No. 12080 INTHE SUPREME COURT OF THE STATE OF MONTANA 1972

THE HOME INSURANCE COMPANY, a corporation, Plaintiff and Appellant,

PINSKI BROTHERS, INC.,, a corporation, KENNETH K. KNIGHT and A. ANDREW VAN TEYLINGEM, co-partners, doing business as 

### KNIGHT & VAN TEYLINGEN,

,,,,,,,,,,,,,,,,,,,-- Aefeadants and Respondents. KENNETH K. KNIGHT, Counterclaimant,

HOME IIID~~ITY COMPANY, a corporation, Involuntary Plaintiff and Defendant to Counterclaims and Appellant.

Appeal from: District Court of the Eighth Judicial District, Honorable Paul Ha

### Ffield

## ,Judge presiding. Counsel of Record : For Appellant: Smith, Emmons & Baillie (Home Indemnity), Great Falls, Montana. Alexander, Kuenning, Hall & Miller (Home Insurance Company), Great Falls, Montana. John Hall argued, Great Falls, Montana. For Respondents: Church, Harris, Johnson & Williams, Great Falls, Montana, (Pinski Brothers). Jack L. Lewis argued, Great Falls, Montana. Jardine, Stephenson, Blewett & Weaver, Great Falls, Montana. Scott & Linnell, Great Falls, Montana. Wayne E. Linnell argued, Great Falls, Montana. Loble, Picotte & Loble, Helena, Montana.

Filed: Submitted: June 12, 1972 Decided :

## nutiel

# dk

### Mr. Justice Frank I. Haswell delivered the Opinion of the Court. In an action between an insurer and its insured involving the insurer's subrogation rights and the insured's right to damages forbreach of the insurance contract, the district court of Cascade County, the Hon. Paul G. Hatfield, districtjudge presiding, granted summaryjudgment tothe insured. The insurer now appeals from such summaryjudgment. Plaintiff in the original action was The Home Insurance Company who paid off a property damage loss of approximately $135,000 resulting from a boiler explosion atthe old Montana Deaconess Hospital in Great Fa11 

### s and claimed subrogation to the rights of the hospital against those allegedly responsible. After various dismissals by the districtcourt, the remaining defendants were (1) Pinski Bros, Inc., the mechanical contractor on the hospital remodeling project where the boi1 er explosion occurred, and (2) the architects on the project, Kenneth K. Knight and A. Andrew Van Teylingen, copartners, doing business as Knight & Van Teylingen. The complaint of The Home Insurance Company alleged three counts of negligence against the architectswhich itclaimed was the cause of the boiler explosion and the resulting property damage loss. The architects tendered defense of the action to The Home Indemnity Company, awholly owned subsidiary of plaintiff Home Insurance Company, with whom the architects carried a comprehensive 1 iabil ity policy. The Home Indemnity Company refused this tender, the architects hired their own 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 iability policy withThe Home Indemnity Company; that such coverage constituted a defense against the claim of the parent company, The Home Insurance Company, and that The Home Indemnity Company was 1 iable for the costs and expenses, including attorney fees, incurred indefending the action and prosecutingthe counterclaim and se%off. Itwas stipulated that The Home Insurance Company and The Home Indemnity Company are one and the same corporate entity. Subsequently the district court, ineffect, granted summaryjudgment 

### toThe Home Indemnity Company against the architects 

### on all issues of insurance coverage under their comprehensive 1 iability policy, dismissed the "Twelfth Defense, Counterclaim and Setoff" of architect Knight, and ordered the subrogation action of The Home Insurance Company against the architects to continue. Upon appeal, we held that the a1leged negligent design, supervision and inspection of the hot water heating system by the architects (Count I of the complaint by The Home Insurance Company against the architects) was within the coverage of the architects' comprehensive 1 iability policy; we further held that Counts I1and I11 of the complaint were not within the coverage of the architects' policy. We 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 Home Insurance Company's motion for summaryjudgment against architect Knight 

### on his "Twelfth Defense, Counterclaim and Setoff" and entry of appropriate findings, conclusions and judgment. See The Home 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 districtcourt atwhich time three developments pertinent to this appeal occurred: (1)The Home Insurance Company settled itsclaim against Pinski Bros., leaving the architects as the sole remaining defendants, (2) The Home Insurance Company offered to settle itsclaim against the architects within the limits of coverage claimed by them under their comprehensive liability policy with The Home 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 samedefense, counterclaim and setoff, forthe architects named inthe caption of the suitas was contained in architect Knight's "Twelfth Defense, Counterclaim and Setoff". Following this Court's decision on the former appeal, the architects moved (1) for summaryjudgment against The Home Insurance Company on its complaint against them, and (2) forpartial summaryjudgment on the issue of liabilityagainst The Home Insurance Company and The Home Indemnity Company



### on the counterclaim aspects of the architects

### ' twelfth and thirteenth defenses, counterclaims and setoffs. Thereafterfollowing hearing, the district court entered its "Findings 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 conclusions of law with respect to Home Indemnity's motion for summaryjudgment against the architects. The district court found and concluded that The Home Indemnity Company had not pointed out or suggested to the district court any facts which required entry of sumaryjudgment infavor of The Home Indemnity Company or which had not been ruled upon and decided by this Court inthe earlier appeal, and that The Home Indemnity Company insured the architects for the liabilityclaimed against them by Count I of the complaint of The Home Insurance Company. In addition, the district court (1) concluded that the controlling factswere undisputed and there was no genuine issue of material fact; (2) held that the architects could not be liable to The Home Insurance Company by reason of: (a)contributory negligence, (b) assumption of risk, (c) intervening cause, and (d) insurance coverage under the Home Indemnity Company policy and itsbreach of duty to defendant under itspolicy; (3) entered summary judgment in favor of the architects on The Home 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 againstThe Home Indemnity Company for a11 costs, expenses, attorney fees,etc., incurred on behalf of Knight in defending against the claim of Home Insuranceand 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 fordeterminationof the amount of damages to be awarded architect Knight fordefense costs. Home now appeals from this summary judgment. We 

### will summarize the underlying issues upon appeal in thismanner: 

### 1. Is there a genuine issue ofmaterial fact precluding summary judgment in favorof the architects on Home's complaint against them? 2. Is there a genuine issue ofmaterial factprecluding partial summary judgment on the issue of liability in favor of architect Knight againstThe 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 56(c), M.R.Civ.P., requires that a summary judgment shall be granted forthwith if: 

### " 

## * * * the pleadings, depositions, answers to interrogatories, 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 ofmaterial 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, 154Mont. 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 evidenceof amaterial and substantial nature raising a genuine issue ofmaterial fact. Roope 

### v. TheAnaconda Company,supra; Flansberg 

### v. Montana Power Company, 154Mont. 53, 460 

### P.2d 263. Applying these basic rules to the problem at hand we note that allother 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 atthe hospital, establishes the factthat the employee engineers atthe hospital knew the hot water heating system being installed was without safetydevices, appreciated the danger of "firingup" the system before safety devices had been installed, but nevertheless proceeded to "fireup" the system which resulted inthe boiler explosion. There are no facts tothe contrary appearing inthe voluminous record inthis case. The foregoing facts establish, at the very least, the defenses of assumption of risk and an efficient intervening cause. Under such circumstances, it is incumbent upon Home to present evidence of a substantial and material nature which raise a genuine issue of material fact. Having failed todo so, Home cannot now complain that the architects are not entitled to a summaryjudgment as a matter of law. There 

### isyet 

### a further and perhaps more cogent reason why sumary judgment for the architects on Home's complaint against them iscorrect. Here, itisundisputed that the architects have insurance coverage to the extent of $25,000 under their Home Indemnity comprehensive liability policy; that Home Indemnity and Home Insurance are one and the same corporate entity; that Home

as a subrogated insurer of one of its policyholders (theDeaconess Hospital) has sued another of itspolicyholders (the architects)whom ithas insured against the very liability forwhich it seeks recovery in

### Count I of its complaint inan amount inexcess of the policy limits. Subrogation isan 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 indetermining 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, 134Mont. 317, 330 P.2d 1093. One who seeks equitymust

come into court with clean hands, Perry 

### v. Luding, 123Mont. 570, 217 P.2d 207;Giarratana v. Naddy, 129Mont. 154, 284 P.2d 254; Weintz 

### v. Bumgarner, 150Mont. 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 itsown insured fora liabilitycovered by the insurance policy would violate these basic equity principles, as well as violate sound public policy. Such action, if permitted, would (1) allow the insurer to expend premiums collected from its insured to secure a judgment against the same insured 

### on a risk insured against; (2) givejudicial sanction to the breach of the insurance policy by the insurer; (3) permit the insurer to secure information from itsinsured under the guise of policy provisions available for lateruse inthe insurer's subrogation action against its own insured; (4) allow the insurer 

### totake advantage of itsconduct and conflictof interestwith 

### its insured; and (5) constitutejudicial approval of a breach of the insurer's relationship with 

### its own insured. No right of subrogation can arise infavor of an insurer against its

own insured since, by definition, subrogation exists only with respect to rights of the insurer against third persons towhom the insurer owes no duty. 16 Couch on Insurance 2d, 5 61:133; see also46 C.J .S. Insurance t3 1209(b); 16 Couch on Insurance 2d, B 61:136. This principle is succinctly stated in Chenoweth Motor 

### Co. 

### v. Cotton, 2 OhioMisc. 123, 207 N.E.2d 412, 413: 

### " 

## *

## ** it isaxiomatic that [an insurance company] has no subrogation rights against the negligence of itsown insured.

### " (Bracketed material paraphrased). To allow subrogation under such circumstances would permit an insurer, in effect, topass the incidence of the loss, either partially or totally, from itself to its

### own insured and 

### thus avoid the coverage which itsinsured purchased. 2 Richards on Insurance, $ 185, states the same principle in this 1

anguage:

### "An insurer clearlymay be subrogated to itsinsured's claim against a third party 

### who tortiously causes the loss, but no subrogation exists against the insured 

### or co-insured whose negligence caused the 1 oss

# ." For the foregoing reasons, we hold summaryjudgment in favor of the architects on Home's subrogation complaint against 

### them iscorrect and is hereby affirmed

# . Proceeding to the second issue forreview, we note that the counterclaim of architect Knight forhis costs of defense is bottomed on a breach by the insurer of Home Indemnity's comprehensive liability policy with Knight. Since The Home Insurance Company which sued Knight forhis alleged negligence isone and the same corporate entity as The Home Indemnity Company, the actions of one arethe actions of the other. Having refused todefend Knight against Home's complaint alleging negligence within Knight's policy coverage, Home's refusal to defend constituted a breach of contract even if based on an honest mistake, thereby rendering Home liable fordefense costs resulting from such breach. 14 Couch on Insurance 2d, $$ 51:50, 51:52; 49 ALR2d 694, 701

## ,711;7A Appleman, Insurance Law and Practice, § 4689; Independent Milk & Cream 

### Co. v. Aetna Life Ins. Co., 68 Mont. 152, 216 P. 1109; Mid-Century Ins. Co. v. American Casualty Co. 

### ,152 Mont. 328, 449 P.2d 679. Inasmuch as there 

### is coverage for

### the firstcount inHome's complaint against the architects, denial of coverage and defensewas unjustified even though there was


### no coverage forthe second and third counts inHome's complaint. 41 ALR2d 434; 14 Couch on Insurance 2d, 

### ss 51:43, 51:50; 7A Appleman, Insurance Law & Practice, 

### B 4683. 

### As there isno conflict inthe foregoing facts appearing in the records of this case, we hold that the partial summaryjudgment on the issue of liability fordefense costs iscorrect and must be affirmed. The final issue forreview 

### iswhether Home 

### must pay all attorney fees and court costs herein. Home argues that while itmay be liable fordefense costs, it

### is not 1 iable for attorney fees, expenses and court costs involvedinarchitect Knight's counterclaim against itor indefending against the second and third counts inHome's complaint which arenot covered by Kfiight's policy. In our view itwould not be possible to separate or segregate such defense costs from costs involved inprosecuting Knight's counterclaim in any event. Even if such were possible, Home has been the moving party throughout this litigation and the party whose wrongful actsmade itnecessary for the architects 

### todefend themselves against both covered and noncovered claims,

aswell as the counterclaim of architect Knight forbreach of contract in denying insurance coverage and refusal to defend. Under such circumstances thewrongful acts of the insurer (1) in suing itsinsured under itsnonexistent subrogation rights on both covered and noncovered claims, and (2) its refusal todefend this action on behalf of architect Knight, constituted breaches of its obligation and duty rendering the insurer 1 iable fordamages by way of attorney fees, expenses, and court costs occasioned thereby. This Court has extensively discussed the insurer's duty to defend inSt. Paul Fire & Marine Ins. Co. v. Thompson, 150Mont. 182, 433 P.2d 795. The following

cases so hold with respect to the counterclaim for insurance coverage: Runyan

v. Continental Casualty Company, 233 F.Supp. 214; Utilities 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 with 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. We note the districtcourt did not fix the amount of damages by way of attorney fees, court costs, and expenses forwhich Home isliable to the architects indefending against Home's complaint or to architect Knight, architectVan Teylingen, orthe architectural firm. Instead, the district court only prescribed the criteria on which such award would be based uponfuture trial toestablish the amount of damages. Any determination of the dollaramount of damages orthe criteria therefor atthistime is premature. For the foregoing reasons, thejudgment of the districtcourt is affirmed. This cause isremanded tothe districtcourt fortrial and determination of the amount of damages.

Associate Justice



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