First Interstate sues insurer

<p><org value="ACORN:3065288634" idsrc="xmltag.org">First Interstate Bank</org> has sued Columbia Casualty for breach of contract, fraud and violation of the Unfair Trade Practices Act, among other allegations, after the insurance company allegedly refused to pay the approximately <money>$24.5 million</money> awarded to a <location value="LU/us.mt.misula" idsrc="xmltag.org">Missoula</location>-based logging company in a separate lawsuit.</p><p>The Billings-based bank's lawsuit comes after a jury last August ruled against <org value="ACORN:3065288634" idsrc="xmltag.org">First Interstate Bank</org> in a separate lawsuit and awarded a nearly <money>$17 million</money> verdict - including <money>$16,760,000</money> in punitive damages - to now-defunct <org>Kelly Logging Inc.</org></p><p>This week, <location>Missoula County District</location> Judge <person>Ed McLean</person> upheld the jury's decision and also awarded Kelly <money>$7.5 million</money> in attorney fees, calling the bank's actions "reprehensible."</p><p>The bank has said it will appeal the ruling to the <org>Montana Supreme Court</org>.</p><p>In the meantime, the bank wants <location value="LU/us.il.chicgo" idsrc="xmltag.org">Chicago</location>-based Columbia Casualty to pay the punitive damages and attorney's fees, plus interest and fees, awarded to Kelly Logging. In another twist, the bank is also seeking punitive damages and attorney fees from the insurance company.</p><p>First Interstate holds a <money>$10 million</money> insurance policy with Columbia Casualty, and the bank alleges that it was told by <location value="LU/us.il.columb" idsrc="xmltag.org">Columbia's</location> lawyers - after it was sued by Kelly Logging - that the policy has "no exception for punitive awards," meaning that the bank believes Columbia Casualty must pay for any punitive damages leveled against it even if they exceed <money>$10 million</money>. The bank alleges that it was covered by the insurance policy even in a "worst-case scenario" and that it decided not to reach a settlement with Kelly Logging because of that belief.</p><p>Columbia Casualty so far has not accepted <org value="ACORN:3065288634" idsrc="xmltag.org">First Interstate Bank's</org> claims.</p><p>Kelly Logging sued <org value="ACORN:3065288634" idsrc="xmltag.org">First Interstate Bank</org> in 2009 after the bank took <money>$762,000</money> of state economic stimulus funds out of Kelly's checking account on <chron>Aug. 13</chron> of that year to pay down the bank's line of credit. Kelly alleged this was two months before the line of credit matured, and the loss of the money impaired the company's ability to use the stimulus money for its intended purpose and to secure financing and conduct business, and damaged its reputation. Kelly Logging was once the state's largest timber company, but shut down in 2013. A jury agreed with Kelly's allegations.</p><p>After the jury verdict, Columbia Casualty informed <org value="ACORN:3065288634" idsrc="xmltag.org">First Interstate Bank</org> that it reserved the right, pursuant to Section III of the Lender Liability Endorsement, to deny coverage for breach of contract claims or coverage for disgorgement or restitution and question coverage for deliberate acts. Essentially, it so far has claimed <org value="ACORN:3065288634" idsrc="xmltag.org">First Interstate Bank's</org> policy does not compel Columbia Casualty to pay for the verdict awarded to Kelly Logging.</p><p>However, in the lawsuit filed in <org>U.S. District Court</org> in <location value="LU/us.mt.grells" idsrc="xmltag.org">Great Falls</location>, <org value="ACORN:3065288634" idsrc="xmltag.org">First Interstate Bank</org> alleges that Columbia Casualty previously told the bank it would provide <money>$10 million</money> in coverage and only changed its position after the verdict was handed down.</p><p><org value="ACORN:3065288634" idsrc="xmltag.org">First Interstate Bank</org> alleges that it decided not to settle with Kelly Logging for less than <money>$5 million</money> because the bank thought its <money>$10 million</money> insurance policy had "no exception for punitive awards."</p><p>"On <chron>April 30, 2014</chron>, (<location value="LU/us.mt.misula" idsrc="xmltag.org">Missoula</location> law firm) <person>Crowley Fleck</person>, representing First Interstate, specifically inquired about the status of Columbia Casualty's coverage position. <person>Johanna Fricano</person> (Columbia Casualty's attorney) confirmed First Interstate's coverage for lending act claims up to <money>$10,000,000</money>, in the event of a bad trial outcome," the lawsuit states. "She confirmed that Columbia Casualty was raising no new policy defenses to coverage. In response to the direct inquiry, Columbia Casualty affirmed coverage, and stated no limitations on the coverage for punitive damages. Fricano's representations constitute an explicit and false representation regarding Columbia Casualty's interpretation of the insurance contract as applied to the Kelly Logging Action. At all time, Columbia Casualty had a duty to disclose its actual positions, and wrongfully failed to disclose the post-judgment position it now takes, and purports that it maintained all along."</p><p>The lawsuit is 60 pages long. It continues:</p><p>"Had (Columbia Casualty attorneys) and/or Columbia Casualty told First Interstate that Columbia Casualty questioned coverage for punitive damages in April, First Interstate would have demanded that its insurer settle the claim within policy limits, including but not limited to the settlement offer in amount less than half of the policy limits made by Kelly Logging at the mediation, which offer had not been withdrawn."</p><p>First Interstate says in the lawsuit that it "acted in reliance upon the truth of Columbia Casualty's representations regarding coverage, and First Interstate's reliance was justified.</p><p>"First Interstate would have taken legal steps to protect itself from an uncovered verdict, including settling and/ or demanding that Columbia Casualty settle within policy limits to protect First Interstate from any damages in excess of the retention amount and the policy limits," the lawsuit reads. "First Interstate changed its position for the worse based on Columbia Casualty's representations regarding coverage. In reliance upon Columbia Casualty's representations regarding coverage under the Lender Liability endorsement, First Interstate acted upon the belief that even the 'worst case scenario' presented by defense counsel would be covered by the Columbia Casualty policy. First Interstate pursued its defense of the claim through jury a verdict in reliance on Columbia Casualty's misrepresentations that the Lender Liability endorsement provided coverage for 'wrongful acts' up to <money>$10,000,000</money>, with no limitations for punitive damages ever stated by Columbia Casualty."</p><p>A call to <org value="ACORN:3065288634" idsrc="xmltag.org">First Interstate Bank's</org> attorney, <person>Chuck Hingle</person>, was not returned Friday.</p>