HOME INS CO v PINSKI BROTHERS

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No. 12080 I N THE SUPREME COURT O THE STATE O M N A A F F OTN 1972 THE HOME INSURANCE COMPANY, a c o r p o r a t i o n , P l a i n t i f f and A p p e l l a n t , PINSKI BROTHERS, INC.,, a c o r p o r a t i o n , KENNETH K. KNIGHT and A. ANDREW VAN TEYLINGEM, c o - p a r t n e r s , doing b u s i n e s s a s KNIGHT & VAN TEYLINGEN, ,, , , , , , , , , -e a d a n t s and Respondents. ,, , , , , , , , - f Ae KENNETH K. KNIGHT, Counterclaimant, HOME I I I D ~ ~ I TCOMPANY, a c o r p o r a t i o n , Y I n v o l u n t a r y P l a i n t i f f and Defendant t o Counterclaims and A p p e l l a n t . Appeal from: D i s t r i c t Court o f t h e Eighth Judicial District, Honorable Paul Ha Ff i e l d , Judge p r e s i d i n g . Counsel o f Record : For Appellant : Smith, Emmons & B a i l l i e (Home Indemnity), Great F a l l s , Montana. Alexander, Kuenning, H a l l & Miller (Home I n s u r a n c e Company), Great F a l l s , Montana. John H a l l argued, Great F a l l s , Montana. F o r Respondents: Church, H a r r i s , Johnson & Williams, G r e a t F a l l s , Montana, (Pinski Brothers). J a c k L. Lewis argued, Great F a l l s , Montana. J a r d i n e , Stephenson, Blewett & Weaver, Great F a l l s , Montana. S c o t t & L i n n e l l , Great F a l l s , Montana. Wayne E. L i n n e l l argued, Great F a l l s , Montana. Loble, P i c o t t e & Loble, Helena, Montana. Submitted: June 1 2 , 1972 Decided : nutiel Filed : d k M. Justice Frank I . Haswell delivered the Opinion of the Court. r In an action between an insurer and i t s insured involving the insurer's subrogation rights and the insured's right t o damages f o r breach of the insurance contract, the d i s t r i c t court of Cascade County, the Hon. Paul G. Hatfield, d i s t r i c t judge presiding, granted summary judgment t o the insured. The insurer now appeals from such summary judgment. Plaintiff in the original action was The Home Insurance Company who paid off a property damage loss of approximately $135,000 resulting from a boiler explosion a t the old Montana Deaconess Hospital in Great Fa1 1s and claimed subrogation t o the rights of the hospital against those allegedly responsible. After various dismissals by the d i s t r i c t court, the remaining defendants were (1 ) Pinski Bros, Inc., the mechanical contractor on the hospital remodel ing project where the boi 1e r explosion occurred, and ( 2 ) the architects on the project, Kenneth K. Knight and A . Andrew Van Teylingen, copartners, doing business as Knight & Van Teyl ingen. The complaint of The Home Insurance Company alleged three counts of negligence against the architects which i t claimed was the cause of the boiler explosion and the resulting property damage loss. The architects tendered defense of the action to The Home Indemnity Company, a wholly owned subsidiary of p l a i n t i f f Home Insurance Company, with whom the architects carried a comprehensive 1iabi l i t y pol icy. The Home Indemni t y Company refused t h i s tender, the architects hired t h e i r own defense counsel , and f i l e d an answer containing, among other things, a "Twelfth Defense, Counterclaim and Setoff" by one of the architects, Kenneth K. Knight. Therein K n i g h t alleged t h a t insurance coverage was afforded under the architects ' comprehensive 1iabil i t y policy w i t h The Home Indemnity Company; that such coverage constituted a defense against the claim of the parent company, The Home Insurance Company, and t h a t The Home Indemnity Company was 1iable f o r the costs and expenses, including attorney fees, incurred i n defending the action and prosecuting the counterclaim and se%off. I t was stipulated that The Home Insurance Company and The Home Indemnity Company are one and the same corporate e n t i t y . Subsequently the d i s t r i c t court, i n e f f e c t , granted summary judgment t o The Home Indemnity Company against the architects on a l l issues of insurance coverage under t h e i r comprehensive 1iabil i t y pol icy, dismissed the "Twelfth Defense, Counterclaim and Setoff" of architect Knight, and ordered the subrogation action of The Home Insurance Company against the architects to continue. Upon appeal, we held that the a1 leged negligent design, supervision and inspection of the hot water heating system by the architects (Count I of the complaint by The Home Insurance Company against the architects) was within the coverage of the architects ' comprehensive 1iabil i t y pol icy; w e further held t h a t Counts I1 and I11 of the complaint were not within the coverage of the architects' pol icy. W vacated the d i s t r i c t court's findings e of f a c t , conclusions of law and judgment from which the appeal was taken and remanded the case t o the d i s t r i c t court f o r consideration of the further issues raised by The Home Insurance Company's motion f o r summary judgment against architect Knight on his "Twelfth Defense, Counterclaim and Setoff" and entry of appropriate findings, conclusions and judgment. See The Home Insurance Company v . Pinski Bros., Inc., 156 Mont. 246, 479 P.2d 275. Prior to hearing t h i s former appeal, pretrial conferences were held by the d i s t r i c t court a t which time three developments pertinent t o t h i s appeal occurred: (1) The Home Insurance Company s e t t l e d i t s claim against P i n s k i Bros., leaving the architects as the sole remaining defendants, ( 2 ) The Home Insurance Company offered to s e t t l e i t s claim against the architects within the limits of coverage claimed by them under t h e i r comprehensive l i a b i l i t y pol icy with The Home Indemnity Company, leaving unsettled the then pending former appeal , ( 3 ) the architects were permitted t o amend t h e i r answer by adding a "Thirteenth Defense and Counterclaim", in essence the same defense, counterclaim and s e t o f f , f o r the architects named i n the caption of the s u i t as was contained in architect Knight's "Twelfth Defense, Countercl aim and Setoff". Following t h i s Court's decision on the former appeal, the architects moved (1) f o r summary judgment against The Home Insurance Company on i t s complaint against them, and ( 2 ) f o r partial summary judgment on the issue of l i a b i l i t y against The Home Insurance Company and The Home Indemnity Company on the counterclaim aspects of the architects ' twelfth and thirteenth defenses, countercl aims and setoffs. Thereafter f o l l owing hearing, the d i s t r i c t court entered i t s "Findi n g s of Fact, Conclusions of Law, Order, Memorandum Opinion, and Summary Judgment". Therein the d i s t r i c t court of Cascade County as directed by t h i s Court's order of remand in the former appeal, made findings of f a c t and conclusions of law with respect t o Home Indemnity's motion f o r summary judgment against the architects. The d i s t r i c t court found and concluded t h a t The Home Indemnity Company had not pointed out or suggested to the d i s t r i c t court any facts which required entry of sumary judgment i n favor of The Home Indemnity Company or which had not been ruled upon and decided by t h i s Court i n the e a r l i e r appeal, and t h a t The Home Indemnity Company insured the architects f o r the l i a b i l i t y claimed against them by Count I of the complaint of The Home Insurance Company. In addition, the d i s t r i c t court (1) concluded t h a t the controlling f a c t s were undisputed and there was no genuine issue of material f a c t ; ( 2 ) held t h a t the architects could not be l i a b l e t o The Home Insurance Company by reason of: ( a ) contributory negl igence, (b) assumption of risk, (c) intervening cause, and (d) insurance coverage under the Home Indemnity Company pol icy and i t s breach of duty t o defendant under i t s pol icy; ( 3 ) entered summary judgment i n favor of the architects on The Home Insurance Company's complaint against them; ( 4 ) entered partial summary judgment as t o the issue o f ' l i a b i l i t y in favor of architect Knight on his twelfth defense and counterclaim against The Home Indemnity Company for a11 costs, expenses, attorney fees, etc., incurred on behalf of Knight in defending against the claim of Home Insurance and in prosecuting his claim for insurance coverage against Home Insurance; and (5) withheld until after the summary judgment became final the setting of a trial date for determination of the amount of damages to be awarded architect Knight for defense costs. Home now appeals from this summary judgment. We will summarize the underlying issues upon appeal in this manner: 1. Is there a genuine issue of material fact precluding summary judgment in favor of the architects on Home's complaint against them? 2. Is there a genuine issue of material fact precluding partial summary judgment on the issue of liability in favor of architect Knight against The Home Indemnity Company for his costs of defense herein? 3. Must Home pay all attorney fees and court costs incurred in this action? Directing our attention to the first issue, we first review the basic requirements for granting a summary judgment. Rule 56(c), M.R.Civ.P., requires that a summary judgment shall be granted forthwith if: " * * * the pleadings, depositions, answers to tories, and admissions on file show that there genuine issue as to any material fact and that party is entitled to a judgment as a matter of interrogais no the moving law.* * *" The burden of establishing the absence of any issue of material fact is on the party seeking summary judgment. Roope,v. The Anaconda Company - 494 P.2d , Mont . 922, 29 St.Rep. 170; Byrne v. Plante, 154 Mont. 6, 459 P.2d 266. Where the record before the court discloses no genuine issue as to any material fact, the burden is upon the party opposing entry of summary judgment to present evidence of a material and substantial nature raising a genuine issue of material fact. Roope v. The Anaconda Company, supra; Flansberg v. Montana Power Company, 154 Mont. 53, 460 P.2d 263. Applying these basic rules to the problem at hand we note that all other questions aside, the record before the Court disc1 oses t h a t subsequent a c t s of hospital employees precipitated and caused the boiler explosion irrespective of anything the a r c h i t e c t s allegedly did or f a i l e d t o do previously. The deposition of William Even, the chief engineer a t t h e hospital, establishes the f a c t t h a t the employee engineers a t the hospital knew the hot water heating system being i n s t a l l e d was without s a f e t y devices, appreciated the danger of " f i r i n g up" the system before safety devices had been i n s t a l l e d , but nevertheless proceeded t o " f i r e up" the system which resulted i n the boiler explosion. There a r e no f a c t s t o the contrary appear- ing i n the voluminous record i n this case. The foregoing f a c t s e s t a b l i s h , a t the very l e a s t , the defenses of assumption of r i s k and an e f f i c i e n t intervening cause. Under such circumstances, i t is incumbent upon Home t o present evidence of a substantial and material nature which r a i s e a genuine issue of material f a c t . Having f a i l e d t o do so, Home cannot now complain t h a t t h e a r c h i t e c t s a r e not e n t i t l e d t o a summary judgment a s a matter of law. There is y e t a f u r t h e r and perhaps more cogent reason why sumary judgment f o r the a r c h i t e c t s on Home's complaint against them i s correct. Here, i t i s undisputed t h a t the a r c h i t e c t s have insurance coverage t o the extent of $25,000 under t h e i r Home Indemnity comprehensive l i a b i l i t y policy; t h a t Home Indemnity and Home Insurance a r e one and the same corporate e n t i t y ; t h a t Home as a subrogated insurer of one of i t s policyholders ( t h e Deaconess Hospital ) has sued another of i t s policyholders ( t h e a r c h i t e c t s ) whom i t has insured against the very l i a b i l i t y f o r which i t seeks recovery i n Count I of i t s complaint i n an amount i n excess of the policy l i m i t s . Subrogation i s an equitable right. Caledonia Ins. Co. v. Northern Pacific Ry. Co., 32 Mont. 46, 79 P. 544; Swingley v. Riechoff, 112 Mont. 59, 112 P.2d 1075. Accordingly, c e r t a i n equity principles apply i n determining subrogation rights: One who seeks equity must do equity, Hall v. Lommasson, 113 Mont. 272, 124 P.2d 694; Tomsheck v. Doran, 126 Mont. 598, 256 P.2d 538; Barbour v. Barbour, 134 Mont. 317, 330 P.2d 1093. One who seeks equity must come i n t o court w i t h clean hands, Perry v . Luding, 123 Mont. 570, 21 7 P.2d 207;Giarratana v. Naddy, 129 Mont. 154, 284 P.2d 254; Weintz v. Bumgarner, 150 Mont. 306, 434 P.2d 712. Section 49-109, R.C.M. "No one can take advantage of h i s own wrong." 1947. To permit the insurer t o sue i t s own insured f o r a l i a b i l i t y covered by the insurance policy would v i o l a t e these basic equity principles, as well as v i o l a t e sound public policy. Such action, i f permitted, would (1) allow the insurer t o expend premiums collected from i t s insured t o secure a judgment against the same insured on a r i s k insured against; (2) give judi c i a l sanction t o the breach of the insurance policy by the insurer; (3) permit the insurer t o secure information from i t s insured under t h e guise of pol icy provisions available f o r l a t e r use i n the i n s u r e r ' s subrogation action against i t s own insured; (4) allow the insurer t o take advantage of i t s conduct and c o n f l i c t of i n t e r e s t w i t h i t s insured; and (5) c o n s t i t u t e judicial approval of a breach of the i n s u r e r ' s relationship w i t h its own insured. N r i g h t of subrogation can a r i s e i n favor of an insurer against i t s o own insured since, by d e f i n i t i o n , subrogation e x i s t s only w i t h respect t o r i g h t s of the insurer against t h i r d persons t o whom t h e insurer owes no duty. 16 Couch on Insurance 2d, 5 61 :133; see a l s o 46 C.J .S. Insurance t3 1209(b); 16 Couch on Insurance 2d, B 61 :136. This principle i s succinctly s t a t e d in Chenoweth Motor Co. v. Cotton, 2 Ohio Misc. 123, 207 N.E.2d 412, 413: " * * * i t i s axiomatic t h a t [an insurance company] has no subrogation r i g h t s against the negligence of i t s own insured. " (Bracketed material paraphrased). To allow subrogation under such circumstances would permit an insurer, i n e f f e c t , t o pass the incidence of the l o s s , e i t h e r p a r t i a l l y o r t o t a l l y , from i t s e l f t o i t s own insured and thus avoid the coverage which i t s insured purchased. 1anguage : 2 Richards on Insurance, $ 185, s t a t e s the same principle i n this "An insurer c l e a r l y may be subrogated t o i t s insured's claim against a t h i r d party who t o r t i o u s l y causes the l o s s , but no subrogation e x i s t s against t h e insured or co-i nsured whose negl i gence caused the 1oss " . For the foregoing reasons, we hold summary judgment i n favor of t h e a r c h i t e c t s on Home's subrogation complaint against them i s c o r r e c t and is hereby affirmed . Proceeding t o the second issue f o r review, we note t h a t the counterclaim of a r c h i t e c t Knight f o r h i s costs of defense is bottomed on a breach by the insurer of Home Indemnity's comprehensive l i a b i l i t y policy w i t h Knight. Since The Home Insurance Company which sued Knight f o r his alleged negligence i s one and the same corporate e n t i t y as The Home Indemnity Company, the actions of one a r e t h e actions of the other. Having refused t o defend Knight against Home's complaint alleging negligence w i t h i n Knight's policy coverage, Home's refusal t o defend constituted a breach of contract even i f based on an honest mistake, thereby rendering Home l i a b l e f o r defense costs resulting from such breach. 14 Couch on Insurance 2d, $$ 51 :50, 51 :52; 49 ALR2d 694, 701 , 71 1 ; 7 Appl eman, Insurance Law and Practice, A § 4689; Independent Milk & Cream Co. v. Aetna Life Ins. Co., 68 Mont. 152, 216 P. 1109; Mid-Century Ins. Co. v. American Casual t y Co. , 152 Mont. 328, 449 P .2d 679. Inasmuch as there is coverage f o r the f i r s t count i n Home's complaint against the archit e c t s , denial of coverage and defense was unjustified even though there was no coverage f o r the second and t h i r d counts i n Home's complaint. 14 Couch on Insurance 2d, 41 ALR2d 434; ss 51:43, 51:50; 7 Appleman, Insurance Law A & Practice, B 4683. A there i s no c o n f l i c t i n the foregoing f a c t s appearing i n the records s of this case, we hold t h a t the p a r t i a l summary judgment on the issue of l i a b i l i t y f o r defense costs i s correct and must be affirmed. The f i n a l issue f o r review i s whether Home must pay a l l attorney fees and court costs herein. Home argues t h a t while i t may be l i a b l e f o r defense c o s t s , i t i s not 1i a b l e f o r attorney f e e s , expenses and court costs involved i n a r c h i t e c t Knight's counterclaim against i t o r i n defending against the second and t h i r d counts i n Home's complaint which a r e not covered by Kfiight's pol icy. In our view i t would not be possible t o separate or segregate such defense costs from costs involved i n prosecuting Knight's countercl aim i n any event. Even i f such were possible, Home has been the moving party through- out this l i t i g a t i o n and the party whose wrongful a c t s made i t necessary f o r t h e a r c h i t e c t s t o defend themselves against both covered and noncovered claims, a s well as the counterclaim of a r c h i t e c t Knight f o r breach of contract i n denying insurance coverage and refusal t o defend. Under such circumstances t h e wrongful a c t s of the insurer (1) i n suing i t s insured under i t s nonexist e n t subrogation r i g h t s on both covered and noncovered claims, and (2) i t s refusal t o defend t h i s action on behalf of a r c h i t e c t Knight, constituted breaches of i t s obl igation and duty rendering t h e insurer 1i a b l e f o r damages This by way of attorney f e e s , expenses, and court costs occasioned thereby. Court has extensively discussed the i n s u r e r ' s duty t o defend i n S t . Paul Fire & Marine Ins. Co. v. Thompson, 150 Mont. 182, 433 P.2d 795. The following cases so hold w i t h respect t o the counterclaim f o r insurance coverage: Runyan v. Continental Casualty Company, 233 F.Supp. 214; Util i t i e s Construction Corp. v. Peerless Ins. Co., 233 F.Supp. 64; Southwestern Bell Tel. Co. v. Western Casualty & Sur. Co., 269 F.Supp. 315. The following a u t h o r i t i e s so hold w i t h respect t o a complaint containing both covered and noncovered claims: S t . Paul Fire & Marine Ins. Co. v. Hodor, ~la.'(1967), 200 S.2d 205; 50 ALR2d 458, 469, 506. W note the d i s t r i c t court did not f i x the amount of damages by way e of attorney f e e s , court c o s t s , and expenses f o r which Home i s l i a b l e t o t h e a r c h i t e c t s i n defending against Home's complaint o r t o a r c h i t e c t Knight, a r c h i t e c t Van Teylingen, o r the architectural firm. Instead, the d i s t r i c t court only prescribed the c r i t e r i a on which such award would be based upon f u t u r e t r i a l t o e s t a b l i s h t h e amount of damages. Any determination of t h e d o l l a r amount of damages o r t h e c r i t e r i a t h e r e f o r a t t h i s time is premature. For t h e foregoing reasons, t h e judgment o f t h e d i s t r i c t c o u r t i s affirmed. This cause i s remanded t o t h e d i s t r i c t c o u r t f o r t r i a l and d e t e r - mination of t h e amount o f damages. Associate J u s t i c e ................................

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