Montana Third-Party Failure to Settle & Excess Exposure

What is excess exposure?

Excess exposure is the portion of a potential judgment that exceeds the liability insurance available to satisfy it.

That uninsured portion matters because the liability insurer commonly has substantial control over defense and settlement while the insured's own assets may bear the consequences of an unsuccessful settlement decision.

Montana historically requires good-faith consideration of settlement opportunities

Montana's Jessen, Fowler, and Gibson line developed the principle that a liability insurer controlling settlement must fairly consider a reasonable opportunity to protect the insured from an excess judgment.

Fowler rejects strict liability for every excess judgment

Fowler v. State Farm Mutual Automobile Insurance Co., 153 Mont. 74, 454 P.2d 76 (1969), adopted the basic Jessen framework and rejected a rule imposing insurer liability simply because a settlement was declined and the case later produced an excess verdict.

Gibson: a reasonable within-limits opportunity matters

In Gibson v. Western Fire Insurance Co., 210 Mont. 267, 682 P.2d 725 (1984), the Montana Supreme Court recognized serious consequences when an insurer improperly fails to settle a bona fide third-party liability claim within policy limits and the insured is later exposed to an excess judgment.

The case describes settlement protection as one of the important practical benefits of liability insurance and recognizes the insurer's obligation to accept an appropriate reasonable within-limits settlement opportunity.

Freyer: rejection of a demand is not automatically actionable

State Farm Mutual Automobile Insurance Co. v. Freyer, 2013 MT 301, reviewed Montana's historical failure-to-settle cases and reaffirmed that the state did not adopt strict liability merely because an insurer refused a within-limits offer.

The historical inquiry included whether the carrier had a reasonable legal or factual basis for contesting the claim, amount or coverage at the time the settlement decision was made.

The UTPA imposes a separate settlement obligation

MCA § 33-18-201(6) prohibits an insurer from neglecting to attempt in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.

Ridley: some damages can become payable before final global settlement

Ridley v. Guaranty National Insurance Co., 286 Mont. 325, 951 P.2d 987 (1997), recognizes that qualifying medical expenses may become payable once liability for that component has become reasonably clear rather than being withheld until final settlement of every other damage issue.

Shilhanek: the Ridley principle is not confined to minimum auto limits

Shilhanek v. D-2 Trucking, Inc., 2003 MT 122, 315 Mont. 519, 70 P.3d 721, explains that Ridley's claims-handling rule arises from Montana's UTPA and is not limited merely to the compulsory minimum automobile-liability amount.

Sometimes policy limits must be paid even without a release

This is a different situation from a claimant offering a complete within-limits release.

Montana recognizes circumstances in which liability is reasonably clear, total damages are reasonably established above the available limits, and the claimant will not release the insured for the amount of insurance.

Watters: mandatory limits could not be withheld merely to force a release

Watters v. Guaranty National Insurance Co., 2000 MT 150, involved reasonably clear liability and damages exceeding Montana's then-applicable mandatory automobile limits.

Under those circumstances, the insurer could not withhold the amount already owed merely to force the injured claimants to surrender their remaining claims through a full release.

High Country Paving: the modern limits-without-release rule

High Country Paving, Inc. v. United Fire & Casualty Co., 2019 MT 297, 398 Mont. 191, 454 P.3d 1210, resolved the apparent tension between protecting the insured and paying an injured third party when the available insurance clearly cannot satisfy the total loss.

Montana held that an insurer does not breach its duty to its insured by paying policy limits to an injured third party without obtaining a release when:

• liability for the crash is reasonably clear; and
• total damages caused by the insured are reasonably shown to exceed the policy limits.

Defense after limits payment is a contract question

High Country Paving separately explains that whether the carrier must continue defending after payment of the liability limits depends on the language of the insurance contract.

Two policy-limit situations that should not be confused

Later payment of limits does not necessarily erase potential excess exposure

Goettel v. Estate of Ballard, 2010 MT 140, arose after a liability carrier eventually paid its policy limits without obtaining a release.

The Montana Supreme Court rejected the proposition that later payment of the limits automatically prevented continued litigation needed to determine damages relevant to the asserted excess-liability theory.

Montana now regulates time-limited settlement demands by statute

MCA § 33-18-251, enacted in 2023, creates a detailed framework when a claimant sends a demand that can be accepted only within a specified period and later seeks to use that demand as the insurer's reasonable settlement opportunity for extracontractual exposure.

A statutory demand must be supported by evidence

Section 33-18-251 requires all available supporting documents, records and information sufficient to allow a fair and reasonable investigation of liability, injuries, damages and losses.

Bodily-injury medical material

When medical treatment is involved, the statute requires available relevant treatment records, invoices and billing statements from providers who treated or evaluated the claimant or decedent.

The statute also reaches relevant prior medical conditions that relate or may relate to the claimed injuries or damages.

Lost-income material

If the claimant seeks lost wages, earnings, compensation or profits, the statutory submission must include relevant employer records, tax records or other supporting documentation.

The insurer may seek clarification without automatically rejecting the demand

Section 33-18-251 permits the insurer to request reasonable clarification or additional information concerning matters such as:

• settlement terms
• liens
• subrogation claims
• damages
• standing to release claims
• medical bills
• medical records
• preexisting conditions
• other relevant facts

The carrier also may propose settlement or release language.

The response period can be extended

A qualifying request or proposal extends the demand period under the statutory formula. Do not assume the original expiration date remains controlling after such a request.

A valid lien can stay the period

If a valid Medicare, Medicaid or other lien is identified during the acceptance period, the claimant has a duty to cooperate in resolving the lien and the statutory time period can be stayed while the issue is addressed.

Strict compliance matters if the demand will later support extracontractual exposure

Section 33-18-251 states that a time-limited demand that does not strictly comply with the statute may not be considered a reasonable settlement opportunity for the insurer and may be inadmissible in a civil action alleging extracontractual damages against the liability insurer.

Special notice rule for an unrepresented claimant

When the insurer knows or reasonably believes the claimant is unrepresented and determines that the purported demand does not strictly comply with the statute, § 33-18-251 imposes a notice obligation generally requiring the insurer to notify the claimant of the statutory requirements within 10 business days.

Current law also requires claimant cooperation

MCA § 33-18-243 requires insureds and third-party claimants to cooperate with reasonable insurer requests concerning investigation and handling and to provide reasonably available claim information sufficient for fair evaluation.

The insured should be kept informed when personal assets are realistically at risk

When excess exposure becomes significant, the claim record should address whether the insured knows:

• the applicable liability limits
• available excess or umbrella insurance
• the claimant's settlement demand
• the insurer's liability evaluation
• the insurer's damages evaluation
• the risk of a judgment exceeding insurance
• important settlement deadlines
• defense counsel's evaluation
• whether personal counsel should be considered

Excess-exposure workflow

Evidence and documents to preserve

• complete liability policies
• umbrella and excess policies
• declarations pages
• liability investigation
• comparative-fault analysis
• defense counsel reports
• damage evaluations
• medical records
• medical bills
• future-care support
• lost-income support
• settlement demands
• certified-mail receipt
• § 33-18-251 compliance checklist
• release language
• clarification requests
• responses to information requests
• lien information
• Medicare information
• Medicaid information
• insured correspondence
• excess-exposure notices
• settlement authority
• mediation correspondence
• policy-limit tenders
• payment records
• continuing-defense correspondence
• final judgment

Common excess-exposure mistakes

• Assuming an excess verdict automatically proves wrongful failure to settle.
• Evaluating the settlement decision only with hindsight.
• Failing to find all applicable liability and umbrella insurance.
• Failing to communicate a policy-limit demand to the insured.
• Ignoring defense counsel's risk evaluation.
• Confusing reasonably clear crash liability with undisputed damages.
• Failing to distinguish a complete-release opportunity from a no-release limits demand.
• Conditioning clearly owed limits on a release in circumstances governed by High Country.
• Assuming payment of limits automatically terminates the defense duty.
• Using a short-fuse demand instead of current § 33-18-251.
• Failing to label a statutory demand “time sensitive.”
• Failing to use certified mail, return receipt requested.
• Giving less than the statutory 60-day period.
• Failing to identify all parties and claims to be released.
• Failing to provide supporting medical or wage documentation.
• Treating a clarification request as an automatic rejection.
• Ignoring statutory extensions after an information request.
• Ignoring valid lien issues and statutory stays.
• Failing to document claimant cooperation.
• Pleading from older “bad faith” cases without checking current § 33-18-242.

Current claim-handling remedies must be distinguished from the historical cases

Many older Montana failure-to-settle opinions use common-law “bad faith” terminology.

Current MCA § 33-18-242 now expressly provides that an insured suffering damages from insurance claim handling may pursue:

• breach of the insurance contract;
• fraud; or
• the independent statutory action under § 33-18-242.

A third-party claimant may pursue fraud or the statutory action.

Section 33-18-242 also provides a statutory reasonable-basis defense when the insurer had a reasonable basis in law or fact for contesting the claim or amount in issue.

Montana authority map