No. 84-21 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1984 

UNITED STATES FIDELITY AND GUARANTY 

COMPANY, a Maryland corporation, 

Plaintiff, Respondent and Cross-Appellant, 

RAE VOLUNTEER FIRE COMPANY, 

Defendant and Appellant, 

and 

FAMERS UNION P.IUTUAL INSURANCE 

COMPAXY, HARRY PETROFF and ROSSALIC 

A. PETROFF, husband and wife, 

Intervenors and Appellants. 

APPEAL FROM: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin, 

The Honorable Joseph B. Gary, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

William E. OILeary; OILeary & McCarthy, Helena, 

Montana (Rae Volunteer Fire Co.) 

Graybill, Ostrem, Warner & Crotty; Gregory Warner, 

Great Falls, Montana (Farmers Union tlutual Ins.) 

For Respondent : 

Gough1 Shanahan, Johnson & Waterman; Daniel C. 

Murphy, Helena, Montana 

Submitted on Briefs: M.ay 17, 1984 

Deci.ded: October 9, 1984 

Clerk 
Mr. Justice Fred J. Weber delivered the Opinion of the Court. 

United States Fidelity and Guaranty Company (USF&G) 

sought a declaratory judgment in the Gallatin County District 

Court as to its obligations under a liability insurance 

policy issued by USF&G to Rae Volunteer Fire Company (Rae), a 

nonprofit corporation. Rae halted firefighting efforts upon 

determining that Harry Petroff and Rosalie Petroff 

(Petroffs) , residential dwelling owners, were not members of 

Rae, and the Petroff home burned to the ground. The District 

Court held that the decision to cease firefiqhting was not an 

occurrence or an accident within the meaning of the policy, 

because the resulting property damage was expected, and that 

there was no policy coverage. Farmers Union Mutual Insurance 

Company, insurer of the Petroff home, has intervened. We 

affirm the District Court. 

The issues a.re: 

1. Does the USF&G policy provide Rae with coverage as 

to the damages claimed by Farmers Union and Petroffs? 

2. Did the District Court err in finding the policy 

exclusionary language unambiguous where the policy fails to 

specify the individual or individuals in the corporation who 

may activate the exclusion? 

3. Does USF&G have a duty to defend Rae in the action 

commenced against Rae by Farmers Union and Petroffs? 

USF&G commenced this declaratory judgment action to 

determine the extent of its obligations and liabilities under 

the liability insurance policy issued to Rae. An extensive 

agreed statement of facts was submitted by the parties. 

USF&G and Rae then both moved for summary judgment. The 

District Court entered summary judgment for USF&G, holding 

that USF&G was neither obligated to provide liability 

coverage nor to defend Rae. 
The critical facts as summarized in this opinion are 

undisputed. Rae is a nonprofit corporation established to 

provide rural firefighting protection to its subscribers. 

Subscribers are charged an initiation fee and annual 

assessment dues. USF&G issued to Rae a standard form 

manufacturers' and contractors' liability insurance policy. 

On February 24, 1979 several Rae firefighters were 

advised by the Gallatin County Sheriff's office that a fire 

was burning at the Petroff home in Gallatin County. Four Rae 

volunteer firemen responded. The fire could be seen from 

approximately 1/2 mile away. Flames were shooting through 

the roof around the chimney as high as 15 or 20 feet in the 

air before arrival of the Rae firefighting equipment. All 

four Rae firefighters considered the fire to be fully 

involved, that is, it had sought its own source of oxygen, 

which would have prevented Rae from saving the structure with 

the supply of water available. The Rae fire fighters 

considered the fire out of control upon arrival and at all 

times while they participated. 

Upon arrival at the scene, firefighter Frank Trunk 

activated the water pump on the fire truck, two others 

commenced fighting the blaze with separate hoses, and the 

fourth fire fighter, Rick Jensen, questioned Harry Petrof f 

about the possibility of persons being endangered by the 

fire. Petroff stated there was no one in the house. The 

firefighter further inquired and was told that the Petroffs 

were not subscribing members of Rae. Jensen double-checked 

that information by radio with Rae's secretary. Upon being 

advised that the Petroff's were not Rae members, Frank Trunk, 

as fire company chairman, ordered the firefighters to cease 

all. firefighting efforts. The entire firefighting effort by 

Rae took an estimated 2 to 5 minutes after arrival at the 
scene. The fire continued burning out of control and 

destroyed the house. 

Approximately one year before the Petroff fire, the 

board of directors of R.ae a.dopted a policy which required 

personnel to respond to all fire calls in the service area to 

determine whether a life-endangering situation existed. If 

no life was endangered by fire, and if the owners of the 

structure were not members of the company, Rae would not 

fight the fire. 

Petroffs and Fa.rmers Union filed a com.plaint against Rae 

in the Gallatin County District Court seeking damages for 

destruction of the Petroff home and personal property, and 

for punitive damages. Rae gave notice of the suit to USF&G, 

which denied coverage on the basis that the allegations of 

the complaint and the incidents on February 24, 1979 did not 

constitute an "occurrence" as defined in the policy. 

The District Court's findings of fact quoted the 

applicable portions of the policy, about which there is no 

disagreement: 

"The company will pay on behalf of the insured all 

sums which the insured shall become legally 

obligated to pay as damages because of . . . property damage to which this insurance applies, 

caused by an occurrence . . ." 

The insurance policy defined. the word "occurrence" as 

follows : 

"'Occurrencer means an accident, including 

continuous or repeated exposure to conditions, 

which results in . . . property damage neither 

expected nor intended from the standpoint of the 

Insured. " 

In its conclusions of law, the District Court held that 

the issue between Rae and USF&G is one of contract language; 

that the language cannot be interpreted to cover a deliberate 

act by Rae the results of which were expected by its officers 

and agents; that the decision to cease firefighting was not 
an "occurrence" or an "accident" because the resulting 

property damage was expected from the standpoint of the 

insured; that USF&G does not provide insurance coverage for 

Rae under these circumstances; and that USF&G has no duty to 

defend since there is no liability under the policy. The 

District Court further held that the policy language is 

unambiguous because the fire company can have an expectation 

of property damage through its duly authorized officers and 

agents. 

I 

Does the USF&G policy provide Rae with coverage as to 

the damages claimed by Farmers Union and Petroffs? 

Rae contends that Montana case law was not properly 

interpreted by the District Court. Rae contends that the 

court erred in holding, in effect, that Rae was the cause of 

the fire and that because Rae expected the damage to occur 

when it stopped fighting the fire, Rae is barred from 

liability coverage. 

In contrast, USF&G argues that the decision of Rae to 

cease firefighting efforts at the Petroff residence was 

intentional and that the resulting destruction of the Petroff 

home was expected from the standpoint of the insured. USF&G 

argues there is no insurance coverage under these facts. 

The deposition of Mr. Trunk, chairman of the board of 

directors of Rae, establishes that he expected at the time 

the firefighting efforts were terminated that the house would 

burn to the ground. Mr. Gilbertson and Mr. Jensen, Rae's 

fire chief and assistant fire chief, testified that at the 

time the decision was made to stop the firefighting efforts, 

each of them expected that the house would be destroyed. 

This testimony is consistent with the findings of fact and 

agreed statement of facts to the effect that the fire 
continued burning out of control and destroyed the Petroff 

residence. 

Under these facts the policy definition of "occurrence" 

was not met. Such an "occurrence" must have resulted in 

property damage "neither expected nor intended from the 

standpoint of the Insured.." While there may be some argument 

as to intent in this case, there can be no argument as to 

"expected." It is clear that the chairman of the board, fire 

chief and assistant fire chief all expected that the house 

would continue to burn and be destroyed. That affords a 

clearly sufficient factual basis for the District Court's 

conclusion of law that the decision to cease firefighting was 

not an "occurrence" or an "accident" because the resulting 

property damage was expected by Rae. 

In Northwestern National Casualty Co. v. ~halen (1979) , 

182 Mont. 448, 459, 597 P.2d 720, 726, we construed a similar 

policy provision as follows: 

"After examination of the cases, and the exclusion 

itself, we would interpret the clause to mean that 

it precludes coverage for . . . damages, though not 

specifically intended by the insured, if the 

resulting harm was within the expectation or 

intention of the insured from his sta-ndpoint. That 

statement more precisely fits the language of the 

coverage provided by the insurer." 

That is directly applicable here where the destruction of the 

dwelling was the resulting harm expected by the insured. 

Rae cites Miller's Mutual Insurance Co. v. Strainer 

(Mont. 1983), 663 P.2d 338, 40 St.Rep. 743, as authority for 

its position. In that case we concluded that in removing a 

filter from a gas mask, the defendant had committed an 

intentional act, but that in doing so he had neither intended. 

nor expected the act's consequences, serious injury to a 

co-employee. Here Rae, through its employees, clearly 

expected the destruction of the dwelling. This is a factual 
distinction between Miller's Mutual Insurance - Co. and this 

case. 

We affirm the holding of the District Court that the 

USF&G policy did not provide coverage for the fire of 

February 24, 1979 or the damages claimed by the Petroffs and 

Farmers Union. 

Did the District Court err in finding the policy 

exclusionary language unambiguous where the policy fails to 

specify the individua.1 or individuals in the corporation who 

may activate the exclusion? 

We agree with the numerous Montana cases cited by Rae 

holding that where an ambiguity in an insurance contract 

exists, every doubt should be resolved in favor of the 

insured and strictly construed against the insurer. However, 

those cases are not controlling because Rae fails to show how 

the policy provisions are ambiguous in the present fact 

situation. 

In substance, Rae contends that because the policy 

language fails to identify the individual in the Rae 

corporation who may activate the provision with regard to the 

expectations or intention of the corporation, there is an 

ambiguity. That contention ignores the principle that a 

corporation acts through its duly authorized officers and 

agents. Fisk Tire Co. v. Lanstrum 61934), 96 Mont. 279, 282, 

30 P.2d 84, 85. Further, the uncontradicted findings of fact 

establish that Rae made a corporate decision through its 

board of directors to terminate firefighting activities under 

the fact situation which existed in the present case. The 

on-the-scene decision to stop firefighting efforts was made 

by the chairman of the board of directors after carefully 

checking to determine that the facts came within the purview 
of the decision previously made by the board of directors. 

We affirm the conclusion by the District Court that the 

chairman of the board of directors had authority under the 

circumstances to act for the corporation. See Hauptman v. 

Edwards, Inc. (1976), 170 Mont. 310, 553 P.2d 975; Bentall v. 

Koenig Bros. Inc. (1962), 140 Mont. 339, 372 P.2d 91. 

We affirm the conclusion by the District Court that the 

language of the policy is not ambiguous because Rae can have 

an "expectation" of property damage through its duly 

authorized officers. 

I11 

Does USF&G have a duty to defend Rae in the action 

commenced against Rae by Farmers Union and Petroffs? 

In substance Rae argues that under the allegations of 

the complaint by the Petroffs and Farmers Union, USF&G should 

be required to defend the action regardless of whether the 

actions of Rae actually caused the damage to the Petroff 

residence. In making that argument, Rae relies particularly 

upon our holding in Lindsay Drilling and Contracting v. 

United States Fidelity and Guaranty Co. (Mont. 1984), 676 

P.2d 203, 41 St.Rep. 193. It is true that in Lindsay this 

Court concluded that USF&G was obligated to defend under its 

policy, leaving for future determination by the jury whether 

the operations being performed by or on behalf of the insured 

at the time of injury were in fact negligent. In a similar 

manner, Rae argues that regardless of the facts, the 

allegations of the Petroff complaint are sufficient to 

require defense by USF&G. 

This argument disregards the undisputed facts contained 

in the agreed statement of facts and restated in the District 

Court's findings of fact. These facts establish that there 

is no coverage under the USF&G policy because the fire damage 
to the Petroff home was expected by Rae and, as a result, the 

decision to cease firefighting was not an "occurrence" as 

defined in the policy. This distinguishes Lindsay, in which 

the facts had not yet been determined by a trier of fact. 

We affirm the conclusion of the District Court that 

USF&G has no duty to defend where there is no liability under 

zhe policy provisions. 

We affirm the judgment of the District Court. 

We concur: 

'ab%JA.$ .% wpq 

Chief Justice