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Coughlin v. Government Employees Insurance Co. (4/18/2003) sp-5681
Coughlin v. Government Employees Insurance Co. (4/18/2003) sp-5681
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,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
COLLEEN COUGHLIN, )
) Supreme Court No. S-10072
Appellant, )
) Superior Court No.
v. ) 4FA-99-1853 CI
)
GOVERNMENT EMPLOYEES ) O P I N I O N
INSURANCE COMPANY (GEICO), )
) [No. 5681 - April 18, 2003]
Appellee. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District,
Fairbanks, Charles R. Pengilly, Judge.
Appearances: Allen Vacura, Stepovich Law
Office, Fairbanks, for Appellant. Susan D.
Mack and Mark E. Wilkerson, Wilkerson &
Associates, Anchorage, for Appellee.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
FABE, Chief Justice.
EASTAUGH, Justice, dissenting.
I. INTRODUCTION
Colleen Coughlin received a $10,000 payment for medical
expenses for injuries she sustained in a two-car accident. Her
insurance company, by terms of the insurance policy, acquired a
lien on any recovery Coughlin obtained from the other driver.
Coughlin settled with the other driver's insurance company for
$40,000 and assumption of responsibility for payment of the
$10,000 for medical coverage. Coughlin asserted she had
exhausted the $50,000 facial limit of the other driver's policy
and that she could therefore draw upon her own underinsured
motorist coverage. Coughlin's insurance company claims that she
failed to exhaust the policy limits of the other driver's
insurance. We conclude that Coughlin did exhaust the policy
limits of the other driver's insurance policy and therefore
reverse the superior court's grant of summary judgment in favor
of Coughlin's insurance company.
II. FACTS AND PROCEEDINGS
Colleen Coughlin was injured in an automobile accident
in August 1993. She was insured by Government Employees Insurance
Company (GEICO), and the driver of the other car, Kevin Babosky,
was insured by Colonial Insurance. Babosky's policy had a facial
limit of $50,000 per person. Coughlin's policy covered $10,000
in medical payments and $50,000 in underinsured motorist coverage
(UIM). GEICO paid Coughlin $10,000 for medical expenses,
resulting in a medical lien against any recovery Coughlin made.
Coughlin filed suit against Babosky and offered in
April 1996 to settle the case for the policy limits of $50,000,
plus attorney's fees and prejudgment interest. Babosky rejected
the offer and the parties settled on different terms later that
year. Under the terms of the settlement, Coughlin released
Babosky and Colonial from all liability in exchange for $40,000
"and the assumption of responsibility for the subrogation claim
of Geico Insurance Company, in the amount of TEN THOUSAND
DOLLARS." Before signing the settlement agreement, Coughlin's
attorney faxed a letter to a GEICO claims adjuster, Colrain
Ingersoll, on July 3, 1996 asking for GEICO's consent to
Coughlin's settlement with Colonial. The letter stated that
Coughlin was "receiving policy limits from Colonial [of]
$50,000." Ingersoll signed the consent request from Coughlin and
faxed it back to Coughlin's counsel on July 10, 1996. Coughlin
then signed the settlement agreement with Colonial on July 12,
1996.
GEICO settled its subrogated claim for Coughlin's
medical expenses with Colonial for $5,000. It is unclear from
the record on what date this claim was settled, though the claims
representative for GEICO stated she believed the claim was
settled "several months" before Coughlin settled with Colonial.
However, a letter from counsel for Colonial dated July 5, 1996
implies that the matter was as of that time unresolved by stating
that "Colonial has agreed to address the Geico lien directly."
Coughlin sent a letter to GEICO in March 1998
requesting that it pay $50,000 under Coughlin's underinsured
motorist coverage. The letter asserted that Colonial had paid
its policy limits of $50,000 and requested attorney's fees and
interest from GEICO. GEICO denied any underinsured motorist
payment, claiming that Coughlin did not receive policy limits
from Colonial because she settled for $40,000 and GEICO settled
for $5,000 for the medical lien, totalling only $45,000 on a
facial limit of $50,000. GEICO responded that even if Colonial
had paid $50,000, Coughlin still would not have received policy
limits because she did not receive attorney's fees or interest.
GEICO maintained that Coughlin should have known that Alaska law
defined policy limits to include attorney's fees and interest
because Coughlin requested those add-ons in her letter to GEICO
requesting the underinsured motorist payment.
Coughlin filed suit against GEICO in August 1999,
alleging bad faith and fraud and seeking damages under the
underinsured motorist provision of her policy. In September 2000
both sides moved for summary judgment. Coughlin argued that
Ingersoll's consent letter established that Coughlin received
policy limits from Colonial. Coughlin further argued that GEICO
could not then avoid underinsured motorist liability by settling
its subrogated claim for less than the face value of the medical
lien and that if GEICO settled for less just to avoid
underinsured motorist payment, it acted in bad faith. GEICO
opposed Coughlin's motion.
GEICO argued in its motion for summary judgment that
Coughlin did not settle for policy limits with Colonial because
she only received $45,000 on a liability limit of $50,000. GEICO
further argued that Coughlin did not settle for policy limits
because she did not receive prejudgment interest or attorney's
fees. GEICO asserted that counsel for Coughlin knew from
experience that the subrogated $10,000 medical lien would settle
for less than that amount. Coughlin responded that she was not
told of GEICO's settlement with Colonial, that the settlement of
the medical lien occurred after Coughlin's settlement with
Colonial, and that the settlement she reached with Colonial - for
$40,000 plus responsibility for GEICO's $10,000 medical lien -
constituted policy limits.
The superior court, Judge Charles R. Pengilly
presiding, granted GEICO's motion for summary judgment. The
court held that even if Coughlin had received $50,000 from
Colonial, she did not settle for policy limits because this
amount did not include the attorney's fees that Colonial
otherwise would have had to pay. The court advised that if
Coughlin was confused about what the policy limit would be she
should have pursued a declaratory action. The court posited that
it was "common knowledge" that insurance companies do not resolve
claims based on medical liens for the face value of the lien and
that Coughlin should have known that she was settling for much
less than $50,000. The court also concluded that Ingersoll's
signature on the consent letter was not an acceptance of
Coughlin's agreement with Colonial as one for policy limits.
Rather, the court held that her signature only allowed Coughlin
to pursue excess coverage; it was not a commitment to provide
such coverage. Finally, the court stated that such commitment,
even if it were found to exist, was based on misrepresentations
by Coughlin because she never actually received policy limits
from Colonial. As a result, the court refused to allow her to
characterize the settlement in such a way as to be eligible for
additional recovery. Coughlin appeals the grant of summary
judgment.
III. DISCUSSION
A. Standard of Review
We review a grant of summary judgment de novo.1 We
apply our independent judgment to questions of statutory
interpretation,2 adopting the rule of law "that is most
persuasive in light of precedent, reason, and policy."3 When
reviewing statutory interpretation, we apply a sliding scale in
which "[t]he plainer the meaning of the language of the statute,
the more convincing any contrary legislative history must be."4
B. Coughlin Settled for the Full Policy Limits.
The parties do not dispute that AS 28.20.445(e)(1)5
requires a claimant to exhaust the underlying liability policy
limits before pursuing underinsured motorist benefits.6 What is
in dispute is whether Coughlin received policy limits from
Colonial. Repeating its argument before the superior court,
GEICO asserts that Coughlin did not exhaust Babosky's policy
limits because Colonial only paid out $45,000. GEICO argues
alternately that Colonial's "actual" policy limit exceeded
$50,000 because Colonial was required to pay costs, interest, and
attorney's fees and Coughlin received none of these. We reject
both of these arguments. We hold both that Coughlin exhausted
Colonial's policy limits when she received $40,000 in cash plus
Colonial's agreement to assume responsibility for her $10,000
medical lien and that costs, interest, and attorney's fees are
not to be included in determining whether policy limits have been
exhausted for the purpose of drawing upon underinsured motorist
coverage.
1. The subrogated medical lien
In exchange for signing a settlement releasing Babosky
and Colonial from future legal liability, Coughlin received
$40,000 in cash from Colonial and Colonial agreed to assume
responsibility for GEICO's subrogated $10,000 medical lien.
GEICO at some point settled this medical lien with Colonial for
$5,000. As a result, Colonial in actuality only paid out $45,000
on Coughlin's claim against Babosky.
According to AS 28.20.445(e)(1), uninsured and
underinsured motorist coverage cannot be drawn upon "until the
limits of liability of all bodily injury and property damage
liability bonds and policies that apply have been used up by
payments, judgments or settlements." In Curran v. Progressive
Northwestern Insurance Co., we interpreted this statute to mean
that the insured must " `exhaust' or `use up' all underlying
liability coverage before recovering under [an underinsured
motorist] policy."7 GEICO argues that Curran defeats Coughlin's
claim because Coughlin did not exhaust her underlying liability
coverage and thus cannot draw on her underinsured motorist
policy.
But neither fact pattern in Curran, a consolidation of
two cases, resembles the present case. In the first fact pattern
in Curran, the injured party, who suffered serious injuries in a
single-vehicle accident while riding as a passenger with her
husband, offered to give both her own insurance company and that
of her husband a $50,000 "credit" against her claims prior to
seeking underinsured motorist coverage.8 But because this
proposed "credit" was not a settlement, judgment, or payment from
her husband's insurer, we held that the injured party had not
satisfied the requirements of AS 28.20.445(e)(1).9 In the second
fact pattern addressed in Curran, the injured party in a two-
vehicle accident was offered a $60,746.03 settlement for a
$50,000 insurance policy10 by the insurance company for the driver
of the other car.11 The injured party refused this settlement
offer but eventually settled for $25,000.12 This amount was far
less than the policy limits and consequently precluded the
applicability of underinsured motorist coverage.13 Curran,
therefore, is of little assistance in resolving the present issue
other than to affirm that policy limits must be exhausted before
underinsured motorist coverage can be drawn upon.
The present case does not involve Coughlin offering
GEICO a credit against her underinsured motorist coverage,
whereby she would be able to draw upon her underinsured motorist
coverage but reduce her recovery by the amount necessary to
exhaust her other claims. We held in Curran that this would
defeat the purpose of AS 28.20.445(e)(1) because it would "allow
a UIM claimant like Curran to bypass the liability insurer
altogether and effectively use UIM coverage as primary
insurance."14 Coughlin, however, is making no such attempt here.
Coughlin settled her claim for what to her was worth $50,000 - a
$40,000 payment plus payment of the $10,000 medical lien. GEICO
claims that the $10,000 medical lien was only worth $5,000
because that is what GEICO settled for with Colonial. However,
Coughlin cannot be held responsible for what GEICO ultimately
does with the claim. GEICO was under no obligation to settle the
claim for $5,000 and could have chosen to pursue the full amount
in litigation if necessary.
Furthermore, it is unlikely that Coughlin could have
settled for more than the combined $40,000 payment and $10,000
medical lien. The facial limit of the Colonial policy was
$50,000. The superior court concluded that Coughlin, through her
legal counsel, should have known that the medical lien would
settle for less than face value because this is common knowledge.
But even if true, there is no reason to believe that Colonial
would have offered to settle for a $45,000 payment and assumption
of responsibility for payment of the $10,000 medical lien, which
according to GEICO's reasoning would have resulted in a final
payout of $50,000. In effect, the reasoning of the superior
court would discourage settlements, a result we wish to avoid,15
by preventing the assumption of liens as part of a settlement
agreement. The ultimate value of the lien cannot be known
definitively beforehand, and insurance companies are unlikely to
settle claims for potentially more than the face value of the
policy limits in the hope that they will be able to settle the
assumed lien for less than its stated amount.
While it is true that Coughlin could have settled with
Colonial for a single payment of $50,000 and then herself paid
GEICO the $10,000 reimbursement for the medical payments GEICO
made through its policy with her, there is nothing legally
requiring Coughlin to do this. The parties reaching the
agreement cannot be expected to settle for what would be more
than the face value of the policy if the terms of the settlement
were fully enforced and collected. The value of the settlement
to both Coughlin and Colonial was $50,000 at the time the
settlement agreement was reached; that is the measure by which to
determine whether Coughlin has exhausted the face value of the
Colonial policy.
2. Policy limits do not include prejudgment
interest and attorney's fees for the purpose of
drawing upon underinsured motorist coverage.
GEICO argues that even if Coughlin did settle for
$50,000, this is less than her full policy limits because it does
not include attorney's fees and prejudgment interest which, GEICO
contends, would raise Coughlin's actual policy limits well above
$50,000. In support of this argument, GEICO relies on cases in
which we have held that insurers who contract to pay all
litigation costs are required therefore to pay Alaska Civil Rule
82 attorney's fees and prejudgment interest.16 While the cases
that GEICO cites do support this proposition,17 they are not
dispositive of the present case. The cases cited by GEICO and
the dissent do not purport to interpret the statutory meaning of
"policy limits"; they simply consider what meaning the term
should be given in a particular contractual setting - that is,
for purposes of determining the amount that an insurer must
tender to satisfy an insured's unqualified demand for "policy
limits."
We have considered items such as attorney's fees and
prejudgment interest to be in addition to the face amount of
policy limits.18 They can be considered incorporated into overall
policy limits to the extent that insurance companies are legally
obligated to pay them, but they do not necessarily bear on the
question of whether "limits of liability . . . have been used up"
for purposes of AS 28.20.445(e)(1).
We conclude that the term "limits of liability" as used
in the statute refers to facial coverage, and not extras. In
reaching this conclusion we look to the purpose of the statute:
to ensure that UIM coverage is secondary rather than primary
coverage while at the same time making the benefit of UIM
coverage broadly available.19
Given the dual purposes of AS 28.20.445(e)(1), it is
difficult to believe that the legislature would use the term
"limits" in a sense that would engender litigation and
uncertainty in many cases. In such cases as Bohna v. Hughes,
Thorsness, Gantz, Powell & Brundin, "policy limits" is a concept
that describes the maximum amount that an insurance company would
have to pay under a policy if it went to trial and received an
adverse verdict.20 But the amount of policy limits under this
definition is sometimes a guess - as where attorney's fees are a
percentage of the expected verdict rather than a percentage of
the facial coverage - and it would be unlikely that the
legislature in enacting AS 28.20.445(e)(1) would have intended to
incorporate such an uncertain concept in a context where the
purpose is not maximization of coverage but the establishment of
a definite and readily ascertainable threshold.21
Indeed, there are strong policy reasons for not
including attorney's fees and prejudgment interest in the
determination of whether policy limits have been satisfied for
the purpose of invoking underinsured motorist coverage. As with
the ultimate value of liens, the monetary value of attorney's
fees and prejudgment interest is quite speculative. Until the
matter is concluded, it may be difficult if not impossible to
determine what attorney's fees and prejudgment interest will be.
We are wary of starting a new litigation industry centered on
disputing attorney's fees for settlement agreements and making
sure that no dime is left on the table. This would unjustifiably
hinder settlement negotiations by virtually eliminating the
possibility of certainty that one has settled for the full face
value of one's policy limits. We therefore hold that a policy
limit is exhausted for the purposes of invoking underinsured
motorist coverage when the full face value of the policy is paid
through "payments, judgments or settlements,"22 regardless of how
payment of attorney's fees and prejudgment interest is resolved.
The dissent believes that this ruling will "burden the wrong
people" by transferring to the UIM insurer the expenses of
defending the alleged tortfeasor and challenging the plaintiff's
damages claims.23 Consequently, according to the dissent, UIM
coverage will become more expensive.24 We do not anticipate this
result. If the plaintiff sustained injuries in excess of the
face value of the tortfeasor's policy, that excess remains
regardless of whether the plaintiff received attorney's fees and
prejudgment interest.
Thus, we hold that the policy limits are exhausted when
the face value of the policy is paid to the insured; any payment
or non-payment of attorney's fees and prejudgment interest is
independent of this determination.
IV. CONCLUSION
In summary, as a matter of statutory construction,
"limits of liability of all bodily injury . . . policies," as
that phrase is used in AS 28.20.445(e)(1), refers only to the
face amount of coverage. Moreover, Colonial, when it agreed to
pay Coughlin $40,000 in addition to assuming responsibility for
the $10,000 GEICO medical lien, used up the $50,000 face amount
of the policy. Accordingly, we REVERSE the grant of summary
judgment and REMAND for proceedings consistent with this opinion.
EASTAUGH, Justice, dissenting.
A. Introduction. I respectfully disagree with Part
III.B.2 of the court's opinion. It holds that payment of the
"face value" of Kevin Babosky's policy exhausted his liability
coverages, satisfying AS 28.20.445(e)(1) for purposes of invoking
Colleen Coughlin's underinsured motorist (UIM) coverage.25 It
consequently holds that exhaustion did not require payment of the
"add-ons" which Babosky's liability coverages also covered.26
This holding is contrary to the result subsection .445(e)(1)
requires. I will first explain how we should resolve the issue
and then explain my disagreement with the court's analysis.
B. How We Should Decide this Issue. This case poses
a practical question important to insurers and their injured
insureds: What triggers the underinsured motorist coverage,
requiring the UIM insurer (here, GEICO) to pay? Alaska Statute
28.20.445(e)(1) answers that question: The UIM insurer must pay
after "the limits of liability of all bodily injury . . .
liability . . . policies . . . have been used up."27
What do the legislature's unqualified words "limits of
liability" mean? Read in isolation by ignoring companion
sections in AS 28.20, they could have two different theoretical
meanings. They could mean the amounts potentially payable under
all the liability coverages of any underlying liability policy.
This is the meaning I think they have. Or they could mean the
facial (or numerical) limits specified in the declarations of any
underlying policy.28 These qualifiers are necessary because
we have consistently used the unqualified phrase "policy limits"
to include all liability coverages. See, e.g., Farquhar v.
Alaska Nat'l Ins. Co., 20 P.3d 577, 580-81 (Alaska 2001) ("We
found that `policy limits' meant the facial limit of the policy,
plus Rule 82 attorney's fees.") (quoting Schultz v. Travelers
Indem. Co., 754 P.2d 265, 267 (Alaska 1988)). This is the
meaning the court gives them in this case. Our job is to
determine the meaning the legislature gave them.29
We need not guess. Subsection .445(e)(1) is part of
the Motor Vehicle Safety Responsibility Act. Nearby passages in
that act reveal the meaning the legislature intended. Alaska
Statute 28.20.070(a) specifies the mandatory minimum numerical
limits applicable to automobile liability policies effective in
Alaska. It requires each policy to have "a limit, exclusive of
interest and costs, of not less than $50,000 because of bodily
injury . . . ."30 Similarly, AS 28.20.440(b)(2) specifies
mandatory minimum "limits exclusive of interest and costs" of
$50,000 for a vehicle owner's liability insurance policy.31 Both
subsections specify the mandatory minimum facial, or numerical,
limits automobile liability policies must have in Alaska.
The legislature's choice of terminology controls here.
When the legislature meant to refer to the facial policy limits,
as it did in subsections .070(a) and .440(b)(2), it did not use
the unqualified words "limit," "limits," or "limits of
liability." Instead, in subsection .070(a) it qualified "limit"
with the phrase "exclusive of interest and costs." And in
subsection .440(b)(2) it qualified "limits" with the same phrase.
The legislature must have been aware of its own usage. Section
.445 immediately follows section .440. There would have been no
reason to use those phrases to qualify "limit" or "limits" in
subsections .440(b)(2) and .070(a) if the legislature intended
its unqualified words "limit," "limits," or "limits of liability"
to mean only the facial policy limits.32 Had the legislature
intended the words "limits of liability" in AS 28.20.445(e)(1) to
refer only to the facial limits of underlying insurance, it would
have used the same qualifying phrase it used elsewhere in the
Motor Vehicle Safety Responsibility Act when it meant to specify
the facial limits. That it did not demonstrates that it meant
the unqualified words "limits of liability" in subsection
.445(e)(1) to refer to all amounts payable under a policy's
liability coverages, and not just its facial limits.
We recently summarized our approach to statutory
construction in an opinion that considered whether policyholders
had exhausted the underlying liability limits of an insurance
policy:
We apply a sliding scale approach to
statutory interpretation: to determine the
meaning of a statute we look to its
legislative history, even if its language is
plain on its face. But "the plainer the
meaning of the language of the statute, the
more convincing any contrary legislative
history must be." When a statute's meaning
appears clear and unambiguous, the party
urging another meaning "bears a
correspondingly heavy burden of demonstrating
contrary legislative intent." We decline to
"modify or extend a statute where the
statute's language is clear and the
legislative history reveals no ambiguity."[33]
Applying that approach, we must apply the language of
the statute as written. We begin with analysis of the language
of the statute.34 Statutory context, revealed in subsections
.440(b)(2) and .070(a), confirms the meaning the legislature
intended.
Further, reading "limits of liability" in AS
28.20.445(e)(1) to mean the same thing as "limits exclusive of
interest and costs" in AS 28.20.440(b)(2) or "limit, exclusive of
interest and costs" in AS 28.20.070(a) conflicts with our rule of
statutory construction under which we give effect to all words of
the statute and render none superfluous.35 Reading the unadorned
phrase in subsection .445(e)(1) to refer only to facial limits
makes superfluous the qualifying words in subsections .440(b)(2)
and .070(a).
No legislative history suggests that the legislature
meant something different. Nothing brought to our attention
outweighs the plain meaning of the legislature's words. Nor, for
reasons I will discuss in the next part, do the legislative
purposes permit a contrary reading. Instead, two precepts of
Alaska's approach to UIM confirm the reading the plain statutory
language requires.
First, the requirement that policies contain
underinsured motorist coverage reflects what this court has
described as "Alaska's current excess approach."36 We have stated
that this approach is
premised upon the idea that the injured
person is entitled to recover under his or
her own underinsured motorist coverage to the
extent that the tortfeasor's liability
insurance coverage is insufficient to
compensate the insured person fully for his
or her loss, subject only to the limits of
the underinsured motorist coverage.[37]
We described the purpose of Alaska's excess UIM
approach as follows: "Excess coverage thus strives to provide
additional coverage, as needed to fully compensate injured
motorists, after available liability coverage has been completely
exhausted."38 Classifying UIM coverage as "excess" confirms that
all underlying liability coverages, including coverage for any
"add-ons," must be exhausted. In dealing with primary-excess
coverage disputes, we require complete exhaustion of underlying
primary liability coverages, including liability coverage add-
ons, before the excess coverage comes into play.39 There is no
conceptual difference relevant here between excess coverage and
UIM coverage.
The court states that UIM and excess coverage disputes
are distinguishable. It asserts in support that the UIM
statute's "concern with making UIM coverage widely available
distinguishes it significantly from excess coverage," that
"excess coverage insures against catastrophic loss," and that
"UIM coverage, unlike excess coverage, does not contemplate
extreme or unusual circumstances."40 In my view, these assertions
do not support the distinction the court draws. The noted
"concern" is only one of several principles underlying Alaska's
current UIM statute. Other principles - treating the UIM
coverage as excess, requiring exhaustion of the underlying
coverages, and aiming for full compensation - refute the proposed
distinction and outweigh whatever relevance the availability
principle may have here. And excess coverage is not
extraordinary or limited to catastrophic claims. It is simply
the coverage purchased to cover claims exceeding the primary
coverage. It is routinely available to consumers, who may, for
economic reasons, carry minimum primary limits and use excess
coverage to extend their limits. Given that motor vehicle
accidents can easily generate non-catastrophic claims exceeding
the primary limits, excess insurance is not limited to "extreme
or unusual circumstances."41 It has the same ultimate purpose as
UIM coverage: to satisfy the claims of an injured victim to the
extent the tortfeasor's underlying liability coverage is
insufficient to compensate the victim fully.42
Second, it is anomalous to speak of "complete
exhaustion" in terms of "full compensation"43 unless the injured
claimant is truly being compensated for the loss of use of the
money damages suffered at the moment of injury, and for the
costs, including attorney's fees, of obtaining that compensation.
The concept of making the claimant whole to the extent of the
available coverage has driven this court to reason that
prejudgment interest is part of compensatory damages44 and
therefore part of the maximum limits of a policy that covers
prejudgment interest.45 It has likewise driven this court to hold
that a policy's coverage of the plaintiff's litigation costs
awardable against the insured is a liability coverage an insurer
must tender when making a "policy limits" settlement offer.46 Our
past decisions require the conclusion that "full compensation" is
not achieved for purposes of triggering UIM coverage under
subsection .445(e)(1) unless all applicable underlying liability
coverages have been paid.
This interpretation of the statute is also compelled by
our past treatment of similar terms in insurance policies.
Policies often cover not only an insured's liability for tort
damage awards, but also an insured's liability for additional
awards, such as for costs and interest. We refer to such
coverages as "add-ons" that must be added to a policy's numerical
limits.47 Add-ons are part of a policy's liability coverage. An
insurer must therefore pay them to pay "policy limits" - the
maximum amount the policy would cover if judgment were entered
against the insured at trial.48 Because a judgment would include
these additional awards, the limits of a policy covering
liability for these additional awards are not exhausted until the
coverages for the insured's exposure for these additional awards
are exhausted too. These coverages are part of the "limits of
liability."
Colonial's "limits of liability" consequently include
everything Colonial would have had to pay had a judgment been
entered against its insured after trial. It is undisputed that
Colonial's policy covered Babosky not only for liability for
damage awards, but also for liability for prejudgment interest,
attorney's fees, and cost awards, and that with the add-ons,
Colonial's liability coverage substantially exceeded the policy's
$50,000 facial limits.49 No one claims that Colonial paid more
than $50,000. Colonial therefore did not exhaust its "limits of
liability" per subsection .445(e)(1) for purposes of implicating
GEICO's UIM coverage.50
C. The Court's Opinion. Because the opinion
implicitly concludes that the legislature's words do not resolve
the exhaustion question, it embarks on an avoidable analytical
voyage. It then arrives in the wrong port. The opinion first
translates the legislature's words into the court's words, but
then chooses not to give those words the meaning we have given
them in equivalent insurance disputes. It bases this choice in
reliance on its perception of public policy and the legislature's
purposes. The statute's clarity precludes reliance on those
interpretive aids, but I think the court's policy and purpose
assessment is incorrect in any event. The court ultimately reads
"limits of liability" - the controlling words in AS
28.20.445(e)(1) - to include no liability coverages except the
facial policy limits.51 I disagree with each stage of the court's
approach.
1. The statute's words. Because the opinion does not
recognize or enforce the distinctions the legislature drew, it
does not give the legislature's words the meaning intended. I
discussed this proposition above.
2. The court's words. The court's opinion substitutes
its words for the legislature's, translating the statute's words
into "policy limits."52 This substitution obscures the need to
focus on the legislature's words, and forces the opinion to try
to explain why "policy limits" means something different in UIM
coverage cases than in other insurance exhaustion contexts. It
also results in a public policy analysis that is unsupported by
the words the legislature used.
But if we are going to ignore the effect of the
legislature's qualifying words, our past decisions should guide
us. There is no logical or functional difference between this
case and our policy limits cases. Both deal with this central
question: what must the tortfeasor's insurer pay to exhaust its
policy limits (or, in the statute's words, the "limits of
liability")? We should answer the question the same way in both
contexts.
The cases discussed above hold that the policy limits
of a liability policy are not exhausted unless liability
coverages for add-ons are also paid. Our usage is also
instructive. When we wish to speak of the numerical limit set
out in a liability policy's declarations, we have qualified our
words to make our meaning clear.53
The court here uses similar qualifiers to make its
meaning clear.54 That it must do so when it intends to exclude
coverage for add-ons illustrates the incongruity of reading
subsection .445(e)(1)'s unqualified phrase as though the
legislature qualified it.
3. Public policy and legislative purposes. The
opinion relies on public policy and the court's perception of the
purposes underlying UIM coverage to justify its choice not to
follow our policy limits cases.55 This reliance is unwarranted.
Public policy and legislative purposes are inherently
weak interpretative aids. There is no need to resort to them when
the statute's words are so clear. They are especially unhelpful
here because they do not speak specifically to the narrow issue
before us. At best, they reflect broad considerations which do
not explain what the statute means in this specific context. At
worst, they reflect the court's own projections about what the
legislature must not have intended,56 and its own expressions of
public policy not voiced by the legislature.57 Relying on public
policy seems particularly chancy here, given that the result -
allowing partial exhaustion to trigger the UIM coverage - is
inconsistent with the legislature's express words and purposes.
Concerns about possible delays do not justify ignoring
the statute's words. More significant disputes about the
underlying coverage (whether exclusions apply, for example) would
not justify triggering the UIM coverage. Disputes over coverage
for add-ons will occasionally delay exhausting the underlying
liability limits, but I doubt that they will unduly delay UIM
claims. First, a liability insurer with a good-faith interest in
litigating a coverage dispute about add-ons can "exhaust" the
policy limits by agreeing to pay whatever the court will require
when it resolves the add-ons dispute.58 This agreement has the
effect of exhausting the limits, whatever they prove to be,
triggering UIM coverage. A liability insurer has incentive to
enter into such an agreement to avoid bad faith claims. And if
the liability insurer is engaging in bad faith in a policy limits
situation, the UIM insurer relies at its peril on the liability
insurer's recalcitrance.59 Further, no difficulty in determining
the extent and amount of add-ons coverage has prevented us from
treating the add-ons as something an insurer must pay to maximize
the liability coverage it owes its insured. We have assumed that
this total figure is "quantifiable" and have imposed on the
insurer a duty to tender a specific amount to discharge policy
limits.60 And indeed, a UIM claim may have to await a liability
and damages trial on the plaintiff's claims against the
tortfeasor. Only then will it be known whether the tortfeasor
was actually underinsured.
The court supposes that a statutory purpose of "making
the benefit of UIM coverage broadly available" supports its
reading of the statute.61 It is not apparent how disputes about
the underlying insurer's obligations could reduce the
availability of UIM coverage. If a claim is worth more than the
underlying limits of liability, there is little chance in a given
case the UIM coverage will not be implicated.62 A social policy
of making UIM coverage more readily available would not justify
reading the statute to say something it does not. The court also
states that "it is difficult to believe" that the legislature
might use terminology that would "engender litigation and
uncertainty in many cases."63 Perhaps so, but this general
speculation cannot justify a reading contrary to the statute's
words. There is no reason to think the legislature intended to
adopt a different standard for exhaustion than we have adopted.
The court also expresses concern about the uncertainty
of determining policy limits. It recognizes that this "is
sometimes a guess" and "is quite speculative."64 It is "wary of
starting a new litigation industry."65 But an existing litigation
industry already stands prepared to dispute every aspect of
personal injury claims. In short, the court draws
a bright line which the legislature did not draw. And it does so
assuming that full exhaustion carries detriments with it. That
is not a public policy choice open to us, given the words of the
statute.
4. Marginal benefit. The result benefits Coughlin by
allowing her to make a UIM claim, but the social benefits the
court anticipates are hypothetical or improbable, and will likely
be outweighed by the detriments.
First, I think the harm to the purpose of exhaustion
outweighs any possible prejudice to UIM coverage. The
legislature chose an excess UIM approach.66 The court's reading
of the statute is inconsistent with making excess coverage
available to fully compensate injured motorists "after available
liability coverage has been completely exhausted."67 The
underlying coverage has not been exhausted. The result may mean
that the claimant will never be made whole for loss of use of her
prospective damages award or costs and fees incurred in
recovering from the underlying insurer. And requiring UIM
insurers to compensate plaintiffs prematurely may reduce
recalcitrant underlying insurers' exposure to liability for
excess judgments and bad faith claims. If so, it would deprive
personal injury plaintiffs of their main tool in seeking policy
limits settlements from the tortfeasors' insurers.
Second, I predict that the result will burden the wrong
people. It will burden purchasers of underinsured motorists
coverage (which will now be more easily implicated) and benefit
tortfeasors who purchase liability coverage (whose insurers will
now have less need to pay add-ons if the claimant has a UIM
insurer to pursue). It may transfer from the alleged
tortfeasor's insurer to the UIM insurer the expense of defending
the other driver and challenging the plaintiff's damages claims.
If so, it will make UIM coverage more expensive, again at the
expense of the parties who are not at fault.
D. Conclusion. In short, I think the superior court
correctly analyzed this issue. I would therefore affirm.
_______________________________
1Cabana v. Kenai Peninsula Borough, 50 P.3d 798, 801 (Alaska
2002).
2Tesoro Petroleum Corp. v. State, 42 P.3d 531, 535 (Alaska 2002);
Progressive Ins. Co. v. Simmons, 953 P.2d 510, 512 (Alaska 1998).
3Progressive, 953 P.2d at 512 (quoting Guin v. Ha, 591 P.2d 1281,
1284 n.6 (Alaska 1979)).
4Curran v. Progressive Northwestern Ins. Co., 29 P.3d 829, 831-32
(Alaska 2001).
5AS 28.20.445(e)(1) provides:
(e) Uninsured and underinsured
motorists coverage
(1) may not apply to bodily injury,
sickness, disease, or death of an insured or
damage to or destruction of property of an
insured until the limits of liability of all
bodily injury and property damage liability
bonds and policies that apply have been used
up by payments, judgments or settlements.
6Curran, 29 P.3d at 833.
7Id.
8Id. at 830.
9Id. at 834-38.
10The settlement amount included a base payment of $40,000 and an
additional $20,746.03 for prejudgment interest and attorney's
fees. Id. at 831 n.3.
11Id. at 831.
12Id.
13Id. at 835.
14Id.
15Anchorage Sch. Dist. v. Anchorage Daily News, 779 P.2d 1191,
1193 (Alaska 1989) ("We recognize the important public policy
served by those measures which encourage settlement."); Interior
Credit Bureau, Inc. v. Bussing, 559 P.2d 104, 106 (Alaska 1977)
("Stipulations and settlements are favored in law because they
simplify, shorten and settle litigation without taking up
valuable court resources.").
16It should be noted that it is unclear from the record and from
the trial proceedings below if payment of prejudgment interest
was included in Colonial's insurance contract with Babosky, that
being the insurance contract which Coughlin would need to exhaust
before she could draw upon her underinsured motorist coverage
from GEICO. As we held in Farquhar v. Alaska National Insurance
Co., the inclusion of prejudgment interest in policy limits is
dependent upon the contractual terms of the insurance policy. 20
P.3d 577, 580-81 (Alaska 2001); see also Schultz v. Travelers
Indem. Co., 754 P.2d 265, 267 (Alaska 1988) ("In 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 which have addressed this
issue."). Because we hold that prejudgment interest is not
included in the policy limits for the purpose of determining if
policy limits had been exhausted, this issue is moot and need not
be addressed upon remand.
17See Safety Nat'l Cas. Corp. v. Pacific Employers Ins. Co., 927
P.2d 748, 751 (Alaska 1996) ("Under Alaska law it is established
that primary policy limits include, among other things, facial
limits and attorney's fees taxed under Rule 82, to the extent of
coverage."); Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin,
828 P.2d 745, 768 n.58 (Alaska 1992) ("[T]he term `policy limits'
is self_explanatory even without any prior cases. Policy limits
necessarily are what an insurance company would have to pay under
its policy if it went to trial and received an adverse
verdict."); Schultz, 754 P.2d at 267 ("[P]olicy limits . . .
include[ ] the amount of attorney's fees which would have been
awarded had this case gone to trial.").
18In describing a settlement offer in Curran, we stated that "a
$20,746.03 additional payment for prejudgment interest and
attorney's fees . . . would not have counted against the policy
limit." 29 P.3d at 831 n.3.
19The dissent argues that no relevant conceptual difference exists
between UIM and excess coverage. Dissent at 21. However, the
statute's concern with making UIM coverage widely available
distinguishes it significantly from excess coverage. Excess
coverage insures against "catastrophic loss." Safety Nat'l Cas.
Corp. v. Pacific Employers Ins. Co., 927 P.2d 748, 750 n.1
(Alaska 1996). UIM coverage, unlike excess coverage, does not
contemplate extreme or unusual circumstances, but rather exists
to compensate an injured insured "to the extent that the
tortfeasor's liability insurance coverage is insufficient to
compensate the injured person fully for his or her loss." Curran
v. Progressive Northwestern Ins. Co., 29 P.3d 829, 832 (Alaska
2001).
20828 P.2d 745, 755 n.20 (Alaska 1992) (citation omitted).
21The dissent contends that language in the Motor Vehicle Safety
Responsibility Act supports its argument that extras must be
exhausted to trigger UIM coverage. Dissent at 17-20.
Specifically, the dissent looks to AS 28.20.070(a) and AS
28.20.440(b)(2). These sections prescribe the required amount of
insurance that each driver in Alaska must carry. We recognize
that both sections contain the language "exclusive of interest
and costs" in imposing Alaska's mandatory minimum limits. But we
do not agree that the absence of such qualifying language in AS
28.20.445(e)(1) compels the conclusion that the phrase "limits of
liability" means all "amounts potentially payable under all the
liability coverages of any underlying liability policy." Dissent
at 16. Alaska Statutes 28.20.440(b)(2) and 28.20.070(a) define
the bare limits of mandatory coverage. Both statutes state
explicitly that the mandatory minimum policy limits are
"exclusive of interest and costs." In similarly plain language,
AS 28.20.445(e)(1) refers to "bodily injury" and "property
damage" limits but not to the extras that can constitute elements
of policy limits in other contexts.
22AS 28.20.445(e)(1).
23Dissent at 29.
24Dissent at 30.
25Slip Op. at 14. There is no claim that GEICO's policy terms are
more favorable to Coughlin than subsection .445(e)(1).
26Slip Op. at 14.
27AS 28.20.445(e)(1) provides in pertinent part:
(e) Uninsured and underinsured motorists
coverage
(1) may not apply to bodily injury,
sickness, disease, or death of an insured or
damage to or destruction of property of an
insured until the limits of liability of all
bodily injury and property damage liability
bonds and policies that apply have been used
up by payments, judgments or settlements . .
. .
(Emphasis added.)
28I use a qualifier, such as "facial" or "numerical," with
"limits" or "policy limits" to refer to the numerical liability
limits specified in the policy's declarations.
The court's opinion uses these and equivalent
qualifiers for the same purpose. It therefore speaks of the
"$50,000 `facial limit,' " (Slip Op. at 2), the "face value of
the Colonial policy," (id. at 10), "the face amount of policy
limits," (id. at 11), "facial coverage," (id.), "full face value
of one's policy limits," (id. at 13), and "full face value of the
policy." (id.). (Although we have sometimes used "face value"
when referring to the facial limits of liability policies, the
concept of "value" seems better suited to describing life and
property loss coverages.)
This practice is consistent with our past use of
qualifying words or descriptive phrases when we refer only to the
numerical limits, see, e.g., State Farm Mut. Auto. Ins. Co. v.
Harrington, 918 P.2d 1022, 1025-26 (Alaska 1996) ("numerical
facial limit"; "facial limits"; "facial policy limits"); Hughes
v. Harrelson, 844 P.2d 1106, 1108 (Alaska 1993) ("minimum policy
limits"); Tucker v. United Servs. Auto. Ass'n, 827 P.2d 440, 441
(Alaska 1992) ("base liability limit"); Wold v. Progressive
Preferred Ins. Co., 52 P.3d 155, 162 (Alaska 2002) ("nominal
policy limits"), or when context makes our meaning clear, e.g.,
Curran v. Progressive Northwestern Ins. Co., 29 P.3d 829, 830,
831, 835 n.35 (Alaska 2001) ("policy limit of $50,000 per
person"; "$50,000 policy limits"; "facial policy limits plus
applicable add-ons").
29Curran, 29 P.3d at 831; Baker v. State, 30 P.3d 118, 118 (Alaska
App. 2001).
30AS 28.20.070(a) provides:
A policy or bond is not effective under AS
28.20.060 unless it is issued by an insurance
company or surety company authorized to do
business in this state, except as provided in
(b) of this section, and if the accident
resulted in bodily injury or death, unless
the policy or bond is subject to a limit,
exclusive of interest and costs, of not less
than $50,000 because of bodily injury to or
death of one person in any one accident and,
subject to the same limit for one person, to
a limit of not less than $100,000 because of
bodily injury to or death of two or more
persons in any one accident, and if the
accident has resulted in injury to, or
destruction of, property to a limit of not
less than $25,000 because of injury to or
destruction of property of others in any one
accident.
31AS 28.20.440(b)(2) provides:
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 in any one accident, and,
subject to the same limit for one person,
$100,000 because of bodily injury to or death
of two or more persons in any one accident,
and $25,000 because of injury to or
destruction of property of others in any one
accident . . . .
32The legislature used similar terminology in AS 28.22, the
Mandatory Motor Vehicle Insurance Act. Thus, AS 28.22.101(d)
requires in part that a motor vehicle liability policy be subject
to "limits exclusive of interest and costs" of "$50,000 because
of bodily injury to or death of one person." AS 28.22.201(a)(1)
provides that underinsured motorists coverage required by Chapter
22 "does not apply to bodily injury . . . until the limits of
liability bonds and policies that apply have been used up by
payments or judgments or settlements."
33Curran, 29 P.3d at 831-32 (footnotes omitted).
34Bullock v. State, Dep't of Cmty. & Reg'l Affairs, 19 P.3d 1209,
1214 (Alaska 2001); Gerber v. Juneau Bartlett Mem'l Hosp., 2 P.3d
74, 76 (Alaska 2000).
35Louisiana Pacific Corp. v. State, Dep't of Revenue, 26 P.3d 422,
427 (Alaska 2001); Kodiak Island Borough v. Exxon Corp., 991 P.2d
757, 761 (Alaska 1999); Romann v. State, 991 P.2d 186, 190
(Alaska 1999); Fancyboy v. Alaska Village Elec. Coop., 984 P.2d
1128, 1133 (Alaska 1999); Rydwell v. Anchorage Sch. Dist., 864
P.2d 526, 528 (Alaska 1993).
36Curran, 29 P.3d at 832.
37Progressive Ins. Co. v. Simmons, 953 P.2d 510, 517 n.6 (Alaska
1998).
38Curran, 29 P.3d at 832.
39"Only when the primary insurer's limits are exhausted do
obligations on the part of the excess insurers arise. Under
Alaska law it is established that primary policy limits include,
among other things, facial limits and attorney's fees taxed under
Rule 82, to the extent of coverage." Safety Nat'l Cas. Corp. v.
Pacific Employers Ins. Co., 927 P.2d 748, 751 (Alaska 1996)
(citations omitted).
40Slip Op. at 11 n.19.
41Id.
42Cf. Curran, 29 P.3d at 832 quoted above in the text.
43Cf. Curran, 29 P.3d at 832 (describing purpose of UIM coverage
as coverage needed to "fully compensate" after liability coverage
has been "completely exhausted").
44Guin v. Ha, 591 P.2d 1281, 1287 (Alaska 1979).
45Tucker, 827 P.2d at 441.
46Harrington, 918 P.2d at 1025-26; Schultz v. Travelers Indem.
Co., 754 P.2d 265, 267 (Alaska 1988).
47Curran, 29 P.3d at 835 n.35.
48Wold, 52 P.3d at 162-63; see, e.g., Tucker, 827 P.2d at 440-41 &
n.3.
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. . . .
. . . .
. . . Whether the disputed coverage
involves the base liability limit, court
costs, or prejudgment interest, it is the
insured's total potential liability which is
of concern to the insured in a "policy
limits" settlement.
Tucker, 827 P.2d at 440-41.
49GEICO asserts on appeal that the parties do not dispute that
Colonial's policy covered prejudgment interest, costs, and
attorney's fees. Coughlin does not dispute this assertion, and
represents that "had she held out for fees and interest," her
recovery from Colonial would have been about $67,750. According
to a demand Coughlin made on GEICO, the Rule 82 add-on for a
$50,000 policy would be $7,500.
50I agree with the court's resolution of the medical lien issue in
Part III.B.1., but my conclusion that Colonial's limits were not
exhausted would moot the lien issue.
51Slip Op. at 13 ("We therefore hold that a policy limit is
exhausted for the purposes of invoking underinsured motorist
coverage when the full face value of the policy is paid . . . ."
(Emphasis added.) The court's footnote to that passage cites
subsection .445(e)(1).).
52Slip Op. at 6, 10-14.
53See cases cited supra note 4.
54See supra note 4.
55Slip Op. at 11-14.
56See, e.g., Slip Op. at 12 ("it is difficult to believe that the
legislature would use"; "it would be unlikely that the
legislature . . . would have intended").
57See, e.g., Slip Op. at 13 ("there are strong policy reasons").
58This appears to have been the practice followed in Schultz v.
Travelers Indem. Co., 754 P.2d 265, 266-67 (Alaska 1988).
59Insistence on actual payment may expose an excess insurer to a
bad faith claim for anticipatorily repudiating its contract. Cf.
Grace v. Ins. Co. of N. Am., 944 P.2d 460, 467 & n.15 (Alaska
1997) ("[The excess insurer's] duty was triggered when Bell
became liable for sums in excess of INA's lower coverage limit,
rather than when the underlying limits were actually paid.").
60E.g., Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin, 828
P.2d 745, 768 (Alaska 1992).
61Slip Op. at 11.
62Coughlin's demand letter to her UIM insurer alleged total losses
exceeding $150,000. She asserts on appeal her damages exceeded
$172,000.
63Slip Op. at 12.
64Slip Op. at 12, 13.
65Slip Op. at 13.
66Curran v. Progressive Northwestern Ins. Co., 29 P.3d 829, 832
(Alaska 2001).
67Id.
