Court Opinion

ID: 9685532
Source: CourtListenerOpinion
Date Created: 2023-08-24 14:45:54.106525+00
Date Added: 2024-06-11T18:18:07.428163
License: Public Domain

VANDE WALLE, Chief Justice,
dissenting.
I respectfully dissent. The majority’s construction of the language of the insurance policy leads to a conclusion that State Farm agreed to pay Sigman for -resisting State Farm’s effort to prove there was no coverage under the policy. I cannot accept that contorted construction. The obvious purpose and meaning of the language in the policy is that Sigman will be paid expenses for assisting in the trials and hearings involving, in. this case, the Rudolphs, the third party. It defies belief that State Farm “requested” Sigman to “assist” in the declaratory judgment action or that Sigman aided State Farm *328in the investigation or defense in the declaratory judgment action.
Although coverage may be dictated if an ambiguity in the policy language exists, Walle Mut. Ins. Co. v. Sweeney, 419 N.W.2d 176, 181 (N.D.1988) [VandeWalle, J., concurring specially], I would not stretch that principle so far as to reach an absurd result.
The majority professes not to answer the question of whether or not an insurer’s obligation to pay its insured attorney fees in a declaratory judgment action when the court determines that there is no insurance coverage, but it appears the language of the contract relied upon by the majority would command the same result in that instance.
In relying upon decisions from Washington and Idaho, the majority opinion ignores the North Dakota history of declaratory judgments to determine coverage under an insurance policy. This court held in Smith v. American Family Mut. Ins. Co., 294 N.W.2d 751 (N.D.1980) that an insurer’s obligation to defend and an insurer’s obligation to indemnify are separate and distinct contractual elements. We concluded in Corwin Chrysler-Plymouth v. Westchester Fire Insurance Company, 279 N.W.2d 638 (N.D.1979) that an insurer had an implied duty to deal fairly and in good faith with its insured and that a violation of that duty gives rise to an action in tort for which consequential and punitive damages may be sought. Notwithstanding the onus put on an insurer by those decisions, a majority of the Court in United Pac. Ins. Co. v. Aetna Ins. Co., 311 N.W.2d 170, 174 (N.D.1981) [VandeWalle, J., dissenting] held there was no justifiable controversy in the issues of liability and duty to defend and thus a declaratory judgment action could not be maintained until after the liability of the insured to a third party had been determined. See also Aberle v. Karn, 316 N.W.2d 779, 784 (N.D.1982) [VandeWalle, J., and Medd, D.J., dissenting].
Subsequent to that decision the Legislature, in 1983, amended section 32-23-06, NDCC, to provide that “the court shall render or enter a declaratory judgment or decree in an action brought by or against an insurance company to determine liability of the insurance company to the insured to defend, or duty to defend, although the insured’s liability for the loss may not have been determined.” 1983 N.D.Laws Ch. 377, § 1. See also Blackburn, Nickels v. National Farmers, 452 N.W.2d 319 (N.D.1990).
The legislative history of that amendment is clear. The intent was to prevent the insurer from being required to expend its resources to defend when it believed no duty to do so was present or to suffer the possibility of a bad-faith action for consequential and punitive damage if it were wrong. See minutes of Senate Judiciary Committee, January 26, 1983, Testimony on H.B. 1378.
The majority would require that expenditure not in defending but rather in paying the attorney fees of the insured in the declaratory judgment action, thus turning the 1983 legislation into a Pyrrhic victory with the appearance of a “gottcha” result. Should the declaratory judgment action result in a decision that the policy provides coverage, there may be an equitable argument that the insurer should be required to pay the insured’s attorney fees. Where the result is no coverage, those equities are nonexistent.
It might be argued that State Farm’s decision to settle is an admission of coverage, but such an argument ignores reality. Some cases cost less to settle than to try and where economy rather than a legal victory is the motivating force, the case will be settled rather than tried. We encourage settlements where possible. E.g., Aaker v. Aaker, 338 N.W.2d 645 (N.D.1983). Under the facts of this case, I have little doubt that State Farm would have prevailed on the issue of coverage because of Robert’s intentional assault. It is unjust to require State Farm to pay Sigman’s attorney fees because it took the opportunity to settle with Rudolph for less than it might have cost to have the court declare there was no coverage for the intentional assault.
State Farm’s tactic may well have benefited Sigman too, for if the Rudolph’s action had gone to trial the judgment may have been greater. This leads to a final observation. I fear the majority opinion will ultimately prove detrimental to insureds, particularly where there is a strong indication of *329no coverage. In those instances, the insurer may well risk the slight chance of a bad-faith action in tort and refuse any defense rather than bring a declaratory judgment action and face the certainty of being required to pay attorney fees for the insured. The insureds, rather than having a defense tendered by the insurers with a reservation of rights, will either have to provide their own defense or expend the money to bring a declaratory judgment action against the insurer which, if the insureds lose, will surely result in yet greater expenditures by them. Had State Farm been prescient and known the holding of the majority opinion, I expect, under the facts of this case, it would have tendered no defense to Sigman and left him to his own devices and defenses. If the majority opinion appears favorable to the insured, I suggest that edge will be short-lived. The majority has done them no favor.
I would reverse the judgment of the district court.