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State Farm v. American Manufacturers Mutual Ins. Co. (12/11/92), 843 P 2d 1210
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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
STATE FARM INSURANCE COMPANY, )
)
Appellant, ) File No. S-4537
)
v. ) 3AN 88 09704 CI
)
AMERICAN MANUFACTURERS MUTUAL ) 3KN 88 00531 CI
INSURANCE CO.; REBECCA J. )
KRUEGER; JEANNE R. WRIGHT; and )
RAYMOND KEARLEE WRIGHT, )
)
Appellees. )
________________________________)
)
JEANNE R. WRIGHT and RAYMOND )
KEARLEE WRIGHT, )
)
Cross-Appellants, ) File No. S-4606
)
v. )
)
STATE FARM INSURANCE COMPANY; ) O P I N I O N
AMERICAN MANUFACTURERS MUTUAL )
INSURANCE COMPANY and REBECCA )
KRUEGER, )
)
Cross-Appellees. ) [No. 3902 - December 11, 1992]
________________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Dana Fabe, Judge.
Appearances: Paul W. Waggoner, Anchorage,
for Appellant/Cross-Appellee, State Farm
Insurance. Arthur S. Robinson, Robinson,
Beiswenger & Ehrhardt, Soldotna, for
Appellee/Cross-Appellant Jeanne & Raymond
Wright.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
BURKE, Justice.
In this appeal and cross-appeal, the parties challenge
different aspects of the superior court's attorney's fee award.
The court awarded State Farm Insurance Company $1,000 in partial
attorney's fees after granting State Farm's summary judgment
motion and dismissing State Farm from the underlying interpleader
action. State Farm argues on appeal that it is entitled to full
attorney's fees under indemnity and bad faith litigation
theories. The Wrights argue in their cross-appeal that the
superior court erred in imposing attorney's fees jointly and
severally against the Wrights and American Manufacturers Mutual
Insurance (AMMIC) and refusing to use the interpleader fund as
the source of the fees. We affirm the attorney's fee award.
I. FACTS & PROCEEDINGS
In 1986 Jeanne Wright was injured when her car collided
with a car driven by Rebecca Krueger. Ms. Wright and her husband
sued Krueger for damages resulting from the accident. State
Farm, Krueger's insurer, agreed to settle the Wrights' claim for
$45,000. The release provided that:
The undersigned warrants that he/she has
the authority to execute this Release, that
he/she has not assigned the claim in full or
in part and that there are no medical liens
outstanding. He/She will indemnify Releasees
from any loss resulting from a breach of this
warranty.
Despite the language of the release, it is undisputed
that both State Farm and the Wrights knew prior to the settlement
that AMMIC, the Wrights' insurance carrier, asserted a
subrogation claim directly against State Farm. The subrogation
claim was for $10,000 which AMMIC had previously paid for Ms.
Wright's medical treatment. State Farm admits having received a
letter from AMMIC prior to the settlement, advising it of the
subrogation claim and the fact that the Wrights' attorney did not
have authority to represent AMMIC's interest. This letter was
also sent to the Wrights' attorney.
The Wrights signed the release on June 22, 1988. A
letter from State Farm's attorney to the Wrights' attorney, dated
May 20, 1988, states "This letter confirms that we have settled
this case for $45,000, inclusive of all liens." Due to the
competing claims of the Wrights and AMMIC, State Farm paid the
Wrights only $35,000 and placed the remaining $10,000 in the
registry of the court in an interpleader action.
Disputes over the significance of the settlement
agreement fueled the protracted interpleader litigation. State
Farm took the position that it had settled the case for a total
of $45,000. It argued that by interpleading $10,000 and paying
the remainder directly to the Wrights, it had protected the
interests of all parties and was no longer involved in the
dispute. The Wrights and AMMIC claimed that the settlement and
release had no effect on AMMIC's independent subrogation claim.
They asserted State Farm was aware of the claim at the time of
settlement. In the various court filings, the Wrights maintained
that they intended to settle their claim for the full $45,000.
They did not intend to extinguish AMMIC's claim or warrant that
AMMIC had no outstanding claim against State Farm.
After several initial rulings against State Farm, the
superior court granted State Farm's motion for summary judgment
and dismissed the company from the action. The court found that
it was "undisputed in the record on summary judgment that the
parties to the settlement intended the $45,000 settlement to
include the lien of AMMIC." State Farm requested full attorney's
fees of $7,173.50 arguing that the terms of the settlement
agreement entitled it to an award of full attorney's fees. State
Farm also claimed that its adversaries had acted in bad faith by
refusing to allow the company to be dropped from the interpleader
action.
The trial judge awarded State Farm $1000 assessed
jointly and severally against the Wrights and AMMIC. The judge
provided the following reasons for the award:
State Farm elected to file the
interpleader action and thus the costs and
fees incurred in that filing are not properly
borne by defendants Wright and AMMIC.
Furthermore, all costs in the appellate court
for the petition for review are not properly
awarded by this court. Finally, State Farm's
decision to relitigate this issue at the
point that a new judge was assigned should
not result in additional assessment of fees
against defendants, despite the fact that
this court's decision differed from that of
Judge Cranston. This fee award represents
partial compensation for the fees incurred in
the original summary judgment motion.
(emphasis added).
After the court denied State Farm's motion for
reconsideration, both State Farm and the Wrights appealed the
court's decision.1 The Wrights' points on cross-appeal state
that the "trial court erred in granting an award of attorney's
fees to State Farm Insurance Company." The Wrights made no
challenge to the form of the award in their points on cross-
appeal.
II. DISCUSSION
When no money judgment is obtained, the "prevailing
party" in an interpleader action is entitled to attorney's fees
"fixed by the court in its discretion in a reasonable amount."2
Alaska R. Civ. P. 82(a)(1); see also Miller v. LHKM, 751 P.2d
1356, 1362 (Alaska 1988). In Miller, we upheld an award of
partial fees to a codefendant in an interpleader action,
restating the well-established rule that the "purpose of the
attorney's fee rule is to partially compensate the prevailing
party, not to penalize a party for litigating a good faith
claim."Id.
We have, however, permitted full attorney's fees to be
awarded: 1) when a party asserts a frivolous claim, Crawford &
Co. v. Vienna, 744 P.2d 1175, 1178 (Alaska 1987); 2) when a party
litigates in bad faith, Keen v. Ruddy, 784 P.2d 653, 657 (Alaska
1989); 3) when a party is liable under an indemnity clause,
Manson-Osberg Co. v. State, 552 P.2d 654, 660 (Alaska 1976); or
4) when the award is made pursuant to an express contract
provision, Jackson v. Barbero, 776 P.2d 786, 788 (Alaska 1989).
State Farm argues that the indemnity and bad faith exceptions are
applicable in this case.
1. The Indemnity Clause
Relying on Manson-Osberg, State Farm argues that the
indemnity clause in the settlement agreement provides the basis
for an award of full attorney's fees. In Manson-Osberg, we held
that notwithstanding the usual procedure of awarding only partial
attorney's fees, the trial court properly awarded full attorney's
fees to a party who successfully brought a third-party indemnity
action because the "`hold harmless' indemnity clause should
include the cost of recovery on the clause itself, as a matter of
policy."Manson-Osberg, 552 P.2d at 660.
The obvious distinguishing feature between the present
case and Manson-Osberg is that State Farm never brought an
indemnity claim and therefore never obtained a judicial ruling
that the settlement agreement had been breached or indeed that
the Wrights were required to indemnify State Farm.3 The
significance of this is clear from the rationale we used in
Manson-Osberg to support our holding:
The [indemnitee] is not held harmless if
it must incur costs and attorney's fees in
bringing suit to recover on the indemnity
clause. The [indemnitor] on the other hand
can avoid such costs and attorney's fees by
paying the amount due without the necessity
of suit. If, of course, the [indemnitor] has
a just defense to all or a portion of the
indemnity claim and offers to make payment to
the portion to which there is no such just
defense, the costs and attorney's fees would
be voided and under [Civil] Rule 68 the
[indemnitor] would be entitled to recover
from the date of making such offer of
settlement.
Id.
In Manson-Osberg, we treated the costs of bringing suit
as part of the obligation the indemnitor undertakes in the
indemnity agreement. This is even more clearly stated in
Heritage v. Pioneer Brokerage & Sales, Inc., 604 P.2d 1059, 1066-
67 (Alaska 1979), where we articulated the rule as follows:
[I]n actions of indemnity, brought where
the duty to indemnify is either implied by
law or arises under contract, and no personal
fault of the indemnitee has joined in causing
the injury, reasonable attorneys' fees
incurred in resisting the claim indemnified
against may be recovered as part of the
damages and expenses.
Id. at 1067 (quoting Addy v. Bolton, 183 S.E.2d 708, 710 (S.C.
1971) (emphasis added). Manson-Osberg simply stands for the
proposition that Civil Rule 82 "does not apply to the costs and
attorney's fees incurred in establishing the right to indemnity."
Heritage, 604 P.2d at 1066 n.20 (emphasis added).
In this case, State Farm incurred costs and fees when
it sought dismissal from the interpleader action. It never
brought an indemnity action or incurred costs "establishing the
right to indemnity." It would not be sensible to allow State
Farm to recover full attorney's fees under an indemnity theory
without first requiring it to bring an indemnity action and
establish liability based on a breach of the settlement
agreement.
2. Bad Faith Litigation
"The trial court may award full attorney's fees if it
finds that the losing party acted in bad faith in asserting a
claim or a defense." Keen v. Ruddy, 784 P.2d at 657. State Farm
argues that the Wrights litigated in bad faith when they refused
to acknowledge that the settlement was for all claims arising
from the accident. Although the superior court made no express
finding on this issue, the court's award indicates that it found
that the Wrights had not litigated in bad faith.4 We conclude
that the trial court's implicit finding is not "clearly
erroneous."5 See Alaska R. Civ. P. 52(a).
In its motion for full attorney's fees, State Farm
relied on correspondence between the attorneys for State Farm,
AMMIC, and the Wrights to establish that all sides
knew what the issue was in the case,
attorneys fees on the $10,000 [i.e. the
interpleader fund]. . . . However, rather
than deal with that issue, they forced State
Farm to litigate for two years. This is
vexatious. State Farm is entitled to full
attorneys fees.
Although the correspondence cited, as well as the trial court's
decision on the merits, could probably support a finding of bad
faith on the part of the Wrights,6 the undisputed facts do not
require such a finding.
Despite State Farm's attempt to characterize itself as
an innocent stakeholder, it was in fact exposed to potential
liability from two separate parties; the Wrights and AMMIC.
State Farm chose to settle with the Wrights well aware that AMMIC
had an independent cause of action against it. State Farm did
not bring AMMIC into the settlement negotiations, even though it
knew the Wrights had no authority to settle AMMIC's claim. State
Farm should not have been surprised to discover that its
settlement with the Wrights failed to resolve all issues in the
case. Furthermore, the settlement agreement itself was poorly
drafted if its purpose was to require the Wrights to pay AMMIC's
claim out of the $45,000 settlement. State Farm could have
clearly set forth the Wrights' duties in the agreement, rather
than rely on the factually contradicted warranty/indemnity
language. As we read it, the document does not require the
Wrights to pay AMMIC any money directly, but merely provides
State Farm with a separate indemnity cause of action if it
suffers a loss as a result of an outstanding medical lien.
Considering these problems, it is understandable that
the superior court refused to award full attorney's fees to State
Farm. Although State Farm tries to characterize this appeal as a
"breach of contract"or indemnity case, it actually involves a
Rule 82 award for partial attorney's fees. The trial court
provided a reasonable basis for its award, and we must,
therefore, uphold it.
As for the Wright's cross-appeal, we agree with State
Farm that the Wrights have waived a challenge to the form of the
award because they neither raised this issue below nor included
it in their points on appeal. It was State Farm, not the
Wrights, who requested that the attorney's fees be deducted from
the fund itself. The Wrights originally attempted to appeal the
trial court's decision on the merits as well as its award of
attorney's fees. The summary judgment appeal was ordered
stricken, and the Wrights never amended their points on cross-
appeal. The Wrights raised their challenge to the form of the
award for the first time in their cross-appellant brief. As we
discern no "plain error,"we refuse to consider their appeal on
this point. See Sea Lion Corp. v. Air Logistics of Alaska, 787
P.2d 109, 115 (Alaska 1990).
AFFIRMED.
_______________________________
1. The Wrights initially appealed the court's order
granting State Farm's summary judgment motion, but that point was
ordered stricken. In addition, AMMIC filed a cross-appeal which
was later settled and dismissed.
2. State Farm requests de novo review based on its view
that the issue presented on appeal involves the interpretation of
a contract. The Wrights maintain that an abuse of discretion
standard is appropriate because the trial court simply awarded
attorney's fees to State Farm as provided for in Civil Rule
82(a). We agree with the Wrights' position and will reverse the
fee award only if it was "manifestly unreasonable."Thorstenson
v. Arco Alaska, Inc., 780 P.2d 371, 376 (Alaska 1989).
3. In its brief, State Farm claims that the order granting
summary judgment "represents the law of the case." We presume
that, by this, State Farm means that the court's ruling
establishes a breach of the settlement agreement as a matter of
law and somehow transforms this interpleader action into "a
breach of contract case." Not only is State Farm's reading of
the superior court's order questionable, the procedural mechanism
it assumes is almost magical. State Farm cites no case law or
rule of civil procedure to support its argument.
4. Although the trial court should have made a specific
finding on this issue, we are satisfied on the record before us
that the trial judge "implicitly"found that the Wrights had not
litigated in bad faith.
5. Good faith determinations involve questions of fact and
therefore should not be set aside unless we have a "definite and
firm conviction that a mistake has been made."Donnybrook Bldg.
Supply v. Interior City Branch, First Nat'l Bank of Anchorage,
798 P.2d 1263, 1266 (Alaska 1990).
6. There is certainly no support in the record for a
finding of bad faith on the part of AMMIC.
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