Insurers are wise to proceed cautiously before disclaiming coverage for a duty to defend. The hurdle for policyholders to clear, to establish a duty to defend, is low. The test is generally that a defense is owed if the allegations in the complaint demonstrate a potential for coverage. This can result in a defense being owed based on a single sentence, or even just a few words, in a lengthy complaint. And if the relevant state law requires the insurer to consider facts outside the complaint, for establishing a defense (but not eliminating a defense), then an even wider door is open to let in a duty to defend.

What’s more, not only is the insured’s burden for establishing a defense low, the consequences for an insurer, for wrongly disclaiming a defense, can be high. While the insurer will be obligated to pay for the defense that it should have provided (likely at higher rates than it could have obtained), it may also owe attorney’s fees, other damages and even waive coverage defenses that would have otherwise applied to preclude a duty to indemnify.

With all this, in cases where insurers believe that they owe no duty to defend, but, on account of the low standard, they could be found to be wrong, they are well-served to defend their insured under a reservation of rights and seek a judicial determination of their obligations.

This seems to be what happened in Fire Insurance Exchange v. Weitzel, No. DA15-0574 (Mont. May 17, 2016). I agree with the Montana Supreme Court that no defense was owed – but I also would not have recommended to a client to flat out disclaim a defense. Not to mention that I believe that FIE could just have easily lost this case – and probably would have before other courts.

The coverage issues arose out of an underlying action brought by the Estate of Ronny Groff against Jake Weitzel (female). The Estate alleged that “Weitzel was hired by Ronny’s children to provide in-home care services to Ronny and his ailing wife beginning in 2010 and that Weitzel provided these services to Ronny until Ronny’s death in July 2013. The Estate alleged that shortly after Ronny’s wife passed away in January 2011, Weitzel ‘began to wrongfully exert such degree of control over Ronny in his feeble state that she was able to exploit, manipulate and coerce Ronny to her financial gain.’ The complaint alleged purely economic loss as a result of Weitzel's conduct, including stealing personal property, unlawfully transferring vehicle titles, and taking personal trips using Ronny’s funds.”

The complaint set forth 113 paragraphs of alleged facts and nineteen separate causes of action. Of note, the complaint did not assert a cause of action for false imprisonment nor specifically allege bodily injury to Ronny.

Weitzel sought coverage under her Fire Insurance Exchange homeowner’s policy, covering claims for personal injury, bodily injury, and property damage. FIE undertook Weitzel’s defense, under a reservation of rights, and filed an action seeking a determination that it owed no coverage for defense or indemnity. Both sides filed Motions for Summary Judgment.

The trial court held that “while the underlying complaint did not expressly contain a cause of action or seek damages for false imprisonment, the allegations could be construed to potentially state a claim for false imprisonment.”

The Montana Supreme Court got the case. FIE continued to maintain that the 113 paragraphs of alleged facts, and nineteen separate causes of action, did not expressly contain a cause of action or seek damages for false imprisonment, nor expressly allege an essential element of false imprisonment, being that Weitzel restrained Ronny against his will.

Weitzel sought to overcome this by arguing that the “underlying complaint could be construed to give rise to a reasonable inference of false imprisonment. Specifically, Weitzel notes that included within the 113 paragraphs of factual background are allegations that: (1) Ronny’s physician diagnosed him with dementia; (2) Weitzel changed the locks on Ronny’s house at least two times; (3) Ronny was intimidated by Weitzel; and (4) Weitzel taped a note on the inside of the front door of Ronny’s house stating, “Keep door locked. Don’t open for anyone!!”

But the Montana high court was simply not persuaded. The court just could not see a claim of false imprisonment – even by reasonable inference: “There is no allegation within the complaint that can be reasonably construed as alleging Weitzel restrained Ronny from leaving his home against his will. The closest the complaint comes to making such an allegation is the note attached to Ronny’s door stating, ‘Keep door locked. Don’t open for anyone!!’ This allegation, however, requires several assumptions be made to reach a conclusion that Weitzel unlawfully restrained Ronny from leaving his home.”

The court used a similar analysis to conclude that the complaint did not allege “bodily injury.” Weitzel argued that the complaint could be construed to allege “bodily injury” because it alleged violations of the Montana Elder and Persons with Developmental Disabilities Abuse Prevention Act and that Ronny is now deceased. The court’s response: “Here again, Weitzel’s argument is based entirely on speculation without a basis in the facts actually pled in the complaint. . . . The complaint does not allege Ronny died as a result of Weitzel’s actions. Nor does the complaint allege that the elder abuse alleged . . . constituted physical abuse or that Weitzel ever actually physically abused Ronny. Rather, the allegations contained in the underlying complaint focus entirely on economic loss, and any extrapolation of a claim of physical abuse is unreasonable.”

In hindsight, after an insurer wins, it is easy to say that it should have. But given how low the threshold is for establishing a duty to defend, it is not unreasonable to think that other courts would have been able to find, based on some of the allegations here, reasonable inferences that the complaint alleged false imprisonment and/or bodily injury.