Coverage Analysis
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ALASKA
ACCIDENTS OR OCCURRENCES
  
          Allegations that parents were negligent in failing to protect the plaintiff from a sexual assault by their teenage son have been held to allege a covered “accident” under Alaska law.   In C.P. v. Allstate Insurance Company, S-8606 (Alaska March 3, 2000), the state Supreme Court ruled that a claims handler owes an independent duty of care to the insured to fairly investigate, adjust, resolve or defend the insured’s claim and may be sued for a breach of that duty, whether the individual is an independent adjuster or a salaried employee of the insurer.  Further, the court refused to find that the sexual assault claims were excluded as not involving an “accident” or as being subject to an exclusion in Allstate’s homeowner’s policy for injuries “resulting from a criminal act or omission.”  In both instances, the court ruled that the alleged negligence of the parents had been a contributing and non-excluded cause and that, in cases where a loss was partly caused by an excluded cause and partly caused by a covered cause, coverage is required.  Having reached this conclusion, the court declined to address the further question of whether a ruling of no coverage in a declaratory judgment action retroactively defeated the insurer’s duty to defend when the defense was being provided under a reservation of rights subject to the resolution of the coverage suit.

  Intent has been inferred as a matter of law in cases of sexual assault where the perpetrator was an older child.  Allstate Ins. Co. v. Roelfs, 698 F.Supp. 815 (D. Alaska 1987).

  Allegations that a homeowner’s septic system malfunctioned due to the negligent work of a subcontractor have been held to give rise to coverage under the general contractor’s liability policy despite allegations that the insured had fraudulently misrepresented the condition of the premises before its sale to the plaintiffs.   In Fejes v.  Alaska  Ins.  Co., 984 P.2d 519 (Alaska  1999), the state Supreme Court ruled that “the mere fact that a complaint against a contractor is based on a theory of misrepresentation or deceit does not mean that the facts underlying the claim did not arise from an accident.”   
 

  ALLOCATION AND SCOPE ISSUES

  If a duty to defend arises under multiple policies, defense costs should be apportioned pro rata in accordance with respective policy limits.  Continental Ins. Co. v. USF&G, 528 F.2d 439 (Alaska 1974).  

  “Horizontal exhaustion” was rejected by a state trial court in Mapco Express, Inc.  v.  American International Specialty Lines Ins.  Co., No.  3AN-95-8309 (Alaska  Super.  July 31, 1998).  The court ruled instead that the insured could obtain excess coverage in any year for which the primary coverage was exhausted.
 

  APPELLATE PROCEDURES
 

  Alaska has only a state supreme court.
 

  BAD FAITH
  
  Unfair claims handling by insurers is regulated under Alaska Stat. § 21.36.125 (1962). Unfair or deceptive consumer practices are proscribed by Alaska Stat. § 45.50.471 (1980).   These statutes do not create a private right of action for policyholders.  O.K. Lumber Co. v. Providence Washington Ins. Co., 759 P.2d 523 (Alaska 1988).

  A cause of action in tort for bad faith claims handling has been recognized against both property and liability insurers. State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152 (Alaska 1989).  However, the state Supreme Court has since suggested that bad faith claims may also be based on contract theories.  Washington Ins. Guaranty Assoc. v. Ramsey, 1996 Alas. LEXIS 89 (Alaska August 16, 1996).

  The Supreme Court of Alaska has ruled that first party insurers may only be held liable for bad faith if they (1) have no reasonable basis for disputing coverage and (2) knew that there no reasonable basis or acted with reckless disregard for the lack of support for their coverage position.  Hillman v. Nationwide Mut. Ins. Co., S-4555 (Alaska July 9, 1993).

  In C.P. v. Allstate Insurance Company, 2000 Alaska LEXIS 16 (Alaska March 3, 2000),  the Alaska Supreme Court ruled that a claims handler owes an independent duty of care to the insured to fairly investigate, adjust, resolve or defend the insured’s claim and may be sued for a breach of that duty, whether the individual is an independent adjuster or a salaried employee of the insurer.  

  An insurer may be held vicariously liable for the malpractice of its appointed defense counsel. Continental Ins. Co. v. Bayles & Roberts, 608 P.2d 281, 294 (Alaska 1980).

  Under Alaska law, an insured seeking emotional distress damages as a result of the insurer's breach of the duty of good faith and fair dealing is not required to prove that the distress was "severe."  Ace v. Aetna Life Ins. Co., 139 F.3d 1241 (9th Cir. 1998).  But see, Nelson, 1999 WL 164089 (Alaska 1999).
  In general, Alaska courts have looked to the law of California as guiding precedent on bad faith issues. R.W. Beck & Assoc. v. City and Borough of Sitka, 27 F.3d 1475 (9th Cir. 1994).
 

  BREACH OF POLICY CONDITIONS

  An insurer seeking to avoid coverage based on its insured's untimely notice must show that the delay caused prejudice.  Weaver Brothers, Inc. v. Chappel, 684 P.2d 123 (Alaska 1984).  This prejudice requirement was extended to other policy conditions in Estes v. Alaska Ins. Guaranty Assoc., 774 P.2d 1315 (Alaska 1989)(first party policy requirement that suit be filed within one year).

  A breach of the cooperation clause will relieve the insurer of any coverage obligation unless the insured's conduct justified the breach. Davis v. Criterion, 754 P.2d 1331, 1332 (Alaska 1988).  In Grace v. INA, 944 P.2d 460 (Alaska 1997), the Supreme Court refused to limit its holding to cases in which the insured's breach was proximately caused by the insurer's breach.  Rather, once the insurer breaches, the insured is free to take such steps as are reasonably necessary to protect its interests.
 

  CHOICE OF LAWS

  Alaska courts have adopted the Restatement's "most significant relationship" test.  Wear v. Farmers & Merchants Bank, 605 P.2d 27 (Alaska 1980).
 

  CONFLICTS OF INTEREST

  If no conflict exists between the interests of insurer and insured, the lawyer retained by the insurer to represent the interests of the insured may also further the interests of the insurer.  Home Ind. Co. v. Lane Powell Moss & Miller, 43 F.3d 1322 (9th Cir. 1995).

  On the other hand, an insurer may lose the right to control the defense of a claim if it creates a conflict by reserving rights with respect to an issue of coverage.  In Chi of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113 (Alaska 1993), the Alaska Supreme Court ruled that under such circumstances the insured had the unilateral right to retain independent counsel of its own choosing provided that the counsel must be competent to handle the case.  

  The insurer's obligation only extends to the reasonable cost of defense, however.  As codified under Alaska Statute 21.89.100 (1995), the insurer has the right to demand that the independent counsel have at least four years of experience in civil litigation, including defense experience in the general area at issue in the civil action and also have malpractice insurance.
 

  "DAMAGES" 

  Claims for breach of contract are outside the scope of liability insurance. Olympic, Inc. v. Providence Washington Ins. Co. of Alaska, 648 P.2d 1008, 1012 (Alaska 1982).

    The cost of cleaning up a hazardous waste facility was held to be covered in Mapco Alaska Petroleum, Inc. v. Central National Ins. Co. of Omaha, 784 F.Supp. 1454 (D. Alaska 1991).  Earlier, the Alaska Supreme Court had ruled in O'Neill Investigation, Inc. v. Illinois Employers Ins. of Wausau, 636 P.2d 1170 (Alaska 1981) that claims for restitution involving injunctive relief and civil penalties are not "damages."
 

  DECLARATORY JUDGMENT ACTIONS

  Federal courts in Alaska have reluctantly followed the Ninth Circuit's holding in Employers Reinsurance Corp. v. Karussos, 65 F.3d 796 (9th Cir. 1995) that a U.S. District Court has no discretion to hear case involving issues of state law, even if underlying tort suit has since been settled, if coverage issues were in any way factually dependent on findings in state tort case. Houston General Ins. Co. v. Pacific, No. A93-368 (D. Alaska November 3, 1995) and Ryan v. Sea Air, 902 F.Supp. 1064 (D. Alaska 1995).

  An insurer has been permitted to recover fees as the successful party in a coverage suit under Alaska Rule of Civil Procedure 82.  Continental Ins. Co. v. USF&G, 552 P.2d 1122 (Ala. 1976).  
 

  DISCOVERY ISSUES

   --Claims Manuals
 

   --Drafting History
 

   --Other Policyholder Claims
 

   --Reinsurance Information

   --Reserves
 

  DUTY TO DEFEND

   Alaska requires that an insurer take into account facts known or readily knowable through a reasonable investigation of the claims against its insured in determining whether or not it has an obligation to defend.  National Indemnity Company v. Flesher, 469 P.2d 360 (Alaska 1970).  However, an insurer may not rely on extrinsic facts to disclaim coverage if the complaint, standing alone, alleges a covered set of facts. Sauer v. Home Ind. Co., 841 P.2d 176, 182 (Alaska 1992);  Afcan v. Mutual Fire, Marine and Midland Ins. Co., 595 P.2d 638, 645 (Alaska 1979).  Accordingly, an insurer may only refuse to defend if (1) the complaint against its insured does not allege a set of facts that are potentially within its coverage and (2) it has undertaken a reasonable investigation and confirmed that no basis for coverage exists.  Ferguson v. State Farm Fire & Cas. Co., 70 F.3d 119 (9th Cir. 1995)(Table--full text at 1995 U.S. App. LEXIS 25229).
 

  ESTOPPEL AND WAIVER
 
  An insurer will be estopped to dispute coverage if, having identified a coverage concern, it continues to ask the insured for information without notifying him of its coverage concerns.  In Lloyd’s & Institute of London Underwriting Companies v. Fulton, S-8136 (Alaska May 12, 2000), the Alaska Supreme Court ruled that once the insurer had reason to believe that there are coverage issues, it should not continue to obtain information from the policyholder that the insured is not obligated to provide without first notifying the insured of the potential coverage problems.  The court declared that prejudice would be implied in these circumstances where the insurer had interviewed the policyholder without the presence of counsel as by withholding information about its coverage position, it had prevented the policyholder from making an informed decision as to whether to involve counsel to protect its interests.

  Normally, an insurer that wrongfully fails to defend a covered claim still has the right to contest whether it has any indemnity obligation. Afcan v. Mutual Fire, Marine and Midland Ins. Co., 595 P.2d 638, 645 (Alaska 1979).  However, in Sauer v. The Home Indemnity Co., 841 P.2d 176 (Alaska 1992), the Alaska Supreme Court ruled that an insurer that "completely abdicated" its obligations to investigate and defend a potentially covered claim was estopped to dispute its coverage obligations.  The court emphasized the insurer's failure to give its insured timely notice of the bases on which it might be disputing coverage.
 

  EXCESS INSURERS
  An excess policy that defines coverage as excess of "the limits of the underlying insurance, as set forth in the attached Schedule," "the amounts specified" in the primary policy or the insured's "retained limit," will not be required to drop down.  Alaska Rural Electric Cooperative Assoc., Inc. v. INSCO, Ltd., 785 P.2d 1139 (Alaska 1990).  Accord Grace v. INA, 944 P.2d 460 (Alaska 1997)(excess insurer's liability is only for limit of underlying insurance, not amounts actually paid).

  In Grace, an excess insurer contended that despite the size of the loss involved, its duty to pay was contingent upon the actual payment of the underlying limits.  The underlying limits to the INA policy were comprised of a self-insured retention and policies issued by two excess insurers who were insolvent as of the time of the suit.  The trial court had directed a verdict for the insurer on the issue.  The Alaska Supreme Court reversed, holding that the evidence was sufficient to support a finding that INA’s position constituted an anticipatory repudiation and that the issue should be determined by the jury.   The Alaska Supreme Court held that an excess insurer has a duty to contribute towards a settlement, even where it has no present coverage obligation, if an excess verdict is likely.  If the excess insurer fails to contribute towards a settlement under such circumstances, its refusal will be treated as an anticipatory breach of contract and will free the insured to take steps to pay the settlement on its own without breaching policy conditions.
 
  “Horizontal exhaustion” was rejected by a state trial court in Mapco Express, Inc.  v.  American International Specialty Lines Ins.  Co., No.  3AN-95-8309 (Alaska  Super.  July 31, 1998).  The court ruled instead that the insured could obtain excess coverage in any year for which the primary coverage was exhausted.
 

  POLLUTION EXCLUSION
  
    No clear construction. In Mapco, the federal district court ruled that "sudden" did have a possible temporal meaning but found that its principal meaning was "unexpected."  Accordingly, coverage is required unless the pollution was intended. In Sauer v. The Home Indemnity Co., 841 P.2d 176 (Alaska 1992), the Alaska Supreme Court declined to interpret the exclusion but strongly suggested that it might follow the "actual polluter" approach followed by the Supreme Courts of Colorado and Georgia.
 

  PUNITIVE DAMAGES

  The Alaska Supreme Court has ruled that punitive damages are "sums" within the scope of an insurer's indemnity duty. Providence Washington Ins. Co. v. City of Valdez, 684 P.2d 861 (Alaska 1984).  A federal court has found that permitting coverage for punitive damages resulting from an insured's gross negligence is not against public policy.  LeDoux v. Continental Ins. Co., 666 F.Supp. 178 (D. Alaska 1987).  But see, Bellefonte Ins. Co. v. Wayson, 489 F.Supp. 58 (D. Alaska 1980).
 

  STANDARDS FOR POLICY INTERPRETATION

  "Reasonable expectations" doctrine recognized in O'Neill Investigations v. Illinois Employers Ins. Co., 636 P.2d 1170 (Alaska 1981) and   State v. Underwriters at Lloyd’s, 755 P.2d 396, 400 (Alaska 1988).  In Whispering Creek Condominium Owner Assoc. v. Alaska National Ins. Co., 774 P.2d 176 (Alaska 1989), the court ruled that insurance policies should be interpreted so as "to provide that coverage which a layperson would have reasonable expected from a lay interpretation of the policy terms," without regard to how someone trained in the law or the insurance business might have meant them. Accord, U.S. Fire Ins. Co. v. Colver, 600 P.2d 1 (Alaska 1979).

  THEORIES OF ALTERNATIVE LIABILITY

  None yet adopted.
 

  TRIGGER OF COVERAGE

  "Exposure" theory adopted in Mapco.

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