The question of when a parent "holding company" is a proper party to a lawsuit involving one of its subsidiary companies is moving to the forefront of insurance litigation. For a variety of strategic reasons, the most obvious being a parent company's perceived deeper pocket, the plaintiffs' bar seems to be making a concerted effort to sue the parent insurer along with its subsidiary. The Montana Supreme Court recently helped pave the way for maintaining such an action in MacPheat v. Schauf & Farmers Insurance Group of Companies, 41 P.3d 895 (Mont. 2002), in which it held that the Farmers Insurance Group of Companies ("FIGC") was unequivocally "subject to the jurisdiction of Montana's courts and to service of process."
In MacPheat, in the context of a libel lawsuit, plaintiff MacPheat alleged that defendant Schauf, while acting in his official capacity as an employee for defendant FIGC, wrote a libelous letter on defendant FIGC's letterhead. Farmers Insurance Exchange ("FIE"), a subsidiary of FIGC, made a limited appearance and moved the district court to quash plaintiff's service of process and dismiss FIGC from the lawsuit on the ground that FIGC was not a "legal entity."
FIE argued, in relevant part, that FIGC (1) was not a "person" subject to service of process; and (2) was not a "business entity" capable of being sued, but merely a "registered service mark" used by Farmers' companies for advertising and marketing Farmers' services. The district court granted FIE's motion to dismiss FIGC, and the plaintiff appealed. The Montana Supreme Court reversed and remanded, finding that FIGC was a proper party under two Montana statutes, each apparently providing a separate basis upon which the district court could assert jurisdiction over the Farmers' holding company.
First, the Montana high court found that FIGC was an "unincorporated association" and consisted of "two or more persons having a joint or common interest," both independently bringing FIGC within the ambit of Montana Rule of Civil Procedure 4, which defines a "person" for purposes of jurisdiction.
The court reasoned that the "advertising and marketing of Farmers' services under the FIGC name constitute[d] the promotion of a common enterprise by voluntary groups, formed by mutual consent" (e.g., an unincorporated association) and also demonstrated that FIGC was clearly "comprised of two or more persons which endeavor to cultivate a common interest." Moreover, along the same lines, the court found that FIGC was also a "business association" pursuant to Montana Code §25-5-104, which essentially binds, for purposes of executing a judgment, the joint property of all "persons associated in any business [who] transact such business under a common name…."
The court expressly rejected FIGC's contention that the companies affiliated with it did not transact business under the FIGC common name, reasoning that the purported libelous correspondence as well as an unrelated, sample Farmers' insurance policy and other customer correspondence were all "emblazoned with FIGC's name and logo."
Simply put, the court allowed plaintiff to file suit against FIGC because Farmers' marketing, advertising, letterhead, and/or insurance policy documentation each identified the holding company in some, albeit limited, fashion. The court showed its true colors when it stated that "[t]o conclude otherwise and sanction FIGC's proposed intangible classification would unnecessarily restrict those who can be sued in Montana's courts and fly directly in the face of the open courts provision of * * * the Montana Constitution." At least the court recognized that plaintiff still had the burden of "establish[ing] the liability of the association's [holding company's] members, if any, according to the applicable substantive law."
Based on MacPheat, it appears that an insurance "holding company" will, more likely than not, be considered a proper party to a lawsuit in Montana so long as its logo or trademark is present in documentation received by a plaintiff from the insurer. Clearly, MacPheat will be cited by every attorney suing an insurance "holding company" in Montana and, for that matter, throughout the Northwest. We have already encountered (and successfully defended on other grounds) a motion for reconsideration on this issue in Montana federal court, which was based almost entirely on the MacPheat decision.