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NO. 93-212
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993

TRUSTEES, MISSOULA COUNTY SCHOOLDISTRICT NO. 1,
Plaintiff and Respondent,
VS.
PACIFIC EMPLOYER'S INSURANCE COMPANY,a corporation, Defendant and Appellant,
and WESTERN STATES INSURANCE AGENCY, INC.,a Montana corporation,
Defendant and Respondent.
APPEAL FROM: District Court of the Fourth Judicial District,In and for the County of Missoula,The Honorable Douglas G. Harkin,
Judge presiding.
COUNSEL OF RECORD: For Appellant: Shelton C. Williams, Richard Ranney; Williams&
Ranney, Missoula, Montana For Respondent:
Brian L. Delaney: Mulroney, Delaney &
Scott,
Missoula, Montana
Patrick Frank, Esq.: Worden,
Thane &
Haines,

Missoula, Montana

Submitted on Briefs: November 18, 1993 Decided: December 28, 1993

Filed:

Justice John Conway Harrison delivered the Opinion of the Court.
This appeal arose in the Fourth Judicial District, State of Montana, in and for the County of Missoula, the Honorable Douglas Harkin
presiding. We affirm in part and remand.
This Court, in the case of Trustees, Missoula County Sch. Dist. No. 1 v. Anderson (1988),
232 Mont. 501, 757 P.2d
1315, set forth the background facts of this case. Therein we found that a teacher, Carol Anderson (Anderson), was improperly dismissed for incompetence based on poor performance following four interviews upon her return to teaching following a sabbatical leave. The opinion of this Court reversed the district court's decision which set aside the findings of fact and conclusions of law of the State Superintendent and the County Superintendent. We directed the court to reinstate the decision of the State and County Superintendent.
One year after this Court returned the case to the District Court to implement our decision, Anderson and the Trustees entered into a settlement agreement and a release. That settlement agreement involved payments to Anderson as follows:
2. Payments. In consideration of the Release set forth above[,]
the District hereby agrees to pay a sumtotaling $81,585.07
as negotiated and compromised byAnderson and the District which is the sum of the following amounts:
Total Wet Annual Income $64,473.74

Total Interest $12,023.81

Total Medical $ 5,387.81

Receipt of $81,885.36
is expressly acknowledged.
The District further agrees to pay the interest
2

required by [the Teachers '
Retirement System] in addition
to the [Teachers' Retirement System] contribution.
The District agrees to pay the federal income tax,state income tax and FICA deducted from gross salary to the appropriate state and federal agencies.
With these facts, we now consider the problem of who is going to pay the settlement.
In 1984, the Trustees of the Missoula School District No. 1 (Trustees), purchased a School Professional Legal Liability Insurance Policy from an insurance representative of Western States Insurance Agency, Inc. (Western States). The policy came through Pacific Employers Insurance Company (Pacific): the effective dates were from December 1, 1984 to December 1, 1987. Prior to purchasing the policy, and upon inquiry whether there were any lawsuits outstanding, a trustee informed the Western States representative that a "tenured teacher's [Anderson] dismissal is being challenged at this time through the regular channels, now in the hands of the County State Superintendent of Schools."
Upon being presented the above amounts, Pacific denied coverage of the claims on the grounds that the policy provided an exclusion for claims made against the insured for "any
amounts due under the terms of any contractual obligation. . . . "
Pacific characterized the payment agreement between the School District and Anderson as one arising out of a "contractual obligation." The Trustees argue that the School District's settlement with the dismissed teacher was based upon negligent firing and, therefore, the clause which provides for coverage for errors, omissions, and claims made "(a)
by reason of any act, error, or omission in
services rendered in the discharge of the School District . . . .*I
applies. Several issues are set forth; two by the respondent Trustees:
1.
Whether the District Court erred by holding that the"contract exclusiont8
provision of the insurance agreement, authored by Pacific, was not applicable topreclude coverage under the insurance agreement.

2.
Whether the District Court's Memorandum and Order of January 12, 1993, (as opposed to its February 19, 1993,entry of Rule 54(b) Judgment) has any effect on theviability of the third and fourth affirmative defensesraised by Pacific's answer.


Western States responds to the second issue as set forth by the
appellants as:
3. Did the District Court properly grant partial summaryjudgment to the Trustees on the "contract exclusion"issue without addressing several coverage defenses setforth in Pacific's answer?
Plaintiff Trustees filed an action in District Court naming as defendants Pacific and Western States. The Trustees alleged that they were entitled to declaratory relief and to the benefits of coverage under a Pacific insurance policy issued to the school district. Pacific denied coverage for sums the Trustees paid to Carol Anderson after she successfully appealed her dismissal as a tenured teacher. The Trustees also alleged in the amended complaint that Western States had been negligent in advising them to purchase the~pacific
policy.
The parties filed cross-motions for partial summary judgment addressing whether the "contract exclusion" in Pacific's policy precluded coverage for sums that the Trustees paid to Anderson. The District Court granted partial summary judgment to the Trustees, ruling that the contract exclusion did not apply and that Pacific had breached its obligation to provide coverage under the insurance policy. Pacific and Western States were represented by the same counsel during the summary judgment proceedings and thereafter separate counsel represented Western States which aligned itself with the Trustees for the purpose of this appeal.
This Court uses the same standard in reviewing a denial of summary judgment as the District Court used in denying the motion. Frazier Educ.
Ass'n,
MEA/FEA v. Board of Trustees, Valley County Elementary Sch. Dist. No. 2 (1993),
256 Mont. 223, 225, 846 P.2d
267, 269; see also Graham v. Montana State University (1988),
235 Mont. 284, 287, 767 P.2d
301, 303. In order for summary judgment to issue, and to be affirmed on appeal, there can be no "genuine issue as to all facts deemed material in light of the substantive principles that entitle [the movant] to a judgment as a matter of law."
Cereck v. Albertson's Inc. (1981),
195 Mont. 409, 411, 637 P.2d
509, 511; and Rule 56(c), M.R.Civ.P.

Whether the District Court erred by holding that the"contract exclusion" provision of the insurance agreement, authored by Pacific, was not applicable topreclude coverage under the insurance agreement.
In the case before us, there is no factual dispute which is material to the determination of the contract exclusion issue. Based on the briefs that have been submitted to the District Court and to this Court, the parties agree that Pacific's exclusion must be construed in the context of Anderson's appeal of her dismissal.

While the parties may supply differing interpretations of the contextual facts, the facts themselves are undisputed. Thus the real issue on appeal is whether the District Court correctly determined, as a matter of law, that the exclusion did not apply, which entitled the Trustees to partial summary judgment.
In reaching the principal issue in this appeal, we must first decide how to characterize Anderson's challenge to her dismissal. Appellant Pacific repeatedly characterizes the challenge as one for breach of contract in order to bring it within the ambit
of the contract exclusion. Western States argues that Pacific misperceives the nature of Anderson's claim.

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