Montana Court: Insurer Must Indemnify Maker of WAG Bag

An insurer must cover the losses of a Bozeman, Mont., business that was sued for supplying substandard disposable toilet bags, the Montana Supreme Court ruled.

The attorney for plaintiff Revelation Industries Inc., Robert L. Sterup of Billings, said the ruling will mean a judgment of almost $200,000, including interest, in favor of his client and against St. Paul Fire & Marine Insurance Co.

Revelation argued the insurer’s duty to defend it against alleged defects was compelled by a subcontractor clause in its policy. St. Paul Fire & Marine argued the underlying complaint did not specifically identify the subcontractor’s involvement.

The court, in a 6-1 ruling, said the record established that St. Paul had full knowledge of the contractor’s involvement and, regardless of whether the underlying complaint specifically noted it, was obligated to defend and indemnify the plaintiff.

“It’s an outright win. There are no further issues left,” Sterup said.

Guy W. Rogers, a Billings attorney who represented St. Paul Fire & Marine, was away from his office April 10 and could not be reached for comment by press time.

Revelation sued St. Paul Fire & Marine for refusing to defend Revelation and cover its losses in a lawsuit by Phillips Environmental Products, Inc. The firm in Belgrade, Mont., markets portable outdoor toilets.

Revelation contracted to supply a disposable sanitary bag for Phillips, called a WAG Bag, and subcontracted the manufacture to a St. James, Mo., firm, Manchester Packaging Co. The subcontractor failed to follow specifications, and shipped bags to Revelation that did not contain cornstarch as required by Phillips. Revelation, without knowledge of the defect, provided them to Phillips. Phillips rejected the bags and later sued Revelation for damages.

The state District Court in Bozeman ruled the insurer was not obligated to cover Revelation’s losses.

The Supreme Court opinion reversed that ruling.

The dissenting justice, Jim Rice, said the court was deviating from some of its own past rulings in similar cases.

Sterup, the attorney for Revelation Industries, took the view that the state Supreme Court had reached “somewhat inconsistent results” in those rulings. He said the recent opinion “gave the court an opportunity to review those decisions and establish a clear standard going forward.”