Deonier & Associates v. Paul Revere Life Insurance Co.

Standard insurance policies included incontestability clauses that prevented insurers from voiding coverage on the grounds of misrepresentation once that coverage had been in effect for at least two years. Between 1975 and 1987, courts in 40 states in which the issue came up recognized a so-called Forman defense, permitting an insurer to deny coverage despite an incontestability clause if an insured’s misrepresentation concerned a preexisting medical condition. In 1987, Paul Revere Life Insurance Company (Paul Revere) (defendant) adopted a plan to assert the Forman defense should an appropriate case present itself in Montana, which had not yet ruled on the Forman issue. Paul Revere never disclosed this plan to its Montana agent, Deonier & Associates (Deonier) (plaintiff). An appropriate Montana case finally presented itself in 1995, when Kathryn Vestal sued Paul Revere for denying coverage on Vestal’s 1991 policy. Paul Revere based that denial on Vestal’s alleged failure to disclose a prior medical condition. Because Vestal bought her policy through Deonier, Vestal’s suit named Deonier as a codefendant. Vestal charged both Paul Revere and Deonier with misrepresenting Vestal’s policy. Deonier crossclaimed against Paul Revere for failing to indemnify Deonier against Vestal’s claim. Deonier charged Paul Revere with breaching its fiduciary duty by failing to inform Deonier of its plan to invoke the Forman defense. Vestal’s claim settled out of court, but litigation continued as to Deonier’s crossclaim. The trial court subsequently awarded Deonier the attorney’s fees that Deonier expended in defending against Vestal’s claim but granted summary judgment for Paul Revere on Deonier’s fiduciary-duty claim. Deonier appealed to the Montana Supreme Court.