Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., Alaska (2016)

7/25/2019 Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., Alaska (2016)

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Notice: This opinion is subject to correction before publication in the PACIFICREPORTER.

Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,

303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email

[email protected].

THESUPREMECOURTOFTHESTATEOFALASKA

ATTORNEYSLIABILITY

PROTECTIONSOCIETY,INC.,aRiskRetentionGroup,

PlaintiffCross-Appellant/Appellee,

v.

INGALDSONFITZGERALD,P.C.,

f/k/aIngaldson,Maassen&Fitzgerald,P.C.,

DefendantAppellee/Cross-Appellant.

)

)

))

))

)

))

)

) )

)

) )

)

SupremeCourtNo.S-15683

9thCir.CaseNos.13-35115/13-35172

U.S.DistrictCourtNo.

3:11-cv-00187-SLG

O P I N I O N

No.7095March25,2016

CertifiedQuestionfromtheUnitedStatesCourtofAppeals

for the Ninth Circuit on Appeal from the United States

DistrictCourtfortheDistrictofAlaska,SharonL.Gleason,DistrictJudge.

Appearances: KendraE. Bowman andScott J. Gerlach,

DelaneyWiles,Inc.,Anchorage,andKevinD.Hartzelland

AngelaProbasco,KutakRockLLP,Omaha,Nebraska,forPlaintiffCross-Appellant/Appellee. WilliamH. Ingaldson

and Jim M. Boardman, Ingaldson Fitzgerald, P.C.,Anchorage, for DefendantAppellee/Cross-Appellant.DanielWilkerson,AssistantAttorneyGeneral,Anchorage,

and Craig W. Richards, Attorney General, Juneau, for

AmicusCuriaeStateofAlaska.


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Before: Stowers,ChiefJustice,FabeandBolger,Justices,

andMatthewsandEastaugh,SeniorJustices.* [WinfreeandMaassen,Justices,notparticipating.]

FABE,Justice.

I. INTRODUCTION

TodayweresolvetwoquestionscertifiedtousbytheUnitedStatesCourt

ofAppealsfortheNinthCircuit:

1. DoesAlaska law prohibitenforcementofapolicyprovisionentitlinganinsurertoreimbursementoffeesand

costs incurred by the insurer defending claims under a

reservationofrights,where(1)theinsurerexplicitlyreservedtherighttoseeksuchreimbursementinitsoffertotendera

defenseprovidedbyindependentcounsel,(2) the insured

acceptedthedefensesubjecttothereservationofrights,and(3) the claims are later determined to be excluded from

coverageunderthepolicy?

2. IftheanswertoQuestion1isYes,doesAlaskalaw

prohibitenforcementofapolicyprovisionentitlinganinsurertoreimbursementoffeesandcostsincurredbytheinsurer

defendingclaimsunderareservationofrights,where(1)the

insurer explicitly reserved the right to seek suchreimbursementinitsoffertotenderadefenseprovidedby

independentcounsel,(2)theinsuredacceptedthedefense

subject to the reservation of rights, and (3) it is laterdetermined that theduty todefendnever aroseunderthe

policybecausetherewasnopossibilityofcoverage?[1]

Theanswertobothquestionsisyes.

* SittingbyassignmentmadeunderarticleIV,section11oftheAlaskaConstitutionandAlaskaAdministrativeRule23(a).

1 Attorneys Liab. Prot. Socy, Inc. v. Ingaldson Fitzgerald, P.C. (ALPS 9th

Cir.),766F.3d1180,1181(9thCir.2014).

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II. FACTSANDPROCEEDINGS

Thefactsofthiscasearenotindisputeforthepurposeofresolvingthe

certifiedquestions.2 IngaldsonFitzgeraldisanAlaskalawfirm. AttorneysLiability

ProtectionSociety,Inc.(ALPS)isaMontanainsurancecompanyandrisk-retention

group. FromApril29,2007,toApril29,2008,ALPSinsuredIngaldsonFitzgerald.

IngaldsonFitzgeraldsinsurancepolicywithALPSinsuredthefirmagainst

claimsarisingfromanact,errororomissioninprofessionalservicesthatwereorshould

havebeenrenderedby[IngaldsonFitzgerald]. Thepolicyexpresslyexcludedfrom

coverageanyclaimsarisingfromconversionordisputesoverfees. Thepolicyalso

containedaprovisionprovidingthatIngaldsonFitzgeraldwouldreimburseALPSfor

feesandcostsALPSincurredindefendingnon-coveredclaims.

In2008thebankruptcytrusteeforthebankruptestateofaformerclientof

IngaldsonFitzgerald,inconjunctionwithaseparateformerclientofthefirm,brought

aclaimagainstthefirmintheU.S.BankruptcyCourtfortheDistrictofAlaska. Thesuit

concernedIngaldsonFitzgeraldsactionsindisbursingfromandwithdrawingfeesand

costsagainsta retainer. The former client and the trustee sought recoveryof that

retainer,3 andassertedclaimsagainstIngaldsonFitzgeraldfor,amongother things,

restitution,disgorgement,andconversion. 4

2 Attorneys Liab. Prot. Socy, Inc. v. Ingaldson &Fitzgerald, P.C.(ALPS D.Alaska),No.3:11-cv-00187-SLG,2012WL6675167,at*1(D.AlaskaDec.21,2012).

Additionally,whenansweringcertifiedquestionswerely...onthefederalcourtsfact

statementsandtheexcerpt. Wemakenoindependentfactdeterminations. C.P. ex rel.M.L. v. Allstate Ins. Co.,996P.2d1216,1218n.1(Alaska2000).

3 ALPS D. Alaska,2012WL6675167,at*1.

4 Id.

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Ingaldson Fitzgerald notified ALPS of the underlying suit. ALPS

respondedbyacceptingIngaldsonFitzgeraldstenderofthedefenseintheunderlying

suit,butwiththecaveatthatALPSreservedallrights.5 Initsreservationofrights

letter,ALPSexplainedthattheunderlyingsuitmadeallegationsofactivitiesthatd[id]

notappeartoimplicatetheprovisionofservicesoractivitiesby[IngaldsonFitzgerald]

asanattorneyinanattorney-clientrelationship, and thusd[id]not appear tobe

professionalserviceswithinthePolicyscoverage. Theletteralsoassertedthatthe

claimsintheunderlyingsuitsoughtrestitutionthatwasnotwithinthepolicysdefinition

ofcovereddamagesandthatthepolicydidnotcoverclaimsrelatedtodisputesover

fees,dishonestorcriminalacts,or theconversionof trustaccount funds. ALPSs

reservationofrightsletteralsospecificallyincludedtherighttobereimbursedforthe

portionoffeesincurredinthedefenseofclaimsthatweredeemednotcoveredunderthe

policy.

IngaldsonFitzgeraldthenretainedindependentcounseltodefendagainst

theformerclientand the trusteesclaim,andALPSpaidthefees incurredbythat

attorney.6 Duringadversaryproceedingsintheunderlyingsuit,thebankruptcycourtin

the District of Alaska twice granted partial summary judgment against Ingaldson

Fitzgerald.7Thetrusteethendismissedtheremainingcauseofaction,soughtentryof

finaljudgment,andmovedforattorneysfeesandcosts. 8

5 Id.

6 Id.

7 See In re Avery,No.A06-00455-DMD,2011WL4474927,at*4-6(Bankr.D.AlaskaJuly19,2011);In re Avery,461B.R.798,816-20(Bankr.D.Alaska2011).

8 See In re Avery,No.A06-00455-DMD,2011WL5330789,at*2(Bankr.

D.AlaskaNov.4,2011).

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InSeptember2011ALPSfiledsuitagainstIngaldsonFitzgeraldinthe

UnitedStatesDistrictCourtfortheDistrictofAlaska.ALPSsoughtdeclarationsthat

itspolicydidnotcovertheunderlyingclaimsandthatitwasnotobligatedtofurnishan

appealbond,aswellasamonetaryawardreimbursingitfor thecostofdefending

IngaldsonFitzgerald. ThedistrictcourtdeterminedthatIngaldsonFitzgeralddidnot

meaningfullycontest eitherofthe firsttwo requests for declaratoryreliefand thus

grantedALPSitsdesireddeclarationsonsummaryjudgment. 9 ButIngaldsonFitzgerald

didcontestALPSsclaimforreimbursementofthecostofdefenseintheunderlyingsuit,

anditmovedforpartialsummaryjudgmentonthispoint. ALPSopposedIngaldson

Fitzgeraldsmotionandcross-movedforsummaryjudgment.

The district court granted Ingaldson Fitzgeralds motion for partial

summaryjudgment.10 ThedistrictcourtnotedthatthepolicyprovidedALPSwitharight

to reimbursement11 but concluded that the reimbursement provision was not in

compliance with Alaska insurance law and that the provision was therefore

unenforceable.12 Specifically, the district court concluded that the reimbursement

provisionwasinconsistentwithAS21.96.100(d),whichprovidesthatinfurnishingthe

insuredwithindependentcounsel,aninsurershallberesponsibleonlyforthefeesand

coststodefendthoseallegationsforwhichtheinsurereitherreservesitspositionasto

9 Attorneys Liab. Prot. Socy, Inc. v. Ingaldson & Fitzgerald, P.C.,No.

3:11-cv-00187-SLG(D.AlaskaJan.24,2013).

10 See ALPS D. Alaska,2012WL6675167,at*2-5.

11 Id. at*2.

12 Id. at*4.

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coverageoracceptscoverage.13 ThedistrictcourtalsodeterminedthatAlaskalaw

prohibitstheinclusionofarighttoreimbursementininsurancepoliciesinthestateand

does not allow ALPS to provide insurance policy coverage that contradicts this

prohibition.14 Thedistrictcourt thereforegrantedIngaldsonFitzgeraldpartialsummary

judgmentonALPSsclaimforreimbursement.15

ALPSappealedtotheNinthCircuit.16 TheNinthCircuitcertifiedtwo

questionstothiscourt,distinguishingbetweensituationsinwhichaninsurerhasaduty

todefendbutultimatelyfacesnoliabilityandsituationsinwhichthedutytodefend

neverarises.17 WegrantedtheNinthCircuitsrequestthatweanswerthecertified

questions.Thepartiesprovidedfullbriefingoftheissues,andtheAlaskaDivisionof

Insurancefiledanamicusbriefatourrequest. Oralargumentwasheldbeforethiscourt

onDecember15,2015.

III. STANDARDOFREVIEW

AlaskaAppellateRule407(a)permitsustoacceptcertifiedquestionsof

lawofthisstatewhichmaybedeterminativeofthecausethenpendinginthecertifying

courtandastowhichitappearstothecertifyingcourtthereisnocontrollingprecedent

in[thiscourts]decisions. Wehaveexplainedthat[i]ndecidingacertifiedquestion

oflaw,wemuststandintheshoesofthecertifyingcourt,yetexerciseourindependent

13 Id.

14 Id. at*5.

15 Id.

16 ALPS 9th Cir.,766F.3d1180(9thCir.2014).

17 Id. at1181.

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judgment.18 Thisentailsselectingtheruleoflawthatismostpersuasiveinlightof

precedent,reason,andpolicy.19

Weinterpretstatutesaccordingto reason, practicality, andcommonsense,

considering the meaning of the statutes language, its legislative history, and its

purpose.20Weuseaslidingscaleapproachtostatutoryinterpretation,inwhichthe

plainerthestatutorylanguage is,themoreconvincingtheevidenceofcontrarylegislative

purposeorintentmustbe.21

IV. DISCUSSION

A. When AnInsurer Has ADuty To Defend, Alaska Law Prohibits

Enforcement Of A Policy Provision Entitling That Insurer To

ReimbursementOfFeesAndCostsIncurredDuringTheDefenseOfClaimsUnderAReservationOfRights.

Answering the first certified question requires us to answer two

sub-questions. First,doesAlaskalawgenerallyrequireinsurerstopaydefensecosts,

withoutreimbursement,whentheyreserverights? Andsecond,ifso,doesAlaskalaw

barattemptstocontractaroundthisrequirement? Theanswertobothquestionsisyes,

evenincircumstanceswhere(1)aninsurerexplicitlyreservedtherighttoseeksuch

reimbursementinitsoffertotenderadefenseprovidedbyindependentcounsel,(2)the

insuredacceptedthedefensesubjecttothereservationofrights,and(3)theclaimsare

laterdeterminedtobeexcludedfromcoverageunderthepolicy.

18 Schiel v. Union Oil Co. of Cal., 219 P.3d 1025,1029 (Alaska2009)

(quotingEdenshaw v. Safeway, Inc.,186P.3d568,569(Alaska2008)).

19 Id. (citingKallstrom v. United States,43P.3d162,165(Alaska2002)).

20 Municipality of Anchorage v. Stenseth,361P.3d898,905(Alaska2015)(citingState, Div. of Workers Comp. v. Titan Enters.,338P.3d316,320(Alaska2014)).

21 Id. (alterationomitted)(citationsomitted)(quotingMcDonnell v. State

Farm Mut. Auto. Ins. Co.,299P.3d715,721(Alaska2013)).

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1. Alaskacaselaw

BeforeturningtothetextofAS21.96.100,wefirstsurveythecommonlaw

contextinwhichthestatutewaspassed. Ourexaminationofaninsurersoptionsin

policydefensesituationsbeginswithContinental Insurance Co. v. Bayless & Roberts,

Inc.22 InContinental aninsuredwassued,anditsinsurerbecameconvincedthatthe

insuredhadbreachedtheinsurancecontract. 23 Theinsurerinformedtheinsuredthatit

wouldonlycontinuetodefendthecasesubjecttoareservationof[theinsurers]right

tolaterdenyliabilityonthegroundoftheallegedbreach.24 Werejectedthisapproach

and held that in policy defense situations the insured has a right to demand an

unconditionaldefense.25 Wefurtherrecognizedthreeoptionsforaninsurerseekingto

meetthisright: affirmthepolicyanddefendunconditionally,repudiatethepolicy

andwithdrawfromthedefense,orofferitsinsuredtherighttoretainindependent

counseltoconducthis[orher]defense,andagreetopayallthenecessarycostsofthat

defense.26

22 608P.2d281(Alaska1980). Policydefensesarisewhentheinsurerclaimsthatthepolicyhasbeenbreachedbytheinsured,CHI of Alaska, Inc. v. Emprs

Reinsurance Corp., 844 P.2d 1113, 1115 (Alaska 1993), and were at issue in

Continental. 608P.2dat283. Coveragedefenses,likethoseatissueinthiscase,arisewhentheinsurerassertsthataparticularclaim[intheunderlyingsuit]doesnotcome

withinthecoverageofthepolicy. CHI of Alaska, Inc.,844P.2dat1115.

23 Continental Ins. Co.,608P.2dat283.

24 Id.

25 Id. at291.

26 Id. at291&n.17.

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WeelaborateduponourconclusioninContinental whenwedecidedCHI

of Alaska, Inc. v. Employers Reinsurance Corp.in1993.27 InCHI aninsuredwassued

undermultipletheories,anditsinsureragreedtodefendonallclaims,conditionalon

reservingitsrightstodisclaim coveragewithrespecttooneoftheclaimsthatitbelieved

mightbeexcludedunderthepolicy.28 Becausethereservationofrightscreatedaconflict

ofinterest,theinsureddemandedthattheinsurerpayforindependentcounsel.29 The

insuredthensuedforadeclarationthatitwasentitledtoselectindependentcounseland

havethatcounseldefendboththeclaimastowhichtheinsurerhadreserveditsrights

andtheclaimsastowhichtheinsurerhadacceptedcoverage. 30

InCHI weheldthatthesamerightsandoptionsthatexistedinpolicy

defensesituationsunderContinentalalsoappliedincoveragedefensesituations.31 Inso

doing,weexplicitlyheldthatwheretheinjuredthirdpartysallegationsstateaclaim

withinanexceptiontopolicycoverage,butfactsknownorascertainabletotheinsurer

alsodiscloseaclaimwithinorpotentiallywithinthepolicyscoverage,theinsurermust

stillprovidetheinsuredwithindependentcounsel.32 Wehavethereforeconfirmedan

27 844P.2d1113.

28 Id. at1114.

29 Id.

30 Id.

31 Id. at1118(WeconcludethattherighttoindependentcounselrecognizedinContinental shouldalsoapplytocasesinvolvingcoveragedefenses.).

32 See id. at1118-19(statingthatweadheretothedictainNational Indemnity

Co. v. Flesher,469P.2d360,367n.22(Alaska1970)thatreachedthesameconclusion).

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insurersobligationtoprovideandpayallthenecessarycostsofindependentcounsel

whenreservingtherighttoassertalatercoveragedefense.33

2. Statutorytext

SoonafterweissuedourdecisioninCHI,theAlaskaLegislaturepasseda

statutethatcodifiedtherequirementsthatbindinsurersassetoutinContinental and

CHI. Thetextofthatstatute,AS21.96.100,readsinrelevantpartasfollows:

Subpart(a)provides:

Ifaninsurerhasadutytodefendaninsuredunderapolicyofinsuranceandaconflictofinterestarisesthatimposesaduty

ontheinsurertoprovideindependentcounseltotheinsured,

theinsurershallprovideindependentcounseltotheinsuredunlesstheinsuredinwritingwaivestherighttoindependent

counsel.

Subpart(c)requires:

[I]ftheinsurerreservestheinsurersrightsonanissuefor

which coverage is denied, the insurer shall provideindependent counsel to the insured as provided under

[subpart](a)ofthissection.

Subpart(d)specifiesthatiftheinsuredselectsindependentcounsel,the

insurermayrequire thattheindependentcounselhaveadequateexperienceandmaylimit

theindependentcounselsratestotheratetheinsurerwouldpayanattorneyinasimilar

case. Italsostipulates:

In providing independent counsel, the insurer is notresponsibleforthefeesandcostsofdefendinganallegation

for which coverage is properly denied and shall be

responsible only for the fees and costs to defend those

allegationsforwhichtheinsurereitherreservesitspositionastocoverageoracceptscoverage.Theindependentcounsel

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33 Continental Ins. Co. v. Bayless & Roberts, Inc.,608P.2d281,291n.17

(Alaska1980).


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shall keep detailed records allocating fees and costs

accordingly.

Finally,subpart(f)providesthataninsuredmaywaivetherighttoselect

independentcounseliftheinsuredsignsawaiverthatincludes,amongotherthings,a

sectionreading,Ihavebeenadvisedofmyright toselect independentcounsel to

representmeinthis lawsuitandofmyrightunderstatelawtohaveallreasonable

expensesofanindependentcounselpaidbymyinsurer.

AstheNinthCircuitrecognized,thisstatutedoesnotsquarelyaddress

whethertheinsurercanlaterseekreimbursementoffeesassumedunderareservationof

rightswherethepartiesagreedtoapolicythatallowsreimbursement,andtheinsurer

reiteratedthepossibilityitwouldseekreimbursementinitsreservationofrightsletter. 34

Thus,thequestionbeforeusiswhetherthestatuteiscorrectlyreadasaprohibitionon

reimbursement. Toresolvethisquestion,wetakeasliding-scaleapproach[tostatutory

interpretation]where[t]heplainerthestatutorylanguageis,themoreconvincingthe

evidenceofcontrarylegislativepurposeorintentmustbe.35 Areviewofthestatutory

textindicatesthatreimbursementisprohibited,andbecausethereisnoevidenceof

contrary legislative purpose or intent, we conclude that the statute prohibitsreimbursementprovisions.

Languageinsubsections(a)through(d)ofthestatuteleadsustothis

conclusion. Thediscussionthroughoutthosesubsectionsfocuseson themandatory

requirementthatinsurerspayforthecostofindependentcounsel.Thestatutedetailsthe

34 ALPS 9th Cir.,766F.3d1180,1183(9thCir.2014).

35 Ayres v. United Servs. Auto. Assn,160P.3d 128,129 (Alaska2007)

(alterationinoriginal)(quotingMuller v. BP Exploration (Alaska) Inc.,923P.2d783,787-88(Alaska1996)).

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circumstances under which the insurershall provide independent counsel.36 It

discusseswhathappenswhentheinsurerprovidesindependentcounselat the insurers

expense.37 Anditarticulatestheparametersoftheobligation oftheinsurertopaythe

fee.38 Thus,thestatuteregulatestherelationshipbetweeninsurerandinsuredwhen

independentcounselisprovidedandclearlyallocatestotheinsurertheresponsibilityto

paythefeesandcostsofsuchcounsel. Anyeffortbytheinsurertoshiftsuchexpenses

toaninsuredwouldviolatetheallocationthatthestatuterequiresandwouldtherefore

beinvalid.

ALPSreadsthoseclausestomeanthataninsurercanfulfillitsstatutory

obligationsbypayingfeesandcosts,whileexplicitly reserving the righttorecoupmoney

forthosepaymentsshouldtheclaimsturnouttobeuncoveredclaimsunderthepolicy.

Butthatreadingisinconsistentwiththelegislaturesgeneralapproachtoinsurance

regulations. Theinsuranceindustryisahighlyregulatedindustr[y].39 Inanumberof

othercontexts,wehaveheldunenforceableinsurancepolicyprovisionsthathaverun

afoulofapplicableregulationsorstatutes. Forexample,wehaveinvalidatedpolicy

provisionsthatwerenotincompliancewithapplicableregulationsandhadnotbeen

approvedbytheDivisionofInsurance;40provisionsthatwerenotincompliancewith

36 AS21.96.100(a)(emphasisadded);see also AS21.96.100(c).

37 AS21.96.100(d)(emphasisadded).

38 Id. (emphasisadded).

39 A. Fred Miller, Attorneys at Law, P.C. v. Purvis,921P.2d610,613(Alaska

1996).

40 See Therchik v. Grant Aviation, Inc.,74P.3d191,195-200(Alaska2003).

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applicablestatutesbuthadbeenapprovedbytheDivisionofInsurance;41andprovisions

thatunambiguouslyattemptedtomodifyastatutorilymandatedaccrualdate. 42 Inlight

ofthathistory,thestatutessilenceonthequestionofreimbursementisinstructive:

ThereisnoprovisionsuggestingthatAS21.96.100permitsreimbursement,sowemust

concludethatthestatutoryschemeprohibitsreimbursement.

Andsubsection(f),thewaiverprovision,furtherclarifiesthattoenforcea

reimbursement provision would be inconsistent with the purpose of the statute.

Subsection(f)specifiesthat[a]ninsuredmaywaivetherighttoselectindependent

counselbysigningastatementthatincludes,amongotherthings,acknowledgmentthat

theinsuredunderstandshisorherrightunderstatelawtohaveallreasonableexpenses

ofanindependentcounselpaidbymyinsurer. Nowhereinthewaiverprovisionisthe

possibilityofreimbursementmentioned. Itisdifficulttobelievethatthelegislature

wouldhavedraftedawaiverprovisionthatdidnotatleastmentionthepossibility ofa

contractualrighttoreimbursementifthelegislaturehadcontemplatedascenarioin

which aninsurancepolicycouldobviatethe insureds right tohaveall reasonable

expensesofindependentcounselpaidfor.

Wehavepreviouslyheldthatinsurancepoliciesarecontractsofadhesion

andmustbeinterpretedaccordingtothereasonableexpectationsoftheinsured.43 In

otherwords,[t]heobjectivelyreasonableexpectationsof...beneficiariesregardingthe

termsofinsurancecontractswillbehonoredeventhoughpainstakingstudyofthepolicy

41 See Ennen v. Integon Indem. Corp.,268P.3d277,288(Alaska2012).

42 See McDonnell v. State Farm Mut. Auto. Ins. Co.,299P.3d715,732-33(Alaska2013).

43 See C.P. ex rel. M.L. v. Allstate Ins. Co.,996P.2d1216,1222(Alaska

2000)(citingJones v. Horace Mann Ins. Co.,937P.2d1360,1362n.3(Alaska1997)).

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provisions would have negated those expectations. 44 In AS 21.96.100(f), the

legislatureprovideddetailedwaiverlanguagethatinformsaninsuredsexpectations.

Anditisobjectivelyreasonableforaninsuredpartytobaseitsexpectationsonthat

language. Thatthewaiverprovisionomittedanydiscussionoftheinsuredspossible

liabilityforreimbursementofattorneysfeesisyetanothercompellingindicationthat

thestatuteprecludesreimbursement.

Contrary tothis interpretation,ALPSargues thatweshouldadopt the

positiontakenby theCaliforniaSupremeCourt. Californiahassimilarlyimposed

limitsontheabilityofliabilityinsurerstocontrolthird-partylitigationagainstthe

insuredthroughbothcaseandstatutorylaw.45 AndCaliforniaappearstobetheonly

jurisdictionwithanindependentcounselstatutetohaveevaluatedinsurersabilityto

seekreimbursementforthecostsofdefendingclaimsthatareultimatelyexcludedfrom

coverage. ALPSthereforeurgesustofollowthepathsetbyBuss v. Superior Court,in

which the California Supreme Court rejected the argument that enforcement of

contractualreimbursementrightsconflictedwithCaliforniasstatute. 46

But as the Division of Insurance argues in its amicus brief,Buss is

inappositebecausetheCaliforniastatutecontainsnoequivalenttothelanguagein

AS21.96.100(d)thatstatestheinsurershallberesponsibleonlyforthefeesandcosts

todefend those allegations for which the insurer either reserves its position as to

coverageoracceptscoverage.ALPSmaintainsthatBuss remainsinstructivebecause

44 Id. (alterationinoriginal)(quotingBering Strait Sch. Dist. v. RLI Ins. Co.,

873P.2d1292,1295(Alaska1994)).

45 Buss v. Superior Ct.,939P.2d766,785(Cal.1997)(citingCAL.CIV.CODE

2860;San Diego Navy Fed. Credit Union v. Cumis Ins. Socy, Inc.,208Cal.Rptr.494,

501-02(Cal.App.1984)).

46 Id. at783&n.25.

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AS21.96.100(d)doesnotactuallyaddressreimbursementatall,soprovisionswithinthe

policycontractmayfillthegapsonthereimbursementissue.Butunlikeourstatute,the

Californiastatuteisnotsilentontheissueof reimbursement. Tothecontrary,the

Californiastatuteprovidesthat[t]hissubdivisiondoesnotinvalidateotherdifferentor

additionalpolicyprovisionspertainingtoattorneysfeesorprovidingformethodsof

settlementofdisputesconcerningthosefees.47 TheAlaskaStatutescontainnosimilar

provision,soBuss doesnotassistus.

3. Legislativehistory

Legislative history bolsters our conclusion that the statute allocates

responsibilitytopayforindependentcounseltotheinsurerwhentheinsurerreserves

rights. In1994thelegislatureconsideredtwobillswithidenticalprovisionsrelatingto

the appointment of independent counsel, and those provisions largely tracked the

languagenowfoundinAS21.96.100.48 TheminutesoftheHouseRulesCommittee

indicate that the Commissioner of the Department of Commerce and Economic

Developmentdescribedthoseprovisionsascodification[s]ofacourtcase...inwhich

thepolicyholderisentitled[to]representation[byindependentcounsel],proposedby

theinsurerdefendingthecaseonbehalfoftheinsured. 49 Neitherbillpassed,butin

1995 the legislatureconsidereda bill that anofficer of the Division of Insurance

describedasthesuccessorbilltothosefailedbills. 50 Anassistantattorneygeneral

47 CAL.CIV.CODE2860(c).

48 See HouseBill(H.B.)534,18thLeg.,2dSess.88(1994);SenateBill

(S.B.)362,18thLeg.,2dSess.,88(1994).

49 Minutes, H.Rules Comm.,HearingonS.B. 362,18th Leg.,2d Sess.(May9,1994)(testimonyofPaulFuhs,Commr,DeptofCommerce&Econ.Dev.).

50 Minutes,Sen.Labor&CommerceComm.HearingonS.B.53,19thLeg.,

(continued...)

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testifiedbeforetheHouseLaborandCommerceCommitteethat theindependentcounsel

provisionimplementsanAlaskaSupremeCourtdecisionfrom1993,whichiscalled

CHI of Alaska v. Employers Reinsurance,andhecharacterizedCHI asstandingforthe

propositionthatapurchaserofinsurancehasaunilateralrighttoselectindependent

counseltorepresentthem,andtheycandothatattheinsurancecompan[ys]expense. 51

Thelegislaturesunderstandingofthestatuteseffectswasilluminatedtwo

yearslater,whenthestatutewasamended.52Asoriginallyenacted,thestatutedidnot

include the following two sentences that are currently incorporated in the text of

AS21.96.100(d): Inprovidingindependentcounsel,theinsurerisnotresponsiblefor

thefeesandcostsofdefendinganallegationforwhichcoverageisproperlydeniedand

shallberesponsibleonlyforthefeesandcoststodefendthoseallegationsforwhichthe

insurereitherreservesitspositionastocoverageoracceptscoverage. Theindependent

counsel shall keep detailed records allocating fees and costs accordingly.53 The

sponsoring Representative, Brian S. Porter, explained that he had proposed the

amendmentinanefforttoclarifythatinsurerswerenotresponsibleforfeesandcoststo

defendthoseallegationsforwhichitdeniedclaims.54 RepresentativePortersdiscussion

50(...continued)1stSess.(Mar.2,1995)(testimonyofJoanBrown,Admin.Officer,Div.ofIns.).

51 Minutes,H.Labor&CommerceComm.HearingonS.B.53,19thLeg.,1stSess.(May5,1995)(testimonyofDaveStebing,AssistantAttorneyGen.).

52 See ch.26,34,SLA1997.

53

Compare ch.62,107,SLA1995,with AS21.96.100(d).54 Minutes,H.JudiciaryComm.HearingonH.B.58,20thLeg.,1stSess.

(Feb.21,1997)(testimonyofRep.BrianS.Porter)(explainingthattheamendment

combatedapracticethathadmadeitseemapparentlyrequiredthat[insurers]also(continued...)

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oftheamendmentprovidesinsightintohisunderstandingthatinsurerswererequired

toprovideadefenseforcoveredclaims,andwheretheyhadareservationofright[s],

theywerealsorequiredtoprovideadefense.55

Inotherwords,theamendmentdidnotseektoabrogatewhatonetestifying

attorney described as a rule from the Supreme Court and the legislature that

individualswhohavepurchasedinsuranceareentitledtoindependentcounselwhen

therewasa[r]eservationof[r]ightslettersubmitted.56 Importantly,thesametestifying

attorney described the amendment as an attempt to clarify that insurers were not

responsibleforthedefenseofnon-coveredclaimsasimposingafiscalcheckon

insured parties, who would act reasonably now that they ha[d] to pay their

attorney.57 If reimbursement had been generally available when reserved-right

situationsturnedouttoinvolvenon-coveredclaims,theninsuredpartieswouldalready

besubjecttothefiscalchecktheamendmentsoughttoimpose.Thisfurthersuggests

thatthelegislatureunderstoodtherequirementimposedbyAS21.96.100(a)-(d)that

54(...continued)

coverthethirdarea,deniedclaims);see alsoH.JudiciaryComm.,S.S.H.B.58BillFile,SectionalSummary,20thLeg.,1stSess.at9177(containingRep.Porterssummaryof

theamendment)(Thissectionmakesaninsurerresponsibleonlyforthecostsandattorneyfeesincurredbyanindependentcounseldefendingagainstclaimsforwhichthe

insurerhaseitheracceptedcoverageorreservedit[s]righttodenycoverage.Theinsurer

isnotresponsibleforcostsandattorneyfeesincurredindefendingagainstclaimsforwhichtheinsurerhasdeniedcoverage.).

55 Minutes,H.JudiciaryComm.HearingonH.B.58,supranote54(testimony

ofRep.BrianS.Porter).

56 Minutes,H.JudiciaryComm.HearingonH.B.58,20thLeg.,1stSess.(Feb.24,1997)(testimonyofMikeBarcott,Attorney,Faulkner,Banfield,Doogan&

Holmes).

57 Id.

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insurersreservingrightsshallprovideandberesponsible...forthefeesandcosts

ofindependentcounselnottoincludeanimpliedrightofreimbursement. 58

4. ThepositionoftheDivisionofInsurance

TheDivisionofInsurancehasauthoritytoregulateinsuranceformsunder

Title21oftheAlaskaStatutes.59 Althoughweinterpretstatutesusingourindependent

judgment,60 wealsoaffordsomeweighttoanagencysinterpretationofthestatute,

especially where the agency interpretation is longstanding.61 The Division has

approved some policies containing reimbursement provisions, but . . . has not

specificallyconsidered whether theyconflict withAS 21.96.100.62 TheDivision

contendsthatthesepastapprovalsarenotdispositiveandmaintainsthat,contraryto

itspastpractice,[a]policyprovisionentitlinganinsurertoreimbursementoffeesand

costsfordefendingclaimsunderareservationofrightswhentheclaimsareultimately

deniedwouldbecounterto...AS21.96.100.

WeagreethatthepastpracticeoftheDivisionisnotdispositive: InEnnen

v. Integon Indemnity Corp.,weheldthatinabad-faithaction,aninsurancecompanywas

58 AS21.96.100(a),(d).

59 See, e.g.,AS21.42.130(Thedirector[oftheDivisionofInsurance]shalldisapproveaform...iftheform...isinanyrespectinviolationofordoesnotcomply

withthistitle....).

60 Municipality of Anchorage v. Stenseth,361P.3d898,904(Alaska2015).

61 Nelson v. Progressive Cas. Ins. Co.,162P.3d1228,1238(Alaska2007)

(quotingGovt Emps. Ins. Co. v. Graham-Gonzalez,107P.3d279,286(Alaska2005)).

62 TheDivisionhasapprovedatleastsixpolicies...thatcontainaprovisionrequiringtheinsuredtoreimbursetheinsurerforfeesandcostsincurredbytheinsurer

indefendingclaimsthatarelaterdeterminednottobecovered. Becauseriskretention

groupsarenotsubjecttostateregulationthatwouldrequirepriorapproval,theDivisionhasnotspecificallyreviewedcontractsissuedbyriskretentiongroups.

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notentitledtorelyontheDivisionsapprovalofpolicylanguagewhenthatlanguagedid

notcomplywithapplicableinsurancestatutes.63 Wecometothesameconclusioninthis

case,particularlybecausetheDivisionhaseffectivelydisavoweditspastpracticein

favorofthemoreconsideredinterpretationitadvancesinitsamicusbrief. Wetherefore

donotaffordanyweighttotheDivisionspastpractice.

Instead,weaffordsomedeferencetotheinterpretationofAS21.96.100that

theDivisionhasadvancedinitsbriefing.64 TheDivision,notingthatAS21.96.100

recognizesaninherentconflictof interestbetweenaninsuredand[an]insurerdefending

under a reservation of rights and resolves it by requiring an insurer to provide

independentcounselandpayforit,concludesthat[a]policyprovisionallowingfor

reimbursementofthesecostswouldunderminethestatutoryrequirementthattheinsurer

pay themin thefirstplace.TheDivisionthereforeconcludes thatunder AS 21.96.100,

ifan insurerhasa duty todefendandelectsto reserveits rightsonan issue, it is

obligatedtoprovideandpayforindependentcounsel.

Becauseallevidenceofstatutorypurposeandlegislativeintentalignswith

theDivisionsinterpretationofthestatute,wemustconcludethatthereimbursement

provisioninthiscaseisunenforceable. Thus,theanswertothefirstquestionisyes:

Whenaninsurerhasadutytodefend,Alaskalawprohibitsenforcementofapolicy

63 268P.3d277,288(Alaska2012).

64 See, e.g.,State v. Dupier,118P.3d1039,1050n.62(Alaska2005)(TheweightaccordedtoopinionsoftheAttorneyGeneralislargelywithinourdiscretion. In

general,theyarenotcontrollingbutareentitledtosomedeference.(citingState v.Kenaitze Indian Tribe,83P.3d1060,1066n.22(Alaska2004)));Bullock v. State, Deptof Cmty. & Regl Affairs,19P.3d1209,1216(Alaska2001)(Whenanexecutive

interpretslegislation,thatinterpretationisentitledtobegivenweightbythecourtin

construingtheintentofthestatute.(quotingFlisock v. State, Div. of Ret. & Benefits,818P.2d640,645(Alaska1991))).

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provisionentitlingthatinsurertoreimbursementoffeesandcostsincurredduringthe

defenseofclaimsunderareservationofrights. Wecometothisconclusionevenin

caseswhere,asistruehere,(1) theinsurerexplicitlyreservedtherighttoseeksuch

reimbursementinitsoffertotenderadefenseprovidedbyindependentcounsel,(2)the

insuredacceptedthedefensesubjecttothereservationofrights,and(3)theclaimsare

laterdeterminedtobeexcludedfromcoverageunderthepolicy.

B. AlaskaLawProhibitsEnforcementOfAPolicyProvisionEntitlingAn

InsurerToReimbursementOfFeesAndCostsIncurredDuringThe

DefenseOfClaimsUnderAReservationOfRightsEvenWhenItIsLaterDeterminedThatThereWasNoPossibilityOfClaimCoverage.

Theduty todefendandtheduty toindemnifyare independentobligations.65

In CHI wearticulated the scopeof the duty todefend incircumstanceswhere an

insurancecompanycontestscoverage: Thedutyarisesifthecomplainton its face

allegesfactswhich,standingalone,giverisetoapossiblefindingofliabilitycoveredby

thepolicyor,ifthecomplaintdoesnotcontainsuchallegations,wherethetruefactsare

within, or potentially within, the policy coverage and are known or reasonably

ascertainabletotheinsurer.66 Inotherwords,thedutytodefendattaches,ifatall,on

65 Afcan v. Mut. Fire, Marine & Inland Ins. Co.,595P.2d638,645(Alaska

1979).

66 CHI of Alaska, Inc. v. Emprs Reinsurance Corp.,844P.2d1113,1115n.5(Alaska1993)(emphasisinoriginal)(citationomitted)(firstquotingAfcan,595P.2dat

645;thenquotingNatl Indem. Co. v. Flesher,469P.2d360,366(Alaska1970)).That

thecomplaintmayallegecausesofactionbeyondthescopeofthepolicyisimmaterial:

Thedutytodefendistriggeredifthereisatleastonecauseofactionallegedinthecomplaintforwhichthereisapossibilityofcoverageunderthepolicy.

Thepresenceofadditionalcausesofactionnotcoveredbythepolicydoesnotdefeatthedutytodefend.

State, Dept of Transp. & Pub. Facilities v. State Farm Fire & Cas. Co.,939P.2d788,

792(Alaska1997)(citationomitted)(citingSauer v. Home Indem. Co.,841P.2d176,181(Alaska1992)).

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thebasisofthecomplaintandknownorreasonablyascertainablefactsatthetimeofthe

complaint.67 Evenifcoverageisultimatelydenied,andevenifitwerelaterdetermined

thattherewasnopossibilityofcoverage,thatdenialhasnoretroactiveeffectontheduty

todefend.

Butwhataboutacircumstance,ALPSasks,inwhichtheinsurer,inan

abundanceofcaution,providesindependentdefensecounselregardless ofwhetherthe

insurer has a duty to defend? This abundance of caution hypothetical only

underscorestheimportanceofpreservingthebalancewestruckinContinental: An

insurermayaffirmthepolicyanddefendunconditionally[,]...repudiatethepolicyand

withdrawfromthedefense,orreserverightsandofferitsinsuredtherighttoretain

independentcounseltoconducthis[orher]defense,andagreetopayallthenecessary

costsofthatdefense.68 Toallowinsurancecompaniestodisavowthedutytodefendbut

provideindependentdefensecounseloutofanabundanceofcautiongivestheinsurer

anincentivetoautomaticallyreserverightsinhopesofobtainingreimbursementfor

attorneysfeesandtoprotectitselffromclaimsofbadfaithorbreachthatcouldresult

fromarepudiationofthepolicy. SucharesultisinconsistentwithAS21.96.100:Under

thestatutethedeterminativeeventgivingrisetotheinsurersdutytopayindependent

counselisnottheoften-difficultdeterminationastothepossibilityorimpossibilityof

coverage,buttheobjectiveactoftheinsurertakenwhenreservingitspositionasto

coverage. Anditiscertainlyinconsistentwithourpreviousdecisionsonthisissue. We

concludethatAlaskalawprohibitsreimbursementoffeesandcostsincurredbythe

67

Inansweringthesecondcertifiedquestion,weareaskedtoassumethatthedutytodefendneveraroseunderthepolicy. Wethereforedonotneedtodiscussways

inwhichadutytodefendmightariseforthefirsttimeafteraninsurercorrectlydeniesadefense.

68 608P.2d281,291&n.17(Alaska1980).

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insurerdefendingclaimsunderareservationofrights,evenincircumstanceswhereitis

laterdiscoveredthattherewasnopossibilityofcoverageunderthepolicy.Theanswer

tothesecondcertifiedquestionisthereforeyes.

V. CONCLUSION

Theanswer tobothcertifiedquestions isyes: Alaska lawprohibits

enforcementofapolicyprovisionentitlinganinsurertoreimbursementoffeesandcosts

incurredbytheinsurerdefendingclaimsunderareservationofrights,where(1)the

insurerexplicitlyreservedtherighttoseeksuchreimbursementinitsoffertotendera

defenseprovidedbyindependentcounsel,(2)theinsuredacceptedthedefensesubject

tothereservationofrights,and(3)theclaimsarelaterdeterminedtobeexcludedfrom

coverageunderthepolicy;and,Alaska lawalsoprohibits enforcementofapolicy

provisionentitlinganinsurertoreimbursementoffeesandcostsincurredbytheinsurer

defendingclaimsunderareservationofrights,where(1)theinsurerexplicitlyreserved

the right to seek such reimbursement in its offer to tendera defense provided by

independentcounsel,(2)theinsuredacceptedthedefensesubjecttothereservationof

rights,and(3)itislaterdeterminedthatthedutytodefendneveraroseunderthepolicy

becausetherewasnopossibilityofcoverage.

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Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., Alaska (2016)

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Transcript of Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., Alaska (2016)