This was a whopper out of Helena.  In Daniels v. Gallatin County, the Montana Supreme Court addressed the appropriate limit of liability for a claim against a county: $750,000, the statutory cap of a municipality’s liability or $6.5 million, the combined limit of the primary and excess policies issued to the county.  The Montana high court ruled in favor of the much bigger number. 

For insurers that issue liability policies to municipalities that are subject to statutory caps, they need to take a close – very close -- look at this decision, the applicable statutes and their policy language and consider if they should take any steps to avoid paying potentially multiples more than intended.

The decision also provides a wider-reaching lesson for all insurers.  In ruling against the insurer, the court observed that insurers’ policies “are prepared by skilled lawyers retained by the insurance companies, who through years of study and practice have become expert upon insurance law, and are fully capable of drawing a contract which will restrict the scope of liability of the company with such clearness that the policy will be free from ambiguity, require no construction, but construe itself.”         

The insurer’s policy language was in fact clear enough.  But, with a standard like that… 

Sarah Daniels was seriously injured when a snowplow, operated by an employee of Gallatin County, collided with her vehicle.  The county admitted liability.  Atlantic Specialty paid $750,000 to Sarah’s conservator.  As far as the insurer was concerned, that was the extent of its liability, as Montana Code Section 2-9-108 states in relevant part as follows:

(1) The state, a county, municipality, taxing district, or any other political subdivision of the state is not liable in tort action for damages suffered as a result of an act or omission of an officer, agent, or employee of that entity in excess of $750,000 for each claim and $1.5 million for each occurrence.
. . .
(3) An insurer is not liable for excess damages unless the insurer specifically agrees by written endorsement to provide coverage to the governmental agency involved in amounts in excess of a limitation stated in this section, in which case the insurer may not claim the benefits of the limitation specifically waived.

But that wasn’t the end of it.  Sarah’s conservator filed suit against the county and the insurer.  In a bench trial, the court awarded Sarah $12.4 million in damages.  Atlantic Specialty insured the county under an auto policy with a $1.5 million limit and a $5 million excess policy.

Putting aside the lower court’s handling of the claim, the Montana high court was faced with determining the extent of the insurer’s remaining liability.  Its choices: nothing, as the insurer had already paid $750,000, being the maximum liability of a municipality, or $5,750,000, the remaining limit under the policies.

As far as Atlantic Specialty was concerned, since its policy was silent on the statutory cap, it did not waive it.  In other words, under the statute, “an insurer is not liable for excess damages unless the insurer specifically agrees by written endorsement to provide [such] coverage.”  And the policyat issue contained no separately attached document waiving the endorsement.

But the Montana high court was not convinced.  The question was not whether the statute was specifically referenced in the policy, but, rather, the insurer’s intent, based on the policy language.

The court examined various policy provisions to support its decision and discussed what an endorsement means.  The court gave particular weight to the following: “Second and as noted by the District Court, it is undisputed the Policy provides coverage for the auto in question and the occurrence itself. The scope of coverage provision defines the scope of the Policy’s coverage and has no language limiting the amount of coverage provided under the Policy. ASIC’s corporate representative conceded coverage provisions ‘typically are not drafted to incorporate specific statutory limitations’ and when ASIC has specifically limited coverage to a statutory cap in other states, ASIC has done so by amending the provision pertaining to the limits of liability, not the scope-of-coverage provision.”

But when all was said and done, the court’s decision came down to these observations: 

“ASIC agreed to sell this Policy with full knowledge of the laws in Montana that limit certain liabilities. See Mont. Auto Fin. Corp. v. British & Fed. Underwriters, 72 Mont. 69, 75, 232 P. 198, 200 (1924) (‘The policies are prepared by skilled lawyers retained by the insurance companies, who through years of study and practice have become expert upon insurance law, and are fully capable of drawing a contract which will restrict the scope of liability of the company with such clearness that the policy will be free from ambiguity, require no construction, but construe itself.’). Knowing this, ASIC did not exclude coverage over $750,000 for the type of injuries covered by § 2-9-108(1), MCA, but agreed ‘to provide the insurance as stated in this policy’ in excess of the statutory cap.”

To reiterate, the statute provided: “An insurer is not liable for excess damages unless the insurer specifically agrees by written endorsement to provide coverage to the governmental agency involved in amounts in excess of a limitation stated in this section.”  But the count still found, with no such endorsement, that the insurer specifically agreed to provide coverage in excess of $750,000.