DA 16-0097

IN THE SUPREME COURT OF THE STATE OF MONTANA

2016 MT 285

ELIZABETH WEST, as Guardian Ad Litem for PETER LEE,

 Plaintiff and Appellee,

 v.

UNITED SERVICES AUTOMOBILE ASSOCIATION (USAA), 

an Unincorporated Reciprocal Inter-Insurance Exchange, 

and USAA CASUALTY INSURANCE COMPANY,

 Defendants and Appellants.

APPEAL FROM: District Court of the Eighth Judicial District,

In and For the County of Cascade, Cause No. ADV-15-075

Honorable Gregory Pinski, Presiding Judge

COUNSEL OF RECORD:

For Appellants:

David M. McLean (argued), Ryan C. Willmore, McLean & Associates, 

PLLC, Missoula, Montana

For Appellee:

Alexander (Zander) Blewett, III, Anders Blewett (argued), Hoyt &

Blewett PLLC, Great Falls, Montana

Argued and Submitted: September 28, 2016

 Decided: November 9, 2016

Filed:

__________________________________________

Clerk

11/09/2016

Case Number: DA 16-0097
2

Justice Beth Baker delivered the Opinion of the Court. 

¶1 Elizabeth West, acting as Guardian Ad Litem for Peter Lee, and United Services 

Automobile Association and USAA Casualty Insurance Company (collectively USAA) 

dispute the effect of TRICARE medical payment liens on USAA’s responsibility to 

promptly pay Lee’s liability settlement claim against its insured. Lee asserted that USAA

acted in bad faith by conditioning payment on resolving the TRICARE liens. The Eighth 

Judicial District Court agreed and held USAA liable for its insured’s $1,464,000 consent 

judgment. 

¶2 We conclude that USAA had a reasonable basis in law to condition its payment of 

policy limits upon resolution of the TRICARE liens, and we therefore reverse. 

PROCEDURAL AND FACTUAL BACKGROUND

¶3 In December 2012, Lee and three other passengers were injured in a single vehicle 

accident. Lee sustained catastrophic injuries. The driver, Julian Perez, held a USAA 

insurance policy. All of the passengers were military servicemen covered by TRICARE, 

a government insurance program for military members and their families. TRICARE 

paid medical benefits for the passengers and therefore had a statutory right to recover the 

benefits it paid. TRICARE’s liens for the passengers’ combined medical expenses 

totaled over $215,000; more than $204,000 of the total were for Lee’s expenses alone.

¶4 USAA insured Perez under an automobile liability policy with coverage limits of 

$50,000 per person and $100,000 per accident. After conducting a liability investigation, 

USAA determined that Perez was 100% at fault for the accident. Because of the extent 
3

of Lee’s injuries, USAA informed Perez that he may be potentially liable for damages 

exceeding his coverage limits.

¶5 On August 21, 2013, Lee’s counsel—who represented all four injured

passengers—made a settlement demand on USAA for Perez’s $100,000 policy limits. 

The letter stated that the offer would be withdrawn and that the claimants would seek to 

recover all of their damages from USAA if USAA did not agree to pay the policy limits 

in twenty days. One week later, USAA’s claims examiner contacted Lee’s counsel and 

offered to pay the full policy limits, provided that the TRICARE liens were addressed. 

Lee’s counsel immediately responded with a letter stating that his clients would 

indemnify and hold USAA harmless from any responsibility for the TRICARE liens. 

¶6 On September 9, 2013, USAA responded, stating that the offer to indemnify was 

not sufficient to protect Perez or USAA from the TRICARE liens. USAA confirmed in 

writing its offer to pay the policy limits, provided either that TRICARE be included as a 

payee on the settlement check or that Lee’s counsel first secure lien releases from 

TRICARE. Lee’s counsel followed with a letter two days later, stating that his clients

would indemnify both USAA and Perez from any responsibility for the TRICARE liens. 

The letter gave USAA a deadline of September 21. USAA did not respond by the 

deadline. In the meantime, both USAA and Lee’s counsel attempted to determine the 

status of TRICARE’s liens. In early November 2013, USAA received letters from the 

Air Force providing notice of its claims and requesting payment of the liens pursuant to 
4

42 U.S.C. § 2651. TRICARE finally agreed to waive its liens at the end of January 2014,

and USAA issued a check for the policy limits of $100,000 six weeks later. 

¶7 Lee had filed suit against Perez in October 2013, and he continued his suit after 

receiving the policy limits payment from USAA. In January 2015, Perez agreed to a 

consent judgment in the amount of $1,464,000, and assigned his claims against USAA to 

Lee. On behalf of Lee, West filed a separate suit that same month alleging bad faith

against USAA. The District Court granted West summary judgment, concluding that 

USAA did not have a reasonable basis in law for conditioning payment of the settlement 

check. The court held therefore that USAA was liable to Lee for the consent judgment. 

USAA filed a motion to alter or amend the judgment that was deemed denied when the 

District Court did not rule. USAA appeals. 

STANDARD OF REVIEW

¶8 We review summary judgment rulings de novo, applying the standards set forth in 

M. R. Civ. P. 56(c)(3). Citizens for a Better Flathead v. Bd. of Cnty. Comm’rs, 2016 MT 

256, ¶ 10, 385 Mont. 156, ___ P.3d ___; accord State Farm Mut. Auto. Ins. Co. v. 

Freyer, 2013 MT 301, ¶ 22, 372 Mont. 191, 312 P.3d 403. Generally, questions of 

reasonableness are factual matters properly answered by the finder of fact. Estate of 

Gleason v. Cent. United Life Ins. Co., 2015 MT 140, ¶ 60, 379 Mont. 219, 350 P.3d 349; 

Freyer, ¶ 48. But an insurer’s reasonableness is a question of law for the court to decide 
5

when the insurer’s basis in law is grounded on a legal conclusion and no issues of fact 

remain in dispute.1 Estate of Gleason, ¶ 60; Freyer, ¶ 48.

DISCUSSION

¶9 Whether the District Court correctly concluded that USAA did not have a 

reasonable basis in law for conditioning the settlement check upon resolution of the 

TRICARE liens.

¶10 Because insurers have the authority under their policies to settle third-party claims, 

insurers in Montana have a duty to accept reasonable settlement offers within the policy 

limits. Freyer, ¶ 46. When an insurer acts in bad faith and “fails to settle a bona fide 

third party liability claim against its insured, within policy coverage limits,” that insurer 

“takes the risk of a judgment by the trier of fact in excess of the coverage limits.” 

Freyer, ¶ 47 (citation and internal quotations omitted). An insurer does not act in bad 

faith, however, and therefore is not liable, “for failing to settle within policy limits when 

it had a reasonable basis in law or fact for contesting coverage.” Freyer, ¶ 47. In 

determining whether an insurer has a reasonable basis in law for contesting coverage, “it 

is first necessary to survey the legal landscape as it existed during the relevant time 

period.” Freyer, ¶ 48 (citation and internal quotations omitted). The “determinative 

question” in our inquiry “is whether the law in effect at the time, caselaw or statutory, 

provided sufficient guidance to signal to a reasonable insurer that its grounds for denying 

the claim were not meritorious.” Freyer, ¶ 48. We are not to ask whether we agree “with 

the plaintiff’s theories of liability in the underlying suit but, rather, whether the insurer’s 

 

1 Throughout the case, West has contended that no fact issues exist and that the case presents 

only questions of law. During oral argument before this Court, counsel for USAA agreed.
6

grounds for contesting those theories were reasonable under existing law.” Freyer, ¶ 48 

(citation and internal quotations omitted).

¶11 Soon after filing her complaint in this action, West moved for summary judgment. 

She argued that USAA acted in bad faith by failing to promptly settle the claim. USAA 

responded, arguing on the authority of Freyer that it had a reasonable basis in law to 

condition payment of the settlement upon resolution of the TRICARE liens. USAA 

contended that federal law—specifically 42 U.S.C. § 2651—and our decision in Conway 

v. Benefis Health Systems, Inc., 2013 MT 73, 369 Mont. 309, 297 P.3d 1200, established 

TRICARE as a secondary payer and obligated USAA either to include TRICARE as a 

co-payee or to secure a waiver of the liens before making payment to West. Despite 

Justice Cotter’s assertion to the contrary, Dissent, ¶ 30, USAA has asserted throughout 

litigation that the principal issue is whether its grounds for conditioning the settlement 

payment were reasonable under existing law because TRICARE is a secondary payer. 

¶12 The District Court recognized as much, identifying the issue before it as follows:

“Did USAA engage in bad faith settlement practices by refusing to pay an admitted 

liability settlement unless TRICARE was named as a co-payee on Lee’s settlement check 

or TRICARE waived its statutory lien?” The court ruled that USAA lacked a reasonable 

basis in law to delay payment of policy limits because of the TRICARE liens. The court 

focused its analysis on USAA’s condition to include TRICARE as a payee on the 

settlement check. The court first noted that the parties had not identified any cases 

“addressing this narrow issue.” It rejected USAA’s reliance on Conway, finding the case 
7

not directly on point. The court similarly rejected USAA’s comparison of TRICARE to

Medicare because it concluded that Medicare and TRICARE statutes and regulations are 

distinct. Specifically, the court noted that “unlike the automatic first payer liability 

imposed . . . on Medicare, there is no corresponding provision under TRICARE.” 

Finally, the court rejected USAA’s reliance on 42 U.S.C. § 2651, which governs the 

United States’ right to recover incurred medical costs from liable third parties and their 

insurers.

¶13 The court determined that the federal statute would apply only if the United States 

had commenced litigation or intervened to enforce its liens; in that case, “USAA would 

have a compelling argument it properly included TRICARE on the settlement check.” 

The court also determined that although TRICARE sent USAA notice of its claim and 

requested payment of the liens, “there is no obligation in the TRICARE regulations 

requiring USAA to protect the government lien.” “Most pertinently,” the court specified,

“there is no requirement that USAA name TRICARE on Lee’s settlement check.” As 

such, the court concluded that “USAA’s unilateral decision [to include TRICARE as a 

payee on the settlement check] is without support in statute, regulation, or common law.” 

¶14 Further, the court noted that Lee expressly agreed to indemnify USAA, but that 

“USAA made the unilateral decision to condition its legal obligation to settle Lee’s 

claims on including TRICARE as a settlement check payee.” Such a condition, the 

District Court concluded, went against Montana’s public policy regarding settlement of 

insurance claims. The court emphasized, “When an insurer unilaterally adds a payee to a 
8

claimant’s settlement check, the insurer substantially delays settlement, imposes onerous 

obligations not required by law, and creates unreasonable burdens on a claimant to 

receive funds the insurer is legally obligated to pay.” Such a result, the court concluded, 

“is hardly what the Montana legislature intended when it obligated insurers to ‘attempt in 

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

has become reasonably clear.’” (Quoting § 33-18-201(6), MCA.) The court therefore 

held that “USAA’s decision to condition payment on naming TRICARE as a payee of the 

settlement funds is unreasonable under applicable law.” As a result, the District Court 

ordered USAA to pay the entire consent judgment.

¶15 First, the District Court correctly recognized that “a TRICARE lien arises under 

the Medical Care Recovery Act, 42 U.S.C. § 2651(a).” The Air Force’s November 2013 

letters to USAA referenced this section in asserting the United States’ “independent right 

to recover costs.” But the court incorrectly interpreted the statute. The statute broadly 

provides that, whenever the United States furnishes benefits to a beneficiary who is 

injured 

under circumstances creating a tort liability upon some third person . . . to 

pay damages therefor, the United States shall have a right to recover 

(independent of the rights of the injured or diseased person) from said third 

person, or that person’s insurer, the reasonable value of the care and 

treatment so furnished, to be furnished, paid for, or to be paid for and shall, 

as to this right be subrogated to any right or claim that the injured 

[beneficiary] . . . has against such third person. 

42 U.S.C. § 2651(a). By bestowing upon the United States a right to recover from Perez 

or USAA, 42 U.S.C. § 2651(a) obligated Perez or USAA to honor the TRICARE liens. 
9

The same statute allows the United States to enforce its right to recover by 

“interven[ing]” in or “institut[ing] and prosecut[ing] legal proceedings against the third 

person who is liable for the injury . . . or the insurance carrier . . . responsible for the 

payment or reimbursement of medical expenses.” 42 U.S.C. § 2651(d). Contrary to the 

District Court’s conclusion, USAA’s obligation to honor the liens under § 2651(a) did not 

depend upon the United States already having pursued judicial enforcement under 

§ 2651(d). 

¶16 Second, we disagree with the District Court that Conway offers no guidance here. 

We concluded in Conway that “federal regulations mandate that TRICARE functions as a 

secondary payer.” Conway, ¶ 32 (citing 32 C.F.R. § 199.8(a)). TRICARE’s status as a 

secondary payer means that “where the medical treatment at issue is necessitated as a 

result of the negligence of an insured third party, any payment originally made by 

TRICARE must be reimbursed.” Conway, ¶ 32 (citing 32 C.F.R. § 199.8(a), (b)(3))

(emphasis added). TRICARE benefits therefore are not “available to a TRICARE 

beneficiary where there is third party insurance available to pay the expenses of medical 

treatment.” Conway, ¶ 32. Conway supports USAA’s contention that it had an 

obligation to reimburse TRICARE given TRICARE’s status as a secondary payer.
10

¶17 Third, our conclusion finds additional support in other TRICARE statutes and 

regulations in effect at the time.

2

 The federal statute governing contractor payment of 

certain claims under TRICARE provides:

(a) Payment of claims.

(1) The Secretary of Defense may authorize a contractor under the 

TRICARE program to pay a claim described in paragraph (2) before 

seeking to recover from a third-party payer the costs incurred by the 

contractor to provide health care services that are the basis of the claim to a 

beneficiary under such program.

(2) A claim under this paragraph is a claim --

(A) that is submitted to the contractor by a provider under the 

TRICARE program for payment for services for health care 

provided to a covered beneficiary; and

(B) that is identified by the contractor as a claim for which a thirdparty payer may be liable.

(b) Recovery from third-party payers. The United States shall have the 

same right to collect charges related to claims described in subsection (a) as 

charges for claims under [10 U.S.C. § 1095].

(c) Definition of Third-Party Payer. In this section, the term “third-party 

payer” has the meaning given that term in [10 U.S.C. § 1095(h)], except 

that such term excludes primary medical insurers.

 

2 We are unpersuaded by West’s argument that we cannot consider statutes and regulations that 

were not cited by USAA in its briefing on summary judgment. Although we generally do not 

address an issue raised for the first time on appeal or a party’s change in legal theory, “we have 

permitted parties to bolster their preserved issues with additional legal authority or to make 

further arguments within the scope of the legal theory articulated to the trial court.” State v. 

Montgomery, 2010 MT 193, ¶ 12, 357 Mont. 348, 239 P.3d 929. TRICARE’s lien rights and 

USAA’s corresponding obligations were the focus of the legal theory that USAA presented to 

the trial court. And the District Court is not confined in its summary judgment review—nor is 

this Court on appeal—to authorities presented in the parties’ briefs. See Junkermier, Clark, 

Campanella, Stevens, P.C. v. Alborn, Uithoven, Riekenberg, P.C., 2016 MT 218, ¶ 22, 

384 Mont. 464, ___ P.3d ___. Besides, as explained above, the District Court erred in its 

analysis of the legal authority that USAA did present.
11

10 U.S.C. § 1095b. Federal regulations confirm that “10 U.S.C. [§]1095b establishes the 

statutory obligation of third-party payers to reimburse the United States the costs incurred 

on behalf of TRICARE beneficiaries who are also covered by the third-party payer’s 

plan.” 32 C.F.R. § 199.12(a). 

¶18 In turn, 10 U.S.C. § 1095 provides that “the United States shall have the right to 

collect from a third-party payer reasonable charges for health care services incurred by 

the United States on behalf of [a person who is a covered beneficiary].” 10 U.S.C. 

§ 1095(a)(1); accord 42 U.S.C. § 2651(a). Section 1095 defines a “third-party payer” as 

“an entity that provides an insurance, medical service, or health plan by contract or 

agreement, including an automobile liability insurance or no fault insurance carrier.” 

10 U.S.C. § 1095(h)(1). USAA is clearly a “third-party payer” pursuant to both 

10 U.S.C. § 1095b(c) and 10 U.S.C. § 1095(h)(1). These statutes make clear that the 

United States had “the right to collect from [USAA] reasonable charges for health care 

services incurred by the United States on behalf of [Lee].” 10 U.S.C. § 1095(a)(1); 

accord 10 U.S.C. § 1095b(b); 42 U.S.C. § 2651(a). 

¶19 More, the federal TRICARE regulations provide: “The only way for a third-party 

payer to satisfy its obligation under 10 U.S.C. [§]1095b is to pay the United States or 

authorized representative of the United States. Payment by a third-party payer to the 

beneficiary does not satisfy 10 U.S.C. [§]1095b.” 32 C.F.R. § 199.12(d)(3). The United 

States’ right to recover costs incurred on behalf of a TRICARE beneficiary “includes the 

authority under 10 U.S.C. [§]1095(e)(1) for the United States to institute and prosecute 
12

legal proceedings against a third-party payer to enforce a right of the United States under 

10 U.S.C. [§]1095b and this section.” 32 C.F.R. § 199.12(g)(1). The United States may 

also “compromise, settle or waive a claim” of its right to reimbursement. 32 C.F.R. 

§ 199.12(g)(2); 10 U.S.C. § 1095(e)(2).

¶20 These statutes and regulations, “in effect at the time” of USAA’s negotiations with 

Lee’s counsel, Freyer, ¶ 48, obligated USAA to reimburse TRICARE for the costs 

TRICARE incurred on behalf of Lee. So USAA issuing a settlement check to Lee would 

“not satisfy” its statutory obligation. 32 C.F.R. § 199.12(d)(3). Rather, the only way 

USAA could meet its obligation to reimburse TRICARE was “to pay the United States or 

authorized representative of the United States.” 32 C.F.R. § 199.12(d)(3). If USAA 

did not satisfy its statutory obligation, the United States could “institute and prosecute

legal proceedings against” USAA to enforce its right to reimbursement. 32 C.F.R. 

§ 199.12(g)(1); 10 U.S.C. § 1095(e)(1); 42 U.S.C. § 2651(d). Based on the plain 

language of the governing statutes and regulations, we conclude that the District Court 

incorrectly determined that “there is no obligation in the TRICARE regulations requiring 

USAA to protect the government lien.”

¶21 Justice Cotter takes issue with our reliance on these statutes and regulations 

because they were not presented to the District Court, nor to West at the time USAA 

responded to her demand for policy limits. Dissent, ¶¶ 31, 34. USAA’s failure to cite 

specific statutes and regulations does not mean that those requirements were not part of 

the “legal landscape as it existed” when USAA conditioned payment of the settlement 
13

check upon resolution of the TRICARE liens. Freyer, ¶ 48. Our role is to assess 

objectively whether it was reasonable for USAA to condition payment—i.e., its 

“proffered defense”—“in light of that legal landscape.” Freyer, ¶ 48 (emphasis added). 

West’s argument, in any event, is that because Lee made an offer to indemnify USAA 

and Perez, the law did not obligate USAA to address the TRICARE liens before settling 

Lee’s third-party claim, a position that Justice Cotter does not appear to embrace. 

¶22 Contrary to West’s argument, neither Lee’s offer to indemnify nor his obligation 

pursuant to 32 C.F.R. 199.12(h)(3) to “cooperate” with the United States in any 

reimbursement action by the United States against USAA affects USAA’s statutory 

obligation to reimburse TRICARE, nor do they impact the United States’ right to recover 

medical payments from USAA. Any agreement between Lee’s counsel and USAA 

would not bind the government or exempt USAA from federal law.3 

¶23 The District Court was correct that “there is no requirement that USAA name 

TRICARE on Lee’s settlement check.” As the District Court pointed out, if USAA had 

tendered the settlement check with TRICARE as a payee, the check would not have been 

negotiable until an authorized government agent endorsed it, and Lee could have been 

denied the insurance proceeds he was entitled to receive. As the District Court also 

 

3 We note that the State Bar of Montana Ethics Committee recently issued an ethics opinion 

concluding that an attorney should not agree in a settlement release to personally indemnify an 

insurer from any lien claims against the settlement proceeds for a plaintiff’s medical expenses. 

M. Bar Ass’n, Ethics Op. 131224 (2013). The opinion notes that “[t]his practice presents a 

number of professional responsibility challenges” and potentially violates multiple rules under 

the Montana Rules of Professional Conduct. M. Bar Ass’n, Ethics Op. 131224, at 3-7. Because

our resolution of the appeal does not turn on the issue of indemnification, we do not discuss the 

ethics opinion here.
14

observed, Lee’s attorney could not have deposited “the check in his . . . IOLTA account 

until fully endorsed, making it impossible to comply with the Montana Rules of 

Professional Conduct.” 

¶24 As the District Court’s order recognized, USAA did not, however, just condition 

payment of Lee’s settlement on including TRICARE as a payee on the check—it also 

gave Lee’s counsel the option of “obtain[ing] waivers of any lien or negotiat[ing] the 

liens.” USAA also followed up with the government to determine the status of the liens. 

Federal law expressly provides that the United States may “compromise, settle or waive a 

claim” of its right to reimbursement. 32 C.F.R. § 199.12(g)(2); 10 U.S.C. § 1095(e)(2). 

The District Court erred in not considering USAA’s request for lien waiver before 

concluding that USAA did not have a reasonable basis in law to condition payment of the 

settlement. 

¶25 Justice Wheat also misses the import of USAA’s alternative offers for resolving 

the TRICARE liens. In remarking that USAA “had no lawful basis to refuse to settle 

Lee’s claim based upon the status of TRICARE’s lien,” Dissent, ¶ 40, Justice Wheat 

quotes only from the District Court’s observation regarding USAA’s offer to include 

TRICARE as a settlement check payee. See supra ¶¶ 13-14. His conclusion that “USAA 

had no legal obligation to protect TRICARE’s lien,” Dissent, ¶ 40, fails to acknowledge 

the governing law. 

¶26 The District Court properly invoked Freyer as the correct framework for analysis. 

Applying that framework to determine whether USAA had a reasonable basis in law for 
15

contesting Lee’s claim, we have “survey[ed] the legal landscape as it existed during the 

relevant time.” Freyer, ¶ 48 (emphasis added). That landscape compels a conclusion 

that USAA did have a reasonable basis in law to condition its settlement payment on 

waiver of the TRICARE lien from the United States. The “only way” for USAA to 

satisfy its statutory obligation to TRICARE—the secondary payer—was to pay the 

United States, not to pay Lee. 32 C.F.R. § 199.12(d)(3); see Conway, ¶ 32. If USAA had 

not honored the lien, the United States presumably still could have gone after USAA to 

enforce its right to reimbursement. 32 C.F.R. § 199.12(g)(1); 10 U.S.C. § 1095(e)(1); 42 

U.S.C. § 2651(d). The law “provided sufficient guidance to signal to a reasonable insurer 

that its grounds . . . were . . . meritorious.” Freyer, ¶ 48. This is especially so given “the 

absence of caselaw on point.” See Freyer, ¶ 48. Accordingly, we hold that USAA’s 

“grounds [for conditioning payment] were reasonable under existing law.” Freyer, ¶ 48.

¶27 Although USAA did not move for summary judgment before the District Court, 

“[w]e require no cross-motion . . . when the moving party had a full and fair opportunity 

to consider the proposition and all other criteria for summary judgment are met.” Watson 

v. Dundas, 2006 MT 104, ¶ 30, 322 Mont. 164, 136 P.3d 973 (citing Canal Ins. Co. v. 

Bunday, 249 Mont. 100, 108, 813 P.2d 974, 979 (1991)). West had a full and fair 

opportunity to argue the law applicable to her bad faith claim, there are no genuine issues 

of material fact, and USAA is entitled to judgment as a matter of law. We therefore

reverse the District Court’s grant of summary judgment in favor of West and order it to 
16

enter summary judgment in favor of USAA. See Bunday, 249 Mont. at 108, 813 P.2d at 

979. 

CONCLUSION

¶28 The District Court’s order granting summary judgment to West is reversed and the 

case is remanded to the District Court for entry of judgment in favor of USAA.

/S/ BETH BAKER

We concur: 

/S/ MIKE McGRATH

/S/ LAURIE McKINNON

/S/ JAMES JEREMIAH SHEA

/S/ JIM RICE

Justice Patricia Cotter, dissenting.

¶29 I dissent. I begin by reciting significant facts that the Court has omitted from its Opinion. 

First, USAA consented to Perez entering and filing the consent judgment, and had no objection 

to the amount of the judgment which does represent actual damages sustained by Lee. In 

addition, USAA agreed not to raise any policy defenses to preclude Perez from filing the consent 

judgment. There is therefore no issue of collusion or unreasonableness of the settlement amount 

before us. 

¶30 Second, USAA’s legal theories have been a moving target from the beginning. As 

addressed below, the legal authorities it relied upon when dealing with West and then presented 

to the District Court were different than those raised on appeal and upon which the Court now 

relies. In addition, after arguing in its opening brief before this Court that it was required to 
17

include TRICARE on the settlement check, USAA asserted in its reply brief that it was not

required to include TRICARE as a payee on the settlement check. In short, USAA’s legal 

arguments have been scattershot. These inconsistencies matter because the sole question before 

the Court is whether USAA had reasonable grounds under the law at the time it imposed the 

conditions at issue upon the settlement with West.

¶31 In a footnote on ¶ 17, n. 2, the Court rejects West’s argument that we should not consider 

statutes and regulations that were not cited by USAA in its briefing on summary judgment in the 

District Court, citing our decision in Junkermier, Clark, Campanella, Stevens, P.C. v. Alborn for 

the proposition that we are not confined on appeal to authorities that were presented in the 

parties’ briefs. While that general proposition may be true, it is wholly misplaced in this case 

because, as the Court states at ¶ 10, the focal question here is whether the insurer’s grounds for 

contesting plaintiff’s theories were reasonable under existing law at the time it imposed the 

conditions at issue on the settlement. We must therefore “assess the insurer’s proffered defense” 

that was presented to West in 2013. Freyer, ¶ 48.

¶32 When it refused to pay the settlement without TRICARE’s name on the check or lien 

waivers in 2013, USAA did not “proffer a defense” to West premised on 10 U.S.C. § 1095 or 

TRICARE regulation 32 C.F.R. § 199 and its various sub-parts upon which this Court centers its 

decision. The statute and the regulations were never mentioned to West, and USAA did not cite 

these statutes and regulations as authority in its briefing before the District Court. These facts 

compel the inevitable conclusion that USAA did not at the time it conditioned the settlement 

have reasonable legal grounds under existing law for contesting plaintiff’s theories. Freyer,

¶ 48. 
18

¶33 The Court places much emphasis upon USAA’s reference to 42 U.S.C. § 2651 in its 

dealings with West and its brief opposing summary judgment before the District Court. 42 

U.S.C. § 2651 is a general public health and welfare statute that permits the United States to 

recover sums paid to persons injured in cases where the injury is the responsibility of a thirdparty. This statute does not reference TRICARE nor does it contain any provision requiring 

insurance companies to protect government liens. It is 10 U.S.C. § 1095 that addresses medical 

expenses paid on behalf of members of the military. As 32 C.F.R. § 199.12(a)(1) states, “10 

U.S.C. [§] 1095b establishes the statutory obligation of third-party payers to reimburse the 

United States the costs incurred on behalf of TRICARE beneficiaries.” In point of fact, the 

Court grounds its detailed analysis upon this statute and the supporting regulations set forth in 32 

C.F.R. § 199, and not upon 42 U.S.C. § 2651. See Opinion, ¶¶ 17-20, 22, 24, 26. 

¶34 After extensive review of 10 U.S.C. § 1095 and 32 C.F.R. § 199 and its subparts, the 

Court states at ¶ 20: “Based on the plain language of the governing statutes and regulations, we 

conclude that the District Court incorrectly determined that ‘there is no obligation in the 

TRICARE regulations requiring USAA to protect the government lien.’” The problem with this 

conclusion of course is that USAA did not present these statutes and regulations to the District

Court for its consideration. The District Court rightly premised its decision upon the authorities 

submitted by the parties; it was under no obligation to scour the legal landscape to assist USAA. 

As we have stated, we will generally “‘not address either an issue raised for the first time on 

appeal or a party’s change in legal theory. The basis for the general rule is that it is 

fundamentally unfair to fault the trial court for failing to rule correctly on an issue it was never 

given the opportunity to consider.’” Becker v. Rosebud Operating Servs., Inc., 2008 MT 285, 
19

¶ 17, 345 Mont. 368, 191 P.3d 435 (quoting Unified Industries, Inc. v. Easley, 1998 MT 145, 

¶ 15, 289 Mont. 255, 961 P.2d 100 (internal citations and quotations omitted)). 

¶35 I disagree with the Court’s conclusion at ¶¶ 17 and 21 that because the TRICARE statutes 

and regulations were part of the existing legal landscape at the time the settlement was in 

dispute, USAA had a reasonable basis in law to condition the settlement upon resolution of the 

TRICARE liens. Respectfully, USAA did not know these TRICARE regulations and statute 

existed when it conditioned the settlement. It stands to reason that in order to have a reasonable 

basis in law for a position, one must know what the law is.

¶36 We err in supplying legal authority for USAA’s defense long after the fact. In a case in 

which the intent and knowledge of the insurer at the time it conditioned the settlement is 

dispositive, we have no business providing retroactive support for a decision USAA made three 

years ago without citing the governing law, and no business providing USAA with a lifeline now 

premised upon legal authorities it did not present to the District Court. Given the sparse legal 

authority USAA provided to the District Court in opposition to West’s motion for summary 

judgment, the District Court did not err in granting summary judgment in favor of West. That is 

the decision we should be reviewing, not USAA’s decision to present new legal authorities on 

appeal. I therefore dissent from our decision overturning the District Court’s order and directing 

the entry of judgment in favor of USAA. 

/S/ PATRICIA COTTER

Justice Michael E Wheat joins in the foregoing dissent.

/S/ MICHAEL E WHEAT
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Justice Michael E Wheat, dissenting.

¶37 I join the Dissent of Justice Cotter, but provide additional reasons for separating 

myself from the reasoning of the majority.

¶38 On December 1, 2012, Peter Lee and three others were injured when Julian Perez, 

the driver of the car in which they were passengers, caused a high-speed rollover 

collision. Lee’s injuries were particularly catastrophic. Perez was insured by USAA. 

Importantly, by mid-December USAA knew without question that Perez’s negligence 

caused the crash and was absolutely liable for all damages to the injured parties, which 

would probably exceed policy limits given the extent of the injuries to the parties. More 

importantly, by this time USAA also knew, or should have known, that TRICARE would 

be paying some or all of the medical expenses of the injured parties, especially Lee, and 

would have a subrogation interest in the policy proceeds. 

¶39 On June 4, 2013, the Blewett firm notified USAA that they were representing Lee 

and that policy limits would be inadequate. On August 21, 2013, Blewett offered to settle 

for policy limits, in exchange for a full release, and placed a 20-day trigger on the offer. 

On August 28, 2013, USAA agreed by phone to pay, but only if TRICARE was named as 

a payee or a lien waiver was produced. On September 9, 2013, USAA confirmed its 

position in writing, and several days later Blewett extended the deadline for settlement 

and again reiterated a full and final release would be provided to Perez. On October 17, 

2013, Lee filed suit against Perez, and shortly thereafter Perez, with the assistance of 

counsel, entered into a consent judgment with Lee to protect himself from an excess 
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judgment. On March 14, 2014, USAA paid policy limits after Lee provided a TRICARE 

lien waiver.

¶40 Therefore, by mid-December 2012, USAA knew it was statutorily obligated “to 

attempt in good faith to effectuate prompt, fair, and equitable settlement” of all claims 

covered by Perez’s policy. Section 33-18-201(6), MCA. At the same time USAA had a 

duty to defend and protect Perez against any claims and/or judgments resulting from his 

clear negligence. Additionally, and simultaneously, USAA apparently believed, for its 

own protection, it was required to protect TRICARE’s subrogation interest. This last 

conclusion, however, was incorrect. As noted by the Alabama Supreme Court in Mut. 

Assur., Inc. v. Schulte, 970 So. 2d 292 (Ala. 2007), “the inquiry relevant to a claim 

alleging bad faith failure to settle is whether the insurer’s failure to settle had any ‘lawful 

basis,’ that is, whether the insurer had any ‘legitimate or arguable reason for failing to 

pay the claim.’” Schulte, 970 So. 2nd at 296 (citations omitted). In the case before us, 

the District Court, based upon the arguments presented to it as discussed in Justice 

Cotter’s Dissent, concluded that USAA’s “unilateral decision” to protect TRICARE’s 

lien, was “without support in statute, regulation, or common law.” In other words, 

USAA had no legal obligation to protect TRICARE’s lien; consequently, it had no lawful 

basis to refuse to settle Lee’s claim based upon the status of TRICARE’s lien. 

¶41 Moreover, if TRICARE’s lien status posed significant problems to USAA’s 

settlement determination, upon USAA’s realization of its obligation to settle Perez’s 

claim, it should have undertaken actions in December 2012 to insure that TRICARE’s 
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subrogation interest would not hinder settlement rather than delaying settlement and 

imposing the obligation to obtain a TRICARE lien waiver on Lee.

¶42 Under these facts, I submit that USAA violated its obligations to its insured and to 

the injured parties to exercise good faith to enter into a prompt, fair and equitable 

settlement. Instead, it delayed until a demand was made and then unilaterally imposed a 

requirement that TRICARE be named as a co-payee or that Lee obtain a lien release, 

equally for its own benefit and protection, even though Lee’s attorneys offered to fully 

release and indemnify both USAA and Perez. At the expense of Perez and Lee, USAA 

demanded that Lee’s attorneys agree to protect USAA, when USAA did nothing to 

protect itself, and was obligated to do so.

¶43 For these reasons and the reasons expressed by Justice Cotter, I dissent.

/S/ MICHAEL E WHEAT