                                        No. 12113

            I N T E SUPREME C U T O THE STATE O MONTANA
                 H           OR    F           F

                                          1972



ALLEN L McALEAR,
       .
                                 P l a i n t i f f and Respondent,



SAINT PAUL INSURANCE COMPANIES,
a Corporation,

                                 Defendant and Appellant.



                       D i s t r i c t Court of t h e Fourteenth J u d i c i a l D i s t r i c t ,
Appeal from:
                       Honorable N t A l l e n , Judge p r e s i d i n g
                                        a                                   .
Counsel o f Record :

      For Appellant :

                P a t r i c k F Hooks argued, Townsend, Montana.
                              w
                Glenn F Kenney appeared, Helena, Montana.
                            w

      For Respondent:

                A l l e n L. McAlear argued, Bozeman, Montana.



                                                    Submitted:        January 12, 1972

                                                       Decided:     JPN 3 11972
Filed :   1]fi~q 3 7
                   *
                   .   1972
Mr. Justice Frank I. Haswell delivered the Opinion of the Court.

           In a declaratory judgment action involving an attorney's

professional liability insurance policy, the district court

held the insurer liable for the cost of its insured's defense

against a third-party property damage action based upon a colli-

sion caused by the insured's runaway airplane.          From this final

judgment, the insurer appeals.

           The single controlling issue upon appeal is whether the

insurer is liable for the costs of such defense incurred by its

insured.    The district court held the insurer liable.       We reverse.

       The facts in this case are uncontradicted as the case

was submitted on the basis of an agreed statement of fact which

included the pleadings, stipulated exhibits, and discovery pro-

ceedings.    On November 14, 1969, plaintiff Allen F. McAlear, a

Bozeman attorney, purchased a professional liability policy from

defendant, Saint Paul Insurance Companies, containing the follow-

ing insuring agreement and exclusions:

           "Insuring Agreements

           "Coverage   A   -   Professional Liability

           "To pay on behalf of the Insured all sums which
           the Insured shall become legally obligated to
           pay as damages arising out of the performance
           of professional services for others in the In-
           sured's capacity as a lawyer and caused by the
           Insured or any other person for whose acts the
           Insured is legally liable (the performance of
           professional services shall be deemed to in-
           clude the Insured's acts as an administrator,
           conservator, executor, guardian, trustee or
           in any similar fiduciary capacity, but only to
           the extent for which in the usual attorney-
           client relationship the Insured would be
           legally responsible as attorney for a fiduciary)
             and t h e Company s h a l l have t h e r i g h t and d u t y
             t o d e f e n d i n h i s name and b e h a l f any s u i t
             a g a i n s t t h e I n s u r e d a l l e g i n g damages, even i f
             such s u i t i s g r o u n d l e s s , f a l s e o r f r a u d u l e n t ;
             b u t t h e Company s h a l l have t h e r i g h t t o make
             such i n v e s t i g a t i o n and n e g o t i a t i o n o f any claim
             o r s u i t a s may be deemed e x p e d i e n t by t h e Com-
             pany. The Company, however, s h a l l n o t make
             s e t t l e m e n t or compromise any claim or s u i t
             without t h e w r i t t e n consent of t h e Insured."

             The " E x c l u s i o n s " s e c t i o n of t h e p o l i c y s p e c i f i c a l l y

provides :

             "Coverage A d o e s n o t a p p l y :



             " ( 3 ) t o b o d i l y i n j u r y t o , or s i c k n e s s , d i s e a s e
             or d e a t h o f any p e r s o n , o r t o i n j u r y t o o r
             d e s t r u c t i o n of any t a n g i b l e p r o p e r t y , i n c l u d -
             i n g t h e l o s s of u s e t h e r e o f . "

             During t h e p o l i c y p e r i o d McAlear f l e w t o S a l t Lake C i t y

w i t h a c l i e n t , Robert S. Beck.              Beck had c o n t a c t e d McAlear re-

g a r d i n g t h e p u r c h a s e o f a t r a i l e r and it was n e c e s s a r y f o r them

t o go t o S a l t Lake C i t y t o o b t a i n f i n a n c i n g from a p r i v a t e i n d i -

vidual.       A s t h e sellers w e r e i n s o l v e n t it w a s n e c e s s a r y t o com-

p l e t e t h e t r a n s a c t i o n and g e t t h e t i t l e r e c o r d e d b e f o r e l i e n s

could be recorded a g a i n s t t h e s e l l e r ' s e q u i t y i n t h e trailer.

             Beck and McAlear had flown t o S a l t Lake C i t y on March 20,

1969, i n McAlear's p l a n e f o r t h i s purpose.                      They t r a n s a c t e d t h e i r

b u s i n e s s on March 2 1 and 2 2 .            A t a b o u t 6:00 a.m.         on March 2 3 ,

w h i l e p r e p a r i n g t o r e t u r n t o Bozeman, McALear was engaged i n a
p r e f l i g h t inspection of h i s plane.                H e manually t u r n e d o v e r t h e

p r o p e l l o r w h i l e t h e i g n i t i o n was i n t h e "on" p o s i t i o n .       This

caused t h e p i l o t l e s s a i r p l a n e t o a c c e l e r a t e down t h e ramp and

crash i n t o three other airplanes.
         On May 21, 1970, an action was filed in the United States

District Court in Utah by Gordon S. Burchett, the owner of one

of the damaged planes.   The Burchett action sought damages a-

gainst McAlear for his alleged negligence and sought recovery

of repair costs, depreciation and loss of use of Burchett's air-

plane.

         McAlear's professional liability policy with his insurer,

Saint Paul Insurance Companies, is the sole basis for his claim

in the instant declaratory judgment action.   He demanded of Saint

Paul that it    defend him in the Burchett action.     Saint Paul

denied this demand on the basis that his policy afforded no cover-

age and accordingly it owed him no duty to defend.     McAlear then

hired his own attorney to defend in the Burchett action.

         Thereafter McAlear brought the instant declaratory judg-

ment action against Saint Paul seeking a judgment holding it*

liable for the reasonable costs of his defense.      The case was

filed in the district court of Meagher County and submitted to

the district court, sitting without a jury, for decision on the

basis of an agreed statement of facts.   The district court on

July 2, 1971 entered an "Order", in effect the judgment, provid-

in material part:

         "IT IS HEREBY ORDERED, ADJUDGED AND DECREED,
         that the Plaintiff recover for his cost of
         defense in the suit brought against him.
         "It appears to the Court that the policy was
         carelessly written, and since this is the
         fault of the insurance company, they should
         pay for their own carelessness, because cer-
         tainly the duty to defend is not limited to
         the liability of the policy."
             Following d e n i a l of i n s u r e r ' s motion t h a t t h e c o u r t

e n t e r w r i t t e n f i n d i n g s of f a c t and c o n c l u s i o n s s f l a w , t h e

insurer appeals,

             The t h r u s t of i n s u r e r ' s p o s i t i o n i n t h e i n s t a n t case

i s t h a t i t s d u t y t o d e f e n d i s l i m i t e d t o claims a g a i n s t t h e

insured w i t h i n t h e coverage of t h e p o l i c y .               The i n s u r e r con-

t e n d s t h a t where, a s h e r e , t h e r e i s no p r i m a r y i n d e m n i t y c o v e r -

a g e f o r t h e B u r c h e t t a c c i d e n t , it h a s no d u t y t o d e f e n d .        Insurer

p o i n t s o u t t h a t t h e b a s i c i n s u r i n g agreement i n t h e p o l i c y (Cover-

a g e A ) , p r o p e r l y c o n s t r u e d , s o l i m i t s t h e d u t y t o d e f e n d and

t h a t t h e p o l i c y c o n t a i n s a n e x p r e s s e x c l u s i o n of p r o p e r t y dam-

a g e claims ( E x c l u s i o n 3 ) .

             On t h e o t h e r hand, t h e g i s t of t h e i n s u r e d ' s p o s i t i o n

i s t h a t t h e d u t y t o d e f e n d i s c o n t r a c t u a l and where, as h e r e , t h e

d u t y t o d e f e n d i s u n r e s t r i c t e d by t h e terms of t h e p o l i c y , t h e

duty t o defend is n o t l i m i t e d t o t h e primary indemnity coverage

of t h e policy.          According t o t h e i n s u r e d , t h e d u t y t o d e f e n d

i n t h e i n s t a n t c a s e i s e n t i r e l y i n d e p e n d e n t of t h e p r i m a r y i n -

demnity c o v e r a g e o f t h e p o l i c y .       Thus, t h e i n s u r e d a r g u e s , where

t h e B u r c h e t t c o m p l a i n t f a l l s w i t h i n t h e s c o p e of t h e " d u t y t o

defend" provision i n t h e p o l i c y , t h e i n s u r e r i s o b l i g a t e d t o

defend without regard t o t h e primary indemnity coverage a f f o r d -

ed by t h e p o l i c y .      A s a c o r o l l a r y t o t h i s argument, t h e i n s u r e d

i n s i s t s t h a t t h e e x c l u s i o n o f p r o p e r t y damage c l a i m s from t h e

primary indemnity c o v e r a g e a f f o r d e d by t h e p o l i c y i n no way

l i m i t s t h e duty of t h e i n s u r e r t o defend.
             O r d i n a r i l y a l i a b i l i t y i n s u r e r has no d u t y t o d e f e n d

an a c t i o n a g a i n s t t h e i n s u r e d when t h e c l a i m o r c o m p l a i n t d o e s

n o t f a l l w i t h i n t h e c o v e r a g e of t h e l i a b i l i t y p o l i c y .      I f the

i n s u r e r would have no o b l i g a t i o n t o indemnify t h e i n s u r e d s h o u l d

t h e c o m p l a i n a n t r e c o v e r , t h e n t h e r e i s no c o n t r a c t u r a l o b l i g a -

t i o n t o afford a defense.                 This general r u l e i s s u c c i n c t l y s t a t e d

i n 50 ALR2d a t page 472, a s f o l l o w s :

             " * * * a l i a b i l i t y i n s u r a n c e company h a s
             no d u t y t o defend a s u i t b r o u g h t by a t h i r d
             p a r t y a g a i n s t t h e i n s u r e d where t h e p e t i t i o n
             o r c o m p l a i n t i n s u c h s u i t upon i t s f a c e a l -
             l e g e s a s t a t e of f a c t s which f a i l s t o b r i n g t h e
             case w i t h i n t h e c o v e r a g e o f t h e p o l i c y . Con-
             s e q u e n t l y t h e company i s n o t r e q u i r e d t o d e -
             f e n d i f it would n o t be bound t o indemnify
             t h e i n s u r e d even though t h e c l a i m a g a i n s t him
             should p r e v a i l i n t h a t action."

To l i k e e f f e c t see 49 ALR2d 703; 1 1 4 U . o f Pa. Law Review.734,

"The I n s u r e r ' s Duty t o Defend Under a L i a b i l i t y I n s u r a n c e P o l i c y "

pp. 747-749,          757; 7A Appleman I n s . L.                &   P.,   S 4685, pp.          462, 471.

             The a l l e g a t i o n s i n t h e c o m p l a i n t a g a i n s t t h e i n s u r e d

d e t e r m i n e whether t h e r e i s c o v e r a g e under t h e p o l i c y .             T h i s gen-

e r a l r u l e i s w e l l s t a t e d i n 4 4 AmJur 23, I n s u r a n c e ,          s   1539;

             "Upon t h e b a s i s o f t h e a l l e g a t i o n s of t h e
             c o m p l a i n t o r p e t i t i o n , t h e c o u r t s have a d o p t e d
             t h e following tests f o r determining whether
             particular allegations require the insurer t o
             defend t h e a c t i o n brought a g a i n s t t h e insured:
             i f t h e complaint i n t h e a c t i o n brought a g a i n s t
             t h e i n s u r e d upon i t s f a c e a l l e g e s f a c t s which
             come w i t h i n t h e c o v e r a g e of t h e l i a b i l i t y p o l i c y ,
             t h e i n s u r e r i s o b l i g a t e d t o assume t h e d e f e n s e
             of t h e a c t i o n ; b u t i f t h e a l l e g e d f a c t s f a i l
             t o bring t h e case within t h e p o l i c y coverage,
             t h e i n s u r e r i s f r e e of such o b l i g a t i o n , a t
             least i n i t i a l l y . Stated d i f f e r e n t l y , t h e
             i n s u r e r i s u n d e r an o b l i g a t i o n t o d e f e n d o n l y
             i f it c o u l d b e h e l d bound t o indemnify t h e
             i n s u r e d , assuming t h a t t h e i n j u r e d p e r s o n proved
             t h e a l l e g a t i o n s of t h e c o m p l a i n t , r e g a r d l e s s
             of t h e a c t u a l outcome of t h e case. * * * "

             Measuring t h e B u r c h e t t c l a i m a g a i n s t t h e p o l i c y pro-

v i s i o n s h e r e , i t i s clear t h a t B u r c h e t t ' s a c t i o n i s a p r o p e r t y

damage c l a i m s e e k i n g money damages f o r M c A l e a r ' s a l l e g e d neg-

l i g e n c e i n damaging B u r c h e t t ' s p l a n e , d e p r e c i a t i o n i n i t s v a l u e ,

and l o s s o f i t s u s e .        The p o l i c y e x p r e s s l y e x c l u d e s from cover-

a g e " i n j u r y t o o r d e s t r u c t i o n of any t a n g i b l e p r o p e r t y , i n c l u d -

i n g t h e l o s s of use thereof".                Under such c i r c u m s t a n c e s t h e r e i s

no d u t y t o defend, a s h a s been w e l l e x p r e s s e d by t h e Michigan

Supreme C o u r t i n Duval v . Aetna C a s u a l t y                 &   Surety Co.,        3 0 4 Mich.




             "The i n s u r e r i s n o t r e q u i r e d t o d e f e n d t h e
             i n s u r e d a g a i n s t claims e x p r e s s l y excluded
             from coverage i n t h e p o l i c y , The e x c e p t i o n
             i n t h e p o l i c y i s a p a r t o f t h e c o n t r a c t be-
             tween t h e p a r t i e s . The d u t y o f t h e i n s u r a n c e
             company t o defend was n o t i n d e p e n d e n t o f t h e
             d u t y t o pay damages, i f any, The two p r o v i s i o n s
             a r e not separable."

             However, McAlear c o n t e n d s t h a t t h e "duty t o d e f e n d " pro-

v i s i o n of h i s p o l i c y i s u n i q u e , t h e r e b y t a k i n g h i s case o u t s i d e

t h e s c o p e of t h e g e n e r a l r u l e .      He points out t h a t the basic in-

s u r i n g agreement, Coverage A , p r o v i d e s i n material p a r t " t h e

company s h a l l have t h e           * * *     duty t o defend           * * *     any s u i t a g a i n s t

t h e I n s u r e d a l l e g i n g damages, even i f s u c h s u i t i s g r o u n d l e s s ,

false o r fraudulent",                 H e f u r t h e r c o n t e n d s t h i s p r o v i s i o n con-

s t i t u t e s a n u n r e s t r i c t e d c o n t r a c t u a l o b l i g a t i o n on t h e p a r t of

t h e i n s u r e r t o d e f e n d w i t h o u t r e g a r d t o t h e primary indemnity

coverage a f f o r d e d by t h e p o l i c y .          M c A l e a r c o n t e n d s t h a t because

such language n e i t h e r r e f e r s t o n o r r e s t r i c t s t h e d u t y t o d e f e n d

t o damage a c t i o n s w i t h i n t h e coverage o f t h e p o l i c y , any s u i t f o r
damages within the scope of the "duty to defend" provisions of

the policy imposes such duty on the insurer.   For emphasis, he

points out that under coverage B in the policy (not purchased

by the insured in the instant case) the duty to defend is re-

stricted by the following language:

        " * * * the Company shall have the right and
        duty to defend any suit against the Insured
        seeking damages on account of such bodily in-
        jury or property damage, even if any of
        the allegations of the suit are groundless * *   *".
        Regarding interpretation of the terms of the policy here,
the insured insists that an insurance policy differs from an

ordinary contract between two persons in that there is no true

negotiation and bargaining between the insurer and the insured

in arriving at the terms of an insurance policy; that the terms

of the policy are standardized by the insurer and offered to the

insured on a "take-it-or-leave-it" basis; and that the insured

really has nothing to say about the policy terms because of his

lack of any real bargaining power with the insurer.   The insured

here reminds us that because of such circumstances existing in

non-negotiated "adhesion" contracts such as insurance policies,

a11 doubts as to the meaning of the terms in the policy must

be resolved in favor of the insured and against the insurer.

       We recognize this principle of interpretation of "adhesion"
contracts as expressed by the California Supreme Court in Gray

v, Zurich Insurance Company, 65 C.2d 263, 419 P.2d 168, 171:

       "Although courts have long followed the
       basic precept that they would look to the
       words of the contract to find the meaning
             which t h e p a r t i e s e x p e c t e d from them, t h e y
             have a l s o a p p l i e d t h e d o c t r i n e of t h e a d h e s i o n
             c o n t r a c t t o knsurance p o l i c i e s , h o l d i n g t h a t
             i n view of t h e d i s p a r a t e b a r g a i n i n g s t a t u s of
             t h e p a r t i e s w e must a s c e r t a i n t h a t meaning o f
             t h e c o n t r a c t which t h e i n s u r e d would reason-
             a b l y e x p e c t . " (EmpHasis added. )

The Montana Supreme C o u r t h a s p r e v i o u s l y r e c o g n i z e d t h i s same

t e s t i n t h e f o l l o w i n g language from S t . P a u l F i r e            &   Marine I n s .

Co. v. Thompson, 150 Mont. 1 8 2 , 187, 433 P.2d 795:

             "Again l o o k i n g t o t h e Kansas r u l e which w e
             have a d o p t e d , w e f i n d t h a t , ' t h e t e s t i s n o t
             what t h e i n s u r e r i n t e n d e d t h e words of t h e
             p o l i c y t o mean b u t what a r e a s o n a b l e p e r s o n
             i n t h e p o s i t i o n of an i n s u r e d would u n d e r s t a n d
             them t o mean. ' "

             Applying t h i s t e s t t o t h e i n s t a n t c a s e , would a reason-

a b l e lawyer e x p e c t t h a t h i s p r o f e s s i o n a l l i a b i l i t y p o l i c y o b l i -

g a t e d h i s i n s u r e r t o defend him a g a i n s t damage s u i t s e x p r e s s l y

excluded from t h e primary indemnity coverage of t h e p o l i c y ?                                Or

p u t a n o t h e r way, would a r e a s o n a b l e lawyer u n d e r s t a n d t h a t h i s

p r o f e s s i o n a l l i a b i l i t y p o l i c y obligated h i s i n s u r e r t o defend

him a g a i n s t a l l damage s u i t s of whatever n a t u r e ?                W e hold t h a t a

r e a s o n a b l e lawyer would no more u n d e r s t a n d t h a t h i s p r o f e s s i o n a l

m a l p r a c t i c e p o l i c y o b l i g a t e d h i s i n s u r e r t o defend him a g a i n s t

damage c l a i m s a r i s i n g o u t of an a i r p l a n e a c c i d e n t t h a n a g a i n s t

damages a r i s i n g o u t o f a n a s s a u l t , an automobile a c c i d e n t , o r a

f a l l on t h e s t e p s o f h i s r e s i d e n c e .

             Both McAlear and t h e d i s t r i c t c o u r t r e l y h e a v i l y upon

t h e h o l d i n g of t h i s C o u r t i n Thompson f o r t h e p r o p o s i t i o n t h a t

t h e d u t y t o defend i s b r o a d e r t h a n t h e primary indemnity coverage

under an i n s u r a n c e p o l i c y .      There w e s a i d a t p. 188,
           "'"The principle that 'the duty to defend is
           broader than the duty to pay' is now beyond
           cavil." The agreement to defend is not a
           covenant subordinate to or dependent on the
           agreement to indemnify; it is distinct from,
           different from, independent of, and broader
           than the insurer's promise to pay on behalf
           of the insured all sums which the insured
           shall become obligated to pay by reason of
           the liability imposed upon him by law for
           damages because of bodily injury. There is
           no language in the policy making the defense
           covenant dependent on the amount of liability
           for bodily injury. The defense covenant is
           clear, positive and unambiguous, and should
           be accorded its plain and ordinary meaning.'
           Comunale v. Traders & Gen. Ins. Co., 321 P.2d
           768, 773, (Cal.App.) "

           Thompson is clearly distinguishable and must be construed

in the light of the facts of that case.    There the insured carried

an automobile liability policy with State Farm Mutual Insurance

Company.     In prior litigation State Farm had paid the limits of

the policy on a judgment against Thompson and argued that it had

no further duty to defend Thompson.    We held otherwise.

           The distinction is that in Thompson the claim against

the insured was clearly within the primary indemnity coverage of

his policy, while here Burchett's claim is clearly outside the

primary indemnity coverage.    In Thompson the insurer urged that

it was relieved of its duty to defend because of payment of the

liability limits, whereas in the instant case there can never

be any obligation on the part of the insurer to pay any judgment

in the Burchett action.    Additionally, in Thompson, the duty to

defend was contained in one portion of the policy, while the duty

to pay was contained in another; here the duty to defend and the

duty to pay are all included in one sentence.    Thus, Thompson is
no authority for the proposition that an insurer's duty to

defend extends to cases outside the primary indemnity coverage

of the policy.

        For the foregoing reasons the judgment of the district

court is reversed and the cause dismissed.




                                     Associate Justice
