Draggin' Y Cattle Co. v. Junkermier, Clark, Campanella, Stevens, P.C.

Summary

The Montana Supreme Court considers whether an insurer that defended its insured under a reservation of rights nevertheless abandoned the insured by failing to confirm coverage, declining a policy-limits settlement, and allegedly misrepresenting policy limits. The Court holds that alleged breaches of duties to affirm coverage and settle in good faith, distinct from a breach of the duty to defend, do not permit the insured to enter into a unilateral stipulated settlement that is presumptively enforceable against the insurer. The Court reverses and remands the district court's approval of the $10 million stipulated settlement.

Holdings

1. An insurer's alleged failure to affirm coverage, failure to file a declaratory judgment action, refusal to settle within policy limits, or misrepresentation of policy limits does not constitute abandonment of the insured in the underlying liability action when the insurer is providing a defense.
2. When an insurer has provided a defense, a court may not approve a stipulated agreement entered without the insurer's consent or participation as presumptively reasonable against that insurer. The insured or assignee must prove all elements of a separate breach-of-contract or UTPA claim, including damages.
3. The District Court improperly applied a presumption of reasonableness and could not enter the stipulated judgment against the defending insurer on that basis.

Questions Presented

1. Whether an insurer that provides a defense under a reservation of rights but allegedly fails to affirm coverage, fails to file a declaratory judgment action, refuses to settle within policy limits, or misrepresents policy limits has thereby improperly abandoned its insured.
2. Whether an insured may obtain a stipulated judgment and covenant not to execute that is presumed reasonable against a defending insurer when the settlement was entered without the insurer's consent or participation.
3. Whether the District Court properly applied the presumption of reasonableness associated with an insurer's breach of the duty to defend.

Disposition

reversed_and_remanded