isn't that it is exactly what was played in the underlying so it was  in doesn't it clearly fall within the exclusion and isn't that exclusion doesn't the excess policy also incorporate that exclusion your honor i don't believe it falls directly in the exclusion in h walk we cited a case called west virginia players mutual insurance company versus summit raceway association it was a supreme court decision from west virginia from two thousand and eleven it had similar language than the endorsement that exists in this case in a dealt with a similar claim under west virginia's version of the the exception to the worker's comp action there the trial court actually found there was that the exclusion did not apply and i want to point to peel the west virginia supreme court reversed and i believe based on my reading of that decision what was really significant to the court in that decision was that the the indorsement made a specific reference to the west virginia statute at issue that made it very conspicuous plain clear and obvious that coverage was excluded for that particular claim here the endorsement at issue does not refer them language and if it's the same thing it's excluded your honor here though under under montana the way that the statute is applied by the montana courts bodily intent can be facts indicating that the ploy or knew that the employer was being harmed this record assume that aspect of the test right in its decision i thought i thought well soon that there was the requisite reasons we would ask the court to reverse really if it's crystal clear that the coverage is excluded how can there be a duty to defend a duty to defend his broader your honor then the duty to indemnify in liberty a us as well as houston did you know in the underlying case when it is you it's letter why does that matter in this context you've admitted there is there there was no duty to defend at the time that the that the coverage that used and said we're we're not going to participate in a settlement conference because we deny coverage we can't possibly help the client your honor the reason why i'm we're context is that are we are we muddying around with the duty to defend the only the duty to defend this broader because the insured needs defense cost among other things protection during the litigation which your client got correct hundred ten percent yes your honor however the broadness of the duty to defend is to me irrelevant in this case and i would agree roger except for be bound to a done the five strata had this data files prevailed on it's going because there's no potential for coverage there's no duty to defend all of us not a duty to defend issue and more importantly if there's no coverage there employer liability policy was in play as well as the the comprehensive general liability plan your own client said that the the initial reservation or rights letter  one second i'm sorry the second one you in montana it is nearly impossible and really dangerous for an insurance company to refuse to defend if you refused to defend everyone eve data may be well yeah and i think that you can generalize that yeah and so you always defend whether there's coverage or not but the under the law if you have the nerve under the law you can say i'm sorry if the plaintiff wins this lawsuit there's no coverage so i'm not going to fend cases with quite a few nervy insurance companies and over the course of quite a few years there are plenty of us and say we a defend of the of the motion papers arguments now most of the district court particularly from strata when i find any reference and f s s on the duty to defend yes was was was the district court led if you will to feel it had to deal with the duty to defend by the way the case was argued by stroud it was you and yes subjective interpretation yeah yeah out well obviously in north dakota and you know the other states bad faith exists that there is no reasonable basis what the insurance company debt and in our response to the summary judgment grace we pointed out all the reasonable things that limit houston casually did as an excess carrier how they monitored the cases they got the briefs they got defense counsel reported them they were they were paying attention the case they were doing the recent post of do but we never have to get to there because if there's no coverage there can be no bad faith there is a case mile versus twin city federal judge hopeful and said it better than i can he said look bad faith is all about you didn't pay insurance company has to defend in a reservation or right you have to ultimately find out what was the insurance intent this is not that case ok this is a very unique case mr fox was injured and died in montana and so strout it was protected by the workers compensation exclusively provisions mr foust couldn't sue strata unless unless unless he could make a claim under section thirty nine seventy one for thirteen which i'm going to call for thirteen for short that standard in order for mr files to prevail he had to prove that strata intentionally he was intentionally injured by an intentional and deliberate act and under the statute just to prove an intentional injury an intentional injury is an injury caused by intentional and deliberate act specifically and actually intended to cause injury to mr faust and there was actual knowledge that an injury is certain to occur there is no way you can prove that case and have coverage in north dakota so let if you mention insureds intent why would a company buy an employer liability policy that excludes coverage for intentional acts if not intact not intentional acts are covered exclusively by worker compensation it's been a while since i read an employer's liability coverage your honor but i believe there are certain types of claims that are covered under employer's liability that aren't covered by work comp i can't tell you what they are i purchase it it give you whelchel coverage and first of all it's not an issue that's been raised lose recoveries not been raised so i'm not prepared to respond to that but it's not even a matter what the insurance companies don't hear it's not really a matter of you know gee the insurance company wrote this coverage and took it away you can assure the conduct record by four thirteen as a matter of public policy in north dakota you can't do it as a matter what the policy says you can't insure this degree of intentional misconduct and arm in the last brief strad argued that the cases that are in north dakota were exclusions were coverages excluded for intentional acts don't require the same degree of misconduct that for thirteen does and they cite in particular to bert's case and to bridges in north dakota case it said it set the bar for the type of conduct for which you can insure under the facts are that less than five hundred thousand dollars of the liberty mutual policy was exhausted i believe today the testimony was one hundred fifty thousand was paid so i think that's a conceded fact the only issue i been conceded on appeal it's clearly an error in the record below there was an affidavit from a gentleman named j evans from struck me as i thought i understood the argument to be that strata of greed to fill in or agreed that the policy minus the five hundred thousand are limits as opposed to x minus two hundred fifty that houston casually actually paid and so they're trying to basically rock rewrite our insurance policy for saying well i don't care what the policy says we'll just give you credit for it but that's not what  policy requires of that they paid all but one hundred fifty and they're saying look we'll give you credit for the five hundred thousand dollars that liberty didn't pay will you start asking to pay us back of the five hundred thousand dollars range or point  saying that policy is no good as a matter of law you said and it doesn't apply to our our insurance policy excludes it that's a fact question well i mean that's that's a mixed quest well i think on the exhaustion issue maybe i confused you and i apologize if i do i did for actually i think it's conceded it was conceded in the briefs that liberty mutual did not pay five hundred thousand dollars in to the entire policy limits i don't know what judge eriksson's decision was based on whether he was just giving credit like me only let me be more bottom line oriented ok if if judge erickson as is otherwise affirmed your cross appeal becomes moot absolutely if there's no coverage it doesn't make any difference what liberty mutual did and there's no cause there's no coverage here again the standard that north dakota has chosen the bar that it's for intentional acts that cannot be covered is a matter of public policy under any insurance policy intentional act exclusion is you know since harms of sanity certain to occur the bar in montana under the worker on the fourth thirteen is so much higher than mean we're talking about intentional levels tensile conduct at levels i can't think of anything else even comes close to it and you know in the timbered case it's interesting the insured actually argued that the proper standard when you cut off coverage for intentional acts is an intentional act that was intended to cause injury which is pretty close to four thirteen and north dakota supreme court rejected arguments said no that's alexander as to the second plaintiff is not difficult it is to use circumstantial evidence to prove intent just from from the obvious risk you're creating and disregarding right and in montana you know you point out the alexander case there's been a fight between the legislature and the supreme court for years about what requires what's required for thirteen and the supreme court keeps watering it down and the legislature keeps ratcheting it back up and again we're at a standard that so high now i mean that is a kind of intense but i think that's probably a higher standard than deliberate homicide montana which we all know you can't cover as amount of policy and years applying that statute after the legislature had it ratcheted up well right but remember the first and then alexander and wise i think was pro and for the insured and alexander was had to plaintiffs also those are the second one they were both injured by the same chemical irrita really and the court said well because you knew of what happened to the first guy when this when you put the second guy in the in the small office with the bad stove he said enough that he gets to a jury and his plane right in is that's what we're down to because it's not that because you don't need their ak proof of intent to injure you don't but ultimately to win you need to prove if you are mr fast that there was injury that was certain to or curt and let's assume that the facts in the complaint said that and reach that level there can't be coverage for that because that is an intentional act of the most agree and it's against public policy in north dakota and probably every thank your honour's briefly i'd like to make two points first i want to make clear that we have not conceded that the underlying policy was not exhausted it was exhausted and we were very clear in opposition to the district court we filed the settlement agreements under sealed as required by the confidentiality provisions and them in the language of the settlement agreement we believe is correct under the majority holdings of most courts including the a circuit that allows this adopted by a majority of the courts including the circuit therefore it was exhausted in and i believe that the district court's decision recognizes that when it says the settlement agreement settlement agreement exhausted the limits of the liberty mutual ploy or liability coverage in so the court is acknowledging that this can be exhausted by the settlement agreement moreover the policy because of houston does not prohibit  this method we are not attempting to rewrite the policy the language of the policy doesn't prohibit settlement by way of cash buy it doesn't say that the cash needs to be paid by only the insurance company it can be paid by it it's vague in that regard and here it was paid by liberty as well as strata and and we believe that exhausted the limits i see my time is concluded so thank you your honors and we respectfully ask that the court reverse this case