No. 89-455

IN THE SUPREME COURT OF THE STATE OF MONTANA

MARK YOVISH, Plaintiff and Respondent,

UNITED SERVICESAUTOMOBILE ASSOCIATION,

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.#: Defendant and Appellant. CLERKOF Su:-RU,.I: CS~JRT STATE OFPl;SI!TAP.~a

APPEAL FROM: District Court of the Eighth Judicial District, In and for the County of Cascade, TheHonorable ThomasM. McKittrick,Judgepresiding.

COUNSEL OF RECORD: For Appellant: Dennis Tighe, Cure, Borer & Davis, Great Falls, Montana For Respondent:

J. David Slovak, Urgin,Alexander, Zadick & Slovak, Great Falls,Montana

Submitted: December 21, 1989

Filed: Decided: June 26, 1990 

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8Clerk , L. *.Justice William E. Hunt, Sr., delivered the Opinion of the Court.

Mark Yovish, plaintiff and respondent, filed suit against United ServicesAutomobileAssociation (USAA), alleging a wrongful denial of coverage. The Eighth Judicial District Court, Cascade County, sitting without a jury, found in favor of Yovish, awarding him compensatory damages and attorney fees. USAA appeals. We affirm in part and reverse in part. We will discuss the following issues on appeal: 1. Whether USAA complied with the insurance policy provisions governing renewal so thatthepolicy expired of its own termsprior to the automobile accident in question; 2. Whether the District Court abused its discretion by awarding attorney fees to Yovish. USAA, an insurance companywith a principal place of business in San Antonio, Texas, provides multi-line insurance coverage exclusively to military personnel and their dependents. Mark Yovish, a member of the United StatesAir Force, insured his 1983 Volkswagen Rabbit with USAA in January, 1983. Yovish paid monthly premiums on theVolkswagen in response to premium notices sentby USAA. The notices indicated the amount due on the policy. Sometime around May, 1983, Yovish moved from California to Great Falls. He retainedhispolicywith USAA and continued topay his premiums in response to monthly premium notices sent by the company. In early 1984,hemoved from one Great Falls location to another. Consequently, his February, 1984 premium notice was returned to USAA by the post office. This notice indicated that the policy would be renewed for six months beginning February 1, 1984. Although Yovish did not receive the notice or pay the premium until approximately February 10, 1984,USAA backdated the coverage to the beginning of the month, leaving the six-month policy term running from February 1toAugust 1, 1984. About this same time, Yovish also received a renewal declarations page to attach to his policy. The declarations page displayed a policy period of February 1 throughAugust 1, 1984.As USAA did not have any local agents, Yovish occasionally contacted the company by telephone to conduct business or obtain general rate and coverage information. In mid-February, 1984,he called the company for premium quotes. In April, 1984, after securing rental insurance coverage with Farmers,he called USAA to cancel his rental insurancepolicies. On June 9 or 10, 1984,he again called the company. At trial, the parties disputed the substance of this conversation. Yovish maintained that he called USAA in June simply to obtain rate and coverage information. USAA, on the other hand, contended that he told the company not to renew the policy in August because he was insuring the automobile with Farmers. Yovish did not receive any written confirmationof thephone call fromUSAA nor did he receive

a notice ofnon-renewal or cancellation. In fact,the lastwritten notice Yovish received from USAA consisted of a May, 1984 premium notice indicating that, due to the cancellation of his rental policies, the balance on his auto policy was fully paid. 0 

### n August 5, 1984, Yovish sideswiped a parked car on a residential street in Great Falls. He admitted liability, and phoned USAA the following day to report the accident. A few days later, USAA denied coverage of the accident,maintaining that Yovishlspolicy had expired onAugust 1,1984, the lastday of the six-monthpolicy period. USAA based its denial on the substance of the June telephone conversation. On the advice of counsel, Yovish forwarded a $408 check to USAA on August 10, 1984 in an attempt to retain coverage from August 1, 1984. The checkwas cashed by the company but themoney
was returned to Yovish in lateAugust. Total damages incurred in the accident amounted to $3,634-- $1,843 for Yovishlsvehicle and $1,791 for the other car. After USAA refused to accept the claim, Yovish was forced to take out a $3,000 loan at 10percent interest to cover the damages. On April 25, 1985, Yovish instituted suit against USAA, asserting that USAA1srejection of the claim and alleged failure to comply with statutory notice provisions governing insurancecompanies constituted oppressive and malicious conduct. On December 23, 1986, the District Court denied USAA1smotion for summary judgment. A bench trial commenced on December 31 of that year. On February 24, 1989, over two years later, the court issued findings of fact, conclusions of law and order, awarding Yovish $3,384 in compensatory damages (totaldamages of $3,634offset by $250 deductible) and $322 in interest. The court denied Yovishls prayer for punitive damages but granted his request for attorney fees. On May 4, 1989, the courtdenied USAA1smotion to amend the judgment with respect to the award of attorney fees. Following a hearing, the court awarded attorney fees in the amount of $8,703. USAA appealed to this Court. USAA argues that it fully complied with both the policy provisions and statutory law governing renewal and non-renewal of auto insurance policies. Therefore, USAA maintains, it was not required to provide coverage for the car accident of August 5, 1984,because the policy had expired of its own terms on August 1, 1984 due to Yovishlsfailure to pay the renewal premium. Montana's insurance notice statutes provide that an insurer may not cancel or refuse to renew an insurance policy without furnishing adequate notice of such intent to the insured. Sections 33-23-212 and 33-23-214, MCA. The statuteswere enacted in order toprevent lapses in insurance coverageby supplying insuredswith sufficient time to obtain insurance elsewhere. See Cantrell v. Benefit Asslnof Ry. Employees, 136 Mont. 426, 431, 348 P.2d 345, 348 (1960)

# . Preventing lapses in insurance coverage assures that drivers do not travel the state'shighways without the benefit of insuranceprotection. Many insurance policies possess similar notice provisions. As long as the terms in thepolicy regardingnoticedo not restrict the rights of Montana citizens given by the insurance notice statutes, the terms do not defeat public policy and are therefore valid. Becausean insurancepolicy constitutesa contractbetween the parties, this Court will interpret the terms of the policy according to contract law. Universal Underwriters Ins. Co. 

### v.State Farm Mut. Ins. Co., 166 Mont. 128, 135, 531 P.2d 668, 673 (1975). However, if a contractual term restrictsthe rightsof the insured,we will construe the contract by looking to the statutes governing insurance law. In the present case, the relevant policy provisions do not restrict the statutory rights of the insured. Therefore, we shall decide this case by construing the terms of the policy. The applicable policy terms provided as follows: Non-renewal. Ifwe decide not to renew or continue this policy, we will mail notice to the named insured shown in theDeclarations at the address shown in thispolicy. Notice will be mailed at least 20 daysbefore the end of the policy period. If the policy period is other than 1 year, we will have the right not to renew or continue it only at each anniversary of its original effective date. Automatic Termination. Ifwe offer to renew or continue andyouoryourrepresentative do not accept, thispolicy will automatically terminate at the end of the current policy period. Failure to pay the required renewal or continuation premium when due shall mean that you have not accepted our offer. (Emphasis added.)

The policy was unambiguous. The clause concerning automatic termination required USAA to offer to renew the policy. Yovishls obligation to pay the premium was contingent upon USAA1soffer to

renew. OnceUSAA offered to renew thepolicy, Yovish could accept the offer by paying the renewal premium. The policy could automatically expire only if USAA extended an offer of renewal to Yovish and Yovish rejectedthat offerby failing topay thepremium when due. USAA acknowledges that it failed to send Yovish any written offer of renewal. Itneglected to forward Yovish either a premium notice or a renewal declarationspage, as had been its practice in previous dealings with Yovish. Because USAA failed to offer to

renew the policy, it failed to comply with the terms of the automatic termination clause. Thus, it cannot rely on that clause for theproposition thatthepolicyautomaticallyexpired onAugust1, 1984, the final day of thepolicy period. USAA also neglected to mail Yovish notice of its intent not torenewasmandated by thenon-renewal clause. Nevertheless,USAA argues that it did not need to mail Yovish written notice of nonrenewal because Yovish, not USAA, had decided not to renew the policy. USAA bases this argument on the substance of the disputed June, 1984 phone call. The District Court, however, found that Yovish called USAA in June, 1984, simply to obtain rate and coverage information and thathe did not inform the company during the conversation that he did not intend to renew or otherwise cancel the policy. These findings are not clearly erroneous. Yovish testified that the June telephone conversation was extremely brief and that it concerned onlyballpark estimatesabout rates and coverages. He maintained throughouthis testimony that he did not request cancellation of his coveragewith USAA nor did he informUSAA thathe did notwish to renewhis coverage after the next expiration date. His testimony was supported by the deposition testimony of his roommate, who was present during the telephone conversation in question. Yovish's testimony was also supported by his conduct. The record indicates thathe had always taken great care to insurehis property. He cancelled his USAA rental insurance policies in April, 1984, only after securing other insurance. Yet he did not obtain other insurance after the June, 1984 phone call, as would have beenhisnormal course of conducthad henot intended to renew his coverage withUSAA. Furthermore,he contactedUSAA immediately after the accident, indicating that he believed that he was still covered by that insurer. Carole Thomas, theUSAA employeewho took theJunephone call, disputed Yovish's testimony. Thomas contended that Yovish could not have requested or received rate information because the computerswere down at the timehe called. She further testified that he informed her that he would not be renewing his automobile coverage, that he would be insuring with Farmers instead.USAA contends that Thomas's testimony was inherently more crediblethanYovish's because Thomas's statementwas supportedby

a written memorandum of the telephone conversation. This is not

so. Although awrittenmemorandummay lend credence to awitness's testimony, it is not necessarily more reliable than another witness's verbal recollection of an event. The written memo introduced by USAA was not entirely free of

errors. The memorandum possessed at least two inaccuracies, the wrong date and Yovish's incorrect insurance status. The District Court could reasonablyhave questioned both the trustworthiness of the memo as well as Thomas's reliability when she testified that she incorrectly assumed thatYovishwas adependent of a subscriber rather than a subscriber inhis own right due to the immaturityof his voice. The court could also have viewed Thomas's ability to recall the conversation accurately with a degree of skepticism considering the fact that she received between 40 and 50 telephone calls per shift. The present case is particularly appropriate for limited review. The parties hotly contested the substance of the June telephone conversation, thus calling the credibility of the witnesses into question. The District Court had the opportunity to listen to the testimony of both witnesses before making its decision, a decision that is not clearly erroneous. We will not second guess its judgment. Because the District Court found that Yovish had not communicated to USAA a desire not to renew his policy, USAA was compelled to comply with the policy terms governing renewal. The policy required USAA to send Yovishwritten notice of non-renewal. USAA admits that it neglected to send any such notice. Where the insurer has failed to comply with the policy terms regarding renewal and notice of non-renewal, the insurance policy does not expire of its own terms and the insurer cannot deny coverage to the insured for an accident that occurs after the renewal date. Accord Sausenv. American Family Mut. Ins. Co., 360 N.W.2d 565 (Wis.Ct. App. 1984); Barbara Corp. 

### v. Bob Maneely Ins.Agency, 484 A.2d 1292 (N.J. Super. App. Div. 1984); National Automobile and Casualty Ins. Co. v. California Casualty Ins. Co., 188 Cal. Rptr. 670 (Cal. Ct. App. 1983); Prudential Property & Casualty Ins. Co. v. Pritchett,313 S.E.2d 706 (Ga. Ct. App. 1983); Shore v. Coronet Ins. Co., 288 N.E.2d 887 (Ill. App. Ct. 1972); Nationwide Mut. Ins. Co. v. Davis, 171 S.E.2d 601 (N.C. Ct. App. 1970). Although the cases cited above refer to failure to comply with statutory notice provisions, the same reasoning applies to failureto complyto thecontractual provisions inthis case,where thepolicy provided that automatic terminationwas contingent upon an offer of renewal extended by the insurance company and that the insurer was required to supply the insured with written notice of non-renewal. USAAnext argues that theDistrictCourt abused its discretion by awarding attorney fees to Yovish. USAA does not dispute the reasonableness of the amount of attorney fees, for it stipulated that the $8,703 fee was reasonable. USAA does contest the propriety of any attorney fee award at all in this case. Generally, attorney fees may not be awarded to a prevailing party in the absence of a specific statute or a contractual provision granting fees. Martin v. Crown Life Ins. Co., 202 Mont. 461, 469, 658P.2d 1099, 1104 (1983). This action presents neither

a statutorynor a contractualbasis for an award of attorney fees. Nor does it fallwithin one of thenarrow exceptions to thegeneral rule regarding attorney fees. Therefore, we agree that the District Court abused its discretion in awarding fees. We have approved awards of attorney fees in the absence of a specific statute or contractual provision granting the right to attorney fees in caseswhere an insurerhasbreached its obligation to defend an insured. Lindsay Drilling & Contracting v. United States Fidelity €4 Guar. Co., 208 Mont. 91, 676 P.2d 203 (1984); Truck Ins. Exch. v. Wolstad, 212 Mont. 418, 687 P.2d 1022 (1984); Home Ins. Co. 

### v. Pinski Bros., Inc., 160 Mont. 219, 500 P.2d 945

(1972). Thepresent case, however, is not a casewhere an insurer has wrongfully refused to defend an insured but where an insurerhaswrongfully refusedtoprovide coverage to an insured. Although the distinctionmay be slight,we hesitate to expand the exception to thegeneral rulewithout legislative authority. SeeMartin, 202 Mont. at 469, 658 P.2d at 1104; Tynes v. Bankers Life Co., 224 Mont. 350, 369, 730 P.2d 1115, 1127 (1986). Weunderstand that the failureto award attorney fees in cases such as the present one may result in circumstances where the entire compensatory award is consumed by the costs of litigation. We also recognize that the failuretogrant attorney feesmay force insureds with modest claimsto simplyaccept an insurer's erroneous denial of coverage. Nonetheless, the legislature, not the courts, must remedy thewrongs created by this situation. Affirmed as to the award of compensatory damages. Reversed

as to the award of attorney fees. 

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Justice We Concur: 

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