No. 13835 IN THE SUPREME COURT OF THE STATE OF MONTANA

DONALDMURRAY,Plaintiff and Respondent,

MONTANA INSURANCE GUARANTYASSOCIATION an urbcorporated legal entity, Defendant and Appellant, and NATIONAL FARMERS UNION INSURANCE COMPANY, a corporation,Defendantsand 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

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## ., \977 Filed: 

## . ' Submitted: December 7, 1977 Decided:

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## 3 8 12;;Mr. Justice John C. Harrison delivered the Opinion of the Court. Plaintiff Donald Murray instituted this action against the Montana InsuranceGuaranty Association (hereinafter referred to as "the Association"), and alternatively againstNational Farmers Union Insurance Company, to recover a settlement claim of $6,500. The Association appeals from the judgmentof the District Court, Beaverhead County,dismissing the action as to FarmersUnion and the denial of a motion to dismiss submitted by theAssociation. On July 15, 1974, a logging truck owned by Nice Log Hauling

was proceeding north on Highway 91near Divide,Montana. The driver made a left turn causing an oncoming car to go out of control and strike a car inwhich plaintiff was a passenger. Plaintiffwas 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 settlementwas reached under which Manufacturers & Wholesalers agreed to pay plaintiff the sum of $6,500. Before any payment was made, Manufacturers & Wholesalerswas 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. Itdisallowed 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, inpertinent part: (c) 

### 'ueuredautomobile

### ' means: "(1) an automobilewith respect to the ownership, maintenance or use of which there is, in at least the amounts specified by the financialresponsibility law of the state in which the insured automobile isprincipally 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 liabilitybond or insurance policy applicable at the time of the accident but the company writing the same denies coveraae thereunder:

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# ". (Emphasisadded TheAssociation contends that the insurer denied coverage within themeaning of the policy when it became unable to pay the settlementdue 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 "Thewords of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legalmeaning 

## * * 

## *." Section 13-710, R.C.M. 1947. Webster's Third New International Dictionary defines, in part, the word "deny"at p. 603: 

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## * * * to refuse to recognize or acknowledge: withhold acknowledgement from: disclaim connection with, allegiance to, or responsibility to or for

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# . Clearly, as used in its ordinary and popular sense,the phrase "deniescoverage" connotes some type of affirmative activity by the insurer. A consistentand logical definition is found +-1 in Seabaughv. Sisk, 413 S.W.2d 602, 609 (Mo;. 1967), quoting Uline v. Motor Vehicle Accident Indeminification Corp., 28

"'todeny 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 recoveringthe full amount of the settlement. We do not think it tenable that Farmers Union, by contracting to cover situations inwhich 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 contractwill be liberally construed against the insurer. Mountain West Farm Bureauv. Neal (1976), 169 Mont. 317, 547 P.2d 79, 33 St.Rep. 193. However, there isno ambiguity here. We cannot equate the phrase "deniescoverage", with "becomesunable to pay the claim due to insolvency". Seabaugh v. Sisk, supra; Farkasv. Hartford Accident & Indemnity Co., 285 Minn. 324, 173N.W.2d 21 (1969). We are aware that amajority of jurisdictions facing this issue have reached the opposite conclusion. See, e.g.: Winans

v. Hartford Accident Indenmity Co., 25 Mich. App. 75, 181N.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 insurancepolicy in questionmust be liberally construed in light of the remedialpurposes 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 conformancewith 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 protectionof a requirement that uninsured motorist coveragebe 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 aremore 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. Thepurpose of this act is to provide amechanism 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 suchprotection 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 tortfeasorwhose insurance company is rendered insolvent just as effectively as a strained judicial construction of the phrase "denies coverage" in the victim's uninsuredmotorist policy. We find that the subsequent insolvency of the insurer is not a denial of coveragewithin the meaning of thispolicy. The judgment of the DistrictCourt is affirmed.