Liberty Bank of Montana v. The Travelers Indemnity Company of America

Liberty Bank sued Travelers Indemnity (Travelers) for a declaration that Travelers had a duty to defend Liberty Bank against a counterclaim in its suit against Liberty Manufacturing to foreclose on a security interest. The district court granted Travelers’ motion for summary judgment and denied Liberty Bank’s motion for partial summary judgment. Liberty Bank appeals this order. We affirm.

I

FACTS

As security for a loan, Liberty Manufacturing granted Liberty Bank (Liberty) a security interest in all of its assets, inventory, equipment and accounts receivable. Upon default, Liberty threatened foreclosure unless Liberty Manufacturing brought the loans current. Liberty agreed to defer foreclosure if additional capital was injected into the company. A group of investors, “Private Lenders,” were approached to make such investments. Liberty stated that if Private Lenders made the requested investment, the bank would subordinate its security position in the inventory and accounts receivable to the extent that they appreciated in value after September 1, 1981. Based upon this representation, Private Lenders invested in Liberty Manufacturing.

Liberty subsequently repudiated its…