NO. 88-189 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1988 

DALY DITCHES IRRIGATION DISTRICT, 

a public corporation, 

Plaintiff and Appellant, 

-VSNATIONAL SURETY CORPORATION, one of 

Fireman's Fund Insurance Companies, 

Defendant and Respondent. 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Ravalli, 

The Honorable John S. Henson, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Sam Haddon; Boone, Karlberg & Haddon; Missoula, 

Montana 

For Respondent: 

Gregory 8. Murphy; Moulton, Rellingham, Longo & Mather, 

Billings, Montana 

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File 

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Submitted on Briefs: Sept. 29, 1988 

Decided: November 29, 1988 

Clerk 
Mr. Justice R. C. McDonough delivered the Opinion of the 

Court. 

This appeal from the Fourth Judicial District, in and 

for the County of Ravalli, involves an insurer's refusal to 

defend its insured. The appellant, Daly Ditches Irrigation 

District (Daly) , appeals the decision of the District Court 

that the insurance policy provided by respondent, National 

Surety Corporation (Surety), carried no coverage for a claim 

made against Daly. We affirm. 

The relevant facts are as follows: Daly ' s former 

employee sued Daly for breach of the covenant of good faith 

and fair dealing, and for discharge from employment in 

violation of the public policy of the State of Montana. The 

employee alleged that Daly terminated his employment in 

retaliation for his refusal to violate the laws of Montana, 

and he claimed damages for lost income, lost benefits, and 

emotional and mental distress. Daly tendered the suit to 

Surety, and Surety refused to defend. 

Surety's policy provides Daly coverage for: 

bodily injury or property damage . . . caused by an 

occurrence . . . . 

The policy defines occurrence as: 

"occurrence" means an accident, including 

continuous or repeated exposure to conditions, 

which results in bodily injury or property damage 

neither expected nor intended from the standpoint 

of the insured. 

Daly brought this action to establish that the alleged 

wrongful termination and accompanying damages fell within 

coverage for bodily injury and property damage from an 

occurrence. The District Court held for Surety concluding: 
While the Court recognizes that insurance 

policies are to be interpreted most strongly in 

favor of the insured and any doubts as to coverage 

are to be resolved in favor of the insured, this 

does not apply where the terms of the insurance 

contract are not ambiguous, and the Court must 

therefore construe the terms according to their 

plain and ordinary meanings. ... In the case at 

bar, the terms "bodily injury", "property damage", 

and "occurrence" are not ambiguous and the Court 

will not participate in a forced construction of 

these words in order to extend coverage of the 

claims made by [the employee] against Plaintiff 

Daly Ditches. 

We affirm on the basis that the claimed injury falls outside 

the policy's definition of an "occurrence". 

Daly presents the following issues for review: 

(1) Did the District Court err in ruling that the tort 

claim of wrongful discharge asserted against Surety was not 

covered by the policy? 

(2) Did the District Court err in ruling that it is 

against public policy for the tort of wrongful discharge to 

be covered by liability insurance? 

(3) Did the District Court err in ruling Surety had no 

duty to investigate and defend the claim asserted in the suit 

filed against its insured? 

I. 

Daly argues that a breach of the covenant of good faith 

and fair dealing constitutes an occurrence under the policy. 

The intentional nature of the firing of Daly's employee 

should not preclude finding coverage because the consequences 
of the employment termination were neither expected nor 

intended, according to Daly. 

Surety responds that persuasive authority holds that 

discharge from employment is not an accident under the policy 

language at issue here. See Mary & Alice Ford Nursing Home 

v. Fireman's Insurance (1982), 446 N.Y.S.2d 599. In 

Mary & Alice Ford Nursing Home, an employer contended that 

its insured owed a duty to defend a suit brought by an 

employee who alleged that she was illegally discharged due to 

disability. The definition of occurrence in the policy at 

issue here is identical to the policy definition of 

occurrence in Mary & Alice Ford Nursing Home. In construing 

the language, the Court stated: 

If, in fact, plaintiff discharged Kathleen Wood 

from her employment because of her disability, it 

cannot be said that the mental and emotional 

injuries alleged by the Woods as flowing directly 

from plaintiff's intentional discriminatory 

practice were unexpected and unforeseen by 

plaintiff, the insured. Whi1.e "it is not legally 

impossible to find accidental results flowing from 

intentional causes, i.e., that the resulting damage 

was unintended although the original act or acts 

leading to the damage were intentional" (McGroarty 

v. Great Arner. Ins. Co., 36 N.Y.2d 358, 364, 368 

N.Y.S.2d 485, 329 N.E.2d 172), such is not the case 

here, for the damages alleged in the Woods' 

complaint are the intended result which flows 

directly and immediately from plaintiff's 

intentional act, rather than arising out of a chain 

of unintended though foreseeable events that 

occurred after the intentional act ... 

Mary & Alice Ford Nursing Home, 446 N.Y.S.2d at 601, see 

also, Commercial Union Ins. Co. v. Superior Court (Cal. App. 

The rule in California goes further in restricting the 

definition of occurrence: 
An intentional termination is not an "occurrence" 

under the policy because it is not an accident. 

The definition of "accident" halts any argument 

that real party [the employer] intended his act but 

not the resulting harm. 

Commercial Union Insurance Co., 242 Cal.Reptr. at 456. 

Daly responds that the cited cases cannot be reconciled 

with this Court's determinations holding that an occurrence 

resulted where intentional conduct allegedly lead to 

unintended injuries. Daly argues that emotional and mental 

injury was not the intended or expected consequence of the 

discharge. 

Montana has employed the reasoning referred to in 

Mary & Alice Ford Nursing Home - to conclude that an 

intentional act may nevertheless constitute an occurrence 

where the alleged injuries were not the expected or intended 

result of the insured's intentional conduct. Lindsay 

Drilling v. United States Fidelity & Guaranty Co. (19841, 208 

Mont. 91, 676 P.2d 203; Millers Mutual Insurance Co. v. 

Strainer (1983), 204 Mont. 162, 663 P.2d 338; Northwestern 

Casualty Co. v. Phalen (1979), 182 Mont. 448, 597 P.2d 720. 

However, here, as in Mary & Alice Ford Nursing Home, the 

alleged intentional conduct of Daly could be expected to 

cause the injury claimed by the employee. The allegation is 

that Daly fired the employee for refusing to violate Montana 

law. Damages for emotional and mental suffering may he 

expected to flow directly as injuries from such a discharge. 

There is no injury alleged which could not be expected to 

flow from the termination. Thus, we affirm the decision of 

the District Court that the intentional conduct exclusion 

applies. 
Daly argues that the District Court erred in holding 

that public policy favored application of the intentional 

conduct exclusion. The lower court reasoned that Montana 

policy weighs against allowing employers to insure against 

violations of the tort of good faith and fair dealing. 

Surety responds that the lower court's analysis of 

Montana policy provides no grounds for reversal because the 

decision rested primarily on analysis of the intentional 

conduct exclusion. We agree with Surety. 

Our resolution of issue one affirms the lower court's 

decision to find no coverage based on the intentional conduct 

exclusion. This case may be properly resolved on the finding 

that the exclusion applies. Thus, any issue on the lower 

court's further reasoning is moot. 

Daly argues that Surety relied exclusively on the 

complaint to deny coverage, and that Surety's failure to take 

further action violated its positive duty to investigate 

claims against its insured. Daly also argues that the duty 

to investigate under 5 33-18-201, MCA, mandated greater 

action on the part of Surety. 

Surety responds that the allegations in the complaint 

provided sufficient information to refuse coverage. 

Furthermore, Surety contends, it responded promptly to the 

demand for coverage, and explained why no coverage existed. 

Surety also responds to Daly's argument for application 

of § 33-18-201, MCA, by contending that an insurer has a duty 

to investigate only covered claims under the statute, and 

here the claim obviously fell outside the coverage provided 

by the policy. 
Insurers have the duty to investigate "claims and. 

coverage promptly". Tynes v. Bankers Life Co. (Mont. 1986) , 

730 P.2d 1115, 1124, 43 St.Rep. 2243, 2254. Thus, we do not 

agree that an insurer has only the duty to investigate 

covered claims. 

However, there is no evidence that Surety failed to 

properly investigate the claim at issue. Surety inspected 

the allegations of the complaint and determined that the 

employee sought damages flowing from intentional conduct on 

the part of the insured. Ordinarily, where the allegations 

of a complaint demonstrate that no coverage exists, the 

insurer has no duty to indemnify or defend. McClear v. St. 

Paul Insurance Companies (1972), 158 Mont. 452, 456, 493 P.2d 

331, 334. Because the complaint demonstrated that no 

coverage existed, Surety fulfilled its duty to investigate 

when it read the complaint and informed Daly no defense would 

be provided. AFFIRMED. @i?&%/

Justice 

Mr. Justice John C. Sheehy did not participate in this matter.