No. 95-062 IN THESUPREME

COURTOFTHESTATEOFMONTANA 1995

THECITY OFBOZEMAN, aMunicipal Corporation,

Plaintiff andAppellant,
v. AIU INSURANCECOMPANY andMARKSTORY, d/b/a MARKSTORYCONSTRUCTION,

Defendants andRespondents.

APPEALFROM: District Court of the Eighteenth Judicial District,

II-Iandfor the County of Gallatin, TheHonorable Larry W.Moran, Judge presiding.

COUNSELOFRECORD:

For Appellant: Steve Reida andJ. Robert Planalp; Landoe, Brown, Planalp &Braaksma, Bozeman, Montana
For Respondents: E. LeeLeVeque; Conklin, Nybo, LeVeque &Murphy, Great Falls, Montana Gregory Morgan, Attorney at Law, Bozeman, Montana

Filed: Submitted onBriefs: July 27, 1995 Decided: August 21, 1995

CleirkJustice W.William Leaphart delivered the Opinion of the Court.

TheCity of Bozemanappeals from the granting of AIU Insurance Company's motion for summaryjudgment onthe basis of res judicata. Weaffirm. Background This is the fourth appeal before this Court arising out of Mark Story‘s suit against the City of Bozeman. TheCity appealed Story's first jury verdict (Story I) and then, after remand, appealed the second jury verdict (Story II)

. Bozeman also litigated the question of whether its insurer AIU had a duty to defend the City against Story's claims. That matter was successfully appealed by AIU in what is known as AIU I. The background leading to the present appeal is asfollows: OnJuly 12, 1985, AIU Insurance Companyissued to the City of Bozemanits comprehensive general liability insurance policy which included a broad form comprehensive liability endorsement. The policy and broad form endorsement were effective June 30, 1985 through June 1986. In December of 1986, Mark Story, d/b/a Mark Story Construction, suedthe City of Bozemanrequesting general, special and punitive damages arising out of the alleged actions and omissions of City personnel during the AIU policy period. In his amended complaint, Story alleged breach of the covenant of good faith and fair dealing anddefamation amongst other claims. AIUdefended the City against Story's claims but reserved its right to later deny coverage. Thefirst trial of Story's claims
2against the City resulted in ajury verdict against the City in the

sumof $373,236 with nodamagesawarded onthe defamation claim. Judgment was entered and the City appealed. Since AIU took the position that the defamation claim wasthe only basis for coverage and since the jury did not award any damagesfor defamation, AIU refused to continue defending the case. As a result of AIU's withdrawal of its defense, the City filed an action against AIU alleging that AIU breached its duty to defend. The City sought attorney fees and costs incurred as aresult of AIU's refusal to represent the City in its appeal of the breach of contract judgment. The City's original complaint in AIU I did not raise issues of whether the City hadcoverage under the AIU policy. OnMay3, 1990, this Court reversed the judgment against the City of Bozemanin Story I, Story v. Bozeman(1990), 242Mont. 436, 791 P.2d 767, and remanded the case for retrial. AIU agreed to
resume the City's defense against Story's claims after remand. In the second trial, the jury awarded $850,000 damages against the City. As before, AIU took the position that Story's claim for defamation was the only basis for coverage and since the trial judge directed averdict in the City's favor on the defamation count, AIU advised the City that none of the award was covered by its insurance policy and that it was again withdrawing from the
case.After the jury verdict in Story II, the City, onJanuary 7, 1992, movedto amendits complaint in AIU I to include coverage issues arising from the Story II verdict. AIU objected to the
3City's motion to amend, contending that the City was seeking to

insert coverage issues which had nothing to dowith the "duty to defend" issues. Thetrial court agreed with AIU andheld that the coverage issues were separate and distinct and thus denied the City's motion to amendthe complaint. Thetrial court concluded that AIU breached its duty to defend andentered judgment in favor of the City in the amount of $17,739 for costs. AIU appealed that decision. Wereversed the judgment of the District Court in City of Bozemanv. AIU Insurance Co. (1993), 262Mont. 370, 865P.2d 268 (AIL7 I). The City appealed the second jury verdict in Story II. On appeal, weaffirmed in part andreversed in part, andremanded for entry of judgment of $850,000 against the City, striking the $100,000 award against defendant Neil Mann. Story v. City of Bozeman (1993), 259Mont. 207, 856P.2d 202. In February of 1993, the City filed the present suit seeking
adeclaratory judgment that coverage existed under the AIU policy for Story's claim against the City of Bozeman. OnDecember 2, 1994 the District Court granted AIU's motion for summaryjudgment onthe basis that this Court's decision in AIU I barred the coverage issue under the principles of res judicata. TheCity appeals from that summaryjudgment.

Standard of Review In reviewing the grant of summaryjudgment, this Court applies the samestandard asthat utilized by the trial court. Contreraz

4v. Michelotti-Sawyers (Mont. 1995), 896P.Zd 1118, 1120, 52St.Rep.

454, 456.

Issue Presented Doesthe doctrine of res judicata bar the City of Bozemanfrom litigating issues of insurance coverage which were the subject of
aprevious amendedcomplaint disallowed bythe District Court but which were not appealed bythe City in AIU I?

Discussion In granting summaryjudgment for AIU on the City's claim for coverage, the District Court reasoned that although AIU Ipurported to address only the question of attorney fees and costs in the context of the duty to defend, this Court, in concluding that there
was no duty to defend, premised that conclusion on its determination that there was no coverage. Accordingly, the District Court found that the City's present suit seeking coverage was barred by res judicata. We reach the same result for procedural rather than substantive reasons. TheCity contends that it brought the present suit asadirect result of the District Court's refusal to allow the City to amend its complaint in AIU I soasto raise issues of insurance coverage in addition to issues related to the duty to defend. The City prevailed in District Court onthe question of the duty to defend. AIU appealed to this Court. The City, however, did not crossappeal the question of whether the District Court had erred in
5denying the City’s proposed amendment to its complaint. The

court's refusal of the motion to amend is a ruling which could have been appealed by the City by way of across-appeal to this court.Werecently discussed the principles of res judicata in State
exrel. Harlem Irrigation District v. District Court (Mont. 1995), 894 P.2d 943, 52 St.Rep. 364 (Harlem Irrigation/Love II). The doctrine of res judicata includes the following four elements: (1) the subject matter of eachaction must bethe same; (2) the parties
or their privies of each action must bethe same; (3) the issues must be the same and relate to the same subject matter; (4) the capacities of the persons must be the same in reference to the subject matter andto the issues between them. Harlem Irrigation/ Love II, 894P.2d at 945. Asto the requirement that the parties bethe same, the two real parties in interest are the City of BozemanandAIU; the same two parties asin AIU I. Thepresence of Mark Story in the present declaratory judgment action doesnot preclude res judicata. Story
was named because he had a potential financial interest in the litigation. Story's judgment, however, has been paid and he has not participated in the suit or the appeal. With regard to the requirements of identity of subject matter and issues, the City contends that the subject matter and issues in AIU I were not identical to those in the present suit because, despite the City's attempts to litigate coverage, the Court in AILJI confined itself to the issue of the duty to defend. Wereject that contention. As
6in Harlem Irrigation/Love II, the identical issue being raised in

this appeal could have been litigated in aprior proceeding, that is, in AIU I. In Love I, the Loves first filed acomplaint in 1983in which they alleged various claims against the Irrigation District andthe commissioners based upon their refusal to provide water to the Loves. The district court granted summary judgment for the Irrigation District and the commissioners based upon sovereign immunity. This Court affirmed that holding in Love v. Harlem Irrigation District (1990), 245Mont. 443, 802 P.2d 611 (Love I). After this Court's decision in Love I, the Loves filed a new complaint again alleging aviolation of statutory and contractual rights asaresult of the refusal to provide water. In addition, the Loves alleged civil rights violations under 42U.S.C. §1983. TheIrrigation District movedfor summaryjudgment based, in part, upon res judicata. Thedistrict court denied the motion and the Irrigation District sought a writ of supervisory control. We accepted original jurisdiction andreversed. InHarlem Irrigation/ Love II, the Loves argued that res judicata did not bar their second suit because they raised new theories of liability; specifically violation of civil rights under §1983. Weheld that the doctrine of res judicata bars § 1983 claims in Montana's courts whenthe constitutional claims could havebeenraised in anearlier proceeding, but were not. However, the doctrine of res judicata bars not only issues that were actually litigated, but also those that could have been litigated in aprior proceeding. Mills, 864P.2d at 1267. Aparty should not beable to litigate 7amatter that the party already had the opportunity to

litigate; public policy dictates that there must besome end to litigation. [Citations omitted.] Once aparty has had anopportunity to present a claim, the judgment in aprevious case is final as to the issues that were raised, as well as those that could have been raised. SeeBurgess v. Montana (1989), 237 Mont. 364, 366, 772 P.2d 1272, 1273. This notion arises from public policy designed to prevent endless piecemeal attacks onprevious judgments. Wellmanv. Wellman (1982), 198Mont. 42, 46, 643 P.2d 573, 575. Weconclude that the theories of recovery alleged in this cause of action could have been litigated in the prior proceeding. Harlem Irrigation/Love II, 894P.2d at 946. In the present case, the City very candidly concedes that it filed this declaratory judgment action to raise issues which it was not permitted to raised in AIU I because the District Court denied its motion to amendits complaint. The City, however, offers no explanation as to why, after having attempted to amend the complaint to include the coverage issue, it failed to pursue that issue onappeal inAIU I. Theissue of coverage wasanissue which not only could have beenraised in AILJI, but, in fact, wasraised bythe City bywayof the motion to amendthe complaint. Under the principles enunciated in Harlem Irrigation/Love II, the City hadan opportunity to appeal the coverage issue to this Court and chose not to doso. Given that the City hadthe opportunity to appeal the coverage issue, the judgment of this Court in AILJI became final "as to the issues that were raised, as well as those that could have been raised." Harlem Irrigation/Love II, 894 P.2d at 946. Wehold that the coverage issue which the City of Bozemannow seeks to litigate wasanissue which the City sought to litigate by
8way of an amended complaint in AIU I. Whenthe District court

denied the motion to amend, the City accepted that ruling andchose not to appeal the coverage issue. Theinsurance coverage issue is thus barred by the doctrine of res judicata. Affirmed.

Weconcur:

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