The Advance Pay Rule and Other Unique Aspects of Montana Claims Processing

Montana, aka the Treasure State. Known for its breathtaking views, sub-zero winters, and… an insurance claims process that rivals Florida in nuance? If you’re an avid reader of our blog, you might be familiar with the ins and outs of Florida’s insurance regulatory landscape. So, as an insurance nerd and Montana State University alum (Go Cats!), I was eager to jump into the eccentricities of Montana’s claims process and see just how they stack up to those of the Sunshine State. 

To fully understand Montana’s unique claims handling process, we must first discuss the court case from which it all stems. So bear with me as we navigate the legal waters of the 1997 case: Ridley v. Guaranty National Insurance Company. 

Ridley v. Guaranty National Company

In 1995, Keith Ridley sustained injuries when the car he was riding in collided with another vehicle driven by Kenneth Roope. At the time of the collision, Roope had liability insurance with Guaranty National Insurance Company. A claims adjuster for Guaranty National determined that their insured (Roope) was 90 percent at fault for the accident, leading Riley’s attorney to ask that Guaranty National pay his medical expenses in advance of a final settlement. 

The insurer denied paying in advance, stating the severity of Riley’s claims weren’t clearly attributed to the accident and they’d only pay once they had reached a final settlement. The trial court agreed with Guaranty National but, upon appeal, the Montana Supreme Court disagreed based on the following two prohibited insurer practices laid out in the Unfair Trades Practices Act (UTPA):

• §33-18-201(6) neglect to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear
• §33-18-201(13) failure to promptly settle claims, if liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage

The Montana Supreme Court interpreted the language of the UTPA provisions as requiring an insurer to pay in advance of a final settlement when “liability is reasonably clear” and justified its decision by stating that medical expenses are often devastating for average-income families. 

The Ridley Advance Pay Rule

The Montana Supreme Court ruling in Ridley led to Montana enacting an advance payment rule. This rule, unique to Montana, requires insurers to compensate anyone injured by their insured for any injuries in which liability is reasonably clear before settlement and regardless of comparative fault.

What is comparative fault?

Comparative fault is an individual’s responsibility for an accident, relative to the fault of others who are involved. For example, if Bert and Ernie are involved in a car accident where Bert is found to be 70 percent at fault and Ernie is found to be 30 percent at fault, then Bert only has to pay for 70 percent of any damages Ernie incurs. Like the example, most states permit an insurer to pay only a percentage of any undisputed damages based on their insured’s comparative fault, but in Montana carriers don’t assess comparative fault until settlement. 

Following Ridley, the Montana Supreme Court expanded the scope of advance payments beyond medical expenses to include other damages like those incurred by the plaintiff in DuBray v. Farmers Insurance.

Dubray v. Farmers Insurance

Similar to Ridley, in DuBray v. Farmers Insurance, the plaintiff sought advance payment for medical expenses. However, DuBray also argued for advance payment for other damages including lost wages, mental distress, inconvenience, and punitive damages, among others. While the Montana Supreme Court agreed that the insurance payments should include lost wages, it declined expanding to include other general and punitive damages. 

Release ruling adds more variation to Montana claims process

Another quirk stemming from the Ridley payments case is that Montana insurers must pay damages in advance without first obtaining a release for their insured. While most states require an insurer to secure a release to protect their insured’s interests by barring the plaintiff from suing (typically in exchange for a settlement check), the Montana Supreme Court holds that refusing to pay mandatory minimum payments until an insured signs a release is an unfair trade practice. In the 2000 case Shilhanek v. D-2 Trucking, the Court expanded the limits of minimum advanced payment without a release to include the entire policy limit. 

Potential pitfalls for Montana insurers

The court’s ruling in Shilhanek puts Montana insurers in a unique position when it comes to their contractual obligations to their insureds – particularly, their duty to defend. This refers to an insurer’s duty to provide legal defense to their insured in the case that a liability claim is brought against them. The inability to secure a release on behalf of the insured means an insurer may exhaust policy limits paying out damages in advance but still need to pay to defend an insured if liability is reasonably clear. 

Idiosyncrasies like the Ridley payments and release ruling mean carriers and claims handlers should be cautious when navigating Montana’s claims process. Refusing or failing to operate in compliance with the state’s unique requirements can result in a bad-faith claim against an insurer. Insurers can lessen their chance of a bad faith claim by conducting valid, timely assessments of liability and damages and keeping a verifiable record of relevant information throughout the claims process. 

Montana’s unique claims processing requirements speak to the complexity of state-by-state insurance regulation. While we can’t help with claims processing directly, agencies, carriers, and MGAs/MGUs can streamline their management of state nuances in producer and adjuster licensing and compliance with AgentSync.