Crow v. Safeco Insurance Company of Illinois
ORDER denying 5 Motion to Dismiss for Failure to State a Claim. Signed by Judge Dana L. Christensen on 11/7/2012. (dle)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
SAFECO INSURANCE COMPANY OF )
Plaintiff Michael Crow filed a declaratory judgment action seeking
coverage under the policy of Defendant Safeco’s insured, Richard Venable, for a
second automobile accident he alleges was caused by Venable. Plaintiff settled
with Venable for both accidents, releasing Venable but reserving the right to
pursue Defendant for a second policy limits. In its counterclaim, Defendant
argues that the Plaintiff lacks standing to pursue this action due to the fact that he
expressly released Defendant’s insured for all claims arising out of both
accidents.1 Plaintiff now moves to dismiss the lack of standing allegations in
Defendant’s counterclaim. The motion to dismiss will be denied, but not for the
reasons advanced by the Plaintiff. As explained below, the Court concludes that
the release is not void under Watters. However, the Court finds that the Plaintiff
has standing to proceed with his action at this time because the Court does not
have before it sufficient facts to determine whether the reservation in the release
provides Plaintiff with standing. Thus, the ultimate decision on Plaintiff’s
standing must await development of a more complete factual record surrounding
the execution of the release, and specifically the reservation language contained
within the release.
II. Factual and Procedural Background
This case involves two motor vehicle accidents. The first accident occurred
on December 12, 2009, when Richard Venable rear-ended Plaintiff on Orange
Street in Missoula, Montana. Plaintiff experienced confusion, slurred speech, and
difficulty communicating shortly after the first accident. Plaintiff continued
working that week despite these symptoms, and he was in a single car accident
while working six days later. Plaintiff drove off the road in his work vehicle and
Defendant also alleges in its counterclaim that there is no coverage for the second
accident under the terms of the policy; however, this issue is not raised in the subject motion to
suffered physical injuries including a global traumatic brain injury. Plaintiff
alleges the second accident was caused by a left temporal lobe hemorrhage he
received in the first accident. Thus, he contends Venable also caused his second
Venable was the insured under a Safeco automobile insurance policy at the
time of the accident that includes liability coverage up to $300,000 for “any one
auto accident.” (Doc. 6 at 3.) Plaintiff signed a general release of all claims for
both accidents against Venable in July 2010. The release contained the following
provision: “[i]t is understood and agreed that this settlement does not release any
claims against any insurer, including Releasees’ insurer, Safeco. These claims
may include but are not limited to pursuing Safeco for a second policy limit . . . .”
(Doc. 4-2 at 2.) Despite the language in the release, Defendant now alleges
Plaintiff cannot bring a direct claim against it because Venable is the proper party
and Plaintiff released him from all claims for both accidents.
Plaintiff filed a declaratory judgment action seeking a declaration “that the
Safeco Policy provides a second limit of $300,000.00 in liability coverage for the
bodily injury and resulting damages Plaintiff suffered as a result of the Second
Accident for which Venable is legally liable.” (Doc. 1 at 3.) Plaintiff’s complaint
lacks any reference to the release and the reservation of his claim “for a second
policy limit” against Defendant. However, in its counterclaim Defendant relies on
the release, and alleges that it constitutes a bar to the Plaintiff’s claims. (Doc. 4 at
10.) Defendant attaches a copy of the written release to its answer and
counterclaim. (Doc. 4-2.)
III. Motion to Dismiss Standard
Dismissal of a counterclaim is determined under the same standard as a
motion to dismiss a complaint. The counterclaim must allege sufficient facts “to
state a claim for relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007). Courts generally limit their considerations to the
allegations in the complaint, or here, the counterclaim. Id. at 555-559. Those
allegations are accepted as true and viewed in a light most favorable to the
plaintiff. Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008).
When “matters outside the pleading are presented to and not excluded by
the court, the motion shall be treated as one for summary judgment and disposed
of as provided in Rule 56, and all parties shall be given reasonable opportunity to
present all material made pertinent to such a motion by Rule 56.” Lee v. City of
Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). However, a court may consider
material properly submitted as part of the complaint without converting the motion
to one for summary judgment. United States v. Corinthian Colleges, 655 F.3d
984, 999 (9th Cir. 2011). A court may also consider unattached evidence the
complaint necessarily relies upon if referenced in the complaint, central to the
claim, and unquestionably authentic. Id. Plaintiffs are not required to anticipate
defendants’ affirmative defenses or attempt to plead around them. Gomez v.
Toledo, 446 U.S. 635, 640 (1980).
Because Plaintiff is seeking dismissal of Defendant’s counterclaim the
counterclaim is the primary document subject to review rather than the complaint.
As previously stated, Defendant attached Venable’s Safeco policy and the release
to its counterclaim, so those documents may be considered in deciding Plaintiff’s
motion to dismiss.
Defendant argues Plaintiff does not have standing because a third-party
cannot bring a direct action against an insurer until liability is established. (Doc. 9
at 9.) Defendant contests liability and causation for the second accident and the
release did not concede liability for the second accident. Plaintiff argues
Defendant is attempting a “double cross” because it specifically permitted a
reservation of a second policy limits against it in the release, but now says he lacks
standing. (Doc. 10 at 1-2.) Plaintiff says he released Venable because Defendant
specifically agreed to the reservation in the release. (Doc. 10 at 2.)
“[T]he long-established rule in Montana [is] that a direct action against an
insurer does not lie until the liability of the insured has been established, and our
further long-standing rule [is] that the injection of insurance into the action
determining liability is improper.” Ulrigg v. Jones, 907 P.2d 937, 943 (Mont.
1995)(internal citations omitted). This rule seeks to eliminate confusion and
prejudice against the insured and the injured party. Id. Montana does allow a
direct action against an insurer under Mont. Code Ann. § 33-18-242 for actual
damages for violation of the Unfair Trade Practices Act (“UTPA”). Id.
While its assertion of the law is correct, Defendant’s reliance on Ulrigg to
establish Plaintiff’s lack of standing in this case is unpersuasive. The factual and
procedural history in Plaintiff’s case is different from that in Ulrigg in significant
respects. In Ulrigg, the plaintiff suffered injuries in a car accident caused by a
woman driving her father’s vehicle. The plaintiff sued the owner of the vehicle
instead of the driver, and when that claim failed tried to add the owner’s insurer
because an action against the driver was time-barred. Ulrigg, 907 P.2d at 942943. The Montana Supreme Court did not permit a direct action against the
insurer because the plaintiff had not proven liability or damages against the driver.
The factual setting in this case is different than what occurred in Ulrigg.
Here, the Plaintiff sued the driver of the vehicle, and Venable admitted liability for
the first accident. The release expressly reserved Plaintiff’s right to pursue
Defendant for another policy limit. Thus, unlike Ulrigg, the Plaintiff has sued the
correct entity, based upon his belief that he preserved a claim against Defendant
pursuant to the reservation language contained within the release. There was no
release or any contractual relationship between Ulrigg and the insurer. The
plaintiff in Ulrigg sued the wrong person and attempted to rectify her error by
naming the insurer after the applicable statute of limitations had run. Plaintiff
sued the correct person here, then settled his claims for both accidents with
Venable while reserving a right to pursue Defendant. He is now asking the Court
to determine whether coverage exists for him to do so. It would be inappropriate
and inequitable to extend the holding in Ulrigg to the facts of this case.
In Safeco Ins. Co. v. Montana Eighth Judicial Court, 2 P.3d 834 (Mont.
2000), Safeco sought a writ of supervisory control asking the Montana Supreme
Court to stay a third party’s declaratory judgment claim against it until a
settlement had been reached or a judgment entered against its insured. 2 P.3d at
837-838. The Court cited Ulrigg in noting that Montana law does not permit a
plaintiff to bring a direct action against an insurer until liability of the insured is
established. Id. at 838. The Court distinguished the plaintiff’s case against
Safeco, however, because the plaintiff’s claim was a declaratory judgment action
seeking advanced payment of medical costs where liability was not in dispute, not
a UTPA claim against Safeco. Id. Thus, the bar prohibiting a direct action against
insurers did not apply to the plaintiff in Safeco.
Safeco seems to support a direct claim by a third-party claimant against an
insurer where the claimant is seeking to establish coverage pursuant to a
declaratory judgment action and liability is reasonably clear. See In re W.R. Grace
& Co., 446 B.R. 96, 127 (Del. 2011) (Safeco cited for the proposition that third
parties can sue insurers directly in auto accident cases); Dubray v. Farmers Ins.
Exchange, 36 P.3d 897, 899 (Mont. 2001) (Safeco did not authorize declaratory
judgment actions to determine an insurer’s liability prior to resolution of the
underlying claim except for damages where liability is reasonably clear).
Although a settlement was reached with the insured, Plaintiff does not fit under
the standing exceptions for declaratory judgment provided in Safeco or Dubray
because liability and causation for the second accident was not conceded in the
release. Thus, absent the reservation in the release, Plaintiff’s release of the
insured for both accidents would appear to bar his claim against Defendant under
Safeco because liability is not reasonably clear for the second accident.
Based on the unique facts of this case, the only possible basis for Plaintiff’s
claim arises from the reservation contained within the release. As previously
discussed, Plaintiff does not specifically plead the release language in his
complaint as the basis to seek coverage under the Safeco policy for the second
accident, but Safeco raised it as a defense in its counterclaim. Thus, the Court will
consider the release language reserving a claim against Safeco in determining the
subject motion because: (1) Plaintiffs are not required to anticipate and plead
around affirmative defenses or counterclaims, Gomez, 446 U.S. at 640; (2) Fed. R.
Civ. P. 8(e) requires pleadings to be liberally construed so as to do substantial
justice; and (3) a motion to dismiss Defendant’s counterclaim is before the Court
and Defendant attached the release to its pleading.
Plaintiff’s standing to pursue his claim against Defendant for the second
accident is dependent on the express reservation of this claim within the release.
The release is a contract so the usual rules of contract interpretation apply to it.
“When a contract is reduced to writing, the intention of the parties is to be
ascertained from the writing alone if possible.” Mont. Code Ann. § 28-3-303.
When the contract language is clear and unambiguous, the court’s duty is to
enforce the contract as written by the parties without application of the rules of
construction. Keller v. Dooling, 813 P.2d 437, 440 (Mont. 1991). When
interpretation is needed, the contract is interpreted so as to make it lawful,
operative, definite, reasonable, and capable of being carried out if possible without
violating the parties’ intent. Mont. Code Ann. § 28-3-301. “Where the question
of intent depends upon the construction of an unambiguous contract, the question
is one for the court alone; however, where a contract term is ambiguous or obscure
or uncertain of meaning, the interpretation of the language, and thus, the
determination of the parties' real intent, is a matter to be left to the consideration of
the jury.” Klawitter v. Dettmann, 886 P.2d 416, 420 (Mont. 1994).
The release language clearly and unambiguously reserves Plaintiff’s ability
to pursue a second policy limit against Defendant: “[i]t is understood and agreed
that this settlement does not release any claims against any insurer, including
Releasees’ insurer, Safeco. These claims may include but are not limited to
pursuing Safeco for a second policy limit . . . .” While this language appears
unambiguous on its face, Defendant has created an ambiguity by arguing that
Plaintiff lacks standing against Defendant despite the release language. Because
this is a declaratory judgment action with no jury demand, the Court will be the
final arbiter of the intent of the parties.
Interpretation of the release controls the issue of whether the claim can
proceed, so the circumstances surrounding the execution of the release, the
reservation contained within it, and the intent of the parties must ultimately be
resolved. In resolving these factual matters, the Court will consider the following:
whether Defendant was a party to the release;
whether the Venables were represented by counsel in the underlying
if so, whether the Venables’ counsel was retained by Defendant or
whether Defendant had separate counsel in negotiating the release;
whether Defendant requested all claims be released against it in the
whether Plaintiff was represented by counsel, and, if so, what was
their intent; and
whether Defendant agreed to the reservation of the claim against it.2
Plaintiff has standing to proceed at this time, subject to the ultimate
resolution of the factual issues described above.
B. The Release is Not Void Under Watters and Ridley
The release here is not void due to Defendant’s conditioning payment on a
release of the Venables because liability for the second accident is not reasonably
This is not intended to be an exhaustive recitation of every factual issue that may be
relevant to the Court’s inquiry. There may be other factual matters that need to be developed at
the time of trial.
clear. Plaintiff’s arguments under Watters and Ridley fail because the parties’
experts disagree on the cause of Plaintiff’s brain hemorrhage. In substance,
Defendant contests liability and causation for the second accident.
It is a violation of Montana Code Annotated § 33–18–201 for an insurer to
condition payment on a third party's agreement to provide a full and final release
of all liability in favor of an insured if liability is reasonably clear. Watters v.
Guaranty Nat. Ins. Co, 3 P.3d 626, 638 (Mont. 2000), overruled in part by
Shilhanek v. D-2 Trucking, Inc., 70 P.3d 721, 725 (Mont. 2003). An insurer is
also required to pay an injured third party’s medical expenses prior to final
settlement when liability is reasonably clear. Ridley v. Guaranty Nat. Ins. Co., 951
P.2d 987, 992 (Mont. 1997). Neither of these requisites are limited to the
minimum requirements set forth in § 61-6-103(2) of the Motor Vehicle Safety
Responsibility Act (MVRA). Shilhanek, 70 P.3d at 725. These rules were enacted
to protect innocent victims of car accidents from potential financial ruin due to the
often devastating medical expenses incurred in accidents. Ridley, 951 P.2d at 993.
None of these rules apply to Plaintiff because liability and causation for the
second accident is not reasonably clear. Defendant proffers Dr. Mack, a
consulting neurosurgeon who examined Plaintiff, who does not believe Plaintiff’s
brain hemorrhage was caused by the first accident. (Doc. 13 at 5.) Plaintiff does
not provide any details in support of his contention that liability is reasonably
clear for the second accident - presumably his expert will testify his brain
hemorrhage from the first accident caused the second accident. Although liability
is clear for the first accident, it is far from clear for the second one. Further, the
reasoning behind the rule announced in Ridley, protecting innocent victims from
financial devastation, does not apply here because Plaintiff was paid $300,000
under the first policy limits. Plaintiff’s arguments under Watters and Ridley fail.
Defendant’s counterclaims will not be dismissed for conditioning payment on
release of the Venables.
Plaintiff has standing at this stage of the proceedings because the Court does
not have sufficient information to determine the intent of the parties in reserving
the claims against Defendant for the second accident. Plaintiff’s motion to dismiss
is denied, however, because the release is not void due to Defendant’s
conditioning payment on a release because liability and causation for the second
accident is not reasonably clear.
Therefore, IT IS ORDERED that Plaintiff’s motion to dismiss (doc. 5) is
Dated this 7th day of November, 2012.
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