No. 92-387 IN THE SUPREME COURT OF THE STATE OF MONTANA 1993

PAGE WELLCOME; PAGE WELLCOME, PROFESSIONAL SERVICE CORP., Plaintiffs and Appellants,

-vsTHE HOME INSURANCE COMPANY, Defendant and Respondent.

ORIGINAL PROCEEDING

COUNSEL OF RECORD: For Appellants: Page Wellcome, Attorney at Law, San Diego, California For Respondent: Dennis McCafferty; James, Gray & McCafferty, Great Falls, Montana

Submitted on Briefs: January 28, 1993 Decided: March 25, 1993Justice Karla M. Gray delivered the Opinion of 

### the Court.

This case isbefore us on certified questions from the United States Court of Appeals for the Ninth Circuit concerning interpretation of insurance policy provisions. A Montana trial court imposed sanctions against Page Wellcome (Wellcome), a Montana attorney, 

### for disregarding its orders regarding voir dire, examination of witnesses and argument. The court ordered Wellcome and the insurer for his client to pay the sanctions. The sanctions, either as ordered 

### or as compromised, ultimately were paid by Page Wellcome and Aetna InsuranceCompany. Wellcome submitted a claim for the amount of the sanction to The Home InsuranceCompany (Home)under his professional liability policy. Home denied the claim on the basis of a provision excluding payment for flf ines or statutory penaltieswhether imposed by law or otherwise. 

# . . .II Wellcome filed a diversity action in the United States District Court asserting a breach of the insurance contract and seeking a declaration of the parties1 rights thereunder. Home pleaded 

### as affirmative defenses both the I1Eines or statutory penaltiesu exclusion and an exclusion for "deliberately wrongful acts or omissions committed by the Insured.ll The parties filed cross-motions for summary judgment. Wellcome sought summary judgment on the grounds that: (1)the term inell in thepolicy

### was ambiguousand,therefore,shouldbe construed againstHome;and (2) coverage should be required under the 81reasonable expectationsRf doctrine. TheU.S. District Court granted 

### summary judgment to Home 2on the basis of the @Ifineslf exclusion, concluding that the term was not ambiguous. On that basis, the court determined that the reasonable expectations principle did not apply. The courtdid not rely on the "wrongful actsu exclusion. Wellcome appealed to the United States Court of Appeals for theNinth Circuit. Stating that no clear controlling precedent in Montana judicial decisions existed on questions determinative of the case,the Ninth Circuit certified questions to this Court. We accepted jurisdiction of the certified questions by order dated August 25, 1992. The following two questions are certified from the Ninth Circuit: (1) Was there ambiguity in the contract language that should be construed against Home to require it to provide coverage for the sanctions imposed against Wellcome? (2) Does thedoctrine of reasonableexpectations require Home to provide coverage for the sanctions imposed against Wellcome? The interpretation of an insurance contract is a question of law in Montana. Truck Ins. Exchange 

### v. Waller (19921, 252 

### Mont. 328, 331, 828 P.2d 1384, 1386. Well-established principles guide

our interpretation. The language of the policy governs if 

### it is clear and explicit. Waller, 828 P.2d 

### at 1386. Ambiguities are construed against the insurer. Bauer Ranch v. Mountain W. Farm Bur. Mut. Ins. (1985), 215 Mont. 153, 156, 695 P.2d 1307, 1309. Furthermore,exclusions from coverage will be narrowlyand strictly construed because they are contrary to the fundamental protectivepurpose of an insurance policy. Farmers Union Mut. Ins. Co. 

### v. Oakland (1992), 251 Mont. 352, 356, 825 P.2d 554, 556. With these principles of insurance policy interpretation in mind, we turn to the policy at issue and the question of whether the I1finesor statutorypenaltiesv1 language is ambiguous, thereby requiring Home to provide coverage for the sanctions imposed against Wellcome. In so doing, 

### we note that Home's alternative basis for excluding coverage, the I1deliberatelywrongful actst1 exclusion, is not before us and, therefore, 

### is not addressed herein. Pursuant to the claimsmade policy betweenWellcome and Home, Home generally undertook to pay on Wellcome's behalf all sums in

excess of the deductible amount which Wellcome became lvfegally obligated to pay as damages. 

# . . .If The specific provision under which the U.S. District Court granted summary judgment to Home defines damages as follows: Damages,whenever 

### used in 

### this policy,

### means a monetary judgment or settlement and does not include fines or statutory penalties whether imposed

### by law or otherwise, nor the return

### of or restitutionof legal fees, costs and expenses arising therefrom. The court agreed with Wellcome that the monetary sanctionwas not imposed pursuant to statutory authority, and focused on the term lffine.Ii It determined that the term

### was not reasonably subject to differing interpretations, "[rlather, the term,whether used in a formal context or in ordinaryparlance,means thepayment ofmoney imposed upon a person formiscondu~t.~ Because the Montana trial court imposed a payment of money 

### on Wellcome for misconduct, the court concluded that the imposed sanctions were excepted fromcoverage under the policy. On appeal to the Ninth Circuit, and before this Court, Wellcome argues that sanctions are sanctions and are not fines, penalties or any other type of punishment. He asserts that the term "fines" is used in Montana statutes only in the context of criminal matters and, therefore, thataMontana attorney reasonably could understand the exclusion for "fines" in his professional liability policy to exclude only criminal fines. Home contends that the policy clearly informed Wellcome that coverage was not available if a court ordered him to pay money as a result of his misconduct. We conclude that the term "fines," as used in the policy beforeus, isnot ambiguous and excludes coverage forthe sanctions imposed by the state trial court. We note first that the "statutorypenalty" language does not apply here; it was not the basis forthetrial court's impositionof sanctions. However, that language would include penalties of all kinds imposed under authority of statute or rule, includinga criminal fine,an "excess costs" penalty pursuant to 5 37-61-421, MCA, a statutory contempt,

or a sanction imposed under the Montana Rules of Civil Procedure. Here, the trial court imposed the sanctions for Wellcome's violation of certain of its orders during trial, pursuant to its inherent authority. The sanctions were apenalty or punishment for Wellcome's misconduct, notwithstanding the fact that they did not

comewithin any specific statutoryauthority so as to constitute a statutory penalty under the policy. Black's Law Dictionary (4th Ed. Rev.) defines a fine as a penalty; it defines the verb "fine" 5as I1toimpose a pecuniarypunishment. 

# . .

# ." In our view, this is the commonly understood and clear meaning of the word ''fine. well come*^ attempt to restrict the term to the criminal context is hypertechnical; itwouldproduce anabsurd result inthat sanctions imposed pursuant to statute or rule would be excluded from coverage, while sanctions imposed pursuant to a court's inherent authority to do so would be covered. We turn

### next to the llreasonable expectations" doctrine, first recognizedby this Court inTransamerica Ins. Co. 

### v. Royle (19831, 202 Mont. 173, 656 P.2d 820. In that case, we held that a policy exclusion was invalid due to its failure to "honor the reasonable expectationsllof the purchaser of the policy. Rovle, 656 P.2d at 824. We quoted Keeton, Insurance Rights at Variance with Policy Provisions, 83 Haw.L.Rev. 961, 967 (1970)

### , for the proposition that the objectively reasonable expectationsof thepurchaserwould be honored notwithstanding the fact that a "painstaking study1Iof thepolicy would have negated the expectations. Rovle, 656 P.2d at 824. The reasonable expectations doctrine is in accord with our strong public policy that insurance is intended to serve a fundamental protective purpose; to this extent the doctrine goes hand in hand with our rule of strictly construing policy exclusions. See Oakland, 825 P.2d at 556. We next considered, and declined to apply, the reasonable expectations doctrine in Passage 

### v. Prudential-Bache Securities, Inc. (198&), 223 Mont. 60, 727 P.2d 1298. In Passase,plaintiffs contended that the arbitration clause in their client agreement form, printed in the same typeface as the other agreement 6provisions, was unenforceable 

### as outside their reasonable expectations, Stating that there was nothing in the record to indicate that the arbitration clause was not within the parties' expectations, we affirmed 

### the enforceability of the clause. Passaqe, 727 P.2d at 1302. We most recently addressed 

### the reasonable expectations of an insured in State Farmv. Estate of Braun (1990)

### , 243Mont. 125, 793 P.2d 253. There, the underinsured policy at issue specifically provided that coverage extended to Canada. Canadian law severely restricted damages 

### in wrongful death tort actions. We determined that, given the policy's specific extension of coverage for accidents occurring in Canada, a reasonable average insured would not be aware that, in relation to Montana law, Canadian law severely restricted damages. Braun, 793 P.2d at 256. We noted thatacceptingthe insurer's position would produce the result that State Farm sold, and collected premiums for, coverage in Canada that 

### was worthless to the insured. Braun, 793 P.2d at 256. Nothing in our cases supports the applicability of the reasonable expectations doctrine in this case. 

### In neither Rovle

nor Braundid we apply thedoctrine to require coverage where clear policy 

### language excluded the coverage. 

### We decline 

### to do so here. Expectationswhich are contrary to a clear exclusion from coverage 

### are not "objectively reasonablew

### aswe 

### used that term in Rovle. We have concluded herein that the definition 

### of damages 

### in Wellcome's policy with Home which excludes finas" clearly and unambiguously excluded coverage under 

### the 

### facts of 

### this case. To requireHome toprovide coverage where thepolicymanifests a clearintent to do otherwise would violate our most basic contract law and rules of interpretation. See, e.g., 5 28-3-401, MCA, and Waller, 828 P.2d at 1386. We conclude, therefore, that the doctrine of reasonable expectations does not require Home to provide coverage for the sanctions imposed against Wellcome. Based on the above discussion and conclusions, we answer the certified questions as follows: "First, was there ambiguity in the contract language that should be construed against Home to require it to provide coverage for the sanctions imposed against Wellcome?" No. llSecond, does the doctrine of reasonable expectations Home to provide coverage for the sanctions imposed Wellc~me?~~ No.

We concur: require againstMarch25,

### 1993 CERTlFICATEOFSERVICE IherebycertifythatthefollowingorderwassentbyUnited Statesmad,prepaid,tothefollowing named: PageWellcome Attorney atLaw 4365ExecutiveDr.,Ste.#700 SanDiego,CA 92121 DennisMcCaferty James,Gray&McCafferty P.O. Box2885 GreatFalls,MT 59403 EDSMITH. CLERKOFTHESUPREMECOURT STATqOFMONTANA 

### BY:

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