No. 13835 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

DONALD MURRAY, 

Plaintiff and Respondent, 

MONTANA INSURANCE GUARANTY ASSOCIATION 

an urbcorporated legal entity, 

Defendant and Appellant, 

and 

NATIONAL FARMERS UNION INSURANCE COMPANY, 

a corporation, 

Defendants and Respondents. 

Appeal from: District Court of the Fifth Judicial District, 

Honorable Frank E. Blair, Judge presiding. 

Counsel of Record: 

For Appellant: 

Keller, Reynolds and Drake, Helena, Montana 

Paul T. Keller argued, Helena, Montana 

For Respondents: 

Landoe, Gary & Planalp, Bozeman, Montana 

Joseph B. Gary argued, Bozeman, Montana 

Schulz, Davis and Warren, Dillon, Montana 

1. 3 ., \977 Filed: . ' 

Submitted: December 7, 1977 

Decided: DEf: 3 8 12;; 
Mr. Justice John C. Harrison delivered the Opinion of the Court. 

Plaintiff Donald Murray instituted this action against the 

Montana Insurance Guaranty Association (hereinafter referred to as 

"the Association"), and alternatively against National Farmers Union 

Insurance Company, to recover a settlement claim of $6,500. The 

Association appeals from the judgment of the District Court, Beaverhead County, dismissing the action as to Farmers Union and the denial 

of a motion to dismiss submitted by the Association. 

On July 15, 1974, a logging truck owned by Nice Log Hauling 

was proceeding north on Highway 91 near Divide, Montana. The driver 

made a left turn causing an oncoming car to go out of control and 

strike a car in which plaintiff was a passenger. Plaintiff was 

injured in the accident. 

Plaintiff commenced negotiations for a settlement with 

Manufacturers and Wholesalers Indemnity Exchange, the insurer 

for Nice Log Hauling. On November 15, 1975, a settlement was 

reached under which Manufacturers & Wholesalers agreed to pay 

plaintiff the sum of $6,500. Before any payment was made, Manufacturers & Wholesalers was declared insolvent in the State of 

Colorado. 

The Association took over claims against the insolvent 

company pursuant to the provisions of sections 40-5701 et seq., 

R.C.M. 1947. It disallowed plaintiff's claim on the ground 

that section 40-5712, R.C.M. 1947, provides for nonduplication 

of recovery, and that plaintiff could recover the full amount 

of the claim under his own "uninsured motorist" policy issued 

by Farmers Union. The policy provides, in pertinent part: 

(c) ' ueured automobile ' means : 

"(1) an automobile with respect to the ownership, 

maintenance or use of which there is, in at 

least the amounts specified by the financial 
responsibility law of the state in which the 

insured automobile is principally garaged, 

no bodily injury liability bond or insurance 

policy applicable at the time of the accident 

with respect to any person or organization 

legally responsible for the use of such automobile, or with respect to which there is a 

bodily injury liability bond or insurance 

policy applicable at the time of the 

accident but the company writing the same 

denies coveraae thereunder: * * * ". (Emphasis added 

The Association contends that the insurer denied coverage 

within the meaning of the policy when it became unable to pay 

the settlement due to insolvency. This is a question of first 

impression in Montana. 

In interpreting the phrase "denies coverage" we are mindful of the general rule that "The words of a contract are to 

be understood in their ordinary and popular sense, rather than 

according to their strict legal meaning * * *." Section 13-710, 

R.C.M. 1947. Webster's Third New International Dictionary defines, 

in part, the word "deny" at p. 603: 

" * * * to refuse to recognize or acknowledge: 

withhold acknowledgement from: disclaim connection with, allegiance to, or responsibility 

to or for * * * " . 

Clearly, as used in its ordinary and popular sense, the phrase 

"denies coverage" connotes some type of affirmative activity 

by the insurer. A consistent and logical definition is found 

+-1 in Seabaugh v. Sisk, 413 S.W.2d 602, 609 (Mo;. 1967), quoting 

Uline v. Motor Vehicle Accident Indeminification Corp., 28 

"'to deny coverage' (i.e. 'to take the position 

that for some reason or other the policy does not 

encompass the particular accident') * * *." 

Here it is plain that Manufacturers & Wholesalers did not 

deny coverage. For over a year, the company negotiated with 

plaintiff and finally agreed to settlement under which it expressly 

admitted that it owed plaintiff the sum of $6,500. Only the 

insurer's inability to pay prevented plaintiff from recovering 
the full amount of the settlement. We do not think it tenable 

that Farmers Union, by contracting to cover situations in which 

the original insurer "denies coverage", agreed to be responsible 

for a claim that is sixteen months old and has already been 

negotiated and settled with the original insurer. 

An ambiguous insurance contract will be liberally construed 

against the insurer. Mountain West Farm Bureau v. Neal (1976), 169 

Mont. 317, 547 P.2d 79, 33 St.Rep. 193. However, there is no ambiguity here. We cannot equate the phrase "denies coverage", 

with "becomes unable to pay the claim due to insolvency". Seabaugh v. Sisk, supra; Farkas v. Hartford Accident & Indemnity Co., 

285 Minn. 324, 173 N.W.2d 21 (1969). 

We are aware that a majority of jurisdictions facing this 

issue have reached the opposite conclusion. See, e.g.: Winans 

v. Hartford Accident Indenmity Co., 25 Mich. App. 75, 181 N.W.2d 

17 (1970) ; McCaffery v. St. Paul Fire & Marine Ins. Co., 108 

N.H. 373, 236 A.2d 490 (1967); Katz v. American Motorist Insurance 

Co., 244 Cal.App.2d 886, 53 Cal.Rptr. 669 (1966); State Farm Mutual 

Automobile Ins. Co., v. Brower, 204 Va. 887, 134 S.E.2d 277 (1964). 

The reasoning of these decisions is generally that coverage is 

just as effectively denied when the insurer is unable to pay as 

when the insurer voluntarily refuses to pay. Running through all 

of these decisions is the theory that the insurance policy in 

question must be liberally construed in light of the remedial purposes of the uninsured motorist statutes. Since the paramount 

concern of this legislation is the protection of the public from 

losses caused by uninsured motorists, insurance policies issued 

in conformance with such legislation have often been interpreted 

liberally to effectuate this goal. 

Such compelling legislative direction does not exist in 

this State regarding this question. Motorists have the protection 
of a requirement that uninsured motorist coverage be offered but 

they also have the option to decline such coverage. Section 

40-4403, R.C.M. 1947. Situations involving the insolvency of 

an insurer are more directly covered by the Montana Insurance 

Guaranty Association Act. The purpose of this act is expressed 

in section 40-5702, R.C.M. 1947: 

"Purpose. The purpose of this act is to provide a mechanism for the payment of covered 

claims under certain insurance policies to 

avoid excessive delay in payment and to avoid 

financial loss to claimants or policyholders 

because of the insolvency of an insurer, to 

assist in the detection and prevention of 

insurer insolvencies, and to provide an association to assess the cost of such protection 

among insurers." 

This act is to be liberally construed to effectuate its 

stated purpose. Section 40-5704, R.C.M. 1947. The application 

of this act to cases such as the one presented here protect the 

innocent victim of a tortfeasor whose insurance company is rendered 

insolvent just as effectively as a strained judicial construction 

of the phrase "denies coverage" in the victim's uninsured motorist 

policy. 

We find that the subsequent insolvency of the insurer is 

not a denial of coverage within the meaning of this policy. 

The judgment of the District Court is affirmed.