No. 95-062 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1995 

THE CITY OF BOZEMAN, 

a Municipal Corporation, 

Plaintiff and Appellant, 

v. 

AIU INSURANCE COMPANY and MARK STORY, 

d/b/a MARK STORY CONSTRUCTION, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Eighteenth Judicial District, 

II-I and for the County of Gallatin, 

The Honorable Larry W. Moran, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Steve Reida and J. Robert Planalp; Landoe, 

Brown, Planalp & Braaksma, Bozeman, Montana 

For Respondents: 

E. Lee LeVeque; Conklin, Nybo, LeVeque & Murphy, 

Great Falls, Montana 

Gregory Morgan, Attorney at Law, Bozeman, Montana 

Filed: 

Submitted on Briefs: July 27, 1995 

Decided: August 21, 1995 

Cleirk 
Justice W. William Leaphart delivered the Opinion of the Court. 

The City of Bozeman appeals from the granting of AIU Insurance 

Company's motion for summary judgment on the basis of res judicata. 

We affirm. 

Background 

This is the fourth appeal before this Court arising out of 

Mark Story‘s suit against the City of Bozeman. The City 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 as follows: 

On July 12, 1985, AIU Insurance Company issued to the City of 

Bozeman its 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, sued the City of Bozeman requesting 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 and defamation amongst other claims. 

AIU defended the City against Story's claims but reserved its 

right to later deny coverage. The first trial of Story's claims 

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against the City resulted in a jury verdict against the City in the 

sum of $373,236 with no damages awarded on the defamation claim. 

Judgment was entered and the City appealed. Since AIU took the 

position that the defamation claim was the only basis for coverage 

and since the jury did not award any damages for 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 a result 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 had coverage under the AIU policy. 

On May 3, 1990, this Court reversed the judgment against the 

City of Bozeman in Story I, Story v. Bozeman (1990), 242 Mont. 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 a verdict 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, on January 7, 

1992, moved to amend its complaint in AIU I to include coverage 

issues arising from the Story II verdict. AIU objected to the 

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City's motion to amend, contending that the City was seeking to 

insert coverage issues which had nothing to do with the "duty to 

defend" issues. The trial court agreed with AIU and held that the 

coverage issues were separate and distinct and thus denied the 

City's motion to amend the complaint. The trial court concluded 

that AIU breached its duty to defend and entered judgment in favor 

of the City in the amount of $17,739 for costs. AIU appealed that 

decision. We reversed the judgment of the District Court in City 

of Bozeman v. AIU Insurance Co. (1993), 262 Mont. 370, 865 P.2d 268 

(AIL7 I). 

The City appealed the second jury verdict in Story II. On 

appeal, we affirmed in part and reversed in part, and remanded 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), 259 Mont. 207, 856 P.2d 202. 

In February of 1993, the City filed the present suit seeking 

a declaratory judgment that coverage existed under the AIU policy 

for Story's claim against the City of Bozeman. On December 2, 1994 

the District Court granted AIU's motion for summary judgment on the 

basis that this Court's decision in AIU I barred the coverage issue 

under the principles of res judicata. The City appeals from that 

summary judgment. 

Standard of Review 

In reviewing the grant of summary judgment, this Court applies 

the same standard as that utilized by the trial court. Contreraz 

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

454, 456. 

Issue Presented 

Does the doctrine of res judicata bar the City of Bozeman from 

litigating issues of insurance coverage which were the subject of 

a previous amended complaint disallowed by the District Court but 

which were not appealed by the City in AIU I? 

Discussion 

In granting summary judgment for AIU on the City's claim for 

coverage, the District Court reasoned that although AIU I purported 

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. 

The City contends that it brought the present suit as a direct 

result of the District Court's refusal to allow the City to amend 

its complaint in AIU I so as to raise issues of insurance coverage 

in addition to issues related to the duty to defend. The City 

prevailed in District Court on the 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 

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denying 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 a cross-appeal to this 

court. 

We recently discussed the principles of res judicata in State 

ex rel. 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 each action must be the same; (2) the parties 

or their privies of each action must be the 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 and to the issues between them. Harlem Irrigation/ 

Love II, 894 P.2d at 945. 

As to the requirement that the parties be the same, the two 

real parties in interest are the City of Bozeman and AIU; the same 

two parties as in AIU I. The presence of Mark Story in the present 

declaratory judgment action does not 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 AILJ I confined itself 

to the issue of the duty to defend. We reject that contention. As 

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in Harlem Irrigation/Love II, the identical issue being raised in 

this appeal could have been litigated in a prior proceeding, that 

is, in AIU I. 

In Love I, the Loves first filed a complaint in 1983 in which 

they alleged various claims against the Irrigation District and the 

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), 245 Mont. 443, 802 P.2d 611 (Love I). 

After this Court's decision in Love I, the Loves filed a new 

complaint again alleging a violation of statutory and contractual 

rights as a result of the refusal to provide water. In addition, 

the Loves alleged civil rights violations under 42 U.S.C. § 1983. 

The Irrigation District moved for summary judgment based, in part, 

upon res judicata. The district court denied the motion and the 

Irrigation District sought a writ of supervisory control. We 

accepted original jurisdiction and reversed. In Harlem 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. We held that 

the doctrine of res judicata bars § 1983 claims in Montana's courts 

when the constitutional claims could have been raised in an earlier 

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 a prior proceeding. Mills, 

864 P.2d at 1267. A party should not be able to litigate 

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a matter that the party already had the opportunity to 

litigate; public policy dictates that there must be some 

end to litigation. [Citations omitted.] Once a party 

has had an opportunity to present a claim, the judgment 

in a previous case is final as to the issues that were 

raised, as well as those that could have been raised. 

See Burgess v. Montana (1989), 237 Mont. 364, 366, 772 

P.2d 1272, 1273. This notion arises from public policy 

designed to prevent endless piecemeal attacks on previous 

judgments. Wellman v. Wellman (1982), 198 Mont. 42, 46, 

643 P.2d 573, 575. We conclude that the theories of 

recovery alleged in this cause of action could have been 

litigated in the prior proceeding. 

Harlem Irrigation/Love II, 894 P.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 amend its 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 on appeal in AIU I. The issue of coverage was an issue which 

not only could have been raised in AILJ I, but, in fact, was raised 

by the City by way of the motion to amend the complaint. Under the 

principles enunciated in Harlem Irrigation/Love II, the City had an 

opportunity to appeal the coverage issue to this Court and chose 

not to do so. Given that the City had the opportunity to appeal 

the coverage issue, the judgment of this Court in AILJ I 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. 

We hold that the coverage issue which the City of Bozeman now 

seeks to litigate was an issue which the City sought to litigate by 

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way of an amended complaint in AIU I. When the District court 

denied the motion to amend, the City accepted that ruling and chose 

not to appeal the coverage issue. The insurance coverage issue is 

thus barred by the doctrine of res judicata. 

Affirmed. 

We concur: 

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