Thomas et al v. Nautilus Insurance Company et al

Filing 32

ORDER adopting Findings and Recommendations re 28 Findings and Recommendations; denying 7 Motion for Summary Judgment; and granting 12 Motion for Summary Judgment. Signed by Judge Donald W. Molloy on 9/19/2011. (dle)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
HELENA DIVISION

JOE THOMAS, JR., and
JP THOMAS CONSTRUCTION LTD,
a Montana corporation

)
)
)
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Plaintiff,
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vs.
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NAUTILUS INSURANCE
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COMPANY, and DOES 1through 3,
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Defendants.
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___________________________________ )

CV 11-40-M-DWM-JCL

ORDER

Plaintiffs Joe Thomas, Jr. and JP Thomas Construction Ltd. (“Thomas”)
brought this action against Nautilus Insurance Company (“Nautilus”) alleging
breach of contract, constructive fraud, and violations of Montana’s Unfair Trade
Practices Act, Mont. Code Ann. §§ 33-18-201 et. seq. The dispute centers on

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insurer-Nautilus’s duty to defend in an underlying state action against insuredThomas. Nautilus moves for summary judgment on the grounds that the insurance
policy’s various coverage exclusions preclude any duty to defend or indemnify
Thomas. Thomas cross-moves for partial summary judgment.
United States Magistrate Judge Jeremiah C. Lynch issued Findings and
Recommendations in which he recommended denying Nautilus’s motion and
partially granting Thomas’s. Judge Lynch found that Nautilus did not initially
have a duty to defend, but discovery responses that Thomas later forwarded to
Nautilus triggered the duty. The judge reasoned that these responses–from the
woman who sued Thomas in the underlying state action–alleged damages that
Thomas’s subcontractor might have caused, and would therefore fall under the
policy’s coverage. Under Montana law, this extrinsic factual information was
sufficient to trigger Nautilus’s duty to defend. Thus, Judge Lynch concluded,
Nautilus breached its duty by refusing to assume the defense after receiving these
responses.
Nautilus has timely objected and is therefore entitled to de novo review of
the specified findings or recommendations to which it objects. 28 U.S.C. §
636(b)(1). The objections center on three arguments. First, that Judge Lynch
misinterprets the meaning of the word “abandoned.” That is, in order for the
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policy to cover the subcontractor’s damages, Judge Lynch first had to determine if
Thomas “abandoned” the project, as the policy uses that term. Nautilus claims
that abandonment only occurs if both contractual parties agree to end the contract.
Therefore, Thomas, by unilaterally stopping construction, breached the contract;
he did not “abandon” his work within the meaning of that term.
This argument is unpersuasive. Judge Lynch correctly determined that the
policy does not define “abandoned,” and the term is thus ambiguous. Nautilus’s
interpretation is reasonable, but so is concluding that the policy covered Thomas if
he unilaterally abandoned a project. As Judge Lynch points out, in Montana,
when an insurance contract’s term is subject to two reasonable interpretations, the
“construction most favorable to the insured must prevail where this ambiguous
definition attempts to exclude the liability of the insurer.” Pablo v. Moore, 995
P.2d 460, 463 (Mont. 2000). Nautilus does not override this authority through
citations to other jurisdictions.1
Montana authority also precludes Nautilus’s other arguments on this point.
The Montana Supreme Court has stated that “[t]he fundamental protective purpose

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Nautilus largely relies on Clarendon American Insurance Co. v. General Security
Indemnity Co. of Arizona, 193 Cal. App. 4th 1311 (2011), which cites a dissenting opinion for
this proposition of law. See Clarendon, 193 Cal. App. 4th at 1319 (quoting Amelco Electric v.
City of Thousand Oaks, 27 Cal.4th 228, 253 (Werdegar, J., dissenting)).
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of an insurance policy and the obligation of the insurer to provide a defense
require that coverage exclusions be narrowly construed.” Skinner v. Allstate Ins.
Co., 127 P.3d 359, 385 (Mont. 2005). In light of this pronouncement, Nautilus’s
arguments that canons of construction and public policy dictate adopting
Nautilus’s interpretation of “abandoned” also fail.
Moving on to Nautilus’s second objection, Nautilus did not argue the issue
to Judge Lynch and this Court will therefore not address that objection now.
Nautilus’s argument is that the Court should look to the terms of a different policy
than the one Judge Lynch analyzed:
Nautilus and Thomas have agreed that both policies2 at issue in this case are
identical and that the first policy was in effect for purposes of this argument;
however, on further review, Nautilus has discovered that the policies are not
in fact identical, and whether the first or second policy was in effect during
the occurrence will lead to a significant difference in outcome.
(dkt. #30) at 6 n.2. As this Court recently stated, however, the party objecting to
the magistrate judge’s findings “cannot now reformulate its approach and seek a
second bite at the apple.” Stimson Lumber Co. v. Int’l Paper Co., No. CV
10–79–M–DWM–JCL, 2011 WL 1549305 (D. Mont. 2011).
Nautilus predicates its third objection on the success of one of the first two,
and since both of those fail, this objection is moot. Thus, having reviewed
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Thomas bought two consecutive one-year policies from Nautilus.
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Nautilus’s objections de novo, the Court agrees with Judge Lynch’s conclusion
that Nautilus’s policy could have provided coverage for the subcontractor’s
alleged damages. Therefore, under Montana law, Nautilus’s duty to defend was
triggered when it received the discussed discovery responses.
I can also find no clear error with the rest of Judge Lynch’s Findings and
Recommendations, and I therefore adopt them in full.
Accordingly, IT IS HEREBY ORDERED that Nautilus’s motion for
summary judgment (dkt. #7) be DENIED, and Thomas’s motion for summary
judgment (dkt. #12) be GRANTED to the extent that Nautilus had a duty to defend
Thomas upon receipt of the forwarded discovery responses.
Dated this 19th day of September, 2011.

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