No. 13850 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1978 

-- -- 

NATIONAL INDEMNITY COMPANY, 

Plaintiff and Appellant, 

ST. PAUL FIRE AND MARINE INSURANCE 

COMPANY, a corporation, 

Defendant and Respondent. 

Appeal from: District Court of the Eighteenth Judicial District, 

Honorable W. W. Lessley, Judge presiding. 

Counsel of Record: 

For Appellant: 

Anderson, Symmes, Brown, Gerbase, Cebull and Jones, 

Billings, Montana 

James L. Jones argued, Billings, Montana 

For Respondent : 

Alexander, Kuenning, Miller and Ugrin, Great Falls, 

Montana 

Neil Ugrin argued, Great Falls, Montana 

Submitted: March 7, 1978 

Decided : MAR 2 9 1978 
Mr. Justice John C. Harrison delivered the Opinion of the Court. 

Plaintiff National Indemnity Company brought this action 

against defendant St. Paul Fire & Marine Insurance Company for 

a declaratory judgment holding defendant liable for an insurance 

loss arising out of an accident at the Montana State University 

Field House. The District Court, Gallatin County, found plaintiff 

liable for the loss. Plaintiff appeals. 

The 1972 Montana Constitution, effective July 1, 1973, 

abolished the doctrine of sovereign immunity in Montana. In 

response, the liontana legislature passed the Montana Tort Claims 

Act, providing for the purchase by the State of a statewide comprehensive liability policy to be effective July 1, 1973. National 

Indemnity was awarded the bid June 25, 1973, and a binder was 

issued June 27, 1973. 

For a number of years, Waite & Co., a Bozeman insurance 

agency, represented MSU in insurance matters through its agent, 

Don Ferron. In January, 1973, BISU maintained two liability policies through Waite & Co.; a broad liability policy with Safeco 

Insurance Company and a specific liability policy covering the 

Field House with St. Paul. 

In April, 1973, two officers of MSU, business manager 

Tom Nopper and assistant treasurer Lee Nelson, became aware of 

the impending statewide comprehensive liability plan. As they 

were uncertain of the extent of the coverage, they contacted 

Ferron and requested that he cancel, effective July 1, 1973, any 

St. Paul or Safeco coverage that would be duplicated under the 

new plan. The concerns of the MSU officials were two-fold: to 

avoid duplicate coverage which would be accompanied by duplicate 

premiums, and to avoid gaps in coverage should the St. Paul policy 

cover risks not covered by the new plan. Ferron, however, was 

unable to make the comparison because the National ~ndemnity 
policy was not yet available. Thereafter, Nopper, Nelson, and 

Ferron entered into an oral agreement which is the subject of 

this dispute. Generally speaking, the parties agreed to cancel, 

effective July 1, 1973, any portions of the St. Paul policy 

which duplicated the coverage under the new plan. When the 

National Indemnity policy became available at some later date, 

a determination could be made of the areas of duplication and 

any excess premium paid would be refunded to MSU. St. Paul's 

coverage would extend to all risks not covered by the new policy, 

until its expiration in 1974. There is no dispute that Ferron 

was the agent for St. Paul and as such had the authority to bind 

St. Paul with respect to the cancellation agreement. 

MSU did not receive a copy of the new National Indemnity 

policy until August 28, 1973. Shortly thereafter, a copy of 

the policy was delivered to Ferron. 

On October 23, 1973, Douglas Reeves, an MSU student, was 

electrocuted while taking a whirlpool bath in the Field House. 

Soon thereafter, Nopper notified Ferron of the accident. Ferron 

advised Nopper to report the accident to the National Indemnity 

adjusters. Ferron, in turn, notified St. Paul of the death. 

On November 29, 1973, Ferron prepared a "Lost Policy 

Certificate and Release" on the St. Paul policy, with July 1, 

1973 as the "effective date of cancellation", and personally 

delivered it to Nelson at MSU for his signature. Nelson immediately 

signed the certificate and release. 

Following an investigation of the death, on or about 

March 18, 1974, a $125,000 settlement was reached between the 

Reeves family and National Indemnity. The agreement, containing a covenant not to sue, was formally executed May 22, 1974. 

National Indemnity first learned of the existence of the 

St. Paul policy in April, 1974. It was discovered that the St. 
Paul policy provided for primary insurance on the ~ield House 

up to a policy limit of $1,000,000, while the National Indemnity policy covered, in the case of duplicate insurance, the 

excess only. After learning of the cancellation, National 

Indemnity requested that St. Paul participate in the loss. St. 

Paul refused, precipitating the instant action for a declaratory 

j udgment . 

The case was submitted to the District Court on stipulated 

facts and depositions. The court found, in pertinent part: 

"FINDING OF FACT NO. 9 

"That prior to July 1, 1973, acting upon a request 

by MSU, St. Paul (and Safeco) acting through Ferron, 

entered into an agreement with MSU which would 

terminate coverage effective July 1, 1973 on any 

areas that would duplicate the National Indemnity 

coverage." 

"CONCLUSIONS OF LAW 

"That the coverage previously afforded by St. Paul 

on the MSU Field House was cancelled by mutual 

consent of the parties effective July 1, 1973 by 

an agreement made between MSU and St. Paul prior 

to July 1, 1973. See Dill v. Lumbermen's Mutual 

Ins. Co., 50 S.E.2d 923 (S.E. 1948); 45 CJS, 

Insurance, 5444B, page 71. 

"Alternatively, it is held that the existing 

St. Paul policy was modified orally by the 

parties. R.C.M. 1947, 540-3717, even if 

otherwise applicable, is rendered meaningless 

by 840-3726! R.C.M. 1947, 549-105, R.C.M. 1947, 

549-102, R.C.M. 1947. " 

The issues presented for review are: (1) whether the 

District Court erred in finding that the St. Paul policy had been 

cancelled by mutual agreement; and (2) whether the court erred 

in its alternative finding that the St. Paul policy had been 

effectively modified. 
National Indemnity contends that the St. Paul policy 

covering the Field House had not been cancelled by the date 

of the accident, October 23, 1973, and that no cancellation 

occurred until November 29, 1973, when the "Lost Policy Certificate and Release" was signed. This they argue would not be an 

effective cancellation with respect to the claim in question 

since interests in insurance vest at the time of the loss. 

See 45 C.J.S. Insurance S444, p. 72; McLane v. Farmers Insurance 

Exchange, (1967), 150 Mont. 116, 432 P.2d 98. 

St. Paul responds that there was a valid mutual agreement, 

prior to July 1, 1973, to cancel any duplicate policies and that 

such policies were effectively cancelled July 1, 1973. Therefore, the result in this case ultimately depends upon the effect 

of the oral agreement made by Ferron, representing St. Paul, and 

Nelson and Nopper, representing MSU, sometime prior to July 1, 

1973. 

In this State, a written contract may be cancelled by 

the mutual consent of the parties, and such cancellation may be 

made orally. Section 13-903, R.C.M. 1947; West River Equipment 

Co. v. Holzworth Construction Co., (1959), 134 Mont. 582, 587, 

335 P.2d 298. While there appears to be no direct authority in 

Montana regarding the mutual cancellation of insurance policies, 

the rules are well established in other jurisdictions, as set 

forth in Dill v. Lumbermen's Mut. Ins. Co., (1948), 213 S.C. 593, 

50 S.E.2d 923, 926: 

"Whether cancellation by mutual agreement 

has been effected depends on the intention 

of the parties as evidenced by their acts, 

conduct and words, taken in connection 

with the attendant circumstances. There 

must be a meeting of minds, or mutual 

assent, to constitute a valid cancellation, 

and each party must act with knowledge of 

the material facts. If both parties agree 

that a policy is to be cancelled, transactions 

with reference thereto are to be construed 

reasonably and fairly and in accordance 
with the evident understanding of the parties 

at the time. Incomplete negotiations looking 

toward a contract for cancellation do not 

effect cancellation. Interstate Life & Accident Co. v. Jackson, 71 Ga.App. 85, 30 S.E.2d 

208. And the burden of proving that there has 

been a cancellation of a policy rests on the 

party asserting it. 45 C.J.S., Insurance, 

5461, page 129. " 

See also 45 C.J.S. Insurance S444, pp. 70-71; Gavin v. North 

Carolina Mutual Insurance Co., (1975), 265 S.C. 206, 217 S.E. 

2d 591, 596; Pitner v. Federal Crop Insurance Corporation, (1971), 

94 Idaho 496, 491 P.2d 1268, 1271; Fox v. Bankers Life & Casualty 

Co., (1963), 61 Wash.2d 636, 379 P.2d 724, 726. 

What did the parties agree to prior to July 1, 1973? 

National Indemnity characterizes the agreement as one to continue the St. Paul policies until such time as a determination 

of the areas of duplicate coverage could be made. It is urged 

that the situation was merely incomplete negotiations looking 

toward a contract of cancellation and that the parties lacked knowledge of the material facts essential for a cancellation by 

mutual agreement. In support of this theory, National Indemnity refers to various statements by Nelson, Nopper and Ferron 

in their depositions. National Indemnity also points out the 

existence of memoranda and letters from St. Paul's files indicating that some of St. Paul's agents, at times subsequent 

to the accident, did not consider the policy cancelled. 

By reference to the same depositions of Nelson, Nopper 

and Ferron, St. Paul argues that they mutually agreed that any 

St. Paul policies duplicating the coverage of the National 

Indemnity policy would be cancelled as of July 1, 1973. All 

that remained to be accomplished after that date was the physical 

determination of the areas of duplication, the signing of the 

Lost Policy Certificate, and the return of any excess premiums 

paid. 

This Court is not a trier of fact and will not disturb 
findings made by the trial court unless there is a clear 

preponderance of evidence against such findings. Merritt 

v. Merritt, (19741, 165 Mont. 172, 177, 526 P.2d 1375. An 

examination of the entire record supports the theory advanced 

by St. Paul and adopted by the trial court. There is no 

dispute that the whole purpose of the agreement was to: (1) 

avoid duplicate coverage and duplicate premiums; and (2) avoid 

cancelling existing coverage that would not be duplicated. 

There is no dispute that in furtherance of these goals, all 

duplicate coverage would be cancelled effective July 1, 1973. 

While the physical comparison of the policies, the return of 

unearned premiums, and the signing of the "Lost Policy Certificate and Release" still had not been carried out, we do not 

think this detracts from the substance of the original agreement. Because, at the time of the agreement, the National 

Indemnity policy was not available for comparison, the parties 

comprised a simple formula: all duplicate coverage would be 

cancelled as of the effective date of the National Indemnity 

policy. There was a meeting of the minds and all the material 

facts necessary to construct this formula were before the parties. 

To hold that on October 23, 1973, there indeed was duplicate 

coverage would be contrary to the manifest and undisputed intentions of all the parties to the agreement. 

In view of our decision upholding the District Court's 

conclusion of law No. I, there is no need to discuss the court's 

alternative conclusion. 

The judgment is affirmed. 
We concur: 

Hon . Judge, sitting in the vacant seat 

on the Court.