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TALMAGE et al v. ACE PROPERTY AND CASUALTY INSURANCE COMPANY complaint

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UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF MONTANA 
MISSOULA DIVISION 
CASE NO.:  ()t - IU., L   Yi1 v'l»)-11Y)
JOHN TALMAGE, MONTANA 
DIAMOND AIRE, INC., and 
RJT PROPERTIES, LLC, 
Plaintiffs, 
v. 
FILED
MAY'6201'I
ACE PROPERTY AND CASUALTY 
INSURANCE COMPANY, 
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Defendant. 
COMPLAINT
Plaintiffs,  JOHN  TALMAGE,  MONTANA  DIAMOND  AIRE,  INC.,  and  RJT 
PROPERTIES,  LCC  (hereinafter  "Plaintiffs"),  hereby  file  their  Complaint  against 
Defendant,  ACE  PROPERTY  AND  CASUALTY  INSURANCE  COMPANY  ("ACE"), 
and allege as follows: 
THE PARTIES, JURISDICTION AND VENUE
1.  Plaintiff,  John Talmage  ("Talmage"),  is  a  resident of Kalispell,  Montana. 
Talmage owns and operates Montana Diamond Aire, Inc. and RJT Properties, LLC. 
2.  Plaintiff,  Montana  Diamond  Aire,  Inc.  ("Diamond  Aire")  is  an  aviation 
business  incorporated  under  the  laws  of Montana  and  doing  business  in  the  City  of 
Kalispell.  Diamond  Aire  sells  fuel  to  Kalispell  Municipal  Airport  users  and 
manufactures, sells, and installs airplane modification parts and kits. 
Case 9:14-cv-00161-DWM Document 1 Filed 05/16/14 Page 1 of 14
3. Plaintiff, RJT Properties, LLC ("RJT"), is a limited liability company
formed under the laws of Montana and is the record owner of real property located
adjacent to the Kalispell Municipal Airport at 1893 Airport Road, Kalispell, Montana
("the Property"). RJT leases the Property to Diamond Aire and has done so since 2003.
4. Defendant ACE is a corporation formed under the laws of Peunsylvania
having its principal place of business in Pennsylvania. ACE is registered to transact
insurance in Montana as a foreign corporation and has appointed and authorized the
Commissioner of Securities and Insurance to receive service of process on ACE's behalf
in Montana.
5. Jurisdiction is proper in this Court pursuant to 28 USC § 1332 because the
matter in controversy exceeds $75,000 and the parties are citizens of different states.
6. Venue is proper in the Missoula Division of the District of Montana
pursuant to 28 U.s.C. § 1391 because the events giving rise to the causes of action
alleged herein occurred in Flathead County, Montana.
BACKGROUND
7. In late 2003, the City of Kalispell (the "City"), acting through the
Kalispell City Airport Advisory Board (the "Board"), caused a fence with a gate to be
erected between Plaintiffs' Property and the airport, impairing access to Plaintiffs'
buildings and aircraft fuel station.
8. As a result, Plaintiffs filed suit against the City and the Board asserting: (I)
unreasonable interference with use of easement; (II) private nuisance; (III) tortious
interference with business prospects; (IV) infliction of emotional distress; and (V)
punitive damages. A copy ofthe Complaint is attached hereto as Exhibit A.
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9. Despite Plaintiffs' request that the City or Board remove the fence, the
fence remained and continued to impair access to Plaintiffs' Property and businesses.
10. Between 2008 and 2010, the City and Board, acting independently or
through Airport Manager, Fred Leistiko ("Leistiko"), I negligently inflicted emotional
distress on Talmage, slandered and disparaged Plaintiffs, and engaged in conduct that
damaged the Property and further injured the Plaintiffs' businesses, reputation, and use
and enjoyment of the Property. Some ofthese acts are described below:
a. In 2008 the ACE Insureds ordered destructive environmental tests
to be conducted at the Property. The testing damaged Plaintiffs' property and
disrupted Plaintiffs' business.
b. Following this environmental testing, the ACE Insureds mistakenly
and falsely represented to airport users, members of the Airport Property Owners,
and Plaintiffs' banker that Plaintiffs' Property was contaminated and that
Plaintiffs were contaminating the airport. As a result of this slander, Plaintiffs
were disgraced, degraded and shunned, and Plaintiffs suffered significant business
losses.
c. Further, the ACE Insureds mistakenly and falsely reported to
Plaintiffs' banker that Plaintiffs were falling out of compliance with the
Department of Environmental Quality and losing eligibility for important federal
programs that would result in a substantial devaluation of Plaintiffs' Property.
The ACE Insureds further mistakenly and falsely reported to Plaintiffs' banker
that due to contamination, Plaintiffs and/or the bank could be liable for $900,000
The City, Board, and Leistiko shall be collectively referred to herein as the "ACE Insureds", "ACE
Insured Defendants" or the "AI Defendants".
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in clean-up costs. As a result of this slander, the ACE Insureds placed Plaintiffs'
credit-worthiness at issue.
d. The ACE Insureds mistakenly and falsely reported to airport users
and members of the Airport Property Owners that Plaintiffs were in serious
financial trouble and having solvency problems. As a result of this slander,
Plaintiffs were prejudiced in their occupation and trade and suffered significant
business losses.
e. During the ACE Insureds' efforts to upgrade the Kalispell City
Airport to "B2" status, they misinterpreted Federal Aviation Administration
("FAA") regulations and mistakenly and falsely represented to airport users and
members of the Airport Property Owners that Plaintiffs would not be permitted to
operate or do business through-the-fence. The ACE Insureds further mistakenly
and falsely represented to airport users and members of the Airport Property
Owners that Plaintiffs would soon be out of business. As a result of this slander,
Plaintiffs were prejudiced in their occupation and trade and suffered significant
business losses.
f. Further, while attempting to upgrade the Kalispell City Airport to
"B2" status, the ACE Insureds unintentionally discriminated against Plaintiffs and
further impaired physical and visual access to the Property.
11. As a result of the aforementioned acts, the ACE Insureds materially
injured Plaintiffs' businesses, which relied on fuel sales income to fund overhead,
research, development, and other costs associated with producing, selling, and installing
modification parts and kits.
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12. Accordingly, in May of 2010, Plaintiffs filed an Amended and Second
Amended Complaint adding Airport Manager Leistiko as a defendant. The Second
Amended Complaint alleged (I) unreasonable interference with use of easement; (II)
private nuisance; (III) tortious interference with business prospects; (IV) infliction of
emotional distress; (V) inverse condemnation; and (VI) slander. Plaintiffs asserted that
they had "suffered damages as a result of the negligence, misconduct, and wrongful acts
of the Defendants." See paragraph 8 of the Second Amended Complaint attached hereto
as Exhibit B.
13. In reality, as a result of the AI Defendants' negligent conduct, Plaintiffs
suffered business losses in excess of $2.6 million.
14. Further, between 2008 and 2010, as a result of the AI Defendants'
negligent conduct, Talmage suffered severe emotional distress, including significant
stress, aggravation, anxiety, depression, loss of sleep, loss of appetite (including severe
weight loss), elevated blood pressure, joint pain and muscle soreness, and cardiovascular
irregularities.
THE ACE POLICIES
15. In 2007, the City of Kalispell purchased an "Airport Owners and
Operators General Liability Policy" from ACE. This policy was issued and renewed, as
follows:
a. ACE Policy Number AAP N02200806 001 was issued to the City
for the period of February 11, 2007, to February 11, 2008, and is attached as
Exhibit C.
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b. ACE Policy Number AAP N02200806 002 was issued to the City
for the period of February 11, 2008, to February 11, 2009, and is attached as
Exhibit D.
c. ACE Policy Number AAP N02200806 003 was issued to the City
for the period of February 11, 2009, to February 11, 2010, and is attached as
Exhibit E.
d. ACE Policy Number AAP N02200806 004 was issued to the City
for the period of February 11, 2010, to February 11, 2011, and is attached as
Exhibit F.
16. The policies provided coverage, in relevant part, for bodily injury,
property damage, personal injury, and advertising injury liability with limits of
$5,000,000.
17. The policies insure the City of Kalispell, its elective or appointive officers,
members of any board, commission, or agency, and employees with respect to "airport
operations." Policy p. 12 and 13.
18. The policies contain a Separation of Insureds provision, stating "Except
with respect to the LIMITS OF INSURANCE (SECTION IV), and any rights or duties
specifically assigned in this policy to the first Named Insured, this insurance applies
separately to each insured against whom claim is made or "suit" is brought."
19. The policies define "Airport operations" as ''the ownership, maintenance,
use or provision of premises, services and facilities necessary or incidental to the
operation of the 'airport.'" Endorsement No.3, AAP 234 (11/99).

Case 9:14-cv-00161-DWM Document 1 Filed 05/16/14 Page 6 of 14
20. Coverage A. Bodily Injury And Property Damage Liability provides,
"[w]e will pay those sums that the insured becomes legally obligated to pay as damages
because of 'bodily injury' or 'property damage' to which this insurance applies. We will
have the right and duty to defend any 'suit' seeking those damages ... ". Policy, p. 2.
21. '''Bodily Injury' means: a. Bodily injury, sickness or disease sustained by
a person, including death resulting from any of these at any time; or b. Fright or mental
anguish sustained by a person." Policy, p. 19.
22. "'Property Damage' means: a. Physical injury to tangible property,
including all resulting loss of use of that property ... b. Loss of use of tangible property
that is not physically injured." Policy, p. 22.
23. The policies define "occurrence" as "an accident, including continuous or
repeated exposure to substantially the same general harmful conditions." Policy p. 21.
"Accident" is not defined.
24. Coverage B. Personal And Advertising Injury Liability provides, "[w]e
will pay those sums that you become legally obligated to pay as damages because of
'personal injury' or 'advertising injury' to which this insurance applies. We will have the
right and duty to defend any 'suit' seeking those damages ...". Policy, p. 6.
25. The policies define "personal injury" in relevant part as "injury, other than
'bodily injury,' arising out of one or more of the following offenses ... c. The wrongful
eviction from, wrongful entry into, or invasion of the right of private occupancy of a
room, dwelling or premises that a person occupies by or on behalf of its owner, landlord
or lessor; d. Oral or written publication of material that slanders or libels a person or
organization or disparages a person's or organization's goods, products or services; e.
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Oral  or  written  publication  of material  that  violates  a  person's  right  of privacy;  f. 
Unintentional discrimination ...".  Policy, p. 22. 
26.  The policies define  "advertising injury"  in relevant part as  "injury arising 
out  of one  or more  of the  following  offenses:  a.  Oral  or  written  publication of material 
that slanders or libels a person or organization or disparages a person's or organization's 
goods  or  services;  b.  Oral  or written publication of material that violates a person's right 
of privacy ...".  Policy p.  19. 
27.  The  policies also  contain an endorsement,  the  "Airport Limited Enhanced 
Coverage Endorsement," form AAP 234 (11199), which provides in relevant part: 
3.  The  following  is  added  to  Condition  2  - (Duties  in  the  Event  of 
Occurrence, Claim or Suit.) 
e.  Knowledge  of  an  occurrence  by  your  agent,  servant  or 
employee  shall  not  constitute  knowledge  by  you,  unless  an 
executive  officer,  partner,  proprietor or an  employed risk manager 
has received such notice. 
4.  Condition 6 - (Representations) is amended to include: 
d.  Your unintentional failure  to disclose  facts  shall not be  a basis 
for denial of any coverage, provided that it is corrected as soon 
as  it  is  discovered  by  an  executive  officer,  partner,  proprietor 
or employed risk manager. 
e.  Your  inadvertent  failure  to  submit  reports  or  contracts  or 
comply  with  other  notices,  except  those  required  under 
Condition  2,  shall  not  invalidate  this  insurance,  provided  it is 
corrected  as  soon  as  it  is  discovered  by  an  executive  officer, 
partner, proprietor or employed risk manager." 
28.  By letter dated March  28,  2013,  the  City of Kalispell notified ACE of the 
Second  Amended  Complaint  and  tendered  same  for  defense  and  indemnification  on 

Case 9:14-cv-00161-DWM Document 1 Filed 05/16/14 Page 8 of 14
behalf of all AI Defendants. The May 28 letter attached the Complaint, Amended
Complaint, and Second Amended Complaint, and stated in part:
These claims arise out of the City of Kalispell's assessment of user
fees on the Plaintiffs, the erection and maintenance of a fence on
airport property, and the alleged making of defamatory statements
by the airport manager, Fred Leistiko. All of these activities
constitute "airport operations" as that term is defined in the Policy.
Although not plead as a separate claim, Plaintiffs have represented
that their damages are the result of the City of Kalispell's
negligence (See Second Amended Complaint,   8, attached as
exhibit "A").
29. The Second Amended Complaint alleged facts within the ACE insurance
policies' coverage. As such, ACE had a duty to defend the AI Defendants against the
Second Amended Complaint in Cause No. DV-04-282(B) (the "Lawsuit").
30. On March 29, 2013, ACE's Aerospace Claims Manager, Sean Finnegan
("Finnegan") requested "ALL information related to this matter be sent to us ASAP so
that we can make an accurate coverage assessment. This includes all reports, internal
documents, the entire litigation file, all pleadings, motions, etc."
31. The AI Defendants promptly supplied all pleadings, depositions, and
discovery to ACE.
32. Over the next several days, Finnegan spoke with the City of Kalispell's
counsel, and she supplied any additional information requested.
33. The information and documents provided to ACE further demonstrated
that the Lawsuit brought by Plaintiffs against the AI Defendants exposed them to liability
covered by the ACE policies, such that ACE had a duty to defend and indemnify the AI
Defendants.
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34. On April 23, 2013 Plaintiffs wrote to the AI Defendants, offering to settle
the Lawsuit and release them from liability for claims asserted therein in exchange for a
partial payment of covered damages well within ACE's policy limits.
35. The AI Defendants notified ACE of the settlement demand, and ACE
advised that it required additional time to complete its coverage analysis. Additional time
was provided.
ACE'S DECLINATION OF COVERAGE AND DENIAL OF A DEFENSE
36. On May 3, 2013, ACE denied coverage and refused to defend and
indemnifY the AI Defendants against Plaintiffs' claims in the Lawsuit.
37. ACE acted with actual malice in denying coverage and refusing to defend
and indemnifY the AI Defendants with knowledge of facts or intentionally disregarding
facts giving rise to its coverage, defense, and/or indemnity obligations. ACE deliberately
denied coverage and refused to defend the AI Defendants with disregard or indifference
to the high probability of injury to the AI Defendants that would occur if the AI
Defendants were not provided with defense or indemnity coverage due under the
applicable policies.
38. ACE's refusal to defend and indemnifY the AI Defendants constitutes a
breach of the insurance policies. As a result of ACE's breach of contract, the AI
Defendants were forced to pay defense costs and were exposed to potential financial risk
for covered and non-covered counts, including for amounts exceeding ACE policy limits.
39. ACE's breach of the duty to defend constitutes a material breach of the
policy, which relieved the AI Defendants of all obligations under the ACE policies with
respect to the Lawsuit filed by Plaintiffs.
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Case 9:14-cv-00161-DWM Document 1 Filed 05/16/14 Page 10 of 14
SETTLEMENT AND ASSIGNMENT
40. Following ACE's wrongful refusal to defend and indemnify its insureds in
breach of the ACE policies, the AI Defendants entered into a compromise settlement
agreement with Plaintiffs. The AI Defendants thereby ended the costly defense of the
Lawsuit and eliminated their exposure to further financial risk. As part of the settlement,
Defendants confessed judgment in the amount of $1,500,000 and assigned their
contractual and extra-contractual claims and rights of action against ACE to Plaintiffs.
41. Plaintiffs were third party beneficiaries under the ACE policies. Plaintiffs
bring this action in that capacity, and also in the capacity of first party insureds under the
policies, pursuant to the assignment.
42. On October 4,2013, the Court held a hearing for the purpose of reviewing
the reasonableness of the parties' settlement. At the hearing, Plaintiffs presented
evidence that as a result of the AI Defendants' negligent conduct, including the AI
Defendants' slander and infliction of emotional distress, Plaintiffs suffered over $2.6
million in damages. The Court took the matter under advisement.
43. On December 4, 2013, the Court issued its Findings of Fact and
Conclusions of Law, finding: the settlement reached between the parties was reasonable;
there was no evidence of collusion among the settling parties; and Plaintiffs presented
prima facie evidence from which a jury could have concluded Plaintiffs were entitled to
substantial damages, including damages for Talmage's emotional distress. The Court
approved the $1.5 million settlement and entry of Judgment against the AI Defendants.
The Judgment does not exceed the ACE policy limits.
44. All conditions precedent to this action have been satisfied or waived.
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COUNT I:  REQUEST FOR DECLARATORY JUDGMENT ACTION 
45. Plaintiffs restate and reallege all allegations above.
46. Plaintiffs are entitled to and seek relief under the Montana Unifonn
Declaratory Judgment Act, MCA §27-8-102.
47. The Plaintiffs request a declaratory judgment that:
a. ACE had a duty to defend and indemnifY the AI Defendants under
the tenns of the ACE policies and Montana law;
b. ACE breached that duty;
c. ACE is liable for the Judgment entered against the AI Defendants,
plus interest, costs, and attorney's fees; and
d. ACE waived policy defenses by refusing to defend and indemnifY
the AI Defendants.
COUNT II:  BREACH OF CONTRACT 
48. Plaintiffs restate and reallege paragraphs 1 - 46 above.
49. ACE had a contractual obligation to defend the AI Defendants against the
Lawsuit.
50. ACE breached its insurance contracts by refusing to defend the AI
Defendants.
51. ACE had a contractual obligation to indemnifY the AI Defendants.
52. ACE breached its insurance contracts by refusing to indemnifY the AI
Defendants.
53. As third party beneficiaries under the policies, and also as first party
insureds by virtue of the assignments from the AI Defendants, Plaintiffs are entitled to all
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Case 9:14-cv-00161-DWM Document 1 Filed 05/16/14 Page 12 of 14
remedies and damages allowed under the law for each of ACE's breaches of its duties to
defend and indemnify.
54. Plaintiffs are entitled to judgment against ACE in the amount of the
Judgment entered against the AI Defendants in the Lawsuit.
55. Plaintiffs are entitled to interest on said Judgment at the Montana statutory
rate of 10% per annum, from the date the parties entered into settlement, June 12,2013.
56. Plaintiffs were required to institute litigation to recover benefits under
ACE's insurance policies, and Plaintiffs are entitled to recover their attorney fees and
costs herein.
COUNT III: BAD FAITH
57. Plaintiffs restate and reallege Paragraphs 1-55 above.
58. The actions of ACE in refusing to defend the AI Defendants violates MCA
33-18-201 and 242. The actions of ACE give rise to punitive damages under MCA 33-
18-242 and 27-1-221.
WHEREFORE, Plaintiffs pray for judgment against ACE as follows:
1. That the Court determine and declare that ACE had a duty to defend and
indemnify the AI Defendants under its policies, that its refusals to defend and indemnify
constituted a breach of the insurance contract, and that its refusals to defend and
indemnify waived the policies' limits and coverage defenses;
2. For judgment against ACE in the amount of the judgment against the AI
Defendants in the Lawsuit;
3. For reasonable and necessary costs and attorney fees incurred in
prosecuting this action and establishing coverage;
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Case 9:14-cv-00161-DWM Document 1 Filed 05/16/14 Page 13 of 14
4. Forallpre-judgmentandpost-judgmentinterestallowedbyMontanalaw,
including interest onthe Judgment against the AI Defendants at the Montana statutory
rateof10%perannumfromthedateofthatJudgmentuntilpaidinfull;
5. Foranyavailablespecialdamages;
6. Foranyavailablegeneraldamages;
7. Forpunitivedamages;and
8. ForsuchotherreliefasthisCourtdeemsjustandproper. 
DEMANDFORJURYTRIAL 
Plaintiffsrequestatrialbyjuryonallissuestriableinthiscause.
DATEDthirl2dayof May,2014.
ames .Moore
anaBarNo. 1070
Email:moorelaw@centurytel.net
30 5
th
StreetEast,Suite201
P.O.Box116
Kalispell,Montana59903
Tel:(406) 755-8332
Fax:(406)755-8339
Attorneyfor Plaintiffs
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Case 9:14-cv-00161-DWM Document 1 Filed 05/16/14 Page 14 of 14

Published under a Creative Commons License By attribution, non-commercial
date: 
Fri, 2014-05-16
AttachmentSize
D.E. 1 COMPLAINT against ACE Property and Casualty Insurance Company, filed by John Talmage, Montana Diamond Aire, Inc., RJT Properties, LLC.pdf270.28 KB

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