Draggin' Y Cattle Company, Inc. et al v. Junkermier, Clark, Campanella, Stevens, P.C. et al

Filing 55

ORDER: IT IS ORDERED that Junkermier, Clark, Campanella, Stevens ("JCCS")'s 364 Motion for Summary Judgment on collusion and breach of contract is DENIED. IT IS ORDERED that New York Marine's ("NYM") 370 Motion for Summary Judgment is DENIED. SEE ORDER FOR FULL DETAILS. Signed by Judge Brian Morris on 10/11/2019. Associated Cases: 4:14-cv-00083-BMM, 2:19-cv-00034-BMM (SLR) Modified on 10/11/2019 to add link to motion. (SLR).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
GREAT FALLS DIVISION
NEW YORK MARINE AND
GENERAL INSURANCE
COMPANY,

CV-14-83-BMM
CV-19-34-BMM

Plaintiff,
vs.

ORDER

JUNKERMIER, CLARK,
CAMPANELLA, STEVENS, P.C.,
DRAGGIN’ Y CATTLE COMPANY
INC., and ROGER and CARRIE
PETERS, individuals,
Defendants.

DRAGGIN’ Y CATTLE COMPANY,
INC., and ROGER and CARRIE
PETERS, individuals,
Plaintiffs,
vs.
JUNKERMIER, CLARK,
CAMPANELLA, STEVENS, P.C.,
Defendant/ThirdParty Plaintiff
vs.
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NEW YORK MARINE AND
GENERAL INSURANCE
COMPANY,
Intervenor/ThirdParty Defendant.

INTRODUCTION
After five-years, two different courts, twice as many judges, and a number of
summary judgment motions, this Court and the parties remain well-acquainted
with the facts of this case. Here’s a brief recap: Junkermier, Clark, Campanella,
Stevens, P.C. (“JCCS”) took out an insurance policy with New York Marine and
General Insurance Company (“NYM”). (Doc. 366 ¶ 5; Doc. 372 ¶ 1.) Draggin’ Y
Cattle Company, Inc. sued Larry Addink and JCCS in Montana state court. (See
Doc. 389 ¶ 4.) NYM defended JCCS in that action. (Id. ¶ 5.)
The parties disagreed over the best way to proceed on that action. Draggin’
Y and JCCS, without NYM’s consent, agreed to a stipulated settlement for $10
million. Draggin’Y signed a covenant not to execute, and, JCCS, in turn, assigned
its rights under its insurance policy with NYM to Draggin’ Y. In response, NYM
filed a declaratory action and breach of contract claim against JCCS in this Court.
(Doc. 1).
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NYM asked this Court (1) for a declaratory judgment that NYM would not
be liable for the stipulated judgment; (2) for a declaratory judgment that NYM did
not owe any continuing duties to JCCS under the insurance contract; and (3)
damages that arose from JCCS’s breach of its contractual duties. (Doc. 1 at 11-15.)
JCCS filed a number of counterclaims, and after four years of litigating those
counterclaims in this Court, voluntarily dismissed them on May 16, 2019. (Doc.
306.)
Contemporaneous with this litigation, the state court proceeding moved
forward with JCCS and Draggin’ Y as plaintiff and defendants. NYM intervened
initially to contest whether the $10 million stipulated settlement proved reasonable.
After JCCS voluntarily had dismissed its claims in this Court, it filed nearly
identical claims against NYM in the state court proceeding. (Compare Doc. 48 at
15-19 with Doc. 340-15 at 2-5.) JCCS’s action in bringing claims in the state court
case transformed NYM from intervenor to a party. NYM used this new-found
party status to remove the state court proceeding to federal court. (Doc. 340-17, 18,
19.) This Court consolidated the removed action with NYM’s declaratory
judgment and breach of contract action. (Doc. 376.) Both parties have moved for
summary judgment. (Doc. 364 (JCCS) and Doc. 370 (NYM).) The parties fully
briefed the motions and the claims stand ripe for review.
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DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
Collusion
Defendants JCCS, Draggin’ Y, and Roger and Carrie Peters (collectively
“Defendants”) have moved for summary judgment on the issue of collusion. (Doc.
365 at 3.) They argue that the doctrines of collateral estoppel and res judicata
preclude NYM from arguing whether JCCS and Draggin’ Y improperly colluded
in deciding to enter the stipulated judgment. Defendants argue that NYM could
have raised alleged collusion in the state court’s reasonableness hearings. (Id.)
As NYM points out, however, collusion does not stand alone as an issue or
claim of defense made by any party. Neither of NYM’s claims for relief require it
to prove collusion. (See Doc. 1.) None of Defendants’ affirmative defenses require
them to prove that collusion did not exist. (See Doc. 258.) It appears that
Defendants move for summary judgment to prevent NYM from presenting
evidence of collusion. Defendants more properly should raise that issue in a motion
in limine, rather than in a motion for summary judgment. Defendants’ motion for
summary judgment regarding alleged collusion is denied.
Breach of Contract Claim
Defendants also move for summary judgment on the issue of damages that
NYM alleges may have arisen from the breach of contract claim. NYM’s Chief
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Claims Officer Paul Kush explained at a deposition that NYM seeks damages only
for expenses that stem from NYM’s defense of JCCS. Defendants argue that NYM
cannot recoup those costs as damages in light of NYM’s duty to defend and incur
those costs. Defendants contend that allowing NYM to recoup those costs as
damages would “retroactively eliminate or nullify [NYM’s] duty to defend” JCCS.
(Doc. 365 at 12.) And generally, under Montana law, insurers cannot recoup
defense costs except in limited circumstances, none of which Defendants argue are
present here. (Id. at 13-14.)
Defendants’ arguments attempt to cast a standard breach of contract claim
for damages into something it is not. NYM has not made a claim to recoup
attorney’s fees. It instead asserts a claim for damages suffered from a breach of
contract. Montana Code Ann. § 27-1-311 governs damages under a breach of
contract claim. Section 27-1-311 provides that “the amount which will compensate
the party aggrieved for all the detriment which was proximately caused” generally
will represent the measure of damage for a breach of contract. Id. NYM’s claim
falls squarely within this framework and § 27-1-311 entitles NYM to bring a claim
for damages.
Defendants make one counterargument. Defendants contend that NYM’s
damages claim falls outside the statute because the stipulated judgment did not
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“proximately cause” the damages. (Doc. 391 at 8-9.) Defendants claim that NYM
would have incurred costs defending JCCS regardless of the settlement based on
NYM’s duty to defend JCCS.
This argument misses the point. NYM premises its argument on the fact that
the settlement “rendered worthless all of the time, effort and money that NYM
spent defending” JCCS. (Doc. 383.) Had the settlement not occurred, “the time,
effort and money that NYM spent defending” JCCS would not have been rendered
worthless.
Moreover, the circumstances presented here differ from the cases cited by
Defendants. The Montana Supreme Court in Travelres Casualty and Surety
Company v. Ribi Immunochem Research, Inc., 108 P.3d 469 (Mont. 2005), faced a
claim by the insurer to recover costs expended in defending an insured under a
reservation of rights. The insured filed a declaratory judgment action based on
whether the policy’s “pollution exclusion” barred recovery for the intentional
disposal of hazardous wastes over a three-year period. Id. at 479-80. The Montana
Supreme Court simply had to interpret the policy language to decide the coverage
question. Ribi provided timely and adequate notice of its intent to recoup its costs.
Id. at 480. Here, NYM alleges that JCCS’s conduct during the litigation breached

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the terms of the insurance contract. In short, that case was about an insurance
policy; this claim is about an insured’s actions.
To refuse to allow insurance companies to seek damages in this type of
scenario would topple the delicate balance of incentives that Montana law has
placed on insured and insurers. As these parties well know, stipulated judgments
prove presumptively reasonable when entered after an insurer refuses to defend an
insured. Draggin’ Y Cattle Co., Inc. v. Junkermier, Clark, Campanella, Stevens,
P.C., 439 P.3d 935, 941 (Mont. 2019). This presumption encourages insurances
companies to defend insureds and prevents those insurance companies from
retaining too much power in the insured-insurer relationship.
By contrast, if insurance companies could not bring a suit for damages of the
type claimed here, it would be the insureds who retain too much power in the
insured-insurer relationship. An insurance company will always possess the duty to
defend a claim that falls under its insurance contract with the insured. Insureds
would obtain a defense at no risk of every having to pay for the costs of that
defense without the insurer’s ability to bring a suit, even if the insured decides to
collude with the party bringing a claim under the insurance policy.

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NYM’S MOTION FOR SUMMARY JUDGMENT
NYM filed a motion for summary judgment on both its claim for declaratory
judgment and its claim for breach of contract. (Doc. 370.) NYM seeks summary
judgment based on the following undisputed facts:
(1) JCCS purchased a policy that provided $2 million in
limits, afforded NYM the right to control the defense of
claims and required JCCS to cooperate in the defense of
the claims that it tendered to NYM and to not settle any
claims without NYM’s written authorization; (2) JCCS
asked NYM to defend and indemnify the litigation brought
by Draggin’ Y and the Peters, (3) NYM defended JCCS at
all times in that litigation, (4) JCCS entered into a
stipulated judgment in excess of policy limits without
NYM’s written authorization or approval and (5) the
defendants had not obtained a judicial determination that
NYM had abandoned the defense of the litigation against
JCCS or breached some other duty
(Id. at 22.)
If only this case were that simple. The insurance policy imposes on NYM
more than a duty to defend. As Defendants point out, “the determination of the
rights and obligations of the parties in this action requires consideration of not just
NYM’s defense, but also NYM’s other contractual and statutory duties.” (Doc. 388
at 4.)
JCCS had no duty to cooperate with NYM if NYM failed to comply with all
of its material contractual duties to JCCS. JCCS could not have breached the
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contract under those circumstances. A material breach of a contract “touches the
fundamental purpose of the contract and defeats the object of the parties in making
the contract.” R.C. Hobbs Enters., LLC v. J.G.L. Distributing, Inc., 104 P.3d 503,
508 (Mont. 2004). And as the Montana Supreme Court recognized, a material
breach can “relieve[] the insured of the reciprocal contract duty to cooperate with
the insurer.” Draggin’ Y Cattle Co., Inc., 439 P.3d at 941.
NYM’s summary judgment argument discusses how it complied with the
duty to defend. NYM fails to discuss any of its other duties imposed under the
insurance contract. Defendants maintain that NYM violated its contractual duties
in a number of ways that could amount to a material breach of the contract. (Doc.
388 at 5-6.) Whether NYM committed these violations depends in part on whether
NYM “had a reasonable basis in law or fact for contesting the claim or the amount
of the claim.” MCA § 33-18-242(5). Under Montana law, this determination
remains “generally a question of fact.” Draggin’ Y, 439 P.3d at 942.
In sum, NYM may prevail on both claims only if JCCS had a duty to
cooperate with NYM. JCCS had that duty only if NYM had not breached the
contract itself. And whether NYM had breached the contract itself depends on
whether it had a reasonable basis in law or fact for contesting the claim—a genuine
issue of material fact that must be resolved at trial. NYM’s motion for summary
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judgment must be denied. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 24748 (1986) (allowing summary judgment only in the absence of a “genuine issue of
material fact”)
ORDER
IT IS ORDERED that Junkermier, Clark, Campanella, Stevens (“JCCS”)’s
motion for summary judgment on collusion and breach of contract (Doc. 364) is
DENIED.
IT IS ORDERED that New York Marine (“NYM”)’s motion for summary
judgment (Doc. 370) is DENIED
DATED this 11th day of October, 2019.

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