Court Opinion

ID: 6996021
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:33:23.012607+00
Date Added: 2024-06-11T16:09:44.789499
License: Public Domain

BETTY B. FLETCHER, Circuit Judge,
concurring in part and dissenting in part:
I concur in much of the majority’s analysis and reasoning, but I respectfully dissent from Parts 11(D) and 11(E); I agree that CWIC breached its duty to indemnify but I am convinced that CWIC also breached its duty to investigate. I would hold that this failure to conduct a proper investigation caused CWIC to subsequently breach its duty to defend and fail to meet its obligation to settle. Insurers enter into relationships of statutory and contractual trust and obligation with those that they insure. Part of them obligation is to investigate claims that allegedly trigger coverage under the policies that they hold. Mont.Code. Ann. § 33-18-201(4) (1999). In this case, the defendant sold a “Liquor Liability Policy” to a tavern that covered injuries “arising] out of the selling, serving or furnishing of any alcoholic beverage.” The insured filed a claim asking for coverage to pay a man who lost almost all of his fingers while chopping firewood near and on behalf of the tavern. In my opinion, the Insurance Company’s investigation of this claim was manifestly insufficient.
This was an ill-fated enterprise from the beginning. The group tried to split firewood by setting wood blocks on end and then dropping the business end of a piece of heavy equipment, a front-end loader, onto the blocks. Lee Troutt assumed the role of lookout, signaling the equipment operator when it was safe to drop the front-end loader’s bucket. Unfortunately, he gave the signal once without noticing that Terry Engstrand had not yet cleared his hands, the bucket dropped and severed most of Engstrand’s fingers.
The defendant insurer, Colorado Western Insurance Company (“CWIC”), assigned the investigation of the claim to Crawford and Company (“Crawford”), an independent adjusting firm. Crawford assigned the investigation to one of its adjusters, Charles Ready (“Ready”), who had never before conducted an investigation involving a liquor liability policy. Ready was not given a copy of the insurance policy, or otherwise informed of the coverage language at any time during his investigation or prior to the closure of his file. District Court’s Finding of Fact ¶ 33.
Under Montana law, an insurer cannot “refuse to pay claims without conducting a reasonable investigation based upon all available information.” Mont.Code. Ann. § 33-18-201(4) (emphasis added).1 Ready failed to meet either requirement of this statute. He only considered a fraction of the available information, and his failure to thoroughly investigate the subject matter that he did choose to consider was unreasonable. Ready conducted only three interviews: of Peggy Troutt, the insured, her husband Lee Troutt, and the couple’s attorney, Tom Bostock. Through these three interviews Ready discovered that alcohol had been consumed that day; Peggy and Lee admitted that one beer had been consumed by each of the participants of the wood splitting group before the accident; they now contend that much more alcohol was drunk that day. Ready failed to ask any follow up questions. He did not try to determine what type of beer had been consumed; he did not ask whether any other alcohol had been consumed earlier that day or the night before. As the district court held, Ready did not “vigorously pursue an investigation to see if he *1165could ‘find coverage.’” District Court’s Order at 2.
The district court held that “neither bar owner suggested alcohol was a contributing cause of the loss.” Id, This conclusion ignores a simple fact; Peggy Troutt had filed a claim for indemnity under a liquor liability policy. Even though, for whatever reason, Peggy and Lee did not blame alcohol for the injury in their interviews with Ready, the entire premise of Peggy’s initial request was that alcohol played some role in the events that transpired.
Evidence that alcohol may have played a role in these events was legion, according to the district court, but Ready learned about almost none of it through his investigation. Ready neglected to interview the injured or his wife, who happened to be the bartender who was on duty at the tavern the night before. She could have told him that Lee Troutt, the one who signaled the front-loader operator to drop the bucket at the ill-fated moment, had a problem with alcohol and liked to add some liquor to his coffee in the morning. She had served him about a quart of rum the evening before and she saw him leave the bar at 2:00 a.m., clearly intoxicated. The man operating the front-end loader, Gary Reeper, was also at the bar the night before, drinking from 7:00 p.m. until midnight. He too left the bar intoxicated. Ready never learned any of this information.
The majority’s opinion suggests that Ready’s failure to learn this information was the fault of Lee and Peggy. I disagree. If Lee and Peggy had failed to cooperate or had intentionally withheld information from an otherwise diligent insurance adjuster, they would probably be to blame. In this case, however, the only explanation for Ready’s failure to learn any of the critical information is that he conducted an insufficient investigation. See Egan v. Mut. of Omaha Ins. Co., 24 Cal.3d 809, 169 Cal.Rptr. 691, 620 P.2d 141, 145 (1979) (an insurer “must give at least as much consideration to the [insured’s] interests as it does to its own”) cited favorably in Tynes v. Bankers Life Co., 224 Mont. 350, 730 P.2d 1115, 1124 (1986). This is not hindsight analysis. An insurance agency who writes a policy to a tavern covering accidents arising from the provision of alcohol is obligated to ask questions about the provision of alcohol when presented with a claim under that policy. An insurance adjuster who investigates an accident that causes a man to lose most of his fingers while part of a wood-chopping party is obligated to interview him as well as other members of the wood-chopping party; he should not just rest on the signed statements of two of them. An insurance adjuster who investigates an accident involving heavy machinery that takes place near and for the benefit of a tavern should interview the bartender who was on duty at that time, and search but other eyewitnesses. These are common sense conclusions. Ready, intentionally or negligently, failed to act with common sense.
After the investigation, Ready in his report concluded that there was no coverage for the incident. It was unusual to reach such a conclusion because Ready had never seen the language of the policy. Finally, on April 27, 1994, having read two statements and conducted three interviews over a four month period, Ready closed his file. Twelve days later CWIC told the adjuster to deny coverage and close its file.
Had CWIC conducted a reasonable investigation in 1995, it would have discovered the important role that alcohol played in these events, and it likely would have indemnified Troutt for the damages it owed to Engstrand. With knowledge that Engstrand’s injuries arose from the furnishing of alcohol, CWIC also would have *1166been under a duty to defend the lawsuit brought by Engstrand, Burns v. Underwriters Adjusting Co., 234 Mont. 508, 765 P.2d 712, 713 (1988), and would have been obligated to bargain with Engstrand to effect a reasonable settlement, Mont.Code Ann. § 33-18-201(6) (insurers cannot “neglect to attempt in good faith to effectuate ... settlements of claims in which liability has become reasonably clear”). The duty to defend and settle would arise even if Engstrand’s complaint failed to clearly allege the role of alcohol in the incident. Burns, 765 P.2d at 713 (“[T]he proper focus of inquiry is the acts giving rise to coverage, not the language of the complaint.”). Because I disagree with the majority’s assessment of the initial investigation, I also disagree with their holdings with respect to the duty to defend and obligation to settle. CWIC breached three critical responsibilities and, under Montana Law, owed attorneys fees to Troutt. Yovish v. United Servs. Auto. Ass’n, 243 Mont. 284, 794 P.2d 682, 686 (1990) (“We have approved awards of attorney fees ... in cases where an insurer has breached its obligation to defend an insured.”).
The majority’s holding gives a powerful incentive to insurers to conduct insufficient investigations in the first instance. Not only will the insurer save money on the cost of the investigation, but even if a claimant is persistent and resourceful enough to someday prove that the insurer should have indemnified him or her, the insurer may be saved the time and money and annoyance of defending any lawsuits that arise in the meantime. I believe that the incentives should be reversed. The insurer should be encouraged to conduct a complete and competent investigation in the first instance, to establish at an early date where the parties stand in relation to one another with respect to indemnification and. the duty to defend. Not only is this sound policy and common sense, it is required under Montana law. Mont.Code Ann. § 33-18-201(4). Because the majority holds otherwise, I respectfully dissent.

. Although many other states have also codified the “duty to investigate,” few are written as expansively as Montana's. See, e.g., Minn. Stat. Ann. § 72A.201 (" 'Investigation' means a reasonable procedure adopted by an insurer to determine whether to accept or reject a claim.”); Cal. Ins.Code § 790.03 ("Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.”).