Court Opinion

ID: 5129076
Source: CourtListenerOpinion
Date Created: 2021-11-24 00:09:26.86325+00
Date Added: 2024-06-11T08:23:10.500061
License: Public Domain

11/23/2021

                                      DA 19-0533
                                                                                     Case Number: DA 19-0533

          IN THE SUPREME COURT OF THE STATE OF MONTANA
                                     2021 MT 300

NATIONAL INDEMNITY COMPANY,

           Plaintiff, Appellant,
           and Cross-Appellee,

    v.

STATE OF MONTANA,

           Defendant, Appellee,
           and Cross-Appellant,

    and

TERRY JELLESED, RAYMOND ABRAHAMSON,
RANDALL BAETH, MARLISE BAILEY, DELMAS
BROOKS, SHIRLEY CHAPMAN, RUTH FORE,
JEFFERY GOVI, THOMAS JENKINS, JAMES
McNULTY, and PHILLIP PEREZ,

           Intervenors.

APPEAL FROM:       District Court of the First Judicial District,
                   In and For the County of Lewis and Clark, Cause No. XDDV 2012-140,
                   Honorable Holly Brown, Presiding Judge

COUNSEL OF RECORD:

            For Appellant:

                   Mary Beth Forshaw (argued), Simpson Thacher & Bartlett LLP, New York,
                   New York

                   Peter F. Habein, Marcia Davenport, D. Wiley Barker, Crowley Fleck PLLP,
                   Helena, Montana

                   Gary M. Zadick, Ugrin, Alexander, Zadick & Higgins, PC, Great Falls,
                   Montana
         For Appellee:

                John F. Sullivan (argued), Kate McGrath Ellis, Colin W. Phelps,
                Christensen & Prezeau, PLLP, Helena Montana

                Calvin J. Stacey, Stacey & Funyak, Billings, Montana

         For Intervenors:

                Allan M. McGarvey, Roger Sullivan, Ethan Welder, Jinnifer Jeresek
                Mariman, McGarvey, Heberling, Sullivan & Lacey, P.C., Kalispell,
                Montana

                J. David Slovak, Mark. M. Kovacich, Kovacich & Snipes, P.C., Great Falls,
                Montana

         For Amicus Complex Insurance Claims Litigation Association and American
         Property Casualty Association:

                Brian L. Taylor, Hall & Evans LLC, Billings Montana

                Laura A. Foggan, Crowell & Moring LLP, Washington, District of
                Columbia

         For Amicus United Policyholders:

                Lorelie S. Master, Hunton Andrews Kurth LLP, Washington, District of
                Columbia

                Curt Drake, Patricia Klanke, Drake Law Firm, P.C., Helena, Montana

                                             Argued and Submitted: November 20, 2020

                                                           Decided: November 23, 2021

Filed:

                            oe,,6tA- -if
                __________________________________________
                                  Clerk

                                        2
Justice Jim Rice delivered the Opinion of the Court.

¶1     In 2012, National Indemnity Company (National, or NIC) commenced this action

seeking a declaration of its rights and obligations under a general liability insurance

contract (Policy) issued to the State of Montana (State) for the period between July 1, 1973

and July 1, 1975, with regard to claims of personal injury from toxic asbestos dust exposure

arising from the State’s failure to warn claimants of these conditions, despite conducting

inspections of the source vermiculite mining and milling operations in and around Libby,

Montana (“Libby Mine”), as early as the 1950s and through the 1970s. Intervenors are

among hundreds of individuals who suffer from and brought claims for asbestos-related

injuries as a result of exposure at or around the Libby mining operations (collectively

referred to as “Libby Mine Claimants” or “Libby Mine Claims”). National alleged herein

that it “had and has no obligation to defend or indemnify the State in connection with all

or portions of” the asbestos injury claims asserted against the State and has “no obligation

to defend or indemnify the State against Future Claims.” After extensive litigation and

extraordinary effort by the District Court, orders addressing numerous legal issues and a

multitude of claims were entered, which ultimately concluded National had breached its

duty to defend the State and was further obligated to pay claims under the terms of the

Policy. Judgment in the amount of $97,883,193.39 was entered against National and in

favor of the State, including prejudgment interest, attorney fees and costs, which was less

than the amount sought by the State. National appeals and the State cross-appeals rulings

                                             3
of the District Court adverse to their respective positions. We address various sub-issues,

but the general issues raised by the parties are as follows:

      1. Did the District Court err in its determinations that National breached its duty to
         defend the State?

      2. Did the District Court err in its determinations regarding coverage under the
         general liability policy issued by National to the State?1

      3. Did the District Court err by awarding pre-judgment interest on the settlement
         amounts and defense costs?

      4. Did the District Court’s rulings violate National’s due process and contract clause
         rights under the Montana and United States Constitutions?

¶2        We affirm in part, reverse in part, and remand for limited further proceedings

necessary to implement this Opinion.

                     FACTUAL AND PROCEDURAL BACKGROUND

¶3        This insurance-related dispute arises from underlying litigation against the State

related to its regulatory role of the Libby Mine, owned and operated by W.R. Grace and

Company and its predecessors, Universal Zonolite and Insulation Company and Zonolite

Company. As this Court discussed in Orr v. State, 2004 MT 354, ¶ 37, 324 Mont. 391,

106 P.3d 100, as early as 1956, the dangers to the workers arising from asbestos and the

mining conditions “were already clear and present.” See also Maryland Cas. Co. v.

Asbestos Claims Court, 2020 MT 70, ¶ 8, 399 Mont. 279, 460 P.3d 882 and BNSF Ry. Co.

v. Asbestos Claims Court, 2020 MT 59, ¶ 4, 399 Mont. 180, 459 P.3d 857. From 1956

onward, the State relied upon a 1942 Montana Attorney General’s Opinion to withhold the

1
    Intervenors’ appellate briefing addresses coverage questions under the Policy.

                                                  4
results of its workplace inspections and did not advise workers of the hazardous conditions

at the Libby Mine.

¶4     Ratification of Montana’s 1972 Constitution brought abolishment of Montana’s

sovereign immunity, which the Constitutional Convention Delegates deemed “an

anachronism.” Orr, ¶ 54; see also Mont. Const. art. II, § 18. The State thereafter solicited

bids from private insurers for provision of comprehensive general liability coverage. The

State provided prospective bidders with an underwriting packet that described aspects of

the State’s risk, but did not mention the State’s knowledge of the asbestos conditions at the

Libby Mine. The State acknowledges it provided no information about the Libby Mine, or

related injuries and deaths by workers, until 2002. The State also provided bidders with

specifications for proposed coverage that indicated an exclusion for “[c]ontamination or

pollution” was acceptable to the State. Following this bidding process, the State accepted

the bid from National, which issued a comprehensive general liability policy to the State

in June 1973. Therein, National agreed to pay “all sums” for bodily injury “caused by an

occurrence” for which the State “shall become legally obligated to pay as damages,” with

National having the “right and duty to defend any suit against the insured seeking damages

on account of such bodily injury.” The initial term of the policy was for a three-year period

between July 1, 1973, and July 1, 1976, but National unilaterally cancelled coverage as of

July 1, 1975. Glacier General Assurance Company, now defunct, provided coverage for

the State in the interim, and, commencing in 1976, the State has since maintained a

                                             5
comprehensive self-insurance program, as authorized under §§ 2-9-101 through 305,

MCA.

¶5     Beginning in 2000, Libby Mine Claimants began filing tort claims against the State

for injuries resulting from asbestos exposure during times prior to, during, and after the

term of the National policy. See Orr, ¶ 3. Orr involved nine claimants and was an early

proceeding, which asserted negligence based upon the theory the State had failed to warn

claimants of the dangers of asbestos exposure, resulting in bodily injuries. In response to

the lawsuits, the Risk Management and Tort Defense Division of the State Department of

Administration hired outside counsel to defend the State pursuant to its self-insurance

program and did not notify National of the claims. Between September 2000 and June

2002, 18 lawsuits were filed against the State. State-retained counsel served responsive

pleadings, filed dispositive motions and briefing, and argued for dismissal, still without

notifying National.

¶6     In January 2002, the State began searching its storage records for an insurance

policy, and in June 2002 located the Declarations Page of the National Policy indicating

comprehensive general liability coverage. On June 27, 2002, Dale Cockrell, counsel for

the State, made the first contact with National regarding the claims then filed, writing that:

       [W]e are tendering these claims to National Indemnity . . . it appears that
       National Indemnity provided comprehensive general liability insurance to
       the State from on or about 1973 through 1975 or 1976.

The State listed the first 18 Libby Claim lawsuits, provided copies of 12 of those

complaints, advised that the State had “filed Motions to Dismiss each of the complaints

                                              6
that have been served upon the State,” and requested a copy of the insurance policy.

Shortly thereafter, Cockrell sent National a follow-up letter, providing five of the

remaining six complaints, and advising the State had argued the dismissal motions. Both

letters were received by National in July 2002. Despite the “tendering” language within

the June 27, 2002 letter, neither letter referenced or requested that National pay the State’s

counsel, assume defense responsibilities, reimburse the State’s incurred defense costs, or

provide any other assistance on the claims. In response to the letters, National Claims

Administrator Reed Grandgenett called Cockrell, who advised Grandgenett that, the State’s

motions having been argued, “there was nothing further to be done.”

¶7     In August 2002, the District Court granted the State’s motion to dismiss the Orr

proceeding, and the Orr Claimants appealed to the Montana Supreme Court. In November

2002, National opened a claim file for the Libby Claims and internally set aside $25,000

for “various asbestos claims” at the “Toxic Site: W.R. Grace Mine in Libby, Montana,”

listing a date of loss as July 1, 1973, and noting potential coverage issues.             On

December 12, 2002, National learned about the District Court’s Orr ruling from online

sources and immediately contacted the State, requesting the State keep it informed

regarding the Orr proceeding. Cockrell followed up with a letter to Grandgenett

summarizing the status of the Orr Claimants’ appeal and promising to send copies of the

State’s briefing. The letter did not submit invoices for defense costs, request funding or

assumption of the Libby Claim lawsuits, or request other assistance from National. On

                                              7
December 20, 2002, eight days after learning of the Orr appeal, National internally

increased its claim defense reserve to $200,000.

¶8     Over the next seven months, the State continued to manage the Libby Claims and

did not further contact National regarding the Orr appeal. On August 7, 2003, Grandgenett

telephoned Cockrell, who confirmed the Orr appeal had been argued in June 2003, the case

would likely be decided in the next six months, and that all Libby Mine Claims had been

stayed pending the decision. Grandgenett wrote in his notes that Cockrell “will call me to

let me know Supreme Court decision. We can decide what needs to be done to further

evaluate based on Supreme Court outcome.”

¶9     In December 2004, this Court reversed the District Court’s dismissal of the Orr

claims. Orr, ¶¶ 1, 82. The State did not then advise National of the decision but petitioned

for rehearing. Rehearing was denied on February 2, 2005, about which time Grandgenett

learned about this Court’s Orr ruling from other sources. This began a period of a marked

increase in communications between the State and National regarding litigation status and

coverage under the Policy.

¶10    On March 17, 2005, the State, as explained by the District Court, “contacted

National for the first time in 17 months” via a letter from Cockrell to Grandgenett. Cockrell

explained the Montana Supreme Court had ruled in favor of the Libby Claimants, denied

rehearing in February 2005, and remanded the proceeding. Cockrell provided an updated

list of all pending Libby Claims, reporting on the status of the original 18 claims and

notifying National of an additional 72 Libby Claims. Cockrell would thereafter forward

                                             8
Libby Claimant complaints and notices of claims to National as they were received.

Cockrell concluded by referencing his letter of June 27, 2002, and inquired for the first

time “whether National Indemnity is accepting this tender and will be providing a defense

to the State and providing coverage for these claims.” In response, on April 7, 2005,

Grandgenett wrote that “the information received thus far is insufficient for us to determine

the respective obligations of our Company and the State under the Policy with respect to

the pending claims,” and requested the State’s “cooperation and assistance in gathering

information necessary for National Indemnity to promptly and accurately determine and

perform all of our duties under the contract of insurance and applicable law.” The letter

itemized numerous information and documentation requests, and concluded by stating,

“[u]nder the present circumstances, National Indemnity is reserving all of its rights with

respect to the Policy and the claims asserted against the State.”

¶11    On July 18, 2005, Grandgenett wrote to William Gianoulias, Chief Counsel of the

State’s Tort Claims Division, for the purpose of directly responding to Cockrell’s inquiry

regarding the State’s request to defend, stating that National “agrees to defend the State of

Montana against claims asserted against the State of Montana in the Libby Mine Claims

subject to a complete reservation of rights under the Policy and applicable state law.” The

letter then discussed the coverage issues National would be reserving, including that claims

may be excluded under the definition of “occurrence,” the pollution exclusion, any loss

known by the State, or claims that exceeded the Policy limit of $3 million “for all bodily

injuries and property damage resulting from an occurrence.” In addition, National took the

                                             9
position that “all defense costs, as well as any losses to which the Policy applies, must be

allocated pro rata based on time on the risk,” explaining that “an equitable allocation of

time on the risk would include self-insurance in the same manner as periods of commercial

insurance was in force.” National reserved the right to seek reimbursement if National was

determined not to owe Montana a defense or if liability limits had been exhausted.

¶12    In November 2005, in a letter to Grandgenett and J. Michael Gottschalk, National’s

Vice President, Claims, Gianoulias conveyed the State’s rejection of National’s defense

offer, stating:

       Your [July 18, 2005] letter provides that with respect to the Libby Asbestos
       claims, National Indemnity will defend the State of Montana against those
       claims subject to a complete reservation of rights under the policy of
       insurance issued to the State of Montana by National Indemnity and
       applicable state law. Your letter further provides that National Indemnity
       believes all defense costs must be allocated pro-rata based on time on the
       risk. Your letter also provides that no defense is owed after National
       Indemnity pays what it asserts are the liability limits, and reserves the right
       to seek reimbursement of defense costs and payments made after exhaustion
       of liability limits. The State of Montana respectfully disagrees with National
       Indemnity’s positions. The State of Montana further believes a reservation
       of rights is not appropriate.

Gianoulias also advised National that the Libby Claims had been temporarily stayed by the

Delaware bankruptcy court handling W.R. Grace’s bankruptcy proceeding, which would

forestall resolution of the claims.

¶13    In meetings and communications in early 2006, Gottschalk conveyed National’s

position that it did not have “any obligation to indemnify the State against the Libby Mine

Claims,” but notwithstanding it was defending the State and therefore needed to be able to

participate in any settlement discussions between Montana and the Libby Mine Claimants.

                                             10
Gottschalk expressed “surprise” in an April 6, 2006 letter to Gianoulias to Gianoulias’

claim that National was not defending the State. Gianoulias replied on April 10, 2006,

reaffirming the State’s position it had tendered defense of the Libby Claims in 2002, and

explained:

              Your letter indicates that National Indemnity . . . is surprised by the
       State’s position that National Indemnity is not defending the State. That
       statement is puzzling. As your letter indicates, while National Indemnity has
       made a proposal to provide a limited, apportioned defense, at no time has it
       proposed to provide a complete defense to the State.

                                          .   .    .

              In the July 20, 2005 meeting, in support of your proposal to contribute
       to the defense of the costs of these claims you discussed three fractions as
       examples of the portion National Indemnity might contribute . . . .

              The State’s position has been clear and consistent . . . that the State
       requests National Indemnity to provide a complete defense and to indemnify
       it completely for the Libby claims. Given the positions and proposals
       National Indemnity has taken and presented with regard to the State’s clear
       and unequivocal tender request, National Indemnity can claim no surprise
       about the fact that it is not defending the State of Montana.

(Emphasis added.)

¶14    The parties met on April 18, 2006, to discuss their positions on respective rights and

obligations under the Policy and held a conference call the next day. Gottschalk followed

up these sessions with a letter to Gianoulias on May 10, 2006, addressing key aspects of

the meetings. Related to National’s position on defense of the claims, Gottschalk stated

that National “was willing to pay 100% of the cost of defending the State” against the

Libby Claims, subject to the reservation of rights previously stated, adding that he wanted

“to leave no doubt whatsoever regarding the commitment of National Indemnity Company

                                              11
to defend the State.” Gottschalk requested copies of the engagement agreements for the

State’s counsel, as well as “invoices, summaries or other information concerning the

State’s defense costs to date,” which the State had refused to provide, so that National could

begin its analysis of those costs. Gottschalk nonetheless insisted the State’s “reference to

having tendered these claims to us in 2002 is disingenuous at best.” Gottschalk also offered

an alternative option whereby National would pay a portion of defense costs while waiving

any right to be reimbursed by the State for such costs, but stated National was unable to

agree to the State’s request to indemnify the State against the Libby Claims with no

reservation of rights. On May 19, 2006, Gianoulias rejected all of Gottschalk’s May 10

proposals, reiterating its positions on tender and full indemnity as the only option the State

would accept.

¶15    Beginning in June 2008, certain Libby Mine Claimants from the Orr consolidated

cases began discussions with the State and National regarding a settlement. The State

expressed an interest in a global resolution, and thereafter the Libby Claimants made a

global settlement demand. In June 2009, National offered to contribute the Policy’s $3

million occurrence limit to a settlement in exchange for a complete release of the State,

while continuing to contest the validity of the claims and assert its coverage defenses to

the State. When this offer was declined, National made a series of offers in increasing

amounts leading up to a 3-day mediation session involving the State, National, and the

Libby Mine Claimants on November 16-18, 2009.2 On the final day of mediation, the State

2
 The mediation addressed the “Libby Mine Claims,” defined as all claims made prior to
November 18, 2009, which was then approximately 1,000 in number.
                                           12
and the Libby Mine Claimants entered a “comprehensive global settlement” for payment

in the amount of $43 million. Over a reservation of rights, including recoupment, National

contributed or “advanced” $16.1 million toward the settlement, based upon National’s

valuation of the claims at $13.1 million and the State’s representation it had expended $3

million in defense costs. On September 8, 2011, the district court approved the $43 million

settlement, and National paid the agreed upon $16.1 million contribution.3

¶16    Paralleling the claim settlement negotiations were continuing discussions between

the State and National regarding Policy obligations. About the time of National’s $3

million settlement offer in June 2009, the State suggested “seeking a judicial determination

of the mutual rights and obligations of National and the State under the insurance Policy.”

On July 24, 2009, National replied in general agreement, but also suggested “it is sensible,

and would be fruitful at this time, to first discuss exactly those issues with the assistance

of a neutral mediator.” On October 7, 2009, the State and National met to attempt to

negotiate a “global resolution” of coverage disputes regarding the Libby Mine Claims, at

which National conveyed several offers that were rejected by the State, but which led to

National’s payment of $16.1 million toward the November 2009 Global Settlement. In

June of 2010, Montana and National entered a “Tolling Agreement” to toll the statutes of

limitations on the parties’ claims against the other. The agreement recognized that the

3
 Payment of the $43 million was allocated as follows: 1) the State: $26.8 million; 2) National:
$16.1 million with reservation of rights; and 3) Montana Insurance Guaranty Association (MIGA):
$100,000. MIGA’s payment was made on behalf of the insolvent Glacier General Assurance
Company.

                                              13
State “has tendered to National the defense and indemnity of . . . the Libby Mine Claims,”

and that “National disputes that it has any obligations under the Policy or otherwise with

respect to the Libby Mine Claims.” In October 2010, pending judicial approval of the $43

million Global Settlement, the parties entered an “Amended Memorandum of

Understanding,” agreeing that “any portion of the $16.1 million initially advanced by

National . . . shall not constitute an acceptance by the State of any defense offered by

National.”4 Both the State and National reserved the right for “reimbursement from the

other” for all advanced funds, and reserved “all rights, claims and defenses either of them

have or may have or assert against the other.” National agreed to respond upon tender for

defense of all future Libby Mine Claims.

                              Case Procedural Background

¶17    Following a failed mediation between National and the State, National filed this

action in District Court on February 23, 2012, seeking a declaratory judgment over its

rights and obligations under the Policy regarding the Libby Mine Claims, requesting a

ruling that it “had and has no obligation to defend or indemnify” the State for any past or

future Libby Mine Claims, and asking for reimbursement of “all money National paid in

connection with the defense or settlement of any Underlying Actions which are outside the

Policy.” The State counterclaimed for breach of contract, alleging National breached its

duty to defend for failing to “provide a prompt and proper response” to the State’s tender

4
 The original Memorandum of Understanding had been entered by the parties upon the conclusion
of the Global Settlement negotiations on November 18, 2009.

                                             14
of defense of the Libby Mine Claims, and breached the duty to indemnify under the Policy.

The District Court granted certain Libby Mine Claimants leave to intervene to address

application and interpretation of the Policy, including whether coverage is available, and,

if so, the amount of coverage and number of “occurrences” under the Policy. The parties

engaged in discovery and motion practice. By September of 2015, the State had notified

National of 860 additional Libby Mine Claims not included in the Global Settlement

reached in November 2009. Both parties moved for summary judgment.5

¶18    Beginning March 1, 2018, and culminating in entry of the August 6, 2019 Judgment,

the District Court entered a series of substantive orders deciding the parties’ claims and

positions, which, as related to the issues raised herein, we summarize as follows:

1) National did not breach its duty to defend in 2002, as claimed by the State, because the

State did not then clearly tender defense of the Libby Mine Claims to National. 2) After a

proper tender by the State, National breached its duty to defend in 2005 by conditioning its

defense upon a pro rata allocation of defense costs, estopping National from denying

5
  Consistent with their view of the factual record for purposes of their respective motions for
summary judgment in the District Court, neither party has offered a primary argument on appeal
that summary judgment was precluded by a genuine issue of material fact. National’s briefing
argues a secondary position that, if the Court did not order judgment in its favor, then issues of
fact precluded judgment and the case should be “remand[ed] for additional fact-finding.”
Appellant/Cross-Appellee National Indemnity Company’s Opening Brief, p. 57, n.14; see also
p. 30 (“At a minimum, this action should be remanded for further proceedings.”). At oral
argument, National argued it was entitled to judgment as a matter of law on the record. When
asked about its position on any remaining conflicts of material fact, National’s counsel mentioned
only a concern about the District Court’s interpretation of National’s July 18, 2005 letter to the
State for purposes of the duty to defend. In that regard, even with conflicting interpretational
arguments, the letter speaks for itself and did not constitute a genuine conflict of material fact
precluding summary judgment.

                                               15
coverage and or asserting other coverage defenses; and, therefore, obligating National to

pay defense costs and completed settlements on Libby Claims for which National had not

provided a full defense as of the date each settlement had been approved by the presiding

District Court. 3) Beginning in May 2006, National offered a full defense properly subject

to a reservation of rights, rejecting the State’s reservation argument, and did not breach the

duty to defend for claims tendered thereafter on account of a failure to defend. 4) However,

National again breached the duty to defend when failing to seek resolution of coverage

issues by expeditiously filing a declaratory action after the State rejected National’s offer

to defend, instead waiting to file until February 23, 2012, after the 2009 Global Settlement;

and thus National was estopped from raising Policy defenses and was obligated to pay all

post-May 2006 claims tendered to it and settled by the State prior to February 23, 2012.

5) National was not estopped from raising coverage defenses for post-May 2006 tendered

claims that were not settled as of February 23, 2012, and which were tendered after that

date, essentially including all future claims; for these claims, National’s declaratory action

was timely. 6) National’s coverage defenses were generally rejected, but the Policy was

applied “to the extent the claimant was ‘exposed to asbestos during the Policy period.’”

Each individual claimant’s exposure during the policy period, as well as the additional

exposure over time, constituted a separate occurrence for purposes of Policy limits. The

District Court declined to address National’s objections to the reasonableness of any

settlements, fees, or costs associated with the settlements, as National did not raise

reasonableness at the time the settlements were approved by the district courts. The District

                                             16
Court ordered National to pay all defense costs incurred by the State, including attorney

fees, and pre- and post-judgment interest, on all properly tendered claims, as well as costs

and attorney fees incurred for defense of this declaratory action.

¶19    Reduced to dollars and cents, the judgment entered by the District Court in August

2019 totaled $97,833,193.39, consisting of $26,800,000 for the remainder of the November

2009 Global Settlement, giving credit to National for the $16.1 million it had contributed,

and $21,285,900 in accompanying prejudgment interest; $29,589,933.86 to indemnify the

State for settlements paid to claimants exposed during the policy period, and $4,861,904.98

in accompanying prejudgment interest; $6,872,918.69 for the State’s attorney fees and

costs paid for defending the Libby Mine Claims from July 18, 2005, up to June 5, 2019;

$4,902,120.42 for prejudgment interest on the State’s claim defense costs; and

$3,570,410.44 for State’s attorneys’ fees and costs incurred in defending this action

through March 29, 2019.

¶20    National appeals, challenging all rulings of the District Court that resulted in a

financial award for the State and against National in the Judgment.                The State

cross-appeals, challenging the District Court’s rulings on issues on which it did not prevail.

The practical “big picture” of this case is that, with the exception of National’s $16.1

million conditional contribution to the first global settlement, the State has resolved all

Libby Claims made against it, as well as those “Future Claims” made against it after

judgment in this matter was entered, and this litigation will determine the amount, if any,

National is required to compensate the State toward the cost of those claims. National

                                             17
argues it owes nothing and requests that summary judgment be entered in its favor, while

the State argues the amount owed is more than awarded in the Judgment.

                               STANDARD OF REVIEW

¶21    This Court reviews a district court’s entry of summary judgment and the

interpretation of an insurance contract de novo. Kilby Butte Colony, Inc. v. State Farm

Mut. Auto. Ins., 2017 MT 246, ¶¶ 7-8, 389 Mont. 48, 403 P.3d 664 (citations omitted).

Summary judgment is appropriate when “there is no genuine issue as to any material fact

and that the movant is entitled to judgment as a matter of law,” M. R. Civ. P. 56(c)(3), and

“[w]hen the material facts are undisputed, the question of whether an insurer breached its

duty to defend is a question of law.” State Farm Fire & Cas. Co. v. Schwan, 2013 MT

216, ¶ 12, 371 Mont. 192, 308 P.3d 48 (citing Travelers Cas. & Sur. Co. v. Ribi

Immunochem Research, 2005 MT 50, ¶ 14, 326 Mont. 174, 108 P.3d 469). “If no material

facts are in dispute, the question of whether or not an insurer breached its duty to defend is

a question of law.” J & C Moodie Props., LLC v. Deck, 2016 MT 301, ¶ 17, 385 Mont.

382, 384 P.3d 466 (citing Schwan, ¶ 12).

                                       DISCUSSION

¶22    1. Did the District Court err in its determinations that National breached its duty
       to defend the State?

¶23    This issue encompasses the State’s cross appeal of the District Court’s rulings that

National did not breach its duty to defend between 2002 and 2005, or breach the duty in

2006, and National’s appeal of the District Court’s rulings that it breached the duty to

defend in 2005 and breached again in the time period leading to the filing of this action in

                                             18
2012. We hold the District Court correctly determined National’s breaches of the duty to

defend, although under partially different rationales.

a. Duty to Defend: 2002-2005

¶24    The State argues National’s duty to defend was triggered in July 2002, when the

State notified National of the first claims by letter, stating, “we are tendering these claims

to National Indemnity,” and that the duty was likewise breached at that point by National’s

failure to defend the State. The State argues National “made no offer to defend until July

2005,” and that, “[d]uring this interval, the State lost the Orr appeal.” Thus, the State

reasons that because this breach “includes NIC’s failure to defend the Orr appeal,” and

because the Orr decision authorized all subsequent Libby Claims against the State,

National “is responsible for all settlements, defense costs and prejudgment interest,”

essentially, the entirety of all costs associated with all Libby Claims. During oral argument,

National described the State’s position as “‘estoppel for all time’ . . . an extraordinary,

unprecedented ask.”

¶25    The District Court summarized the 2002-2005 timeline as follows:

       [N]either of the [June-July 2002] Cockrell Letters requested that National
       assume the defense of the Original Libby Lawsuits, pay the State’s retained
       defense counsel, or reimburse the State’s defense costs. Likewise, the State
       itself, as a knowledgeable and sophisticated customer, did not make any
       specific request that National take over the defense of the Libby Lawsuits,
       and Cockrell continued to defend the State in the Libby Lawsuits until the
       December 2004 Montana Supreme Court ruling in Orr. It was not until
       February 2005 that Grandgenett learned of the Court’s ruling when he read
       it in the media, and neither Cockrell nor the State had had any contact with
       National for over 17 months.

                                             19
The District Court thereafter concluded, “[u]nder these circumstances, the Court cannot

say that the State clearly tendered defense of the Libby Lawsuits to National in 2002,”

citing Hartford Accident & Indem. Co. v. Gulf Ins. Co., 776 F.2d 1380, 1383 (7th Cir.

1985) (“Mere knowledge that an insured is sued does not constitute tender of a claim . . . .

An insurance company is not required to intermeddle officiously where its services have

not been requested.”).

¶26    Our jurisprudence has not required a formal tender of a claim by the insured in order

to trigger the insurer’s duty to defend, or employed such terminology generally. “Montana

law is well-settled that an insurer’s duty to defend its insured arises when an insured sets

forth facts which represent a risk covered by the terms of an insurance policy.” Farmers

Union Mut. Ins. Co. v. Staples, 2004 MT 108, ¶ 20, 321 Mont. 99, 90 P.3d 381 (citing

Lindsay Drill. & Cont. v. U.S. Fid. & Guar. Co., 208 Mont. 91, 94, 676 P.2d 203, 205

(1984); Graber v. State Farm Fire & Cas. Co., 244 Mont. 265, 270, 797 P.2d 214, 217

(1990); and Grindheim v. Safeco Ins. Co., 908 F. Supp. 794, 798 (D. Mont. 1995))

(emphasis added). “The general rule is that the insurer has a duty to defend when a

complaint filed against its insured sets forth facts which bring the event within the policy

provisions.” Graber, 244 Mont. at 270, 797 P.2d at 217 (citing Atcheson v. Safeco, 165

Mont. 239, 245, 527 P.2d 549, 552 (1974)) (emphasis added). “An insurer’s duty to defend

its insured arises when an insured sets forth facts that present a risk that possibly would be

covered by the terms of an insurance policy.” Horace Mann Ins. Co. v. Hanke, 2013 MT

320, ¶ 24, 372 Mont. 350, 312 P.3d 429 (citing Staples, ¶ 20). Indeed, we further held that

                                             20
“an insurer’s duty to defend may arise from an insurer’s knowledge of ‘facts obtained from

outside the complaint,’” and thus, the duty is not exclusively dependent upon notice of

facts from the insured. Huckins v. United Servs. Auto. Ass’n, 2017 MT 143, ¶ 15, 387

Mont. 514, 396 P.3d 121 (citing Revelation Indus. v. St. Paul Fire & Marine Ins. Co., 2009

MT 123, ¶ 39, 350 Mont. 184, 206 P.3d 919) (emphasis added).

¶27    While the District Court concluded that the State did not “clearly tender” the Libby

Claims until 2005, we agree with the State that such a particular event was not necessary

to trigger National’s duty to defend. With Cockrell’s June 27, 2002 letter to National, the

State provided twelve “self-explanatory” complaints filed by Libby Claimants.           One

complaint, Flesher, et al. v. State of Montana, pled facts for multiple plaintiffs who worked

at the Libby Mine or were exposed to asbestos between 1973-1975, the applicable policy

period. The complaint alleged the State failed to warn mine workers and the public

regarding asbestos toxicity, directly causing the plaintiff’s asbestos related lung disease.

The complaints set forth facts, which, if proven, would render the State legally obligated

for bodily injury damages. Further, National was aware of extrinsic facts that the State

faced the potential of increased liability following the Orr dismissal, subsequent appeal,

and this Court’s Orr decision. National was obligated to construe these facts from the

perspective of the State and not its own. Staples, ¶ 22 (the insurer “is under a duty to

construe the factual assertions from the perspective of the insured rather than solely from

the insurer’s own perspective”).

       When a court compares allegations of liability advanced in a complaint with
       policy language to determine whether the insurer’s obligation to defend was

                                             21
       “triggered,” a court must liberally construe allegations in a complaint so that
       all doubts about the meaning of the allegations are resolved in favor of
       finding that the obligation to defend was activated.

Staples, ¶ 22. Unless there exists an “unequivocal demonstration” that a claim against the

insured falls outside policy coverage, the insurer’s duty is to defend. Staples, ¶ 22. We

conclude that National’s duty to defend arose in 2002 when the State contacted National

and provided the initial complaints alleging the State’s negligence caused bodily injury

during the policy period.

¶28    The determinative question becomes whether, following the State’s notice to

National of the Claims in 2002, National then breached its duty to defend under Montana

law. We have not imposed rigid requirements for satisfaction of an insurer’s duty to

defend, but have assessed the circumstances of each case. We “review[] all of the facts in

the matter to determine” whether the duty to defend has been satisfied. J & C Moodie,

¶ 25. “The duty to defend commonly requires the hiring of legal counsel, but may not in

every case.” Schwan, ¶¶ 18-20 (holding insurer did not breach the duty by failing to hire

additional counsel for insured who was defended on all claims by another insurer,

reasoning “[i]t would make little sense for State Farm Fire to provide other legal counsel

when such a need was not demonstrated.”); see also Farmers Ins. Exch. v. Johnson, 2009

MT 442, ¶ 12, 354 Mont. 192, 224 P.3d 613 (under the circumstances of “an informal,

voluntary” pre-litigation meeting, insurer did not breach duty to defend by adjuster’s

attendance instead of legal counsel). We reasoned in Schwan that the duty was fulfilled

when the insurer “ensure[d] a full defense was provided” to the insureds, even though the

                                             22
insurer there determined not to hire additional counsel, and thus the insureds were not “left

unprotected or . . . prejudiced” by the insurer. Schwan, ¶¶ 20, 24. In Westchester Surplus

Lines Ins. Co. v. Keller Transp., Inc., 2016 MT 6, 382 Mont. 72, 365 P.3d 465, we held the

insurer, an excess carrier, did not breach the duty after temporarily withdrawing from the

insureds’ defense during a period when the defense was tendered to the primary insurer,

because the insureds “were not declined a defense” and were “continually represented by

counsel,” despite a “short delay” in defense payments after the insurer later re-initiated

defense of the insureds. Westchester, ¶ 31. In contrast, we concluded the insurer breached

the duty in J & C Moodie, despite the insureds having other counsel, because the insurer

“made no effort to contact the co-insurer to further understand the claims, offered no

coordination, and provided no other defense support,” even failing to “seek a declaratory

ruling to confirm its internal coverage determination.” J & C Moodie, ¶ 27. We concluded

the insurer “did nothing to honor the contractual benefit that [the insured] had secured

under the policy.” J & C Moodie, ¶ 28. In sum, the insurer must give “the necessary

substance to the duty to defend and fulfil[] its contractual duty to the [insureds] under the

policy.” J & C Moodie, ¶ 23 (quoting Schwan, ¶ 20).

¶29    In response to Cockrell’s initial two letters in July 2002, National’s Grandgenett

contacted Cockrell, who advised Grandgenett that the State had filed and argued motions

to dismiss the actions, and “there was nothing more to be done.” Despite the tendering

language in Cockrell’s first letter, neither letter referenced or requested that National pay

the State’s counsel, assume defense responsibilities, reimburse the State’s incurred defense

                                             23
costs, or provide any other assistance on the claims. In the time thereafter, the State

submitted no bills for legal services to National or made any other request for defense

support. National was slow to forward a copy of the Policy it had located in its archives,

but maintained contacted with the State, while the State was slow in its communications

with National. In December 2002, National independently learned of the District Court’s

dismissal of the Orr claims, and initiated contact with the State, asking to be kept informed

of the Orr proceeding. Cockrell followed with a letter to Grandgenett about the Orr appeal,

again with no request for support. In response, Grandgenett increased National’s defense

reserve. However, for the next seven months, until Grandgenett again initiated contact in

August 2003, the State managed the Libby Claims without further contact with National.

Grandgenett then wrote in his notes that Cockrell “will call me to let me know [sic]

Supreme Court decision. We can decide what needs to be done to further evaluate based

on Supreme Court outcome.” However, the State did not advise National of this Court’s

Orr decision, and National learned about it from other sources. It was not until March

2005 that the State recontacted National and the parties began to have consistent

communication. In his March 2005 letter, Cockrell referred to his June 2002 letter and

asked for the first time “whether National Indemnity is accepting this tender and will be

providing a defense to the State.” Referencing the period from 2002 to 2005, Cockrell, as

the State’s 30(b)(6) witness, testified in deposition that the State did not want National to

hire additional counsel and there was no reason to do so.

                                             24
¶30    The record is clear that the State initially defended the Libby Claims through its

own self-insurance operation, hired its own counsel, managed the litigation, and made its

own defense decisions. It gave notice to National in 2002, but from 2002 to 2005, the State

took the position with National that it had the matter under control, and nothing was left to

be done, and, indeed, it appears from the record National would have had to knock the

State out of the saddle and wrest control of the litigation to participate in the defense, as

the State relinquished nothing. See § 28-11-316, MCA (“the person indemnified has the

right to conduct defenses if the person indemnified chooses to do so.”). The State’s

interests were adequately protected by its own counsel, afforded through its self-insurance.

Schwan, ¶ 20. It was not until March 2005 that the State requested any action by National.

It thus comes as no surprise that National acted minimally. Under these circumstances, we

conclude National satisfied the “necessary substance” of the duty to defend between 2002

and 2005. Schwan, ¶ 20. Consequently, we affirm the District Court’s determination that

National did not breach its duty to defend during this period.

b. Duty to Defend: 2005

¶31    Things changed dramatically for the State with this Court’s December 2004 decision

in Orr, which reversed the District Court’s dismissal and allowed the Orr claims, and by

extension, all such Libby Claims, to proceed. The State re-initiated contact with National

in March 2005, and National admits the State requested that National assume defense of

the Libby Claims in mid-March 2005. The District Court determined that, in response to

the State’s request, National breached its duty to defend in July 2005, and did not cure the

                                             25
breach, or again properly fulfil the duty to defend, until May 2006. Thus, on appeal,

National argues the District Court erred by determining it breached the duty in July 2005,

but agrees with the determination it was properly defending the State by May 2006. The

State’s position is the opposite, agreeing with the District Court’s determination that

National was in breach from July 2005 to May 2006, but cross-appealing the District

Court’s determination that National cured the breach or properly began defending the State

in May 2006. We first take up National’s actions in 2005.

¶32    On July 18, 2005, Grandgenett wrote to Gianoulias to respond to Cockrell’s request

that National defend the State. National expressed agreement with defending the State,

subject to a reservation of rights on certain issues, which Grandgenett outlined in the letter,

including that “[u]nder the Policy and applicable law we believe all defense costs, as well

as any losses to which the Policy applies, must be allocated pro-rata based on time on the

risk.” National explained that its pro rata position included periods of self-insurance by

the State in the same manner as it would commercial insurance.6 The State broadly rejected

National’s terms, stating it believed “a reservation of rights is not appropriate,” and

specifically rejected National’s position requiring a pro rata allocation of defense costs

“based on time on the risk.” The District Court determined that “National breached its

duty to defend the State by indicating in its July 18, 2005 Letter that it only would pay

defense costs, and any losses to which the Policy applied, on a pro-rata basis.”

6
 The only other commercial insurance carried by the State was with the now-insolvent Glacier
General Assurance Company.

                                              26
¶33    National argues its July 18, 2005 letter satisfied the duty to defend by its statement

that “National Indemnity agrees to defend the State of Montana against claims asserted

against the State of Montana in the Libby Mine Claims,” and that the District Court erred

by concluding that National “offered a pro-rata defense,” because its pro rata statements

were merely one of several rights it was reserving for later resolution, stating in its briefing:

       Explaining one of its reservations (as an insurer is required to do by law), the
       letter went on to note that National “believe[d] all defense costs, as well as
       any losses to which the Policy applies, must be allocated pro-rata based on
       time on the risk.” [citing Appendix]. Accordingly, National only reserved
       its right to seek pro-rata allocation. Nowhere does the July 18, 2005 letter
       state that National would not front all defense costs in the first instance.

(Emphasis added.)

¶34    However, we disagree. After the portion quoted by National’s briefing, the Letter

continues by stating:

       National Indemnity will pay its share of an equitable allocation among all
       insurers and the State of Montana of the cost of defending the State of
       Montana against the Libby Mine Claims . . . . We look forward to promptly
       developing and implementing with the State a suitable means for National
       Indemnity to pay its share of those defense costs . . . .

                                            .   .    .

       The expense of defending the State of Montana against the Libby Mine
       Claims which National Indemnity will share includes all reasonable and
       necessary costs and fees relating to the State of Montana’s defense.

(Emphasis added.)

¶35    Clearly, the Letter was not merely reserving the issue of pro rata allocation of

defense costs, but was conveying, contrary to National’s argument, that National would

indeed “not front all defense costs in the first instance,” requiring that National’s

                                                27
participation in the State’s defense be limited to a pro rata allocation of time on the risk,

which National defined as “the two-year Policy period,” and urging a system be “promptly”

implemented to determine this limited contribution by National. The April 10, 2006 letter

from Gianoulias to Grandgenett correctly stated that “while National Indemnity has made

a proposal to provide a limited, apportioned defense, at no time has it proposed to provide

a complete defense to the State . . . .” The letter makes clear that National contemplated

only a pro rata defense: “In the July 20, 2005 meeting, in support of your proposal to

contribute to the defense costs of these claims you discussed three fractions as examples of

the portion [National] might contribute. Your proposals were: Jacobson – 1/50th, Smith –

2/47ths and Graham – 2/35ths.” In light of these representations and offers, we agree with

the April 10, 2006 letter’s statement that: “National Indemnity can claim no surprise about

the fact that it is not defending the State.” The District Court’s application of the plain

language of National’s Letter was correct.

¶36    There is no dispute the Libby Claims, premised upon the State’s asserted

negligence, implicated potential coverage under the Policy.         See Huckins, ¶ 15 (to

determine whether an insurer had a duty to defend the insured, we “look first to the terms

of the policy, and next to the facts alleged [in the] complaint.”). There was no “unequivocal

demonstration” otherwise.      Staples, ¶ 22.      Further, regarding National’s defense

responsibilities, the Policy provided that National had “the duty to defend any suit against

the insured seeking damages on account” of bodily injury to which the insurance applied.

The “duty to defend requires an insurer to act immediately to defend the insured from a

                                             28
claim,” and “must do so on the basis of mere allegations that could implicate coverage, if

proven.” State Farm Mut. Auto. Ins. Co. v. Freyer, 2013 MT 301, ¶ 37, 372 Mont. 191,

312 P.3d 403. Montana is a “mixed-action rule” jurisdiction, a rule requiring “an insurer

to defend all counts in a complaint so long as one count potentially triggers coverage, even

if the remaining counts [of the complaint] would not be covered.” Schwan, ¶ 16 (citing

Newman v. Scottsdale Ins. Co., 2013 MT 125, ¶ 40, 370 Mont. 133, 301 P.3d 348). The

Libby Mine litigation, initially focused on the Orr cases but including and widely

expanding to others, bombarded the State with claims allegedly arising from the State’s

negligence over decades of time. For purposes of the duty to defend, all of these claims

fell within National’s initial responsibility to defend the State. The District Court correctly

determined that National’s clear attempt to limit its defense responsibility to a pro rata

portion of these claims violated the Policy and the duty to defend.

c. Duty to Defend: 2006

¶37    Following further discussions regarding the State’s objections to National’s defense

offer in 2005, which we just concluded breached National’s duty to defend, Gottschalk

wrote to Gianoulias on May 10, 2006, stating his intent was “to leave no doubt whatsoever

regarding the commitment of [National] to defend the State,” and that National “is willing

to pay 100% of the cost of defending the State.” Even though offering optional defense

alternatives involving pro rata cost sharing and making the 100% offer upon a reservation

of rights “under the Policy and applicable law,” National nonetheless removed the prior

condition that the State participate in a pro rata sharing of defense costs. The District Court

                                              29
distinguished between National’s conditioned pro rata defense offer in July 2005, which it

held was a breach, and National’s reservation of the right to seek pro rata recoupment of

defense costs in May 2006, which it held was proper, and concluded that National’s May

2006 actions were a lawful “tender of a full defense.”

¶38    The State cross-appeals this ruling, contending National’s reservation of rights

triggered, similar to its argument that National breached the duty in 2002, a case-wide

breach of the duty to defend resulting in a perpetual estoppel of National’s coverage

defenses on all Libby Claims forever, because National made this same reservation with

all of its defense offers. Specifically, the State first argues the May 2006 “offer to defend

with a condition of recoupment for defense costs of potentially-covered claims” was

another breach of the duty to defend. (Emphasis added.) However, unlike the pro rata

condition required in its July 2005 defense offer, National did not make its full defense

offer in May 2006 upon a condition that the State pay a pro rata share of defense costs.

Rather, it notified the State it was reserving its right to “seek reimbursement . . . for defense

costs paid with respect to claims to which the Policy ultimately is determined not to apply.”

(Emphasis added.) National thus eliminated the conditioned defense that violated the duty

to defend in July 2005. As the District Court determined, “National was not only entitled,

but was required, to preserve its right to recoup its defense costs and clearly notify the State

that National would seek reimbursement of defense costs paid if it was later determined

that the State’s claims were not covered under the Insurance Policy.” (Emphasis added.)

                                               30
¶39    The State then argues that National’s reservation of rights was nonetheless improper

because, citing a footnote in Schwan, an insurer may recoup defense costs only where, in

its words: “(1) the claim itself is not potentially covered; (2) the insurer nonetheless offers

to defend and timely asserts a right to recoup; and (3) the insured accepts the offer.” The

State’s position that recoupment of costs is limited to claims “not potentially covered”

arises from an over-reading of the Schwan footnote, wherein we addressed the

“mixed-action” rule requiring an insurer to defend on all counts of a complaint as long as

one count “potentially triggers coverage,” citing Buss v. Superior Ct., 939 P.2d 766, 774-75

(Cal. 1997). Schwan did not address recoupment of defense costs. As the District Court

reasoned, “Schwan did not address any issue related to the reservation of rights or

reimbursement of defense costs,” and “the Montana Supreme Court did not hold—either

in the footnote referencing Buss or elsewhere in its Opinion—that an insurer may obtain

reimbursement only for defense costs for claims not potentially covered.” Such a rule

would not be consistent with the development of Montana law.7

¶40    “[T]he action we have repeatedly admonished insurers to take if there is a coverage

question [is to] defend the insured and file a declaratory judgment action to discern

coverage.” Freyer, ¶ 37; Staples, ¶ 28 (if the insurer “wished to dispute coverage, it could

have defended Staples under a reservation of rights and later sought judicial determination

through a declaratory judgment action to determine whether coverage existed.”). We

7
 As the District Court put it, “[t]he State has not provided any other Montana case law or legal
authority precluding an insurer from reserving its right to recoup defense costs either in whole or
pro-rata, no matter whether the claim is ‘potentially covered’ or ‘not potentially covered.’”

                                                31
explained in Hanke that “[a]n insurer should provide the insured a defense under a

reservation of rights if the insurer believes that a question exists about the boundaries of

coverage.” Hanke, ¶ 25 (emphasis added). We have never restricted the right to reserve

coverage questions to those claims that “are not potentially covered,” as argued by the

State. First, to do so would require the insurer to make unilateral, nonjudicial coverage

determinations necessary for reservation decisions within the immediacy of its duty to

defend the insured. As we have held, the “broader duty to defend requires an insurer to act

immediately to defend the insured from a claim. The insurer must do so on the basis of

mere allegations that could implicate coverage, if proven.” Freyer, ¶ 37 (emphasis added).

In contrast, “the narrower duty to indemnify typically involves complicated interpretational

questions that often require legal opinions and separate declaratory actions to determine.”

Freyer, ¶ 37. The answers to these “complicated interpretational questions” may well not

be known at the time a claim arises, and thus we compel insurers to “act immediately to

defend the insured” until such determinations can be made. Freyer, ¶ 37. As noted above,

an insurer must initially defend the insured unless it can “unequivocally demonstrate” a

claim falls outside policy coverage, or when a mixed action presents both covered and

noncovered claims. Staples, ¶ 22. Limiting an insurer’s reservation right only to claims

“not potentially covered” would largely undermine the rules we have previously

recognized for insurers to preserve coverage questions for later resolution.8

8
  Consistent with our “repeatedly admonishing insurers” to defend the insured and file a
declaratory action to resolve coverage questions, is the estoppel rule we have adopted in this
context: “Where an insurer, without reservation and with actual or presumed knowledge, assumes
the exclusive control of the defense of claims against the insured, it cannot thereafter withdraw
                                               32
¶41    Specifically, regarding recoupment, we have explained:

       The insurer . . . may file a declaratory judgment action to resolve coverage
       issues. Staples, ¶ 28. The insurer may seek to recover the expenses that the
       insurer incurred in defending a claim outside of the insured’s policy coverage
       in the declaratory judgment action. Staples, ¶ 28. An insurer’s failure to
       follow this course leaves the insurer potentially liable for defense costs and
       judgments. Staples, ¶ 27; § 28-11-316, MCA.

Hanke, ¶ 25 (emphasis added); see also Am. Econ. Ins. Co. v. Aspen Way Enters., No. CV

14-09-BLG-SPW, 2015 U.S. Dist. LEXIS 163082, at *5 (D. Mont. Dec. 4, 2015) (quoting

Hanke) (“If a court declares that there is no coverage, Montana law permits the insurer to

‘recover the expenses that the insurer incurred in defending a claim outside of the insured’s

policy coverage in the declaratory judgment action.’”). We have explained that an insurer

may pursue recoupment if it “(1) timely and explicitly reserved the right to recoup the

costs; and (2) provided specific and adequate notice to the insured of the possibility of

reimbursement.” Ribi, ¶ 49 (citing United Nat. Ins. Co. v. SST Fitness Corp., 309 F.3d 914

(6th Cir. 2002)).9

and deny liability under the policy on the ground of noncoverage . . . .” Safeco Ins. Co. v.
Ellinghouse, 223 Mont. 239, 245, 725 P.2d 217, 221 (1986) (citing 14 Couch on Insurance 2d,
§ 51.85 (2d ed. 1982)) (emphasis added). Here, National did not fail to reserve its coverage issues.
9
  As noted by the Concurrence, we did not incorporate in the analysis the fact that Travelers and
Ribi had agreed to recoupment as to one group of plaintiffs, and that Ribi had not objected to
recoupment in the other plaintiffs’ cases. Ribi, ¶ 10. Further, Hanke involved only the recoupment
of an indemnity payment, not defense costs, despite the opinion’s language regarding filing a
declaratory judgment action to recover “expenses” that an insurer incurred in defending a claim
outside of a policy’s coverage. See Hanke, ¶¶ 25-28, 31. Because the parties have not argued here
that these cases should be revisited regarding the propriety of recouping defense costs, for the
purposes of this Opinion we assume it is permissible under the holdings of those cases.

                                                33
¶42    While we have also made general statements such as “an insurer [may] recover

defense costs when the insurer had no duty to defend,” Ribi, ¶ 48 (emphasis added), in

context such statements were referring to ultimate indemnity determinations of whether

coverage and the accompanying duty to defend existed under the policy as a matter of law,

not the initial duty to immediately defend “when an insured sets forth facts that present a

risk that possibly would be covered by the terms” of the policy. Hanke, ¶ 24. In other

words, the scope of an insurer’s right of recoupment is determined by subsequent judicial

ruling on the law and the policy, not by the potential implication of coverage that obligates

the insurer to immediately defend the insured. See 44 Am. Jur. 2d Insurance § 1405

(“Where the insurer is doubtful about its liability and wishes to retain all its rights and at

the same time protect itself against the claim that it has unjustifiably refused to defend a

suit against the insured, it may give a so-called ‘nonwaiver’ notice to the insured or attempt

to enter into a ‘nonwaiver’ agreement with the insured, by which it reserves all its rights to

later assert the policy noncoverage”); and 44 Am. Jur. 2d Insurance § 1422 (“An insurer

does not waive the right to later disclaim liability by voluntarily defending its insured to a

final judgment or settlement . . . where the insurer executes an express nonwaiver

agreement with the insured or defends under a reservation of rights.”).

¶43    The State also argues National failed to timely reserve the right of recoupment, but

National asserted the right continuously throughout the litigation, even before May 2006,

and prior to National receiving a request from the State to make any defense payments.

The State offers that the insured “must accept the offer” of a defense subject to the

                                             34
reservation, but this is incorrect. “[E]ven absent an express agreement by the insured,” the

right to recoupment is enforceable if the insurer satisfies the requirements of explicit

reservation and timely notice to the insured. Ribi, ¶¶ 49-50 (citing United, 309 F.3d at

921); Aspen Way Enters., 2015 U.S. Dist. LEXIS at *6 (“Such a reservation of rights is

‘enforceable where an insurer meets these conditions even absent an express agreement by

the insured.’”) (quoting Ribi, ¶ 49). As noted above, an insurer may reserve issues by

entering an agreement with the insured but may also unilaterally reserve issues if the

insured does not agree.

¶44    We thus affirm the District Court’s determination that National did not breach the

duty to defend by the reservation of rights made with its offer of a full defense in

May 2006.10

d. Duty to Defend: 2006-2012

¶45    The District Court determined that, despite offering a full defense and satisfying its

duty to defend in May 2006, National nonetheless committed a second breach by its actions

thereafter, reasoning that “National breached its duty to defend the State by failing to file

a declaratory judgment expeditiously when the State rejected its offer to defend each of the

Libby Claims tendered and waiting until after the first global settlement.” National argues

this is error, as it “timely commenced this proceeding,” and that the State has cited no

10
  We recognize that obligations here discussed also implicate the provisions of the Unfair Trade
Practices Act (UTPA), Title 33, chapter 18, MCA, which are not before us in this case. See
Draggin’ Y Cattle Co. v. Junkermier, Clark, Campanella, Stevens, P.C., 2019 MT 97, ¶ 31, 395
Mont. 316, 439 P.3d 935 (noting that these issues “underscore the reason for a separate framework
for presenting such claims in a UTPA action.”).

                                               35
“Montana precedent requiring immediate commencement of a declaratory action after an

insurer offers to defend under reservation,” because “[n]one exists.” Rather, National

points to multiple holdings in which we have declined to impose such an obligation upon

insurers before resolution of the underlying liability case. See Draggin’ Y ¶ 38 (“We

decline to impose as a matter of law a new obligation on a defending insurer . . . to file a

declaratory judgment action before the resolution of the liability case”) (emphasis added);

Freyer, ¶ 37 (“it is appropriate for insurer to institute declaratory action after insured

suffers loss so insurer can determine whether the company is obligated to pay all or any

part of the judgment or loss.”) (emphasis added, internal citation and quotation omitted).

National argues that, after properly defending in May 2006, it conducted “multiple rounds

of mediation” with the State over coverage issues, contributed to the 2009 Global

Settlement, and entered a Tolling Agreement with the State in 2010 “to preserve the status

quo.”

¶46     While we acknowledge National’s citation of our general rule about the timing of a

declaratory action, we must also consider the extraordinary and unprecedented

circumstances here. National learned of the Libby Claims, and its duty to defend arose, in

July 2002. After initially breaching its duty in 2005, National properly offered a defense

in 2006. However, the State rejected the terms of National’s defense offer, and while we

have now concluded that National’s reservation of rights was not a breach of its defense

duty, the State thereafter, for years, continued to conduct all of the “on the ground”

logistical work in defense and settlement of the claims under its rejection of National’s

                                            36
offer, with no certainty about how National’s reserved coverage issues would ultimately

be resolved. As the District Court insightfully reasoned:

       Notwithstanding the discussions the parties may have had regarding
       settlement of the coverage issues, National knew the State specifically had
       rejected National’s offer of a defense subject to any reservation of right for
       reimbursement of defense costs. National did not file a declaratory judgment
       action for another six years. During that time, National did not take any steps
       to stay the pending Libby Claims, or prevent the State from being otherwise
       prejudiced. The State proceeded to provide defense of the various Claims as
       they were filed, including the settlement of a number of those Claims.
       National has not actively participated in nor contributed to any of the
       settlements of Libby Claims subsequent to the global settlement . . . .

       Given the emphasis on the obligation to provide an insured a defense, even
       if under a reservation of rights, the Court concludes it is even more
       imperative for an insurer to file a declaratory judgment action where its
       insured has exercised the right to refuse a defense subject to a reservation of
       rights.

In the three years following its rejection of National’s defense offer in May 2006, the State

was presented with a request from the Libby Claimants for global negotiations, participated

in negotiations leading to the November 2009 Global Settlement, therein making decisions

with multi-million dollar consequences, and then sought and obtained judicial approval of

the settlement in September 2011—all with no resolution of National’s reserved coverage

rights in sight, not even a pending declaratory action. Thereafter, the State has continued

to defend and negotiate settlements. It took National six years after the State’s rejection of

its 2006 defense offer, almost 10 years after notice of the claims, and four years after

National acknowledged to the State the need for a “judicial determination,” to initiate this

action. The following counsels well regarding the timeliness of an insurer’s obligation in

these circumstances:

                                             37
       Where an insured refuses to consent to a defense under a reservation of rights,
       the insurer must thereupon give the insured proper unilateral notice of its
       reservation of rights, take the necessary steps to prevent the main action from
       going into default or to prevent the insured from being otherwise prejudiced,
       and seek immediate declaratory relief including a stay of the main case
       pending a final resolution of the declaratory judgment action.

44 Am. Jur. 2d, Insurance, § 1422 (citing Government Employees Ins. Co. v. Progressive

Cas. Ins. Co., 275 Ga. App. 872 (2005)) (emphasis added). National argues that the parties

entered the Tolling Agreement to “preserve the status quo” and “defer commencement of

coverage litigation,” but the Tolling Agreement did neither; it merely tolled the statutes of

limitation on the parties’ claims against each other. It did not defer litigation or require the

then-status to be maintained. It was not entered until after the State negotiated the 2009

Global Settlement.

¶47    Before this action was filed, National contested the limits of its coverage for nearly

a decade. This action, which attempted to resolve the coverage issue, took nearly another

decade itself. Given the complexity of the coverage issues, the age of the policy, and the

number of potential claimants involved here, litigation of this length was foreseeable. A

declaratory judgment’s purpose is to discern the extent of coverage under a policy so that

an insurer may know the extent of its legal duties relative to the insured. Freyer, ¶ 37

(collecting cases). It is not a Sword of Damocles to be hung over the insured’s head

throughout the entire course of litigation. In the end, National delayed so long as to

prejudice the State by forcing it to litigate and settle cases in coverage darkness. While

there is no categorical rule imposing an obligation on an insurer to file a declaratory

judgment action within a certain amount of time, Draggin’ Y, ¶ 38, we cannot, given these

                                              38
facts, ignore the effect such a decision has on the insured. Cf. Rolan v. New W. Health

Servs., 2017 MT 270, ¶¶ 19-24, 389 Mont. 228, 405 P.3d 65 (recognizing that extreme time

delays in filing resulting in the opposing party expending substantial effort and expense,

coupled with a lack of reasonable justification for the delay, can prejudice the opposing

party). We affirm the District Court’s holding that, under these circumstances, National

breached the duty to defend by its many-year delay in seeking judicial resolution of its

reserved coverage issues.

e. Breach and Estoppel

¶48   Having addressed the breaches of the duty to defend, we take up National’s estoppel

arguments. The District Court held that, “[h]aving determined that National breached its

duty to defend the State, it is clear under Montana case law that National is estopped from

denying coverage—and therefore from asserting any defenses to coverage.” National first

argues the District Court “erroneously estopped National from contesting coverage for the

State’s $43 million 2011 Global Settlement.” National argues that, regardless of any

breach of the duty to defend, estoppel is not applicable without “detrimental reliance,”

citing Grimsrud v. Hagel, 2005 MT 194, ¶ 36, 328 Mont. 142, 119 P.3d 47, and that the

State “did not rely to its detriment on any actions by National” or “even allege that

National’s conduct harmed the State or its defense.” Secondly, National contends the

District Court “erroneously created coverage by estoppel” because estoppel cannot create

coverage where none exists, and thus the State was permitted to avoid its burden to

establish the Libby Claims fell within “the basic scope of coverage” under the Policy. The

                                            39
State responds that the District Court properly concluded that breach of the duty to defend

renders National responsible for all consequential damages from the breach.

¶49    National’s arguments are essentially attempting to restore its coverage defenses

despite the determination it twice breached the duty to defend. Grimsrud referenced

general estoppel principles drawn from case authority that did not involve a breach of the

duty to defend, including Selley v. Liberty Northwest Ins. Corp., 2000 MT 76, ¶ 10, 299

Mont. 127, 998 P.2d 156, which delineated the “six elements [] necessary in order to

establish an equitable estoppel claim,” including detrimental reliance. Grimsrud, ¶ 36.

However, Grimsrud determined the duty to defend had not been breached in the first place,

and thus, estoppel would not have applied there. Grimsrud, ¶ 34. More to the point, our

extensive precedent involving an insurer’s breach of the duty to defend has not applied or

required satisfaction of the general “six element” equitable estoppel test to determine if an

insurer is estopped from raising coverage defenses, and we will not require it here. Such a

requirement would spawn extensive further litigation to determine whether estoppel should

result from an insurer’s breach.      Rather, estoppel in this context is comparatively

straightforward: “Montana case law clearly provides that where the insurer refuses to

defend a claim and does so unjustifiably, that insurer becomes liable for defense costs and

judgments.” Staples, ¶ 20 (internal quotations and citation omitted); see also J & C

Moodie, ¶ 21 (citations omitted). Estoppel is applied without regard to coverage defenses

or considerations. Thus, the District Court did not err by estopping National’s coverage

defenses in consequence of its breaches of the duty to defend.

                                             40
f. Consequences of National’s Breaches of the Duty to Defend

¶50       For the first breach of the duty to defend, which it dated on July 18, 2005, the District

Court imposed upon National responsibility for all defense costs and completed settlements

incurred “subsequent to that date” for which “National has not provided a full defense as

of the date each settlement was approved” by the courts, without regard to coverage

defenses and “irrespective of Policy limits.” For the second breach, which it dated on

February 23, 2012, the date this action was filed, the District Court held that “as to those

claims which were tendered and settled prior to February 23, 2012, National is estopped

from raising coverage defenses, and is responsible for defense costs and all settlement

amounts.” Thus, the District Court estopped National from asserting coverage defenses,

and assessed the defense costs, with interest, on claims the State defended without a full

defense offer from National during that period and assessed settlement costs during that

period. As a result, National was assessed the $43 million 2009 Global Settlement,

prejudgment interest thereon of $21.3 million, $6.87 million in defense costs, and

prejudgment interest thereon of $4.9 million, for a total of $76.07 million. Against this

amount, National was credited $16.1 million for its contribution to the Global Settlement,

resulting in the inclusion of the net amount of approximately $60 million in the Judgment.

We affirm this portion of the judgment as related to the duty to defend.11

¶51       The District Court withheld sets of claims from its application of estoppel, for which

it permitted National to raise defenses under the Policy. In its March 2019 Order regarding

11
     We separately address the pre-judgment interest portion of the Judgment below.

                                                 41
“Fully Defended Claims,” the District Court explained that claims “tendered subsequent to

May 10, 2006” for which National “offered a full defense” were not subject to estoppel.

Likewise, claims tendered “but not settled or reduced to judgment prior to February 23,

2012” were not eligible as estopped settlement costs. The District Court thus undertook

consideration of coverage issues for these cases, ultimately rejecting most of National’s

coverage arguments and assessing $29.58 million in settlement costs, $4.86 million in

pre-judgment interest, and $3.57 million in attorney fees and costs for this declaratory case,

for a judgment total of approximately $38 million related to National’s indemnity

obligations. To review this portion of the judgment, we turn below to the coverage issues

raised on appeal and cross-appeal.

¶52    In that regard, coverage issues are also pertinent to the Claims described by the

District Court as “those tendered subsequent to the February 23, 2012, filing of the

declaratory action,” or sometimes referred to as the “Future Claims.” As the District Court

explained, since the filing of this action, “many more Libby Claim cases have been filed,

and continue to be filed . . . . Most of these claims have been settled by the State while this

declaratory judgment action has been litigated, but a few claims remain pending.”

Although the number of post-February 23, 2012, claims are not clear from the record, the

State’s briefing states that, “since this action was filed, approximately 1500 claims have

been filed,” and the State has settled claims “totaling an additional approximately $44

million.” However, no findings were entered about the Future Claims, and the specific

amounts were not included in the Judgment.

                                              42
¶53    2. Did the District Court err in its determinations regarding coverage under the
       general liability policy issued by National to the State?

¶54    “The interpretation of an insurance policy presents a question of law, and we will

review the District Court’s legal conclusion for correctness.” Emp’rs Mut. Cas. Co. v.

Fisher Builders, Inc., 2016 MT 91, ¶ 9, 383 Mont. 187, 371 P.3d 375 (quoting Landa v.

Assurance Co., 2013 MT 217, ¶ 13, 371 Mont. 202, 307 P.3d 284); see also Ribi, ¶ 14

(citing Pablo v. Moore, 2000 MT 48, ¶ 12, 298 Mont. 393, 995 P.2d 460). “General rules

of contract law apply to insurance policies and we construe them strictly against the insurer

and in favor of the insured.” Ribi, ¶ 17 (citing Erickson v. Dairyland Ins. Co., 241 Mont.

119, 123, 785 P.2d 705, 707-08 (1990)).           “The language of a contract governs its

interpretation if that language is clear and explicit.” Heggem v. Capitol Indem. Corp., 2007

MT 74, ¶ 22, 336 Mont. 429, 154 P.3d 1189 (citing § 28-3-401, MCA). “Courts must look

at an insurance contract as a whole and attempt to reconcile the various parts to give each

meaning and effect.” Heggem, ¶ 22 (citing Farmers Alliance Mut. Ins. Co. v. Holeman,

1998 MT 155, ¶ 25, 289 Mont. 312, 961 P.2d 114); accord § 33-15-316, MCA. “Courts

give the terms and words used in an insurance contract their usual meaning and construe

them using common sense.” Ribi, ¶ 17 (citing Hardy v. Progressive Specialty Ins. Co.,

2003 MT 85, ¶ 14, 315 Mont. 107, 67 P.3d 892). “[E]xclusions from coverage will be

narrowly and strictly construed because they are contrary to the fundamental protective

purpose of an insurance policy.” Town of Geraldine v. Montana Mun. Ins. Auth., 2008 MT

411, ¶ 17, 347 Mont. 267, 198 P.3d 796 (quoting Swank Enterprises v. All Purpose

Services, 2007 MT 57, ¶ 27, 336 Mont. 197, 154 P.3d 52). Typically, the insurer and

                                             43
insured hold respective burden of proofs in seeking the benefit of a particular policy

provision (e.g. coverage, exclusions, and exceptions to exclusions). Ribi, ¶ 29.

a. Known loss12

¶55    National contends coverage is not available under the Policy because the Libby

Claims were a “known loss,” arguing that the State “was aware at policy inception that a

loss would likely ensure,” and quoting from the language in Orr, where we stated:

       Plainly, the State knew as a result of its inspections that the Mine’s owner
       was doing nothing to protect the workers from the toxins in their midst. The
       question of whether the risks were foreseeable had been answered as early as
       1956; the dangers to the workers were already clear and present by that time.

Orr, ¶ 37.

¶56    The District Court, reasoning the State was required to have knowledge of potential

liability to bar coverage under the known loss doctrine, held that, as of July 1, 1973, when

the Policy was issued, “there would have been no reason for the State to anticipate that it

would be liable for any acts or omissions it committed prior to July 1, 1973 under the

then-operative provision” of the 1972 Montana Constitution, which removed immunity

only for “causes of action arising after July 1, 1973.” (Emphasis added.) See Mont. Const.

art. II, § 18. This limitation on immunity was later eliminated by legislative referendum

12
  The known-loss doctrine is not based upon a provision of the Policy, but a common law principle
which courts have imposed upon liability policies as part of, as cited in Intervenors’ briefing, “the
principle of fortuitousness,” which requires that losses arise without the insureds’ knowledge.
Citing cases and treatises, Intervenors explain that, “[e]ven where the insurance policy contains no
language expressly stating the principle of fortuitousness, courts read this principle into the
insurance policy . . . .” The principle is likewise a part of contractual provisions regarding accident
and occurrence.

                                                  44
effective July 1, 1975, the same day that National cancelled the Policy. SJR No. 64, L.

1974. National argues the District Court misapplied the known-loss doctrine, because the

question is not whether the insured had knowledge of potential liability, but whether it had

knowledge that a loss would likely ensue, and that the State did.13

¶57    The State acknowledges the Underwriting Packet given to prospective insurance

bidders in 1973 did not mention the State’s then-knowledge of asbestos-related conditions

at the Libby Mine, but that, when sovereign immunity ended on July 1, 1973, the

Claimants’ injuries were unknown to the State as well as to the Claimants, no claimant had

been diagnosed with asbestos-related injuries (which did not occur until approximately 25

years after the Policy was issued), and no allegation of wrongdoing had been made against

the State. The State argues that, even by 2004, when Orr was decided, no claimant had

established the State had breached its duty to the Claimants, and thus, “a possible claim for

alleged multiple failures to warn cannot retroactively be imputed to have been a ‘known

liability’ decades before the Claims were made.”

¶58    “[I]t is well-accepted that insurance does not cover known losses.” ALPS Prop. &

Cas. Ins. Co. v. Keller, Reynolds, Drake, Johnson & Gillespie, P.C., 2021 MT 46, ¶ 15,

403 Mont. 307, 482 P.3d 638 (citing Interstate Fire & Cas. Co. v. Abernathy, 93 So. 3d

352, 359 (Fla. Dist. Ct. App. 2012) (“An agreement to assume a known loss is not

insurance.”). “[O]ne may not obtain insurance for a loss already in progress, or for a loss

13
   However, National argued to the District Court that “the legal inquiry under the known loss
doctrine turns on whether the State knew of potential liabilities at the time it purchased insurance
from National.” (Emphasis added.)

                                                45
that the insured either knows of, planned, intended or is aware is substantially certain to

occur.” Keller, ¶ 15 (quoting 43 Am. Jur. 2d Insurance § 469). In this regard, there is a

difference between a risk that is foreseeable, recognized in the Orr quote offered by

National, and a loss that is known. Our further explanation in Orr demonstrates the nature

of what then remained an uncertain loss involving the latent development of injury:

       [T]his is a case with complex legal issues. The difficult questions presented
       by industry standards forty years old and the unusual delayed onset of the
       Miners’ injuries advance novel questions of law . . . . The simple truth is that
       the law attendant to these facts is both untested and arguably susceptible to
       different interpretations. Contrary to the dissent’s insistence, we have not
       handed the Plaintiffs a remedy--they still face the daunting task of
       establishing that the State breached its duty to them and in so doing, caused
       their damages and injuries.

Orr, ¶ 81.14

¶59    National’s arguments about the State’s knowledge are largely divorced from

historical factual context. For the many years of its regulatory involvement at the Libby

Mine, the State was an instrument for good, the only on-site actor with no other motive but

to enhance safety. That the State’s actions could be declared, decades later, because of the

manner in which it handled notification of the hazards, to be not helpful, but harmful to

thousands of people, was not only unexpected, it was incomprehensible. It was certainly

14
   Despite the language from Orr cited by the Dissent, the issue in Orr was more narrow—only
whether the State owed a duty to the miners in the first place and whether a suit to determine
breach and damages, which the Court described as a “daunting task,” could proceed. See Orr,
¶¶ 37-40, 81-82. To the extent the Orr Court commented on foreseeability, causation, or what the
State “knew” at the time, those discussions were premature and could properly be regarded as
dicta—the Court’s decision establishing the State’s duty was ultimately based on statute. See Orr,
¶ 38-40.

                                               46
not a loss the State even suspected was “substantially certain to occur.” Keller, ¶ 15. We

agree with the State and affirm the District Court’s ruling, although on different grounds.

b. Pollution exclusion

¶60    The Policy excludes coverage for:

       bodily injury or property damage arising out of the discharge, dispersal,
       release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic
       chemicals, liquids or gases, waste materials or other irritants, contaminants
       or pollutants into or upon land, the atmosphere or any water course or body
       of water; but this exclusion does not apply if such discharge, dispersal,
       release or escape is sudden and accidental.

¶61    The question presented in this issue is whether the pollution exclusion applies to

and excludes coverage for pollution discharges only by the insured, or more broadly to also

exclude coverage for discharges by third parties for which liability is imposed upon the

insured. The District Court reasoned the “arising out of” phrase rendered the provision

ambiguous, citing to our decisions finding the phrase to be ambiguous within policies

applied in other contexts, and that “the average consumer unversed in the law or insurance

business . . . would expect that the exclusion only applies if it is the insured that was directly

responsible for the pollution.” It also reasoned the exclusion “does not clearly and

unambiguously exclude coverage for the ‘failure to warn’ claims against the State.” In

challenge, National argues the plain wording is unambiguous and draws no distinction

between an “active polluter” insured and an insured who becomes liable for damages

caused by a third-party active polluter, and the provision should be enforced exactly as

written.   The State argues the provision is ambiguous and notes we have held that

exclusions from coverage “must be clear and unequivocal” and “will be narrowly and

                                               47
strictly construed,” citing Winter v. State Farm Mut. Auto. Ins. Co., 2014 MT 168, ¶ 13,

375 Mont. 351, 328 P.3d 665, and Marie Deonier & Assocs. v. Paul Revere Life Ins. Co.,

2000 MT 238, ¶ 45, 301 Mont. 347, 9 P.3d 622.15

¶62    National’s “plain reading” interpretation is troublesome when the entire provision

is considered. National’s argument and its quotation of the exclusion in its briefing omits

the last clause, which is the exception to the exclusion for discharges that are “sudden and

accidental.” See Ribi, ¶¶ 30-37. As noted by Intervenors, if the exclusion was meant to

apply to pollution discharges by third parties, then it creates a coverage distinction between

discharges that are knowing or intentional, and those that are sudden and accidental, which

leads to an absurd or nonsensical coverage result: the insured would be covered for liability

arising from a failure to warn of a “sudden and accidental” discharge—a seeming

impossibility, given that sudden accidents necessarily occur without warning—but would

not be covered for liability arising from a failure to warn of an ongoing, intentional

discharge. See Young v. Hammer, Hewwitt, Jacobs & Floch, PLLC, 2021 MT 180, ¶ 18,

405 Mont. 65, 491 P.3d 725 (the language of an insurance policy “is to govern its

interpretation if the language is clear and explicit and does not involve an absurdity,” citing

15
   While not determinative of the issue here, we reviewed and applied this exclusion in Ribi. We
noted the CGL policy’s intent was to “insure the acts or omissions of the insured,” and that the
insured bears the burden of discovering the ultimate effect of “its disposed wastes” and providing
the necessary information regarding “its activities” for application of the “sudden and accidental”
exception to the exclusion. Ribi, ¶¶ 18, 30-32. We certainly assumed, without deciding the
interpretational question at issue here, that the exclusion was directed to pollution discharges by
the insured, similar to the District Court’s reading of it as a matter of common consumer
understanding. National argues the provision applies both to discharges by insureds and by third
parties.

                                                48
§ 28-3-401, MCA).       Consequently, we conclude that applying the exclusion to the

discharges of third parties is not a reasonable reading of the provision. “An insurance

contract is ambiguous if it is ‘reasonably subject to two different interpretations.’” Modroo

v. Nationwide Mut. Fire Ins. Co., 2008 MT 275, ¶ 23, 345 Mont. 262, 191 P.3d 389 (citation

omitted). Here, only the State’s reading is reasonable. See Heggem, ¶ 42 (plaintiff did not

show that policy provision was “reasonably subject to two or more interpretations.”).

¶63    Further, courts that have addressed a regulator’s failure to warn of pollution

discharges have declined to apply this exclusion to the insured government entity. See

WTC Captive Ins. Co., Inc. v. Liberty Mut. Fire Ins. Co., 549 F. Supp. 2d 555, 563

(S.D.N.Y. 2008) (exclusion did not exclude coverage for claims against New York City

for failing to share information about asbestos test results); Covington Township v. Pacific

Employers Ins. Co., 639 F. Supp. 793, 799–800 (M.D. Pa. 1986) (exclusion did not exclude

coverage for failure-to-warn claims against town); Niagara Cty v. Utica Mut. Ins. Co., 439

N.Y.S.2d 538, 541–42 (App. Div. 1981) (exclusion did not exclude coverage for County’s

failure to warn about industrial toxic waste). We affirm the District Court on alternate

reasoning.

c. Occurrence/intentional act

¶64    The Policy provides coverage for damages the insured becomes legally obligated to

pay caused by an “occurrence,” which is defined as:

       an event, or a continuous or repeated exposure to conditions, which results
       in bodily injury or property damage during the policy period that is neither
       knowingly nor intentionally caused by or at the direction of the insured[.]

                                             49
¶65    National argues the State is not entitled to coverage pursuant to this provision

because “its decision to conceal its knowledge of the Libby asbestos hazard was knowing

and the resulting harm . . . was ‘within the expectation’ of the State.” (Citing Northwestern

Nat’l Casualty Co. v. Phalen, 182 Mont. 448, 597 P.2d 720 (1979).)

¶66    In Phalen, we interpreted an “occurrence” policy provision to mean “that it

precludes coverage for bodily injuries or damages, though not specifically intended by the

insured, if the resulting harm was within the expectation or intention of the insured from

his standpoint.” Phalen, 182 Mont. at 459, 597 P.2d at 726; Portal Pipe Line Co. v.

Stonewall Ins. Co., 256 Mont. 211, 216, 845 P.2d 746, 749 (1993); see also Fisher

Builders, ¶¶ 12-20 (discussing cases involving “occurrence” and “accident” policy terms).

The inquiry is “1) whether the act itself was intentional, and 2) if so, whether the

consequence or resulting harm stemming from the act was intended or expected from the

actor’s standpoint.” Fisher Builders, ¶ 15. The second prong “is an objective inquiry.”

Fisher Builders, ¶ 19.

¶67    Orr’s indictment of the State’s actions as leading to foreseeable harm lends itself to

the argument that the State, at the least, should have expected the hazards of asbestos would

result in injury if it failed to warn. However, an objective inquiry of the entire record

demonstrates otherwise. First, while the State was sued by Claimants for its failure to

warm them, the State did not fail to warn entirely. Even Orr explained that “[t]he State

notified Zonolite, and later Grace, of the dangerous conditions after each inspection . . .

and [told] the Mine’s owners/managers to correct the problems.” Orr, ¶ 6. In turn, Grace

                                             50
provided the State’s inspection reports to the workers’ Union. Various inspection agencies

advised that the hazards could be managed by lowering asbestos levels to what was

believed to be safe at the time, and by the use of worker protective equipment, including

respirators. In 1964, even as it described the situation at the mine as “serious,” the Union

thanked the State for its efforts and acknowledged considerable progress. While the State

has now, decades later, been faulted for the manner in which it handled the disclosure of

the health hazards, it did not, contrary to National’s argument, “conceal its knowledge”

about the hazards. Indeed, National’s initial assessment of the failure to warn claims

against the State was that liability “was highly questionable,” and that it “[did] not believe

the State was negligent.” Further, as State notes, this issue is not a determination of mere

foreseeability:

       The insured may be negligent indeed in failing to take precautions or to
       foresee the possibility of harm, yet insurance coverage protects the insured
       from his own lack of due care. If coverage is lost for damage which a prudent
       person should have foreseen, there would be no point to purchasing a policy
       of liability insurance.

Armstrong World Indus., Inc. v. Aetna Cas. & Sur. Co., 52 Cal. Rptr. 2d 690, 721 (1996).

We conclude the District Court did not err by holding that the State did not objectively

intend or expect injuries to be sustained as a result of its actions, and therefore qualified as

an “occurrence” under the Policy.

d. Number of Occurrences and the Coverage Limits

¶68    The Policy contained a Single Limit Endorsement providing that “Bodily Injury

Liability” was subject to a $3 million limit per occurrence, to be applied “[r]egardless of

                                              51
the number of . . . persons or organizations who sustain bodily injury,” of the number of

“claims made or suits brought on account of bodily injury.” Noting that “event” within the

Policy’s definition of “occurrence” was not defined in the Policy, the District Court

reasoned that “the number of occurrences should focus on the number of occasions when

injury is caused.” Rejecting both National’s and the State’s interpretations of the Policy,

the District Court adopted the argument of Intervenors that “there is a different

‘occurrence’ for each of a given Libby Claimant’s aggregated exposure to asbestos that

were distinct from the time, location, routes, and circumstances of the exposures of other

Libby Claimants.”16

¶69    National argues that “the Libby Claims constitute, at most, one occurrence because

they stem from one cause: the State’s singular decision to conceal its knowledge of

asbestos conditions in Libby in reliance on a 1942 Attorney General Opinion,” and that the

“number of claims or injuries stemming from this one cause is wholly irrelevant.” In

answer, the State contends its “potential liability is not based on a single decision to follow

an Attorney General’s opinion, but on multiple alleged failures to disseminate information

contained in separate inspection reports at different times over two decades with different

information in each report.”

16
   Applying the Policy’s aggregation clause, which provides that injuries from “continuous or
repeated exposures” to injurious conditions must be aggregated in a single occurrence, the District
Court concluded that “for a given claimant, the combined exposures during his or her unique
history should be aggregated into a single occurrence.” Thus, a single claimant’s multiple
exposures would constitute a single occurrence. Nonetheless, the District Court’s ruling results in
thousands of occurrences, for which policy limits, in this case, would be in the uncalculated billions
of dollars.

                                                 52
¶70    In Heggem, we adopted the “cause theory” for the interpretation of “occurrence,”

explaining that:

       [i]n interpreting the term “occurrence” as used in liability policies which
       limit the insurer’s liability to a specified amount per “occurrence,” the vast
       majority of courts view it from the perspective of causation—referring to the
       cause or causes of the damage or injury—and not the number of injuries or
       claims.

Heggem, ¶ 31 (citing CSX Transp., Inc. et al. v. Continental Ins. Co., 343 Md. 216 (Md.

1996), Michigan Chem. Corp. v. Am. Home Assur. Co., 728 F.2d 374, 379 (6th Cir. 1984),

and Michael P. Sullivan, What Constitutes Single Accident or Occurrence Within Liability

Policy Limiting Insurer’s Liability to a Specified Amount Per Accident or Occurrence, 64

A.L.R. 4th 668 (2005)).

¶71    The State utilizes cases cited in Heggem to urge the proper method of calculation of

occurrences in this case. In American Indem. Co. v. McQuaig, 435 So. 2d 414 (Fla. Dist.

Ct. App. 1983), a mentally ill person discharged a shotgun three times, injuring two police

officers. Applying the cause theory to determine the number of occurrences, the court

determined the mental illness was not the cause of the injuries, but the three separate shots

that were fired, each being an occurrence. McQuaig, 435 So. 2d at 415-16. The same

result was reached in the similar case of New Hampshire Ins. Co. v. RLI Ins. Co., 807 So.

2d 171 (Fla. Dist. Ct. App. 2002) (three gunshots fired by a condominium resident, each

injuring a different person, constituted three occurrences). In U.E. Texas One-Barrington,

Ltd. v. General Star Indem. Co., 332 F.3d 274 (5th Cir. 2003), the court determined,

pursuant to the cause theory, that 19 water damage incidents in an apartment complex,

                                             53
caused by 19 different leaks, constituted 19 occurrences under the policy. See also

Michigan Chem. Corp., 728 F.2d at 379 (each shipment by insured of mislabeled livestock

feed, which caused injury, were a separate occurrence, and not the underlying mislabeling).

¶72      The State and National agree the Libby Claimants have alleged that each failure to

directly disseminate the results of each inspection report to them is a failure to warn by the

State.    The State argues, however, that National’s position incorrectly blames the

underlying reason for the failures to warn—the State’s decision to follow the Attorney

General’s opinion—instead of the failures themselves, the approach rejected in McQuaig,

where the insurer attempted to blame the underlying mental illness instead of the three

causative actions—the separate gunshots. McQuaig, 435 So. 2d at 415–16. The State

offers that each of its failures to disclose the inspection reports, some 21 in total, are

separate occurrences, and further indicate that 14 of these alleged failures “involve reports

by the State after a 1967 statutory amendment mooted the AG opinion” or were reports to

which the Attorney General opinion did not apply.17

¶73      We agree the cause of injury here is not the State’s “singular decision” to follow the

Attorney General’s opinion, but its separate failures to warn. Although the Attorney

General’s opinion may provide an explanation as to why the State failed to warn, that does

not change the fact that the Libby Claimants’ injuries at issue here were not caused by that

17
   The State welcomes the District Court’s ruling, although its briefing explains the position it took
below: “In the District Court, the State argued the number of occurrences equaled the number of
its alleged failures to warn, based on language appearing to suggest this in the majority and
concurrence in Heggem.” State of Montana’s Answer and Cross-Appeal Brief, p. 51, n.15. It also
primarily argues this theory on appeal.

                                                 54
opinion. Rather, the State’s multiple decisions over the course of more than a decade to

withhold certain information caused the claimants’ injuries. Likewise, we cannot reconcile

the District Court’s holding with our precedent applying the cause theory to the

determination of occurrence, which also rejected an “effects” test premised upon “the

number of injuries or claims.” Heggem, ¶¶ 28, 31, 39, 40, 44. As we stated about this

Policy in Ribi, “[t]he CGL policy’s intent is to insure the acts or omissions of the insured,

including intentional acts . . . .” Ribi, ¶ 18 (emphasis added). In this regard, our analysis

in Ribi determined the “relevant event” for purposes of the policy’s application, which we

concluded was “Ribi’s disposal of hazardous wastes.” Ribi, ¶¶ 16, 37. Here, the acts of

the insured constituting the “relevant events” are the State’s failure to warn the Libby

Claimants of their hazardous exposure to asbestos.18

¶74    However, having so concluded, we cannot on this record take the next step and

declare the number of occurrences, or the number of instances the State failed to warn the

Libby Claimants. While there are passing references to the number of those occasions, the

issue was not litigated to a conclusion in the District Court, which entered no findings.

Consequently, we reverse the District Court’s ruling and must remand for further

proceedings to resolve this factual issue.

e. Proration of settlement and defense costs

18
  As the State explains, under the Policy’s definition of occurrence, its failure to warn is an “event”
occurrence, not a “a continuous or repeated exposure to conditions” occurrence.

                                                  55
¶75    The District Court ruled that National properly reserved the issue of pro rata

allocation of defense and settlement costs for resolution within the coverage litigation, and

addressed the merits of the issue, concluding the Policy did not permit allocation of covered

costs between National and the State premised upon the two-year period of the Policy and

the years the State operated a self-insured plan.19

¶76    National argues the Policy indeed requires pro rata allocation, and that such cost

distribution has been approved as a principle of Montana insurance law by the courts,

particularly for allocation of defense costs. Noting that “occurrence” is defined in the

Policy as an event “which results in bodily injury . . . during the policy period,” National

argues its indemnity obligation is limited to bodily injury damages “that took place during

the two years that National provided coverage.” Noting such decisions as Am. Simmental

Ass’n v. Coregis Ins. Co., 282 F.3d 582, 589 (8th Cir. 2002) (“Montana law requires

[allocation of] defense costs pro rata”), National argues the District Court erred by relying

on the unpublished decision in Caterpillar, Inc. v. Century Indem. Co., No. 3-06-0161,

2007 Ill. App. Unpub. LEXIS 2, at *15 (Feb. 2, 2007), which said that “self[-]insurance is

not considered ‘other valid and collectible insurance’ for purposes of assigning liability

between insurance providers and self-insureds for contribution purposes” under the subject

policy. Amici curiae Complex Claims Insurance Litigation Association and American

Property Casualty Insurance Association argue pro rata allocation is a well-established

19
   Due to Glacier General Assurance Company’s insolvency, its short involvement as the State’s
insurer prior to the 1976 initiation of the State’s self-insurance program is essentially ignored by
the parties.

                                                56
insurance rule in courts across the country, which “upholds principles of fundamental

fairness by providing the coverage for which policyholders bargained and paid.”

¶77    Our analysis is focused upon the language of the Policy. Ribi, ¶ 17. It is notable

that the Policy does not contain a provision explicitly addressing and requiring pro rata

allocation. “If the insurer wished to limit its liability through a pro rata allocation of

damages once a policy is triggered, the insurer could have included that language in the

policy.” American Nat’l Fire Ins. Co. v. B & L Trucking & Constr. Co., 134 Wash.2d 413,

428 (1998). Likewise, § 33-15-302, MCA, provides that an insurance policy “shall contain

the entire contract between the parties,” and that the parties may not “make any agreement

as to the insurance which is not plainly expressed in the policy.” (Emphasis added.)

Consequently, National and its amici must premise their argument for pro rata allocation

on the definition of “occurrence.”       In response, the State and amici curiae United

Policyholders argue this definition serves to “trigger” coverage in the first place, that is, to

require National to pay damages the State becomes legally obligated for because of events

“which result[] in bodily injury during the policy period.” The State argues that drawing a

pro rata requirement from this language “erroneously gives double effect to ‘during the

coverage period’ as limiting both the trigger and the scope and extent of coverage.”

¶78    We concur with the State’s position. Pro rata allocation is a significant limitation

on coverage, but is not expressly provided in the Policy, though it clearly could have been.

National’s interpretation also ignores and fails to give meaning to the “all sums” language

of the coverage provision: “The Company will pay on behalf of the insured all sums which

                                              57
the insured shall become legally obligated to pay . . . caused by an occurrence.” The cases

applying Montana law cited by National involved allocation of defense costs among

insurers. “If several insurance policies exist . . . the insured may recover the entire amount

from any one of the insurers, in which case the insurer that pays may demand contribution

from the other insurers . . . .” 44 Am. Jur. 2d Insurance § 1750. A “self-insured retention

does not constitute ‘other insurance’ for the purposes of allocating responsibility under

‘other insurance’ clauses.” 44 Am. Jur. 2d Insurance § 1750. Although the State is

authorized to purchase insurance in satisfaction of its duty to “provide a comprehensive

insurance plan for the state,” § 2-9-201(2), MCA, it is also authorized to alternatively

“accumulate a self-insurance reserve fund sufficient to provide self-insurance for all

liability coverages that in its discretion the department considers should be self-insured.”

Section 2-9-202(3), MCA.       The Policy contains an “other insurance” condition, but

consistent with these authorities, does not reference self-insurance by the insured. See

Shattuck v. Kalispell Reg’l Med. Ctr., 2011 MT 229, ¶ 15, 362 Mont. 100, 261 P.3d 1021

(recognizing the Department of Public Health and Human Services, as a self-insured state

agency, is not primarily engaged in the business of insurance.).

¶79    Based upon the language of the policy, which we construe in favor of the insured if

ambiguous, Ribi, ¶ 17, and the reasons set forth above, we affirm the District Court’s

holding that the State is not required to share pro rata responsibility for payment of amounts

covered under the Policy.

f. Policy period

                                             58
¶80    Both National and the State challenge the District Court’s ruling regarding what

claims qualify to come within the policy period of 1973-1975, another issue arising from

the Policy’s definition of occurrence, specifically, the phrase “result[ing] in bodily injury

or property damage during the policy period . . . .” The District Court held that each

claimant who was “exposed to asbestos during the Policy period” as a result of the State’s

failure to warn were eligible for the Policy’s coverage, and, as explained above, constituted

a separate occurrence. We have reversed the District Court’s occurrence ruling, but here

we turn to its determination of which Claimants are eligible to come within the Policy

period.

¶81    National challenges the District Court’s ruling on the basis of our decision in

Murphy v. State, 248 Mont. 82, 809 P.2d 16 (1991), involving this Policy. Murphy

involved claims related to false imprisonment or restraint in the Montana State Hospital

and related mental health injuries.     Murphy, 248 Mont. at 84, 809 P.2d at 17-18.

Presciently, we referenced the interpretation of “occurrence” by courts in cases involving

“delayed manifestation of injury, as in exposure to asbestos,” and stated that coverage in

such cases “has been allowed if the act causing the injury occurred during the policy period

or if the injury initially manifested itself during the policy period.” Murphy, 248 Mont. at

86, 809 P.2d at 19. National argues that claims of mere asbestos exposure during the Policy

period fail to meet either part of Murphy’s “standard” because 1) the State’s “decision to

conceal the Libby asbestos hazard” occurred long before the Policy period began, and thus

fails to “satisfy the ‘act’ requirement of Murphy”—based upon National’s single

                                             59
occurrence theory we have rejected above; and 2) the District Court “failed to conduct

the . . . manifestation analysis” required by Murphy, even for Claimants exposed during

the Policy period.

¶82    National’s argument attempts to christen as a “standard” or “rule” our statement in

Murphy, but that statement was merely referencing two other, more expansive, definitions

of occurrence, neither of which would have provided coverage for the claimant there.

Murphy, 248 Mont. at 86, 809 P.2d at 19. This reference did not constitute a singular rule,

was not adopted as a rule, and has not been cited as such in the subsequent 30 years. Thus,

Murphy did not adopt a rule requiring injury to manifest itself during the policy period, and

that case does not resolve the issue here.

¶83    On cross appeal, the State argues the District Court “should also have held that

coverage applies to Claimants exposed to asbestos only prior to the policy period, because

they too suffered ongoing injury during the policy period.” (Emphasis added.) Noting the

particular nature of the bodily injury here, the State argues, “[b]ecause of the ongoing

nature of asbestos injury to these Claimants, all Claimants who inhaled asbestos either

before or during the policy period had injury during the policy period.” In support of its

motion for summary judgment, the State offered expert medical testimony based upon a

review of settled claims that Claimants exposed to asbestos before or during the policy

period suffered bodily injury during the period of coverage from 1973-1975.

¶84    In Swank, we held that the term ‘physical injury’ for purposes of the subject policy

referred to “a physical and material alteration resulting in a detriment,” and that a physical

                                             60
injury “can occur ‘even though the injury is not diagnosable, compensable, or manifest

during the policy period as long as it can be determined, even retroactively, that some injury

did occur during the policy period.’” Swank, ¶¶ 18, 20 (citing In re Silicone Implant

Litigation, 667 N.W.2d 405, 415 (Minn. 2003)) (internal quotation marks omitted). While

Swank concerned a commercial painting project, and thus involved property damage, it

cited to Silicone Implant Litigation, involving continuous cellular level bodily injury that

did not manifest until later in time, for its injury rule. See Silicone Implant Litigation, 667

N.W.2d at 415 (“the insured must show that some damage occurred during the policy

period.”).

¶85    We have held herein that the “occurrence” is the State’s individual acts of failing to

warn the Claimants. The failures to warn alleged against the State occurred during the time

period from 1956-1975. None occurred after the two-year Policy period, and many

occurred before. However, under the Policy’s definition of occurrence as “an event . . .

which results in bodily injury or property damage during the policy period,” it is the bodily

injury that must occur during the Policy period, not the insured’s act.20 Here, the bodily

injuries suffered by the Claimants did not become known until the late 1990s, and all the

Claimants with whom the State has settled had an asbestos-related injury that was

diagnosed between the late 1990s and the present. Given the ongoing progressive nature

of asbestos injury, we agree with the State regarding the eligibility of Claimants exposed

20
  Consistent with the definition of occurrence, the Policy defined “bodily injury” as “bodily injury,
sickness or disease sustained by any person which occurs during the policy period, including
death . . . .”

                                                 61
only prior to the Policy period. A Claimant exposed either during or prior to the Policy

period may, despite a lack of manifestation of injury during the Policy period, be covered

under the Policy “as long as it can be determined, even retroactively, that some injury did

occur during the policy period” as a result of the State’s failure to warn. Swank, ¶ 20. The

District Court thus erred by holding that Claimants who were exposed only before the

Policy period could not qualify for coverage.

¶86    The parties disagree over whether a remand is necessary on this issue, and the State

requests that this Court enter a “supplemental judgment” in the amount of $5.9 million for

Claimants exposed only prior to the Policy period. However, given the lack of a factual

finding on the question, the complexities regarding the number of Claimants, and our

statement of the applicable rule, we conclude that remand is necessary for further

proceedings to implement this holding.

¶87    3. Did the District Court err by awarding pre-judgment interest on the settlement
       amounts and defense costs?

¶88    Pursuant to its determination that National breached the duty to defend, the District

Court awarded pre-judgment interest on the settlement amounts and defense costs assessed

against National in consequence of the breaches, reasoning these were “sum certain”

amounts. Further, regarding the indemnity payments it determined to be owed for fully

defended claims, the District Court awarded pre-judgment interest on the payments,

essentially as a consequence of National’s breach of the duty to indemnify the State for

these claims, in addition to attorney fees and costs thereon. See Freyer, ¶¶ 41-42 (insured

entitled to consequential damages for insurer’s breach of the duty to indemnify in addition

                                            62
to coverage payments up to the policy limits). The District Court imposed pre-judgment

interest on all settlements for which National was responsible, whether by reason of breach

of the duty to defend or under indemnity coverage, to accrue “from the date they were

approved by the respective District Court.”

¶89     Noting that interest comprises $31 million of the judgment entered by the District

Court, National argues pre-judgment interest is unavailable because the settlement amounts

and defense costs were not “clearly ascertainable” before August 16, 2019, the date the

District Court entered the Judgment, citing DiMarzio v. Crazy Mt. Constr., Inc., 2010 MT

231, ¶ 59, 358 Mont. 119, 243 P.3d 718. National reasons that until the District Court

entered the Judgment, it was not certain these amounts would be assessed against National

in this proceeding, as evidenced by the District Court’s denial of coverage for some claims.

Additionally, National argues the District Court utilized an incorrect 10% interest rate,

noting that the rate was changed by legislation in 2017 and would be calculated under the

new statute to be 8.5%. The State answers that pre-judgment interest was appropriate

because upon court approval of the settlements, the State owed them and the amounts were

known on that day. Regarding defense costs, the sums were certain the date the State paid

them.

¶90     If recovery of damages is “certain or capable of being made certain by calculation”

and “the right to recover [] is vested in the person upon a particular day,” the party is

entitled to recover interest on the damages from that day. Section 27-1-211, MCA.

Pre-judgment interest was denied in DiMarzio, but there the amount of damages was not

                                              63
known until the jury verdict was returned. DiMarzio, ¶ 60. Here, while National contested

liability for the settlements and defense costs, these amounts were known from the time of

their court approval and payment. National did not challenge the reasonableness of the

settlements in those proceedings. Thus, the legal determination by the District Court in

this proceeding made these amounts an obligation of National’s without the necessity of a

trial for determination of damages, and pre-judgment interest was appropriately assessed

for these certain amounts.21

¶91    National argues the State resisted National’s efforts to pay the State’s defense costs

during the course of the Libby Claims Litigation, even refusing to provide invoices to

National until the District Court ordered the State to do so some 13 years after the Libby

Claims Litigation started, and then returning National’s $6.9 million check to cover the

bill. National argues it “should not be required to pay a windfall sum for prejudgment

interest on defense costs it made every effort to pay.” National’s point is not without merit.

However, viewed within the larger context of the entire case, the State’s refusal to accept

National’s proffered indemnity positions has been justified in this proceeding, and the State

had to avoid waiver of its position. Further, National’s years-long delay in seeking

resolution of those disputed issues has been declared a breach of the duty to defend. Given

these circumstances, the State’s uncooperative actions do not disqualify it for an award of

21
   The District Court agreed with National’s argument opposing assessment of pre-judgment
interest on the attorney fees and costs for defense of this action, and the State does not cross-appeal
the denial of that interest assessment.

                                                  64
pre-judgment interest. See Freyer, ¶ 41 (insured did not breach its duty to cooperate in

light of insurer’s breach of the duty to indemnify).

¶92    The Montana Legislature amended § 25-9-205, MCA, in 2017, providing that

interest on judgments would be assessed at the rate for “bank prime loans published by the

federal reserve system” on the day judgment is entered, plus 3%. 2017 Mt. Ch. 446;

§ 25-9-205(1)(a), MCA. However, the legislation was made inapplicable to proceedings

that began prior to July 1, 2017. 2017 Mt. Ch. 446, §§ 3, 5. This action was initiated before

the effective date of the legislation and, thus, all prejudgment interest National was ordered

to pay was calculated at the correct rate.

¶93    4. Did the District Court’s rulings violate National’s due process and contract
       clause rights under the Montana and United States Constitutions?

¶94    Lastly, National briefly offers several overlapping constitutional arguments.

Echoing its estoppel argument, National contends the District Court’s remedy for the

breaches of the duty to defend “retroactively revises the Policy’s terms to create coverage

where none existed, in violation of due process and the prohibition against impairment of

contractual rights.” National also argues that the Judgment “magnifies 32-fold National’s

$3 million Policy limit,” which constitutes “disproportionate punishment . . . through

imposition of grossly excessive damages,” in violation of due process.

¶95    First, the remedy for an insurer’s breach of the duty to defend is long-established in

Montana, having been a part of the law, both statutory and common law, for over 100 years.

See Staples, ¶ 27 (citing Independent Milk & Cream Co. v. Aetna Life Ins. Co., 68 Mont.

152, 158, 216 P. 1109, 1111 (1923); § 28-11-316, MCA, first enacted in 1895). We

                                             65
explained in 2004, the year before National first breached the duty to defend, that Montana

law was “well-settled” and “clearly provides that where the insurer refuses to defend a

claim and does so unjustifiably, that insurer becomes liable for defense costs and

judgments.” Staples, ¶¶ 20, 27 (internal quotation omitted). Estoppel is not a retroactive

revision of policy terms, but a remedy for contractual, statutory and common law breaches

that recognizes the difficult position in which an insurer’s breach of the duty to defend

places the insured. While corporations are “persons within the meaning of the equal

protection and due process of law clauses,” Grosjean v. American Press Co., 297 U.S. 233,

244, 56 S. Ct. 444, 447 (1936) (internal quotation marks omitted), and “[t]he Due Process

Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or

arbitrary punishments on a tortfeasor,” State Farm Mut. Auto. Ins. Co. v. Campbell, 538

U.S. 408, 416 (2003) (citations omitted), National is not a tortfeasor being “punished” for

its actions. Rather, it is being held to account for breaches of its contractual and legal duty

to defend, as the law requires of and imposes upon all insurers, and for payment under the

coverages provided by a nearly 50-year-old Policy.

¶96    Further, National agreed to insure the Montana government at a time in which the

dangerous health conditions of the Libby Mine, about which the State inspected but failed

to warn, was injuring numerous people. The State paid for the insurance to receive the

benefit of the bargain. To be sure, the risk presented by the State’s broad duties and

obligations was significant, and even led to its inability to contract for general liability

insurance in the years after National terminated the Policy, requiring the State to

                                              66
self-insure. However, it so happened that this significant risk ripened, many years later,

into State liability for bodily injury that undoubtedly occurred during the Policy period, on

National’s watch.

¶97    Regarding impairment of contracts, the Montana Legislature is prohibited from

passing laws “impairing the obligation of contracts.” U.S. Const., art. 1, § 10; Mont.

Const., art. II, § 31. However, almost a century ago, the Supreme Court of the United

States noted that “[i]t has been settled by a long line of decisions” that the contracts clause

is not applicable to judicial decisions. Tidal Oil Co. v. Flanagan, 263 U.S. 444, 451 (1924);

see also Seven Up Pete Venture v. Mont., 2005 MT 146, ¶¶ 40-42, 327 Mont. 306, 114 P.3d

1009 (restriction upon impairment of contracts applies to state laws). Here, the District

Court is not the Montana Legislature, nor has it enacted or modified laws in passing its

judgment upon National that come within this constitutional prohibition.

¶98    Procedural due process “requires notice and the opportunity to be heard at a

meaningful time and in a meaningful manner.” Steab v. Luna, 2010 MT 125, ¶ 22, 356

Mont. 372, 233 P.3d 351 (citations omitted). The District Court thoroughly entertained

National’s coverage arguments and provided ample opportunity to contest the State’s

presentation of qualifying claims and proper calculation thereof, including the sufficiency

of evidentiary support for the Claims and the filing of multiple objections to the amounts

proposed for the Judgment.       National chose not to challenge the reasonableness of

settlements in the underlying actions, and thus its ability to contest those amounts in this

action was limited, including the “contingency” amounts that were a part of those

                                              67
court-approved settlements. See Abbey/Land LLC v. Interstate Mechanical, Inc., 2015 MT

77, ¶ 15, 378 Mont. 372, 345 P.3d 1032 (an insurer should raise reasonableness issues in

the underlying lawsuit, and not in a separate declaratory judgment action concerning

coverage). Another opportunity will be presented on the issues herein remanded for further

factfinding. We conclude National’s procedural due process rights were not violated.

¶99    Finally, National asserts it has been singled out for “arbitrary and capricious”

treatment and received rulings from the District Court which, it contends, “erroneously

construed the Policy in favor of the State’s interests in this jurisdiction even though it would

not be so interpreted elsewhere,” in violation of substantive due process. We decline to

speculate about what National is implying with regard to “favor[ing] the State’s interests

in this jurisdiction,” but, regardless, it is also our judgment that National has received the

best effort of the Montana judiciary to fully adjudicate all issues raised in this difficult

litigation dispassionately, without bias, and with impartiality to all parties.

                                      CONCLUSION

¶100 We affirm the District Court’s rulings on National’s breach of the duty to defend

and the consequences thereof, including assessment of prejudgment interest. We affirm

the District Court’s indemnity determinations, including assessment of attorney fees, costs,

and prejudgment interest, with the exception of the two issues discussed herein: 1) the

number of occurrences under the Policy, and the resulting calculation of Policy limits; and

2) the eligibility of Claimants exposed to asbestos only prior to the Policy period. We

                                              68
remand for further proceedings before the District Court as are necessary to resolve those

two issues, and for entry of an amended judgment.

                                                  /S/ JIM RICE

We concur:

/S/ MIKE McGRATH
/S/ DIRK M. SANDEFUR
/S/ INGRID GUSTAFSON
/S/ JAMES JEREMIAH SHEA
/S/ COLETTE B. DAVIES
District Court Judge Colette B. Davies
Sitting for Justice Beth Baker

District Court Judge Colette B. Davies, concurring.

¶101 This Court’s majority has allowed the potential recoupment of defense costs based

on the unique facts of this case, which involves sophisticated parties and the application of

insurance policies over multiple policy periods. I concur in the result as applied to this

case. However, I write separately to concur to emphasize that the parties did not raise—

and this Court has not addressed—whether an insurer has the right to recoupment against

the average insured in the absence of a policy provision allowing recoupment.

¶102 Both parties’ arguments assume Montana law permits an insurer to recoup not only

indemnity payments but also defense costs paid in an underlying liability matter, under

certain circumstances, when a finding of no-coverage is later made in a separate declaratory

judgment action. The foundation for this assumption is murky, and the troubling policy

                                             69
precedent of such a finding is easily blurred in this particular matter, given the

sophistication of the stakeholders.1

¶103 For the average policy holder, the threat of recoupment transfers the risk of failing

to defend from the insurer squarely to the insured. An insured, not knowing if he has

coverage in effect, must pay to defend himself in the declaratory judgment action, as well

as risk repayment of policy proceeds and the costs associated with his defense in the

underlying action if he does not prevail in the declaratory judgment action. Under this

scenario, the insured would have been better off with no defense from the insurer at all,

rather than a defense with the risk of recoupment.

¶104 An insurer has a duty to defend “when a complaint against an insured alleges facts

that if proven would result in coverage.” State Farm Mut. Auto. Ins. Co. v. Freyer, 2013

MT 301, ¶ 26, 372 Mont. 191, 312 P.3d 403 (citing State Farm Fire and Cas. Co. v.

Schwan, 2013 MT 216, ¶ 15, 371 Mont. 192, 308 P.3d 48 (internal quotations and emphasis

omitted). “Unless there exists an unequivocal demonstration that the claim against an

insured does not fall within the insurance policy’s coverage, an insurer has a duty to

defend.” Farmers Union Mut. Ins. Co. v. Staples, 2004 MT 108, ¶ 22, 321 Mont. 99, 90

P.3d 381 (citation omitted). “[T]he duty to defend is absolute while the duty to settle is

generally more discretionary.”         Draggin’ Y Cattle Co., Inc. v. Junkermier, Clark,

Campanella, Stevens, P.C., 2019 MT 97, ¶ 30, 395 Mont. 316, 439 P.3d 935 (internal

1
  The Insurance Code recognizes a distinction between sophisticated and average insureds. For
example, the Insurance Policy Language Simplification Act, §§ 33-15-333, -340, MCA, does not
apply to “large commercial risks whose aggregate annual premiums for insurance on all risks totals
at least $100,000.” Section 33-15-336(2)(e), MCA.
                                              70
citations and quotation omitted). An insurer that provides a conditional defense by

reserving the right to recoup defense costs is not providing an absolute defense, and is not

giving the necessary substance to the duty to defend.

¶105   In Montana, the notion of an insurer’s right to recoup defense costs for claims

subsequently determined to be uncovered arises largely from two Montana Supreme Court

decisions. See Travelers Cas. & Sur. Co. v. Ribi Immunochem Research, 2005 MT 50, 326

Mont. 174, 108 P.3d 469; Horace Mann Ins. Co. v. Hanke, 2013 MT 320, 372 Mont. 350,

312 P.3d 429. Although both Ribi Immunochem and Hanke discuss recoupment, their

holdings are not as sweeping and clear as often portrayed. Both have unique, factual

circumstances that limit their applicability.

¶106 In Ribi Immunochem, a sophisticated biopharmaceutical product company (Ribi)

used toxic solvents to extract and purify its products, and its employees then transported

the resulting waste and poured these liquid contaminants into an open earthen pit. Ribi

Immunochem, ¶ 8. Ribi was sued by neighboring landowners, the State of Montana, and

the United States. Ribi Immunochem, ¶ 9. Ribi tendered the suits to its CGL carrier,

Travelers; Travelers defended Ribi under a reservation of rights and notified Ribi it

intended to seek reimbursement for defense costs.          Critically, “Travelers and Ribi

eventually agreed that Travelers would pay fifty percent of Ribi’s defense costs in its suit

with the neighboring property owners.”          Ribi Immunochem, ¶ 10 (emphasis added).

Travelers then notified Ribi it would defend the suits brought by the governments, but

again stated its position that there was no coverage, that it owed no duty to Ribi, and that

                                                71
it would seek reimbursement of defense costs. Ribi “raised no objections,” and Travelers

defended these suits under the reservation of rights. Ribi Immunochem, ¶ 11 (emphasis

added).

¶107 In the subsequent declaratory judgment action, this Court agreed with the district

court’s determination that the claims against Ribi were not covered by Travelers’ policy.

Ribi Immunochem, ¶ 37. While the question of recoupment was not the primary focus of

the decision, it was briefly addressed. This Court looked to a two-part analysis applied in

United Nat. Ins. Co. v. SST Fitness Corp., 309 F.3d 914, 919 (6th Cir. 2002). This test

considers whether the carrier (1) timely and explicitly reserved the right to recoup defense

costs, and (2) provided specific, adequate notice to the insured of the possibility of

recoupment. Ribi Immunochem, ¶ 49. Applying that test, this Court held Travelers could

recoup its defense costs associated with the uncovered pollution claims because it met both

prongs of this analysis. Travelers had timely and explicitly reserved its right to recoup

defense costs and gave Ribi specific, adequate notice of its intention to do so. Ribi

Immunochem, ¶ 50.

¶108 Notably, this Court did not incorporate in its analysis the unique fact that Travelers

and Ribi had actually agreed to recoupment as to the neighbors’ lawsuit, and that Ribi had

not objected to recoupment in the governments’ cases. Ribi Immunochem, ¶¶ 10-11.

Further, the opinion is silent as to whether or not the insurance contract itself provided for

recoupment of defense costs.

                                             72
¶109 Eight years after Ribi Immunochem, this Court decided the even trickier case of

Hanke. In oft-cited authority, this Court held:

       The insurer . . . may file a declaratory judgment action to resolve coverage
       issues. Staples, ¶ 28. The insurer may seek to recover the expenses that the
       insurer incurred in defending a claim outside of the insured’s policy coverage
       in the declaratory judgment action. Staples, ¶ 28. An insurer’s failure to
       follow this course leaves the insurer potentially liable for defense costs and
       judgments. Staples, ¶ 27; § 28-11-316, MCA.

Hanke, ¶ 25.

¶110 The confusion arises because Hanke involved recoupment of an indemnity payment

for an uncovered claim, not for defense costs. The opinion regrettably lumps the two

critically distinct types of payments together.

¶111 In Hanke, the insured was sued for intentionally damaging the property of another.

Hanke, ¶ 9. The insured tendered the suit to his carrier, and the carrier disputed coverage

based upon the intentional nature of the allegations. However, the carrier assumed the

defense under a reservation of rights and filed a declaratory judgment action on the

coverage dispute. Hanke, ¶¶ 6, 8.

¶112 A settlement was reached on the underlying matter before resolution of the

declaratory judgment action on coverage, with the parties agreeing to pay the plaintiff

property owner $54,000. The carrier agreed to contribute $20,000, and the insured agreed

to personally pay the other $34,000 of the settlement amount. Hanke, ¶ 7. Unfortunately,

the insured failed to pay his portion of the settlement as agreed and the carrier stepped in

and paid the $34,000 owed by the insured, subsequently seeking reimbursement of this

indemnity payment from the insured in the declaratory action. Hanke, ¶¶ 7, 10. Upon a

                                             73
finding of no coverage for the claimed property damage, the district court awarded the

carrier reimbursement of the $34,000. Hanke, ¶¶ 9, 11.

¶113 This Court affirmed the $34,000 award to reimburse the settlement payment

advanced. Hanke, ¶ 21. Notably, the $34,000 was reimbursement for an indemnity

payment, not defense costs associated with defending the underlying matter. First, this

Court noted that the carrier had reserved its right to recoup “‘defense and settlement

costs’” based upon “‘rights as allowed under the policy contract.’” Hanke, ¶ 29. This

language suggests that the policy at issue had a contractual right of recovery for defense

costs. But more importantly, this Court held:

       The correspondence between Horace Mann and the Hankes and their counsel
       establishes that Horace Mann reserved its right to recover the additional
       $34,000 that it paid to the settlement with Warner . . . . Horace Mann adhered
       to the procedure that this Court has established to contest the boundaries of
       coverage and to recoup expenses. Ribi Immunochem, ¶¶ 48-50. We affirm
       the District Court’s award of $34,000 [the indemnity payment to cover what
       the insured owed the plaintiff, not the defense costs associated with the
       defense of the lawsuit against the insured] to reimburse Horace Mann for its
       advancement of the Hankes’ share of the settlement.

Hanke, ¶ 31.

¶114 While dicta in Hanke appears to allow recoupment of defense costs, the Court

actually only affirmed recoupment of an indemnity payment which the insured had agreed

to make, but then reneged. Hanke, ¶ 31. Further, in reaching its decision, this Court relied

upon Staples to support the recovery of defense costs, but Staples involved a situation

where the insurer wrongly failed to defend the insured. Staples, ¶ 26. It addressed the

                                            74
need to file a declaratory judgment action to determine coverage; it did not address defense

costs at all. In fact, the Court noted:

       If FUMIC wished to dispute coverage, it could have defended Staples under
       a reservation of rights and later sought judicial determination through a
       declaratory judgment action to determine whether coverage existed . . . .
       However, because FUMIC unjustifiably refused to defend, it is estopped
       from denying coverage.

Staples, ¶ 28 (internal citations omitted).

¶115 Thus, the law relied upon to support recoupment of defense costs is not as solid as

presumed by the parties here. In this case, the Court is confronted with a request for

recoupment based not on a contract provision, but on the shaky foundation of Ribi

Immunochem and Hanke. However, the parties here engaged in lengthy negotiations

regarding defense and recoupment, with both sides represented by counsel.

¶116 Rather than tacitly accepting those cases as supporting recoupment generally, I

would analyze the recoupment claim under the longstanding precedent of this Court. The

insurer must defend unless and until it has unequivocally demonstrated that the claim does

not fall within the coverage. Staples, ¶ 22. As this Court has held, “there must exist an

unequivocal demonstration that the claim against the insured does not fall within the policy

coverage before an insurer can refuse to defend; otherwise the insurer has a duty to defend.”

Newman v. Scottsdale Ins. Co., 2013 MT 125, ¶ 57, 370 Mont. 133, 301 P.3d 348 (citing

Staples, ¶ 24). (Emphasis added.) Allowing an insurer to recoup defense costs incurred

prior to resolution of the declaratory action relieves the insurer of the obligation to defend

until an unequivocal demonstration has been established. Absent a contractual right to

                                              75
recoup, the insurer may not recover defense costs which were incurred prior to the

unequivocal demonstration, and then only if the insurer has timely and explicitly reserved

the right and provided adequate notice to the insured. Ribi Immunochem, ¶ 49.

¶117 Any analysis of recoupment of defense costs which does not address whether the

insurer has made the required unequivocal demonstration prior to incurring the defense

costs impermissibly shifts the burden to the insured. The insured may be forced to pay for

the defense of both the underlying matter and the declaratory judgment action simply

because the carrier could not unequivocally show that an exclusion applies. An insurer’s

duty to defend is triggered by the allegations of the complaint. If an insurer reserves the

right to recoup defense costs and expenses based upon a later finding of non-coverage, the

insurer is unilaterally changing the standard from whether the allegations trigger coverage

to one of whether coverage exists.      This Court has expressly refused to “impose a

requirement that a district court must analyze policy coverage before finding breach of a

duty to defend.” Tidyman’s Mgmt. Servs. Inc. v. Davis, 2014 MT 205, ¶ 26, 376 Mont. 80,

330 P.3d 1139.

¶118 Claiming the right to recoupment, particularly if it is not an express contractual term

of the policy (which it is not in the case at hand), deprives the insured of the fundamental

protective purpose of the defense guaranteed by the insurance contract. Based on the

protective nature of insurance, which is supposed to transfer risk from the insured to the

insurer and not the other way around, I would find that a defense conditioned upon

                                            76
recoupment of defense costs is not consistent with an insurer’s duty to defend, absent

extraordinary circumstances such as those present in the case before this Court.

                                                   /S/ COLETTE B. DAVIES
                                                   District Court Judge Colette B. Davies
                                                   Sitting for Justice Beth Baker

Justice Ingrid Gustafson joins in the concurring Opinion of Judge Colette B. Davies.

                                                   /S/ INGRID GUSTAFSON

Justice Laurie McKinnon, dissenting.

¶119 I would conclude that National did not breach its duty to defend the State—a

self-insurer represented by counsel since July 1976. Accordingly, National is not estopped

from raising coverage under the Policy. Further, this Court’s decision in Orr definitively

established the following: the State knew of the significant and expected injury to mine

workers from asbestos dust since 1956; the State had a duty to disclose “to the public and

to persons whose employment subjected them to [these] health hazards”; and the workers

had a cause of action against the State for breach of its duty to disclose, correct, or prevent

workplace conditions known to be hazardous to the miners’ health. Orr, ¶ 39. In Orr, the

Court held that “[p]lainly, the State knew as a result of its inspections” the asbestos dust

posed significant health risks to workers and that the dangers to the workers in the

Libby Mine were already “foreseeable” and “clear and present” by “as early as 1956.”

Orr, ¶ 37. Under the clear and unambiguous terms of the Policy, known losses and

intentional acts are excluded from coverage. Today’s decision is irreconcilable with Orr;

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with this Court’s precedent respecting the duty to defend; and with basic contract principles

for interpreting the Policy, as it erroneously creates coverage through estoppel. Although

National had only a two-year policy with the State, the Court concludes it is responsible

for decades of claims spanning nearly 50 years, during a time when the State chose to

self-insure and the mining claims were being actively litigated by counsel. Moreover, even

if the State had coverage for the two-year period, National should only be required to pay

its proportional share of defense and indemnity costs for the time when the Policy was in

effect. I dissent.

¶120 In contrast to the duty to indemnify—which arises only if the facts actually

established in the underlying suit amount to a covered claim—the duty to defend arises if

a plaintiff’s factual allegations, read together with the policy at issue, potentially support a

claim. The allegations made and the language of the insurance policy determine an

insurer’s duty to defend. The duty to defend is not affected by facts ascertained before the

suit, developed during litigation, or by the ultimate outcome of the litigation. Further,

standard policy language—including National’s here—dictates that, even if the allegations

are false, fraudulent, or groundless, the insurer is nevertheless obligated to defend.

See, e.g., McAlear v. St. Paul Ins. Cos, 158 Mont. 452, 453, 493 P.2d 331, 332 (1972)

(discussing a liability policy issued around the same time period as National’s which also

contained this language).

¶121 An insurer should provide the insured a defense under a reservation of rights if the

insurer believes that a question exists about the boundaries of coverage. Hanke, ¶ 25. The

                                              78
insurer may then file a declaratory judgment action to resolve coverage issues.

Staples, ¶ 28. The insurer may seek to recover the expenses that the insurer incurred in

defending a claim outside of the insured’s policy coverage in the declaratory judgment

action. Hanke, ¶ 25 (citing Staples, ¶ 28). An insurer’s failure to follow this course leaves

the insurer potentially liable for defense costs and judgments. Staples, ¶ 27; § 28-11-316,

MCA. The purpose of an insurer’s reservation of rights is not to impose conditions, but

rather, “to assert any possible defense to coverage to avoid waiving the right to raise them

in the future.” Walden v. Maryland Cas. Co., 2015 WL 10985375, at *5 (D. Mont.

Jan. 26, 2015). A reservation is a statement of non-waiver. Accordingly, letters of

reservation do not constitute a breach of contract or in any way suggest an insurer has

breached a duty to defend; policyholders do not risk losing any rights that they would have

otherwise had under the terms of the policy.

¶122 This Court has expressly recognized the right of an insured to recover defense costs

where the right has been specifically reserved and the insured has had adequate notice of

the potential reimbursement. Ribi, ¶¶ 48-49. Here, National could only be liable for the

period during which it was on the risk. National’s liability is therefore limited to the

defense of suits for harm and the indemnification of sums that the State becomes obligated

to pay for bodily injuries that occurred “during the policy period.” An insurer does not

contract to pay defense costs for occurrences which took place outside the policy period.1

1
 It is unnecessary for me to address what claims qualify as coming within the policy period of
1973 through 1975 because I would conclude there is no coverage under the Policy. However, the
Court offers an analysis inconsistent with Orr when it holds that:

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Accordingly, the plain language of the Policy provides for a discreet and finite period, and

National assumed risks only for losses during the Policy period. I turn now to whether

National breached its duty to provide a defense to the State under the terms of the Policy.

¶123 First, I agree with the Court that, respecting the timeframe between 2002 and

July 2005, National did not breach its duty to defend. Opinion, ¶¶ 24-30.

¶124 Moving to the second time frame identified by the Court, ranging from National’s

July 18, 2005 letter to its May 10, 2006 letter, I disagree with the Court’s interpretation

that National’s July 18, 2005 letter to the State did not constitute an offer to provide a

defense; instead, I would conclude that National was accurately and specifically setting

forth a reservation of rights to allocate among all insurers the cost of defending the State

against the Libby Mine Claims. As a self-insurer, the State must contribute to the payment

of the Libby Mine Claims on a pro rata basis. See, e.g., 15 Steven Plitt et. al, Couch on

Insurance § 220:31, 220-36 (3d ed. 2015) (majority rule is that a self-insured entity

       [G]iven the ongoing progressive nature of asbestos injury . . . [a] Claimant exposed
       either during or prior to the Policy period may, despite lack of manifestation of
       injury during the Policy period, be covered under the Policy ‘as long as it can be
       determined, even retroactively, that some injury did occur during the policy period’
       as a result of the State’s failure to warn.

Opinion, ¶ 85. This follows the Court’s recognition that “bodily injuries suffered by the Claimants
did not become known until the late 1990s, and all the Claimants with whom the State has settled
had an asbestos-related injury that was diagnosed between the late 1990s and the present.”
Opinion, ¶ 85. Again, the outcome of these proceedings is determined by our decision in Orr. In
Orr, this Court concluded that the State was not entitled to sovereign immunity because the tort of
negligence requires four elements—duty, breach of duty, causation, and damages—and because
the workers’ claims in Orr did not accrue until “their ‘damages’ became manifest in 1998, when
they were medically diagnosed with asbestos-related illnesses.” Orr, ¶ 56. We explained that
“[i]n Montana, no cause of action, or suit, for negligence accrues until all elements of the claim
exist” and that “[t]he causes of action of the surviving Miners did not accrue until damage could
be proven. [ ] [N]o damage could be proven until their injuries were manifest.” Orr, ¶¶ 74, 76.
                                                 80
“must bear its pro rata share”). For decades, the State was its own insurer and insured

claims for injuries spanning nearly 50 years. National sought to protect its lawful interest

by paying only the defense costs representing its proportional and equitable allocation of

the time “at risk.”

¶125 I do not accept the Court’s conclusion that this was an unlawful pro rata condition,

because pro rata conditions are not unlawful and the plain language of the Policy provided

that National was at risk only “during the policy period.” Rather, in my opinion, this was

a lawful reservation of rights and a confirmation that National would provide a defense so

that the State would not be “improperly abandon[ed],” left without a defense, or

“justified in taking steps to limit [the State’s] personal liability” by entering a stipulated

judgment. Freyer, ¶34 (citations omitted). The underlying justification for imposing a

duty to defend is to avoid the insured being improperly abandoned and left without a

defense. These concerns, however, are absent here, where the State was self-insured,

represented by counsel, and National offered a defense. Moreover, to the extent there was

any confusion that National would provide a defense, National’s May 10, 2006 letter

provides unequivocal assurance that National will defend against the Libby Mine Claims.

Within the context of the State’s status as a self-insurer, and given that the State was

represented by counsel actively engaged in defending against the Libby Mine Claims, I

cannot agree that National breached its duty to defend the State and is thereby estopped

from raising coverage defenses for a two-year policy respecting claims covering a nearly

50-year period.

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¶126 The Court concludes, respecting the period between National’s May 10, 2006 letter

and National’s filing of the declaratory judgment action on February 23, 2012, that

National breached its duty to defend because it should have filed its declaratory judgment

action sometime earlier. The Court reaches this holding despite also concluding that

National provided a defense to the State. Here, the Court has completely altered the scope

and rules of an insurer’s requirement to provide a defense and interjected itself into the

strategic decision-making process of counsel concerning when and whether to initiate a

declaratory judgment action.       More particularly, the Court’s holding is blatantly

inconsistent with our recent decision in Draggin’ Y Cattle Co., ¶ 38, where we stated:

       We decline to impose as a matter of law a new obligation on a defending
       insurer as suggested by Appellees, to file a declaratory judgment action
       before the resolution of the liability case, when the Legislature has provided
       an express cause of action and remedies for violations of duties expressed in
       the [Unfair Trades Practices Act].

In my opinion, the Court has inappropriately interfered with the strategic decisions of

counsel, who are best able to assess the timing and propriety of filing a declaratory action.

We have not previously imposed a requirement that a declaratory judgment action be filed

to determine coverage, particularly when the insurer is providing a defense, and have left

those decisions to the insurer to be made at its own peril. The Court’s new requirement

will cause the insurer to incur needless additional litigation costs, require insurers to file

premature actions, and risk compromising the underlying litigation so that an insurer is not

found in breach of the duty to defend—with the consequent calamitous result of being

                                             82
estopped from raising coverage and suffering a stipulated judgment far beyond policy

limits.

¶127 Here, as a point in fact, the parties engaged in extensive settlement efforts over

several years and entered into a Tolling Agreement before National filed its declaratory

judgment action. The Tolling Agreement recognized that it was not in the interest of either

party to seek an immediate judicial resolution of coverage disputes. That agreement

provided: “The Parties agree it is mutually beneficial to enter into this Agreement to

preserve the status-quo and therefore agree to toll any statutes of limitation that may be

applicable to whatever claims they may have against each other relating to the Policy and

applicable law . . . .” In short, we have never required an insurer to file a declaratory

judgment action; rather, we have expressly stated that we would not impose such a

requirement. See Draggin’ Y, ¶ 38. Our precedent has always recognized an insurer’s

choice, when defending under a reservation of rights, to contest coverage by filing a

declaratory judgment action. To require a party to initiate a court action to avoid breaching

a duty to defend, when they are defending, is unsupportable.

¶128 Because National did not breach its duty to defend, I would conclude it is not

estopped from raising issues of coverage. There are two bases upon which I would

conclude the Libby Mine Claims are not covered under the Policy: (1) the State’s

intentional act of failing to disclose the known health hazards to the mine workers, which

led to an expected injury, does not constitute an “occurrence”; and (2) the State was aware

at the Policy’s inception that a known loss would likely ensue. First, the Policy provides

                                             83
coverage for an “occurrence” when “an event, or a continuous or repeated exposure to

conditions” results in bodily injury during the Policy period “that is neither knowingly nor

intentionally caused by or at the direction of the insured.” The Policy’s plain language

provides there is no coverage where the injury was expected by the insured. See Phalen,

182 Mont. at 457-59, 597 P. 2d at 725-26; Ribi, ¶¶ 18, 20. There can be no question from

Orr that this Court found a duty was owed by the State to the workers to disclose to them

the health hazards posed by their employment. The duty imposed upon the State was to

“correct or prevent workplace conditions known to be hazardous to health.” Orr, ¶ 38.

Moreover, the Court in Orr, ¶ 37, quoting the findings of the district court, held:

       It could be fairly said that since 1956, the state of Montana was on notice that
       the asbestos dust at the Libby mine was dangerous and that the mine owner
       was not making improvements as recommended by the State. Also, it
       appears the record is bereft of any actions taken by the State to warn the
       miners or the Libby townspeople of their plight.

¶129 Between 1956 and early 1964, the State inspected the plant numerous times,

received the death notices of three mine employees from asbestos-related diseases, and

identified a deteriorating and increasingly dangerous workplace. “Surely, the State would

have noted in its 1958 and 1963 reports if Zonolite or Grace had posted warning signs to

employees, provided safety equipment, arranged for medical monitoring, or established

safety procedures to protect the employees from ever-increasing concentrations of asbestos

in airborne dust.” Orr, ¶ 38. The State, although clearly aware of the dangerous conditions

after each inspection and knowing the likely fatal outcome from asbestos exposure, never

informed the workers of the dangers. I cannot accept the Court’s rationale, post-Orr, that

                                             84
the State made at least a partial effort to warn the miners when it notified the union. Orr

imposed a duty on the State that “ran to the public and to persons whose employment

subjected them to health hazards.” Orr, ¶ 39. Here, the Court, in the interests of

consistency and fairness, should not change the rules established in Orr by reconsidering

whether the State’s failure to disclose to workers the hazards of their workplace was

knowing and intentional.

¶130 In a divided decision, the Orr Court premised the imposition of the State’s duty on

the State’s knowing and intentional failure to disclose to workers the health hazards of their

employment. Orr imposed a duty because it held the State’s conduct was, in fact, knowing

and intentional. The Orr dissent argued that “[s]overeign immunity was abrogated only

because insurance was available” and that “sovereign immunity arose out of necessity to

ensure the political and economic stability of the government by insulating the public

treasury from suits for monetary damages.” Orr, ¶¶ 87, 97 (Warner, J., dissenting). The

Orr dissent maintained that the State owed no duty to disclose to workers the health hazards

of their employment. See Orr, ¶ 86 (Warner, J., dissenting). The Court in Orr, however,

imposed a duty based upon the State’s knowing and intentional conduct. We cannot now

distort or adapt the law in a manner which protects state coiffures—that approach was

rejected in Orr when this Court created a cause of action for the miners. Importantly, the

Orr Court specifically rejected the State’s argument that “it could not foresee that the Mine

owner would not fulfill its legal obligations as a landowner and employer.” Orr, ¶ 37.

While the Court in Orr looked to the State’s statutory obligations, it concluded the risk was

                                             85
“foreseeable” and the harm was “clear and present”—both considerations for the elements

of duty, breach, and causation. Orr, ¶ 37 (“The question of whether the risks were

foreseeable had been answered as early as 1956; the dangers to the workers were already

clear and present by that time.”) While the Orr Court remarked in its conclusion that a

trier of fact must find the remaining elements of negligence, this remark merely reiterated

basic principles of negligence law, which commit the cause of action to the trier of fact.

Orr, ¶ 81. The remark was not necessary to the determination of whether a duty was owed

by the State to the miners. Placed in context, the remark was made to quell the dissent in

Orr and was a response to the dissent’s claims that the Orr Court had just handed claimants

a cause of action. The Orr Court’s analysis and holding, as demonstrated by what has been

litigated in these proceedings, effectively only left the element of damages open for

determination. Orr, ¶ 37. To color Orr differently, nearly two decades later, is an unfair

distortion of our precedent. The significance of Orr to these proceedings is that Orr

conclusively established that the State knew injuries to the miners would occur from their

exposure to asbestos and yet failed to warn the miners of this clear and present danger—a

known loss for purposes of the Policy’s coverage provisions. The State does not dispute

the conclusions of the Court in Orr, nor I am willing to rewrite Orr. Once the Orr Court

established the State breached its duty to warn the miners of the hazardous conditions of

their workplace, the miners could not make informed decisions about their health and their

workplace. Here, the Policy unambiguously excludes knowing and intentional conduct of

the insured.

                                            86
¶131 As a corollary to the Policy’s exclusion for an intentional act of the insured, I would

also conclude under the “known loss doctrine” that the State was aware at the inception of

the Policy that a loss would likely ensue. This Court has held coverage is unavailable

where, before the inception of the policy, the insured “was aware of a dangerous condition”

that caused the injuries.     Profitt v. J.G. Watts Constr. Co., 143 Mont. 210, 216,

387 P.2d 703, 706 (1963).        Once again, the Orr Court also recognized that the

Libby Mine Claims reflect a loss that was known to the State prior to the inception of the

Policy:

       Plainly the State knew as a result of its inspections that the Mine’s owner
       was doing nothing to protect the workers from the toxins in their midst. The
       question of whether the risks were foreseeable had been answered as early
       as 1956; the dangers to the workers were already clear and present by that
       time.

Orr, ¶ 37 (emphasis added).

¶132 Consequently, because the State, at the inception of the Policy, knew of the

dangerous conditions of the Libby Mine, National has no obligation to provide coverage

as a matter of law. Here, the undisputed facts establish that the State had issued death

certificates for three Libby Mine workers between 1961 and 1964, which noted that the

workers died from asbestos-related health conditions. During the State’s inspections prior

to 1974, State inspectors noted the unsanitary and unhealthy conditions of the mine. The

State notified the owners and explained the seriousness of asbestosis and its likely fatal

outcome. The State noted a direct link between high asbestos levels at the Libby Mine and

serious bodily injury. As early as 1956, the State was aware of serious medical conditions,

                                            87
injuries, and deaths associated with asbestos exposure. These are undisputed facts which

this Court concluded in Orr required the imposition of a duty. These undisputed facts

reflect a loss that was known to the State prior to the inception of the Policy and thus is

excluded, as a matter of law, from coverage because the State had “knowledge of potential

liability.”

¶133 In my opinion, National did not breach its duty to provide the State a defense, and I

would not preclude National from disputing coverage. Our decision in Orr is controlling

and established the State acted intentionally in failing to disclose the hazardous conditions

of the mine and knew of the injury and loss that was eminent. I would apply the plain

language of the Policy and conclude that National was not obligated to defend and

indemnify the State for the Libby Mine Claims.

                                                  /S/ LAURIE McKINNON

                                             88