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, 1993 
Justice Karla M. Gray delivered the Opinion of the Court. 

This case is before 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 Insurance Company. 

Wellcome submitted a claim for the amount of the sanction to 

The Home Insurance Company (Home) under his professional liability 

policy. Home denied the claim on the basis of a provision 

excluding payment for flf ines or statutory penalties whether 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 the policy was 

ambiguous and, therefore, should be construed against Home; and (2) 

coverage should be required under the 81reasonable expectationsRf 

doctrine. The U.S. District Court granted summary judgment to Home 

2 
on 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 court did not 

rely on the "wrongful actsu exclusion. 

Wellcome appealed to the United States Court of Appeals for 

the Ninth 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 the doctrine of reasonable expectations 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 narrowly and strictly 

construed because they are contrary to the fundamental protective 
purpose 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 I1fines or statutory penaltiesv1 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 I1deliberately wrongful actst1 

exclusion, is not before us and, therefore, is not addressed 

herein. 

Pursuant to the claims made policy between Wellcome 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 restitution of legal fees, costs and 

expenses arising therefrom. 

The court agreed with Wellcome that the monetary sanction was 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 ordinary parlance, means the payment of money 

imposed upon a person for miscondu~t.~ Because the Montana trial 

court imposed a payment of money on Wellcome for misconduct, the 

court concluded that the imposed sanctions were excepted from 
coverage 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, that a Montana 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 

before us, is not ambiguous and excludes coverage for the sanctions 

imposed by the state trial court. We note first that the 

"statutory penalty" language does not apply here; it was not the 

basis forthe trial court's imposition of sanctions. However, that 

language would include penalties of all kinds imposed under 

authority of statute or rule, including a 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 a penalty or punishment for 

Wellcome's misconduct, notwithstanding the fact that they did not 

come within any specific statutory authority 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" 

5 
as I1to impose a pecuniary punishment. . . ." 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; it would produce an absurd result in that 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 

recognized by this Court in Transamerica 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 

expectationsll of 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 expectations of the purchaser would 

be honored notwithstanding the fact that a "painstaking study1I of 

the policy 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 

6 
provisions, 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 Farm v. Estate of Braun (1990) , 243 Mont. 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 

that accepting the 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 Braun did we apply the doctrine to require coverage where clear 

policy language excluded the coverage. We decline to do so here. 

Expectations which are contrary to a clear exclusion from coverage 

are not "objectively reasonablew as we used that term in Rovle. 

We have concluded herein that the definition of damages in 

Wellcome' s pol icy with Home which excludes f inas" clearly and 

unambiguously excluded coverage under the facts of this case. To 

require Home to provide coverage where the policy manifests a clear 
intent 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 

against 
March 25, 1993 

CERTlFICATE OF SERVICE 

I hereby certify that the following order was sent by United States mad, prepaid, to the following 

named: 

Page Wellcome 

Attorney at Law 

4365 Executive Dr., Ste. #700 

San Diego, CA 92121 

Dennis McCaferty 

James, Gray & McCafferty 

P.O. Box 2885 

Great Falls, MT 59403 

ED SMITH. 

CLERK OF THE SUPREME COURT 

STATq OF MONTANA 

BY: --lkk--