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Tucker v. United Services Automobile Association (3/6/92), 827 P 2d 440
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NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors to
the attention of the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order that corrections
may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
ANGELA TUCKER, )
)
)
Appellant, ) File No. S-4117
)
v. ) 3AN 89 9383 CI
)
UNITED SERVICES AUTOMOBILE ) O P I N I O N
ASSOCIATION, )
)
Appellee. ) [No. 3817 - March 6, 1992]
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, J. Justin Ripley, Judge.
Appearances: Kneeland Taylor, Taylor &
Hanlon, Anchorage, for Appellant. Philip J.
Moberly, Bradbury, Bliss & Riordan,
Anchorage, for Appellee.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
BURKE, Justice.
Angela Tucker brought a negligence lawsuit against
Duane Jones after she and Jones were involved in an automobile
accident. The lawsuit effectively ended when Tucker agreed to
settle her negligence claim against Jones and, indirectly, his
insurer, United Services Automobile Association (USAA), for
"policy limits." In this appeal, we have been asked to decide
whether the settlement for "policy limits"includes interest on
the $100,000 liability coverage provided by the policy. We hold
that it does. An insurance carrier's agreement to settle a claim
for "policy limits"obligates the company to pay its maximum
potential liability available under the policy. Since the
maximum available coverage in this case includes pre-judgment
interest, Tucker is entitled to prevail in her appeal.
I
Tucker moved in superior court for an order directing
USAA to pay interest on her settlement recovery.1 The court
ruled in USAA's favor, without explanation. In this appeal, the
parties agree that the settlement for "policy limits" included
the $100,000 face amount of the policy, and $12,500 for costs and
fees. Their disagreement is over whether the "policy limits"
settlement includes interest on the face amount of the policy.
If it does, everyone agrees that Tucker is owed an additional
$20,712.33.
II
USAA's policy contains a "Supplementary Payments"
clause and an "Amendatory Endorsement"to that clause. Together,
these provide:
In addition to our limit of liability,
we will pay on behalf of a covered person:
. . . .
Prejudgment interest awarded against the
covered person on that part of the judgment
we pay. If we make an offer to pay the
applicable limit of liability, we will not
pay any prejudgment interest based on that
period of time after the offer.
USAA maintains that the language of the Amendatory
Endorsement unambiguously provides for payment of prejudgment
interest only after full litigation and a court award of
interest.2 It argues that no reasonable policyholder could
interpret the language to provide "prejudgment interest"when the
parties agree to a settlement even one, such as this, which was
given effect through a court order. In essence, USAA is arguing
that the limits of its policy coverage depends on whether the
case is settled or goes to trial. We disagree.
III
In Schultz v. Travelers Indemnity Co., 754 P.2d 265,
267 (Alaska 1988), we recognized that an insurance carrier's duty
to act in good faith to protect the interests of its insured
requires that it determine "the amount of a money judgment which
might be rendered against its insured,"and tender as settlement
the maximum limits of insurance coverage when "there exists a
substantial likelihood that a verdict will be rendered against
the insured in excess of the coverage provided by the policy."
Id. at 266-67. We held that the insurance carrier's contractual
promise to pay "unlimited court costs," in addition to its
liability limit of $100,000, obligated it to pay Civil Rule 82
attorney's fees "which would have been awarded had th[e] case
gone to trial." Id. at 267. We observed that the insurance
carrier "was not required to contract with its insured to pay
unlimited court cost,"but that once it did, it was bound to pay
those costs in its "policy limits"settlement.3 Id.
The same reasoning applies in the case now before the
court.4 In exchange for Jones' premium payments, USAA promised
to pay "prejudgment interest awarded against the covered person."
This represents the outer limit of USAA's exposure under its
contract, and it makes no difference whether that limitation is
reached by a determination made by a court or, as here, a
settlement made by the parties. Whether the disputed coverage
involves the base liability limit, court costs, or prejudgment
interest, it is the insured's total potential liability which is
of concern to the insured in a "policy limits"settlement.
By offering to settle the case for "policy limits,"
USAA acted in conformity with its contractual obligation to its
insured and, thereby, protected itself from a later charge of bad
faith. See Providence Washington Ins. Co. v. Fireman's Fund Ins.
Cos., 778 P.2d 200, 204 (Alaska 1989). Were we to now rule that
the same act somehow lessened USAA's contractual obligation to
the insured, we would be allowing USAA to have its cake and eat
it too. If USAA believed that a "policy limits"settlement was
not warranted, it should not have couched the settlement in those
terms. Having done so, USAA is liable to Tucker for an
additional $20,712.33, which the parties agree represents the
amount of interest on the $100,000 liability coverage provided
by USAA's policy.
The superior court's judgment is REVERSED.
_______________________________
1. Tucker and Jones permitted USAA to substitute as party
defendant in this action for the purpose of resolving the
remaining question in the case.
2. Because this case involves a question of law, our
review is de novo. Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska
1979). Our duty, in such a case, "is to adopt the rule of law
that is most persuasive in light of precedent, reason, and
policy." Id.
3. See also, Providence Washington Ins. Co. v. Fireman's
Fund Ins. Cos., 778 P.2d 200, 204 (Alaska 1989) (tender of policy
limits means company must surrender control over funds equal to
its potential liability under the insurance policy); Insurance
Co. of North America v. State Farm Mutual Auto. Ins. Co., 663
P.2d 953, 954 n.1 (Alaska 1983); Salmine v. Knagin, 645 P.2d 148,
150 n.8 (Alaska 1982); Continental Ins. Co. v. Bayless & Roberts,
Inc., 608 P.2d 281, 285 n.6 (Alaska 1980). These cases, taken
together, establish the fairly obvious proposition that policy
limits are what an insurance company would have to pay under its
policy if it went to trial and received an adverse verdict.
4. We are unpersuaded by USAA's attempts to distinguish
Schultz from the present case. USAA argues that Schultz is
distinguishable because it involved Civil Rule 82 attorney's
fees, an item of costs, rather than prejudgment interest, an item
of damages. This distinction is not relevant to the focus of our
inquiry which is the extent of the insurance carrier's
contractual obligation. In both cases, the carriers promised to
pay the amount in question if the case had proceeded to trial.
USAA also highlights the fact that the parties in Schultz
expressly agreed that the potential judgment would exceed the
limits of liability under the policy whereas in this case, the
parties never so agreed. Our response to this is that the duty is
placed on the insurer to determine whether the potential judgment
is likely to exceed policy limits. We also note, as did the
superior court in Schultz, "that the insurer, in fact, agreed to
pay policy limits as a result of the plaintiff's demands."
Schultz 754 P.2d at 267.
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