                                            No. 03-492

                IN THE SUPREME COURT OF THE STATE OF MONTANA

                                         2005 MT 323


ANDY SKINNER and CAROL SKINNER,

               Plaintiffs, Respondents and Cross-Appellants,

         And

DANIEL GLOVER,

               Intervenor,

         v.

ALLSTATE INSURANCE COMPANY and
SAFECO INSURANCE COMPANY,

               Defendants and Appellants.


APPEAL FROM:          The District Court of the First Judicial District,
                      In and For the County of Lewis and Clark, Cause No. CDV-99-521,
                      Honorable Thomas C. Honzel, Presiding Judge

COUNSEL OF RECORD:

               For Appellants:

                      G. Curtis Drake, Keller, Reynolds, Drake, Johnson & Gillespie, P.C.,
                      Helena, Montana

               For Respondents:

                      Robert T. Cummins, Attorney at Law, Helena, Montana

                      Norman H. Grosfield, Utick & Grosfield, Helena, Montana (Glover)


                                                     Submitted on Briefs: June 18, 2004

                                                                Decided: December 20, 2005


Filed:

                      __________________________________________
                                        Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1     Allstate Insurance Company (Allstate) appeals from the findings of fact, conclusions

of law, and denial of a post-trial motion to amend the judgment entered by the First Judicial

District Court, Lewis and Clark County, in a declaratory judgment action to determine rights

under an insurance policy. Andy Skinner and Carol Skinner (Skinners) cross-appeal the

denial of a post-trial motion for attorney fees and costs, and they join Daniel Glover (Glover),

Intervenor, in responding to Allstate. The District Court held that the Skinners had insurance

coverage under their Allstate Personal Umbrella Policy (umbrella policy) for a suit filed

against them by Glover for injuries he sustained while working as a carpenter on the

construction of the Skinners’ residence. We reverse in part and remand.

¶2     We consider the following issue on appeal:

¶3     Did the District Court err in concluding that Allstate had a duty to indemnify Andy

Skinner for damages he potentially owes in a separate action filed by Glover against Skinner?

                                      BACKGROUND

¶4     The Skinners, as individuals, contracted with their business, Skinner Enterprises, Inc.

(SEI), to build them a house at Hauser Lake near Helena, Montana. The Skinners are the

sole shareholders of SEI, a C corporation which has been in construction and other

businesses for thirty-five years. Glover was employed by SEI as a carpenter on August 14,

1998, when, during the course of his work on the construction of the Skinners’ house, he was

injured. At the time of the injury, the Skinners carried business insurance through other

companies, but Andy Skinner also carried a homeowner’s umbrella policy with Allstate.


                                               2
¶5        On November 3, 1998, Glover filed a third-party claim seeking recovery from the

Skinners. The Skinners sought defense to Glover’s suit under a primary homeowner’s policy

from Safeco Insurance Company (Safeco) as well as under the umbrella policy from Allstate.

Both companies refused either liability or defense coverage relating to Glover’s suit.

¶6        On August 9, 1999, the Skinners filed a declaratory judgment action against Safeco,

Allstate, United States Fidelity and Guaranty Company (USF&G), and the State

Compensation Insurance Fund (State Fund) to determine defense, coverage, and

indemnification obligations to the Skinners for Glover’s claim under their various business,

workers’ compensation, and personal liability policies. The State Fund was subsequently

removed as a party by stipulation, and USF&G was dismissed through summary judgment.

On October 23, 2000, Glover joined the Skinners’ declaratory judgment action as an

Intervenor. In November 2001, Allstate began providing a defense for the Skinners in the

underlying personal injury action filed by Glover. However, Allstate has maintained

throughout the course of the declaratory action that it has no obligation to defend under the

policy.

¶7        On July 15-16, 2002, the District Court held a bench trial for the purpose of

determining whether coverage existed under the Skinners’ Safeco or Allstate personal

homeowner’s insurance policies for Glover’s claims. At trial, Andy Skinner testified that all

of his actions on the Hauser Lake property regarding the construction of the home were

pursuant to his position as an officer or employee of SEI, not as an individual.




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¶8     The District Court thereafter determined that on August 14, 1998, the date of the

accident, the Skinners did not have a Safeco primary insurance policy in effect, and,

therefore, Safeco had no duty either to defend or indemnify the Skinners for Glover’s claims.

However, the District Court, concluding that the Allstate homeowner’s umbrella policy was

in effect at the time of the accident and that it provided excess liability insurance coverage

for the Skinners, stated the following:

       Conclusions of Law

              ....
.
              9. Allstate contends that because Andy Skinner’s involvement in the
       construction project was as a representative of Skinner Enterprises and not as
       an individual, the business pursuits exclusion of the Allstate policy applies.
       Glover was working for Skinner Enterprises and Skinner Enterprises was
       doing the work. However, the Skinners as individuals, not Skinner
       Enterprises, own the property. The evidence shows that Andy was building
       the home as a secondary residence. Therefore, he potentially could be
       personally liable as the homeowner for any injuries Glover may have sustained
       while working on the home. For these reasons, the Court concludes that the
       business pursuits exclusion does not apply.

              10. Although no primary policy of insurance was in effect on August
       14, 1998, Andy would be considered to be self-insured for the first $50,000 of
       any potential recovery by Glover. Therefore, if Glover recovers a judgment
       against the Skinners, Allstate would be liable for any amount in excess of
       $50,000.

¶9     Allstate filed a motion to amend the trial court’s judgment, seeking judgment in its

favor. The Skinners filed a post-trial motion requesting attorney fees and costs. The District

Court did not rule on the motions, which were deemed denied by operation of Rule 59(g),

M.R.Civ.P. Allstate then appealed the District Court’s findings of fact, conclusions of law

and final judgment, as well as its denial of Allstate’s post-trial motion to amend the

                                              4
judgment. The Skinners appealed the District Court’s denial of its post-trial motion for

attorney fees and costs. However, the Skinners joined the brief filed herein by Intervenor

Glover, and did not separately brief issues raised in their post-trial motion. Those issues,

therefore, have been abandoned on appeal, and we do not address them.

                                STANDARD OF REVIEW

¶10    “Our standard of review pertaining to a district court’s conclusions of law, in

rendering a declaratory judgment, is to determine if the court’s interpretation of the law is

correct.” City of Great Falls v. Dir. of the Dep’t of Pub. Health and Human Servs., 2002 MT

108, ¶ 10, 309 Mont. 467, ¶ 10, 47 P.3d 836, ¶ 10.

                                       DISCUSSION

¶11    Did the District Court err in concluding that Allstate had a duty to indemnify Andy

Skinner for damages he potentially owes in a separate action filed by Glover against Skinner?

¶12    Allstate contends the District Court erred in concluding that the Skinners had coverage

for Glover’s claim under their umbrella policy because the Skinners produced no evidence at

trial that Andy Skinner was acting in an individual capacity at the time of Glover’s injuries;

because the Skinners produced no evidence at trial that the SEI corporate veil should be

pierced, thereby exposing the Skinners to individual liability; and because Glover’s receipt of

workers’ compensation payments from the State Fund on behalf of Andy Skinner,

individually, constitutes an exclusion under the umbrella policy.

¶13    The Skinners and Glover acknowledge that Andy Skinner believes his actions on the

job site were performed exclusively in the capacity of officer or employee of SEI. They


                                              5
assert, however, that since the evidence at trial established that the Skinners were building

the Hauser Lake home as a personal residence, the potential existed for the jury in the

underlying action to disagree with Andy Skinner and to find him personally liable. Thus,

they argue that the District Court correctly ruled that the umbrella policy provided applicable

coverage.

¶14    The parties focus their arguments, understandably, on whether “coverage” was due to

the Skinners. 1 In this context, however, whether “coverage” was due refers both to whether

Allstate owed Andy Skinner a duty to defend him in the underlying action and to whether

Allstate had a duty to indemnify Andy Skinner in the event he was found personally liable to

Glover. The Skinners’ Complaint in the declaratory action states in part:

       [T]he Plaintiffs pray as follows:

       1. That the Defendants accept liability for and provide a defense with
       counsel in both of the actions referred to set forth [sic] above;

       2. To be indemnified for their expenses and damages awarded, if any,
       against them from either of the referenced actions herein . . . .

The first part of this prayer for relief, as applied to Allstate as a defendant, requests the

District Court to impose upon Allstate a duty to defend the Skinners against Glover. The

second part specifically requests the District Court to rule that, if the court in the underlying

action finds Andy Skinner personally liable for his injuries, then the umbrella policy would

apply and Allstate would have a duty to indemnify Andy Skinner and would be responsible

       1
        It is not clear from the record whether the Allstate policy covers, in a general sense,
only Andy Skinner or both Andy and Carol Skinner. Nothing in this opinion is meant to
resolve this issue.

                                               6
to pay any damages in excess of $50,000. Notably, the Skinners did not request the District

Court to decide whether Andy Skinner was actually personally liable for Glover’s injuries.

Indeed, in their response to Allstate’s post-trial motion to amend the judgment, the Skinners

stated, “The instant action was over insurance coverage, not one for determining liability or

damages as that is left to the Glover action.” Because it did not resolve the issue of Andy

Skinner’s liability, however, the District Court’s ruling with respect to Allstate’s duty to

indemnify was speculative. Therefore, as explained below, Allstate’s duty to indemnify was

a non-justiciable question, and the District Court erred in considering it.

¶15    Justiciability is determined by a three-part test:

       First, a justiciable controversy requires that parties have existing and genuine,
       as distinguished from theoretical, rights or interest. Second, the controversy
       must be one upon which the judgment of the court may effectively operate, as
       distinguished from a debate or argument invoking a purely political,
       administrative, philosophical or academic conclusion. Third, [it] must be a
       controversy the judicial determination of which will have the effect of a final
       judgment in law or decree in equity upon the rights, status or legal
       relationships of one or more of the real parties in interest, or lacking these
       qualities be of such overriding public moment as to constitute the legal
       equivalent of all of them.

Northfield Ins. Co. v. Montana Ass’n of Counties, 2000 MT 256, ¶ 12, 301 Mont. 472, ¶ 12,

10 P.3d 813, ¶ 12 (quoting Brisendine v. State, Dept. of Commerce (1992), 253 Mont. 361,

364, 833 P.2d 1019, 1020-21) (brackets in original). In addition,

       [w]e apply the justiciable controversy test to actions for declaratory judgment
       to prevent courts from determining purely speculative or academic matters,
       entering anticipatory judgments, providing for contingencies which may arise
       later, declaring social status, dealing with theoretical problems, answering
       moot questions, or giving abstract or advisory opinions.

Northfield, ¶ 12. This Court may raise the question of justiciability sua sponte. Dukes v. City

                                               7
of Missoula, 2005 MT 196, ¶ 15, 328 Mont. 155, ¶ 15, 119 P.3d 61, ¶ 15.

¶16    In concluding that the umbrella policy did apply in the case before it, the District

Court seems to have conflated the law on the duty to defend and the duty to indemnify,

which are separate issues. In Travelers Cas. & Sur. Co. v. Ribi Immunochem Research, 2005

MT 50, ¶ 40, 326 Mont. 174, ¶ 40,108 P.3d 469, ¶ 40 (citations omitted), we explained when

the duty to defend arises:

       We apply the “four-corners” rule as the policy’s language determines an
       insurer’s duty to defend its insured. The acts giving rise to the claim form the
       basis for coverage, not any legal theories contained in the underlying
       complaint. Simply put, if the asserted claim is not covered by the policy, then
       the insurer has no duty to defend the insured.

“The duty to defend is independent from and broader than the duty to indemnify created by

the same insurance contract.” Farmers Union Mut. Ins. Co. v. Staples, 2004 MT 108, ¶ 21,

321 Mont. 99, ¶ 21, 90 P.3d 381, ¶ 21 (Staples). 2 Thus, even when a court concludes that

“coverage” applies such that an insurer must defend the insured, a fact-finder may later reach

a decision on the disputed facts and conclude that an insurer has no duty to indemnify. See

Staples, ¶¶ 22-26. However, in a declaratory judgment action, if there remain unresolved

related issues in the underlying action that may ultimately affect whether an insurer has a


       2
         In Mt. W. Farm Bureau Mut. Ins. Co. v. Brewer, 2003 MT 98, ¶ 36, 315 Mont. 231, ¶
36, 69 P.3d 652, ¶ 36, this Court stated, “We decline to further propagate the arbitrary legal
fiction that a substantive distinction exists between a breach of the duty to defend and the
breach of the duty to indemnify.” However, this statement was solely in the context of our
holding that courts can award attorney fees in appropriate cases where an insured has
established an insurer’s breach of its duty to indemnify, just as was previously permitted in
cases where an insured had established an insurer’s breach of its duty to defend. The lack of
distinction between the two concepts was not meant to, and does not, apply in all contexts.

                                              8
duty to indemnify, issuing a ruling on indemnity obligations is premature. See Northfield, ¶¶

11, 14, 23.

¶17    In Northfield, inmates at the Park County Detention Center filed a class action lawsuit

in federal district court alleging negligence, violations of constitutional rights, and infliction

of emotional distress on the part of the sheriff and several jailers in relation to alleged sexual

abuse. Northfield, ¶ 3. The Montana Association of Counties, Joint Powers Insurance

Authority (MACO) was the insurer for the defendants, and Northfield Insurance Company

(Northfield) and Lloyds of London (Lloyds) were secondary insurers for MACO. Northfield,

¶ 4. Northfield and Lloyds brought a state action seeking a declaratory judgment that they

had no duty to indemnify MACO for the claims before the federal court. Northfield, ¶ 4. In

affirming the district court’s dismissal of the declaratory action for non-justiciability, this

Court stated, “It simply is not appropriate to determine whether the conduct of the insureds in

the present case falls within the exclusions of the Policy prior to a determination or

stipulation as to the underlying facts . . . .” Northfield, ¶ 23. In distinguishing the case from

our holding in Ridley v. Guaranty Nat. Ins. Co. (1997), 286 Mont. 325, 951 P.2d 987

(reversing the district court’s dismissal for non-justiciability and holding that an action for

declaratory judgment need not resolve all issues between the parties), we noted that in Ridley

the “legal issue presented for declaratory judgment . . . was separate from, and would not be

affected by, a final resolution of the liability issue,” and that “while a declaratory judgment

need not resolve all issues between the parties, it must resolve those issues addressed in a




                                                9
manner that will have the effect of a final adjudication.” Northfield, ¶ 27. This Court went

on to hold in Northfield that

       [t]he judicial determination Northfield and Lloyds seek would serve only as
       speculative advice, subject to possible amendment or nullification upon final
       resolution of the underlying federal case; it would not act as a final
       adjudication on the indemnification issue. The justiciable controversy test is
       designed to prevent judgments from resting on such shifting sands.

Northfield, ¶ 28. Thus, where there remain unresolved relevant issues in the underlying case,

inseparable from the issues presented in the declaratory judgment action, the duty to

indemnify is not ripe for resolution.

¶18    Other jurisdictions support our law in this respect. In Constitution Assocs. v. New

Hampshire Ins. Co. (Colo. 1996), 930 P.2d 556, the Supreme Court of Colorado considered

two cases concerning actions for declaratory relief filed by insurance companies to determine

their obligations to their respective insureds in the underlying lawsuits prior to the issuance

of judgments in those cases. The Court provided a useful summary of the relevant concepts:

       [A]n anticipatory action for declaratory relief must . . . concern issues that are
       independent of and separable from those in the underlying case. Without
       meeting this standard, a trial court should refuse to hear the action because of
       the potential prejudice to the parties in the underlying case.

              For example, where it could unduly prejudice the insured in the
       underlying action, a declaratory judgment action prior to entry of a judgment
       against the insured is not independent and separable and is inappropriate.

              ....

               The independent and separable standard helps to clarify some confusion
       in the law regarding the interrelationship between an anticipatory declaratory
       judgment action and the insurer’s duty to defend versus the insurer’s duty to
       indemnify. The duty to defend pertains to the insurance company’s duty to
       affirmatively defend its insured against pending claims. The duty to indemnify

                                              10
       relates to the company’s duty to satisfy a judgment entered against the insured.
       The duty to defend is triggered more easily than is the duty to indemnify.
       Generally, the duty to defend arises where the alleged facts even potentially
       fall within the scope of coverage, but the duty to indemnify does not arise
       unless the policy actually covers the alleged harm. Where there is no duty to
       defend, it follows that there can be no duty to indemnify. However, where
       there is a duty to defend, there is not necessarily a duty to indemnify.

Constitution Assocs., 930 P.2d at 562-63 (citations and footnotes omitted). This precept of

lawBthat, in a declaratory judgment action, the issue of an insurer’s duty to indemnify lacks

ripeness when the underlying case has yet to resolve inseparable issuesBenjoys widespread

support. Pettit v. Erie Ins. Exch. (Md. Spec. Ct. App. 1997), 699 A.2d 550, 554, aff’d, 709

A.2d 1287 (Md. 1998); Nationwide Ins. v. Zavalis (7th Cir. 1995), 52 F.3d 689, 693

(construing Pennsylvania law); Guaranty Nat’l Ins. Co. v. Beeline Stores (M.D. Ala. 1996),

945 F.Supp. 1510, 1514-15; David Kleis, Inc. v. Superior Court (Cal. Ct. App. 1995), 44

Cal.Rptr.2d 181, 186-87; North Pac. Ins. Co. v. Wilson’s Distrib. Serv. (Or. Ct. App. 1995),

908 P.2d 827, 832; Illinois State Medical Ins. Servs. v. Cichon (Ill. App. Ct. 1994), 629

N.E.2d 822, 825-26.

¶19    In the present case, the Skinners effectively requested two rulings from the District

Court. First, they sought a judgment that Allstate had a duty to defend them in the suit

against Glover. Second, they asked for a ruling that, should Andy Skinner be found

personally liable in the underlying case, the umbrella policy would cover any damages in

excess of $50,000. The first request was justiciable but was simply not addressed by the

District Court’s order. 3 The second was non-justiciable because it would be a speculative


       3
           We acknowledge that a possible reading of Conclusion of Law 9, see & 8 above, is

                                              11
ruling based on issues inseparable from the underlying action. No court had yet decided the

issue of Andy Skinner’s personal liability to Glover, which was a relevant issue (perhaps the

relevant issue) in Glover’s action against Skinner. Therefore, the District Court could not

properly find, based on the idea that Skinner could “potentially” be liable, that the umbrella

policy’s business pursuits exclusion did not apply, nor could it conclude that “if Glover

recovers a judgment against the Skinners, Allstate would be liable for any amounts in excess

of $50,000.” In doing otherwise, the District Court’s ruling was not “a final adjudication on

the indemnification issue” but rather “speculative advice, subject to possible amendment or

nullification upon final resolution of the underlying” case. Northfield, ¶ 28. Consequently,

we reverse the District Court’s order with respect to its conclusions of law regarding the

Allstate umbrella policy.

¶20    We cannot discern from the record whether Allstate’s duty to defend remains at issue

because the District Court’s order did not address the issue separately, focusing only on the

duty to indemnify. Further, as noted in ¶ 8 above, the District Court ruled that the Safeco

policy was not in effect at the time Glover suffered his injury. The District Court also

deemed Andy Skinner to be self-insured for the first $50,000 in any potential damages.

However, the District Court did not resolve how these rulings bear on the interpretation of

language in the Allstate umbrella policy that required an underlying primary policy to be in

effect, leaving unsettled the status of any duty Allstate may have to defend the Skinners in


that the District Court ruled that the umbrella policy’s business pursuits exclusion does not
apply for the purpose of determining Allstate’s duty to defend. However, given its context,
we conclude that it is meant to speak to Allstate’s duty to indemnify.

                                             12
the underlying action, apart from a duty to indemnify. It is inappropriate for this Court to

resolve the question here without the benefit of a ruling by the District Court and briefing by

the parties. 4

¶21     Therefore, we reverse the District Court’s order with respect to its conclusions of law

regarding the Allstate umbrella policy, and we remand the cause for any proceedings that

may be necessary to resolve the question of Allstate’s duty to defend, if it remains at issue.

In light of our holding herein, we need not address other issues argued by the parties.

¶22     Reversed in part and remanded.




                                                   /S/ JIM RICE




        4
         The umbrella policy states in part: “Allstate will defend an insured if sued as the
result of an occurrence covered by this policy . . . . If the insured fails to maintain Required
Underlying Insurance, we will not defend for any amount of damages falling within the limits
that should have been maintained.

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We concur:

/S/ KARLA M. GRAY
/S/ JAMES C. NELSON
/S/ PATRICIA O. COTTER
/S/ W. WILLIAM LEAPHART
/S/ JOHN WARNER




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