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Therchik v. Grant Aviation, Inc. (7/25/2003) sp-5715
Therchik v. Grant Aviation, Inc. (7/25/2003) sp-5715
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
RAYMOND J. THERCHIK, )
individually and as Personal ) Supreme Court No. S-10437
Representative of the Estate of Isadore )
Therchik; KATIE M. TONY, Personal ) Superior Court No. 4BE-00-
280 CI
Representative for the Estate of )
Theresa Tony and the Estate of Henry ) O P I N I O N
Tony; JIMMY TONY; NICK )
THERCHIK; and LAURA ) [No. 5715 - July 25, 2003]
THERCHIK, )
Appellants, )
)
v. )
)
GRANT AVIATION, INC.; )
R. BRUCE McGLASSEN; and )
MARK W. HEIKEL, )
)
Appellees. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District, Bethel,
Mary E. Greene, Judge.
Appearances: Daniel C. Kent, Law Office of
William G. Azar, P.C., Anchorage, for
Appellants. Daniel T. Quinn, Gregory R.
Henrikson, Richmond & Quinn, Anchorage, for
Appellees.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
EASTAUGH, Justice.
I. INTRODUCTION
This case concerns the validity of a liability
insurer's endorsement limiting coverage of Alaska Civil Rule 82
attorney's fees awards otherwise covered by its policy. The
limiting endorsement Houston Casualty Company attached to Grant
Aviation's policy deviated from the model form adopted by the
Alaska Division of Insurance and had not been preapproved by the
division's director. We conclude that the endorsement did not
"conform with" the model form and therefore violated 3 Alaska
Administrative Code (AAC) 26.550 (2000). We also conclude that
AS 21.42.220 does not render the endorsement enforceable against
the insured. We therefore reverse the judgment entered against
the claimants and remand for calculation of the attorney's fees
recoverable under the insurance policy.
II. FACTS AND PROCEEDINGS
Raymond Therchik, Nick Therchik, Laura Therchik, Katie
Tony, and Jimmy Tony sued Grant Aviation, Inc., R. Bruce
McGlassen, and Mark Heikel (collectively "Grant Aviation") after
an airplane owned and operated by Grant Aviation crashed near
Bethel in 1999, killing family members of the plaintiffs.1 We
refer here to the plaintiffs collectively as the "Therchiks."
Houston Casualty Company had issued a policy to Grant Aviation
insuring it against liability for damages. The language of the
policy also covered Grant Aviation's liability for "all costs" -
and therefore attorney's fees - awarded against Grant Aviation in
addition to the applicable facial limit of liability.2 This "all
costs" provision potentially required Houston Casualty to pay
"unlimited" attorney's fees awarded under Alaska Civil Rule 82,
i.e., a Rule 82 attorney's fees award based on the full amount of
all damages awarded at trial against Grant Aviation, even if
those damages exceeded the policy's facial limits. The policy
Houston Casualty issued to Grant Aviation also contained a
separate provision that attempted to limit the Rule 82 coverage.
That provision, Endorsement 8, provides that the policy only
covers Rule 82 awards based on a final award not exceeding the
policy's applicable facial limits of liability.3
In 2001 the Therchiks and Grant Aviation entered into a
partial settlement. Per the settlement agreement, Houston
Casualty paid the Therchiks the facial liability limits of Grant
Aviation's insurance policy - $500,000 per seat - plus $52,500 in
undisputed attorney's fees per seat. Per the agreement, the
parties agreed to litigate in the existing lawsuit the question
whether Houston Casualty owed additional attorney's fees beyond
$52,500 per seat or had successfully limited its Rule 82 coverage
through Endorsement 8.
The Therchiks claimed that Houston Casualty owed
unlimited attorney's fees under the policy language covering "all
costs taxed against the Insured in any suit defended by the
Company." Grant Aviation argued that Endorsement 8 effectively
limited Houston Casualty's Rule 82 liability. The Therchiks
argued that Endorsement 8 was unenforceable because it did not
include the exact language of Notice A, a model form adopted by
the Alaska Division of Insurance, and had not been approved in
writing by the division, per the alternative requirements of 3
AAC 26.550. Notice A is one of four model notice forms the
division drafted and adopted by reference in 3 AAC 26.550. It is
undisputed that Notice A is the applicable notice form for the
type of insurance policy at issue here.
The superior court held that although Endorsement 8 did
not "conform with" Notice A, it was "substantially equivalent" to
Notice A. The court accordingly enforced Endorsement 8 and
granted summary judgment for Grant Aviation.
The Therchiks appeal.
III. DISCUSSION
A. Standard of Review
We review grants of summary judgment de novo.4 We will
affirm a grant of summary judgment "if there are no genuine
issues of material fact and if the moving party is entitled to
judgment as a matter of law."5 We review questions of law,
including interpretation of statutes, regulations, and contracts,
using our independent judgment.6
B. The Therchiks May Challenge the Validity of
Endorsement 8 Under 3 AAC 26.550.
Grant Aviation argues in passing that the pertinent
statutes and regulations "contemplate enforcement by the
director, not private parties." It notes that the Alaska
Division of Insurance may impose penalties on insurers that fail
to file required forms.
But Grant Aviation points to no statute or regulation
that prevents private litigants in civil actions from challenging
the validity of insurance policy provisions that conflict with
substantive requirements of state statutes or regulations. Nor
does it refer us to any opinion in which we have prevented civil
litigants from doing so.
The issue ultimately before us is whether a policy
provision that attempts to limit coverage is enforceable if it
differs from the form required by a state regulation. Our
opinions have often dealt with claims brought by private parties
challenging the validity of policy provisions that arguably
conflict with state statutes or regulations.7 We have never
intimated that private parties are unable to litigate the
validity of those limiting provisions. Our opinions holding that
particular provisions do not comply with statutory and regulatory
standards tacitly acknowledge that private litigants can obtain
rulings about the validity of such provisions.8
Although 3 AAC 26.550 is silent on the issue of private
enforcement, we have approved private actions to enforce Title 21
requirements on several occasions.9 For example, in Peter v.
Schumacher Enterprises, Inc., we held that an insured could bring
a private cause of action in tort alleging that an insurer
violated AS 21.89.020(c) and (e).10 We recognized that the
statutory remedy in Title 21 for violation of AS 21.89.020(c) and
(e) was a civil penalty of not more than $2,500 assessed by the
state in administrative proceedings before the Division of
Insurance.11 We observed that the $2,500 penalty was relatively
modest, and that the enforcement resources of the Division of
Insurance were necessarily limited. We further observed:
Without a tort remedy it seems likely that
many violations of the requirements of
subsections (c) and (e) would go unredressed.
Further, it is difficult to see how providing
an implied tort remedy could interfere with
state enforcement. The tort action should
provide a meaningful incentive to insurance
companies to comply with the statutory
requirements.[12]
Similarly, allowing private parties to litigate the
enforceability of provisions such as Endorsement 8 gives
insurance companies an incentive to comply with the notice
requirements of 3 AAC 26.550 if they wish to limit their Rule 82
coverage and expose their insureds to attorney's fees awards that
may not be fully covered under their policies.
Grant Aviation relies on Harper v. K & W Trucking Co.,13
in which we rejected an employee's claim to recover a statutory
penalty for an insurer's violation of former AS 21.89.030.14 That
statute required insurance companies to pay settlements or
judgments with negotiable bank checks.15 The employee in Harper
received a settlement payment for a workers' compensation claim
in the form of a "payable through" draft instead of a bank check,
in violation of that statute.16 We held that the employee was not
entitled to recover the statutory penalty because AS 21.89.030
"is an administrative tool for use of the division of insurance,
not private parties."17
Harper does not control here. In denying a private
right of action, we differentiated between a statute that
"directly addresses the effect of negotiable instruments on
underlying obligations" and AS 21.89.030, which "concerns only
the form of payment which must be used for settling insurance
claims, not its effect on an underlying obligation."18 We
reasoned that a private cause of action was not necessary to
enforce a statute that was primarily an administrative tool for
the division.19
Unlike AS 21.89.030, 3 AAC 26.550 is not merely an
administrative tool employed to facilitate insurance
transactions. Rather it is intended to force insurers to comply
with proper notice requirements to protect insureds' reasonable
expectations.20 It therefore properly bears on the validity of a
policy provision that limits coverage.
Because a dispute about whether a limiting endorsement
"conforms with" Notice A necessarily assumes that the director
did not approve the limitation before the insurer issued the
endorsement, it almost inevitably will arise only after an
accident occurs. Post-accident agency enforcement will provide
little relief to insureds whose rights may have been fixed when
the loss occurred. Allowing the interested private parties to
litigate the validity issue is a useful way to encourage
compliance. We therefore hold that private parties may litigate
whether an endorsement attempting to limit attorney's fees
coverage is enforceable if it arguably does not comply with 3 AAC
26.550.
Grant Aviation also argues that the Therchiks are not
the assignees of Grant Aviation's rights against Houston
Casualty. But Grant Aviation does not argue that the absence of
an assignment altogether prevents the Therchiks from seeking a
declaration that Endorsement 8 is invalid. Such an argument
would be inherently inconsistent with the terms of the
settlement, which Grant Aviation characterizes on appeal as
providing that "the settling parties will abide by the ultimate
court ruling on the one remaining issue - the extent of attorney
fees owed under the policy." The Therchiks and Grant Aviation
(and, we assume, Houston Casualty) agreed to settle on terms that
expressly permitted the lawsuit to determine "whether there are
any additional amounts in . . . Rule 82 attorneys' fees within
the coverage of the Houston Casualty Company policy which will be
paid by Houston Casualty Company should the Bethel Superior Court
award additional funds." No argument is asserted by the
Therchiks or Grant Aviation that Houston Casualty should have
been a named party in the continuing litigation or that its
absence somehow affects the outcome of this appeal.
C. Endorsement 8 Does Not Satisfy 3 AAC 26.550.
The primary issue on appeal is whether Endorsement 8
satisfies the requirements of 3 AAC 26.550. The Therchiks argue
that the superior court erred in declaring valid an endorsement
that neither conformed with Notice A nor had received the
director's approval, as 3 AAC 26.550 alternatively requires. The
regulation requires an insurer seeking to limit coverage for
Civil Rule 82 attorney's fees awards against its insured to
include a "policyholder notice" that must either:
(1) conform with the division's
(A) Attorney Fees Coverage Notice A,
dated March 29, 1996, and hereby adopted
by reference, for a policy with a duty
to defend in addition to its limit of
liability;
. . . or
(2) be approved in writing by the director
upon a determination that the proposed notice
is substantially equivalent to the division's
Attorney's Fees Coverage Notice A . . . .[21]
It is undisputed that the director had not approved
Endorsement 8 before it was issued to Grant Aviation. The
controlling question therefore is whether Endorsement 8 satisfied
the alternative requirement that it "conform with" Notice A.
The superior court held that Endorsement 8 did not
"conform with" Notice A but was nonetheless "substantially
equivalent" to it. The court defined "conform with" as being
"very close to identical [to]," and described "substantially
equivalent" as a "lesser standard." In holding that Endorsement
8 validly limited the coverage, the court observed, "although
there's different wording used, different form used . . . it
seems to me that it is at least as good as Notice A in informing
an insured about the limitation and putting the insured on notice
that part of the attorneys' fees will not be covered under the
policy."
Grant Aviation first asserts that the endorsement need
not comply with the letter of 3 AAC 26.550, but must only satisfy
the notice requirements established in Russell v. Criterion
Insurance Co. - a case in which we upheld the validity of an
endorsement limiting an insurer's obligation to pay prevailing
party attorney's fees awarded against the insured.22 There we
relied on 3 AAC 29.010,23 and interpreted that regulation to
require that an insurer limiting coverage "must clearly disclose
the limitation itself," and "must clearly disclose the insured's
potential liability for attorney's fees if the judgment exceeds
the liability limits of the policy."24 Grant Aviation argues that
Endorsement 8 is valid because it satisfies the requirements we
discussed in Russell.
Grant Aviation's reliance on Russell is misplaced. The
regulation on which we relied there, 3 AAC 29.010, was repealed
in July 1996, after we decided Russell. The Division of
Insurance replaced 3 AAC 29.010 with 3 AAC 26.500-.550. Division
of Insurance Bulletin 96-04 gave notice to insurers of "new
requirements regarding coverage for Alaska Rule of Civil
Procedure 82." The bulletin informed insurers that after July 1,
1996 the division required that policies limiting Rule 82
coverage "must satisfy the minimum standards" of the newly
promulgated regulations. In an order announcing the adoption of
3 AAC 26.500-.550, the Alaska Director of Insurance explained the
1996 amendments as follows:
[L]imitations of coverage for attorney fees
taxable as costs against an insured according
to Alaska Rule of Civil Procedure 82 that do
not address an insured's reasonable
expectations for coverage or do not provide
adequate disclosure of the insured's
potential uninsured liability constitute an
unfair or deceptive trade act. Therefore,
the adoption or repeal of regulations under
this order is appropriate.
The Russell criteria are therefore inapplicable to questions
arising under the new regulations. To be effective, Endorsement
8 had to comply with 3 AAC 26.550.25
The superior court held that Endorsement 8, which had
not received director approval, was valid because it was
"substantially equivalent" to Notice A. A post-accident judicial
determination of substantial equivalence to Notice A is not
sufficient to satisfy 3 AAC 26.550. Per the regulation, the
director must determine that the proposed notice is
"substantially equivalent" to Notice A and then approve the
proposed notice in writing. The director did not approve
Endorsement 8 before it was issued. Therefore Endorsement 8
could satisfy 3 AAC 26.550 only if it "conforms with" Notice A.
The regulation does not explicitly define "conform
with." That the alternative provision allows the director to
preapprove "substantially equivalent" proposed language suggests
that the "conform with" provision contemplates a higher standard.
There would, after all, be no need or incentive to seek
preapproval if the two standards meant the same thing. Likewise,
the opportunity to seek preapproval implies that the director has
the administrative expertise to distinguish between those
deviations that provide insureds with adequate notice of the
proposed limitations and those that do not. No such
disinterested expert review occurs when an insurer issues a
limiting endorsement without seeking the director's preapproval.
It is logical to require something more than mere "substantial
equivalence" to Notice A in the absence of administrative review.
The superior court recognized that "conform with" must
mean something "very close to identical," rather than "word-for-
word identical." We agree with this observation but disagree
with superior court's ultimate findings. The court's "very close
to identical" definition is workable because it accounts for
minute deviations, such as immaterial punctuation errors, that
would not diminish the quality of notice or the substantive
message. The standard must be stringent, because anything less
would denigrate the administrative expertise that fashioned
Notice A as a model for adequate disclosure and eviscerate the
alternative requirement for preapproval. Moreover, any dispute
about conformity under subsection .550(b) will almost inevitably
arise after a loss occurs. It is by then too late for the
insurer to invoke agency expertise.
Endorsement 8 does not "conform with" Notice A because
we conclude that the endorsement alters the model form's language
in ways that go beyond being "minute deviations." For example,
Notice A directly and forcefully informs an insured of its
exposure to an award of Rule 82 attorney's fees, and its
obligation to pay any fees not covered by the policy. Notice A
provides in part:
Alaska Rule of Civil Procedure 82 provides
that if you are held liable, some or all of
the attorney fees of the person making a
claim against you must be paid by you. The
amount that must be paid by you is determined
by Alaska Rule of Civil Procedure 82. We
provide coverage for attorney fees for which
you are liable under Alaska Rule of Civil
Procedure 82 subject to the following
limitation:
We will not pay that portion of any
attorney's fees that is in excess
of fees calculated by applying the
schedule for contested cases in
Alaska Rule of Civil Procedure
82(b)(1) to the limit of liability
of the applicable coverage.
This limitation means the potential costs
that may be awarded against you as attorney
fees may not be covered in full. You will
have to pay any attorney fees not covered
directly.
(Italics in original; underline emphasis added.) The underlined
language is far more direct than the language in Endorsement 8,
which provides in part:
Contrary to the general rule applicable in
the United States, Rule 82 of the Alaska
Rules of Court awards attorneys fees to the
party which prevails in bringing, or
defending against, a claim. [Houston
Casualty] will only pay a limited amount of
attorney's fees an insured is required to pay
under Rule 82 of the Alaska Rules of Court.
The most [Houston Casualty] will pay for
attorney's fees the insured is liable to pay
under Rule 82 of the Alaska Rules of Court
("Rule 82") is that amount of attorney's fees
the insured would be liable to pay under Rule
82 if the claim was a contested claim and the
amount of the final award was equal to the
limit of liability for the applicable
coverage stated in the policy.
The limit of liability for Rule 82 attorney's
fees described in this section is the
absolute maximum and will not change based
upon the number of insured persons, vehicles,
aircraft, number of injured persons, number
of claimants, or number of claims arising out
of the relevant occurrence.
WARNING OF EXPOSURE TO UNINSURED ATTORNEY
FEES
The amount of attorney's fees the insured is
liable to pay under Rule 82 may be greater
than the amount [Houston Casualty] is
agreeing to pay under this policy. The
insured will have to pay the excess
attorney's fees charged under Rule 82.
(Emphasis added.)
The differences are partly a matter of emphasis ("you,"
rather than "the insured") and partly a matter of directness
("must be paid by you" and "you will have to pay," rather than
"the insured is required to pay"). Endorsement 8 and Notice A
are similar in substance. But the text of Endorsement 8 is
longer than the text of Notice A. Its sentence structure is more
complex, and it is harder to read and understand. Each sentence
in the quoted passage from Notice A averages about twenty-five
words. Each sentence from the quoted Endorsement 8 passage
averages about thirty-eight words. The division promulgated
section .550 to increase notice and to reduce disputes about the
adequacy of notice provided. In this context and given these
purposes, sentence structure and word choice are important. And,
had Houston Casualty wanted to limit its attorney's fees coverage
using its own language, it could have complied with the
regulation by submitting its endorsement to the director for
preapproval. Had it done so, the director might have required
Houston Casualty to simplify or alter its text and message.
We do not read Endorsement 8 to be "very close to
identical" to Notice A. The differences in substance, tone,
clarity, and directness convince us that Endorsement 8 does not
"conform with" Notice A. And because these differences diminish
the adequacy of the notice given, we hold that Endorsement 8 does
not satisfy 3 AAC 26.550.
D. Alaska Statute 21.42.220 Does Not Save Endorsement
8.
Grant Aviation argues that even if Endorsement 8 does
not "conform with" Notice A, AS 21.42.220 saves the endorsement
from invalidity. That statute provides in pertinent part:
An insurance policy, rider, or endorsement
issued and otherwise valid that contains a
condition or provision not in compliance with
the requirements of this title, is not
thereby rendered invalid but shall be
construed and applied in accordance with the
conditions and provisions as would have
applied had the policy, rider, or endorsement
been in full compliance with this title.
We have never before cited this statute. Alaska
Statute 21.42.220 was enacted in 1966, when the Alaska
Legislature completely revised Title 21, the state's insurance
code.26 Nothing analogous to AS 21.42.220 existed before 1966.
The legislative history of the 1966 revision indicates that the
legislature modeled the revised insurance laws after Montana's
insurance code.27 That code contains a "validity of noncomplying
forms" provision virtually identical to AS 21.42.220.28 However,
there is no Alaska legislative history specifically addressing AS
21.42.220.
Montana and other states with savings statutes similar
to AS 21.42.22029 interpret these provisions to save policy
provisions that do not conform with their insurance codes by
replacing the inconsistent policy terms with statutory
provisions.30 This usually, but not always, has the effect of
reforming the policies in favor of coverage.
In Sagan v. Prudential Insurance Co. of America the
Montana Supreme Court applied the Montana "validity of
noncomplying forms" statute to save a suicide exclusion that did
not comply with the state insurance code.31 Under the authority
of the savings statute, the court substituted the relevant
statutory provision into the policy rather than invalidating the
entire exclusion.32 The court observed that the plain meaning of
the statute is "to give effect to insurance policies and
provisions to the fullest extent possible by reading statutory
provisions into them to achieve full compliance with the
insurance code. Nothing in the plain language of the statute
supports applying it to invalidate policy provisions."33 Sagan
may seem to use Montana's savings statute to validate a
nonconforming policy provision, to the beneficiary's detriment.
But in reality, the only inconsistency between the policy
provision and the insurance code concerned the amount of refund
payable if the insured died by suicide within two years after the
policy was issued. The policy was actually more favorable to
Sagan than the code. The court rejected Sagan's attempt to
invalidate the entire suicide exclusion on Sagan's theory that
the refund provision deviated from the code. The deviation was
immaterial to the validity of the entire exclusion.
Virginia applies its "validity of noncomplying forms"
statute34 to save nonconforming insurance policies when they
impermissibly restrict the scope of coverage mandated by statute.35
When an insurance policy grants more coverage than that
prescribed by statute, the terms of the policy control.36 In Hill
v. State Farm Mutual Insurance Co., the Virginia Supreme Court
observed that "[t]he superseding provisions of . . . [Code 38.2-
318] take effect only where an insurer seeks, by policy language,
to narrow, avoid, vary or restrict the coverage the legislature
has required."37
Grant Aviation argues that AS 21.42.220 saves
Endorsement 8 from invalidity even though Houston Casualty did
not obtain the insurance director's written preapproval for
Endorsement 8. In support, Grant Aviation cites cases holding
that an insurer's failure to follow a statute requiring the
insurer to file all policy forms before issuing the policy does
not invalidate that policy.38 But the problem here is not that
the insurer failed to obtain preapproval, but that its limiting
provision did not "conform with" Notice A. Grant Aviation cites
only two cases that mention statutes providing for the validity
of noncomplying forms.39
Those two cases - Highland Insurance v. American Marine
Corp. and Williams v. Metropolitan Life Insurance Co. - are
inapposite. The courts there cited "validity of noncomplying
forms" statutes in rejecting insureds' attempts to void otherwise
valid policy forms merely because insurers failed to file and
obtain approval for the policy forms.40
Our case does not concern an insurer's failure to file
or obtain approval for an otherwise valid policy. It involves an
insurer's failure to comply with a regulation promulgated for the
purpose of giving insureds adequate notice of potential
attorney's fees liability. The division adopted 3 AAC 26.500-
.550 and Notice A because it found that inadequate disclosure
constituted an unfair or deceptive trade act. Grant Aviation
cites no cases in which a court has held that a provision that
materially deviates from the insurance code and that restricts or
excludes coverage is effective under a "validity of noncomplying
forms" statute.
There are other reasons not to apply AS 21.42.220 to
validate Endorsement 8. First, applying the statute as Grant
Aviation proposes would effectively deprive the Division of
Insurance of authority to prevent nonconforming provisions from
becoming effective. On its face, Grant Aviation's reading of the
statute would validate provisions that depart from any minimum
requirements that the division, in legitimate exercise of its
expertise, might require. This would be an unusual result given
the extensive regulation of the insurance industry and the
regular practice of states requiring insurance policies to
include particular provisions or model forms.
Second, Grant Aviation's reading of the statute would
undermine the regulation's critical purpose - to give insureds
adequate notice of a provision limiting coverage. Reading the
noncomplying form as though it does give the insured the required
notice would defeat the division's purpose in promulgating the
notice regulation and model form. Applied as Grant Aviation
proposes, AS 21.42.220 would validate endorsements limiting Rule
82 coverage notwithstanding a complete failure to satisfy the
regulation.
We decline to read AS 21.42.220 to uphold a defective
provision that attempts to limit coverage. We will therefore not
apply it to save Endorsement 8.
E. The Division of Insurance Had Authority To
Promulgate 3 AAC 26.510.
Grant Aviation also asserts that 3 AAC 26.510 is
invalid because the Division of Insurance did not have authority
to promulgate that regulation. That regulation applies to
insurance policies with duty-to-defend provisions. It provides
in relevant part that "a policy under which an insurer has a
right or duty to provide a defense for an insured must provide
coverage for the payment of attorney fees taxable as costs
against the insured under Alaska Rule of Civil Procedure 82."
The regulation further requires an insurance carrier to cover
additional attorney's fees.41
The division cited several statutes from Title 21 as
its authority for promulgating 3 AAC 26.510.42 Title 21 deals
with insurance generally. Grant Aviation claims that the Title
21 statutes cited as authority for 3 AAC 26.510 only "govern
matters of procedure, not substance." Grant Aviation further
contends that Title 2 of the Alaska Statutes contains the
provisions that regulate the aviation industry.
Grant Aviation directs us to no provision in Title 2
that expressly or impliedly makes 3 AAC 26.510 inapplicable to
air carriers. Title 21 gives the director authority to "adopt
reasonable regulations" to effectuate the purposes of the title.43
And 3 AAC 26.510 represents a justifiable exercise of the
director's authority. One section in Title 2, which governs
aeronautics, specifies minimum insurance limits for air carriers,
but it does not purport to render Title 21 altogether
inapplicable to insurance for air carriers.44 It does not address
coverage for attorney's fees. Nothing Grant Aviation has argued
would justify a conclusion that the Director of Insurance had no
authority to promulgate 3 AAC 26.510.
IV. CONCLUSION
Because we conclude that Endorsement 8 does not
"conform with" the model form and thus violates 3 AAC 26.550 and
because AS 21.42.220 does not save the endorsement, we REVERSE
the judgment and REMAND for calculation of the attorney's fees
recoverable under the policy.
_______________________________
1 Raymond Therchik sued Grant Aviation individually and as
personal representative of Isadore Therchik's estate. Katie Tony
sued individually and as personal representative of Theresa and
Henry Tony's estates. The other plaintiffs sued in their
individual capacities.
2 This provision of the policy Houston Casualty issued to
Grant Aviation states in part:
During such time as [Houston Casualty] is
obligated to defend a claim or claims under
the provisions of the preceding paragraph,
[Houston Casualty] will pay with respect to
such claim, in addition to the applicable
limit of liability:
. . . .
2. [A]ll costs taxed against the Insured in any suit
defended by [Houston Casualty] . . . .
3 Endorsement 8 provides in part:
[Houston Casualty] will only pay a limited
amount of attorney's fees an insured is
required to pay under Rule 82 of the Alaska
Rules of Court. . . . The most [Houston
Casualty] will pay for attorney's fees the
insured is liable to pay under Rule 82 of the
Alaska Rules of Court ("Rule 82") is that
amount of attorney's fees the insured would
be liable to pay under Rule 82 if the claim
was a contested claim and the amount of the
final award was equal to the limit of
liability for the applicable coverage stated
in the policy.
4 Simmons v. Ins. Co. of N. Am., 17 P.3d 56, 59 (Alaska 2001).
5 Id.
6 Holderness v. State Farm Fire & Cas. Co., 24 P.3d 1235, 1237-
38 (Alaska 2001); Russell v. Criterion Ins. Co., 917 P.2d 664,
666 (Alaska 1996).
7 See, e.g., Holderness, 24 P.3d at 1238; State Farm Mut.
Auto. Ins. Co. v. Harrington, 918 P.2d 1022, 1025 (Alaska 1996);
Hughes v. Harrelson, 844 P.2d 1106, 1106-07 (Alaska 1993).
8 See cases cited supra note 7.
9 See, e.g., Peter v. Schumacher Enters., Inc., 22 P.3d 481,
488-89 (Alaska 2001) ("[P]rivate actions to enforce the
requirements of [AS 21.89.020] have been maintained and approved
by this court"); Harrington, 918 P.2d at 1025-26; Burton v. State
Farm Fire & Cas. Co., 796 P.2d 1361, 1363 (Alaska 1990).
10 Peter, 22 P.3d at 490; see also AS 21.89.020(c) (requiring
automobile liability insurers to offer coverage prescribed in AS
28.20.440 and 28.20.445 or AS 28.22 for "protection of persons
insured under policy who are legally entitled to recover damages
for bodily injury or death from owners or operators of uninsured
or underinsured motor vehicles"); AS 21.89.020(e) (allowing
waiver of the coverage in AS 21.89.020(c) and (d)).
11 Peter, 22 P.3d at 488; see also AS 21.90.020, which provides
in part that "[a] person, determined by the director, following
an appropriate hearing . . . to have violated a provision of this
title, is subject to a civil penalty of not more than $2,500."
12 Peter, 22 P.3d at 489.
13 Harper v. K & W Trucking Co., 725 P.2d 1066 (Alaska 1986).
14 AS 21.89.030 (1968), amended by ch. 62, 106, SLA 1995.
Before it was amended in 1995, AS 21.89.030 provided:
No insurance company doing business in this
state may pay a judgment or settlement of a
claim in this state for a loss incurred in
this state with an instrument other than a
negotiable bank check payable on demand and
bearing even date with the date of writing.
15 Harper, 725 P.2d at 1068.
16 Id.
17 Id.
18 Id.
19 Id.
20 The Alaska Director of Insurance observed in Order R 96-03
that "limitations of coverage for attorney fees taxable as costs
against an insured according to Alaska Rule of Civil Procedure 82
that do not address an insured's reasonable expectations for
coverage or do not provide adequate disclosure of the insured's
potential uninsured liability constitute an unfair or deceptive
trade act."
21 3 AAC 26.550(b) (emphasis added).
22 Russell v. Criterion Ins. Co., 917 P.2d 664 (Alaska 1996).
23 Former 3 AAC 29.010 (1982) read in pertinent part:
(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 of
the policy.
. . . .
(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.
24 Russell, 917 P.2d at 666.
25 The division promulgated 3 AAC 26.500-.550 in 1996. Houston
Casualty issued the insurance policy at issue here for the policy
period of December 15, 1998 to December 15, 1999. The air crash
occurred on December 7, 1999.
26 Ch. 120, 1, SLA 1966.
27 Analysis of House Bill No. 313 (Proposed State Insurance
Code), House Journal Supp. No. 12 at 3, 1966 House Journal 431
("After careful study, it was determined that the insurance code
of the State of Montana, enacted in 1961 by the Legislature of
that State, would serve as a good model for the revision of
Alaska's insurance laws. . . . [T]he Montana Code was the most
modern and up-to-date body of insurance regulation of any of the
fifty states.").
28 Section 33-15-315 of the Montana Code provides:
Any insurance policy, rider, or endorsement
hereafter issued and otherwise valid which
contains any condition or provision not in
compliance with the requirements of this code
shall not be thereby rendered invalid but
shall be construed and applied in accordance
with such conditions and provisions as would
have applied had such policy, rider, or
endorsement been in full compliance with this
code.
Mont. Code Ann. 33-15-315 (2002).
29 Arizona, Ariz. Rev. Stat. 20-1118 (2002); Georgia, Ga.
Code Ann. 33-24-12 (a) (2002); Hawaii, Haw. Rev. Stat. 431:10-
238 (2002); Kentucky, Ky. Rev. Stat. Ann. 304.14-210(2)
(2002); Louisiana, La. Rev. Stat. Ann. 22:653 (2002); Montana,
Mont. Code Ann. 33-15-315 (2002); Oklahoma, Okla. Stat. Ann.
tit. 36, 3620 (2002); Virginia, Va. Code Ann. 38.2-318 (A)
(2002); Virgin Islands, 22 V.I. Code Ann. 845 (2002);
Washington, Wash. Rev. Code Ann. 48.18.510 (2003); West
Virginia, W. Va. Code, 33-6-17 (2002).
30 See Taylor v. MFA Mut. Ins. Co., 322 So. 2d 842, 845-46 (La.
App. 1976) (holding that three-month policy had to be considered
as if issued for statutory requirement of six months where
insurer issued three-month policy and terminated policy for
failure to pay renewal fee without providing notice of
cancellation); USAA Cas. Ins. Co. v. Yaconiello, 309 S.E.2d 324,
325 (Va. 1983) (holding that statute's more inclusive term "motor
vehicle" superseded policy's term "automobile" because statute
would also include motorcycles); Adkins v. Meador, 494 S.E.2d
915, 920-24 (W. Va. 1997) (holding that statute's more inclusive
requirement that insured be "using" vehicle superseded policy's
requirement that insured be "occupying" vehicle).
31 Sagan v. Prudential Ins. Co. of Am. 857 P.2d 719, 722
(Mont. 1993); see also Georgeson v. Fid. & Guar. Ins. Co., 48 F.
Supp. 2d 1262, 1266 (D. Mont. 1998) (applying MCA 33-15-315 and
ruling that when language of insurance policy is contrary to
statute, and therefore void, policy should be construed to
contain coverage mandated by law).
32 Sagan, 857 P.2d at 722.
33 Id.
34 Section 38.2-318(A) of the Virginia Code is substantially
similar to AS 21.42.220. It provides: "Any insurance policy or
form containing any condition or provision that is not in
compliance with this title shall be valid, but shall be construed
and applied in accordance with the conditions and provisions
required by this title." Va. Code Ann. 38.2-318(A) (2002).
35 See Yaconiello, 309 S.E.2d at 325.
36 See Hill v. State Farm Mut. Ins. Co., 375 S.E.2d 727, 729
(Va. 1989) (holding that uninsured motorist endorsement, which
afforded broader coverage than that mandated by statute, was not
superseded by more restrictive term in statute); Interstate Van
Lines, Inc. v. Artis, No. LS 4398-2, 1991 WL 835002, at *6 (Va.
Cir. June 5, 1991) (holding that "validity of noncomplying forms"
statute did not apply because policy's definition of insured
afforded broader coverage than that mandated by statute).
37 Hill, 375 S.E.2d at 729; see also 1 Lee R. Russ, Couch on
Insurance 17: 14 (3d ed. 1998). It provides:
Where the statutes specify certain provisions
which must form a part of a contract of
insurance, and further provide that a policy
issued in violation thereof should be valid,
a policy which does not contain the statutory
provisions is valid and must be given effect,
but the provisions of the statute must be
substituted for those of the policy where the
two conflict. However, where the provisions
of the policy are more favorable to the
insured than are the statutory requirements,
the policy provisions will be enforced. In
any event, the insured is not in a position
to accept standard provisions in his or her
favor and reject those which are unfavorable
to him or her.
(Footnotes omitted.)
38 Great Lakes Container Corp. v. Nat'l Union Fire Ins. Co. of
Pittsburgh, PA, 727 F.2d 30, 32 (1st Cir. 1984) (holding that
insurer's failure to follow statute requiring policies be
approved by insurance commissioner did not void policy);
Resolution Trust Corp. v. Hedden, 879 F. Supp. 600, 602-03 (N.D.
Miss. 1995) (insurer's failure to submit exclusion for approval
did not invalidate exclusion); Gary v. Am. Cas. Co. of Reading,
Pa., 753 F. Supp. 1547, 1551 (W.D. Okla. 1990) (holding that
failure to file endorsement does not render it void); Cage v.
Litchfield, 713 A.2d 281, 315 (Conn. Super. 1997) (holding that
endorsement not filed with commissioner was valid and that "the
imposition of a monetary fine or a penalty other than voidance is
sufficient to protect the efficacy of [filing statute]"); Home
Indem. Co. v. Hoechst Celanese Corp., 494 S.E.2d 768, 773 (N.C.
App. 1998) (holding that insurer's failure to get form approval
for pollution exclusions did not void exclusions because, among
other reasons, statute that provides for penalties for insurers
does not mention voiding policy as remedy).
39 See Highland Ins. v. Am. Marine Corp., 607 F.2d 1101, 1104
(5th Cir. 1979) (holding that insureds could not avoid paying
premiums due under policy by claiming that insurer's failure to
file policy made it void); Williams v. Metro. Life Ins. Co., 519
P.2d 1310, 1313 n.2 (Wash. App. 1974) (holding that insured's
beneficiary could not collect on life insurance policy because
policy never became effective because insured misrepresented his
health on application form, even though application amendment
slightly differed from form approved by insurance commissioner).
40 See Highland, 607 F.2d at 1104; Williams, 519 P.2d at 1313
n.2.
41 3 AAC 26.510.
42 The division cited AS 21.06.090; AS 21.36.150; AS 21.42.120,
.130, and .160 as authority for 3 AAC 26.510. See 3 AAC 26.510.
43 See AS 21.06.090.
44 See AS 02.40.010(a).
