                                                                                              March 10 2015


                                           DA 14-0199
                                                                                            Case Number: DA 14-0199

                     IN THE SUPREME COURT OF THE STATE OF MONTANA

                                           2015 MT 77


ABBEY/LAND LLC, a Montana limited liability
company,

              Plaintiff and Appellee,

         v.

INTERSTATE MECHANICAL, INC., et al.,

              Defendants.


APPEAL FROM:            District Court of the Eleventh Judicial District,
                        In and For the County of Flathead, Cause No. DV-09-1198A
                        Honorable David M. Ortley, Presiding Judge


COUNSEL OF RECORD:

                For Proposed Intervenor James River Insurance Company:

                        Robert K. Baldwin, Benjamin J. Alke, Goetz, Baldwin & Geddes, P.C.,
                        Bozeman, Montana

                For Appellee Abbey/Land, LLC:

                        George B. Best, Best & Westover Law Office, Kalispell, Montana

                        Jon E. Cushman, Cushman Law Offices, P.C., Olympia, Washington

                For Glacier Construction Partner, LLC:

                        William K. VanCanagan, Trent N. Walker, J.R. Casillas, Datsopoulos,
                        McDonald & Lind, P.C., Missoula, Montana


                                                    Submitted on Briefs: February 4, 2015
                                                               Decided: March 10, 2015


Filed:

                        __________________________________________
                                          Clerk
Chief Justice Mike McGrath delivered the Opinion of the Court.


¶1     James River Insurance Company, proposed intervenor in this action, appeals from

the District Court’s entry of final judgment on March 17, 2014. We reverse and remand

for further proceedings.

                                     BACKGROUND

¶2     This action is one of several involving disputes arising from the construction of a

large house on Shelter Island, located in Flathead Lake, Montana.1             There are no

stipulated facts, no factual findings by the District Court, and the parties do not agree on

several factual issues. Therefore, nothing in this Opinion should be taken as a finding or

a determination of disputed fact.

¶3     An individual named Donald Abbey formed Abbey/Land LLC, as its sole

member, to purchase Shelter Island in 2001. When Abbey/Land fell into disputes with

contractors who were working to build a large house on the island, Donald Abbey formed

Glacier Construction Partners LLC to handle the contracting for construction of the

house. Again Donald Abbey was the sole member of the Glacier LLC, and he signed the

Abbey/Land-Glacier construction contract on behalf of each entity. Glacier entered a

$1.4 million contract with Interstate Mechanical, Inc. for the design and installation of the

plumbing and heating-cooling system for the house. Subsequent change orders increased

the value of that contract by approximately $1 million.


1
  The briefing and attached exhibits in this appeal identified Montana District Court cases in
Flathead and Lake Counties; an action in the United States District Court for the District of
Oregon; and an arbitration.
                                              2
¶4     In 2009, disputes arose between Interstate and Glacier. In July 2009 Interstate

initiated an arbitration action to recover payments that it claimed as a result of its work on

the house project. In September 2009 Abbey/Land and Glacier, as plaintiffs, filed the

current action for damages in Montana District Court in Flathead County against

Interstate and other entities involved in the house project.

¶5     Subsequently Glacier asserted counterclaims in the Interstate arbitration

proceeding, and in January 2011, Glacier obtained a positive arbitration award against

Interstate of slightly over $400,000. In September 2011, Abbey/Land filed an amended

complaint in the Flathead County action, dismissing its sister entity Glacier as a plaintiff

and naming it as a defendant.       Glacier then tendered the Abbey/Land claims to its

comprehensive general liability insurer, James River. James River refused to provide

defense or indemnity, asserting that the claims-made policy it issued to Glacier did not

provide coverage.

¶6     In May 2013, Glacier and Abbey/Land settled the Flathead County action as

between themselves.2     The settlement required Glacier to confess to a $12 million

judgment in favor of Abbey/Land and to assign to Abbey/Land all its rights against

various insurers, including James River.

¶7     In August 2013, James River moved to intervene in the Flathead County action for

the limited purpose of challenging the reasonableness of the $12 million confessed

judgment against Glacier and in favor of Abbey/Land. James River requested that it be


2
  Donald Abbey, the principal of both Abbey/Land and Glacier, executed the confession of
judgment on behalf of Glacier.
                                              3
allowed “to contest the reasonableness of the confession as it is the result of

impermissible collusion between Plaintiff Abbey/Land LLC and Defendant Glacier, who

are both owned and controlled by Mr. Donald G. Abbey.” The parties and James River

briefed their positions on the motion to intervene, and in the meanwhile Abbey/Land or

Glacier or both entered settlements with all other parties, including several other insurers

who had moved to intervene to challenge the confessed judgment. The District Court

never ruled on James River’s motion to intervene and never ruled upon the issues that

James River raised concerning the reasonableness of the confessed judgment.

¶8     On March 17, 2014, the District Court entered final judgment against Glacier and

in favor of Abbey/Land for $12 million plus interest at the annual rate of 12%. The

judgment recited that it was supported “on oath” and by “exhibits and other evidence”

demonstrating that the judgment was “reasonable in amount, was entered in good faith

and on a more likely than not basis, is less than the amount [Abbey/Land] would have

recovered at trial.” It is not clear what oaths, exhibits or other evidence the District Court

referred to, but there is no indication that the District Court considered James River’s

position that the confessed judgment was not reasonable.

¶9     James River appeals, arguing that the District Court should not have entered this

judgment without considering either its motion to intervene or the reasonableness of the

confessed judgment.




                                              4
                               STANDARD OF REVIEW

¶10    This Court reviews a district court’s action on a motion to intervene for abuse of

discretion. Aspen Trails Ranch v. Simmons, 2010 MT 79, ¶ 29, 356 Mont. 41, 230 P.3d

808.

                                      DISCUSSION

¶11    The issue is whether the District Court properly entered final judgment based upon

Glacier’s confession of judgment, without considering the merits of James River’s

motion to intervene.    We determine that James River should have been allowed to

intervene in order to present its arguments and evidence concerning the reasonableness of

the confession of judgment agreed to by Glacier.

¶12    It is well established that an insurer who unjustifiably refuses to provide defense

or indemnification to its insured can be liable to the insured for the resulting defense

costs and for judgments or settlements. Farmers Union Mutual Ins. Co. v. Staples, 2004

MT 108, ¶ 20, 321 Mont. 99, 90 P.3d 381; Independent Milk & Cream v. Aetna, 68 Mont.

152, 158-59, 216 P. 1109, 1111 (1923). In Tidyman’s Management Services v. Davis,

2014 MT 205, 376 Mont. 80, 330 P.3d 1139, this Court recognized that an insured’s

settlement in such a situation must be reasonable. Tidyman’s, ¶ 40; § 27-1-302, MCA;

Watson v. West, 2011 MT 57, ¶ 11, 360 Mont. 9, 250 P.3d 845 (district court’s award of

damages after defendant’s default must be reasonable). The insurer, even when in breach

of its obligations to its insured, is entitled to have the district court make a determination

of the reasonableness of a settlement entered by the insured. Tidyman’s, ¶ 41.



                                              5
¶13    The insurer bears the burden to establish that the insured’s settlement was

unreasonable.    Tidyman’s, ¶ 41.      The district court may set the parameters of the

reasonableness hearing, and may determine whether there should be discovery and to

what extent. Tidyman’s ¶ 44. The district court must engage in a meaningful analysis of

the reasonableness of the insured’s settlement. Tidyman’s, ¶ 43. In this case, Abby/Land

contends that James River is liable to it for Glacier’s $12 million confessed judgment, but

James River was denied any opportunity to challenge the reasonableness of that amount.

¶14    James River’s right under Tidyman’s to challenge the reasonableness of Glacier’s

confessed judgment provided adequate grounds to allow James River to intervene in the

underlying action. Rule 24(a), M. R. Civ. P., allows intervention as a matter of right if

the applicant is timely; if the applicant has an interest in the subject matter of the action;

if the applicant’s interest may be impaired by the disposition of the action; and if the

applicant’s interest is not adequately represented by an existing party.            Estate of

Schwenke v. Becktold, 252 Mont. 127, 131, 827 P.2d 808, 811 (1992). Here, James River

filed a timely application to intervene prior to entry of judgment. JAS, Inc. v. Eisele,

2014 MT 77, ¶ 27, 374 Mont. 312, 321 P.3d 113 (intervention application can be timely

even if filed after entry of judgment).

¶15    It is clear that James River has an interest in the subject matter of the litigation, in

which Abbey/Land and its sister entity Glacier agreed to a judgment that Abbey/Land

intends to enforce against James River. It is equally clear that the disposition of the

action—entry of judgment on Glacier’s confession and without affording James River the

opportunity to be heard—impairs James River’s interests. Last, while other insurers were

                                              6
seeking to intervene and challenge the reasonableness of the confession, by the time the

case concluded they had all withdrawn. There was no other person or entity in the case

representing James River’s interest. Abbey/Land contends that James River has no need

to intervene, but may make its reasonableness arguments in the separate pending lawsuit

in Lake County which involves, at least in part, the coverage obligations of various

insurers, including James River.       However, James River is entitled to make its

reasonableness showing in the present action. Nielsen v. TIG Ins. Co., 442 F. Supp.2d

972, 981 (D. Mont. 2006) (an insurer should raise reasonableness issues in the underlying

lawsuit, and not in a separate declaratory judgment action concerning coverage). The

issue of coverage is not involved in this case.

¶16    James River was entitled to intervene in this action to contest the reasonableness

of the confessed judgment. Aspen Trails, ¶ 35. While the District Court’s judgment

recited that the confessed judgment was entered in good faith and that the amount was

reasonable, those pro-forma recitations are insufficient to satisfy James River’s right to

meaningfully contest the reasonableness of the settlement amount. The District Court

erred by entering final judgment without considering James River’s application.

¶17    We reverse the District Court’s judgment dated March 17, 2014, in favor of

Abbey/Land LLC and against Glacier Construction Partners, LLC, in the amount of $12

million. We remand and direct the District Court to enter an order allowing James River

Insurance Company to intervene in order to raise the issue of the reasonableness of the

confessed judgment and whether it was the product of collusion. The District Court may



                                              7
set the reasonable parameters of the proceeding to determine these issues, and may

determine whether there should be discovery and to what extent.

¶18   Reversed and remanded for further proceedings consistent with this Opinion.



                                               /S/ MIKE McGRATH

We Concur:

/S/ JAMES JEREMIAH SHEA
/S/ BETH BAKER
/S/ MICHAEL E WHEAT
/S/ JIM RICE




                                           8
