Estate of Gleason v. Central United Life Insurance Co., 2015 MT 140 (May 20, 2015) (Wheat, J.; McKinnon, J., concurring & dissenting; Rice, J., concurring & dissenting) (5-2, aff’d & rev’d)
Issue: (1) whether the district erred in applying the notice-prejudice rule; (2) whether the district court erred when it instructed the jury that it must first find UTPA damages other than damages for failure to pay benefits before considering punitive damages; (3) whether the district court erred by failing to direct a verdict against Central United for violating the UTPA; (4) whether the district erred in not dismissing the UTPA claim because Central United had a reasonable basis in law for denying the claims; (5) whether the district court erred in determining the date from which the statute of limitations was applied; (6) whether the district court erred in allowing the parties to present evidence of other cases in and out of Montana; (7) whether the district court properly awarded trial costs to Central United; (8) whether the district court erred in awarding attorneys’ fees to the estate.
Short Answer: (1) No; (2) yes; (3) the Court declines to reach this issue because the jury found Central United did violate the UTPA; (4) no, as it found genuine issues of material fact in dispute; (5) yes; (6) no; (7) no, given this Court’s reversal and remand; and (8) no.
Affirmed in part, reversed in part, and remanded
Facts: In 1990, Judith Gleason bought a cancer benefit insurance policy from Colonial Life & Accident, with an effective coverage date of Feb. 22, 1990. In March 2002, Judith was diagnosed with breast cancer. She underwent treatment until she died on March 28, 2010. Judith paid all premiums and never submitted a claim. The policy was in effect when she died.
Central United bought Judith’s policy from Colonial Life in 2004. In April 2010, the PRs submitted a notice of potential claim to Central United via phone. They sent Central United a copy of Judith’s death certificate on April 10, 2010, which it received on April 12, 2010, and sent medical bills and claim forms in January 2011. Central United asked for additional documentation for services during Oct. 2009-March 2010, and then issued an explanation of benefits stating that claims not submitted within the policy’s notice period – one year + 90 days of the date of the claim – would not be paid.
In March 2011, Central United paid $57,735.95 for claims arising within one year and 90 days before Jan. 11, 2011, the date it received the medical bills and forms. It reiterated it would not pay for claims submitted outside the policy time limit.
On June 24, 2011, Central United paid a $5,000 death benefit under the policy, and filed a declaratory judgment action in Montana federal court. Judith’s estate filed this action in July 2011. In December 2011, the federal court declined to exercise jurisdiction and the declaratory judgment action was remanded to state court.
Over the next several months, both parties moved for summary judgment. On July 2012, the district court granted the state’s motion for partial summary judgment and denied Central United’s motion. It held Central United owed payment for untimely-filed claims provided it was not prejudiced by the late notice. Central United admitted it was not prejudiced because it had the information necessary to consider the claims under the policy. The court also ruled that the eight-year statute of limitations on written contracts barred claims for services prior to April 12, 2002.
Procedural Posture & Holding: The case was tried to a jury in March 2013. Before trial began, the court directed a verdict for the estate on the untimely-filed claims in the amount of $539,717.90. At the conclusion of trial the court submitted a special verdict form to the jury, which returned a verdict finding that Central United had violated the UTPA but not awarding any damages. As per the instructions, the jury therefore did not consider whether Central United had acted with actual malice. After trial, the district court awarded trial costs to Central United, finding it was the prevailing party because the jury had not awarded contract or UTPA damages to the estate, and attorneys’ fees to the estate for its recovery under the policy. The estate appealed and Central United cross-appealed. The Supreme Court affirms in part, reverses in part, and remands for a new trial on the issue of malice.
Reasoning: (1) The Court has previously applied elements of the notice-prejudice rule in uninsured and underinsured motorist cases without explicitly adopting the rule. It now adopts the rule in the context of first party insurance claims. The Court finds similarities between the anti-forfeiture statute and notice-prejudice rule, as well as the notice-prejudice rule and the contract principle of non-material breach. The notice-prejudice rule allows an insurer to deny coverage based on a failure to comply with a policy notice provision only if the insurer can demonstrate that it was prejudiced by the late notice. Here, Central United admitted it was not, and the district court properly found the insurer was prohibited from denying the estate’s claims on the basis of late notice.
(2) Interpreting § 33-18-242, MCA, the Court holds that when an insurer is found to have violated the UTPA, damages arising from the denial of claims or delay in payment of claims may constitute compensatory UTPA damages sufficient to present the question of malice to the trier of fact. The district court’s jury instruction did not fully explain the law, and prejudiced the estate’s right to seek punitive damages. The Court holds this to be reversible error, and remands for a new trial on the issue of malice and punitive damages.
(3) The Court declines to reach the issue of whether the district court should have directed a verdict against Central United on the UTPA issue, as the jury found that the insurer did in fact violate the UTPA.
(4) Under the UTPA, an insurer may not be held liable if it had a reasonable basis n the law for contesting the claim. The relevant inquiry here is how the insurer acted upon the information available to it. Central United argues it was reasonable for it to rely on the notice of loss provision because this Court had not explicitly adopted the notice-prejudice rule. Here, however, the issue of reasonableness was presented to the jury, which was instructed on the reasonable basis defense, and it found the insurer had violated the UTPA. The district court did not err in denying Central United’s motion for summary judgment on this issue, as it found material facts in dispute, which were ultimately resolved by the jury.
(5) The statute of limitations for an action on a written contract is eight years from the date the claim accrues. A claim accrues when the right to maintain an action on the claim is complete. The district court calculated the limitation period from the date Central United received Judith’s death certificate, April 12, 2010. Central United contends the date should be June 24, 2011, when it filed its declaratory judgment action in federal court. Central United is correct. The district court erred; accrual does not depend on when a claim is submitted to an insurer. On remand the district court shall amend the judgment to reflect this calculation.
(6) The district court properly allowed the parties to present legal and factual evidence relevant to Central United’s reasonable-basis defense.
(7) Because the Court has reversed and remanded for a new trial on malice, it reverses the award of trial costs to Central United.
(8) The estate is entitled to attorneys’ fees under the “insurance exception” to the American Rule, which allows an insured to recover attorneys’ fees when she is forced to resort to legal action to obtain the full benefit of the insurance contract.
Justice McKinnon’s Concurrence & Dissent: Justice McKinnon concurs with the adoption of the notice-prejudice rule, but under a different analysis. She would hold that Central United did have a reasonable basis in law for denying the untimely claims. Although she would not reach this use because of her position on the reasonable basis in law defense, she does not agree that contract damages should be allowed to serve as actual damages for an independent UTPA cause of action. She would not award attorney fees to the estate for the jury trial of its UTPA claim, as there is no statutory basis for such an award, and would remand for a determination of fees and costs attributable to litigating the contract claim at trial and on appeal.
Justice Rice’s Concurrence & Dissent: Justice Rice joins in Justice McKinnon’s concurring and dissenting opinion regarding the reasonable basis of law defense, the notice-prejudice rule, and attorneys fees for the estate.