Right to Intervention Upheld by Montana Supreme Court

By Steven Plitt | June 17, 2015

In Abbey/Land, LLC v. Interstate Mechanical, Inc., 378 Mont. 372, 345 P.3d 1032 (2015), the Court held that an insurance company has the right under Montana law to intervene in order to present its arguments and evidence concerning the reasonableness of a confessed judgment agreed to by its insured when the insurer failed to defend the insured.

The Montana Court began its analysis by recognizing that it was well established under Montana law that an insurer who unjustifiably refused to provide a defense or indemnification to its insured could be liable to the insured for the resulting defense costs and for judgments or settlements. See, e.g., Farmers Union Mut. Ins. Co. v. Staples, 321 Mont. 99, 30 P.3d 381 (2004). However, the insured’s settlement under Montana law was required to be reasonable. Tidyman’s Management Services v. Davis, 376 Mont. 80, 330 P.3d 1139 (2014). Under Montana law the insurance company, even when in breach of its obligations to its insured, is entitled to have the Court make a determination of the reasonableness of a settlement entered by the insured. In that situation, the insurer had borne the burden of proof to establish that the insured’s settlement was unreasonable. The Court had discretion to set the parameters of the reasonableness hearing, and had discretion to determine whether there should be discovery and to what extent. Nevertheless, the Court was required to engage in a meaningful analysis of the reasonableness of the insured’s settlement.

In Abbey/Land, the insurer, James River, was determined to have the right under the Tidyman’s case to challenge the reasonableness of its insured’s confessed judgment because James River had presented adequate grounds to permit James River to intervene in the underlying action.

According to the Court in Abbey/Land, Rule 24(a), M.R. Civ. P., allowed intervention as a matter of right if the applicant was timely in seeking intervention; if the applicant had an interest in the subject matter of the action; if the applicant’s interest could be impaired by the disposition of the action; and if the applicant’s interest was not adequately represented by an existing party. It was undisputed that James River filed a timely application to intervene prior to the entry of Judgment. It was equally clear that James River had an interest in the subject matter of the litigation in which Abbey/Land, and its sister entity, Glacier, agreed to a judgment that Abbey/Land intended to enforce against James River. Entry of judgment on Glacier’s confession, without affording James River the opportunity to be heard, impaired James River’s interests. Although other insurers had sought to intervene and challenge the reasonableness of the confession, by the time the case concluded, all the other insurers had withdrawn. Because of this, there was no other person or entity in the case representing James River’s interest.

Abbey/Land contended that James River had no need to intervene because it could make its reasonableness arguments in the separate declaratory judgment action that was pending which involved, at least in part, the coverage obligations of various insurers including James River. The Court rejected this argument finding that James River was entitled to make its reasonableness showing in the present action in which the confessed judgment was going to be entered. The Court concluded that James River was entitled to intervene in the underlying action to contest the reasonableness of the confessed judgment. Although the trial court judgment recited that the Glacier confessed judgment was entered in good faith and that the amount was reasonable, the Montana Supreme Court found that those pro-forma recitations were insufficient to satisfy James Rivers’ right to meaningfully contest the reasonableness of the settlement amount.

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About Steven Plitt

Steven Plitt is the current successor author to Couch on Insurance, 3d. He maintains a national coverage practice with The Cavanagh Law Firm. He has been listed continuously as one of Arizona's 50 lawyers by Southwest Super Lawyers. He can be reached splitt@cavanaghlaw.com. To read additional articles by Steven Plitt, go to www.insuranceexpertplitt.com. More from Steven Plitt

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