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City of Bozeman v. Aiu Insurance Co.12/14/1993
Submitted on Briefs October 21, 1993.
Plaintiff City of Bozeman brought this action in the District Court for the Eighteenth Judicial District in Gallatin County to recover attorney fees and costs incurred because of AIU Insurance Company's refusal to represent the City on appeal in Story v. City of Bozeman (1990), 242 Mont. 436, 791 P.2d 767. The District Court concluded that AIU breached its duty to defend the City and entered judgment in favor of the City in the amount of $17,739.53. However, the City's claim for prejudgment interest and attorney fees incurred in the present case was denied. AIU appeals from the District Court's judgment in the City's favor. The City cross-appeals from the District Court's denial of its claim for prejudgment interest and attorney fees. We reverse the judgment of the District Court in favor of the City, and therefore, do not reach the issues in the City's cross-appeal.
The issues on appeal are:
1. Did the District Court err when it concluded that AIU had a contractual obligation to defend the City of Bozeman on appeal in the case of Story v. City of Bozeman (1990), 242 Mont. 436, 791 P.2d 767?
2. Did the District Court err when it concluded as a matter of law that aside from its insurance contract, AIU specifically agreed to represent the City of Bozeman on appeal to the Supreme Court unless its investigation dictated otherwise and that no investigation was conducted?
DISCUSSION
In 1985, AIU issued a comprehensive general liability policy to the City of Bozeman which was in effect for the period from June 30, 1985, to June 30, 1986. Pursuant to the terms of that policy, the company agreed to pay on behalf of its insured:
All sums which the insured shall become legally obligated to pay as damages because of
A. bodily injury or
B. property damage
to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.
In other words, the policy generally covered the City against claims for bodily injury or property damage if they resulted from an occurrence. The following definitions in the policy narrowed the scope of its coverage:
"Bodily injury " means bodily injury, sickness, or a disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom;
"Property damage" means (1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at anytime resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period;
"Occurrence" means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damages neither expected nor intended from the standpoint of the insured. . . .
Specifically excluded from coverage under the policy was any liability assumed by the insured under any contract.
In addition to the general coverage set forth above, AIU's policy
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