                           NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        FEB 27 2018
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

NORTHLAND CASUALTY COMPANY, a No. 16-35731
Connecticut corporation,
                                   D.C. No. 9:13-cv-00232-DLC
               Plaintiff-Appellee,

 v.                                             MEMORANDUM*

NORTHWEST LOG HOMES, LLC;
DUANE KEIM,

                Defendants-Appellants,

JOSEPH S. MULROY, DBA Yorlum
Ranch, DBA Yorlum Ranch, Ltd.,

      Defendant-cross-claim-3rd-
      party-plaintiff-Appellant.

                   Appeal from the United States District Court
                           for the District of Montana
                   Dana L. Christensen, Chief Judge, Presiding

                      Argued and Submitted February 6, 2018
                               Seattle, Washington

Before: FISHER, GOULD, and PAEZ, Circuit Judges.




      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      In 2006, Joseph Mulroy hired Duane Keim and Keim’s company, Northwest

Log Homes (“Northwest”), to build him the shell of a log home and to remodel

parts of his guest house. Keim purchased standing spruce logs from a log broker in

Striker, Montana for the project. Unbeknownst to Keim, however, there were

powder post beetles and larvae inside the logs. Unfortunately, Keim did not treat

the logs with insecticide before using them for Mulroy’s project. As a result, the

insects grew and matured, and started to make their way around Mulroy’s home.

Mulroy first became aware of the infestation a year or two after construction was

completed, when the powder post beetles began to bore out of the logs. At that

point, the beetles had completely infested the logs, and removing them was

estimated to cost upwards of $200,000.

      Mulroy filed suit in state court against Keim and Northwest for damages

associated with the beetle infestation. Keim and Northwest had a commercial

general liability insurance policy (the “Policy”) with Northland Casualty Company

(“Northland”), and sought coverage from Northland for the damages caused by the

powder post beetles. Northland declined coverage, but agreed to defend Keim and

Northwest under a reservation of rights. Later, without Northland’s consent, Keim

and Northwest entered into a settlement agreement with Mulroy in the state court

action, under which they admitted liability and assigned their claims against

Northland to Mulroy.


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      While the state court action was proceeding, Northland filed this case in

federal court, seeking a declaratory judgment that it had no obligation to indemnify

Keim and Northwest. Mulroy counterclaimed. Both Northland and Mulroy moved

for summary judgment. The district court granted summary judgment to Northland

and denied a subsequent motion for reconsideration.

      The basis for the district court’s grant of summary judgment to Northland

was the Policy’s restriction on coverage to instances where there had been an

“occurrence,” which was defined as an accident. The district court concluded that

Keim had made an intentional choice not to treat the logs, and thus there had been

no accident. Mulroy, Keim, and Northwest appealed.

      Under Montana law, an event is an occurrence or accident unless the act

causing the event “was intentional” and “the consequence or resulting harm

stemming from the act was [objectively] intended or expected from the actor’s

standpoint.” Emp’rs Mut. Cas. Co. v. Fisher Builders, Inc., 371 P.3d 375, 378

(Mont. 2016). There are material disputes of fact both as to whether Keim knew

about the industry practice of treating logs with insecticide and consciously chose

not to treat the logs and as to whether the beetle infestation should have been

reasonably expected. For these reasons, we conclude that the district court erred

by granting summary judgment for Northland on these questions. We therefore

reverse the district court’s ruling that there was no occurrence.


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      Northland argues that even if the beetle infestation was an “occurrence,” one

of the Policy’s exclusions applies to preclude coverage. Northland also contends

that even if there was coverage initially, it was relieved of any coverage

obligations under the Policy when Keim and Northwest entered into a settlement

without Northland’s consent. We remand for the district court to consider in the

first instance Northland’s argument that assuming coverage existed initially, such

coverage was lost when the settlement was made without Northland’s consent.

The district court should also consider in the first instance whether any of the

Policy’s exclusions bar coverage, if it is determined that coverage otherwise

existed.

      REVERSED in part; VACATED in part; and REMANDED.




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