                                    No.     95-062
              IN THE SUPREMECOURT OF THE STATE OF MONTANA
                                          1995


THE CITY OF BOZEMAN,
a Municipal Corporation,
              Plaintiff    and Appellant,
         v.
AIU INSURANCE COMPANYand MARK STORY,
d/b/a MARK STORY CONSTRUCTION,
              Defendants     and Respondents.




APPEAL FROM:          District    Court of the Eighteenth  Judicial District,
                      II-I and for the County of Gallatin,
                      The Honorable Larry W. Moran, Judge presiding.


COUNSELOF RECORD:
              For Appellant:
                      Steve Reida and J. Robert Planalp; Landoe,
                      Brown, Planalp & Braaksma, Bozeman, Montana

              For Respondents:
                      E. Lee LeVeque; Conklin,        Nybo, LeVeque & Murphy,
                      Great Falls, Montana
                      Gregory   Morgan,    Attorney   at Law, Bozeman, Montana



                                          Submitted   on Briefs:   July   27, 1995
                                                       Decided:    August   21,   1995
Filed:



                                          Cleirk
Justice        W. William              Leaphart       delivered                 the Opinion                   of the Court.

          The City         of Bozeman appeals                  from the granting                            of AIU Insurance
Company's motion                 for    summary judgment                   on the basis                     of res judicata.
We affirm.
                                                     Background
          This      is    the     fourth         appeal      before              this         Court           arising           out    of
Mark Story‘s              suit      against        the City          of Bozeman.                        The City        appealed
Story's          first       jury        verdict        (Story             I)     and           then,           after          remand,
appealed           the      second          jury      verdict              (Story               II)     .        Bozeman          also
litigated          the     question            of whether            its         insurer               AIU had a duty                  to
defend         the        City         against        Story's              claims.                      That       matter             was
successfully              appealed          by AIU        in       what          is        known as              AIU      I.          The
background           leading           to the present              appeal             is     as follows:
          On July         12, 1985, AIU Insurance                       Company issued                         to the City             of
Bozeman its              comprehensive             general         liability                insurance             policy         which
included          a broad         form      comprehensive                  liability                   endorsement.                   The
policy         and broad            form     endorsement              were            effective                June     30,       1985
through        June 1986.
          In      December             of      1986,         Mark           Story,                    d/b/a        Mark          Story
Construction,              sued the City             of Bozeman requesting                                  general,           special
and      punitive          damages          arising          out       of         the           alleged           actions             and
omissions          of City          personnel         during         the AIU policy                           period.           In his
amended complaint,                     Story       alleged         breach             of     the            covenant       of     good
faith       and fair        dealing         and defamation                      amongst other                   claims.
            AIU defended            the City        against          Story's               claims           but reserved              its
right       to later         deny coverage.                  The first                  trial           of Story's              claims
                                                               2
against      the City              resulted              in a jury               verdict       against           the City        in the
sum of      $373,236               with      no damages awarded                              on the        defamation            claim.
Judgment          was entered                and the City                          appealed.             Since      AIU took           the
position         that        the defamation                      claim           was the only             basis      for     coverage
and since             the    jury         did      not         award any damages for                             defamation,           AIU

refused          to     continue             defending                  the        case.           As a result              of      AIU's
withdrawal             of    its       defense,                the          City     filed         an action         against           AIU
alleging          that       AIU breached                      its          duty     to defend.              The City            sought
attorney          fees       and costs              incurred                    as a result             of AIU's          refusal           to
represent             the       City         in      its             appeal          of      the        breach       of      contract
judgment.              The City's                 original                  complaint         in AIU         I     did     not      raise
issues      of whether                 the City            had coverage                     under       the AIU policy.
         On May 3, 1990,                     this         Court             reversed         the judgment                against       the
City     of Bozeman in Story                        I,     Story             v. Bozeman (1990),                   242 Mont.           436,
791 P.2d          767,          and remanded the                            case for         retrial.             AIU agreed                to
resume the City's                   defense              against                Story's      claims        after         remand.            In
the     second         trial,          the        jury         awarded              $850,000            damages against                the
City.       As before,                  AIU took                 the         position         that        Story's          claim       for
defamation             was the            only       basis              for        coverage            and since           the      trial
judge      directed              a verdict                in         the        City's       favor        on the          defamation
count,     AIU advised                  the City               that             none of the award was covered                               by
its     insurance            policy             and that               it        was again             withdrawing          from       the
case.
         After         the      jury       verdict              in Story              II,     the City,            on January               7,
1992,       moved to amend its                             complaint                in AIU         I    to include           coverage
issues      arising              from      the           Story          II       verdict.              AIU objected              to    the

                                                                            3
City's      motion         to    amend, contending                    that         the    City        was seeking               to
insert      coverage            issues         which        had nothing            to do with             the       "duty       to
defend"          issues.        The trial             court      agreed with             AIU and held that                    the
coverage          issues        were         separate           and distinct             and thus             denied          the
City's           motion     to amend the complaint.                           The trial               court        concluded
that      AIU breached            its        duty     to defend        and entered           judgment               in favor
of the City           in the amount of $17,739                         for     costs.        AIU appealed                    that
decision.           We reversed               the judgment            of the District                   Court         in City
of Bozeman v. AIU Insurance                           Co. (1993),            262 Mont.           370, 865 P.2d 268
(AIL7 I).

          The City         appealed            the     second        jury     verdict            in     Story        II.       On

appeal,      we affirmed                in part        and reversed            in part,           and remanded for
entry       of     judgment             of     $850,000          against           the    City,          striking             the
$100,000          award      against            defendant           Neil      Mann.          Story            v.    City       of
Bozeman (1993),                 259 Mont.            207,     856 P.2d 202.
          In February            of 1993, the City                   filed         the present            suit       seeking
a declaratory              judgment           that      coverage         existed         under         the AIU policy
for     Story's      claim       against            the City        of Bozeman.            On December 2, 1994
the District           Court granted                 AIU's      motion       for    summary judgment                       on the
basis      that     this    Court's            decision         in AIU I barred             the coverage                    issue
under      the principles                of res judicata.                    The City        appeals               from that
summary judgment.


                                               Standard          of Review
          In reviewing           the grant            of summary judgment,                  this         Court       applies
the same standard                 as that            utilized        by the trial            court.                Contreraz

                                                                4
v. Michelotti-Sawyers                        (Mont. 1995),                 896 P.Zd 1118, 1120, 52 St.Rep.
454,       456.



                                                  Issue        Presented
         Does the doctrine                     of res judicata                  bar the City               of Bozeman from
litigating             issues         of insurance             coverage               which        were the subject              of
a previous             amended complaint                     disallowed               by the District              Court        but
which       were not appealed                    by the City                  in AIU      I?


                                                        Discussion
           In granting            summary judgment                      for     AIU      on     the City's         claim        for
coverage,             the District             Court reasoned                  that     although           AIU I purported

to     address          only      the     question            of       attorney           fees         and costs           in   the
context         of the duty to defend,                        this      Court,         in concluding              that      there
was        no     duty          to       defend,             premised             that             conclusion          on       its
determination                  that      there         was         no       coverage.                  Accordingly,             the
District          Court        found that             the City's              present          suit     seeking        coverage
was      barred          by      res      judicata.                    We reach               the      same      result         for
procedural             rather         than     substantive                 reasons.
         The City          contends            that     it    brought           the present             suit     as a direct
result          of the District                Court's         refusal            to allow            the City         to amend
its    complaint           in AIU I so as to raise                             issues         of insurance             coverage
in     addition          to     issues         related          to      the      duty         to      defend.       The City
prevailed             in District            Court      on the question                       of the duty         to defend.
AIU appealed               to     this       Court.            The City,               however,            did   not       cross-
appeal          the     question          of     whether             the      District             Court       had erred          in

                                                                   5
denying        the          City’s            proposed              amendment             to      its        complaint.                 The
court's        refusal               of      the    motion           to    amend is               a ruling           which            could
have been appealed                          by the       City         by way of                 a cross-appeal                  to this
court.
          We recently                discussed           the principles                    of res judicata                  in State
ex rel.       Harlem Irrigation                        District            v. District                  Court     (Mont.         1995),
894 P.2d           943,          52 St.Rep.             364         (Harlem             Irrigation/Love                  II).           The
doctrine        of res judicata                       includes            the following                  four     elements:              (1)
the subject            matter             of each action                  must be the same; (2) the parties
or their        privies                of each action                 must be the same;                          (3) the         issues
must be the             same           and relate              to the            same      subject            matter;           (4) the
capacities             of      the          persons      must be the                     same      in        reference           to     the
subject       matter             and to the issues                    between them.                      Harlem Irrigation/
Love II,        894 P.2d at 945.
         As to the requirement                               that     the parties                 be the          same, the two
real     parties            in interest               are the City                of Bozeman and AIU;                       the        same

two parties            as in AIU I.                   The presence                 of Mark Story                 in the present
declaratory            judgment               action         does not preclude                     res judicata.                  Story
was named because                           he had a potential                          financial             interest           in     the
litigation.                 Story's           judgment,              however,             has been paid                 and he has
not    participated                    in     the     suit      or the            appeal.               With     regard          to the
requirements                of       identity          of      subject            matter          and issues,              the         City
contends         that            the        subject          matter         and issues                  in     AIU   I were             not
identical          to those                 in the present                suit      because,             despite         the City's
attempts        to litigate                   coverage,             the Court             in AILJ I confined                     itself
to the issue            of the duty                 to defend.               We reject              that        contention.               As

                                                                      6
in Harlem            Irrigation/Love                II,      the identical                     issue        being       raised            in
this      appeal         could      have been litigated                           in a prior              proceeding,               that
is,      in AIU I.
          In Love I,            the Loves first                   filed        a complaint                  in 1983 in which
they alleged              various       claims        against             the Irrigation                    District         and the
commissioners                based      upon their                 refusal              to     provide          water         to     the
Loves.              The     district         court           granted               summary             judgment             for      the
Irrigation              District         and the            commissioners                      based         upon       sovereign
immunity.                This      Court     affirmed                 that        holding            in      Love      v.     Harlem
Irrigation              District        (1990),           245 Mont.               443,        802 P.2d 611 (Love I).
After        this        Court's        decision            in        Love        I,         the     Loves         filed          a new
complaint            again      alleging          a violation                 of statutory                  and contractual
rights          as a result            of the refusal                  to provide                  water.          In addition,
the Loves alleged                   civil        rights          violations              under         42 U.S.C.             § 1983.
The Irrigation               District        moved for                summary judgment                       based,         in part,
upon res            judicata.           The district                  court        denied            the motion             and the
Irrigation              District         sought           a writ             of        supervisory              control.              We
accepted          original         jurisdiction              and reversed.                         In Harlem Irrigation/
Love      II,       the      Loves      argued            that        res      judicata              did      not      bar        their
second           suit       because         they          raised             new         theories             of       liability;
specifically              violation         of civil              rights          under        § 1983.             We held that
the doctrine              of res judicata                 bars        § 1983       claims            in Montana's             courts
when the constitutional                      claims          could have been raised                                in an earlier
proceeding,              but were not.
          However,   the doctrine   of res judicata    bars not only
          issues that were actually   litigated,  but also those that
          could have been litigated   in a prior proceeding.    Mills,
          864 P.2d at 1267. A party should not be able to litigate
                                                                  7
         a matter that the party already had the opportunity             to
         litigate;    public policy dictates       that there must be some
         end to litigation.         [Citations    omitted.]   Once a party
         has had an opportunity        to present a claim,    the judgment
         in a previous      case is final      as to the issues that were
         raised,    as well as those that could have been raised.
         See Burgess v. Montana (1989), 237 Mont. 364, 366, 772
         P.2d 1272, 1273.       This notion arises from public policy
         designed to prevent endless piecemeal attacks on previous
         judgments.     Wellman v. Wellman (1982), 198 Mont. 42, 46,
         643 P.2d 573, 575.          We conclude that the theories       of
         recovery alleged in this cause of action could have been
         litigated    in the prior proceeding.
Harlem       Irrigation/Love            II,      894 P.2d at 946.
         In the present            case,        the City        very     candidly               concedes           that      it
filed     this     declaratory        judgment           action        to raise        issues              which it        was
not permitted            to raised        in AIU I because the District                                    Court    denied
its     motion     to amend its               complaint.            The City,           however,              offers        no
explanation          as      to    why,         after      having            attempted                to     amend         the
complaint         to include        the coverage               issue,        it     failed           to pursue            that
issue     on appeal        in AIU I.           The issue          of coverage             was an issue               which
not only         could    have been raised               in AILJ I,          but,      in fact,              was raised
by the City         by way of the motion                  to amend the complaint.                             Under the
principles         enunciated        in Harlem Irrigation/Love                            II,        the City       had an
opportunity         to appeal         the       coverage         issue        to this           Court         and chose
not     to do so.          Given     that       the City            had the opportunity                       to appeal
the     coverage         issue,    the        judgment         of     this        Court         in     AILJ I became
final     "as to the           issues         that      were raised,              as well             as those            that
could     have been raised."                    Harlem Irrigation/Love                          II,        894 P.2d at

946.
         We hold that          the coverage             issue       which the City                    of Bozeman now
seeks to litigate             was an issue which the City                           sought            to litigate            by

                                                           8
way of      an amended complaint          in    AIU    I.   When the      District       court
denied     the motion      to amend, the City         accepted   that    ruling      and chose

not to appeal          the coverage    issue.     The insurance         coverage      issue   is
thus     barred      by the doctrine    of res judicata.
         Affirmed.




We concur:




                                                 9
