McCollough v. Minnesota Lawyers Mutual Insurance Company et al

Filing 90

ORDER ADOPTING FINDINGS AND RECOMMENDATIONS. GRANTING in part and DENYING in part doc. 66 Motion for Summary Judgment: the motion i granted with respect to McCollough's claim that it violated Mont. Code Ann. Section 33-18-201(4) and denied in all other respects; DENYING doc. 69 Motion for Summary Judgment; and ADOPTING Findings and Recommendations re 84 . Signed by Judge Richard F. Cebull on 4/26/2013. (HMM)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA

FILED
APR 26 2013
Clerk, u s District Court

BILLINGS DIVISION

District Of Montana
Billings

)
)
CV-09-95-BLG-RFC-CSO
Plaintiff,
)
)
vs.
) ORDER ADOPTING FINDINGS
) AND RECOMMENDATIONS
MINNESOTA LAWYERS MUTUAL
) OF U.S. MAGISTRATE JUDGE
INSURANCE COMPANY,
)
Defendant.
)
~~~~~~~~~~~~~~)

TIMOTHY MCCOLLOUGH,

Plaintiff Timothy McCollough filed this action alleging third-party claims
under Montana's Unfair Trade Practices Act ("UTP A") against Defendant
Minnesota Lawyers Mutual Insurance Company ("MLM"), the insurer of Johnson,
Rodenburg & Lauringer ("JRL"), a law firm that McCollough successfully sued in
this Court for unfair debt collections practices. See McCollough v. Johnson,
Rodenburg & Lauringer, CV-07-166-BLG-CSO. In this suit, McCollough claims
that MLM violated UTPA sections prohibiting the misrepresentation of pertinent
facts and policy provisions, refusing to pay claims without conducting a
reasonable investigation, and neglecting to attempt in good faith to settle claims in

which liability is reasonably clear, Mont. Code Ann.§§ 33-18-201(1), (4), & (6).
Pending before the Court are objections (docs. 85 & 86) to Magistrate Judge
Ostby's Findings and Recommendations (doc. 84) on the parties' motions for
summary judgment (docs. 66 & 69). These objections require the Court to make a
de novo determination of those portions of the Findings and Recommendations to
which objection is made. 28 U.S.C. § 636(b)(l). As discussed below, all
objections must be overruled and Judge Ostby's Findings and Recommendations
adopted in their entirety.
A.

McCOLLOUGH'S OBJECTION To DISMISSAL OF HIS FAILURE To
INVESTIGATE CLAIM

McCollough's only objection is that Judge Ostby erred in recommending
summary judgment against him on his§ 33-18-201(4) claim that MLM refused to
pay claims without conducting a reasonable investigation based on all available
information. See doc. 85. Judge Ostby relied on a decision of this Court holding
that an insurer is entitled to rely on the investigation conducted by its wellqualified counsel unless the insurer has notice that the investigation is insufficient.
Doc. 84, 13-17, citing Madden v. Attorneys Liability Protection Society, Inc., 29
Mont.Fed.Rep. 33 (D. Mont. 2001), ajf'd2003 WL 245223 (9th Cir. 2003).
Because (1) MLM did not know about McCollough's claims until he filed suit and

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(2) McCollough's counsel admitted that JRL's lawyers conducted sufficient
discovery in the underlying case to uncover all of the material substantive
information on McCollough's claim, Judge Ostby recommends judgment in favor
ofMLM on McCollough's failure to investigate claim. Doc. 84, at 16-17.
McCollough now argues that because MLM did not cite Madden in its
arguments to Judge Ostby, he did not argue an exception to the Madden rule-that
there was a triggering event that put MLM on notice that its counsel failed to
adequately investigate. See 29 Mont.Fed.Rep. at 34. But McCollough's
objections fail to establish any "triggering event" that would have put MLM on
notice that its counsel failed to investigate the claim. Rather, McCollough cites
statements from his Statement of Undisputed Facts purportedly showing that
MLM was aware of Montana claims handling standards. He also purports to
establish holes in MLM's claims handling file, at the same time he claims to
understand that independent defense counsel can fulfill the insurer's duty to
investigate under§ 33-18-201(4).
Regardless, Judge Ostby properly relied on Madden and the admission that
defense counsel's investigation uncovered all of the material substantive
information in recommending that summary judgment be granted in MLM's favor
on McCollough's § 33-18-201(4) claim. McCollough's objection is therefore
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overruled.

B.

MLM's OBJECTION To JUDGE OSTBY'S RULING ON PREEMPTION
Defendants continue to maintain this entire case should be dismissed with

prejudice because Rule 11 Fed.R.Civ.P., prohibiting baseless filings by attorneys,
and 28 U.S.C. § 1927, deterring intentional and unnecessary delay in proceedings,
preempt the UTP A when the parties litigate in federal court. Defendants still
cannot direct the Court towards any direct authority for this novel argument.
In her Findings and Recommendations, Judge Ostby held that Rule 11 and §
192 7 do not preempt the UTP A because the purpose of the former is to regulate
attorney conduct and the purpose of the latter is to regulate insurance industry
practices. Doc. 84, p. 12. Judge Ostby also rejected Defendants' preemption
argument on the grounds that the McCarran-Ferguson Act, 15 U.S.C. § I 012(b ),
prevents federal laws of general applicability, such as Rule 11 and § 1927, from
impairing state laws regulating insurance. Id. at 13, citing Ojo v. Farmers Group,
Inc., 565 F.3d 1175, 1179 (9th Cir. 2009).

In its objection to the Findings and Recommendations (doc. 86), MLM
takes issue with Judge Ostby's conclusion that McCarran-Ferguson forecloses the
argument that Rule 11 and§ 1927 preempt Montana's UTPA. Specifically, MLM
argues that the UTP A does not regulate "the business of insurance" and therefore
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McCarran-Ferguson is irrelevant. E.g., doc. 74 at 10-11.
Regardless, Judge Ostby's reliance on inverse preemption under McCarranFerguson was only partial, as further justification for her conclusion that Rule 11
and § 1928 do not preempt the UTP A under the ordinary preemption analysis.
MLM does not object to Judge Ostby's finding that there is no express
preemption, conflict preemption, or field preemption. Accordingly, even if
MLM's objection to Judge Ostby's McCarran-Ferguson analysis had merit, the
result would not change.
C.

MLM'S OBJECTION TO JUDGE 0STBY'S RULING ON McCULLOUGH'S
FAIL URE TO SETTLE CLAIM

MLM objects to Judge Ostby's conclusion that the MLM policy's clause
granting JLR, the insured, the contractual right to prohibit settlement does not as a
matter of law preclude McCollough's claim that MLM neglected to attempt in
good faith to effectuate a prompt, fair, and equitable settlement. In so holding,
Judge Ostby relied on Insurance Co. of North America v. Medical Protective Co., ,
which plainly held that a consent-to-settle provision is "immaterial to the question
of whether [the insurer] acted in bad faith in pursuing settlement negotiations ... "
because it is "common practice for an insurer to conduct settlement negotiations in
advance of obtaining the insured' s final consent to the agreement" and the

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"negotiations must be conducted in good faith and without negligence, ...
regardless of whether or not the insured eventually will consent." 768 F.2d 315,
319-20 (10th Cir. 1983). Judge Ostby further noted that while MLM's policy
allows the insured to reject a settlement, it also grants MLM the "exclusive right to
investigate, negotiate, and defend claims" against the insured.
MLM attempts to distinguish the case by noting that there the insured was
not kept informed of the settlement negotiations and there is no such evidence in
this case. But the uninformed insured was just the third reason the 10th Circuit
relied on in rejecting the insurer's argument that it could not be liable for bad faith
where its insured did not consent to the settlement. Id. at 320. This Court agrees
that regardless of the consent-to-settle provision, the UTPA requires
insurers-through their outside counsel-to negotiate settlements in good faith.
Although MLM may have a good defense to the claim if it can show that JRL
refused to settle, Judge Ostby correctly concluded that genuine issues of material
fact preclude summary judgment. Having so concluded, the Court need not
consider MLM's objection to Judge Ostby's reliance on Bankruptcy Estate of
Morris v. COPJC ins. Co., 192 P.3d 519, 526 (Colo.App. 2008).
MLM also cites a California intermediate appellate court opinion that held
just as he urges this Court to hold-that an insurer is not liable for refusing to
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attempt to settle in bad faith where the insured exercised its right under the
insurance contract to refuse settlement. Carlile v. Farmers Ins. Exch., 173
Cal.App.3d 773 (Cal.App.3d 1985). But Carlile is no more persuasive than
Insurance Co. of North America.
Moreover, the UPT A does not impose a duty to settle cases-it imposes a
duty to attempt in good faith to settle. And Judge Ostby is correct that there are
genuine factual disputes about whether MLM attempted in good faith to settle
McCollough's claims. Doc. 84, 22-24. For example, McCollough argues that
MLM failed to reconsider settlement once Judge Ostby ruled that its insured was
liable under the FDCP A, could not rely on a bona fide error defense, and was
therefore liable for McCollough's attorney fees, which were already greater than
any settlement offer it had made previously. Doc. 70, p. 21.
D.

MLM'S OBJECTION TO JUDGE 0STBY'S RULING THAT FACT ISSUES
PRECLUDE SUMMARY JUDGMENT ON CAUSATION OF EMOTIONAL
DISTRESS

MLM continues to maintain that McCollough's only purported damages are
for emotional distress and that there is no evidence in the record establishing
emotional distress caused by MLM' s purported bad faith. MLM further argues
that Judge Ostby omitted pertinent portions ofMcCollough's deposition testimony
concerning his emotional distress and that the omitted portions establish that the
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real cause of his damages was MLM's failure to control JRL, something MLM has
no authority to do. Finally, MLM argues that because McCollough testified at one
point that "it was not about the money," he could not have suffered damages
caused by MLM' s failure to attempt to settle in good faith.
Regardless, Judge Ostby is correct that the Rule 56 Fed.R.Civ.P. standard of
review requires the Court to draw all reasonable inferences from the facts in
McCollough's favor. And Judge Ostby is also correct that ordinary emotional
distress damages need not be extreme or severe to be compensable. MLM's
objections may undercut the credibility ofMcCollough's claim for emotional
distress damages, but they do not require that judgment as a matter of law be
entered against him.
E.

MLM's OBJECTION'S To JUDGE OSTBY'S OMISSIONS OF PURPORTEDLY
RELEVANT FACTS

Finally, MLM lodges six objections to facts it claims Judge Ostby should
have included in her Findings and Recommendations. Doc. 86, pp. 7-9. These
objections essentially restate MLM's objections to Judge Ostby's recommendation
that its motion for summary judgment be denied with respect to the failure to settle
claim and lack of causation for emotional distress damages. Having concluded
that Judge Ostby properly denied MLM's motion for summary judgment, the

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Court need not second guess Judge Ostby's summary of the relevant facts.
ORDER
IT IS ORDERED that the Findings and Recommendations of Magistrate

Judge Ostby (doc. 84) are ADOPTED IN THEIR ENTIRETY: MLM's motion
for summary judgment (doc. 66) is GRANTED IN PART AND DENIED IN
PART: the motion is granted with respect to McCollough' s claim that it violated

Mont. Code Ann. § 33-18-201(4) and denied in all other respects.
IT IS FURTHER ORDERED that McCollough's cross-motion for

summary judgment (d~~i~DENIED.

·"7 /_

t

Dated this~ day of April, 2013.

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