                                                                                      February 18 2014


                                       DA 13-0415

             IN THE SUPREME COURT OF THE STATE OF MONTANA

                                       2014 MT 39



SCENTRY BIOLOGICALS, INC.,

         Plaintiff and Appellee,

    v.

MID-CONTINENT CASUALTY COMPANY,

         Defendant and Appellant,

WILBUR-ELLIS COMPANY and
APPLEWOOD ORCHARDS, INC.,

         Plaintiffs in Intervention and Appellees.



APPEAL FROM:       District Court of the Thirteenth Judicial District,
                   In and For the County of Yellowstone, Cause No. DV 11-0115
                   Honorable G. Todd Baugh, Presiding Judge


COUNSEL OF RECORD:

           For Appellant:

                   Allan H. Baris, Moore, O’Connell & Refling, P.C., Bozeman, Montana

                   Levon G. Hovnatanian, Christopher W. Martin, Ethan D. Carlyle, Martin,
                   Disiere, Jefferson & Wisdom, L.L.P., Houston, Texas

           For Appellees:

                   Donald L. Harris, Tucker P. Gannett, Harris & Warren, PLLP, Billings,
                   Montana (for Scentry Biologicals, Inc.)

                   Gregory ‘Greg’ G. Murphy, Attorney at Law, Billings, Montana
                   (for Wilbur-Ellis Company)

                   Paul D. Odegaard, Odegaard Law Firm, Billings, Montana
                   (for Applewood Orchards, Inc.)
                                 Submitted on Briefs: January 22, 2014
                                            Decided: February 18, 2014


Filed:

         __________________________________________
                           Clerk




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Justice Patricia Cotter delivered the Opinion of the Court.

¶1     Appellant Mid-Continent Casualty Company provided comprehensive general

liability insurance to Scentry Biologicals, a Delaware corporation licensed to do business

in Montana. Scentry is the manufacturer of NoMate, a pest control product designed to

protect various agricultural crops from destructive insects by thwarting the insects’

mating activities. Applewood Orchards, a Michigan corporation, purchased NoMate in

2006 from Wilbur-Ellis (W-E), a distributor of NoMate. Applewood used the product on

its apple crop in spring and summer 2006 for protection against codling moths. It

subsequently discovered significant moth damage and pursued a tort action against

Scentry and W-E in a Michigan court. Scentry notified Mid-Continent and both Scentry

and W-E requested that the insurer defend them under Scentry’s policy. Mid-Continent

initially refused but subsequently agreed to defend Scentry, reserving its right to

determine its coverage obligations later. It persisted in its refusal to defend W-E and

W-E subsequently settled with Applewood for $62,500.

¶2     In the tort action, the Michigan court ruled against Scentry and in favor of

Applewood, and entered a $544,325 award. A few months prior to the Michigan court’s

resolution, Scentry filed a declaratory judgment action against Mid-Continent in

Montana’s Thirteenth Judicial District Court seeking declaratory relief on coverage

issues. W-E and Applewood intervened. Following the Michigan court’s ruling, all

parties in the Montana proceeding moved for summary judgment. The District Court

granted Scentry, Applewood, and W-E’s motions and denied Mid-Continent’s motion.

Based upon stipulated damages, the court awarded Applewood $595,000, Scentry

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$210,000, and W-E $460,000. Mid-Continent appeals the orders of summary judgment.

We affirm.

                                       ISSUES

¶3    Mid-Continent presents the following issues on appeal:

¶4    Did the District Court err in granting Scentry’s motion for summary judgment?

¶5    Did the District Court err in granting W-E’s motion for summary judgment?

¶6    Did the District Court err in granting Applewood’s motion for summary

judgment?

¶7    Did the District Court err in denying Mid-Continent’s motion for summary

judgment?

                 FACTUAL AND PROCEDURAL BACKGROUND

¶8    Scentry is a pest control product manufacturer with its principal place of business

in Billings, Montana. In 2006, Applewood Orchards purchased Scentry’s product from

W-E and applied it to portions of its Michigan apple orchard. It is undisputed that

Applewood applied the product correctly and in accordance with the application

instructions, and that it subsequently monitored the crop appropriately.       However,

Applewood suffered significant codling moth damage to those portions of its apple crop

treated with Scentry’s product.

¶9    During this time, from May 1, 2006, through May 1, 2007, Scentry carried

$2 million in commercial general liability (CGL) insurance with Mid-Continent Casualty

Company. Scentry claims it also carried $2 million in products-completed operations



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hazard coverage (PCOH) with Mid-Continent. Mid-Continent asserts it did not insure

Scentry for PCOH.1

Michigan litigation

¶10    In 2008, Applewood brought an action in the Circuit Court for Lenawee County,

Michigan, against Scentry’s distributor, W-E. In 2009, Applewood filed an amended

complaint adding Scentry as a defendant and claiming breach of warranty of

merchantability, breach of warranty of fitness, breach of contract, negligence,

misrepresentation, fraud in the inducement, and violation of the Michigan Consumer

Protection Act.

¶11    Upon notice of Applewood’s complaint, Scentry notified Mid-Continent and

tendered the matter to the insurer for a defense. Mid-Continent refused, asserting that

Applewood’s claims did not fall within the CGL coverage of Scentry’s policy. Scentry

countered that its claims were covered under the PCOH coverage of the policy but

Mid-Continent did not address this claim. After Scentry made additional demands for a

defense under the policy, Mid-Continent subsequently assumed Scentry’s defense under a

reservation of rights with respect to coverage.




1
  “The distinct risk of loss occasioned by a defect in the insured’s product, which manifests itself
only after the insured has relinquished control of the product and at a location away from the
insured’s normal business premises, is covered by the purchase of separate ‘products hazard’
coverage. This class of coverage generally protects a manufacturer or seller against claims of
injury due to a product defect, breach of warranty and misrepresentation.” Frontier Insulation
Contrs. v. Merchants Mut. Ins. Co., 690 N.E.2d 866, 869 (N.Y. 1997) (internal citations
omitted).
                                                 5
¶12   W-E, asserting it was an additional insured on Scentry’s policy, also sought a

defense from Mid-Continent. Mid-Continent repeatedly refused and W-E assumed its

own defense. Ultimately, it settled with Applewood for $62,500.

¶13   In April 2011, the Michigan court conducted a 4-day bench trial.             At the

conclusion, the court held that Scentry was liable to Applewood for breach of the implied

warranty of fitness, breach of the implied warranty of merchantability, and fraud in the

inducement. The court issued judgment in May 2011 and awarded Applewood damages

of $508,564.69 plus costs and pre-judgment interest for a total award of $544,325.03.

Montana litigation

¶14   In January 2011, as the Michigan case was proceeding toward trial, Scentry

brought a declaratory action against Mid-Continent in the Thirteenth Judicial District

Court of Montana, seeking a judgment declaring that Scentry was covered under its

policy with Mid-Continent for Applewood’s claims and that Mid-Continent was

obligated to defend and indemnify Scentry.

¶15   In May 2011, W-E was granted leave to intervene in the Montana cause of action.

It argued that as an additional insured under the Mid-Continent policy, it was entitled to

indemnification for its settlement and expenses. In September 2011, Scentry moved for

summary judgment. In December 2011, Applewood moved to intervene in order to

assert a right to recover the Michigan judgment against Mid-Continent. Applewood’s

motion to intervene was granted by the District Court. Shortly thereafter Mid-Continent

moved for summary judgment.         In March 2012, Applewood moved for summary

judgment and in November 2012, W-E filed a second motion for summary judgment.

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¶16    On December 12, 2012, the District Court issued its Decision on Summary

Judgment Motions, addressing each party’s motion individually.

Scentry

¶17    The court concluded that in addition to providing the undisputed CGL coverage,

Scentry’s policy with Mid-Continent also provided coverage for PCOH. The District

Court held that Applewood’s claims for breach of the implied warranties of

merchantability and fitness fell within the PCOH coverage and entitled Scentry to

summary judgment on its claim against Mid-Continent for coverage and indemnification.

¶18    Mid-Continent argued that any award to Scentry must be proportionately reduced

in light of the Michigan court’s finding of fraud, as fraud is considered an uninsured

intentional act.   The court declined to apportion the award, explaining that either

Mid-Continent did not seek apportionment in the Michigan case or sought apportionment

there but was unsuccessful. Moreover, Mid-Continent did not “produce[] a colorable

argument for apportionment” before the District Court. The court held that “liability and

damages which Applewood sustained are covered by the [PCOH] portion of the policy,

and therefore Mid-Continent must indemnify Scentry for the Applewood judgment.” The

court therefore granted Scentry’s motion for summary judgment.

Applewood

¶19    As to Applewood, the District Court merely noted that Applewood moved for

summary judgment based upon Scentry’s arguments; therefore, having granted Scentry’s

motion, the court granted Applewood’s as well.



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Wilbur-Ellis

¶20      W-E moved for partial summary judgment seeking a declaration that it was an

additional insured under Scentry’s policy and, as such, Mid-Continent should have

defended it upon W-E’s requests. The District Court rejected Mid-Continent’s argument

that it did not insure W-E, finding that “Mid-Continent accepted an additional premium

for Wilbur-Ellis, as well as issued a certificate of insurance.” The court concluded that

having

         previously held that Mid-Continent must indemnify Scentry . . .
         Mid-Continent must also indemnify Wilbur-Ellis for the defense costs
         which [W-E] bore as well as the settlement amount. Mid-Continent had a
         duty to either defend the case, or prove with the evidence available that
         defense was not available because of exclusions, or defend under a
         reservation of rights . . . .

Based upon these findings and conclusions, the District Court granted W-E’s motion for

summary judgment.

Mid-Continent

¶21      Mid-Continent also sought summary judgment, asserting that it had neither a “duty

to defend nor duty to indemnify” W-E in the underlying Michigan action. Noting that it

had granted W-E’s summary judgment motion on the same grounds, the District Court

denied Mid-Continent’s motion.

¶22      Mid-Continent appeals.

                               STANDARD OF REVIEW

¶23      We review a district court’s ruling on a motion for summary judgment de novo,

applying the same criteria of M. R. Civ. P. 56 as did the district court. Summary


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judgment “should be rendered if the pleadings, the discovery and disclosure materials on

file, and any affidavits show that there is no genuine issue as to any material fact and that

the movant is entitled to judgment as a matter of law.” M. R. Civ. P. 56(c)(3); Newman

v. Scottsdale Ins. Co., 2013 MT 125, ¶ 20, 370 Mont. 133, 301 P.3d 348 (citations

omitted).

¶24    We review for correctness a district court’s interpretation of law pertaining to a

declaratory judgment ruling. Newman, ¶ 21 (citation omitted).

¶25    The interpretation of an insurance contract is a question of law. We review a

district court’s conclusions of law de novo to determine whether they are correct.

Newman, ¶ 22 (citation omitted).

¶26    Lastly, we will uphold a correct result regardless of the reasons given by the

district court. Stansbury v. Lin, 257 Mont. 245, 248, 848 P.2d 509, 511 (1993) (citation

omitted).

                                      DISCUSSION

¶27    Did the District Court err in granting Scentry’s motion for summary judgment?

¶28    Mid-Continent argues on appeal that because Scentry did not meet its summary

judgment burden establishing the existence of PCOH coverage in the District Court, the

court erred by concluding that Scentry’s policy provided such coverage. Mid-Continent

relies upon the first page of its 2-page policy declaration which indicates that Scentry

paid no separate premium for PCOH coverage.            (See ¶ 30 below.)     Mid-Continent

therefore maintains that Scentry had no coverage for completed products hazards.



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¶29    Scentry counters that the second page of the policy declarations pages expressly

indicates a $2 million limit of insurance for “products-completed operations aggregate,”

a/k/a PCOH.          It also asserts that Mid-Continent conceded on multiple occasions

throughout this proceeding that Scentry had PCOH coverage. The District Court found

that Scentry’s policy from Mid-Continent provided $2 million in both CGL and PCOH.

¶30    Scentry’s insurance policy contains several references to PCOH coverage.

Initially, page one of the declarations pages of the policy provides:

       This policy consists of the following coverage parts for which a premium is
       indicated.

       Commercial General Liability Coverage Part                           $12,284
       Owners and Contractors Protective Liability Coverage Part            $_____
       Products/Completed Operations Liability Coverage Part                $_____
       Railroad Protective Liability Coverage Part                          $_____
                                     TOTAL                                  $12,284

Page two of the declarations pages provides:

       LIMITS OF INSURANCE
       General Aggregate Limit (Other than Products-Completed Operations)   $2,000,000
       Products-Completed Operations Aggregate Limit                        $2,000,000
       Personal and Advertising Injury Limit                                $1,000,000
       Each Occurrence Limit                                                $1,000,000
       Damage to Premises Rented To You (Any One Premises)                  $ 100,000
       Medical Expense Limit                  (Any One Person)              EXCLUDED

¶31    Section III of the policy also addresses limits of insurance. Subsections 2 and 3 of

Section III state:

       2. The General Aggregate Limit is the most we will pay for the sum of:
             a. Medical Expenses under Coverage C;
             b. Damages under Coverage A, except damages because of
             “bodily injury” or “property damage” included in the “products-
             completed operations hazard”; and
             c. Damages under Coverage B.

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       3. The Products-Completed Operations Aggregate Limit [PCOH] is the
       most we will pay under Coverage A for damages because of “bodily
       injury” and “property damage” included in the “products-completed
       operations hazard.”

¶32    Section V of the policy provides relevant definitions and includes a definition for

“products-completed operations hazard.”        As defined in the policy, PCOH provides

protection to the insured for “all . . . ‘property damage’ occurring away from premises

[the insured] own[s] or rent[s] and arising out of [the insured’s] product. . . .”

¶33    In addition to being bound by the foregoing terms and conditions of the policy,

Mid-Continent stated in its Answer to Scentry’s Complaint for Declaratory Judgment

“that a portion of the Mid-Continent policy could provide coverage for products-

completed operations coverage.” Also, in a 2011 letter, Mid-Continent’s attorney stated

“if the jury [in the Michigan case] found that Scentry Biologicals’ product did not

perform as warranted and caused damage to Applewood Orchards’ crop, the PCOH

coverage would apply.” Lastly, in Mid-Continent’s answer to the amended complaint,

the insurer stated that the policy “is a commercial general liability . . . policy that

included products-completed operations coverage.”

¶34    We agree with the District Court’s conclusion that the Mid-Continent policy

provided PCOH coverage to Scentry. Although page one of the Mid-Continent policy

does not reflect the payment of a premium for PCOH coverage, page two of the

declarations specifically provides limits of insurance in the sum of $2 million for

“Products-Completed Operations Aggregate Limit.”                It is well-established that

ambiguities in an insurance policy are construed against the insurer. Newman, ¶ 41.


                                              11
Moreover, Mid-Continent’s admissions in its correspondence and pleadings significantly

buttress the court’s conclusion that this coverage was provided to Scentry.

¶35       Having determined that Scentry’s policy provided PCOH coverage, we next

address whether Scentry’s claims obligated Mid-Continent to indemnify it under the

policy.

¶36       Mid-Continent argued to the District Court and on appeal that the insurance policy

applies to property damage only if the property damage is caused by an “occurrence.”

An “occurrence” is defined as “an accident, including continuous or repeated exposure to

substantially the same general harmful conditions.” Mid-Continent posits that Scentry’s

claim does not constitute an “occurrence” because the claim arises from a fraudulent,

intentional act, and not an accident. Relying upon the Michigan court’s determination

that Scentry was liable for breach of the implied warranties of fitness and merchantability

and fraud in the inducement, Mid-Continent maintains that because Scentry fraudulently

induced Applewood to purchase its defective product, all of Applewood’s damages stem

from this non-accidental conduct and therefore are not protected by the policy.

¶37       Scentry counters with multiple alternative arguments, one of which is that the

property damage suffered by Applewood was caused by an occurrence because it

(Scentry) did not intend the damage to occur. It argues that the policy definition of

“occurrence” turns on whether the underlying conduct is intentional or accidental.

Quoting Landa v. Assurance Co., 2013 MT 217, ¶ 20, 371 Mont. 202, 307 P.3d 284,

Scentry submits that “[g]enerally, the term ‘accident’ from the standpoint of the insured

reasonably refers to any unexpected happening that occurs without intention or design on

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the part of the insured.”      Scentry recites portions of Applewood’s first amended

complaint filed in the Michigan court:

               Misrepresentation by Defendants [Scentry and W-E]:

        39.    Defendants represented to [Applewood] that the product sold to
               [Applewood] was a tested, proven or otherwise effective product
               that met applicable standards and would protect [Applewood’s]
               orchards from moth damage.

        40.    Defendants’ representations were untrue.

        41.    Defendants knew or should have known, or were negligent in not
               knowing, that the representations were not true.

¶38     Scentry asserts that it was upon these allegations that the Michigan court based its

fraudulent inducement ruling and that because the court could have premised its

determination on the allegation that Scentry “should have known, or were negligent in

not knowing,” the court’s ruling did not necessarily mean that the ostensible fraud was

intentional rather than negligent or accidental. Moreover, as Applewood points out in its

brief

        Under Michigan law, the conduct which forms the basis of a fraudulent
        inducement claim may be intentional, reckless or negligent. In Michigan,
        negligent fraudulent inducement is referred to as “innocent
        misrepresentation.” U.S. Fidelity & Guaranty Co. v. Black, 313 N.W.2d
        77, 84 (Mich. 1981).

Given the anomalies of Michigan law, it was incumbent upon Mid-Continent to seek

clarification of the Michigan court’s ruling if it intended to rely upon it to avoid coverage.

Mid-Continent did not do so.

¶39     It also bears repeating that fraud in the inducement was one of three grounds for

the Michigan judgment, the others being breach of the implied warranties of fitness and

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merchantability. As noted, fraud in the inducement may be premised upon an innocent

misrepresentation, and as such would not be considered an intentional act. Furthermore,

an “occurrence” under the policy includes “continuous or repeated exposure to

substantially the same general harmful conditions,” which is exactly what occasioned the

damage to the Applewood crop. Thus, the threshold requirement of an “occurrence” as

defined in the Mid-Century policy has clearly been satisfied. We therefore conclude the

District Court did not err in granting Scentry’s motion for summary judgment

¶40    Did the District Court err in granting W-E’s motion for summary judgment?

¶41    Mid-Continent argues that under the express terms of the relevant endorsement to

its policy, it owed no duty to defend or indemnify W-E because Scentry had not executed

a “written ‘insured contract’ ” to designate W-E as an additional insured. Additionally, it

asserts that “payment of a premium and the issuance of a certificate of liability insurance

was not a proper basis for [the District Court] to conclude that Mid-Continent owed

[W-E] a duty to defend.”

¶42    The endorsement page of Scentry’s Mid-Continent policy naming W-E as an

additional insured states that “[t]his amendment applies only when you have agreed by

written ‘insured contract’ to designate the person or organization listed above as an

additional insured subject to all provisions and limitations of this policy.”         W-E

acknowledges that there is no single document reflecting the agreement between Scentry

and W-E that Scentry would provide it with coverage under Scentry’s Mid-Continent

policy. It argues, however, that nothing in the policy requires such a single document.

As proof of the existence of such agreement, W-E points to the affidavit of Deborah

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Wagner who worked for a Montana insurance company and who was responsible for

procuring insurance for Scentry during the time at issue. She stated that W-E was an

additional insured on Scentry’s policy beginning in 2001 and continuing through at least

May 1, 2007. She explained that the procedure for adding an additional insured to

Scentry’s policy required that W-E submit a written request to Scentry, Scentry would

then notify her of the request, and she, in turn, would send a written request to

Mid-Continent. She stated that Scentry paid the premium for adding W-E to its policy

and in accordance with procedure Wagner’s company issued a certificate of liability

insurance.

¶43    W-E also refers to the affidavit of Mike Whalen, Scentry’s president. Whalen

states in his affidavit that W-E sent a letter to Scentry stating that as a condition for

selling Scentry’s product, W-E required that Scentry add W-E to its liability policy as an

additional insured. Whalen stated he recalled receiving the letter and notifying Deborah

Wagner of the request and subsequently completing the necessary steps to add W-E.

Lastly, W-E summarized an affidavit submitted by a now-retired W-E District Manager,

Herald Peeples.    Peeples’ affidavit supported the recollections of both Wagner and

Whalen. We therefore conclude there were sufficient writings to satisfy the “written

‘insured contract’ ” provision of Scentry’s policy.

¶44    Turning to Mid-Continent’s refusal to defend and indemnify W-E, it is

well-established that the duty to defend is broader than the duty to indemnify. Farmers

Union Mut. Ins. Co. v. Staples, 2004 MT 108, ¶ 21, 321 Mont. 99, 90 P.3d 381 (citations

omitted). In Staples, we put insurers on notice that “[u]nless there exists an unequivocal

                                            15
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. Moreover, we repeatedly

explained that had Farmers Union believed there was “a legitimate basis for contesting

coverage, it could have tendered the defense under a reservation of rights and filed a

declaratory judgment action.” Staples, ¶¶ 26, 28. It is apparent that Mid-Continent

understands the concept of “defending with a reservation of rights” as that is what it did

with respect to Scentry’s claims for coverage.

¶45    The record unequivocally establishes that Mid-Continent charged Scentry a

premium of $150 to add W-E as an additional insured to its policy. The District Court

also found that Mid-Continent agreed to the issuance of a certificate of insurance naming

W-E as an additional insured and identified W-E as an additional insured in the Scentry

policy endorsements schedule.       This evidence convinced the District Court that

Mid-Continent should have, at the least, defended W-E in the Michigan action.

Moreover, we conclude based upon the affidavit testimony described above that there

existed a written agreement between W-E and Scentry that Scentry would provide

liability insurance to W-E as an added insured. For these reasons, we agree with the

District Court.

¶46    Because Mid-Continent persisted in its refusal to defend W-E, it did not raise any

coverage defenses to W-E’s claims for indemnification. As we have determined that

Mid-Continent erred in refusing to defend W-E in the underlying case, Mid-Continent is

estopped from now denying indemnification for W-E’s damages, including the settlement

amount and the amounts it expended for attorney fees.           Staples, ¶ 28 (If insurer

                                            16
unjustifiably refused to defend, it is estopped from denying coverage.); Newman, passim.

Though unnecessary to our conclusion, we further note that the rationale that supports the

existence of coverage for Scentry applies with equal force to W-E, as it was a co-insured

under the Mid-Continent policy with Scentry, and thus received the same coverage as

Scentry received. We therefore conclude that the District Court did not err in granting

W-E’s motion for summary judgment.

¶47   Did the District Court err in granting Applewood’s motion for summary
      judgment?

¶48   Mid-Continent argues that Applewood failed to establish it was legally entitled to

recover—directly from Mid-Continent—the settlement amount agreed upon by W-E in

the Michigan litigation. As noted above, W-E settled Applewood’s claim against it prior

to the Michigan court trial for $62,500. Applewood counters that it is so entitled under

the express terms of the Mid-Continent policy. Section IV, subsection (3)(b) of the

policy provides:

              A person or organization may sue us to recover on an agreed
      settlement or on a final judgment against an insured; but we will not be
      liable for damages that are not payable under the terms of this Coverage
      Part or that are in excess of the applicable limit of insurance.

¶49   The District Court granted Applewood’s motion for summary judgment noting

that Applewood moved for summary judgment “based on the briefing of Scentry” and it

had granted Scentry’s motion.     Applewood likewise adopted by reference Scentry’s

arguments in its brief on appeal before this Court. We reject Mid-Continent’s argument

that Applewood was obligated to posit additional or different legal arguments;

Applewood is, after all, simply seeking recovery of the agreed judgments entered against

                                           17
Mid-Continent’s insureds. In light of our foregoing determinations, and there being no

objection by either Scentry or W-E, we conclude the District Court did not err in granting

Applewood’s motion for summary judgment.

¶50    Did the District Court err in denying Mid-Continent’s motion for summary
       judgment?

¶51    Having affirmed the District Court’s rulings granting Scentry, Applewood, and

W-E’s motions for summary judgment, we have effectively affirmed the court’s decision

denying Mid-Continent’s motion for summary judgment.

                                    CONCLUSION

¶52    For the foregoing reasons, we conclude the District Court did not err in granting

the summary judgment motions filed by Scentry, W-E, and Applewood. The judgment of

the District Court is affirmed.

                                                /S/ PATRICIA COTTER


We concur:

/S/ LAURIE McKINNON
/S/ BETH BAKER
/S/ MICHAEL E WHEAT
/S/ JIM RICE




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