United States: Montana Supreme Court Review - Part 2

In Watters, the Montana Supreme Court has held that a liability insurer may have a duty to pay policy limits to an insured third party even though the third party refuses to execute a full release of the insured. The Court expressly limited its holding to claims for the statutory minimum policy limits, but this case indicates that the Court may be inclined to extend this rule to any insurance policy limits.

The plaintiffs in Watters were seriously injured in a collision between their car and one being driven by Guaranty National’s insured. The plaintiffs’ medical expenses ultimately exceeded $100,000.

The defendant was insured for the statutory mandatory minimum amounts of $25,000 for bodily injury per person, $50,000 for bodily injury per accident, and $10,000 for property damage. After investigating the accident, Guaranty determined that its insured was at fault and that the plaintiffs' were entitled to the bodily injury policy limits of $50,000. Thus, there was clear liability and the damages undisputedly exceeded the policy limits.

Within one week of the accident, Guaranty informed its insured that there was a possibility of an excess judgment, and that he could obtain an attorney at his own expense to represent him regarding any possible excess exposure.

The plaintiffs demanded the bodily injury policy limits. Guaranty refused because the plaintiffs would not agree to execute a full and final release of Guaranty’s insured. The plaintiffs then offered to accept $49,950, $50 below the policy limits, which would allow Guaranty to continue its obligation to defend its insured. Guaranty again refused. It argued that this scheme would still involve bad faith against its insured, since the payment would fund continuing litigation against him.

The plaintiffs sued Guaranty. The district court subsequently granted summary judgment for the plaintiffs on the grounds that Guaranty had violated the Montana Unfair Trade Practices Act ("UTPA") by failing to effectuate a prompt and fair settlement. Guaranty appealed.

The Montana Supreme Court affirmed the finding of the district court that Guaranty violated UTPA by conditioning payment of policy limits on a full and final release. In reaching this decision, the Court recognized that both sides faced an apparent Catch-22. If Guaranty had paid the policy limits without obtaining a full and final release, it might have faced a bad faith or breach of contract claim from its own insured. By refusing to pay policy limits where liability and damages were clear, on the other hand, Guaranty became the object of an UTPA claim by the plaintiffs.

The plaintiffs faced a Catch-22, because they could either choose to release the tortfeasor in exchange for incomplete compensation for their injuries, or they could proceed with potentially prolonged litigation without the resources necessary to pay their medical bills. By agreeing to a release, the plaintiffs might have also interfered with their own insurer’s subrogation rights, thereby jeopardizing their rights to underinsured coverage.

In order to find that Guaranty had a duty to pay the policy limits even without a release, the Court had to reconcile UTPA with its previous decision in Juedeman v. National Farmers Union, 253 Mont. 278, 833 P.2d 191 (1992). In Juedeman, the Court held that an insurer may not be subject to a bad faith claim for refusing to pay policy limits unless the third-party claimant executes a full and final release of the insured. Based on Juedeman, Guaranty argued that there was no viable settlement offer from the plaintiffs because there can be no settlement without a full and final release. The Court rejected this argument. The Court observed, as it did in Ridley v. Guaranty National Insurance Company, 286 Mont. 325, 951 P.2d 987 (1997), that there can be multiple claims and settlements arising from the same occurrence. As an example, the Court pointed out that Guaranty had previously settled the plaintiffs’ property damage claim even though no full and final release was obtained. The Court found that an insurer may have a duty to settle under UTPA even without a full and final release of all liability.

The Court then found that Guaranty’s Catch-22 choice between an UTPA claim by the injured third party and a bad faith claim by its insured was illusory. The Court rejected the argument that payment of policy limits under these circumstances would have confounded the insured’s reasonable expectations and thus given rise to a bad faith claim. The Court observed that, under UTPA, an insured may not bring a tort action for bad faith in connection with the handling of an insurance claim.

Guaranty argued that, based upon demands by its insured’s counsel that it obtain a full and final release, it would have been sued by its insured had it paid the policy limits to the plaintiff. The Court rejected this argument. The insured’s demands apparently were not made until approximately one year into the negotiation process and several months after the plaintiffs filed their UTPA claim. The insured’s attorney was being paid by Guaranty pursuant to its duty to defend, but the Court reasoned that Guaranty had no duty to also finance a bad faith or breach of contract action against itself. The Court observed that Guaranty evidenced signs of acting in good faith by advising its insured that he might wish to retain his own legal counsel because of the risk of an excess verdict, and that Guaranty dutifully investigated the plaintiffs’ claim.

The Court then observed that the insured had purchased only the statutory minimum liability coverage. When these limits were paid, he would have realized the full benefit of coverage for which he had paid premiums, a reduction of the total personal injury damages by $50,000. Therefore, the Court reasoned, the insured could not have reasonably expected that Guaranty would be obligated to, in effect, provide greater coverage than the insured had purchased by demanding a full release of all liability as a condition of paying the minimum coverage limits.

The Court pointed out that, in cases where the monetary consequences of the insured’s tortious conduct undisputedly exceed the policy limits, the only incentive for an injured third party to settle for policy limits and provide an absolute release is some form of economic necessity. This raises the issue of whether such a release is unconscionable as a matter of law.

Finally, the Court observed that Guaranty’s potential breach of contract liability "is equally unclear and of little concern here." The Court observed that laws established for the benefit of the public cannot be contravened by private contract, and that there was no express contractual duty to secure a third-party’s absolute release in the Guaranty policy.

The Court held that, although Guaranty had a duty to consider its insured’s interests, payment of policy limits under these particular factual circumstances would not have exposed Guaranty to per se liability for bad faith. The Court overruled and distinguished Juedeman to the extent that it was inconsistent with the Court’s opinion.

Despite losing the argument over whether it had a duty to pay policy limits in the absence of a full release, Guaranty ultimately prevailed. The Court found that Guaranty had a reasonable basis for its refusal to pay the policy limits based upon Juedeman. Because the Court overruled Jeudeman, this defense will no longer be available to Guaranty or any other insurer, at least with respect to the statutory minimum limits. The Court’s recognition that Juedeman was the only controlling precedent should prevent plaintiffs from arguing that insurers have committed bad faith by refusing to settle for policy limits without a release of their insured after Ridley, but before Watters.

In Watters, the Court expressly limited its holding to the minimum coverage mandated by statute, and not to excess coverage that an insured chooses to carry. Therefore, insurers may still condition payment of limits in excess of the statutory minimum on a full release of their insured. The question remains whether the Court may in the future require insurers to pay policy limits that exceed the statutory minimum in the absence of a full release of the insured. In both Ridley and Watters, the Court has relied upon the principle that mandatory minimum limits were enacted for the benefit of the public and not for the benefit of insureds. This supports the argument that Ridley and Watters only apply to the mandatory minimum limits, and that an insurer may still condition payment of limits in excess of the minimums upon a release of the insured. In Watters, however, the Court went a step further than it had in Ridley, and reasoned that an insured’s reasonable expectations are satisfied once the policy limits are paid. This reasoning could apply to any amount of limits, not just the statutory minimums. Thus, there is a possibility that the Court may in the future extend the Watters rule to limits in excess of the statutory minimums.

This could have consequences for anyone that purchases insurance. If liability and damages are clear, an insurer could pay the policy limits, and would no longer have a duty to defend the insured. Insureds who believed that they had substantial coverage could find themselves defending an excess claim at their own expense.

Watters raises other issues. There are statutory minimum limits other than those mandated by Mont. Code Ann. § 61-6-103. Trucking companies are required by Federal law to maintain minimum limits of $1,000,000. According to the reasoning in Ridley and Watters, an insurer may have a duty to pay the $1,000,000 minimum limits without a release of its insured if liability were clear and damages clearly exceeded this amount.

Besides finding that Guaranty National would not be liable in tort to its insured if it paid the policy limits with obtaining a full release, the Court in Watters also downplayed the potential for breach of contract liability. Nevertheless, there is a potential for breach of contract liability in this situation. For example, some policies have language requiring the insured’s consent to any settlement. If policy language defining the insurer’s duty to defend is ambiguous, the insurer may find that it must continue to pay for the defense of its insured even after it has paid the policy limits. The insurer may have a duty to pay for independent coverage counsel for its insured in such situations. Thus, Watters raises a number of issues that remain to be resolved.

Lane v. Farmers Union Insurance, 1999 MT 252, 989 P.2d 309 (Oct. 21, 1999)

The Montana Supreme Court has determined that the general rule by which facts in a default judgment are deemed admitted does not apply with respect to arson claims.

Lane concerned an insurance claim for fire damage to a home in Billings, Montana owned by the plaintiff and her husband. The damage occurred five days before the policy was to have been terminated for failure to meet underwriting requirements. The insurer denied the claim based upon "gathered evidence" which allegedly demonstrated that the husband had intentionally set fire to the home with apparent knowledge by the wife. The insurer also based its denial upon the fact that the husband allegedly failed to disclose on the policy application a previous claim on the wife’s motor vehicle policy. The husband was never convicted of arson. The wife did not reside with her husband in the Billings home at the time of the fire but instead was living in Glendive, Montana.

The wife sued the insurer pro se seeking a declaratory judgment that the insurer had breached the insurance agreement and had denied her claim in bad faith. The insurer asserted a third party claim against the husband and obtained a default judgment against him. The judgment decreed that there was no coverage for the claims of the husband because of his "fraud, concealment, misrepresentation, false swearing, and intentional setting of fire."

The insurer moved summary judgment against the wife. The district court granted the insurer’s motion for summary judgment after the wife failed to respond or appear at the hearing. The wife subsequently obtained counsel, who moved to amend the judgment on the grounds that the wife had had difficulty obtaining counsel and was unable to respond to the motion. After the motion to amend was deemed denied, the wife appealed.

The Montana Supreme Court reversed on the grounds that the conclusions in the default judgment against the husband did not bar the wife’s claims. The Court first distinguished between facts alleged in the pleadings, which are deemed admitted at the time of entry of default, from conclusions of law, which are not deemed established by a default. The Court reasoned that determinations of whether a person has committed acts of arson, fraud, concealment, misrepresentation, or false swearing are conclusions of law that can only be reached after applying particular rules of law to specific findings of fact. Therefore, these acts cannot be deemed admitted merely because a person fails to answer or otherwise appear.

The Court observed that, if uncontested substantial evidence showed that the husband set the fire, then factual allegations of his state of mind might not necessarily be legal conclusions and subsequently could be held as deemed admitted by a default judgment. Apparently, the deciding factor to the Court was that there was no evidence in the record that the husband had set the fire, only the default judgment.

The Court also found that the allegations of false swearing on the insurance application involved conclusions of law. The Court found that the application was ambiguous as to whether the applicant was to report all claims made within the past five years or only claims made under a homeowners policy. Accordingly, the Court found that the insurer’s allegations were conclusory statements of law that were not deemed admitted by the default judgment.

As an alternative rationale for its holding, the Court found that the default against the husband did not collaterally estop the wife from asserting a claim against the insurer. The Court reasoned that a default judgment cannot be considered a final judgment on the merits, because the wife had not been afforded a full and fair opportunity to procedurally, substantively, and evidentially contest the relevant issues pertaining to any of the husband’s acts.

Fisher v. State Farm General Insurance Co., 1999 MT 308, 991 P.2d 452 (Dec. 9, 1999)

The Montana Supreme Court has held that res judicata bars a statutory bad faith claim under the Montana Unfair Trade Practices Act ("UTPA") where the insured had settled a previous lawsuit for denial of coverage that was based upon "breach of contract, negligence, negligent misrepresentation, fraud, and any other applicable legal theories."

The plaintiff in Fischer submitted a claim under his homeowners’ policy for over $50,000 in lost personal property after a fire destroyed his workshop and its contents. The insurer denied coverage for most of the building’s contents on the basis that they constituted business property that was not covered by the policy. The plaintiff sued the insurer for wrongful denial of coverage, and alleged that the insurer was "liable for damages incurred as a result of the subject fire and the denial of coverage on theories of breach of contract, negligence, negligent misrepresentation, fraud, and any other applicable legal theories." Approximately one year later, the plaintiff filed a second action, in which he alleged that the insurer failed to conduct a reasonable investigation and attempt a good faith settlement in violation of UTPA.

The insurer presented the plaintiff with an offer of judgment in the original action, which the plaintiff accepted. The insurer then filed a motion for summary judgment in the second action on the grounds of res judicata, which was granted. The insured appealed.

The Montana Supreme Court affirmed. The Court found that the doctrine of res judicata barred the insured’s claims in the second action because the insured had the opportunity to litigate the same claims in the original action. The Court rejected the insured’s arguments that the first action was a coverage action, and the second was a bad faith or claims handling action. The Court observed that the insured sought in the first action to hold the insurer liable for damages resulting from the fire and for wrongful denial of coverage under "any applicable legal theories." The Court reasoned that this would encompass any theory of liability relating to the insurer’s post-fire actions in denying coverage, including UTPA claims.

The Court also rejected the insured’s argument, based on section 26 of the Restatement (Second) of Judgments, that the insurer had acquiesced in the splitting of his claim into a coverage claim and a separate UTPA claim. The Court observed that this case did not involve a dispute over whether the insured could split his claims, which he would have been allowed to do. Instead, this case involved an original complaint that was drafted so broadly that the judgment in the original action precluded a second action.

As the Court observed, the original complaint in Fisher represents an instance of overly broad drafting. Insurers should be aware that an insured may bring an UTPA claim separately from a breach of contract or fraud claim.

P.C. Rental, Inc. v. Chase Manhattan Bank, 2000 MT 106, 998 P.2d 1168 (April 27, 2000)

The Montana Supreme Court has held that a rental car agency’s insurer could not maintain a subrogation action against a credit card company that also provided auto rental insurance. The Court based its decision upon the language of the two policies, which provided that the credit card company’s coverage was excess, but that the rental car agency’s coverage was primary. The Court also implied that the customer would not have been deemed to be an insured under the rental car agency’s collision policy, thus barring any right to subrogation.

In P.C. Rental, a customer used a Visa Gold Card issued by Chase Manhattan Bank to rent a car from P.C. Rental, Inc. The customer totaled the car. He did not own a car himself and had no personal automobile insurance. Because he had used a Visa card to obtain the rental, Visa provided auto rental insurance.

P.C. Rental’s insurer, Empire Fire and Marine Insurance Company, paid it the actual cash value of the car minus a $1,000 deductible. Visa paid P.C. Rental the value of the deductible and lost rental fees. Empire then filed a subrogation action in the name of P.C. Rental against the customer, who asserted a third-party claim against Chase. The customer subsequently filed bankruptcy and assigned his rights in the third-party claim to Empire. Empire added Visa.

The District Court granted summary judgment for Chase and Visa on two grounds: (1) that Empire was not entitled to subrogate against the rental agency’s customer, because he was an insured under the Empire policy, and (2) that Empire could not maintain an action against Chase and Visa, because Visa’s auto rental insurance was excess over Empire’s coverage.

The Montana Supreme Court affirmed. The Court observed that both the Empire policy and the Visa policy provided coverage for loss to a covered vehicle for "collision with another object" or the vehicle’s "overturn". The two policies’ "other insurance" provisions were different, however. The Empire policy provided that, "[f]or any covered ‘auto’ you own, this Coverage Form provides primary insurance." The Visa policy provided that its coverage was "excess over any other collectible insurance including coverage on an automobile an Eligible Person owns." The Court held that Empire could not assert a subrogation claim against Chase and Visa because the plain language of the two insurance policies provided that the Visa insurance was excess over that of Empire.

Because it based its decision on the "other insurance" provisions in the two policies, the Court announced that it would not address any other issues in the case. Nevertheless, the Court discussed the issue of whether the customer was an insured of Empire. The Court observed that, unlike liability insurance, collision insurance covers a specific vehicle rather than the acts of an insured person. The Court stated that a determination of whether the customer was an insured was neither necessary nor possible. Thus, the Court implied that an insurer providing property/collision insurance to an automobile rental agency may properly sue the agency’s customers for subrogation damages.

Golt v. Aetna Life Insurance Company, 2000 MT 155, 2 P.3d 841 (June 13, 2000)

The Montana Supreme Court has determined that group accidental death coverage falls within Montana’s statutory definition of life insurance for the purpose of determining an insured’s right to convert the group policy to an individual policy. Like a group life insurance policy, a group accidental death policy will be automatically converted to an individual policy if the insured dies within thirty-one days after termination of employment.

In Golt, the plaintiff’s decedent had been discharged from his employment for cause. Thirty days after the termination of his employment, he died of carbon monoxide poisoning.

As a benefit of his employment, the decedent had been covered by a group "accident insurance policy" issued by Great American Life Insurance Company, which provided coverage if an eligible employee died of an accidental cause. The policy also provided that the group policy could be converted to an individual policy within thirty-one days of an employee’s discharge if written application was made and the first premium paid.

In addition to the Great American policy, the decedent had been covered under a "Group Life and Accident and Health Insurance Policy" issued by Aetna Life Insurance Company. The Aetna policy provided coverage if an insured died from any cause and additional "Accidental Death and Dismemberment Coverage" if the insured died as the result of an accident. The policy also provided that the group life insurance could be converted to individual life insurance within thirty-one days of an employee’s discharge. Benefits were payable if the employee died during this thirty-one day period. The Aetna policy did not provide for any conversion privilege within the description of the accidental death coverage.

The decedent’s wife submitted claims to the decedent’s former personal supervisor for benefits under both the General American and Aetna policies. The decedent’s employer submitted a claim to Aetna but failed to submit a claim to General American. Aetna paid life insurance benefits under its policy but denied the claim for accidental death benefits on the ground that this coverage ended when the decedent’s employment terminated. The personnel supervisor informed the decedent’s wife that her husband was not covered under the General American policy.

The decedent’s wife sued both Aetna and General American in Federal district court to recover the accidental death benefits under both policies. The court granted the insurance companies’ motions for summary judgment, and the plaintiff appealed to the Ninth Circuit. The Ninth Circuit certified three questions to the Montana Supreme Court:

1. Does accidental death coverage, when provided either as part of a separate group accident insurance policy, or as part of a "Group Life and Accident and Health Insurance Policy," fall within Montana’s statutory definition of life insurance for the purpose of determining an insured’s conversion rights?
2. Does accidental death coverage provided pursuant to a group accident insurance policy remain in effect, if the policy contains a provision granting the insured the right to a 31-day grace period in which the group policy can be converted to an individual policy, but where the insured dies before the expiration of the grace period without exercising the right to convert the policy?
3. If the court answers either of the first two questions in the affirmative, in a case where the policy provides that the insured or the employer must submit notice of claims to the insurer "or any authorized insurance agent of the Insurer," does the delivery of a notice of a claim to the insured’s employer constitute notice to the insurer, on the basis that the insured’s employer is an agent of the insurance company for the purpose of submitting a claim?

The Montana Supreme Court answered all three questions in the affirmative. With respect to the issue of whether accidental death coverage may fall within the statutory definition of life insurance, the Court relied upon two statutes: (1) Mont. Code Ann. § 33-1-208, which provides that "life insurance" includes "additional benefits in the event of death or dismemberment by accident or accidental means," and (2) Mont. Code Ann. § 33-1-205, which provides that different classes of insurance coverage may overlap. The Court reasoned that the accidental death insurance in question, although falling within the definition of "disability insurance" in section 33-1-207, also fell within the definition of "life insurance" in section 33-1-205.

The Court rejected the insurers’ arguments that Montana statutes make a distinction between life insurance, which insures for all causes of death, and disability insurance, which only insures for death by accident. Instead, the Court found that the life insurance and the accidental death insurance overlapped for purposes of conversion rights. The Court also rejected Aetna’s argument that the reference in the definition of "life insurance" to "additional benefits in event of death or dismemberment by accident or accidental means" is designed to encompass double indemnity benefits provided as a specific rider to a single life insurance policy. The Court reasoned that, if the legislature had meant to exclude accidental death and dismemberment insurance from the definition of life insurance, it would have explicitly done so, as it did with workers’ compensation insurance.

The finding that the accidental death insurance qualifies as life insurance instead of only disability insurance was crucial for two reasons. First, statutory conversion rights under a disability insurance policy are limited to hospital and medical service. Because the policy was deemed to be a life insurance policy, the plaintiff was entitled to the full accidental death benefit.

Second, the Court’s finding that the accidental death insurance qualified as life insurance required the Court to answer the second question in the affirmative by finding that a person that dies within thirty-one days after termination of employment is deemed to have automatically applied for conversion of an accidental death policy. This finding was mandated by Mont. Code Ann. § 33-20-1211, which requires group life insurance policies to provide for automatic conversion to individual policies under these circumstances.

With regard to the third certified question, the Court found that the plaintiff had complied with the notice provisions in the General American by submitting her claims to her husband’s employer. The Court observed that the policy was ambiguous, because the certificate of insurance gave an invalid address for the national agent to which notice was to be sent, National Accident Insurers Underwriters, Inc., and it did not list any other agents to whom notice could be sent. The Court also found that the following language in the policy’s notice provision provided that claims could be submitted through the employer/policyholder: "The Policyholder submits premiums and you or the policyholder submit notice of claims to the Insurer at the office of NAIU or to any authorized agent of the insurer." Finally, the Court found that, because the policy allows claims to be submitted through the policyholder/employer, and the record showed that the policyholder/employee routinely submitted employees’ claims to the insurer, that the employer was the insurer’s agent for this purpose.

Oliver v. Stimson Lumber Company and Liberty Northwest Insurance Corporation,

199 Mont. 328, 993 P.2d 11 (Dec. 22, 1999)

In a case of first impression, the Montana Supreme Court has recognized claims for both intentional and negligent spoliation of evidence committed by persons who are not parties to the lawsuit.

Oliver arose from a work-related injury to an employee of Stimson Lumber Company. Soon after the injury, the employee’s counsel began investigating the possibility of a third-party action associated with the piece of equipment involved in the injury. Through contacts with counsel for the workers’ compensation carrier, Liberty Northwest Insurance Corporation, plaintiff’s counsel arranged to inspect the equipment. After the inspection, the employee’s counsel wrote two letters to the workers’ compensation counsel. In the first letter, the employee’s counsel requested additional information pertaining to the equipment. In the second letter, the employee’s counsel requested that Stimson keep the equipment intact to allow an expert to examine it. According to the recitation of facts, the second letter may not have been forwarded to Stimson, but personnel at Stimson discussed it with the workers’ compensation counsel.

Stimson refused in writing to cooperate with the employee’s request for additional information, but the parties apparently did not further address the employee’s request for preservation of the equipment. Approximately three months after the employee requested preservation of the equipment, and before any further inspections, the equipment was completely rewired and certain components were replaced. After learning this, the employee sued both Stimson and Liberty for intentional and negligent spoliation of evidence.

The defendants moved for summary judgment. The District Court granted the motions. The court found that no interpretation of the defendants’ conduct supported a claim for intentional spoliation of evidence. The court also found that it need not reach the issue of whether to recognize a tort of negligent spoliation of evidence, because there was no factual basis that would establish any duty on the part of the defendants to preserve the equipment. The plaintiff appealed.

The Montana Supreme Court affirmed in part and reversed in part. The Court found that it would recognize the tort of intentional spoliation of evidence by a third party as an independent cause of action, but also found that the district court properly granted summary judgment to both defendants on this issue because there were no facts indicating that either defendant had destroyed evidence for the purpose of disrupting the plaintiff’s third-party suit.

The Court then found that it would recognize the tort of negligent spoliation of evidence by a third party as an independent cause of action. The Court reversed the summary judgment in favor of Stimson because there was an issue as to whether Stimson had actual notice of the request to preserve the equipment. The Court affirmed the summary judgment in favor of Liberty, because it found that there were no facts indicating that Liberty had breached any duty owed to the plaintiff.

As a threshold issue, the Court determined that the exclusive remedy provisions of the Workers’ Compensation Act do not bar an employee injured in a work-related accident from bringing a claim for spoliation of evidence against the employer or the workers’ compensation insurer. The Court agreed with the plaintiff that an action for spoliation of evidence is a property interest rather than a personal injury. Therefore, the exclusive remedy statutes do not apply.

The Court announced that it would recognize claims for both intentional and negligent spoliation of evidence against third parties. The Court observed that, in Lauman v. Lee, 192 Mont. 84, 626 P.2d 803 (1981), it had upheld an award of punitive damages against the owner of a vehicle who had destroyed critical physical evidence at the scene of an accident. The Court also reasoned that separate tort remedies were necessary to deter potential third party spoliators, who would not be subject to the sanctions that may be imposed upon a party to an existing lawsuit by the presiding judge.

The Court identified seven elements to the cause of action of negligent spoliation of evidence by a third party:

1. Existence of a potential civil action.
2. A legal or contractual duty to preserve evidence relevant to that action.
3. Destruction of that evidence.
4. Significant impairment of the ability to prove the potential civil action.
5. A causal connection between the destruction of the evidence and the inability to prove the lawsuit.
6. A significant possibility of success of the potential civil action if the evidence were available.
7. Damages.

The Court discussed several issues concerning duty, causation, and damages in a spoliation action.

Duty. A duty to preserve evidence may arise where:

1. The spoliator voluntarily undertakes to preserve the evidence and the victim of spoliation reasonably relies to his or her detriment;
2. The spoliator enters into an agreement to preserve the evidence;
3. There has been a specific request to the spoliator to preserve the evidence; or
4. There is a duty to preserve the evidence based upon a contract, statute, regulation, or some other special circumstance or relationship.

The Court expressly rejected any requirement that a person requesting preservation of evidence offer to pay the reasonable costs of preservation, but stated that the third party had the right to demand such expenses from the person requesting it. Because there were material facts in dispute as to whether Stimson received the request to preserve evidence, the Court found that the district court erred in granting summary judgment to Stimson on the issue of duty.

Causation. The Court observed that elements 4, 5 and 6, which all relate to causation, are necessary because a plaintiff must show a nexus between the destroyed evidence and the ability to prove the underlying lawsuit. Nevertheless, a plaintiff should not be forced to prosecute a futile lawsuit in order to pursue a spoliation claim, nor should a plaintiff be barred from a spoliation action if the underlying lawsuit is not entirely futile but is still severely hampered by the spoliation. The Court observed that its standard of "significant possibility of success" is lower than the standard of "preponderance of the evidence."

Damages. The Court stated that the plaintiff’s interest in recovering the entire amount of damages that would have been received if the underlying action had been pursued successfully must be balanced by the defendant’s interest in not providing the plaintiff with a windfall. Accordingly, the Court set forth the following rule for determining damages: Damages should be arrived at through reasonable estimation based on relevant data, then multiplied by the significant possibility that the plaintiff would have won the underlying suit had the spoliated evidence been available.

Although the Court found that the there were no facts indicating that either defendant had destroyed evidence for the purpose of disrupting the plaintiff’s third-party suit, the Court announced that it would recognize the tort of intentional spoliation of evidence by a third party as an independent cause of action. The Court identified six elements to this cause of action:

1. Existence of a potential lawsuit.
2. The defendant’s knowledge of the potential lawsuit.
3. The intentional destruction of evidence designed to disrupt or defeat the potential lawsuit.
4. Disruption of the potential civil action.
5. A causal relationship between the act of spoliation and the inability to prove the lawsuit.
6. Damages.

The Court observed that the standard of proof required for causation and the methodology for determining damages is the same for both negligent and intentional spoliation of evidence.

The express recognition by the Montana Supreme Court of independent tort claims for the negligent or intentional spoliation of evidence does not come as a surprise, given the Court’s previous ruling in Lauman. One of the most significant aspects of Oliver is the Court’s determination that workers’ compensation exclusivity does not protect an employer from a spoliation claim by an employee. A duty to preserve evidence may arise under a wide variety of circumstances. Oliver illustrates the importance for all business owners of instituting practices intended to preserve possible evidence in the event of accident or injury.