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Russell v. Criterion Ins. Co. (4/26/96), 917 P 2d 664
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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
Clerk of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0607, fax (907) 276-5808.
THE SUPREME COURT OF THE STATE OF ALASKA
DONNA SUE RUSSELL, )
) Supreme Court No. S-6891
Appellant, )
) Superior Court No.
v. ) 3AN-93-6564 Civ.
)
CRITERION INSURANCE COMPANY, )
) O P I N I O N
Appellee. )
______________________________) [No. 4342 - April 26, 1996]
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, John Reese, Judge.
Appearances: Brett von Gemmingen,
Anchorage, for Appellant. Clyde E. Sniffen,
Jr. and Clay A. Young, Delaney, Wiles, Hayes,
Reitman & Brubaker, Inc., Anchorage, for
Appellee.
Before: Compton, Chief Justice, Rabinowitz
and Matthews, Justices. [Eastaugh, Justice,
and Shortell, Justice pro tem,* not
participating.]
COMPTON, Chief Justice.
In this case, the superior court was called upon to
determine whether an endorsement limiting liability coverage
under an insurance policy provides the clear disclosure required
by law. The superior court concluded that it does. We affirm.
I. FACTS AND PROCEEDINGS
Donna Sue Russell was injured in an automobile
collision while a passenger in a car driven by Amanda Harris.
She filed suit against Harris for her injuries. Harris's
liability insurance carrier, Criterion Insurance Company
(Criterion), moved to intervene in this suit. Criterion sought
intervention because "a dispute has arisen between Criterion and
the parties concerning the validity and interpretation of a
restrictive endorsement to the liability insurance policy." The
endorsement purports to limit Criterion's obligation to pay
attorney's fees awarded against Criterion's insured pursuant to
Alaska Civil Rule 82.1
The endorsement at issue provides:
Section I, Number 2 of the Additional
Payments CRITERION CASUALTY Will Make Under
the Liability Coverage is amended to read as
follows:
2. All court costs charged to an insured in
a covered lawsuit, except that attorney fee
payments shall in no case exceed the amount
that could be awarded in accordance with the
percentage schedule specified in Alaska Civil
Rules of Procedure 82(a)(1)2 in a case in
which a judgment equal to the liability
policy limit or limits applicable to the loss
is rendered.
If a judgment is rendered against you in
excess of your policy limits, you will be
responsible for attorney fees awarded under
Rule 82(a)(1) which exceeds [sic] that which
would be allowable if judgment rendered were
within your policy limits.
(emphasis in original). Absent the endorsement, Criterion's
policy would provide for the payment of "[a]ll court costs
charged to an insured in a covered lawsuit,"which would include
any attorney's fees awarded against the insured.3 As amended by
the endorsement, however, the policy would only obligate
Criterion to pay attorney's fees as a percentage of that part of
a judgment that falls within the $50,000/100,000 bodily injury
liability coverage limit contained in Harris's policy; Criterion
would not be obligated to pay attorney's fees on that part of a
judgment that exceeds this coverage limit.
In its motion to intervene, Criterion requested from
the superior court a "proper interpretation"of the amendatory
endorsement; it also requested, "if necessary, that the Rule 82
endorsement issue be decided separately from and prior to the
trial or other resolution"of Russell's suit against Harris. The
superior court granted Criterion's motion to intervene and to
sever the endorsement issue from the personal injury action.
Criterion moved for summary judgment. The superior
court granted its motion, concluding that the endorsement
"clearly and unambiguously limits the amount Criterion is
obligated to pay for any Rule 82 attorney's fees awarded against
Harris in this case to the amount awardable under Rule 82 on a
judgment equal to the policy's coverage limit." The court
entered partial final judgment pursuant to Alaska Civil Rule
54(b). Russell appeals, claiming that the limiting language
contained in the endorsement to Harris's policy is ineffective,
and that Criterion therefore must abide by its prior assumption
of the obligation to pay the full amount of any fee award against
Harris.
II. DISCUSSION
Insurers may limit their obligation to pay prevailing
party attorney's fees awarded against their insureds, so long as
the limit is not "less than the amount which would be allowed
under Civil Rule 82(a)(1) to the prevailing party in a contested
case if the amount recovered were equal to the liability limit of
the policy." 3 AAC 29.010(a).4 In order to limit coverage of
fee awards in this manner, however, an insurer must make two
clear disclosures to the insured: (1) it must clearly disclose
the limitation itself, and (2) it must clearly disclose the
insured's potential liability for attorney's fees if the judgment
exceeds the liability limits of the policy. 3 AAC 29.010(d).5
The question of what constitutes a clear disclosure
within the meaning of 3 AAC 29.010(d) is a question of law; we
are not bound by the lower court's decision but will "adopt the
rule of law that is most persuasive in light of precedent,
reason, and policy." Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska
1979). Furthermore, we review summary judgments de novo.
Dayhoff v. Temsco Helicopters, Inc., 848 P.2d 1367, 1369 (Alaska
1993).
We hold that the language of the Criterion endorsement
does provide the clear disclosure required by 3 AAC 29.010(d).
First, the endorsement clearly discloses the limitation itself,
stating that "attorney fee payments shall in no case exceed the
amount that could be awarded in accordance with the percentage
schedule specified in Alaska Civil Rules of Procedure 82(a)(1) in
a case in which a judgment equal to the liability policy limit or
limits applicable to the loss is rendered." Second, the
endorsement clearly discloses the insured's potential liability
for any attorney's fees awarded beyond this limitation, even
emphasizing this risk of personal liability with underlining:
"[I]f a judgment is rendered against you in excess of your policy
limits, you will be responsible for attorney fees awarded under
Rule 82(a)(1) which exceeds [sic] that which would be allowable
if judgment rendered were within your policy limits."
Russell argues that one way in which Criterion denies
its insureds a full and clear disclosure of the limitation is by
not including the Alaska Civil Rule 82(a)(1) percentage schedule
within the endorsement, or otherwise informing the insureds that
"a surcharge of 20% of amounts up to $25,000 and 10% of amounts
above $25,000, are regularly added to a judgment against the
insured." In support of this argument, Russell cites two cases,
Worldwide Underwriters Insurance Co. v. Brady, 973 F.2d 192 (3rd
Cir. 1992), and Leibrand v. National Farmers Union Property &
Casualty Co., 898 P.2d 1220 (Mont. 1995).
In Worldwide, the court applied a clarity requirement
from Pennsylvania law and concluded that a policy clause that
limited liability coverage for members of the insured's family
who are involved in an accident to "the limits of liability
required by the Pennsylvania Motor Vehicle Responsibility Law of
1984"was unclear because this clause did not "disclose that the
minimum coverage mandated by the [law] was $15,000." Id. at 195-
96. The court observed:
In order to be informed of the limitation
imposed by this clause as the insurer
intended, [the insured] would be compelled to
travel beyond the four corners of the policy,
presumably to the nearest law library or
lawyer, to realize that the language of the
policy, citing to the Motor Vehicle Financial
Responsibility Law, imposed a $15,000
recovery of benefits cap on injuries received
by family members. Pennsylvania does not
place such an affirmative burden on
purchasers of insurance - rather the insurer
has the duty to write its policies in a clear
and intelligible fashion.
Id. at 196.
Worldwide is distinguishable from the present case.
The clause at issue in Worldwide was particularly vulnerable
because it did not even "inform the insured that full coverage
for his family members was compromised." Id. In contrast, the
language contained in Criterion's amendatory endorsement does
inform the insured that coverage of attorney's fees beyond those
awardable as a percentage of a judgment equal to coverage limits
is being compromised, as is the insured's security from personal
liability for uncovered attorney's fees. While the reference to
the Pennsylvania law in the Worldwide policy obscured the
substantial limitation expressed in the reference, Criterion's
reference to Alaska Civil Rule 82(a)(1) is contextualized within
a clear disclosure of both the coverage limitation and the
insured's potential personal liability for attorney's fees.6
Like Worldwide, Leibrand is also distinguishable. In
Leibrand, the Montana Supreme Court found ambiguity in two
separate endorsements that sought to limit coverage to "the
limits of liability required by law." 898 P.2d at 1221-22, 1225-
26. One of the shortcomings of the endorsements that the court
found objectionable was the lack of "any citation to the state
law on which the liability limit is based." Id. at 1225. The
most obvious implication of this objection is that had the
endorsements provided a specific reference to the law on which
their liability limitations were based, this reference might have
saved these endorsements.
Because Criterion's endorsement clearly discloses both
the limitation on coverage and the insured's potential personal
liability for attorney's fees, it meets the requirements of 3 AAC
29.010(d). It effectively limits Criterion's coverage of
attorney's fees awarded against its insured.
III. CONCLUSION
We AFFIRM the judgment of the superior court.
_______________________________
* Sitting by assignment made pursuant to article IV,
section 16 of the Alaska Constitution.
1 Rule 82. Attorney's Fees
(a) Allowance to Prevailing Party. Except as
otherwise provided by law or agreed to by the parties, the
prevailing party in a civil case shall be awarded attorney's fees
calculated under this rule.
(b) Amount of Award.
(1) The court shall adhere to the following schedule
in fixing the award of attorney's fees to a party recovering a
money judgment in a case:
Judgment and, Contested Contested Non-
if awarded, With Without Contested
Prejudgment Trial
Interest
First $ 25,000 20% 18% 10%
Next $ 75,000 10% 8% 3%
Next $400,000 10% 6% 2%
Over $500,000 10% 2% 1%
. . . .
(3) The court may vary an attorney's fee award
calculated under subparagraph (b)(1) . . . if, upon consideration
of [various factors], the court determines a variation is
warranted . . . .
2 Prior to July 15, 1993, the percentage schedule
governing attorney's fee awards was set forth at Alaska Civil
Rule 82(a)(1). Thus, the endorsement's reference to Rule
82(a)(1) instead of Rule 82(b)(1) accurately identifies the
schedule, both as of the 1989 date of the endorsement itself and
during the coverage period in which the February 1993 automobile
accident took place.
3 Insurance contracts that obligate insurers to pay
unlimited court costs are construed to obligate the insurers "to
pay Rule 82 attorney's fees as an additional item of policy
coverage on the full amount of a jury verdict rendered against
the insured defendant." Schultz v. Travelers Indem. Co., 754
P.2d 265, 267 (Alaska 1988).
4 3 AAC 29.010. SUPPLEMENTARY PAYMENTS. (a) Any policy
form subject to the requirements of AS 21.42 which provides
defense, settlement, or supplementary payments, may limit
payments of attorney fees taxed against the insured as costs
under Rule 82 of the Alaska Rules of Civil Procedure. The limit
may not be less than the amount which would be allowed under
Civil Rule 82(a)(1) to the prevailing party in a contested case
if the amount recovered were equal to the liability limit of the
policy. This limit must be in addition to the otherwise
applicable limit of liability in the policy.
5 (d) An insurer limiting coverage as permitted in (a) of
this section must clearly disclose to its insured the limitation
and the insured's potential liability for attorney fees if
judgment exceeds the liability limits of the policy.
6 Insofar as the court in Worldwide agreed with the
district court's conclusion that the policy limitation at issue
was rendered unclear by a "failure to disclose the dollar amount
limit," 973 F.2d at 196, we decline to follow its reasoning in
the case before us. The $15,000 amount of the limitation at
issue in Worldwide could have been expressed quite simply.
Expressing the dollar amount of a coverage limitation on Civil
Rule 82 attorney's fees is a less simple matter, however, as this
amount will vary depending on a number of factors, including the
insured's policy limits, whether the case is contested, and
whether a departure from the schedule is warranted.
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