Title: HOME INS CO v PINSKI BROTHERS

State: montana

Issuer: Montana Supreme Court

Document:

No. 12080 I N T H E S U P R E M E C O U R T O F T H E STATE O F M O N T A N A 1972 THE HOME INSURANCE C O M P A N Y , a corporation, P l a i n t i f f and Appellant, PINSKI BROTHERS, INC.,, a corporation, KENNETH K. KNIGHT and A. ANDREW VAN TEYLINGEM, co-partners, doing business a s KNIGHT & VAN TEYLINGEN, , , , , , , , , , , , , , , , , , , , - - Aefeadants and Respondents. K E N N E T H K. KNIGHT, Counterclaimant, HOME I I I D ~ ~ I T Y C O M P A N Y , a corporation, Involuntary P l a i n t i f f and Defendant t o Counterclaims and Appellant. Appeal from: District Court of the Eighth J u d i c i a l D i s t r i c t , Honorable Paul H a Ff i e l d , Judge presiding. Counsel of Record : For Appellant : Smith, Emmons & B a i l l i e (Home Indemnity), Great F a l l s , Montana. Alexander, Kuenning, Hall & Miller (Home Insurance Company), Great F a l l s , Montana. John Hall argued, Great F a l l s , Montana. For Respondents: Church, Harris, Johnson & Williams, Great F a l l s , Montana, (Pinski Brothers). Jack L. Lewis argued, Great F a l l s , Montana. Jardine, Stephenson, Blewett & Weaver, Great F a l l s , Montana. Scott & Linnell, Great F a l l s , Montana. Wayne E. Linnell argued, Great F a l l s , Montana. Loble, P i c o t t e & Loble, Helena, Montana. Filed : Submitted: June 12, 1972 Decided : nutiel d k M r . Justice Frank I. Haswell delivered the Opinion of the Court. In an action between an insurer and i t s insured involving the insurer's subrogation rights and the insured's right to damages for breach of the insurance contract, the district court of Cascade County, the Hon. Paul G. Hatfield, district judge presiding, granted summary judgment to the insured. The insurer n o w appeals from such summary judgment. Plaintiff in the original action was The H o m e Insurance Company who paid off a property damage loss of approximately $135,000 resulting from a boiler explosion a t the old Montana Deaconess Hospital in Great Fa1 1 s and claimed subrogation to the rights of the hospital against those allegedly responsible. After various dismissals by the district court, the remaining defendants were (1 ) Pinski Bros, Inc., the mechanical contractor on the hospital remodel ing project where the boi 1 er explosion occurred, and (2) the architects on the project, Kenneth K. Knight and A. Andrew V a n Teylingen, copartners, doing business as Knight & V a n Teyl ingen. The complaint of The H o m e Insurance Company alleged three counts of negligence against the architects which i t claimed was the cause of the boiler explosion and the resulting property damage loss. The architects tendered defense of the action to The H o m e Indemnity Company, a wholly owned subsidiary of plaintiff H o m e Insurance Company, with w h o m the architects carried a comprehensive 1 iabi l i ty pol icy. The H o m e Indemni ty Company refused this tender, the architects hired their o w n defense counsel , and filed an answer containing, among other things, a "Twelfth Defense, Counterclaim and Setoff" by one of the architects, Kenneth K. Knight. Therein Knight alleged that insurance coverage was afforded under the architects ' comprehensive 1 iabil ity policy w i t h The H o m e Indemnity Company; that such coverage constituted a defense against the claim of the parent company, The H o m e Insurance Company, and that The H o m e Indemnity Company was 1 iable for the costs and expenses, including attorney fees, incurred i n defending the action and prosecuting the counterclaim and se%off. I t was stipulated that The H o m e Insurance Company and The H o m e Indemnity Company are one and the same corporate entity. Subsequently the district court, i n effect, granted summary judgment t o The H o m e Indemnity Company against the architects on all issues of insurance coverage under their comprehensive 1 iabil i ty pol icy, dismissed the "Twelfth Defense, Counterclaim and Setoff" of architect Knight, and ordered the sub- rogation action of The H o m e Insurance Company against the architects to continue. Upon appeal, w e held that the a1 leged negligent design, supervision and inspection of the hot water heating system by the architects (Count I of the complaint by The H o m e Insurance Company against the architects) was within the coverage of the architects ' comprehensive 1 iabil i ty pol icy; w e further held that Counts I1 and I11 of the complaint were not within the coverage of the architects' pol icy. W e vacated the district court's findings of fact, conclusions of law and judgment from which the appeal was taken and remanded the case to the district court for consideration of the further issues raised by The H o m e Insurance Company's motion for summary judgment against architect Knight on his "Twelfth Defense, Counterclaim and Setoff" and entry of appropriate findings, conclusions and judgment. See The H o m e Insurance Company v. Pinski Bros., Inc., 156 Mont. 246, 479 P.2d 275. Prior to hearing this former appeal, pretrial conferences were held by the district court a t which time three developments pertinent to this appeal occurred: (1) The H o m e Insurance Company settled i t s claim against Pinski Bros., leaving the architects as the sole remaining defendants, (2) The H o m e Insurance Company offered to settle i t s claim against the architects within the limits of coverage claimed by them under their comprehensive l i - ability pol icy with The H o m e Indemnity Company, leaving unsettled the then pending former appeal , (3) the architects were permitted to amend their answer by adding a "Thirteenth Defense and Counterclaim", in essence the same defense, counterclaim and setoff, for the architects named i n the caption of the suit as was contained in architect Knight's "Twelfth Defense, Countercl aim and Setoff". Following this Court's decision on the former appeal, the architects moved (1) for summary judgment against The H o m e Insurance Company on i t s complaint against them, and (2) for partial summary judgment on the issue of liability against The H o m e Insurance Company and The H o m e Indemnity Company on the counterclaim aspects of the architects ' twelfth and thirteenth defenses, countercl aims and setoffs. Thereafter foll owing hearing, the district court entered i t s "Find- ings of Fact, Conclusions of Law, Order, Memorandum Opinion, and Summary Judgment". Therein the district court of Cascade County as directed by this Court's order of remand in the former appeal, made findings of fact and con- clusions of law with respect to H o m e Indemnity's motion for summary judgment against the architects. The district court found and concluded that The H o m e Indemnity Company had not pointed out or suggested to the district court any facts which required entry of sumary judgment i n favor of The H o m e Indemnity Company or which had not been ruled upon and decided by this Court i n the earlier appeal, and that The H o m e Indemnity Company insured the architects for the liability claimed against them by Count I of the complaint of The H o m e Insurance Company. In addition, the district court (1) concluded that the controlling facts were undisputed and there was no genuine issue of material fact; (2) held that the architects could not be liable to The H o m e Insurance Company by reason of: (a) contributory negl igence, (b) assumption of risk, (c) intervening cause, and (d) insurance coverage under the H o m e Indemnity Company pol icy and i t s breach of duty to defendant under i t s pol icy; (3) entered summary judgment i n favor of the architects on The H o m e Insurance Company's complaint against them; (4) entered partial summary judgment as to the issue of'liability in favor of architect Knight on his twelfth defense and counterclaim against The Home Indemnity Company for a11 costs, expenses, attorney fees, etc., incurred on behalf of Knight in defending against the claim of Home Insurance and in prosecuting his claim for insurance coverage against Home Insurance; and (5) withheld until after the summary judgment became final the setting of a trial date for determination of the amount of damages to be awarded architect Knight for defense costs. Home now appeals from this summary judgment. We will summarize the underlying issues upon appeal in this manner: 1. Is there a genuine issue of material fact precluding summary judgment in favor of the architects on Home's complaint against them? 2. Is there a genuine issue of material fact precluding partial summary judgment on the issue of liability in favor of architect Knight against The Home Indemnity Company for his costs of defense herein? 3. Must Home pay all attorney fees and court costs incurred in this action? Directing our attention to the first issue, we first review the basic requirements for granting a summary judgment. Rule 5 6 ( c ) , M.R.Civ.P., requires that a summary judgment shall be granted forthwith if: " * * * the pleadings, depositions, answers to interroga- tories, and admissions on file show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.* * *" The burden of establishing the absence of any issue of material fact is on Mont . the party seeking summary judgment. Roope, v. The Anaconda Company - , 494 P.2d 922, 29 St.Rep. 170; Byrne v. Plante, 154 Mont. 6, 459 P.2d 266. Where the record before the court discloses no genuine issue as to any material fact, the burden is upon the party opposing entry of summary judgment to present evidence of a material and substantial nature raising a genuine issue of material fact. Roope v. The Anaconda Company, supra; Flansberg v. Montana Power Company, 154 Mont. 53, 460 P.2d 263. Applying these basic rules to the problem at hand we note that all other questions aside, the record before the Court disc1 oses that subsequent acts of hospital employees precipitated and caused the boiler explosion irrespective of anything the architects allegedly did or failed to do previously. The deposition of William Even, the chief engineer a t the hospital, establishes the fact that the employee engineers a t the hospital knew the hot water heating system being installed was without safety devices, appreciated the danger of "firing up" the system before safety devices had been installed, but nevertheless proceeded to "fire up" the system which resulted i n the boiler explosion. There are no facts to the contrary appear- ing i n the voluminous record i n this case. The foregoing facts establish, a t the very least, the defenses of assumption of risk and an efficient interven- ing cause. Under such circumstances, it is incumbent upon H o m e to present evidence of a substantial and material nature which raise a genuine issue of material fact. Having failed t o do so, Home cannot now complain that the architects are not entitled to a summary judgment as a matter of law. There is yet a further and perhaps more cogent reason why sumary judgment for the architects on Home's complaint against them i s correct. Here, i t i s undisputed that the architects have insurance coverage to the extent of $25,000 under their Home Indemnity comprehensive liability policy; that Home Indemnity and H o m e Insurance are one and the same corporate entity; that Home as a subrogated insurer of one of its policyholders (the Deaconess Hospital ) has sued another of i t s policyholders (the architects) w h o m i t has insured against the very liability for which it seeks recovery i n Count I of i t s complaint i n an amount i n excess of the policy limits. Subrogation i s an equitable right. Caledonia Ins. Co. v. Northern Pacific Ry. Co., 32 Mont. 46, 79 P. 544; Swingley v. Riechoff, 112 Mont. 59, 112 P.2d 1075. Accordingly, certain equity principles apply i n determining subrogation rights: One who seeks equity must do equity, Hall v. Lommasson, 113 Mont. 272, 124 P.2d 694; Tomsheck v. Doran, 126 Mont. 598, 256 P.2d 538; Barbour v. Barbour, 134 Mont. 317, 330 P.2d 1093. One who seeks equity must come into court w i t h clean hands, Perry v. Luding, 123 Mont. 570, 21 7 P.2d 207;Giarratana v. Naddy, 129 Mont. 154, 284 P.2d 254; Weintz v. Bumgarner, 150 Mont. 306, 434 P.2d 712. "No one can take advantage of his own wrong." Section 49-109, R.C.M. 1947. To permit the insurer to sue i t s own insured for a l i a b i l i t y cover- ed by the insurance policy would violate these basic equity principles, as well as violate sound public policy. Such action, i f permitted, would (1) allow the insurer to expend premiums collected from i t s insured to secure a judgment against the same insured on a risk insured against; (2) give jud- icial sanction to the breach of the insurance policy by the insurer; (3) permit the insurer t o secure information from i t s insured under the guise of pol icy provisions available for later use i n the insurer's subrogation action against its own insured; (4) allow the insurer t o take advantage of i t s con- duct and conflict of interest w i t h its insured; and (5) constitute judicial approval of a breach of the insurer's relationship w i t h its own insured. N o right of subrogation can arise i n favor of an insurer against i t s own insured since, by definition, subrogation exists only w i t h respect to rights of the insurer against third persons to w h o m the insurer owes no duty. 16 Couch on Insurance 2d, 5 61 :133; see also 46 C.J .S. Insurance t 3 1209(b); 16 Couch on Insurance 2d, B 61 :136. This principle is succinctly stated in Chenoweth Motor Co. v. Cotton, 2 Ohio Misc. 123, 207 N.E.2d 412, 413: " * * * it i s axiomatic that [an insurance company] has no subrogation rights against the negligence of i t s own insured. " (Bracketed material paraphrased). To allow subrogation under such circumstances would permit an insurer, i n effect, to pass the incidence of the loss, either partially or totally, from i t s e l f to i t s own insured and thus avoid the coverage which i t s insured purchased. 2 Richards on Insurance, $ 185, states the same principle i n this 1 anguage : "An insurer clearly may be subrogated t o i t s insured's claim against a third party who tortiously causes the loss, but no subrogation exists against the insured or co-i nsured whose negl i gence caused the 1 oss . " For the foregoing reasons, w e hold summary judgment i n favor of the architects on Home's subrogation complaint against them i s correct and is hereby affirmed . Proceeding to the second issue for review, w e note that the counter- claim of architect Knight for his costs of defense is bottomed on a breach by the insurer of Home Indemnity's comprehensive liability policy w i t h Knight. Since The Home Insurance Company which sued Knight for his alleged negligence i s one and the same corporate entity as The H o m e Indemnity Company, the actions of one are the actions of the other. Having refused t o defend Knight against Home's complaint alleging negligence w i t h i n Knight's policy coverage, Home's refusal to defend constituted a breach of contract even i f based on an honest mistake, thereby rendering Home liable for defense costs resulting from such breach. 14 Couch on Insurance 2d, $$ 51 :50, 51 :52; 49 ALR2d 694, 701 , 71 1 ; 7 A Appl eman, Insurance L a w and Practice, § 4689; Independent Milk & Cream Co. v. Aetna Life Ins. Co., 68 Mont. 152, 216 P. 1109; Mid-Century Ins. Co. v. American Casual ty Co. , 152 Mont. 328, 449 P .2d 679. Inasmuch as there is coverage for the f i r s t count i n Home's complaint against the archi- tects, denial of coverage and defense was unjustified even though there was no coverage for the second and third counts i n Home's complaint. 41 ALR2d 434; 14 Couch on Insurance 2d, ss 51:43, 51:50; 7 A Appleman, Insurance L a w & Practice, B 4683. A s there i s no conflict i n the foregoing facts appearing i n the records of this case, w e hold that the partial summary judgment on the issue of liability for defense costs i s correct and must be affirmed. The final issue for review is whether Home must pay all attorney fees and court costs herein. H o m e argues that while i t may be liable for defense costs, i t is not 1 iable for attorney fees, expenses and court costs involved i n architect Knight's counterclaim against i t or i n defending against the second and third counts i n Home's complaint which are not covered by Kfiight's pol icy. In our view i t would not be possible to separate or segregate such defense costs from costs involved i n prosecuting Knight's countercl aim i n any event. Even i f such were possible, Home has been the moving party through- out this litigation and the party whose wrongful acts made i t necessary for the architects t o defend themselves against both covered and noncovered claims, as well as the counterclaim of architect Knight for breach of contract i n denying insurance coverage and refusal to defend. Under such circumstances the wrongful acts of the insurer (1) i n suing i t s insured under i t s nonexis- tent subrogation rights on both covered and noncovered claims, and (2) i t s refusal to defend this action on behalf of architect Knight, constituted breaches of its obl igation and duty rendering the insurer 1 iable for damages by way of attorney fees, expenses, and court costs occasioned thereby. T h i s Court has extensively discussed the insurer's duty to defend i n St. Paul Fire & Marine Ins. Co. v. Thompson, 150 Mont. 182, 433 P.2d 795. The following cases so hold w i t h respect to the counterclaim for insurance coverage: Runyan v. Continental Casualty Company, 233 F.Supp. 214; Util i t i e s Construction Corp. v. Peerless Ins. Co., 233 F.Supp. 64; Southwestern Bell Tel. Co. v. Western Casualty & Sur. Co., 269 F.Supp. 315. The following authorities so hold w i t h respect to a complaint containing both covered and noncovered claims: St. Paul Fire & Marine Ins. Co. v. Hodor, ~la.'(1967), 200 S.2d 205; 50 ALR2d 458, 469, 506. W e note the d i s t r i c t court did not fix the amount of damages by way of attorney fees, court costs, and expenses for which Home i s liable to the architects i n defending against Home's complaint or to architect Knight, architect Van Teylingen, or the architectural firm. Instead, the d i s t r i c t court only prescribed the criteria on which such award would be based upon future t r i a l t o establish the amount of damages. Any determination of t h e d o l l a r amount of damages o r the c r i t e r i a therefor a t t h i s time is premature. For the foregoing reasons, the judgment of the d i s t r i c t court is affirmed. This cause is remanded t o the d i s t r i c t court f o r t r i a l and deter- mination of the amount of damages. Associate Justice ................................