Abbey/Land LLC v. Interstate Mechanical, Inc.

Abbey/Land LLC v. Interstate Mechanical, Inc., 2015 MT 77 (March 10, 2015) (McGrath, C.J.) (5-0, rev’d) 

Issue: Whether the lower court properly entered final judgment based on a $12 million confession of judgment without first allowing insurer James River to intervene and question the reasonableness of the settlement.

Short Answer: No.

Reversed & remanded

Facts: Donald Abbey formed Abbey/Land LLC to buy Shelter Island in Flathead Lake in 2001. After several contractual disputes, Abbey formed Glacier Construction Partners LLC to handle construction of the house. Abbey is the sole member of each LLC.

Interstate has been involved in several disputes with Glacier and Abbey/Land since 2009, resulting in arbitration as well as the current action for damages. In 2011, Abbey/Land amended its complaint, dismissing sister entity Glacier as a plaintiff and naming it as a defendant. Glacier tendered the claims to its CGL insurer, James River, which refused to provide defense or indemnity.

Glacier and Abbey/Land settled the action as between themselves in May 2013. Glacier agreed to confess to a $12 million judgment in favor of Abbey/Land and assign its rights against various insurers, including James River, to Abbey/Land.

Procedural Posture & Holding: James River moved to intervene in August 2013 so it could challenge the reasonableness of the $12 million confessed judgment, alleging collusion between Glacier and Abbey/Land. The district court never ruled on the motion nor addressed James River’s arguments. The lower court entered final judgment against Glacier, stating in the judgment that the amount was reasonable. James River appeals, and the Supreme Court reverses.

Reasoning: An insurer who unjustifiably refuses to provide a defense or indemnification to an insured can be liable to its insured for the resulting defense costs and for judgments or settlements. An insured’s settlement in such a situation must be reasonable, and the insurer is entitled to have the district court make a reasonableness determination. Tidyman’s.

James River’s right to challenge the reasonableness of the judgment provided adequate grounds to allow it to intervene as a matter of right. The district court is directed to enter an order allowing James River to intervene “to raise the issue of the reasonableness of the confessed judgment and whether it was the product of collusion.” ¶ 17.