No. 93-349 IN THE SUPREME COURT OF THE STATE OF MONTANA 1994

DeTIENNE ASSOCIATES LIMITED PARTNERSHIP and PARK PLAZA HOTEL, INC., Plaintiffs and Respondents,

v. MONTANA RAIL LINK, INC., Defendant and Appellant.

APPEAL FROM: District Court of the First Judicial District, In and for the County of Lewis and Clark, The Honorable Thomas C. Honzel, Judge presiding.

COUNSEL OF RECORD: For Appellant: Edward A. Murphy, Datsopoulos,MacDonald & Lind, Missoula, Montana For Respondents: Patrick E. Melby, Luxan & Murfitt, Helena, Montana

Submitted on Briefs: November 10, 1993 Decided: February 17, 1994JusticeWilliam E. Hunt, Sr., delivered the opinion of the Court. Appellant,Montana Rail Link, Inc., appeals from thatportion of a judgment of the First Judicial District Court, Lewis and Clark County, awarding damages to respondents, DeTienne Associates and Park Plaza Hotel, Inc., forbusiness interruption losses in excess of reimbursed insurance proceeds which were caused by a prolonged power outage after an explosion caused by a collision between Montana Rail Link trains. Affirmed

# . The issues are as follows: 1. Did theDistrictCourt errwhen it disregarded several of Montana Rail Link's proposed exhibits in determining Park Plaza's business interruption losses? 2. Was the DistrictCourt s finding that Park Plaza suffered $405,000 in business interruption losses clearly erroneous? Respondent, DeTienne Associates (DeTienne), is 

### a Montana limitedpartnership with itsprincipalplace ofbusiness in Helena. Respondent, Park Plaza Hotel, Inc. (Park Plaza), is a Montana corporation also with its principal place of business and hotel in Helena. DeTienne owns the hotel and Park Plaza operates it. Farmers Union Mutual Insurance Company (FWMI) is a Montana insurance company operating out of Great Falls,which insured Park Plaza under a special multi-peril policy of insurance. Montana Rail Link, Inc. (MRL), operates a railroad with tracks and a rail yard in Helena.On February 2, 1989, MRL's rail cars, stopped on a mountain grade west of Helena, became uncoupled from the engine and rolled back toward Helena, colliding with MRL's yard engines. An explosion resulted which caused an extensive power outage in the Helena area. The power outage lasted four or more hours during extremely cold weather. During the power outage, Park Plaza's hot water heating system and reheat coils froze and broke. After heat

was restored, water leaked from the broken pipes causing considerable damage to the hotel's ceilings, carpet, drywall, paneling, and a domestic hot water heater and tank. In November 1989, Park Plaza started a remodeling project on
somepreviously planned additionswhich delayed the demolition and reconstruction processes of some of the hotel's damaged areas. On November 19,1990,FUMIbrought suitagainstMRL in Cascade County. On February 2, 1991,Park Plaza brought suit in Lewis and Clark County to recover damages. On May 31, 1991,FUMI intervened to assert its right of subrogationagainst MRL, and on October 22, 1991, its suit against MRL was transferred to Lewis and Clark County. On November 7, 1991, the First Judicial District Court consolidated the two suitsand dismissed FUMI's separate complaint in intervention. On August 11, 1992, the parties stipulated that the issue of negligencewould not be tried and that trial would be limited to the issue of proximate cause and damages. On August 27, 1992,the courtgrantedpartial summary judgment againstMRL and infavor of Park Plaza and FUMI for damages caused by the power outage. Park Plaza and FUMI could not agree on the amount of the personal property and business interruption losses. Therefore, Park Plaza invoked the appraisal clause contained in its insurance policy with FUMI to determine the losses. Pursuant to the appraisal clauseunder the insurancepolicy, eachparty selected an appraiser,and thoseappraisers selecteda third appraiser to serve

as an umpire in the evaluation of claims at settlement negotiations. The appraisers found that Park Plaza's personal property loss was $24,006. But because the business interruption losses exceeded the $300,000policy limit,FUMI1sappraiserdidnot calculate the lossbecause FUMIwas not obligated topay Park Plaza any excess. FUMI's appraiser determined a reasonable indemnity period to be February 2, 1989, through September 18, 1989. By order

### onOctober 15, 1992,the courtgranted ParkPlaza and FUMI1smotion to exclude MRL from calling any witnesses at the trial on October 19 and 20, 1992. At trial, Park Plaza sought $491,11linbusiness interruptionlosses fortheperiod February 2, 1989, through December 31, 1989. Park Plaza based this claim on 1989 operating losses of $89,060, 1989 extraordinary income losses of $59,002, 1989 projected lost profits of $329,866, and 1990 bus tour losses of $13,183. On March 26, 1993, the court found that Park Plaza's total business interruptionlossesreasonablyrelatedto thepower outagewere $405,000, and awarded $105,000 to Park Plaza and $300,000 to FUMI. The court also found that the time period for purposes of determining the business interruption losseswas February 2, 1989, through November 1, 1989. At trial, the court did not rule on the admissibility of the MRL's proposed Exhibits H and I at issue on appeal. However, the court effectively denied their admission when, in its conclusions of law, it stated that it had not used the exhibits in determining the amount of Park Plaza's business interruption losses. On April 23, 1993, MRL filed motions for a new trial or alternatively to amend the court's findings of fact. The court denied themotions. On July 2, 1993,MRL filed this appeal of the judgment for both Park Plaza and FUMI. Subsequently, Park Plaza and FUMI each filed cross-appeals againstMRL asserting that the record supported a much higher award of damages forthe loss of business than that foundby the District Court. However, afterMRL satisfied FUMI s judgment, both MRL and FUMI dismissed appeals against each other on August 16, 1993. Similarly, on appeal, after Park Plaza considered this Court's applicablestandard of review, itwithdrew its cross-appealagainst MRL. Of the total damages of $533,596.49 found by the District Court, MRL appeals that part of the award related to business interruption losses, $405,000, and specifically that portion Park Plaza claims to be in excess of the insurance reimbursement, $lO5,OOO.ISSUE 1 Did the District Court err when it disregarded several of Montana Rail Link's proposed exhibits in determining Park Plaza's business interruption losses? Duringcross-examination of FUMI's appraiser, MRL attemptedto introduce two exhibits over the objections of Park Plaza and FUMI. MRL's proposed Exhibits H and I were a spreadsheet and an attached cover letter which had been prepared by Park Plaza's appointed appraiser and sent to FUMI1sappointed appraiser during their settlementnegotiations. The spreadsheetpurported to showFUMI1s subrogation claim against MRL from the period February through December, 1989. The cover letter revised that claim figure and also indicated that it was part of settlement negotiations in resolving the claimbetween Park Plaza and FUMI. FUMI's appraiser testified that he had not relied on either document when he determined Park Plaza's business interruption losses. Park Plaza and FUMI objected to admission of both exhibits on three grounds:

(1) that FUMIvsappraiser did not rely on the documents when he determined ParkPlaza's business interruptionlosses; (2) that they

were inadmissibleashearsayunder Rule 802 of the Montana Rules of Evidence; and (3) that they were inadmissible as part of attempts to negotiate a compromise under Rule 408, M.R.Evid. MRL asserts that the exhibits support its analysis of Park Plaza's business interruptionlosses. FUMI's expert put the letter and spreadsheet into his report submitted to MRL's attorney in anattempt to generate some settlement discussions with MRL and to give the attorney an overview of the case's history. However, FUMI's expert testified that he did not rely on the exhibits to make his assessment of Park Plaza's business interruption losses. Thus,the evidencewas not relevant to the issue of damagesbecause it was not the basis upon which the expert formed his opinion. Rules 402 and 703,M.R.Evid. The rules of evidence define hearsay as "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Rule 801(c), M.R.Evid. Hearsay is not admissible unless it falls under an exception in another of the rules of evidence. Rule 802, M.R.Evid. The cover letter and spreadsheet

were prepared by Park Plaza's appraiser, the declarant who did not testify at trial. Under Rules 801(c) and 802, M.R.Evid., these proposed exhibits were hearsay and properly excluded. Inthe cover letter, Park Plaza's appraiser stated: ''1 hope we

can make some progress on resolving this claim. 

# . . . After you have had an opportunity to review this [attached spreadsheet], please give me a call so we can make settlement on this claim.8* MRL asserts that although Rule 408, M.R.Evid., excludes conduct or statements made in compromisenegotiations, it does not exclude evidence otherwise discoverable. MRL argues that the appraiser's spreadsheet report and cover letter were a statementagainst interest of a party opponent under Rule 801(d) (2)(A) and (D), M.R.Evid., and thus discoverable. The rules of evidence specifically allow a trial court to exclude evidence of accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to its amount. Rule 408, M.R.Evid. That rule reads in pertinent part: Evidenceof 

# .

# ..acceptingor offering orpromising to accept, a valuable consideration in compromising or attempting to compromise a claimwhichwas disputed as to either validity or amount is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible. [Emphasis added]. The record indicates that although the early results of Park Plaza and FUMIVsnegotiations concerning the amount of business interruption losses may otherwise have qualified as statements against their own interest, they were not made as independent statementsof fact,but insteadwere made as offers foran amicable compromise between those parties. Lenahan v. Casey (1912), 46 Mont. 367, 379, 128 P. 601;Gamble-Skogmo, Inc. v. McNair (1951), 98 F. Supp. 440, 442;A. 

### E. Korpela, Annotation, &lmissibilitvof Admissions Made in Connection With Offers or Discussions of Com~romise,15 A.L.R.3d 29-30 (1967). Evidence of attempts to compromise a settlement are properly excluded based on the privilege grounded in public policy to encourage compromises and settlements. The court properly excluded the letter andspreadsheet as part of settlement negotiations under Rule 408, M.R.Evid. The standard of review for discretionary trial court rulings is whether the trial court abused its discretion. Steer, Inc. v. Department of Revenue (1990), 245 Mont. 470, 475, 803 P.2d 601, 604. We hold that the evidence is not admissible, and the District Court did not abuse its discretion. We affirm the District Court

on this issue. ISSUE 2 Was the District Court's finding that Park Plaza suffered $405,000 in business interruption losses clearly erroneous? We will affirm the findings of a trial court sitting without

a jury if the findings of fact are not clearly erroneous. InterstateProd. CreditAss'n v. DeSaye (1991), 250Mont. 320, 322, 820 P.2d 1285, 1287. However,we will substitute our judgment for that of the District Court if we find that it is not supported by substantial credible evidence, misapprehends the effect of the evidence, and leavesuswith the definite and firm conviction that

amistake has been committed. InterstateProd., 820 P.2d at 1287. As stated, at trial the court reserved ruling on the objections to MRL's proposed Exhibits H and I, and allowed FUMI's appraiser to testify about their contents. However, the courtdid not rely on the exhibits when 

### it evaluated Park Plaza's businessinterruption losses, and so stated in conclusion of law number nine.MRL asserts that the record contained no evidence to support the court's award of $405,000, and that with evidence contained in Exhibits H and I, MRL could have established that Park Plaza's business losses were only $321,279. The record shows substantial credible evidence with which the court could support an award of $405,000 in business interruption losses to Park Plaza. Park Plaza's expert accounting witness on damages testified that for the period of February 2, 1989, through December 31, 1989, business interruption losses were at least $490,491. This expert testified from a schedule which he had prepared for his damage claim summary. That schedule actually put those losses at $491,111. In addition, DeTienne's general manager testified that thetotalbusiness losseswere $512,623 for the same period. Park Plaza's and FUMI's expert witnesses testified that DeTiennews general manager had made reasonable assumptions in determining the business interruption losses. DeTiennensgeneral manager also testified that in November 1989, Park Plaza started a previously planned remodeling project. On these facts, the court had sufficient evidence with which to support its award for business interruption losses to Park Plaza in excess ofMRL's claim of only $321,279. The court also determined that the business interruption losses award should cover theperiod from February 2, 1989, throughNovember 1, 1989, instead of through December 31, 1989. The court also had sufficient evidence with which tomake this determination because of Park Plaza's self-imposed business interruption losses attributable to delay caused by its November 1989 remodeling project. From the foregoing, it is clear that the first part of the three-part test in Interstate Prod. is satisfied because there is substantial credible evidence to support the court's findings. The second and third parts are satisfied because we hold that the District Court did not misapprehend the effect of the evidence, and we are not left with a firm and definite conviction that a mistake had been committed. We hold that the District Court's finding that Park Plaza suffered $405,000 in business interruption losses was not clearly erroneous and we affirm the District Court on this issue. Affirmed.

Justice We concur:February 17,1994 CERTIFICATEOFSERVICE I herebycertifythatthe followingorderwas sentby United Statesmail,prepaid, to the followingnamed:

EdwardA. Murphy DATSOPOLOUS,MacDONALD&LIND,PC. 201WestMain,Suite201 Missoula, MT 59802 RobertF.James JAMES,GRAY&McCAFFERTY P.O. Box 2885 GreatFalls,MT 59403 PatrickE.Melby LUXAN&MURFITT P.O.Box 1144 Helena,MT 59624-1144

EDSMITH CLERKOF THESUPREME COURT STATEPF MONTANA ,7 ,#