Court Opinion

ID: 5129075
Source: CourtListenerOpinion
Date Created: 2021-11-24 00:09:24.076289+00
Date Added: 2024-06-11T08:23:10.461515
License: Public Domain

11/23/2021

                               SYNOPSIS OF THE CASE                                          Case Number: DA 19-0533

2021 MT 300, DA 19-0533: NATIONAL INDEMNITY COMPANY, Plaintiff and
Appellant, v. STATE OF MONTANA, Defendant and Appellee, and TERRY
JELLESED, et al., Intervenors.1

       The Montana Supreme Court affirmed a District Court’s ruling that the State of
Montana is covered by an insurance policy it had with National Indemnity Company
(National) for claims made against the State for injury and death resulting from asbestos
exposure in Libby, Montana. The Court also upheld the District Court’s ruling that
National breached its duty to defend the State against the injury claims. Although the Court
upheld the District Court’s rulings that led to entry of a $97,833,193.39 judgment against
National, the Court reversed the District Court’s rulings regarding qualifying
“occurrences” under the policy, and regarding coverage for claimants who were exposed
to asbestos prior to the period covered by the policy, but suffered injury during that period.
The Court remanded for further consideration of these issues.

        This insurance coverage case follows nearly two decades of litigation between the
State and claimants who alleged they were harmed by the State’s failure to warn them of
the hazards of asbestos exposure that became evident from the State’s inspections over
many years of the vermiculite mining and milling operations in Libby. National insured
the State against general liability from 1973–1975. Beginning in 2000, claims alleging
injuries and death from asbestos exposure that occurred before, during, and after that period
were made against the State. The State and National initiated discussions regarding the
duties of National to defend the State against the claims and to provide coverage under the
policy, but no agreement on these issues was finalized. During this time, the State defended
itself and settled claims, including a global settlement of claims in 2009 for payment of
$43 million. National participated in that settlement but filed this action in 2012, seeking
determinations that it had no obligation to defend the State or to cover the claims.

        The Supreme Court held that the State did not initially tender the claims to National
for defense, but when it ultimately did so in 2005, National breached its duty to defend by
offering to defend the State only on a partial, or pro rata, basis. After eventually agreeing
to fully defend the State in 2006, subject to a reservation of rights, National delayed seeking
a judicial declaration about its coverage obligations for six additional years, requiring the
State to “litigate and settle cases in coverage darkness,” which the Supreme Court held was

1
 This synopsis has been prepared for the convenience of the reader. It constitutes no part of the
Opinion of the Court and may not be cited as precedent.
a second breach of the National’s duty to defend the State. These breaches resulted in the
imposition upon National of the defense costs and judgments paid by the State for the
affected claims, without regard to possible coverage issues.

        The Court affirmed the District Court’s conclusion that coverage for the State
existed under the policy and that the policy’s coverage exclusions did not apply. The Court
disagreed, however, with the District Court’s determination of the number of “occurrences”
eligible for coverage under the policy, concluding that each of the State’s regulatory
failures to warn could constitute an individual “occurrence” under the policy, but not each
claimant’s individual injury. The Supreme Court remanded the matter for further factual
findings on these issues. The Court held the District Court erred by holding that only
claimants exposed during the policy period could qualify for coverage, given the nature of
asbestos injuries that can manifest over time. The Supreme Court also remanded this issue
back to the District Court for additional factual findings regarding injuries sustained during
the policy period from exposure that occurred prior to the policy period.

       The Supreme Court affirmed the District Court’s assessment of prejudgment
interest on the amounts paid by the State to settle the claims, and rejected National’s
argument that these proceedings had violated its rights to due process and the constitutional
prohibition against impairment of contracts.

       Judge Colette Davies, sitting for Justice Beth Baker, who recused herself from the
case, and joined by Justice Ingrid Gustafson, concurred in the Supreme Court’s decision
given the extraordinary circumstances of this case, but stated the position that, in ordinary
circumstances, and absent express contractual authority, an insurer cannot pursue
reimbursement of defense costs, and that a defense conditioned upon such a claim would
be a breach of the duty to defend. Justice Laurie McKinnon dissented from the decision,
reasoning that National did not breach its duty to defend the State, and that the State was
not eligible for coverage under the policy because the claims were based upon the State’s
knowing and intentional conduct, which is excluded from coverage under the policy.