Opinion ID: 876072
Heading Depth: 2
Heading Rank: 1

Heading: Scottsdale Insurance Company

Text: ¶28 Teen Help timely demanded a defense and indemnification from Scottsdale. Scottsdale rejected Newman’s demand, but denies it breached its duty to Teen Help. It argued that it was required to determine whether it had a duty to defend Teen Help by evaluating the information available to it at the time the request to defend was presented. At the time the coverage determination was made, the only pleadings in Newman I were 11 the complaints, including the Third Amended Complaint, and related exhibits. Based exclusively upon the information contained in the Third Amended Complaint, Scottsdale concluded that the exclusions within its policy applied to Newman’s claim and, as such, it had no duty to defend. Scottsdale claims on appeal that the District Court should have considered only the contents of the Third Amended Complaint and exhibits in determining the correctness of Scottsdale’s conclusion. It asserts that the court erred by considering inadmissible evidence presented with Newman’s motion for summary judgment, such as a Lichfield deposition transcript, the Teen Help telephone sales script and a settlement agreement. ¶29 Newman responds that an insurer has a duty to defend its insured unless there is an “unequivocal demonstration” that the claim does not fall within the insurance policy’s coverage. She maintains that because policy exclusions are to be narrowly and strictly interpreted, Scottsdale should have filed a declaratory judgment action to resolve the issue of coverage rather than refusing to defend. Newman asserts that the exclusion language contained in Scottsdale’s policy is “ambiguous, repetitive and circular” and contains terms subject to multiple interpretations because the policy does not provide the definitions upon which Scottsdale seeks to rely. ¶30 It is well-established that “where [an] insurer refuses to defend a claim and does so unjustifiably, that insurer becomes liable for defense costs and judgments.” Farmers Union Mut. Ins. Co. v. Staples, 2004 MT 108, ¶ 27, 321 Mont. 99, 90 P.3d 381. In Staples, Kenneth Huntsinger, while driving near Havre, Montana, struck a horse named Frenchy. Huntsinger was injured and his car was damaged. Staples, ¶¶ 6, 9. As Frenchy 12 bore Matt Corcoran’s brand, Huntsinger filed a complaint against Corcoran. Staples, ¶ 7. Corcoran was insured by Farmer’s Union Mutual Insurance Company. Staples, ¶ 8. As litigation proceeded, it became apparent that Frenchy’s ownership at the time of the accident was unclear. Additionally, it was unclear whether Frenchy had escaped from Corcoran’s or Staples’ pasture. As a result, Huntsinger filed an amended complaint against co-owner Raymond Staples. Staples, ¶ 10. Farmers Union refused to defend Staples as an “additional insured” because Farmers Union unilaterally concluded that Corcoran had sold his interest in Frenchy before the accident, and therefore coverage based upon ownership was no longer available. Staples, ¶ 11. As here, Staples eventually confessed judgment in favor of Huntsinger and assigned his rights under Corcoran’s policy to Huntsinger. Staples, ¶ 12. The district court concluded, based upon the allegations in the amended complaint and the ownership dispute at the time, that Farmers Union had a duty to defend Staples. Staples, ¶ 13. ¶31 Farmers Union appealed and we affirmed. We explained that “Montana law is well-settled that an insurer’s duty to defend its insured arises when an insured sets forth facts which represent a risk covered by the terms of an insurance policy.” Staples, ¶ 20. “The insurance company must look to the allegations of a complaint to determine if coverage exists under an insurance policy, thus giving rise to the insurer’s duty to defend.” Staples, ¶ 20. We concluded that Farmers Union had breached its duty to defend and was therefore estopped from denying coverage. Staples, ¶ 28. ¶32 In the case before us, Scottsdale does not dispute that Teen Help was an insured. Therefore, in accordance with Staples, ¶ 20, we look to the facts alleged in Newman’s 13 Third Amended Complaint vis-à-vis Teen Help, to determine whether these facts, if proven, would present a claim covered by the policy: 1. Teen Help was a limited liability company doing business in Montana. 2. Teen Help purported to help parents of troubled teens obtain placement in an appropriate treatment facility, but directed parents only to facilities owned and operated by Robert Lichfield. Teen Help was the marketing arm of the other defendants. 3. At all relevant times, Lichfield exercised control over all related entities, including Teen Help, controlling personnel hiring, student recruitment and solicitation, and student care, treatment and supervision. ¶33 In addition to the foregoing specific allegations against Teen Help, the Third Amended Complaint also alleged that all defendants were alter egos of one another, and that they jointly failed to implement adequate policies to protect the children in their care; failed to hire, train and supervise staff; failed to properly evaluate Karlye’s needs; and failed to meet the accepted standard of care in providing mental health treatment to Karlye. ¶34 Scottsdale argues the District Court determined that its policy covered Newman’s claims by erroneously considering evidence that came into the record after Scottsdale had made its decision—based upon the allegations of the Complaint and its exhibits—that the Complaint did not state claims for which the policy would afford coverage. Scottsdale claims it was required only to look to the Complaint to determine whether coverage for the claims existed, and that the court erred in looking at evidence outside the Complaint and resolving issues of fact on summary judgment. It does appear that, in part, the District Court took into account evidence outside the Complaint and its exhibits in 14 making its determination. However, even if we discount evidence outside the four corners of the Third Amended Complaint and its exhibits, we can still answer the duty to defend question through an analysis of the Third Party Complaint, the Scottsdale policy, and established case law defining the parameters of the duty to defend. ¶35 Scottsdale claims it had no duty to defend because exclusions in the policy clearly applied to Newman’s claim. We disagree. Exclusions must 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, 251 Mont. 352, 356, 825 P.2d 554, 556 (1992). Moreover, because exclusions are contrary to the fundamental purpose of the policy, such exclusions are frequently subject to challenge for ambiguity or inconsistency. Swank Enters. v. All Purpose Servs., Ltd., 2007 MT 57, ¶ 29, 336 Mont. 197, 154 P.3d 52. As such, the mere existence of the exclusions in Scottsdale’s policy did not establish an “unequivocal demonstration” that the claim did not fall within the insurance policy’s coverage. ¶36 Addressing the professional services exclusion, Scottsdale claims “[t]he distinction between professional services and nonprofessional services is marked by whether the insured is required to make a trained judgment,” and that professional services “embrace[] those activities that distinguish a particular occupation from other occupations, as evidenced by the need for specialized learning or training—and distinguished it from ordinary activities in life and business.” Claiming that its policy exclusions “contain plain and ordinary language,” Scottsdale opines that Teen Help’s 15 recommendation that Karlye attend Spring Creek constituted a professional service, coverage of which was precluded by the professional services exclusion. ¶37 Scottsdale relies upon Fire Ins. Exch. v. Alsop, 709 P.2d 389 (Utah 1985), in which a licensed chiropractor, Michael Alsop, provided chiropractic services to a woman during labor and delivery. The woman and child were injured during delivery and the woman sued several defendants, including Dr. Alsop. Alsop demanded that his homeowners insurance provided by Fire Insurance Exchange defend and indemnify him. Fire Insurance filed a declaratory action to determine whether the policy covered Alsop’s actions or whether his claim fell within the policy’s “professional services” exclusion. Fire Insurance prevailed. Scottsdale asserts that the professional services exclusion in its policy is similar to that in Alsop’s Fire Insurance policy which the Utah Court concluded was “clear and unambiguous.” ¶38 Alsop is distinguishable and does not help Scottsdale in the case at bar. There was no discussion in Alsop as to whether “professional” or “professional services” was defined in the Fire Insurance policy. However, it was undisputed that Alsop’s services as a licensed chiropractor were professional services that required Alsop to undergo specialized training, education and licensing. As such, liability for Alsop’s professional services was excluded under the professional exclusion clause. While not expressly equating Teen Help’s employees with licensed chiropractors, Scottsdale insists that Teen Help’s staff similarly rendered professional services in assisting in placements of troubled youth into Lichfield’s schools and in Teen Help’s participation in the operation 16 and planning of Spring Creek, thereby falling within the “clear and unambiguous” professional services exclusion. We find this analogy inapt. ¶39 A licensed chiropractor would obviously be called upon to render professional medical services. By contrast, Teen Help is described in the Third Amended Complaint as no more than a marketing arm of the other defendants, directing parents of troubled teens to facilities owned and operated by Lichfield as part of a civil conspiracy to profit at the expense of the safety and health of children. These allegations do not suggest the exercise of “trained judgment” or “specialized learning” unique to “professional services,” as Scottsdale argues; rather, these allegations raise the specter of an injury caused by an occurrence resulting from non-professional services. Because non-professional services were alleged, a duty to defend was triggered. ¶40 We acknowledge that the Third Amended Complaint also alleged that all defendants jointly breached some professional obligations. However, we have held that a duty to defend is triggered where one portion of the complaint alleges facts which, if proven, would result in coverage, even if the remaining counts of the complaint would not be covered. Home Ins. Co. v. Pinski Bros., 160 Mont. 219, 227, 500 P.2d 945, 949-50 (1972). ¶41 Further, although Scottsdale relies on the “professional services” exclusion in its policy as a basis for denying coverage, the policy does not define the terms “professional,” “professional services,” or “professional exposures,” so as to alert the insured concerning what services are covered and what services are excluded. At a minimum, this renders the coverage confusing and ambiguous. It is well-established that 17 any ambiguity in an insurance policy must be construed against the insurer. Wendell v. State Farm Mut. Auto. Ins. Co., 1999 MT 17, ¶ 14, 293 Mont. 140, 974 P.2d 623. As such, the District Court did not err in determining the professional services exclusion did not preclude a determination that Scottsdale had a duty to defend based upon the allegations set forth in the Third Amended Complaint. ¶42 Turning to Scottsdale’s “designated operations” exclusion, Scottsdale claims the insurance policy provides coverage to Teen Help’s St. George, Utah, location only, and therefore does not provide coverage for any “alleged liability [that] occurred in Montana at the Spring Creek facility.” Again, we note that the policy exclusion does not define critical terms, including “professional,” “scheduled locations,” or “arising out of.” Nor does it expressly state a “scheduled location,” although it does provide for a “coverage territory” comprised of the United States of America. In an attempt to interpret the contract to give meaning to all parts of the policy, we find the absence of an expressly identified “scheduled location” and the expansive definition of “covered territory” confusing and ambiguous. ¶43 Furthermore, if we accept Scottsdale’s interpretation of policy coverage, it appears coverage is illusory. According to Scottsdale, all of Teen Help’s employees are “professionals” and any liability associated with their services is excluded from coverage under the professional services exclusion. Moreover, given Scottsdale’s claim that the policy covers the St. George, Utah, premises only, the policy would appear to cover only the conduct of non-professional employees that occurs in the St. George, Utah, location. Given that the Utah office is a call center that is not open to customers or the public, it is 18 difficult to imagine a scenario under which coverage would be extended. We have held that policy language which renders coverage illusory is against public policy. Hardy v. Progressive Specialty Ins. Co., 2003 MT 85, ¶¶ 20-22, 29, 315 Mont. 107, 67 P.3d 892. ¶44 As did the District Court, we construe the confusing policy provisions against Scottsdale and conclude that under a reasonable interpretation of the Third Amended Complaint and the Scottsdale insurance policy, the allegations of the Complaint were sufficient to trigger a duty to defend. Scottsdale does not deny that the Complaint alleges “bodily injury” and an “occurrence,” both of which are covered under the Scottsdale CGL policy. We have held that where a complaint alleges facts which, if proven, would bring an event within the policy’s coverage, the duty to defend is triggered. Staples, ¶ 20; Pinski Bros., 160 Mont. at 227, 500 P.2d at 949-50. Based on the foregoing, we conclude that the Third Amended Complaint alleged facts which if proven true would bring the matter within Scottsdale’s coverage. Therefore, we conclude the District Court did not err in finding a breach of the duty to defend, and in entering summary judgment in favor of Newman and against Scottsdale. Staples, ¶ 27.