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Johnson & Higgins of AK v. Blomfield (12/15/95), 907 P 2d 1321
NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers
are requested to bring errors to the attention of the
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THE SUPREME COURT OF THE STATE OF ALASKA
JOHNSON & HIGGINS OF ALASKA )
) Supreme Court No. S-5773
) Superior Court No.
v. ) 3AN-91-10289 CI
CHARLES ALFRED BLOMFIELD and )
PATRICIA A. BLOMFIELD, ) O P I N I O N
Appellees. ) [No. 4299 - December 15, 1995]
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Peter A. Michalski, Judge.
Appearances: Dale W. House, Brian K. Clark,
and Diane L. Wendlandt, Lane, Powell, Spears,
Lubersky, Anchorage, for Appellant. Herbert
A. Viergutz, Barokas & Martin, Anchorage, for
Before: Moore, Chief Justice, Rabinowitz,
Matthews, Compton and Eastaugh, Justices.
The Blomfields owned and managed an office building,
which they leased to the State of Alaska, Department of Labor
(State). State employees became ill, apparently from a
contaminant in the ventilation system. The Blomfields so
informed their insurance agent, an employee of Johnson & Higgins
of Alaska (J&H). The agent assured the Blomfields that any loss
they suffered as a result of the problem was covered by an "all
risk" insurance policy he had obtained for them from American &
Foreign Insurance Company (A&F). When a demand was made on A&F,
however, it denied coverage and sued the Blomfields, seeking a
declaration that the loss was not covered by the policy. The
Blomfields counterclaimed against A&F, and eventually settled
that case. The Blomfields then sued J&H. Judgment was entered
on a jury verdict in the Blomfields' favor. J&H appeals. We
affirm in part, reverse in part, and remand for further
II. FACTS AND PROCEEDINGS
A. Factual History
Plaintiffs Charles Alfred Blomfield (Chuck) and
Patricia Blomfield own a building which they lease to the State.
Chuck's son, Charles Anthony Blomfield (Tony), has managed the
Blomfield properties since Chuck's heart attack in 1982. For
many years Don Durall has been the insurance agent for the
Blomfields. Mr. Durall works for J&H.
For 1985 and 1986 Mr. Durall obtained insurance for the
Blomfields' building through A&F. In late 1985, a number of
employees working in the building complained of respiratory
problems. The State alleged that these problems were linked to
the presence of mold. The Blomfields attempted to cure the
problem with a thorough cleaning. Tony Blomfield testified that
he contacted Mr. Durall at this time and confirmed that the
expenses were covered by the insurance policy. However, nobody
made a formal claim with A&F. The State declared the building
untenantable and vacated it in February 1986. The State stopped
paying rent in June. Mr. Durall filed a claim with A&F on behalf
of the Blomfields. The Blomfields made extensive renovations to
the building. A&F denied coverage. The State reoccupied the
building and resumed paying rent in December.
A&F sought a declaratory judgment that the Blomfields'
expenses and losses were not covered under the policy because of
a contamination exclusion, and the delay in reporting the claim
to A&F. The Blomfields counterclaimed for $1,845,946. They
claimed to have spent more than $1 million in renovating the
building, "sustained a loss of rents in the amount of
$338,675.84," and incurred other "costs, legal fees,
extraordinary management fees, and increased building operating
expenses for the useful life of the [structure]." They settled
with A&F for $480,000. A&F admitted no fault. The Blomfields
and A&F did not specify which damages, if any, were covered by
the insurance policy, and which damages, if any, were covered by
B. Procedural History
The Blomfields sued J&H for breach of contract,
negligence, and misrepresentation, claiming the same damages as
in the A&F litigation. The damages portion of the Blomfields'
complaint against J&H was copied verbatim from the Blomfields'
counterclaim to A&F's complaint.
J&H listed the Blomfields' trial attorneys as potential
witnesses. Apparently, J&H was trying to prove either that the
settlement with A&F was unreasonably low or that the Blomfields
had relied on the advice of, rather than any alleged
misrepresentations by, Mr. Durall. The Blomfields moved for and
were granted a protective order that precluded J&H from calling
the Blomfields' counsel at trial. J&H did call as a witness
A&F's counsel in the settlement negotiations. He testified that
he was surprised and pleased by the low amount for which the
Blomfields were willing to settle their claim against A&F.
Before trial the Blomfields agreed to reduce the
initially-claimed nine categories of damage to three:
renovation, lost rents (less operating expenses saved), and
interest. J&H agreed not to contest the reasonableness of the
Blomfields' mitigation expenditures. The parties then stipulated
to the amount of damages for which the Blomfields were seeking
recovery, but not to the responsibility for them. The parties
agreed that these damages totaled $1,011,087 as of January 1,
1987. The jury found that Mr. Durall breached his agent's
contract with the Blomfields, performed his professional services
negligently, and misrepresented the scope of the insurance
coverage. J&H was held vicariously liable as Mr. Durall's
employer. The jury did not award damages for the alleged
misrepresentation, but did award the stipulated damages for the
contract and professional negligence claims. In addition, the
jury assigned 40% of the fault to the Blomfields, 60% to J&H, and
awarded the Blomfields $10,000 in punitive damages.
Throughout the trial, counsel for J&H attempted to
clarify the A&F settlement's effect on the amount of damages to
be assessed against J&H. The court reserved this issue. After
the verdict, the court ruled that there would be no offset for
the A&F settlement. The court held that J&H had not met its
burden to show that the damages in the settlement duplicated the
damages in the trial, and that "[t]he only damages relevant to a
decision in this case are those which describe those losses not
covered by insurance." The court then entered judgment for the
Blomfields for 60% of the $1,011,087 in stipulated damages, plus
interest. The court also entered judgment for the Blomfields for
$10,000 in punitive damages, as well as costs and attorney's
fees. J&H's motion for judgment notwithstanding the verdict was
denied, and this timely appeal followed.
A. Breach of Contract, Professional Negligence and
Sufficiency of the Evidence
J&H challenges the sufficiency of the evidence to
support the breach of contract, professional negligence and
punitive damages special verdicts. We view the evidence in the
light most favorable to the non-moving party. "Our task is not
to weigh the evidence or judge the credibility of the witnesses.
Our task is merely to determine whether there is room for
diversity of opinion among reasonable people. If so, the
question is one for the jury." Levar v. Elkins, 604 P.2d 602,
604 (Alaska 1980).
In entering its final judgment, the trial court did so
based upon an allocation of fault, thereby implicitly adopting
the Blomfields' professional negligence claim for relief as the
basis for the damages to which they were entitled. The
Blomfields might have argued that their recovery against J&H
should be based on the breach of contract, and that accordingly
there should be no apportionment of fault. However, the
Blomfields did not advance this argument to the superior court.
Therefore, it is waived. See Williams v. Alyeska Pipeline Serv.
Co., 699 P.2d 1274, 1280 (Alaska 1985). We need not address
whether there was sufficient evidence to support the breach of
J&H challenges the sufficiency of the evidence to
support the professional negligence verdict. Like other
negligence actions, a claim of professional negligence requires
proof of duty, breach, causation, and damages. Linck v. Barokas
& Martin, 667 P.2d 171, 173 n.4 (Alaska 1983). J&H contends that
expert testimony was required to show the standard of care
required of an insurance agent. We disagree. While expert
testimony is generally required in medical malpractice cases, it
is not a general requirement of all professional negligence
actions, especially "in non-technical situations where negligence
is evident to lay people." Kendall v. State, 692 P.2d 953, 955
We conclude that the proper standard of care of an
insurance agent is not "of such professional abstrusity that
standards can be determined only with the aid of expert
testimony." Northern Lights Motel, Inc. v. Sweaney, 561 P.2d
1176, 1192 (Alaska 1977). The jury could properly consider
evidence beyond the expert testimony presented to conclude that
Mr. Durall acted negligently.1
J&H argues that the Blomfields had the burden to show
that coverage was commercially available for the loss sustained.
Bayly, Martin & Fay, Inc. v. Pete's Satire, Inc., 739 P.2d 239
(Colo. 1987); Russell v. Reliance Ins. Co., 672 S.W.2d 693, 694
(Mo. App. 1984). This seems to be the majority rule. Bayly, 739
P.2d at 243-44. In some jurisdictions, the absence of
commercially available coverage is treated as an affirmative
defense rather than an element of the plaintiff's case. Id. at
243. We need not determine which party has the burden of proof
on this issue, because we conclude that the Blomfields met their
burden. The Blomfields' expert, Mr. May, testified regarding the
availability of alternative insurance. He concluded that he
thought it more probable than not that another carrier would have
provided coverage without a contamination exclusion. This is
sufficient for a reasonable jury to find commercial availability.2
B. Disposition of the Settlement
In the litigation between the Blomfields and A&F, the
parties agreed to a $480,000 settlement without specifying which
damages, if any, were covered by the insurance policy, or which
damages, if any, were covered by the settlement.
In the instant case, the Blomfields claimed the same
damages as they did against A&F. Pursuant to a stipulation, the
Blomfields withdrew certain of their claims (those relating to
legal fees, increased past and future operating expenses,
extraordinary management fees, and future restoration expenses)
in return for J&H's promise not to contest the Blomfields' claim
that their damages for renovation work, lost rental income, and
interest amounted to $1,011,087.01. The jury found J&H liable
for the stipulated damages. The trial court refused to offset
the award by the amount the Blomfields had received from A&F,
finding that "[t]he only damages relevant to decision in this
case are those which describe losses not covered by [the A&F
The Blomfields assert the A&F settlement was taken into
account in arriving at the stipulated damages figure, and that
the damages they sought against J&H were "over and above" the
$480,000 received from A&F.3 J&H, on the other hand, states that
it assumed the A&F settlement would be deducted from the
stipulated damages because the Blomfields sought the same damages
from A&F and J&H. Neither position is supported directly by any
evidence in the record. The intention of the parties to the
settlement is difficult to decipher. We need not do so here.
The settlement between the Blomfields and A&F can be
viewed as an agreement between the parties that $480,000 of the
damage was in fact insured. Put another way, the Blomfields
expected full coverage and got coverage with a policy limit of
$480,000. The conclusion reached by the trial court requires the
assumption that the settlement with A&F dealt with losses
completely uncovered by the insurance policy.
When an insured settles with an insurance company on a
claim arising out of the insurance agent's alleged failure to
procure insurance requested by the insured, we view that as a
concession of coverage to the extent of the settlement amount for
purposes of the suit against the agent. As a matter of law, we
view the settlement as a partial coverage of the loss. Because
the insured's claim against the agent for failure to obtain
insurance compensates the insured for the difference between the
coverage expected and the coverage obtained, the settlement is
deducted from the total damage award.
C. The Protective Order
The parties discuss two possible purposes for the
testimony of the Blomfields' attorneys. The Blomfields assume
that J&H wanted to show that the Blomfields relied on the advice
of counsel, not Mr. Durall. This goes to the reliance element of
the misrepresentation claim. Because the jury found no damages
as a result of Mr. Durall's alleged misrepresentations and this
conclusion was not appealed, this issue is moot.
J&H argues that the testimony might have shown that the
settlement was unreasonably low, and therefore not proper
mitigation. J&H made no offer of proof at trial indicating this
purpose for the testimony. See Alaska R. Evid. 103(a)(2);
Agostinho v. Fairbanks Clinic, 821 P.2d 714, 717 (Alaska 1991).
We conclude that any error in the protective order is either moot
or has not been preserved for review.4
D. Punitive Damages and the Sufficiency of the Evidence
Finally, J&H challenges the sufficiency of the evidence
to support the award of punitive damages. We will overturn an
award of punitive damages only if consideration of the record as
a whole leaves us with a firm conviction of error and the need to
intervene to prevent a miscarriage of justice. Alaskan Village,
Inc. v. Smalley, 720 P.2d 945, 948 (Alaska 1986). We are left
with such a conviction in this case.
An award of punitive damages must be supported by clear
and convincing evidence. AS 09.17.020. Furthermore, punitive
damages may only be awarded "where the wrongdoer's conduct can be
characterized as outrageous, such as acts done with malice or bad
motives or a reckless indifference to the interests of others."
Bridges v. Alaska Hous. Auth., 375 P.2d 696, 702 (Alaska 1962).
"'Actual malice need not be proved. Rather, "[r]eckless
indifference to the rights of others, and conscious action in
disregard of them . . . may provide the necessary state of mind
to justify punitive damages."'" Barber v. National Bank of
Alaska, 815 P.2d 857, 864 (Alaska 1991) (quoting Sturm, Ruger &
Co., Inc. v. Day, 594 P.2d 38, 46 (Alaska 1979) (quoting
Restatement (Second) of Torts ' 908 (Tent. Draft No. 19, 1973)),
modified, 615 P.2d 621 (Alaska 1980), cert. denied, 454 U.S. 894
(1981), overruled on other grounds, Dura Corp. v. Harned, 703
P.2d 396 (Alaska 1985)). Mere negligence is insufficient to
justify an award of punitive damages.
The Blomfields allege that Mr. Durall was slow to
investigate the problems with the building. However, until the
problems were discovered, Mr. Durall believed that he had
obtained proper coverage for the Blomfields. After the
discovery, it was too late. There were no outrageous acts
sufficient to sustain an award of punitive damages in the present
case. The evidence supports the conclusion that Mr. Durall acted
negligently, but not outrageously.
E. The Release of Claims Against A&F
J&H argues that the Blomfields released J&H from the
suit when they released A&F. The release is not a part of the
record. It is a general rule that evidence not contained in the
appellant's record is presumed to support the verdict. 4 Am.
Jur. 2d Appeal and Error ' 523 (1962). We so presume. J&H has
failed to preserve this issue for review.
We AFFIRM the judgment holding J&H liable to the
Blomfields for an amount representing insurance coverage that
would have covered the losses sustained in this case had J&H not
been professionally negligent. We REVERSE the superior court's
refusal to grant J&H an offset for the amount received by the
Blomfields from A&F. J&H's objection to the superior court's
protective order is either moot or has not been properly
preserved for review. We REVERSE the award of punitive damages.
Lastly, J&H has failed to preserve for review the issue whether
the release of A&F also released J&H. We REMAND the case for
proceedings consistent with this opinion.
1 This evidence included testimony that Mr. Durall (1)
did not procure the insurance coverage the Blomfields requested;
(2) did not make himself or his clients aware of a possible gap
in coverage; (3) accordingly failed to obtain additional
coverage; (4) did not visit the building; (5) did not investigate
the problems at the building; (6) did not contact the tenant
about the issues; and (7) never discussed the extent of the
problem with state personnel.
2 The decision in Russell treats the showing of
commercial availability as a requirement for both contract and
professional negligence actions. Russell, 672 S.W.2d at 694.
There may be a valid distinction between the two. If a broker
makes an explicit promise to obtain a type of insurance and does
not disclose that he or she has been unable to do so, the
commercial availability of such coverage logically may be
irrelevant to the contract action. Instead, the requirement may
more properly be viewed as an element of only the tort action.
But see Bayly, 739 P.2d at 243-44 (treating requirement as an
element of causation, not duty). Because we conclude that the
evidence was sufficient on this point, we need not resolve this
3 The Blomfields' argument that "the $480,000 settlement
payment had already been deducted to arrive at the stipulated
damage figure of $1,011,087.01" does not ring true. The
stipulated damage figure constitutes the heart of the Blomfields'
claim. The Blomfields had submitted a nine-item claim. The
stipulation covered three of the items in their entirety: Claim
#1, actual expenditures which represented "the reasonable and
necessary expenses incurred to satisfy the requirements of the
State of Alaska," $692,573.82; Claim #5, total lost rents under
the state lease, $256,675.84; and Claim #8, interest expense,
$61,837.35. The claims which were not covered by the stipulation
were Claim #2, legal fees, $43,549.04; Claim #3, additional
management expenses attributable to time spent by Tony Blomfield,
$57,200; Claim #4, additional time spent by Charles and Patricia
Blomfield, $112,000; Claim #6, increased operating expenses from
January 1, 1983 through December 31, 1986, due to occupancy by
the Department of Labor, $39,524; Claim #7, an estimate of costs
needed in the future to restore the building to its original
condition, $327,442.50; Claim #9, estimated future operating
expenses for 1987, $156,162. Whatever the eventual value of the
claims which were not covered by the stipulation might have
proven to be had they been litigated, it is apparent that the
liquidated and traditionally allowable damage claims were
encompassed in the claims that were covered by the stipulation.
The assertion that A&F paid for the other claims, but not for the
stipulated claims, is not supported by the record, and not
credible as argument.
4 Although J&H raises the issue of whether the trial
court erred in denying its motion to disqualify the Blomfields'
attorney, it devotes only one paragraph of its brief to this
issue. In that paragraph, J&H implies that the Alaska Rules of
Professional Conduct required the Blomfields' attorney to
withdraw, but it does not cite to any specific rule, nor does it
elaborate on how that rule might have been violated in this
instance. Because of this insufficient briefing, we will not
consider the point on appeal. See Adamson v. Univ. of Alaska,
819 P.2d 889 n.3 (Alaska 1991).