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State Farm Mutual Automobile Insurance Co. v. Harrington (6/21/96), 918 P 2d 1022
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Notice: This opinion is subject to 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) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
STATE FARM MUTUAL AUTOMOBILE )
INSURANCE COMPANY, )
) Supreme Court No. S-6805
Petitioner, )
) Superior Court No.
v. ) 3AN-93-5365 CI
)
KATHLEEN M. HARRINGTON, as the ) O P I N I O N
Personal Representative of )
the Estate of Gina McCallum, )
)
Respondent. ) [No. 4360 - June 21, 1996]
___________________________________)
Petition for Hearing from the Superior Court
of the State of Alaska, Third Judicial
District, Anchorage, Joan M. Woodward, Judge.
Appearances: Earl M. Sutherland, Reed
McClure, Seattle, Washington, for Petitioner.
Alan G. Sherry, Law Office of Alan G. Sherry,
Anchorage, for Respondent.
Before: Compton, Chief Justice, Rabinowitz,
Matthews and Eastaugh, Justices. [Moore,
Justice, not participating.]
MATTHEWS, Justice.
I. FACTS AND PROCEEDINGS
On April 16, 1992, Gina McCallum, a single mother, died
in an accident while a passenger in an auto driven by Donald
Bowman. Bowman's vehicle was struck by a vehicle occupied by
Messrs. Wrase and Harding. Wrase and Harding each claimed that the
other had been driving at the time of the accident.
The personal representative of the Estate of McCallum
settled the estate's claim against Wrase and Harding for a sum
having an aggregate value of $289,075, exhausting their combined
policy limits.
McCallum had a liability policy issued by State Farm with
facial limits of $100,000 per person. Bowman had a liability
policy issued by State Farm with facial limits of $50,000. Both
policies provided additional coverage for prejudgment interest and
attorney's fees under Civil Rule 82 and both have uninsured and
underinsured motorist coverage (hereinafter U coverage). McCallum,
as a passenger in Bowman's car, was an additional insured under the
U coverage of Bowman's policy.
In June of 1993, State Farm paid the personal
representative of McCallum's estate $100,000 under the U coverage
of the McCallum policy and $55,998 under the U coverage of the
Bowman policy, representing facial limits of $50,000 plus
prejudgment interest of $5,998. These payments were not made in
exchange for a release. The personal representative claimed that
total coverage under both policies should include costs and Civil
Rule 82 attorney's fees and that prejudgment interest was also due
under the McCallum policy.
The personal representative brought a claim in district
court against State Farm seeking sums representing the alleged
additional coverage under the U coverage of the McCallum and Bowman
policies. Both parties moved for summary judgment. District Court
Judge William H. Fuld ruled in favor of the personal
representative. Judge Fuld noted that insurance companies are
statutorily required to "offer uninsured and underinsured motor
vehicle coverage with limits at least equal to those of liability
coverage . . . ." Because the "parties agree[d] that State Farm
had to offer Rule 82 attorney fee coverage and pre-judgment
interest under the liability policies issued in this case,"Judge
Fuld reasoned that the limits of the liability coverage included
attorney fee and prejudgment interest coverage and therefore those
limits had to be offered as part of the U coverage.
State Farm appealed to the superior court. The personal
representative cross-appealed, arguing that the district court had
erred in failing to calculate attorney's fees under the "contested
with trial"column of Civil Rule 82(b).
In the superior court the parties stipulated that the
Estate of McCallum had not been fully compensated and that the
question presented to the court was "a legal issue as to the amount
due as a 'policy limits' settlement from State Farm. The parties
stipulate that State Farm will pay 'policy limits' as determined by
the court."
The superior court ruled in favor of the personal
representative. Following oral argument, Superior Court Judge Joan
M. Woodward entered the following order on record:
[M]y ruling is going to be to agree with the
plaintiff appellee . . . . I think that under
Statute [21.89.020(c)], (EN1) the insurance
company has to offer the same limits of
liability for UI, or same policy limits, as
are offered under the liability insurance. In
this case the liability insurance includes
interest on judgment for that part of the
judgment that the insurance company pays, and
Rule 82 fees for contested case up to, again,
the policy limits. And clearly here State
Farm has, as it is entitled to do, limited its
attorney fees beyond what otherwise [would]
have been required under say Schultz [v.
Travelers Indemnity Co., 754 P.2d 265 (Alaska
1988)], which would allow fees based on a
projected verdict as opposed to based on the
policy limits.
The superior court denied State Farm's petition for rehearing and
remanded the case to the district court for entry of a final
judgment. State Farm petitioned this court for hearing. We
granted the petition.
II. POLICY AND STATUTORY LANGUAGE
The following policy provisions are relevant to our
decision. The declaration sheet of the Bowman policy (EN2)
provides:
COVERAGES
A BODILY INJURY . . . .
LIMITS OF LIABILITY - COVERAGE A -
BODILY INJURY
EACH PERSON
50,000
. . . .
U UNINSURED AND UNDERINSURED MOTOR VEHICLE
LIMITS OF LIABILITY -U -BODILY INJURY
EACH PERSON
50,000
The insuring agreement under liability coverage A contains a
promise to "pay damages which an insured becomes legally liable to
pay because of: (a) bodily injury to others[.]" Further, State
Farm promised:
In addition to the limits of liability, we
will pay for an insured any costs listed below
resulting from such accident.
1. Court costs of any suit for damages.
2. Interest on damages owed by the
insured due to a judgment and
accruing:
a. after the judgment and
until we pay, offer or
deposit in court the
amount due under this
coverage; or
b. before the judgment,
where owed by law, but
only on that part of the
judgment we pay.
. . . .
The most we will pay for attorney fees taxed
against an insured under Rule 82 of the Alaska
Rules of Civil Procedure is the amount allowed
under that Rule for a contested case with a
judgment equal to the applicable limit of
liability of this policy. The insured will be
responsible for any attorney fees taxed beyond
this amount.
Coverage U provides in relevant part:
We will pay damages for bodily injury an
insured is legally entitled to collect from
the owner or driver of an uninsured motor
vehicle or an underinsured motor vehicle. The
bodily injury must be caused by accident
arising out of the operation, maintenance or
use of an uninsured motor vehicle or an
underinsured motor vehicle.
Limits of Liability - coverage U:
5. The most we pay will be the lesser
of:
a. the difference between
the amount of the
insured's damages for
bodily injury or property
damage, and the amount
paid to the insured by or
for any person or
organization who is or
may be held legally
liable for the bodily
injury or property
damage; or
b. the limit of liability of
this coverage.
Limits of Liability - coverage UI:
3. The most we pay will be the lesser
of:
a. the difference between
the amount of the
insured's damages for
bodily injury, and the
amount paid to the
insured by or for any
person or organization
who is or may be held
legally liable for the
bodily injury; or
b. the limit of liability of
this coverage.
Alaska Statute 21.89.020 applies to the policies. Relevant to this
case is subsection (c)(1) which provides:
(c) An insurance company offering automobile
liability insurance in this state for bodily
injury or death shall, initially and at each
renewal, offer coverage prescribed in AS
28.20.440 and 28.20.445 or AS 28.22 for the
protection of the persons insured under the
policy who are legally entitled to recover
damages for bodily injury or death from owners
or operators of uninsured or underinsured
motor vehicles. The limit written may not be
less than the limit in AS 28.20.440 or AS
28.22.101. Coverage required to be offered
under this section must include the following
options:
(1) policy limits equal to the limits
voluntarily purchased to cover the liability
of the person insured for bodily injury or
death[.]
State Farm relies on AS 21.89.020(f)(1) which states:
(f) An automobile liability insurance policy
must provide
(1) that all expenses and fees, not
including counsel fees or adjuster fees,
incurred because of arbitration or mediation
shall be paid as determined by the arbitrator.
III. DISCUSSION
As this case is currently presented, both parties are in
agreement that State Farm should pay to the personal representative
policy limits under the U coverage of the Bowman and McCallum
policies. The question is whether policy limits include sums for
prejudgment interest and Civil Rule 82 attorney's fees. We answer
this question in the affirmative for reasons similar to those
expressed by Judges Fuld and Woodward.
Alaska Statute 21.89.020(c)(1) requires that an insurance
company offer U coverage "equal to the limits voluntarily
purchased"by the insured for liability protection. The coverage
required under subsection (c) may be waived (in writing) by the
insured. AS 21.89.020(e). No waivers were given in this case.
Where required coverage is not waived it must be provided. If a
policy does not provide the required coverage it will be reformed
to conform with statutory requirements. Hughes v. Harrelson, 844
P.2d 1106, 1107 (Alaska 1993); Burton v. State Farm Fire & Casualty
Co., 796 P.2d 1361, 1363 (Alaska 1990); Hillman v. Nationwide Mut.
Fire Ins. Co., 758 P.2d 1248, 1250-53 (Alaska 1988).
The McCallum and Bowman policies do not, taken alone,
provide for prejudgment interest or attorney's fees under their U
coverages. The statute, AS 21.89.020(c), requires U coverage equal
to the limits of liability coverage voluntarily purchased by the
insured. Does this refer to the numerical facial limit, or include
protection afforded in addition to facial limits for items such as
prejudgment interest, costs and attorney's fees? We hold that the
statute calls for protection in addition to facial limits for two
reasons.
First, the evident purpose of section 020(c)(1) is to
provide for the insured, as an injured claimant, the same benefit
level as that provided by the insured to those asserting claims
against the insured. In this case, the insureds in their liability
coverages have protected themselves against, and thus provided
benefits to claimants for, prejudgment interest and attorney's fees
in addition to facial policy limits. A claimant against McCallum,
for example, obtaining a policy limits recovery would receive not
only the facial limits of the policy, $100,000, but a Rule 82
attorney's fee award computed on $100,000, $12,500, and prejudgment
interest calculated on the amount paid by the insurance company.
Given the purpose of section 020(c)(1), the same benefits should be
available to McCallum's personal representative.
Second, in our jurisprudence, the term "policy limits"
has been construed to include not only facial limits but such other
sums as are payable in addition to facial limits. For example, in
Hughes v. Harrelson, 844 P.2d 1106 (Alaska 1993), the insurer made
a "policy limits"offer. We construed that offer to include the
facial limits of the insurance policy plus prejudgment interest
which was required by statute to be included in the policy in
addition to facial limits. Similarly, in Schultz v. Travelers
Indemnity Co., 754 P.2d 265, 267 (Alaska 1988), we adopted a
definition of policy limits which included the facial limits of the
policy plus attorney's fees and prejudgment interest:
Travelers had the legal duty to make a
determination as to the amount of money
judgment which might be rendered against its
insured. In order to protect its insured,
Travelers then had the duty to tender in
settlement that portion of the projected money
judgment which Travelers contractually agreed
to pay. That amount, $100,000 per passenger,
plus Rule 82 fees on the sum of the projected
verdict plus pre-judgment interest, is policy
limits.
(Emphasis added.) In Providence Washington Ins. Co. v. Fireman's
Fund Ins. Cos., 778 P.2d 200 (Alaska 1989), we ruled that in order
for an insurance company's settlement offer to amount to a tender
of policy limits, the insurance company must surrender control of
funds equal to its maximum potential liability under the policy.
Id. at 204. In Tucker v. United Services Automobile Association,
827 P.2d 440, 441 (Alaska 1992), we held that a "policy limits"
offer included not only the facial limits of the policy, $100,000,
but additional sums of $12,500 for costs and fees and $20,712.33
for prejudgment interest. We stated: "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." Id. at 440. Concerning our prior cases on the meaning of
policy limits we also stated: "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." Id. at 441 n.3.
State Farm argues that AS 21.89.020(f)(1), quoted above
at page 7, requires that attorney's fees not be included within
policy limits. State Farm argues:
If a U coverage claim proceeds to
arbitration, the arbitrators are precluded by
statute from an award of attorney's fees.
Thus, the decision of the lower courts reduces
the U coverage insurer's obligation if it
takes the matter to arbitration. That result
is absurd. It cannot be squared with a
reasonable construction of the statutes at
issue.
The personal representative's rejoinder is that subsection (f)(1)
only excludes from mandated coverage counsel fees or adjusted fees
incurred because of arbitration; it does not exclude, or even refer
to, fees that would be awarded in court under Civil Rule 82 in
litigation against an uninsured motorist:
If the matter were to go to arbitration,
McCallum would be entitled to claim, as policy
limits, an award of attorney's fees which
would be recovered against the offending
drivers as uninsured motorists. The question
of award of fees in the arbitration itself,
would be addressed separately.
We agree with the personal representative's position. Rule 82
attorney's fees are not counsel fees incurred because of
arbitration or mediation and thus do not fall within the purview of
subsection (f)(1).
State Farm also argues that our decision in Burton, 796
P.2d at 1363, mandates reversal. In Burton we held that an insured
injured while a passenger in his own (insured) vehicle was entitled
to U coverage protection under the applicable statute. The
question whether the insured was entitled to interest or fees in
excess of facial policy limits was not raised or resolved and thus
Burton does not support State Farm's position.
IV. CONCLUSION
For the above reasons the order of the superior court is
AFFIRMED.
ENDNOTES:
1. Transcription error corrected.
2. The terms of the McCallum policy are identical except that
they provide for limits of $100,00 under coverage A and U rather
than $50,000.
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