Opinion ID: 1171928
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Heading: Are Sureties Liable Only As Expressed In The Surety Contract?

Text: However, because National in this case is a surety, National contends that its liabilities are limited by the following statute: XX-XX-XXX. Extent of surety's liability. A surety cannot be held beyond the express terms of its contract, and if such contract prescribes a penalty for its breach, he cannot in any case be liable for more than the penalty. We have held in other cases that § 28-11-411, MCA, limits the liability of a surety to the express terms of its contract. Pioneer Concrete and Fuel, Inc. v. Apex Construction Company, Inc. (1983), 204 Mont. 387, 664 P.2d 938; Swanberg v. National Surety Company (1930), 86 Mont. 340, 283 P. 761. National contends that we should be now guided by Amfac Mortgage Corporation v. Arizona Mall of Tempe (9th Cir.1978), 583 F.2d 426. In that case Amfac had argued that a surety on a bond owed an implied duty of good faith to the obligee of the bond and that if a breach occurred when the surety failed to settle, a tort action arose. The Court of Appeals, interpreting Arizona law, denied the tort action, saying that Arizona courts would limit liability of a surety to the express terms of the surety contract. The Court of Appeals also relied on the California case of United States Leasing Corporation v. Dupont (1968), 69 Cal.2d 275, 70 Cal. Rptr. 393, 444 P.2d 65. National contends that § 28-11-411, MCA, is consistent with Arizona law construed by the Court of Appeals in the Amfac case and should govern here. Again, we refer to and agree with the case of General Insurance Company of America v. Mammoth Vista Owners Association, supra, where the same point was raised, the U.S. Leasing Corporation case was considered, and the California Appellate Court held: In holding a surety cannot be held liable beyond the express terms of its contract, the court merely stated the principle that the sureties obligation to cover losses occasioned by the breach of the principal is limited to those losses it expressly agreed to guarantee. U.S. Leasing does not hold a surety cannot be held liable in tort for its independent violation of statutory or common law duties in the handling of a claim under the bond. (Citation omitted.) Under common law, an insurer who breaches the duty of good faith and fair dealing may be held liable in tort beyond the limits of the policy. (Emphasis in original.) 174 Cal. App.3d at 826, 220 Cal. Rptr. at 299. In accord, see Szarkowski v. Reliance Insurance Company (N.D. 1987), 404 N.W.2d 502, 505. Accordingly we hold and determine that § 28-11-411, MCA, does not limit the liability of a surety if the surety commits an independent tort in violation of other provisions of the insurance code. Therefore we answer the certified question as follows: (1) Are sureties liable under Montana law for unfair claim settlement practices? Answer: Yes. The original of this opinion shall be deemed to serve the office of a declaratory judgment. Costs of these proceedings to K-W Industries. The Clerk of this Court shall serve by ordinary mail upon counsel of record copies of this opinion, and shall mail upon remittitur four certified copies of this opinion to the Clerk of the United States Court of Appeals for the Ninth Circuit. The further duties of counsel of record are set forth in the order certifying the question to us. TURNAGE, C.J., and HARRISON, WEBER, McDONOUGH, HUNT and GULBRANDSON, JJ., concur.