Unpublished Disposition, 940 F.2d 1537 (9th Cir. 1990)

Maurice A. WARNER, Jr., Plaintiff-Appellant,v.AETNA CASUALTY & SURETY COMPANY, a Connecticut corporation,Defendant-Appellee.

No. 90-35450.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 10, 1991.Decided Aug. 5, 1991.

Before EUGENE A. WRIGHT and O'SCANNLAIN, Circuit Judges, and LEW,^*  District Judge.

MEMORANDUM^**

This diversity action was brought by Maurice Warner to recover attorney's fees from Aetna, his homeowner liability insurer, incurred in pursuing a third-party complaint. Applying Montana law, the district court granted summary judgment to Aetna. We reverse and remand.

As part of the defense strategy against underlying claims brought by a neighbor, Warner's attorney filed a third-party complaint against several neighbors and the developer of the residential area. Aetna approved the filing of the complaint and initially paid the attorney's fees relating to it. Fifteen months later, Aetna reviewed the case and notified Warner that it would no longer pay the fees for his third-party complaint because it contained affirmative claims to which Aetna's duty to defend did not extend. Warner pursued those claims on his own while Aetna continued to pay for his "defense" through settlement.

For the reasons stated in the district court's memoranda and orders of July 19, 1989 and January 18, 1990, we reject all of Warner's arguments with the exception of the estoppel issue discussed in section C of the July 19 memorandum. We reverse and remand on that issue because there is a material question of fact about whether Aetna is estopped from discontinuing payment.

Warner argues that Aetna is estopped because it approved the filing of the third-party complaint and then paid the related fees for 15 months. He also alleges that Aetna benefited from the third-party complaint because without it the developer, who assumed the greatest amount of liability at settlement, would not have been brought into the action. Warner refers us to two different estoppel standards under Montana law. We address each in turn.

Under Safeco Ins. Co. v. Ellinghouse, 224 Mont. 239, 725 P.2d 217 (1986),

[w]here an insurer, without reservation and with actual or presumed knowledge, assumes the exclusive control of the defense of claims against the insured, it cannot thereafter withdraw and deny liability under the policy on the ground of noncoverage, prejudice to the insured by virtue of the insurer's assumption of the defense being, in this situation, conclusively presumed ... the loss of the right of the insured to control and manage the case is itself prejudicial.

725 P.2d at 221 (quoting 14 Couch, Insurance Sec. 51.85 (2d ed. 1985)). Prejudice is presumed where the insurer controls the defense because there is no way to determine what the insured would have done had he known coverage was going to be denied or had he been required to fund his own defense. Id.

We note that Aetna reserved its right to deny coverage but then paid the amount Warner owed at settlement, electing not to dispute coverage. We need not decide whether the reservation sufficed to make Ellinghouse inapplicable because Warner is unable to show that Aetna assumed "exclusive control" over his defense.

Warner hired his own attorney before he tendered the defense to Aetna. Aetna then agreed to pay his attorney's fees. However, lawyer's billings were sent to Warner who forwarded them to Aetna. The only documents Warner's attorney sent directly to Aetna were those under a cover letter of October 2, 1981, including a copy of the underlying complaint against Warner, the application for a preliminary injunction against him, the order to show cause and his answer.

The record shows that Warner's attorney had only five conversations in 21 months with the Aetna representative. There is no indication that Aetna directed the handling of the case. The attorney's affidavit about those conversations does not establish a genuine issue of material fact with regard to control as required by Ellinghouse.

The second estoppel test applied in Montana insurance cases is one of general promissory estoppel. A plaintiff must show " '(1) a promise clear and unambiguous in its terms; (2) reliance on the promise by the party to whom the promise is made; (3) reasonableness and foreseeability of the reliance; (4) the party asserting reliance must be injured by the reliance.' " Tynes v. Bankers Life Co., 224 Mont. 350, 362, 730 P.2d 1115, 1123 (1986) (quoting Keil v. Glacier Park, Inc., 188 Mont. 455, 462, 614 P.2d 502, 506 (1980)).

The question presented here is whether the promise to "defend" Warner was a "clear and unambiguous" promise to pay for his third-party claims.¹  Such a promise may be inferred from the actions and representations of a purported promisor. See Tynes, 730 P.2d at 1123 (promise to insured by insurer inferred from acts and representations of insurer to third-parties). Here, Aetna's promise to pay for the third-party complaint may be implied from its approval of the initial filing as part of Warner's defense strategy and its payment of counsel fees for 15 months. These circumstances raise a material question of fact about whether Aetna's actions amounted to a "clear and unambiguous" promise to pay for the prosecution of his the third-party complaint.² 

The district court properly rejected Warner's claims against Aetna, except for estoppel. We conclude that the facts as alleged by Warner under the Tynes estoppel test are sufficient to survive a motion for summary judgment.

REVERSED and REMANDED.