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Farquhar v. Alaska National Insurance Company (4/6/01) sp-5382
Farquhar v. Alaska National Insurance Company (4/6/01) sp-5382
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) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
THOMAS J. FARQUHAR, )
) Supreme Court No. S-9485
Appellant, )
) Superior Court No.
v. ) 3AN-99-6844 CI
)
ALASKA NATIONAL INSURANCE ) O P I N I O N
COMPANY, )
) [No. 5382 - April 6, 2001]
Appellee. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Sen K. Tan, Judge.
Appearances: Michael R. Wirschem, Houston &
Houston, Anchorage, for Appellant. Roger F. Holmes, Biss & Holmes,
Anchorage, for Appellee.
Before: Fabe, Chief Justice, Eastaugh,
Bryner, and Carpeneti, Justices. [Matthews,
Justice, not participating.]
FABE, Chief Justice.
I. INTRODUCTION
Thomas Farquhar was badly injured in a traffic accident
with a driver for Industrial Boiler and Controls, Inc. He settled
with Industrial Boiler's insurer, Alaska National Insurance Company
(ANIC), for Industrial Boiler's policy limit of one million
dollars. Farquhar claims that ANIC should be liable for
prejudgment interest on the settlement, although such liability
would bring ANIC's total payment above its policy limit of one
million dollars. We conclude that ANIC's contract did not oblige
it to pay prejudgment interest beyond the policy limit. Because
Farquhar raises public policy arguments that we rejected in the
1979 case Guin v. Ha, [Fn. 1] the principle of stare decisis
precludes a different outcome in this case. Therefore, ANIC is not
liable for prejudgment interest.
II. FACTS AND PROCEEDINGS
In December 1996 a vehicle owned by Industrial Boiler
collided with another car, veered into oncoming traffic, and struck
the vehicle driven by Thomas Farquhar. Farquhar suffered serious
head injuries from the collision and was rendered virtually
unemployable. The parties do not dispute Industrial Boiler's
liability for the accident.
Industrial Boiler was insured by ANIC for up to one
million dollars; apparently it had no other liability insurance
coverage. In October 1998 Farquhar tendered a demand to ANIC for
the liability policy limit, applicable Rule 82 attorney's fees, and
unspecified interest. The parties reached an agreement, formalized
in a release dated November 17, 1998. ANIC agreed to pay the one
million dollar policy limit and attorney's fees of $102,500.
Farquhar released ANIC and Industrial Boiler from all further
liability, with the exception of prejudgment interest. Farquhar
and ANIC agreed to litigate the question of whether the insurance
company owed Farquhar prejudgment interest in excess of its one
million dollar policy limit.
Farquhar filed a complaint for declaratory judgment on
the issue of prejudgment interest in May 1999. ANIC answered the
complaint, and later moved for summary judgment. Farquhar opposed
the motion and cross-moved for summary judgment in his own favor.
After oral argument on these motions, Superior Court Judge Sen K.
Tan granted summary judgment for ANIC and dismissed Farquhar's case
with prejudice. Farquhar now appeals.
III. STANDARD OF REVIEW
Summary judgment is appropriate only if there is no
genuine issue of material fact, and the moving party is entitled to
judgment as a matter of law. [Fn. 2] The parties do not dispute
any factual issues. The questions of contract and statute
interpretation and public policy raised in this case are issues of
law, which we review de novo. [Fn. 3]
IV. DISCUSSION
In Guin v. Ha, we established two grounds for holding an
insurer liable for prejudgment interest: (1) if the insurer
contractually assumes liability by the terms of its policy with the
insured, or (2) if public policy requires liability despite the
language of the contract. [Fn. 4] Farquhar argues that ANIC is
liable on both grounds.
A. ANIC Is Not Liable for Prejudgment Interest Under the Terms of its Policy with Industrial Boiler.
1. The supplementary payment provisions
ANIC's contract with Industrial Boiler provides:
We will pay all sums an "insured" legally must
pay as damages because of "bodily injury" or "property damage" to
which this insurance applies, caused by an "accident" and resulting
from the ownership, maintenance or use of a covered "auto."
This provision is subject to the one million dollar policy limit.
A supplementary payments provision of the contract states
that ANIC will make payments beyond the one million dollar policy
limit for:
(5) All costs taxed against the "insured" in
any "suit" we defend.
(6) All interest on the full amount of any
judgment that accrues after entry of the judgment in any "suit" we
defend; but our duty to pay interest ends when we have paid,
offered to pay or deposited in court the part of the judgment that
is within our Limit of Insurance.
In construing insurance policies, we do not strictly
adhere to traditional principles of contract interpretation;
instead, we try to effectuate the reasonable expectations of lay
parties. [Fn. 5] This flexible approach is appropriate regardless
of whether the policy language is ambiguous. [Fn. 6] However, this
approach "is not to be used as an instrument for ignoring or
rewriting insurance contracts." [Fn. 7]
The contractual provisions at issue in this case resemble
the provisions that we interpreted in Hughes v. Harrelson [Fn. 8]
and Guin v. Ha. [Fn. 9] In both cases, we found that the contract
language did not require prejudgment interest payments in excess of
the policy limit. The Hughes provision is particularly similar to
the provision in this case. In Hughes, the insurer agreed to pay
[i]nterest on damages awarded in any suit we
defend accruing after judgment is entered and before we have paid,
offered to pay, or deposited in court that portion of the judgment
which is not more than our limit of liability.[ [Fn. 10]]
We draw on parallels with the Hughes contract language in rejecting
Farquhar's interpretation of the ANIC contract.
Farquhar argues that under the express language of the
supplementary payments provision, ANIC is obliged to pay
prejudgment interest beyond the one million dollar policy limit.
First, he claims that the provision for payment of "all interest
. . . that accrues after entry of the judgment" includes
prejudgment interest, because prejudgment interest cannot be
calculated until after a judgment, and therefore does not accrue
until that time. This interpretation is arguably supported by the
plain meaning of "accrue" -- Webster's first definition of the word
is "to come into existence as an enforceable claim." [Fn. 11]
However, because Farquhar's interpretation would render superfluous
the policy's phrase "after entry of the judgment," it seems more
likely that "accrue" in the contract means "to be periodically
accumulated in the process of time" -- Webster's third definition.
[Fn. 12] This interpretation is consistent with our conclusion, in
Hughes, that a provision which covered "interest . . . accruing
after judgment" excluded prejudgment interest. [Fn. 13]
Second, Farquhar argues that the second clause of the
same provision -- stating that "our duty to pay interest ends when
we have paid . . . the part of the judgment that is within our
Limit of Insurance" -- mandates payment of prejudgment interest,
because the clause does not qualify or limit ANIC's "duty to pay."
A straightforward reading of provision (6) refutes this claim. The
first clause of provision (6) establishes that ANIC's "duty" is
only to pay "[a]ll interest . . . that accrues after entry of the
judgment." (Emphasis added.)
Farquhar further argues that a lay reader would not
understand ANIC's policy as excluding payment of prejudgment
interest. Because ANIC did not expressly exclude such payments, he
argues, the policy is unclear and Industrial Boiler could
reasonably have expected the payments to be covered. Industrial
Boiler's confusion is particularly likely, he says, because the one
million dollar "limit" was in fact susceptible to increase by Rule
82 attorney's fees. These arguments fail. Both the costs of
defending a lawsuit and the interest accruing after an entry of
judgment are expenses specifically listed in the policy's
supplementary payments provision. Farquhar's proposed reading
would infer additional coverage for any expense not expressly
excluded -- a result that would not be within the reasonable
reader's expectations. Moreover, we also found that the
contractual provisions in Guin and Hughes excluded insurer
liability for prejudgment interest, although those provisions also
failed explicitly to state such an exclusion. [Fn. 14]
2. The term "policy limit"
ANIC is obliged under the contract to pay damages, costs,
and expenses up to its policy limit. Farquhar argues that under
our decisions in State Farm Mutual Automobile Insurance Co. v.
Harrington [Fn. 15] and Schultz v. Travelers Indemnity Co., [Fn.
16] the "policy limit" must be construed to include the one million
dollar facial limit, Rule 82 attorney's fees, and $195,040.26 in
prejudgment interest. ANIC disagrees, claiming that the cited
decisions "went no further than to say 'policy limits' means that
which the insurer would have to pay if it went to trial." ANIC's
interpretation is correct.
In Harrington, the parties stipulated that State Farm
would pay the plaintiff "policy limits," as defined by this court.
We determined 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." [Fn. 17] Because we found that the Harrington
policy did by its contractual terms cover prejudgment interest, an
award of the policy limit in that case included such interest. [Fn.
18]
In Schultz, we followed the same rule, stating that "[i]n
determining what constitutes the maximum limits of insurance
coverage, i.e., policy limits, it is necessary for the court to
review the contractual obligations undertaken by the insurer in the
insurance policy in question in light of the applicable statutes,
regulations and court opinions." [Fn. 19] In that case, the
disputed policy apparently did not cover, and the plaintiffs did
not claim, prejudgment interest. We found that "policy limits"
meant the facial limit of the policy, plus Rule 82 attorney's fees.
[Fn. 20]
Farquhar also suggests that his prejudgment interest
should be calculated based on a projected three million dollar
court verdict rather than the one million dollar insurance
settlement figure. In Harrington, we noted that the insured was
entitled to prejudgment interest based on the amount actually paid
by the insurance company: the facial limit of the policy plus
attorney's fees. [Fn. 21] Farquhar offers no reason to depart from
this.
B. ANIC Is Not Liable for Prejudgment Interest Based on
Public Policy.
In Guin v. Ha, we held that a court may override the
terms of an insurance contract and order an insurer to pay
prejudgment interest if public policy so requires. [Fn. 22]
However, we conclude that public policy does not require that ANIC
be liable for prejudgment interest in excess of its policy limit.
1. Alaska statutes do not create a policy preference
for insurer liability in this case.
In Hughes v. Harrelson, we drew on Guin's public policy
provision, finding that two statutory provisions "convince[d us]
that public policy must intervene." [Fn. 23]
The plaintiff in Hughes was injured by a motorist with an
insurance policy limit of $50,000, the statutory minimum under AS
28.20.440(b) and AS 28.22.101(d). [Fn. 24] Alaska Statute
28.22.101(d) provides in part:
A motor vehicle liability policy must provide
coverage in the United States or Canada, subject to limits
exclusive of interest and costs, with respect to each vehicle, as
follows:
(1) $50,000 because of bodily injury to or
death of one person in one accident.
Alaska Statute 28.20.440(b) restates the requirement, using nearly
identical language. [Fn. 25] After considering the language of the
statutes, we held that "an insurer must pay prejudgment interest on
the minimum policy limits established in AS 28.20.440(b) and AS
28.22.101(d)." [Fn. 26]
Farquhar argues that the "subject to limits exclusive of
interest and costs" language of AS 28.22.101(d) [Fn. 27] applies to
all insurance policies, not just those with the $50,000 statutory
minimum policy limit. As he interprets the statute, AS
28.22.101(d) requires that all policies (1) provide coverage in the
United States or Canada, (2) be subject to a limit exclusive of
interest and costs, and (3) provide coverage with respect to each
vehicle. Separately, AS 28.22.101(d)(1) requires that all policies
provide a minimum of $50,000 coverage. If the requirements of
subsection (d) applied only to policies with a $50,000 limit, he
argues, then drivers with more than minimum coverage would be
exempt from the "U.S. and Canada" language and the "with respect to
each vehicle" language, as well as the "exclusive of interest and
costs" language.
We reject this reading of the statute. We interpret the
qualifications listed in AS 28.22.101(d) as applying only to the
$50,000 coverage required by subsection (d)(1). Thus, the statute
does not prevent a motorist from purchasing additional coverage for
only one of several vehicles, or coverage valid in Mexico but not
the United States or Canada, or coverage that excludes prejudgment
interest, so long as the first $50,000 of coverage complies with
the requirements of AS 28.22.101(d). Our decision in Hughes
strongly supports this reading. Although the holding in that case
concerned a policy for the $50,000 minimum, [Fn. 28] we stated in
dicta that "[t]o effectuate the language of the statutes, if the
policy limit is the statutory minimum, an insurer must pay
prejudgment interest in addition to the policy limit." [Fn. 29] We
conclude that the statutes do not require insurers to pay
prejudgment interest on damages above $50,000. [Fn. 30]
Farquhar argues in the alternative that under AS
28.20.440(b) and AS 28.22.101(d), ANIC must pay the policy limit of
one million dollars, plus the prejudgment interest on $50,000. As
he interprets the statutes, they create a right to interest on
$50,000 above and beyond any policy limit, even if the limit
exceeds the sum of $50,000 and the interest on $50,000. We reject
this interpretation. Alaska Statutes 28.20.440(b) and 28.22.101(d)
protect collision victims by guaranteeing compensation of $50,000
plus interest. They do not require additional payments if the
victim's total award or settlement already covers this amount.
2. Stare decisis precludes reconsideration of policy
issues decided in Guin v. Ha.
In Guin v. Ha, we stated that public policy could
potentially require holding an insurer liable for prejudgment
interest in excess of the policy limit. [Fn. 31] However, we
concluded that the policy arguments advanced by the parties in that
case favored both sides equally, and therefore did not justify
overriding the contract. [Fn. 32]
In Guin, we considered three policy arguments in favor of
holding insurers liable for prejudgment interest in excess of the
policy limit. First, the plaintiff argued that economic fairness
required insurer liability for prejudgment interest because insured
defendants would otherwise have to pay for interest actually
retained by their insurers. [Fn. 33] We found that such a concern
was not sufficient grounds for restructuring the contractual
relationship between insured and insurer. [Fn. 34] Second, we
rejected the argument that insurers should bear the burden of
prejudgment claims as an incentive to early settlement. [Fn. 35]
We expressed concern about burdening the insurer with a risk it had
not contractually assumed. [Fn. 36] Finally, we rejected the
argument that insureds were "at the mercy of the dilatory or
uncooperative insurance company." [Fn. 37] Insureds have a cause of
action for bad faith against insurers if the insurers do not accept
reasonable settlement offers in a prompt fashion. [Fn. 38]
We held in State v. United Cook Inlet Drift Ass'n that
"the judicial doctrine of stare decisis accords the prior holdings
of the highest courts of this State precedential value while still
permitting the reconsideration of legal issues when conditions
warrant." [Fn. 39] Farquhar has not advanced compelling arguments
to show that conditions warrant departure from Guin's rule. Nor
has he raised policy considerations not already considered in Guin.
Although he argues that new issues arise in this case because it
concerns auto insurance, rather than the medical malpractice
insurance at issue in Guin, this difference cannot be the basis for
a principled policy distinction. And Farquhar's argument that
public policy has been violated because he was insufficiently
compensated for his injuries does not pertain to insurer liability
for interest. Moreover, the legislature has already determined the
appropriate level for minimum coverage. [Fn. 40] We decline to
reverse our holding in Guin. We note that Guin's conclusion is
consistent with holdings in a number of other jurisdictions, [Fn.
41] and forms the basis of long-settled expectations of insurers in
Alaska.
V. CONCLUSION
ANIC's contract did not provide that the insurance
company would pay prejudgment interest in excess of the policy
limit. Under Guin, public policy does not require that ANIC be
held liable for such payments. Therefore, we AFFIRM the decision
of the superior court.
FOOTNOTES
Footnote 1:
591 P.2d 1281 (Alaska 1979).
Footnote 2:
See Estate of Arrowwood v. State, 894 P.2d 642, 644 n.2
(Alaska 1995).
Footnote 3:
See Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).
Footnote 4:
See id. at 1284.
Footnote 5:
See id. at 1284-85 (citing Stordahl v. Government Employees
Ins. Co., 564 P.2d 63, 65-66 (Alaska 1977)).
Footnote 6:
See Guin, 591 P.2d at 1285.
Footnote 7:
Id.
Footnote 8:
844 P.2d 1106, 1106 n.1 (Alaska 1993). Although Hughes
ultimately required that the insurer pay for prejudgment interest,
we found that "nothing in [the] insurance policy requires the
payment of prejudgment interest." Id. at 1106 (emphasis added).
Footnote 9:
591 P.2d at 1285.
Footnote 10:
844 P.2d at 1107 n.1. The contract in Guin v. Ha did not
explicitly mention interest, but provided that "the liability of
the Underwriters hereunder for damages shall not exceed the limit
of liability set out in the Schedule . . . except that, subject to
the provisions contained in Paragraph 3, the Underwriters will pay
the costs and expenses incurred in the defense of any claim or
suit." Guin, 591 P.2d at 1285. We determined that prejudgment
interest was not included in the costs and expenses of defense, id.
at 1285-86, but that the contract implicitly covered postjudgment
interest. Id. at 1287 nn.13, 15.
Footnote 11:
Webster's Third New International Dictionary 13 (3d ed. 1966).
Footnote 12:
Id.
Footnote 13:
Hughes, 844 P.2d at 1106 n.1.
Footnote 14:
See Hughes, 844 P.2d at 1106; Guin, 591 P.2d at 1285-86.
Footnote 15:
918 P.2d 1022 (Alaska 1996).
Footnote 16:
754 P.2d 265 (Alaska 1988).
Footnote 17:
Harrington, 918 P.2d at 1026 (quoting Tucker v. United Servs.
Auto. Ass'n, 827 P.2d 440, 441 n.3 (Alaska 1992)).
Footnote 18:
Harrington, 918 P.2d at 1025-26. The policy in Harrington
covered prejudgment interest for liabilities incurred by the
insured, but did not cover prejudgment interest under its uninsured
motorist provisions. Drawing on AS 21.89.020(c)(1), we concluded
that the liabilities provision applied to the whole policy, and
that the entire policy therefore covered prejudgment interest. Id.
at 1024-26.
Footnote 19:
Schultz, 754 P.2d at 267.
Footnote 20:
See id. Prejudgment interest was relevant in Schultz, but
only as an element in calculating attorney's fees. Id.
Footnote 21:
918 P.2d at 1026.
Footnote 22:
591 P.2d 1281, 1284 (Alaska 1979).
Footnote 23:
844 P.2d 1106, 1107 (Alaska 1993).
Footnote 24:
See id. at 1106.
Footnote 25:
AS 28.20.440(b) provides in part:
The owner's policy of liability insurance must
. . . .
(2) insure the person named and every other
person using the vehicle with the express or implied permission of
the named insured, against loss from the liability imposed by law
for damages arising out of the ownership, maintenance, or use of
the vehicle within the United States or Canada, subject to limits
exclusive of interest and costs, with respect to each vehicle, as
follows: $50,000 because of bodily injury to or death of one
person.
Footnote 26:
Hughes, 844 P.2d 1108.
Footnote 27:
Farquhar's argument applies to AS 28.22.101(d) but not to AS
28.20.440(b). The statute explicitly excludes coverage over
$50,000 from AS 28.20.440(b)'s requirements. AS 28.20.440(g)
provides:
A policy that grants the coverage required for
a motor vehicle liability policy may also grant lawful coverage in
excess of or in addition to the coverage specified for a policy and
the excess or additional coverage is not subject to the provisions
of this chapter. With respect to a policy that grants excess or
additional coverage the term "motor vehicle liability policy"
applies only to that part of the coverage that is required by this
section.
Footnote 28:
See Hughes, 844 P.2d at 1106.
Footnote 29:
Id. at 1107 (emphasis added).
Footnote 30:
Thus, on a policy with a limit of $50,001, an insurer must pay
all prejudgment interest on the first $50,000, but need not pay
interest on the last dollar if such a payment would exceed the
policy limit.
Footnote 31:
591 P.2d at 1284.
Footnote 32:
See id. at 1291.
Footnote 33:
See id. at 1290.
Footnote 34:
See id.
Footnote 35:
See id. at 1290-91.
Footnote 36:
See id.
Footnote 37:
Id. at 1291.
Footnote 38:
See id.
Footnote 39:
895 P.2d 947, 953 (Alaska 1995).
Footnote 40:
See AS 28.20.440(b); AS 28.22.101(d).
Footnote 41:
See, e.g., Mayer v. Medical Malpractice Joint Underwriting
Ass'n, 663 N.E.2d 274, 276-79 (Mass. 1996); Runge v. Prairie
States, Inc., 393 N.W.2d 538, 542 (S.D. 1986); Nielsen v.
O'Reilly, 848 P.2d 664, 669-70 (Utah 1993); Dairyland Ins. Co. v.
Douthat, 449 S.E.2d 799, 801-02 (Va. 1994).
