NO. 95-511

IN THE SUPREME COURT OF THE STATE OF MONTANA

1996

MICHAEL PERIS, Personal Representative

of the Estate of George Peris, Deceased,

Plaintiff and Respondent,

v.

SAFECO INSURANCE COMPANY,

Defendant and Appellant.

CERTIFIED QUESTION FROM:

The United States Court of Appeals for the Ninth Circuit,

Honorable Stephen Reinhardt, San Francisco, California

COUNSEL OF RECORD:

For Appellant:

Shelton C. Williams and Mark S. Williams (argued),

Williams and Ranney, Missoula, Montana

For Respondent:

James L. Jones (argued) and John G. Crist, Dorsey

and Whitney, Billings, Montana

Heard: March 28, 1996

Submitted: April 11, 1996

Decided: May 17, 1996

Filed:
Chief Justice J. A. Turnage delivered the Opinion of the Court.

The United States Court of Appeals for the Ninth Circuit has

certified two questions to this Court herein, pursuant to Rule 44,

M.R.App.P. The certified questions concern the effect, under

Montana law, of certain terms of a motor vehicle insurance policy.

Our answer to the first question is "yes" and to the second, "no."

The certified questions are:

1 . IS an insured entitled to maintain a cause of action under

§§ 33-18-201 and -242, MCA, for the insurance company's breach of

its statutory obligation prior to either an adjudication of the

underlying claim of the third party against the insured, or a

written agreement by the insurance company settling the case,

notwithstanding the "No Action" clause in the insured's policy?

2. Is the insured barred by a "No Action" clause in his

insurance policy from maintaining an action under §§ 33-18-201 and

-242, MCA, where he has entered into a settlement without objection

from the insurance company and where the insurance company has

contributed its policy limits to the settlement?

The Ninth Circuit Court of Appeals has submitted the following

statement of facts:

Plaintiff Michael Peris is the representative of the

estate of George Peris, Safeco's insured. In December

1990, George was involved in an automobile accident in

which John Stepan was injured. In the underlying action,

Stepan sued George for his injuries. There was no

question that the policy covered the accident and that

George was responsible.

During 1991 and 1992, upon receiving more information about Stepan's worsening condition, Safeco made a

number of settlement offers, increasing in amount, which

Stepan rejected and countered with his own offers.
First, in September 1991, Safeco offered to settle with

Stepan for $8,960; Stepan offered to settle the claim for

$100,000. Safeco responded by renewing its offer for

$8,960 but offering up to $1,000 for any additional

medical expenses to be incurred over the next I2 months.

In November 1991, Stepan lowered his settlement offer to

$65,000. In December 1991, Stepan was diagnosed with a

potentially lifelong ailment, which led Safeco to

increase its offer to $13,086. In January 1992, Stepan

retained counsel and filed suit against Peris. In

February 1992, Stepan offered to settle for $100,000, the

limit on Peris' Safeco policy; in return, Safeco offered

to settle for $15,000. In March 1992, Peris told Safeco

that he was concerned about an excess verdict and would

hold Safeco responsible if it failed to settle the case

within its policy limits; Safeco increased its offer to

$25,000.

In September 1992, Peris again asked Safeco to

settle the case within policy limits or to accept

responsibility for an excess verdict. In February 1993,

Stepan offered to settle for $165,000. On March 12,

1993, Vucurovich--counsel whom Safeco had hired to

represent Peris in the case--advised Safeco that "[tlhere

are significant dangers that this case could possibly

exceed the policy limits." Safeco then offered to settle

for $100,000. Stepan countered with a demand for

$150,000. Safeco refused to pay more than $100,000 and

advised Peris that he would be responsible for any excess

verdict over that amount.

On March 22, 1993, Peris and his personal attorney

met with Vucurovich. They discussed the various risks

involved. When the question of Peris' entering into a

direct settlement with Stepan came up, Vucurovich told

Peris, "It's your call." Peris then entered into

negotiations with Stepan and made an offer of $140,000,

which Stepan's attorney agreed to recommend to his

client. Peris asked Safeco to split the amount over

$100,000 up to $140,000 on a 50-50 basis; Safeco refused.

Peris then settled the case by paying $135,894.85,

consisting of $100,000 from Safeco and $35,894.85 from

Peris' estate. Peris again asked Safeco to pay half of

the excess and Safeco again refused.

Peris sued Safeco in the Butte Division of the United States

District Court, alleging that Safeco violated Montana statutes

prohibiting unfair claim settlement practices by insurance

companies. The Ninth Circuit Court's statement of facts continues:

3
At the end of the trial, the jury returned a verdict

of $35,894.85 compensatory and $250,000 punitive damages.

On appeal, Safeco argues that plaintiff's claim is barred

by the "NO Action" clause of the policy which states in

relevant part:

§ 5 The insured shall not except at

his own cost, voluntarily make any payment

other than for such immediate medical

and surgical relief to others as shall be

imperative at the time of accident.

s 6 . . No action shall lie against the

company until after full compliance with all

the terms of this policy nor until the amount

of the insured's obligation to nay shall have

been finally determined either by judqment

aqainst the insured after actual trial or by

written aqreement of the insured, the claimant

and the comnanv. (Emphasis added.)

Safeco argues that the emphasized language in the policy

bars plaintiff's action since he unilaterally settled the

case with Stepan. Plaintiff contends that Safeco's

defense is barred by, inter alia, the Montana Unfair

Claims Settlement Practices Act. Mont. Code Ann. § 33-

18-242(1), (3)

Safeco appealed to the Ninth Circuit Court of Appeals, which has

certified to this Court the following questions of Montana law.

Issue 1

Is an insured entitled to maintain a cause of action under

§§ 33-18-201 and -242, MCA, for the insurance company's breach of

its statutory obligation prior to either an adjudication of the

underlying claim of the third party against the insured, or a

written agreement by the insurance company settling the case,

notwithstanding the "No Action" clause in the insured's policy?

The statutes cited are part of Title 33, Chapter 18, MCA,

which is entitled "Unfair Trade Practices" (the Act). The purpose

of the Act is to define and prohibit unfair methods of competition

4
and unfair or deceptive acts or practices in the insurance

business. Section 33-18-101, MCA

Section 33-18-201, MCA, provides, in relevant part:

Unfair claim settlement practices prohibited. No person

may, with such frequency as to indicate a general

business practice, do any of the following:

(4) refuse to pay claims without conducting a

reasonable investigation based upon all available

information;

(6) neglect to attempt in good faith to effectuate

prompt, fair, and equitable settlements of claims in

which liability has become reasonably clearI.

Section 33-18-242, MCA, provides:

Independent cause of action--burden of proof. (1) An

insured or a third-party claimant has an independent

cause of action against an insurer for actual damages

caused by the insurer's violation of subsection (l), (41,

(51, (6), (9), or (13) of 33-18-201.

(7.) In an action under this section, a plaintiff is

not required to prove that the violations were of such

frequency as to indicate a general business practice.

(3) An insured who has suffered damages as a result

of the handling of an insurance claim may bring an action

against the insurer for breach of the insurance contract,

for fraud, or pursuant to this section, but not under any

other theory or cause of action. An insured may not bring

an action for bad faith in connection with the handling

of an insurance claim.

(4) In an action under this section, the court or

jury may award such damages as were proximately caused by

the violation of subsection (11, (4), (S), (61, (9), or

(13) of 33-18-201. Exemplary damages may also be assessed

in accordance with 27-L-221.

(5) An insurer may not be held liable under this

section if the insurer had a reasonable basis in law or

in fact for contesting the claim or the amount of the

claim, whichever is in issue.

5
(6) (a) An insured may file an action under this

section, together with any other cause of action the

insured has against the insurer. Actions may be bifurcated for trial where justice so requires.

ib) A third-party claimant may not file an action

under this section until after the underlying claim has

been settled or a judgment entered in favor of the

claimant on the underlying claim.

(7) The period prescribed for commencement of an

action under this section is:

(a) for an insured, within 2 years from the date of

the violation of 33-18-201; and

(b) for a third-party claimant, within 1 year from

the date of the settlement of or the entry of judgment on

the underlying claim.

(8) As used in this section, an insurer includes a

person, firm, or corporation utilizing self-insurance to

pay claims made against them.

Safeco argues that the above provisions are not invoked in this

case because Peris' payment under settlement with Stepan occurred

without the entry of a judgment in Stepan's favor. Safeco's

position is that such a "voluntary" payment is outside the

protections of the Act.

Safeco cites Fode v. Farmers Ins. Exchange (1986), 221 Mont.

282, 719 P.2d 414, as authority for its position. In Fode - I this

Court held that proceedings in a bad faith case against an insurer

alleging statutory violations which require a showing that

liability be reasonably clear may not be conducted until "the

liability issues of the underlying case have been determined either

by settlement or judgment." ~,Fode 719 P.2d at 417.

However, 5 33-18-242, MCA, was not enacted until a year after

Fade was decided. Because this Court did not interpret the statute

here at issue in Fode, Fode is not controlling. "Although both

parties rely heavily on L-1, we conclude that § 33-18-242, MCA,

6
enacted in 1987, is controlling." Lough v. Insurance Co. of North

America (1990), 242 Mont. 171, 173, 789 P.Zd 576, 578.

The purpose of a court's interpretation of a statute is to

effectuate the intent of the legislature. Pretty On Top v. Snively

(1994), 266 Mont. 45, 47, 879 P.2d 49, 50. If the intent of the

legislature can be determined from the plain meaning of the words

used, the court may not go further or apply other means of

construction. Wunderlich v. Lumbermens Mut. Cas. Co. (1995), 270

Mont. 404, 410, 892 P.2d 563, 567. When the language of a statute

is plain, unambiguous, direct and certain, the statute speaks for

itself and there is nothing left for the court to construe. State

v. Mummey (1994), 264 Mont. 272, 277, 871 P.2d 868, 871.

In analyzing the question before us, we first focus our

attention on subsection (6) of 5 33-18-242, MCA. Part (b) of that

subsection prohibits a third-party claimant from filing an action

under the Act until the underlying claim has been settled or a

judgment has been entered in favor of the claimant on the underlying claim. Part (a) of subsection (6) is addressed to claims filed

by the insured. In contrast to part (b), part (a) does not

prohibit an insured from filing an action prior to settlement or

judgment upon the underlying claim.

If, as Safeco argues, the legislature had wanted to subject

insureds' claims requiring a showing that liability is reasonably

clear to the same restrictions as the legislature placed on thirdparty claims, it could easily have done so. It did not. The

existence of such a statutory restriction on third-party claims,

7
and its absence as to any claims by insureds, indicates that the

legislature did not intend to require the adjudication or settlement of the underlying claim as a precondition to the insured's

filing of a claim for violation of the Act.

The text of subsection (6) (a) supplies additional information

on the intent of the legislature. Subsection (6) (a) provides that

actions including claims under the Act “may be bifurcated for trial

where justice so requires." Section 33-18-242(6) (a), MCA. If, as

Safeco argues, a statutory claim may never be brought until the

underlying claim is resolved, it would be pointless for the

legislature to give courts the discretion to bifurcate the

insured's statutory claim from the underlying action. This Court

presumes that the legislature does not pass meaningless legislation. Crist v. Segna (19811, 191 Mont. 210, 212, 622 P.2d 1028,

1029.

Further, the legislature has established different statutes of

limitation for claims by insureds and claims by third parties. An

insured must bring his claim within two years of the date of the

violation. Section 33-18-242(7) (a), MCA. A third-party claimant

must bring his claim within a year of the date of "settlement of or

the entry of judgment on the underlying claim." Section 33-18-

242(7) (b), MCA. By creating two different statutes of limitation,

the legislature has accommodated the concept that third-party

claims may not be brought until the settlement or adjudication of

the underlying claim, while claims by the insured may be brought at

any time.

8
We conclude that under the plain language of 5 33-18-242, MCA,

it is not necessary that settlement be approved by the insurer or

judgment be rendered before an insured may file a cause of action

against his or her insurer alleging violation of the Act. We now

proceed to examine the effect, if any, of the "No Action" clause in

Safeco's insurance policy.

Safeco argues that the "No Action" clause in the insurance

contract, §§ 5 and 6 set forth in the statement of facts above,

creates a requirement which limits its liability under the Act.

However, Montana law does not allow an insurer to change statutory

requirements by creating new hurdles in its contracts

All contracts which have for their object, directly or

indirectly, to exempt anyone from responsibility for his

own fraud, for willful injury to the person or property

of another, or for violation of law, whether willful or

negligent, are against the policy of the law.

Section 28-2-702, MCA. The Safeco insurance policy itself

provides, at paragraph 19 under Conditions:

Terms of Policy Conformed to Statute. Terms of this

policy which are in conflict with the statutes of the

State wherein this policy is issued are hereby amended to

conform to such statutes.

Section 33-18-242, MCA, clearly overrides the "No Action" clause of

the insurance policy.

We hold that the answer to the Ninth Circuit Court's first

certified question is "yes." Under Montana law, an insured is

entitled to maintain a cause of action under the Act prior to

either an adjudication of the underlying claim of the third party

against the insured or a written agreement by the insurance company

9
settling the case, notwithstanding a "No Action" clause in the

insured's policy.

Issue 2

Is the insured barred by a "No Action" clause in his insurance

policy from maintaining an action under §s 33-18-201 and -242, MCA,

where he has entered into a settlement without objection from the

insurance company and where the insurance company has contributed

its policy limits to the settlement?

Neither party has argued any particular effects of the absence

of objection by Safeco to the settlement entered, or of Safeco's

contribution of its policy limits to the settlement. In its

arguments under this certified question, Safeco instead contends

that Peris' interpretation of the Act places control of the

settlement process in the hands of the insured. Safeco asserts

that this encourages collusion between insureds and injured third

parties, and that it automatically makes the insurer responsible

for voluntary payments by the insured.

Safeco's arguments overlook the requirement that, to prevail

under the Act, an insured has the burden of proving violation

thereof to an impartial finder of fact. Here, Safeco passed up

several opportunities to settle within policy limits. It informed

Peris, as to the advisability of direct settlement, that "It's your

call." Nevertheless, Safeco's own attorney opined prior to

settlement that a trial posed "significant dangers that this case

could possibly exceed the policy limits." Safeco was aware of the

settlement offer and of Peris' decision to accept it. Finally, and

1 0
critically, a jury in the Butte Federal District court has

determined, after hearing all the evidence, that Safeco's practices

violated the Act.

Good policy reasons exist for allowing an insured to file a

claim against the insurer prior to approved settlement or judgment.

Following an insurer's breach of its duty to settle, the

only condition precedent to a cause of action is damages.

There is no logical reason why those damages must take

the form of an excess judgment as opposed to a reasonable

settlement in excess of the policy limits. In fact, to

so hold would penalize an insured for merely acting

prudently. The insured, being faced with the potential

of an adverse judgment in excess of policy limits, should

not be forced to ignore advantageous settlement offers on

the grounds that to accept such an offer would deprive

the insured of extracontractual rights against the

insurer.

Allen D. Windt, Insurance Claims and Disputes 5 5.17 at p. 333

(1995).

Safeco makes a bald assertion that to allow Peris' suit

against it is contrary to the Contract Clause of the United States

Constitution because the charge impairs the essence of the

insurance contract. Safeco provides no authority for this

assertion.

Safeco also cites case law from California and other jurisdictions concerning when an insured may file a bad faith claim against

his insurer. E.g.1 Messersmith v. Mid-Century Ins. Co. (Cal.App.

4 Dist. 19951, 43 Cal.Rptr.Zd 871. We point out that our answers

to the questions here presented are based upon the Montana statutes

discussed above. Case law from other jurisdictions concerning the

common law tort of bad faith, in which the above statutes do not

control, is of minimal persuasive value.

1 1
We conclude that the "No Action" clause does not bar Peris'

action against Safeco under §§ 33-18-201 and -242, MCA, where there

was no objection by Safeco to the settlement and where Safeco

contributed the policy limits to the settlement. The answer to the

Ninth Circuit Court of Appeals' second question is "no."

We concur:

Y Justices