Opinion ID: 885088
Heading Depth: 1
Heading Rank: 4

Heading: Contract versus tort action

Text: ¶ 11 In response to the Dills' contention that State Farm breached its contract with them, the District Court's order in limine characterized this case as a tort action rather than as a contract action. The District Court phrased the issue as a tort question of [w]ho, if anybody, was negligent? However, Montana law is to the contrary. In State Farm Mutual Automobile Insurance Co. v. Estate of Braun (1990), 243 Mont. 125, 793 P.2d 253, State Farm brought suit against its insured, claiming that it had no obligation to pay either uninsured or underinsured motorist benefits. State Farm argued that because the accident occurred in Canada, Canada's wrongful death damage limitation would apply, meaning that Braun's estate was not legally entitled to collect damages pursuant to the State Farm policy. Our analysis of Braun began with a clear statement that the issues presented were contract, and not tort issues. We stated: This case presents a controversy between an insurer and an insured over the interpretation of an insurance contract. As such the dispute sounds in contract and should be resolved by contract law. .... Respondent also erroneously argues that the Canadian damage limitation shields respondent because it is available to the tort-feasor. in essence, respondent asserts that it is the tort-feasor's alter-ego. However, tort law is relevant only in as far as the fault requirement is concerned. Once an insured demonstrates a legal entitlement to damages, principles of contract law define the coverage afforded by an underinsurance motorist provision. Braun, 243 Mont. at 127-28, 793 P.2d at 254-55 (emphasis added). ¶ 12 Our holding in Braun is consistent with an earlier opinion issued by this Court in an action filed by an insured against State Farm for uninsured motorist benefits. In State Farm Mutual Automobile Insurance Co. v. Solem (1981), 191 Mont. 156, 622 P.2d 682, which was decided soon after uninsured coverage became widely available, we stated: Solem's action against State Farm isn't a tort action; rather it is a contract action. Solem, 191 Mont. at 159, 622 P.2d at 684. Because the Dills' action against State Farm is not a tort action but rather a breach of contract action, this dispute must be resolved by contract law. ¶ 13 Moreover, we agree with the Dills that they were required to file a contract action against State Farm in order to comply with the terms of their insurance contract with State Farm. The insurance contract entered into by the Dills provides that in exchange for a premium, State Farm would issue underinsured motorist coverage to the Dills. The contract provides that if there is an accident between the insured and the driver of an underinsured motor vehicle, then two questions must be decided by agreement between the insured and State Farm: 1. Is the insured legally entitled to collect damages from the owner or driver of the uninsured motor vehicle or underinsured motor vehicle ; and 2. If so, in what amount? The policy further provides that if the parties cannot agree, then they must either arbitrate or litigate these two questions. The policy specifies: If either party does not consent to arbitrate these questions, the insured shall: a. file a lawsuit in the proper court against the owner or driver of the uninsured motor vehicle or underinsured motor vehicle and us ...; and .... c. secure a judgment in that action. (Underlining added.) The following language appears at page 14 of the policy: THERE IS NO COVERAGE UNTIL THE LIMITS OF LIABILITY OF ALL BODILY INJURY LIABILITY BONDS AND POLICIES THAT APPLY HAVE BEEN USED UP BY PAYMENT OF JUDGMENTS OR SETTLEMENTS.