Title: McCARTER v GLACIER GEN ASS CO
Citation: N/A
Docket Number: 13123
State: Montana
Issuer: Montana Supreme Court
Date: February 10, 1976

No. 13123 I N THE S U P R E M E C O U R T O F THE STATE O F M O N T A N A 1975 BILL McCARTER, P l a i n t i f f and Respondent, GLACIER G E N E R A L A S S U R A N C E C O M P A N Y , Defendant and Appellant. Appeal from: D i s t r i c t Court of the Ninth J u d i c i a l D i s t r i c t , Honorable Frank Blair, Judge presiding. Counsel of Record : For Appellant : Alexander, Kuenning, Miller & Ugrin, Great F a l l s , Montana John H. Kuenning argued, Great F a l l s , Montana For Respondent: Morrow, Nash and Sedivy, Bozeman, Montana Edmund P. Sedivy argued, Bozeman, Montana Submitted: December 3, 1975 Decided : FEfj 1 0 'lQ-76 ., ' M r . J u s t i c e Frank I. Haswell d e l i v e r e d t h e Opinion of t h e Court. A n insured farmer sued h i s insurance company t o recover payment f o r l o s s e s a l l e g e d l y due under two crop insurance p o l i c i e s . The d i s t r i c t c o u r t of Toole County, Hon. Frank E. B l a i r , d i s t r i c t judge presiding without a jury, awarded judgment t o t h e insured farmer i n t h e amount of $121,640.20, i n t e r e s t and c o s t s . Defend- a n t i n s u r e r appeals from t h i s judgment. P l a i n t i f f i s B i l l McCarter, a farmer who raises winter and spring wheat on lands i n Toole County, Montana. For s e v e r a l years p r i o r t o and including 1973, he insured h i s crops a g a i n s t h a i l damage and o t h e r r i s k s with t h e Federal Crop Insurance Cor- a poration. I n l a t e 1972 and e a r l y 1973 he applied f o r and purchased a d d i t i o n a l crop insurance from t h e defendant, Glacier General Assurance Company. I n h i s a p p l i c a t i o n f o r t h e a d d i t i o n a l Glacier Insurance, McCarter disclosed t h a t he had o t h e r crop insurance covering t h e same p e r i l s , v i z . Federal Crop Insurance. The Glacier Insurance was r e f e r r e d t o as Multiple P e r i l Crop Insurance. It covered n o t only t h e standard h a i l and f i r e r i s k s (designated "A" p e r i l s ) , but a l s o l o s s e s due t o weather conditions such as drought, flood- ing, f r e e z i n g , windstorms and t h e l i k e (designated "B" p e r i l s ) . McCarter paid a s e p a r a t e premium f o r coverage of "B" p e r i l s . "B" p e r i l s , u n l i k e "A" p e r i l s , were s u b j e c t t o a pro r a t a c l a u s e l i m i t i n g t h e i n s u r e r ' s l i a b i l i t y t o t h a t proportion of t h e l o s s t h a t t h e amount of its insurance bears t o t h e t o t a l insurance. Glacier issued two Multiple P e r i l Crop Insurance p o l i c i e s t o McCarter. One p o l i c y covered winter wheat and t h e o t h e r covered spring wheat. Each p o l i c y covered both "A" and "B" p e r i l s . McCarter paid a l l premiums f o r both p o l i c i e s . H e w a s charged t h e same premium he would have been charged had he not c a r r i e d t h e Federal Crop Insurance. I n 1973 McCarter suffered severe l o s s e s t o h i s winter and spring wheat from drought. Settlement f o r t h e s e l o s s e s under h i s Glacier p o l i c i e s could n o t be e f f e c t e d , however, and t h e i n s t a n t a c t i o n r e s u l t e d . The c a s e w a s submitted t o t h e d i s t r i c t c o u r t f o r d e c i s i o n on t h e b a s i s of an agreed statement of f a c t s , four d e p o s i t i o n s , and t h e testimony of McCarter and another a r e a farmer a t t h e t r i a l . The m a t e r i a l f a c t s a r e l a r g e l y undisputed. The c h i e f b a t t l e - ground concerns e s s e n t i a l l y l e g a l q u e s t i o n s , p r i n c i p a l l y t h e v a l i d i t y and c o n s t r u c t i o n of t h e pro r a t a c l a u s e i n t h e Glacier p o l i c i e s . The d i s t r i c t c o u r t held t h e pro r a t a c l a u s e i n t h e p o l i c i e s unlawful, void and unenforceable. M c C a r t e r was awarded judgment a s though t h e p o l i c i e s contained no pro r a t a c l a u s e . The amount of t h e judgment was $121,640.20. The d i s t r i c t c o u r t made an a d d i t i o n a l and a l t e r n a t i v e conclusion of law t h a t i f t h e pro r a t a c l a u s e s i n t h e two p o l i c i e s were v a l i d , t h e c l a u s e s should be i n t e r p r e t e d and construed t o r e q u i r e a t o t a l payment of $112,213.70. Glacier appeals from t h e judgment. The i s s u e s on appeal can be summarized i n t h i s fashion: (1) Is t h e pro r a t a c l a u s e i n t h e Glacier p o l i c i e s void and unenforceable? (2) I f n o t , how should it be i n t e r p r e t e d , construed and applied? Glacier contends t h a t t h e pro r a t a c l a u s e covering "13" p e r i l s is v a l i d and enforceable f o r a v a r i e t y of reasons: (1) It does n o t contravene Montana's u n f a i r d i s c r i m i n a t i o n s t a t u t e o r p u b l i c policy, ( 2 ) pro r a t a c l a u s e s a r e n o t unlawful per se, ( 3 ) t h e p o l i c y forms, rate s t r u c t u r e s and b e n e f i t schedules w e r e approved by t h e insurance commissioner, and ( 4 ) McCarter has f a i l e d t o c a r r y h i s burden of proof t h a t t h e c l a u s e i s i n v a l i d . Addition- a l l y Glacier argues t h a t t h e insurance would n o t have been w r i t t e n without t h e pro r a t a c l a u s e , and t h e c o u r t should not r e w r i t e t h e p o l i c y c o n t r a r y t o t h e i n t e n t i o n of t h e p a r t i e s . Section 40-3512 (3) , R.C.M. 1947, Montana's u n f a i r d i s - crimination s t a t u t e provides i n p e r t i n e n t p a r t : "No such i n s u r e r s h a l l make o r permit any u n f a i r discrimination e i t h e r between insureds o r property having l i k e i n s u r i n g o r r i s k c h a r a c t e r i s t i c s * * * i n t h e premium o r r a t e s charged f o r insurance, o r i n t h e dividends o r o t h e r b e n e f i t s payable thereon, o r i n any o t h e r of t h e terms and conditions of t h e insurance." The purpose of such u n f a i r discrimination s t a t u t e s i s t o e s t a b l i s h and maintain uniform r a t e s of insurance. 4 4 C.J.S., Insurance, g 342, p. 1308. The charging of excessive premiums c o n s t i t u t e s discrimination a g a i n s t t h e insured. Fogg v. Morris Plan Ins. Soc., 188 N.Y.S. 867; 5 Couch on Insurance 2d, 5 30:60, p. 579; 43 Am J u r 2d 559. Here McCarter was charged t h e same premium a s another insured who c a r r i e d no o t h e r crop insurance, but t h e b e n e f i t s payable t o him would be only a p a r t of t h o s e payable t o another insured without o t h e r crop insurance. There i s a clear v i o l a t i o n of t h e u n f a i r discrimination s t a t u t e under such circumstances and t h e d i s t r i c t c o u r t s o found: "5. That as between McCARTER, who c a r r i e d o t h e r m u l t i p l e p e r i l crop insurance upon h i s crops, and any o t h e r insured farmer l i k e McCARTER, but who d i d n o t c a r r y o t h e r m u l t i p l e p e r i l crop insurance upon h i s crops, t h e two insureds had l i k e i n s u r i n g and r i s k c h a r a c t e r i s t i c s , and GLACIER d i d cause t o be made and permitted u n f a i r discrimination between such insured i n o f f e r i n g t o pay s u b s t a n t i a l l y less b e n e f i t s t o McCARTER than t h o s e t o be paid t o o t h e r insureds f o r t h e same l o s s e s , b u t who had no o t h e r m u l t i p l e p e r i l crop insurance, a l l by v i r t u e of t h e inclusion of t h e pro-rata c l a u s e i n t h e p o l i c i e s of insurance i n question." This makes t h e pro r a t a c l a u s e unlawful i n t h e i n s t a n t c a s e a s it i s "Contrary t o t h e p o l i c y of express l a w , though n o t express- l y prohibited. " Section 13-801 ( 2 ) , R.C.M. 1947. Glacier next argues t h a t pro rata c l a u s e s a r e n o t unlaw- f u l per s e t but on t h e c o n t r a r y a r e v a l i d and enforceable. This is c l e a r l y t h e l a w . 16 Couch on Insurance 2d, 5 62:26, and c a s e s c i t e d t h e r e i n . But t h i s argument is i r r e l e v a n t . The v i c e here is t h a t McCarter w a s charged a premium based on " f u l l r i s k " insurance while t h e policy provided only f o r proportional o r pro r a t a payment of t h e l o s s . G l a c i e r ' s agent, Russell, testi- f i e d t h a t t h e premium s t r u c t u r e f o r m u l t i p l e p e r i l crop insurance was e s t a b l i s h e d by company a c t u a r i e s t o cover a f u l l l o s s t o those insureds who had no o t h e r insurance. The agreed f a c t s s t a t e t h a t Glacier charged t h e same premium t o an insured r e g a r d l e s s of whether o r n o t he had o t h e r crop insurance, and t h a t McCarter w a s charged t h e same premium t h a t he would have been charged had he not c a r r i e d Federal Crop Insurance. The d i s t r i c t c o u r t provided as a finding of f a c t : "4. That t h e premium charged McCARTER by GLACIER on t h e insurance p o l i c i e s i n question was fixed and determined by GLACIER'S a c t u a r i e s i n an amount so a s t o cover a f u l l r i s k of l o s s t o an insured under t h e p o l i c i e s , who had no o t h e r insurance coverage, including Federal Crop Insur- ance coverage, t o pro-rate with GLACIER'S p o l i c i e s . " Although pro rata c l a u s e s a r e not unlawful per s e , such c l a u s e i s unlawful here because a " f u l l r i s k " premium was paid and only a p a r t i a l recovery was p o s s i b l e under t h e pro r a t a c l a u s e . The approval of t h e p o l i c y forms, rate s t r u c t u r e , and b e n e f i t schedule by t h e o f f i c e of t h e insurance commissioner does not v a l i d a t e an otherwise i n v a l i d pro rata clause. S u l l i v a n and M i l l e r v. Doe, 159 Mont. 50, 495 P.2d 193. F i n a l l y Glacier argues t h a t McCarter has n o t c a r r i e d h i s burden of proving t h e pro r a t a c l a u s e i n v a l i d here. The b a s i s of t h i s contention i s t h a t M c C a r t e r produced no evidence of t h e absence of a r a t i o n a l b a s i s f o r d i f f e r e n t i a t i n g between insureds who have no o t h e r crop insurance and insureds having a d d i t i o n a l crop insurance, and accordingly t h e r e may w e l l be a reasonable b a s i s f o r charging both t h e same premium. S u f f i c e it t o say t h a t t h e record d i s c l o s e s t h e same premium charged both c l a s s e s of i n s u r e d s w i t h one class being paid s u b s t a n t i a l l y higher l o s s b e n e f i t s than t h e o t h e r . This c o n s t i t u t e s prima f a c i e evidence of excessive premium charges t o i n s u r e d s w i t h l i k e i n s u r i n g o r r i s k c h a r a c t e r i s t i c s and t h e d i s t r i c t c o u r t s o found . Our holding on t h e f i r s t i s s u e r e n d e r s c o n s i d e r a t i o n of t h e second i s s u e unnecessary. Judgment affirmed. J u s t i c e