No, 92-085 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1992 

NAUTILUS INSURANCE COMPANY, 

Plaintiff and Appellant, 

FIRST NATIONAL INSURANCE, INC., 

d/b/a THE FNI GROUP, 

Defendant and Respondent. L:/ Srniti 

CLERK OF SUPREME COURT 

STATE OF MONTANA 

APPEAL FROM: District Court of the Fifth Judicial District, 

In and for the County of Jefferson, 

The Honorable Frank M. Davis, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Barry G. OfConnell and ~indy E. Younkin, Moore, 

OrConnell, Refling & Manos, Bozeman, Montana 

For Respondent: 

Robert M. Carlson, Corette, Pohlman, Allen, Black & 

Carlson, Butte, Montana 

Filed: 

submitted on Briefs: July 30, 1992 

Decided: September 3, 1992 
Justice Karla M. Gray delivered the Opinion of the Court. 

Nautilus Insurance Company appeals from the granting of a 

directed verdict, and the judgment entered thereon, in favor of 

First National Insurance, Inc., by the Fifth Judicial District 

Court, Jefferson County. We affirm. 

The dispositive issue on appeal is whether the District Court 

erred in directing a verdict for the defendant on the basis that no 

duty was owed to the plaintiff. 

Patty Crane (Patty), now known as Patty Flynn, contacted Rick 

March (Rick) at First National Insurance, Inc. (FNI) in January, 

1987, seeking fire and liability coverage for business property 

owned by herself and Walter Crane in Helena, Montana. Rick 

requested coverage through Sentinel General Agency (Sentinel) for 

both property and liability insurance and received a quote which he 

believed included the requested liability coverage. Sentinel sent 

Rick binders identifying coverage through Nautilus Insurance 

Company (Nautilus) and Aegon Insurance Company in the aggregate 

amount of $L00,000 ($50,000 coverage by each insurer) for insuring 

the premises only; the effective date of the policies was February 

27, 1987. 

The Cranes advised Rick that they also needed liability 

coverage and he continued to seek coverage from other companies 

while the Nautilus policy was in effect. As a result of their own 

efforts, the Cranes obtained the coverage they desired from 

Travelers Insurance Company effective April 2, 1987. On that date, 

Patty told Rick about the new coverage and verbally requested FNI 

2 
to cancel the Nautilus and Aegon polices. Thereafter, via 

telephone and several letters, ~ick advised the Cranes that in 

order to cancel the policies they must either return the policies 

or sign a cancellation request/policy release form. The Cranes did 

neither; nor did Rick inform Nautilus during this time that the 

Cranes desired to cancel or that they had obtained alternative 

coverage. 

FNI paid the Nautilus premium on the Cranes1 behalf on May 13 

under its contract with Sentinel requiring payment of all premiums 

within 45 days of receiving an invoice; under the contract, the 

payment was due on or before May 15. Under the Nautilus policy, 

the Itunearned premiumM which could be recouped upon cancellation 

was prorated by quarters of the coverage year. In other words, 

once the coverage was effective on February 27, the maximum 

unearned premium which could be recovered on cancellation was 75%; 

the premium for the first three months1 coverage--from February 27 

to May 27--could not be recouped even if the policy were canceled 

prior to May 27. The Cranest building and its contents were 

totally destroyed by fire on May 23, 1987. 

The Nautilus policy was in effect on the date of the fire and 

the Cranes made a claim for their loss under the policy. Nautilus 

ultimately paid the $50,000 policy limit. 

Nautilus filed suit against FNI in the First Judicial District 

Court, Lewis and Clark County. The complaint alleged that FNI Is 

negligent failure to procure cancellation of the Cranes' Nautilus 

policy resulted in damage to Nautilus in the amount of $50,000 plus 
interest, Upon motion by .FNI, venue was changed to the Fifth 

Judicial District Court, Jefferson County. A jury trial was held 

on January 15 and 16, 1992. After Nautilus completed its case-inchief, FNI moved for a directed verdict on the basis that it owed 

no duty to Nautilus to procure cancellation. The motion was 

granted, judgment was entered and Nautilus appeals. 

Did the District Court err in directing a verdict for the 

defendant on the basis that no duty was owed to the plaintiff? 

A directed verdict may be granted only when it appears as a 

matter of law that the nonmoving party could not recover upon any 

view of the evidence, including the legitimate inferences to be 

drawn from it. Hash v. State (1991), 247 Mont. 497, 500, 807 P.2d 

1363, 1365; milkerson v. Sch. ~ist. No. 15, Glacier Cty. (19851, 

216 Mont. 203, 211, 700 P.2d 627, 622. On appeal, this Court must 

view a motion for a directed verdict in a light most favorable to 

the nonmoving party. Stout v. Montana Power Co. (3.9881, 234 Mont. 

303, 305, 762 P.2d 875, 876. 

Here, the District Court directed a verdict for FNI. While it 

did not state the basis for its decision in so many words, it is 

clear that the court determined that Nautilus could not prevail on 

its negligence claims against FNI because, under the undisputed 

facts of this case, FNI had no legal duty to Nautilus to procure 

cancellation of the policy. We agree. 

Negligence forms the basis for Nautilus' complaint against 

FNI. There is no dispute that, absent a legal duty running from 

FNI to Nautilus, Nautilus cannot prevail. Actionable negligence 
arises only from the breach. of a legal duty. Thornock v. State 

(1987), 229 Mont. 67, 72, 745 P.2d 324, 327; Krone v. McCann 

(1982) , 196 Mont. 260, 265, 638 P.2d 397, 400. Whether a legal 

duty is owed from one party to another is a question of law for the 

court. Roy v. Neibauer (1981), 191 Mont. 224, 226, 623 P.2d 555, 

556. Thus, the question before us, as it was before the District 

Court, is whether a legal duty to procure cancellation of the 

policy was owed to Nautilus by FNI. 

The parties agree, and the record supports the fact, that no 

contract or agency agreement existed between Nautilus and FNI. 

Margaret Crook, senior property examiner for ~autilus, testified 

that Sentinel was Nautilus' agent under a written agency contract 

and that FNI and Rick March were agents of the Cranes. She 

testified that FNI and Rick could neither bind Nautilus nor cancel 

the policy without the Cranes' cooperation. 

Nautilus argues, however, that an implied agency relationship 

exists between an independent insurance broker and a carrier with 

whom caverage placement is made as to certain particulars. On the 

basis of this implied agency relationship, Nautilus asserts that 

FNI had a duty, under the facts of this case, to procure 

cancellation of the policy. Nautilus cites no cases or other 

authority directly on point in support of the existence of such a 

duty. 

An insurance broker is usually regarded as the agent of the 

insured. 3 Couch on Insurance 2d (Rev. ed.), 25:93 (1984). 

Nautilus witness Crook testified that FNI and Rick were the Cranes 
agents, not the agents of Nautilus. 

Nautilus argues that, while an insurance broker acts for the 

insured in making the application and procuring the policy, he acts 

for the insurer in delivering the policy and in collecting and 

remitting premiums. Couch, 25:94. While negligence in 

performing these specific acts on behalf of the insurer may result 

in liability absent a contractual agency relationship, Nautilus 

does not allege negligent performance by FNI of these acts. 

Instead, Nautilus seeks expansion of these acts by a broker on 

behalf of the insurer to include a duty to procure cancellation of 

the policy. However, the determination of which party a broker is 

acting for as to a particular matter depends on which party 

requested him to do the particular thing. Couch, § 25:94. Here, 

the Cranes requested the cancellation. "A broker is the agent of 

the insured where he is employed by the insured . , . to cancel and 

receive the unearned premium on a policy which had been obtained by 

him. . . . Couch, 5 25:95. 

In the face of these accepted principles and the testimony of 

its own witness, Nautilus relies on our decision in Thayer v. ~icks 

(1990), 243 Mont. 138, 144-47, 793 P.2d 784, 788-90. Thayer 

addressed the extent to which an accountant owes a duty of care to 

third parties with whom he is not in pxivity. There the accountant 

had misrepresented financial information in a corporate audit to 

the subsequent detriment of the purchaser of the corporation. 

Under those facts, we adopted and applied 5 552 of the Restatement 

of Torts, which provides in pertinent part: 
(1) One who, in the course of his business, 

profession or employment, or in any other transaction in 

which he has a pecuniary interest, supplies false 

information for the guidance of others in their business 

transactions, is subject to liability for pecuniary loss 

caused to them by their justifiable reliance upon the 

information, if he fails to exercise reasonable care or 

competence in obtaining or comrnunicatingthe information. 

(2) Except as stated in Subsection (3), the 

liability stated in Subsection (1) is limited to loss 

suffered 

(a) by the person or one of a limited group of 

persons for whose benefit and guidance he intends to 

supply the information or knows that the recipient 

intends to supply it; and 

(b) through reliance upon it in a transaction that 

he intends the information to influence or knows that the 

recipient so intends or in a substantially similar 

transaction. 

Restatement (Second) of Torts 5 552 (1977). Nautilus asks us to 

apply g 552 to FNI in this case. We decline to do so. 

Purporting to apply Thaver to the case before us, ~autilus 

focuses on subsection (2) of § 552 of the Restatement (Second) of 

Torts. However, Thayer involved misrepresented information. It is 

clear that subsection (1) of Restatement (Second) of Torts 552 

premises liability on the supply of false information. The 

case before us contains neither allegations nor proof of false 

information or misrepresentation. Thus, 552 is totally 

inapposite here. 

Here, FNI placed the coverage and obtained the premium set by 

Nautilus. The Cranes requested FNI to cancel the policy and FNI 

took steps, pursuant to that request, to accomplish the 

cancellation. Notwithstanding, cancellation did not occur prior to 

destruction of the insured property and Nautilus ultimately paid 
the policy limits for the risk for which it had accepted a premium. 

Under these circumstances, FNI had no legal duty to take additional 

steps on Nautilus1 behalf. We hold that the District Court did not 

err in directing a verdict for the defendant. 

Affirmed. 

We concur: 
September 3, 1992 

CERTIFICATE OF SERVICE 

I hereby certify that the following order was sent by United States mail, prepaid, to the 

following named: 

Barry G. O'Connell 

Moore, O'Connell, Refling & Manos 

P.O. Box 1288 

Bozeman, MT 59771-1288 

Robert M. Carlson 

Corette, Pohlman, Allen, Black & Carlson 

P.O. Box 509 

Butte, MT 59703 

ED SMITH 

CLERK OF THE SUPREME COURT 

STATE OF MONTANA