                                       No. 12080

             I N THE SUPREME COURT O THE STATE O M N A A
                                    F           F OTN

                                           1972


THE HOME INSURANCE COMPANY, a c o r p o r a t i o n ,

                               P l a i n t i f f and A p p e l l a n t ,



PINSKI BROTHERS, INC.,, a c o r p o r a t i o n ,
KENNETH K. KNIGHT and A. ANDREW VAN TEYLINGEM,
c o - p a r t n e r s , doing b u s i n e s s a s KNIGHT & VAN TEYLINGEN,
,, , , , , , , , , -e a d a n t s and Respondents.
  ,, , , , , , , , - f            Ae

KENNETH K. KNIGHT,

                               Counterclaimant,



HOME I I I D ~ ~ I TCOMPANY, a c o r p o r a t i o n ,
                     Y

                               I n v o l u n t a r y P l a i n t i f f and Defendant t o
                               Counterclaims and A p p e l l a n t .



Appeal from:       D i s t r i c t Court o f t h e Eighth   Judicial District,
                   Honorable Paul Ha Ff i e l d , Judge p r e s i d i n g .

Counsel o f Record :

       For Appellant :

            Smith, Emmons & B a i l l i e (Home Indemnity), Great F a l l s ,
              Montana.
            Alexander, Kuenning, H a l l & Miller (Home I n s u r a n c e Company),
              Great F a l l s , Montana.
            John H a l l argued, Great F a l l s , Montana.

      F o r Respondents:

            Church, H a r r i s , Johnson & Williams, G r e a t F a l l s , Montana,
                (Pinski Brothers).
            J a c k L. Lewis argued, Great F a l l s , Montana.
            J a r d i n e , Stephenson, Blewett & Weaver, Great F a l l s , Montana.
            S c o t t & L i n n e l l , Great F a l l s , Montana.
            Wayne E. L i n n e l l argued, Great F a l l s , Montana.
            Loble, P i c o t t e & Loble, Helena, Montana.


                                                             Submitted:    June 1 2 , 1972

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

Practice, B 4683.
          A there i s no c o n f l i c t i n the foregoing f a c t s appearing i n the records
           s
of this case, we hold t h a t the p a r t i a l summary judgment on the issue of
l i a b i l i t y f o r defense costs i s correct and must be affirmed.
          The f i n a l issue f o r review i s whether Home must pay a l l attorney fees
and court costs herein.       Home argues t h a t while i t may be l i a b l e f o r defense
c o s t s , i t i s not 1i a b l e f o r attorney f e e s , expenses and court costs involved
i n a r c h i t e c t Knight's counterclaim against i t o r i n defending against the
second and t h i r d counts i n Home's complaint which a r e not covered by Kfiight's
pol icy.
           In our view i t would not be possible t o separate or segregate such
defense costs from costs involved i n prosecuting Knight's countercl aim i n
any event.     Even i f such were possible, Home has been the moving party through-
out this l i t i g a t i o n and the party whose wrongful a c t s made i t necessary f o r
t h e a r c h i t e c t s t o defend themselves against both covered and noncovered claims,
a s well as the counterclaim of a r c h i t e c t Knight f o r breach of contract i n
denying insurance coverage and refusal t o defend.               Under such circumstances
t h e wrongful a c t s of the insurer (1) i n suing i t s insured under i t s nonexis-
t e n t subrogation r i g h t s on both covered and noncovered claims, and (2) i t s
refusal t o defend t h i s action on behalf of a r c h i t e c t Knight, constituted
breaches of i t s obl igation and duty rendering t h e insurer 1i a b l e f o r damages
by way of attorney f e e s , expenses, and court costs occasioned thereby.                     This
Court has extensively discussed the i n s u r e r ' s duty t o defend i n S t . Paul Fire
& Marine Ins. Co. v. Thompson, 150 Mont. 182, 433 P.2d 795.                   The following
cases so hold w i t h respect t o the counterclaim f o r insurance coverage:                   Runyan
v. Continental Casualty Company, 233 F.Supp. 214; Util i t i e s Construction Corp.
v. Peerless Ins. Co., 233 F.Supp. 64; Southwestern Bell Tel. Co. v. Western
Casualty & Sur. Co., 269 F.Supp. 315.            The following a u t h o r i t i e s so hold w i t h
respect t o a complaint containing both covered and noncovered claims:                      S t . Paul
Fire & Marine Ins. Co. v. Hodor, ~la.'(1967), 200 S.2d 205; 50 ALR2d 458, 469,
506.
           W note the d i s t r i c t court did not f i x the amount of damages by way
            e
of attorney f e e s , court c o s t s , and expenses f o r which Home i s l i a b l e t o t h e
a r c h i t e c t s i n defending against Home's complaint o r t o a r c h i t e c t Knight,
a r c h i t e c t Van Teylingen, o r the architectural firm.        Instead, the d i s t r i c t
court only prescribed the c r i t e r i a on which such award would be based upon
f u t u r e t r i a l t o e s t a b l i s h t h e amount of damages.   Any determination of t h e
d o l l a r amount of damages o r t h e c r i t e r i a t h e r e f o r a t t h i s time is premature.
           For t h e foregoing reasons, t h e judgment o f t h e d i s t r i c t c o u r t i s
affirmed.      This cause i s remanded t o t h e d i s t r i c t c o u r t f o r t r i a l and d e t e r -
mination of t h e amount o f damages.



                                                                 Associate J u s t i c e




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