No. 93-152

IN THE SUPREME COURT OF THE STATE OF MONTANA

1994

JAMES R. DEAN and LINDA M. DEAN

Plaintiffs,

-vAUSTIN MUTUAL INSURANCE COMPANY,

Defendant.

CERTIFIED QUESTION FROM: United States District Court for the

District of Montana, Missoula Division

TheHonorable Leif B. Erickson, Magistrate

COUNSEL OF RECORD:

For Plaintiffs:

Jeffrey D. Ellingson, Ellingson Law Offices,

Kalispell, Montana

For Defendant:

Gary R. Christiansen, Warden, Christiansen, Johnson

& Berg, Kalispell, Montana

Filed:

Submitted on Briefs: February 3, 1994

Decided: February 15, 1994

Cl&k

--
Justice James C. Nelson delivered the Opinion of the Court.

This case is before us on a certified question from the United

States District Court for the District of Montana, Missoula

Division, concerning the interpretation of § 33-18-242(5), MCA. We

accepted certification pursuant to Rule 44 of the M.R.App.P.

The following facts were presented to this Court in the

certification order as relevant to the question posed by the

federal district court.

A fire destroyed James and Linda Dean's (the Deans) residence

in Olney, Montana, on July 5, 1989. The Deans made demand upon

their insurance company, Austin Mutual Insurance Company (Austin

Mutual), for payment of their losses. That policy provided for

coverage for damages to the Deans' residence, as well as their

personal property, destroyed by the fire.

Austin Mutual hired an independent investigator to attempt to

determine the cause of the fire. During the same period of time,

the State Fire Marshal and the Flathead County Attorney's Office

conducted a similar investigation, which resulted in criminal arson

charges being filed against the Deans in August, 1989. A

preliminary hearing was held before the Flathead County Justice of

the Peace, who found probable cause to bind the Deans over to the

District Court for trial on the charge of felony arson.

In December, 1989, the Flathead County Attorney's Office filed

a motion seeking leave of the District Court to file an Amended

Information adding a count of conspiracy to commit arson, a felony.

The presiding judge found probable cause to believe the Deans had

2
committed the offense alleged in the second count and granted the

motion to file the Amended Information.

Pending the outcome of the criminal trial, Austin Mutual

refused to make any payments under the policy, except for a small

payment used by the Deans to clear away debris from the fire, which

was preventing the operation of a water system serving several

buildings in the immediate vicinity of the fire.

The Deans were acquitted of the criminal charges in March of

1990, and, on March 26, 1990, Austin Mutual paid the Deans the

balance of their policy limits for the dwelling coverage under the

policy. Prior to this time, Austin Mutual had paid the outstanding

balance due under a mortgage on the Deans' property to the

mortgagee. In June of 1990, the Deans demanded additional

compensation under the policy with the result that Austin Mutual

paid some of the items but contested payment of others.

On February 4, 1991, the Deans filed an action in the United

States District Court, alleging a number of violations of 3 33-18-

201, MCA, and setting forth several separate claims for relief.

The Deans took the deposition of Clinton Weekley, the

Assistant Vice-President for Claims for Austin Mutual. In that

deposition, Mr. Weekley stated that "the claim was denied initially

because criminal charges were brought." He also stated that

"Austin Mutual did not have information to indicate that the Deans

contributed in any way to burning their house down."

The parties filed cross-motions for summary judgment. The

Deans requested a "[rluling as a matter of law that Austin Mutual's
refusal to pay any policy benefits pending the Deans' criminal

acquittal was 'unreasonable': and was therefore a violation of

Montana's Unfair Claims Settlement Practices Act. . . .I1 Austin

Mutual contended that, with regard to the alleged violations of 5

33-18-201, MCA, it had a complete defense under 5 33-18-242(5),

MCA, as it had a reasonable basis for denying the claim.

In their briefs filed with this Court, the Deans cite Britton

v. Farmers Ins. Group (1986), 221 Mont. 67, 721 P.2d 303, and

contend that Austin Mutual had no reasonable basis in law or fact

for denying their claim because the fact that criminal arson

charges were filed against them was "inadmissible evidence." In

Britton, we held that an insurer was outside the bounds of the duty

of good faith if it relied on inadmissible evidence to deny a claim

and force the insured to take court action to collect the proceeds

of the claim. Britton, 721 P.2d at 316.

Austin Mutual responds to this contention with the argument

that Britton was a "bad faith" case and thus is not applicable to

this action, citing the special concurring opinion in Dees v. Am.

Nat'1 Fire Ins. Co. (Mont. 1993), _ P.2d _t 50 St. Rep. 1068,

which stated that § 33-18-242(3), MCA, explicitly prohibits

bringing an action for bad faith in connection with the handling of

an insurance claim and thus had no application to the statutory

cause of action. -IDees 50 St. Rep. at 1076.

The statute atissue, § 33-18-242, MCA, provides, in pertinent

part:

(5) An insurer may not be held liable under this section

if the insurer had a reasonable basis in law or in fact

4
for contesting the claim or the amount of the claim,

whichever is in issue.

The "reasonable basis" for denying a claim is a defense to

liability under § 33-18-242, MCA. The Deans brought an action

under this statute and alleged violations of 5 33-18-201, MCA;

therefore, if Austin Mutual had a "reasonable basis in law or in

fact" for denying the Deans' claim, that basis will serve as a

defense to the Deans' action.

The Deans desire a ruling that, as a matter of law, Austin

Mutual's refusal to pay policy benefits pending the criminal

acquittal was unreasonable. On the other hand, Austin Mutual

desires a ruling that, as a matter of law, denying the payment of

policy benefits pending the outcome of the criminal trial was

reasonable.

However, reasonableness is generally a question of fact:

therefore, it is for the trier of fact to weigh the evidence and

judge the credibility of the witnesses in determining whether the

insurer had a "reasonable basis" for denying a claim. This is not

a determination that can be made "as a matter of law," as requested

by the Deans and by Austin Mutual. Rather, whether an insurer has

a reasonable basis in law or in fact for contesting a claim or the

amount of a claim is to be determined as any other disputed issue

of fact based upon the evidence and circumstances of each case.

See Dees -I 50 St. Rep. at 1077 (Gray, J., special concurrence).

Based upon the above discussion, we answer the certified

question:

Whether, as a matter of law, an insurer has a "reasonable

5
basis in law or in fact" for contesting a claim or the

amount of the claim as set forth in § 33-18-242(5), MCA,

for alleged violations of 5 33-18-201, MCA, based solely

on the fact that the insureds have been charged with

felony arson

as follows:

No; whether the insurer had a "reasonable basis in law or in

fact" is an issue properly presented for determination to the trier

of fact.

We Concur:

AT7,zlyyL

Chief Just