Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Mont. Sup. Ct.: State Farm not liable for misrepresenting insurance policy provisions, (Oct 18, 2013)

By Edward L. Puzzo, J.D.

Auto insurer State Farm was not liable under Montana’s Unfair Trade Practices Act for misrepresenting insurance policy provisions after initially denying coverage for a derivative claim, the Montana Supreme Court has ruled (State Farm v. Freyer, October 15, 2013, Rice, J.).

Vail Freyer, the driver of a vehicle insured by State Farm, her husband Heath Freyer, and their child Alicia Freyer were riding in their vehicle when it was involved in a rollover accident that resulted in Heath’s death. Frank Freyer, Heath’s father, in his capacity as personal representative of Heath’s Estate and conservator of Alicia’s Estate, sued his daughter-in-law Vail for the damages sustained in the accident due to Vail’s negligent driving.

Policy coverage contested. State Farm’s automobile liability policy provided coverage limits of $50,000 per person and $100,000 per accident. The insurer agreed to pay $50,000 to Heath’s estate, but denied Alicia’s claim for derivative damages stemming from the death of her father, taking the position that all damages arising from Heath’s death were covered by the “Each Person” policy limit of $50,000 applicable to him.

The Montana Supreme Court, in State Farm v. Freyer (Freyer I), 2010 MT 191, 357 Mont. 329, 239 P.3d 143, disagreed with State Farm’s position and ruled that there was coverage for Alicia’s claim for derivative damages under the policy.

Misrepresentation of policy provisions alleged. After the case was remanded and State Farm paid the contested claim, Frank Freyer then brought new claims against State Farm for the wrongful denial of coverage for Alicia’s derivative claims, including a claim under Montana’s Unfair Trade Practices Act (UTPA). The district court, while acknowledging that additional coverage had been found in Freyer I, concluded that State Farm had a “reasonable basis in law” to contest coverage, and therefore dismissed the claims. This appeal ensued.

Montana’s Unfair Trade Practices Act prohibits insurers from practicing certain claims-settlement practices, the court explained. Section 33-18-201(1) makes it illegal for an insurer to misrepresent insurance policy provisions relating to the coverage at issue. The UTPA gives the insured or a third-party claimant an independent cause of action against the insurer for actual damages if the insurer violates this provision and misrepresents the insurance policy. However, noted the court, an insurer may not be held liable, and it is an affirmative defense, if they had a “reasonable basis in law or in fact” for contesting the claim.

The Limits of Liability clause in State Farm’s policy stated the maximum amount of coverage for all damages due to bodily injury to one person. The policy further defined “bodily injury to one person” to include all injury and damages to other persons, including emotional distress, sustained by such other persons who do not sustain bodily injury.

Given the language of the policy, the court concluded that State Farm indeed had a reasonable basis in law to interpret its Limit of Liability clause in the manner it did. Therefore, the court ruled, no violation of the UTPA had occurred and the district court had not erred in granting summary judgment to State Farm on the UTPA claims.

The case is No. DA 12-0543, 2013 MT 301.

Attorneys: Dale R. Cockrell and Jinnifer Jeresek Mariman (Moore, Cockrell, Goicoechea & Axelberg PC) and Robert F. James (Ugrin, Alexander, Zadick, & Higgins, PC) for State Farm Mutual Automobile Insurance Company. Allan H. Baris (Moore, O’Connell and Refling, PC) for Frank Freyer. Daniel P. Buckley (Buckley Law Office, PC) for Vail Freyer.

Companies: State Farm Mutual Automobile Insurance Company.

Cases: StateUnfairTradePractices MontanaNews