                                                                                    11/22/2016


                                       DA 16-0051
                                                                                Case Number: DA 16-0051

              IN THE SUPREME COURT OF THE STATE OF MONTANA

                                       2016 MT 301


J & C MOODIE PROPERTIES, LLC, a
Montana limited liability company,

          Plaintiff and Appellee,

     v.

STANLEY DECK, JUNE DECK, DICKINSON
BROADCAST CORPORATION, a North Dakota
corporation, DAVE CAMPBELL, d/b/a CAMPBELL
REALTY, a Montana company, HESSLER
ARCHITECTS, a Montana corporation, NCI
ENGINEERING, INC., a Montana corporation,
EVERSON-CORDEIRO ENGINEERING DESIGN,
a Montana company, MOUNTAIN STATES CONCRETE,
a Montana company, WADSWORTH BUILDERS COMPANY,
INC., a Montana corporation, ALPHA PARTNERS LLC,
a Montana limited liability company, NUCOR BUILDING
SYSTEMS UTAH LLC, SCOTTSDALE INSURANCE
COMPANY, and JOHN DOES 1-99,

          Defendants and Appellants.


APPEAL FROM:        District Court of the Eighth Judicial District,
                    In and For the County of Cascade, Cause No. BDV 2012-0751
                    Honorable James A. Haynes, Presiding Judge

COUNSEL OF RECORD:

            For Appellanst:

                    Bradley J. Luck, Kathleen L. DeSoto, Garlington, Lohn & Robinson,
                    PLLP, Missoula, Montana

                    Robert H. King, Jr., Dentons US LLP, Chicago, Illinois
                    (Attorneys for Scottsdale Insurance Company)

            For Appellee:

                    James C. Cumming, Cumming Law Firm, Helena, Montana
                                 Submitted on Briefs: September 7, 2016

                                            Decided: November 22, 2016

Filed:

         __________________________________________
                           Clerk




                             2
Justice Jim Rice delivered the Opinion of the Court.

¶1     The above-named Appellants (collectively Defendants), including Scottsdale

Insurance Company (Scottsdale), appeal the decision of the Eighth Judicial District

Court, Cascade County, granting summary judgment in favor of J & C Moodie

Properties, LLC (Moodie) on issues related to Scottsdale’s duty to defend. We affirm in

part, reverse in part, and remand for further proceedings.

¶2     We consider the following issues:

       1. Did the District Court err by holding that Scottsdale breached its duty to defend
       its insured?

       2. Did the District Court err by holding there were no grounds for a
       reasonableness hearing regarding the stipulated judgment?

       3. Did the District Court err by ruling that Scottsdale was not entitled to conduct
       discovery regarding the reasonableness determination?

                 FACTUAL AND PROCEDURAL BACKGROUND

¶3     Moodie hired Haynie Construction (Haynie), owned by Kyle Haynie, as general

contractor to construct a building for Moodie’s farm equipment dealership. Haynie’s

commercial business was insured by two different insurance companies during the course

of Haynie’s work on the project. Mountain West Farm Bureau (Farm Bureau) insured

Haynie under a policy that was in effect from April 22, 2008, to April 22, 2009.

Scottsdale insured Haynie under a policy that was effective from April 29, 2009 onward,

until it was cancelled on February 18, 2010.           The Scottsdale policy contained a

$1,000,000 limit of liability per occurrence, subject to a $2,000,000 aggregate limit.

There was no overlap in the effective periods of the two policies insuring Haynie.



                                             3
¶4     In August 2008, Moodie entered into a buy/sell agreement to purchase a parcel of

land on which to build the dealership building, and the transaction closed on July 18,

2009. Haynie conducted some construction work during the effective period of the Farm

Bureau policy.    The building project was completed in September 2009, while the

Scottsdale policy was in effect.

¶5     In October 2012, Moodie filed the instant action against Haynie, asserting various

construction defect claims regarding the construction project. Moodie filed its second

amended complaint in February 2013, asserting intertwining claims against Haynie, Kyle

Haynie personally, and Russell Country Realty, which was partly owned by Kyle

Haynie.1

¶6     According to the affidavit of Jon Reamer (Reamer Affidavit), a Director of Claims

for Scottsdale, Scottsdale received a Notice of Claim “indicating Moodie Implement

Company had presented a claim against Haynie in the captioned District Court action” on

March 6, 2013. Scottsdale acknowledged receipt of the claim the same day.

¶7     The Reamer Affidavit further attests to “several contacts” between Scottsdale and

Kyle Haynie, on behalf of Haynie, following the receipt of the Notice of Claim. First, on

March 21, 2013, Kyle Haynie informed Scottsdale that Farm Bureau had filed an Answer

on behalf of Haynie and assigned an incident number to the claim. Second, on March 25,

2013, Kyle Haynie informed Scottsdale that his first contract “as general contractor on

the Moodie Implement project was dated February 15, 2009, prior to the inception of the

1
   Russell Country Realty was added as a party defendant by Moodie’s third amended complaint,
filed on August 4, 2014.


                                             4
Scottsdale coverage.” Scottsdale averred that, during this second conversation, Kyle

Haynie was advised, and he acknowledged, that Scottsdale’s policy did not cover

operations prior to April 29, 2009, and that Kyle Haynie advised Scottsdale that Farm

Bureau “would be defending him in the action.” Kyle Haynie attested that he “never told

Scottsdale or anyone else that [he] agreed Scottsdale does not owe a duty to defend [his]

company.”

¶8     On May 20, 2013,2 Scottsdale sent Haynie a letter formally denying coverage.

The letter advised Haynie that Scottsdale had “determined that there is no coverage

available for the presently pending claims against you in this matter.” The letter stated

the “Designated Operations Exclusion” of Scottsdale’s policy excluded coverage for

damages “arising out of any and all operations prior to the inception of this policy. . . .

Therefore, this exclusion will act to bar coverage for this matter and Scottsdale will not

defend and/or indemnify you for this matter.” The letter concluded by advising Haynie

that if it believed “this coverage determination to be inaccurate, or that the claim has been

wrongfully disclaimed or rejected in whole or in part, you [Haynie] may have the matter

reviewed by the State Department of Insurance within the pertinent jurisdiction,” and

requested that Haynie provide any information or documentation to Scottsdale if the facts

or circumstances changed. Scottsdale presented no evidence that it took any additional




2
 The letter’s stated date is May 20, 2012, but the parties stipulated that the correct date was May
20, 2013.


                                                5
actions in furtherance of Haynie’s defense.3 Scottsdale’s next action of any kind was its

notice of appearance in this litigation, filed May 19, 2015.

¶9     By discovery responses dated June 20, 2013, Haynie disclosed to Moodie that

Scottsdale had refused to defend and indemnify Haynie, and that Farm Bureau was

defending the action, but would be issuing a reservation of rights letter. That same day,

Farm Bureau provided the letter to Haynie, advising that it would provide a defense

through attorney Curt Drake (Drake) because some of the claims alleged may fall under

the Farm Bureau policy. However, the letter stated as follows:

       Mountain West Farm Bureau Mutual Insurance Company expressly
       reserves its rights with respect to the following questions concerning its
       duty to provide defense and indemnity under the Businessowners [sic]
       policies issued to you:

       1. There is a question as to whether some or all of the damages alleged in
       the lawsuit were the result of bodily injury or property damage caused by
       an occurrence as those terms are defined in the policy.

       2. There is a question as to whether some or all the claims asserted in the
       Second Amended Complaint fall within the scope of the policy’s coverage.

       3. There is a question as to whether the following policy language
       precludes coverage: [policy provisions regarding, in particular, the “your
       work” exclusion and whether the damages fall within the definition of
       “property damage.”]

Farm Bureau noted that “Some potential coverage exists for the claim of negligence.

That being said, some or all of the damages alleged in the Second Amended Complaint




3
  Counsel for Scottsdale stated during summary judgment oral argument that there was direct
contact between Farm Bureau and Scottsdale, but there is no sworn evidence to that effect, and
thus is not part of the summary judgment record.


                                              6
may be excluded by the policy provisions cited above.”          The letter concluded by

informing Haynie:

      As noted above, some of the damages asserted against you may not give
      rise to coverage. Consequently, this presents the potential for personal
      liability on your part, and we reserve the right to deny coverage to you, and
      anyone claiming coverage under your policy, for any judgment falling
      outside the policy’s coverage.

Drake represented Haynie throughout the litigation and there is no dispute he provided a

competent defense.

¶10   On February 9, 2015, Haynie and Moodie jointly filed a stipulated settlement that

recited (1) Moodie’s claims against Haynie; (2) Moodie’s expert witnessess’s opinion

that the project was negligently constructed and that Moodie suffered $5,650,000 in

damages; (3) Scottsdale’s refusal to provide a defense or coverage; (4) Haynie’s resulting

substantial risk, including financial insolvency; (5) the settlement reached between

Moodie and Haynie for $5,650,000; (6) Moodie’s agreement to file a covenant not to

execute on such judgment; and (7) Haynie’s agreement to assign all its rights and interest

in the Scottsdale policy to Moodie. Kyle Haynie attested that, as a result of Scottsdale’s

refusal to provide a defense, he had “settled with Moodie to eliminate the severe risks to

me and my business.”

¶11   The District Court entered judgment in the case against Haynie for $5,650,000 on

March 3, 2015, and ordered that Moodie was entitled to recover all costs, fees, and

interest as allowed by law. On March 12, 2015, Moodie and Haynie jointly filed a

covenant not to execute on the judgment and claims. In the covenant, Moodie agreed to




                                            7
not enforce the judgment against Haynie, Kyle Haynie personally, or Russell Country

Realty, and Haynie assigned all rights and interest in the Scottsdale policy to Moodie.

¶12    Moodie filed a notice of entry of judgment on March 12, 2015. On March 24,

2015, Moodie filed its fourth amended complaint, which named Scottsdale as a defendant

and requested a declaratory judgment against Scottsdale. The declaratory judgment count

alleged that Scottsdale had breached its duty to defend, Haynie had entered a stipulated

judgment due to Scottsdale’s failure to defend, the judgment was reasonable and

negotiated in good faith, and Scottsdale was liable for the stipulated judgment.

¶13    Scottsdale moved for summary judgment to dismiss the declaratory judgment

count and sought discovery regarding the reasonableness of the settlement. Moodie cross

moved for summary judgment on the same count and requested a protective order to bar

discovery. Scottsdale argued that it was in an excess position and did not have a duty to

defend under its excess coverage clause,4 it did not unjustifiably breach its duty to

defend, the stipulated judgment was not reasonable and could not survive summary

judgment, and it was entitled to discovery regarding the reasonableness of the stipulated

judgment.

¶14    The District Court ruled in favor of Moodie on all issues, holding that Scottsdale

had a duty to defend Haynie, Scottsdale breached that duty unjustifiably, the stipulated

judgment was reasonable, and Scottsdale was not entitled to discovery regarding the


4
  Scottsdale’s position regarding its duty to defend changed from the grounds stated in its May
20, 2013 denial letter. The letter stated that the “Designated Operations Exclusion” was the
reason for the denial, but its summary judgment motion argued there was no duty to defend
because of the excess coverage clause of the policy.


                                              8
reasonableness of the stipulated judgment. Scottsdale appeals all rulings of the District

Court, except for the ruling that it had a duty to defend Haynie.

                              STANDARDS OF REVIEW

¶15    A district court’s grant of summary judgment is reviewed de novo, applying the

same criteria as the district court. State Farm Fire & Cas. Co. v. Schwan, 2013 MT 216,

¶ 12, 371 Mont. 192, 308 P.3d 48. Under M. R. Civ. P. 56(c), judgment shall be rendered

forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, 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. Roe v. City of

Missoula, 2009 MT 417, ¶ 14, 354 Mont. 1, 221 P.3d 1200 (citing Corporate Air v.

Edwards Jet Ctr., 2008 MT 283, ¶ 24, 345 Mont. 336, 190 P.3d 1111).

¶16    A material fact is a fact that involves the elements of the cause of action or

defenses at issue to an extent that necessitates resolution of the issue by a trier of fact.

Roe, ¶ 14 (citing Corporate Air, ¶ 24). The party moving for summary judgment has the

initial burden of establishing both the absence of genuine issues of material fact and

entitlement to judgment as a matter of law. Roe, ¶ 14 (citing Corporate Air, ¶ 25). If the

moving party meets this burden, then the burden shifts to the nonmoving party to

establish that a genuine issue of material fact does exist. Roe, ¶ 14 (internal quotation

omitted) (citing Corporate Air, ¶ 25).

¶17    If no material facts are in dispute, the question of whether or not an insurer

breached its duty to defend is a question of law. Schwan, ¶ 12 (citing Travelers Cas. &

Sur. Co. v. Ribi Immunochem Research, Inc., 2005 MT 50, ¶ 14, 326 Mont. 174, 108 P.3d


                                             9
469). Questions of law are reviewed for correctness. State Farm Mut. Auto. Ins. Co. v.

Freyer, 2013 MT 301, ¶ 22, 372 Mont. 191, 312 P.3d 403.

                                     DISCUSSION

¶18 1. Did the District Court err by holding that Scottsdale breached its duty to
defend its insured?

¶19    Acknowledging it had a duty to defend Haynie, Scottsdale argues it did not breach

the duty because, at all times during the litigation, Haynie was fully defended by counsel

provided by Farm Bureau. Scottsdale argues that this Court’s holdings in Schwan and

Westchester Surplus Lines Insurance Co. v. Keller Transportation, Inc., 2016 MT 6, 382

Mont. 72, 365 P.3d 465 [hereinafter Westchester], established that an insured is “only

entitled to one full defense,” meaning that the provision of a defense by any insurer

necessarily satisfies the duty to defend of any co-insurer. Thus, Scottsdale argues that

because Farm Bureau fully defended Haynie throughout the litigation, Haynie was never

“improperly abandoned by its insure[r] and left without a defense,” and Scottsdale did not

breach its duty to defend.

¶20    “The duty to defend arises when a complaint against an insured alleges facts,

which if proven, would result in coverage.” Farmers Union Mut. Ins. Co. v. Staples,

2004 MT 108, ¶ 21, 321 Mont. 99, 90 P.3d 381; accord Schwan, ¶ 15; Freyer, ¶ 26;

Tidyman’s Mgmt. Servs. v. Davis, 2014 MT 205, ¶ 22, 376 Mont. 80, 330 P.3d 1139

[hereinafter Tidyman’s I]. “Unless there exists an unequivocal demonstration that the

claim against an insured does not fall within the insurance policy’s coverage, an insurer

has a duty to defend.” Staples, ¶ 22; Revelation Indus. v. St. Paul Fire & Marine, 2009



                                           10
MT 123, ¶ 32, 350 Mont. 184, 206 P.3d 919. An insurer must defend all counts “so long

as one count potentially triggers coverage, even if the remaining counts would not be

covered.” Schwan, ¶ 16. An insurer’s duty to defend is “independent from and broader

than its duty to indemnify.” Schwan, ¶ 15; accord Freyer, ¶ 26.

¶21    “[W]here an insurer refuses to defend a claim and does so unjustifiably, that

insurer becomes liable for defense costs and judgments.” Newman v. Scottsdale Ins. Co.,

2013 MT 125, ¶ 30, 370 Mont. 133, 301 P.3d 348 (quoting Staples, ¶ 27); accord

§ 28-11-316, MCA; Tidyman’s I, ¶ 23; Westchester, ¶ 30; Lee v. USAA Cas. Ins. Co.,

2004 MT 54, ¶ 19, 320 Mont. 174, 86 P.3d 562; Indep. Milk & Cream Co. v. Aetna Life

Ins. Co., 68 Mont. 152, 157, 216 P. 1109, 1110 (1923) (“The refusal of the insurer to

defend the action was unjustified and it did so at its peril. It constituted a breach of the

contract and the respondent clearly was entitled to recover such damages as were the

natural and ordinary consequence of the breach.”).        “[W]hen an insurer improperly

abandons its insured, the insured is justified in taking steps to limit his or her personal

liability.” Freyer, ¶ 34 (quoting Old Republic Ins. Co. v. Ross, 180 P.3d 427, 433 (Colo.

2008)); accord Westchester, ¶ 33; Tidyman’s I, ¶ 25. “In other words, where an insurer

refuses to defend its insured, it does so at its peril.” Tidyman’s I, ¶ 24; accord Indep.

Milk & Cream Co., 68 Mont. at 157, 216 P. at 1110.

¶22    If an insurer believes a policy exclusion applies, the prudent course of action is to

defend under a reservation of rights and file a declaratory action to resolve the coverage

question.   Freyer, ¶ 37 (“[W]e have repeatedly admonished insurers to [defend the

insured and file a declaratory action to discern coverage] if there is a coverage


                                            11
question.”); Staples, ¶ 28; Diacon ex rel. Palmer v. Farmers Ins. Exch., 261 Mont. 91,

102, 861 P.2d 895, 902 (1993); St. Paul Fire & Marine Ins. Co. v. Cumiskey, 204 Mont.

350, 358, 665 P.2d 223, 227 (1983) (“In a proper case, an insurer may use [a declaratory

action] in order to obtain a determination of the validity, continuance, or coverage of an

insurance policy; a determination of the extent of liability; or a determination of the

insurer’s duties under the policy.”); see also Nielsen v. TIG Ins. Co., 442 F. Supp. 2d 972,

977 (D. Mont. 2006) (noting this Court’s admonition to use declaratory actions to resolve

coverage questions).

¶23    In Schwan, on which Scottsdale relies, we held the insurer did not breach its duty

to defend, despite not hiring counsel for its insureds, because its actions in coordinating

with the insureds’ other defense counsel “gave the necessary substance to the duty to

defend and fulfilled its contractual duty to the [insureds] under the policy.” Schwan,

¶ 20. The Schwan plaintiffs argued and the district court ruled that the insurer, State

Farm Fire and Casualty Company (State Farm Fire), breached its duty to defend the

defendants by not “retain[ing] separate counsel for the [defendants] in the [underlying

tort action] or contribut[ing] financially to payment of [the other insurer’s retained

counsel’s] legal fees.” Schwan, ¶ 11. However, State Farm Fire engaged in discussions

with the insureds’ co-insurer, confirmed the co-insurer did not need assistance and was

defending the insureds on all claims, committed to assuming the defense if the co-insurer

discontinued its defense, participated in settlement discussions, and kept the insured

advised of its actions. Schwan, ¶ 19. State Farm Fire also filed a declaratory action to

determine coverage and hired coverage counsel for the insureds, even though not


                                            12
required to do so under the policy. Schwan, ¶¶ 9, 19. We reasoned that the insureds had

not been “left unprotected or . . . prejudiced” by State Farm Fire’s actions, Schwan, ¶ 20,

and the duty to defend had not been breached, Schwan, ¶ 25.

¶24    In Westchester, we held that Westchester Surplus Lines Insurance Company had

not breached its duty because “[t]he facts of this case demonstrate that the insureds were

not ‘improperly abandoned’ by their insurers and left without a defense such that they

would be ‘justified in taking steps to limit their personal liability’ by entering a stipulated

judgment.” Westchester, ¶ 33 (quoting Freyer, ¶ 34). Westchester, an excess carrier,

assumed defense of the insured when the primary insurer’s policy limits were reached,

issued a reservation of rights letter explaining it would defend up to its facial policy

limits of $4 million, litigated the matter until the facial limits were exhausted, transferred

the case back to the primary insurer, who assumed the defense, and joined the primary

insurer in a declaratory action to determine coverage when plaintiffs claimed there was

additional coverage. Westchester, ¶¶ 4–8. Between Westchester and the primary insurer,

the insureds’ legal costs, though delayed, were completely paid and the insured had legal

representation up to the entry of the stipulated judgment between the insured and

plaintiffs. Westchester, ¶ 31.

¶25    In arguing it did not breach the duty to defend, Scottsdale urges a laser-like focus

on the fact that Haynie was represented by counsel, overlooking our holding in Schwan

that legal representation of the insureds by a co-insurer “[did] not mean that State Farm

Fire’s duty to defend the [insureds] was extinguished by the defense provided by [the

co-insurer].”   Schwan, ¶ 17.     Rather, we reviewed all of the facts in the matter to


                                              13
determine “whether State Farm Fire fulfilled [its] duty [to defend] by the actions it took,”

Schwan, ¶ 14, and ultimately determined that it provided the “necessary substance” of its

contractual duty, Schwan, ¶ 20. Similarly, in Westchester, we concluded that “[t]he facts

of this case demonstrate that the insureds were not ‘improperly abandoned’ by their

insurers.” Westchester, ¶ 33 (quoting Freyer, ¶ 34). The same conclusion cannot be

reached from a review of Scottsdale’s actions here.

¶26    After receiving notice of the claim, Scottsdale spoke with Kyle Haynie on March

21, 2013, learning that Farm Bureau had assigned a claim number to the matter and filed

an Answer on behalf of Haynie, and again on March 25, 2013, when it learned that the

construction contract had been signed before the inception of its policy period and that

Farm Bureau was undertaking defense of Haynie. Doing nothing more, on May 20,

2013, Scottsdale denied coverage pursuant to the “Designated Operations Exclusion” of

its policy, and did nothing further until it was named as a defendant in this action

following entry of the stipulated judgment.

¶27    Clearly, the factual assertions of Moodie’s claim included alleged actions by

Haynie within Scottsdale’s policy period: the policy became effective on April 29, 2009,

and construction was not completed by Haynie until September 2009. Yet, contrary to

what we have “repeatedly admonished insurers,” Freyer, ¶ 37, Scottsdale did not seek a

declaratory ruling to confirm its internal coverage determination. A declaratory action

could have been brought early in the litigation—either upon tendering a defense to

Haynie upon reservation of rights, or while letting Farm Bureau take the lead in

defending Haynie—to resolve the coverage issue and confirm whether Scottsdale had a


                                              14
duty to defend. Failing that, Scottsdale provided no other assistance whatsoever to its

insured related to the defense. As the District Court found, “Scottsdale can point to no

evidence of actions it took to assist or participate in its insured’s defense.” Unlike the

insurers in Schwan and Westchester, Scottsdale made no effort to contact the co-insurer

to further understand the claims, offered no coordination, and provided no other defense

support pending a ruling that would affirmatively confirm whether coverage existed

under the policy. It simply made the unilateral decision that it was done.

¶28    An insurer must ensure an insured is defended, as the insurer in Schwan did, even

as it disputed coverage. Scottsdale did nothing to honor the contractual benefit that

Haynie had secured under the policy, or to confirm that it had no obligation to do so.

When an insurer defends the insured, it also defends itself against a duty to defend claim.

Scottsdale’s decision to “roll the dice” on its opinion that Haynie was not insured under

the policy exposed Haynie, and itself, to great risk.

¶29    Scottsdale’s failures placed Haynie in the position of litigating under a reservation

of rights letter from Farm Bureau. Farm Bureau provided a defense, but did so under a

reservation of rights that informed Haynie that “some or all of the damages” alleged may

be excluded under the policy, and that the litigation “presents the potential for personal

liability on your part.” Farm Bureau reserved its right to “deny coverage to you, and

anyone claiming coverage under your policy, for any judgment falling outside the

policy’s coverage.” Scottsdale knew Haynie was being defended by Farm Bureau, but

made no effort to learn if Haynie was being defended under a reservation of rights and, if

so, the terms of the reservation. Haynie was “left unprotected,” Schwan, ¶ 20, and faced


                                             15
with this scenario, entered the stipulated judgment, stating that “I [Kyle Haynie] settled

with Moodie to eliminate the severe risks to me and my business.” “[W]hen an insurer

improperly abandons its insured, the insured is justified in taking steps to limit his or her

personal liability.” Freyer, ¶ 34 (quoting Old Republic Ins. Co., 180 P.3d at 433); accord

Westchester, ¶ 33; Tidyman’s I, ¶ 25. As such, the stipulated judgment was the “natural

and ordinary consequence of [Scottsdale’s] breach” of its duty to defend Haynie. Indep.

Milk & Cream Co., 68 Mont. at 157, 216 P. at 1110.5

¶30    Scottsdale disclaimed coverage without a declaratory judgment and took no

further steps to honor its duty to defend, which resulted in an abandonment of its insureds

that exposed them to risk. While Scottsdale now acknowledges it had a duty to defend

Haynie, at the time it entered the stipulated settlement, Haynie had received only denials

from Scottsdale. We affirm the District Court’s holding that Scottsdale breached its duty

to defend Haynie.

¶31 2. Did the District Court err by ruling there were no grounds for a
reasonableness hearing regarding the stipulated judgment?

5
  Notably, the situation here is also different from that in Freyer. In Freyer, the insured entered
a consent judgment, but the insurer provided a defense for the insured. Freyer, ¶¶ 14, 17. We
held:

       When an insurer defends the insured against a claim, and challenges coverage in a
       separate declaratory action, a stipulated settlement that relieves the insured of any
       financial stake in the outcome of the case does not represent the damages “within
       the contemplation of the parties when they entered into the insurance contract,
       and such as might naturally be expected to result from its violation.”

Freyer, ¶ 36 (quoting Mont. Petroleum Tank Release Comp. Bd. v. Crumleys, Inc., 2008 MT 2,
¶ 64, 341 Mont. 33, 174 P.3d 948). Here, Haynie was being defended under a substantial
reservation of rights by a co-insurer, and Scottsdale did nothing to confirm its coverage decision,
exposing Haynie to significant risk.



                                                16
¶32     Montana’s general damages statute requires that “[d]amages must in all cases be

reasonable, and where an obligation of any kind appears to create a right to

unconscionable and grossly oppressive damages contrary to substantial justice, no more

than reasonable damages can be recovered.”           Section 27-1-302, MCA.        Likewise,

settlements where an insurer has breached its duty to defend “must be reasonable.”

Abbey/Land LLC v. Interstate Mech. Inc., 2015 MT 77, ¶ 12, 378 Mont. 372, 345 P.3d

1032 (citing Tidyman’s I, ¶ 40; § 27-1-302, MCA; Watson v. West, 2011 MT 57, ¶ 11,

360 Mont. 9, 250 P.3d 845); accord Indep. Milk & Cream Co., 68 Mont. at 157, 216 P. at

1110.

¶33     When challenging the reasonableness of the stipulated settlement, the insurer bears

the initial burden. Tidyman’s I, ¶ 41. Where a plaintiff has moved for approval of a

stipulated settlement, the insurer “must set forth specific facts tending to demonstrate that

the settlement amount may be unreasonable and request the district court to hold a

reasonableness hearing.” Tidyman’s I, ¶ 41. The insurer must “go beyond the pleadings

and by her own affidavits, or by the depositions, answers to interrogatories, and

admissions on file, designate specific facts showing that there is a genuine issue for trial.”

Tidyman’s I, ¶ 41 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548,

2553 (1986)) (emphasis added). If the insurer sets forth sufficient facts to make a

showing that the settlement is unreasonable, that constitutes “a factual issue which

precludes entry of summary judgment upon a claim for payment of a settlement amount,

and a hearing on reasonableness should be held.” Tidymans I, ¶ 41.



                                             17
¶34    Scottsdale raised specific fact issues by outlining problems with the appraisal used

to establish the settlement amount. Even without the benefit of discovery, Scottsdale

introduced an affidavit based upon tax records evidencing the tax value of the land and

building currently owned by Moodie. This information implicated potential problems

with Moodies’s expert’s filings regarding damages and the reasonableness of the

stipulated judgment. Specifically, Scottsdale identified a possible $2 million windfall

that appears to grant Moodie sufficient damages to purchase new land and build a new

building, without considering the value of the land and building constructed for and

currently owned by Moodie as offsetting values. This constitutes sufficient “specific

facts” to preclude the entry of summary judgment and require a reasonableness hearing.6

¶35    We hereby reverse the District Court and remand back for a reasonableness

hearing to determine whether the settlement was reasonable in accordance with our

holding in Tidyman’s Management Services Inc. v. National Union Fire Insurance Co.,

2016 MT 201, 384 Mont. 335, 378 P.3d 1182 [hereinafter Tidyman’s II].

¶36 3. Did the District Court err by ruling that Scottsdale was not entitled to
discovery regarding the reasonableness determination?

¶37    We also remand this matter for appropriate discovery in accordance with

Tidyman’s II. “[T]he District Court retains discretion to determine what evidence to

admit or refuse in a reasonableness hearing.” Tidyman’s II, ¶ 16. However, the District

Court cannot refuse to hear “material and relevant evidence.”               Tidyman’s II, ¶ 16.


6
  Scottsdale also raises several other factual issues with the stipulated judgment, but one material
factual issue is sufficient to preclude entry of summary judgment of a stipulated settlement and
require a reasonableness hearing.


                                                18
Material and relevant evidence is that which is “relevant to an assessment of the

reasonableness of the stipulated settlement,” Tidyman’s II, ¶ 16, including “facts bearing

on the liability and damage aspects of [the] plaintiff’s claim, as well as the risks of going

to trial” for a defendant who “does not have the benefit of insurance coverage.”

Tidyman’s II, ¶ 15.

¶38    Discovery must be sufficient to allow the District Court to fulfill its duty to

“objectively consider both the merits of the underlying case and the value to a prudent

uninsured defendant of confessing judgment in exchange for a covenant not to execute.”

Tidyman’s II, ¶ 15. However, it is not an excuse for the insurer to raise “insurance

contract defenses” or to “assert its policy limits,” as it has already forfeited those rights

by breaching its duty to defend. Tidyman’s II, ¶ 14.

¶39    For the foregoing reasons, we affirm the District Court’s determination that

Scottsdale breached its duty to defend, and remand this matter for discovery and a

reasonableness hearing.

¶40    Affirmed in part, reversed in part, and remanded for further proceedings consistent

herewith.


                                                  /S/ JIM RICE


We Concur:

/S/ MIKE McGRATH
/S/ JAMES JEREMIAH SHEA
/S/ PATRICIA COTTER
/S/ MICHAEL E WHEAT




                                             19
