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Maynard v. State Farm Insurance Co. (9/29/95), 902 P 2d 1328
<![CDATA[
NOTICE: This opinion is subject to formal 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; (907) 264-0607.
THE SUPREME COURT OF THE STATE OF ALASKA
FREDERICK P. MAYNARD, )
) Supreme Court No. S-6319
Appellant, )
) Superior Court No.
v. ) 3AN-93-6074 CI
)
STATE FARM MUTUAL AUTOMOBILE ) O P I N I O N
INSURANCE COMPANY, )
) [No. 4261 - September 29,
1995]
Appellee. )
______________________________)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Dana Fabe, Judge.
Appearances: Frank J. Schlehofer, Law Office
of William G. Azar, Anchorage, for Appellant.
David S. Carter, Hughes, Thorsness, Gantz,
Powell & Brundin, Anchorage, Earl M.
Sutherland and William R. Hickman, Reed
McClure, Seattle, Washington, for Appellee.
Before: Moore, Chief Justice, Rabinowitz,
Matthews, Compton and Eastaugh, Justices.
RABINOWITZ, Justice.
This appeal presents a pure question of law: May an
insurance company seek reimbursement for medical expenses paid to
its insured under his policy when it also insures the tortfeasor
and the insured brings an action against the tortfeasor seeking
damages for the same medical expenses?
I. FACTS AND PROCEEDINGS
On February 6, 1991, Frederick Maynard and Glenn
Madison were involved in an automobile accident. Both were
insured by State Farm Mutual Automobile Insurance Co. (State
Farm).
State Farm paid Maynard's medical bills totalling
$5,212 pursuant to the Medical Payments Coverage provision
contained in his insurance policy. An endorsement to the
insurance policy expressly reserved State Farm's right to be
reimbursed for this amount if Maynard received "any subsequent
recovery for bodily injury from a liable party or such party's
insurance."
Maynard filed suit against Madison for damages arising
out of the accident, including his medical expenses. Maynard
also filed a class action suit against State Farm in which he
characterized the reimbursement clause as a subrogation provision
and, relying on Alaska case law which holds that an insurance
company cannot subrogate against its own insured, sought a
declaratory judgment "that State Farm insurance company has no
right of subrogation for medical payments against any party who
is also insured by them."
State Farm moved for judgment on the pleadings in
Maynard's class action suit pursuant to Alaska Civil Rule 12(c).
The superior court considered matters outside the pleadings and
treated the motion as a Rule 56 motion for summary judgment. See
Alaska Civil Rule 12(c). The superior court granted summary
judgment in favor of State Farm1 and Maynard now appeals.
After this appeal was filed, Maynard settled his
separate suit with Madison. The settlement was in the amount of
$12,500 and "did not include compensation for any medical
expenses which State Farm earlier had paid to . . . Maynard under
the medical payments coverage afforded him pursuant to a separate
State Farm policy." However, the settlement agreement expressly
reserved "Maynard's rights enumerated in Maynard v. State Farm
Auto Insurance Co., 3AN-93-6074 Civ."2
II. STANDARD OF REVIEW
This appeal requires us to interpret an insurance
contract. Where no facts are in dispute, "interpretation of the
words of the contract is treated in the same manner as questions
of law." National Bank of Alaska v. J. B. L. & K. of Alaska
Inc., 546 P.2d 579, 586 (Alaska 1976). This court's "duty is to
adopt the rule of law that is most persuasive in light of
precedent, reason, and policy." Guin v. Ha, 591 P.2d 1281, 1284
n.6 (Alaska 1979).
When interpreting an insurance contract, we have noted:
An insurance policy may be considered a
contract of adhesion, and as such, should be
construed to provide the coverage which a
layperson would have reasonably expected,
given a lay interpretation of the policy
language. It is not required that
ambiguities be found in the policy language
as a condition precedent for such
construction.
. . . .
To ascertain the reasonable expectations of
the parties, we look to the language of the
disputed policy provisions, the language of
other provisions of the insurance policy, and
to relevant extrinsic evidence. In addition,
we refer to case law interpreting similar
provisions.
Stordahl v. Government Employees Ins. Co., 564 P.2d 63, 65-66
(Alaska 1977) (footnotes and citations omitted). Further,
"[w]here an insurance company limits the coverage of a policy
issued by it in plain language, this court recognizes that
restriction." Insurance Co. of N. Am. v. State Farm Mut. Auto.
Ins. Co., 663 P.2d 953, 955 (Alaska 1983) (citations omitted).
III. DISCUSSION
A. Estoppel
Maynard initially contends that State Farm is estopped
from arguing that its recovery rights under the policy are based
on reimbursement rather than subrogation. Maynard then reasons
that because this court has held that an insurer may not
subrogate against its own insured, application of the principles
of estoppel bar State Farm from seeking recovery of the amount it
paid to him under his policy. See Graham v. Rockman, 504 P.2d
1351, 1356 (Alaska 1972). Maynard does not state on which type
of estoppel his argument is premised. However, we conclude that
neither equitable nor quasi estoppel bars State Farm from arguing
that its rights are based on reimbursement rather than
subrogation.
We discussed the necessary elements of both equitable
and quasi estoppel in Wright v. State, 824 P.2d 718 (Alaska
1992):
The elements of equitable estoppel are "the
assertion of a position by conduct or word,
reasonable reliance thereon by another party,
and resulting prejudice." Jamison [v.
Consolidated Utils., Inc., 576 P.2d 97, 102
(Alaska 1978).] Neither ignorance nor
reliance, however, are essential elements of
quasi estoppel. Dressel v. Weeks, 779 P.2d
324, 331 (Alaska 1989). Quasi estoppel
appeals to the conscience of the court and
applies where "the existence of facts and
circumstances mak[es] the assertion of an
inconsistent position unconscionable."
Jamison, 576 P.2d at 102. This court has
instructed trial courts to consider the
following factors in determining whether the
doctrine of quasi estoppel is applicable:
"whether the party asserting the inconsistent
position has gained an advantage or produced
some disadvantage through the first position;
whether the inconsistency was of such
significance as to make the present assertion
unconscionable; and, whether the first
assertion was based on full knowledge of the
facts." Id. at 103.
Wright, 824 P.2d at 721 (alteration in original).
In support, Maynard relies primarily on a letter from a
State Farm claims specialist to his attorney.3 The letter
proposed adding Maynard's claim against Madison to an upcoming
settlement conference, outlined the claims specialist's
preliminary assessment of the claim, and stated, "I am on notice
of [State Farm's] medical payments subrogation interest."4
However, Maynard has not alleged any action he took or
did not take in reliance on this statement. Thus, he has failed
to demonstrate one of the necessary elements of equitable
estoppel.
Nor do we believe that it would be unconscionable to
allow State Farm to argue that its rights were premised on
reimbursement. Maynard argues that State Farm initially asserted
that its recovery should be based on subrogation so that it could
avoid having to pay part of Maynard's attorney's fees. Then,
after Maynard filed his class action suit and State Farm realized
the limits of subrogation, it switched its theory to
reimbursement. However, the letter at issue was written early in
the litigation, and did not concern attorney's fees. Thus,
Maynard's argument regarding State Farm's intent in writing this
letter is no more than speculation. We also note that State
Farm's argument before the trial court concerning attorney's fees
appears to be applicable whether premised on reimbursement or
subrogation.5 We therefore conclude that State Farm's assertion
of an inconsistent position is not unconscionable, and that quasi
estoppel should not bar State Farm from altering its position.
B. The Language of Maynard's Policy
The pertinent provisions of the insurance contract are
contained in an endorsement amending the policy's Medical
Payments Coverage. They provide as follows:
When Someone May Be Legally Liable For the
Bodily Injury
1.If the injured person has been paid
damages for the bodily injury by or on
behalf of the liable party in an amount:
a.less than the injured
person's total medical
expenses, the most we will pay
under this coverage is the
lesser of:
(1)the limit of liability
of this coverage, or
(2)the amount by which
the total reasonable and
necessary medical
expenses exceed the total
amount paid by or on
behalf of all parties
liable for the bodily
injury;
b.equal to or greater than the
total reasonable and necessary
medical expenses incurred by
the injured person, we owe
nothing under this coverage.
2.When we pay medical expenses under
this coverage, we are entitled to be
paid out of any subsequent recovery for
bodily injury from a liable party or
such party's insurer the lesser of:
a.what we have paid; or
b.the amount by which the sum
of the total recovery for
bodily injury from all liable
parties and what we have paid
under this coverage exceeds
the total amount of reasonable
and necessary medical expenses
the injured person incurred.
The injured person shall:
a.execute any legal papers we
need;
b.when we ask, take action
through our representative to
seek a recovery;
c.not hurt our rights to
recover;
d.not make claim to that
portion of the recovery that
we are entitled to be paid;
and
e.answer truthfully all
questions that we may ask.
We will not seek reimbursement from payments
received from a liable party or such party's
insurer by a person who has complied with all
of these requirements.
This language conclusively bars the double recovery
which Maynard seeks in this case. Section one generally provides
that State Farm will not pay any expenses for which the claimant
has already been compensated. Section two generally states that
State Farm is entitled to reimbursement to the extent that the
claimant obtains recovery from a liable third party for medical
expenses which have been paid for under the Medical Payments
Coverage portion of the policy.6 Also of significance is the
absence of any policy language which suggests that these
provisions do not apply when State Farm insures both the claimant
and the third-party tortfeasor. The fact that State Farm could
administratively enforce its rights through a set-off from the
subsequent judgment against the tortfeasor rather than through a
separate reimbursement action against the insured does not change
our analysis. Thus, by denying Maynard a double recovery for his
medical expenses, we are merely giving effect to the unambiguous
language of the insurance contract.
C. Public Policy
Maynard argues that even if the wording of the
insurance contract supports State Farm's interpretation, State
Farm should be prohibited from seeking reimbursement as a matter
of public policy.
1. Conflict of interest
Maynard contends that allowing reimbursement would
create a conflict of interest for the insurer which is untenable
in light of the fiduciary obligations which it owes to its
insured. He cites Baugh-Belarde Construction Co. v. College
Utilities Corp., 561 P.2d 1211 (Alaska 1977), where this court
enumerated the policies underlying the rule prohibiting an
insurer from subrogating against its own insured. In that case,
this court quoted at length from a Montana Supreme Court opinion:
To permit the insurer to sue its own insured
for a liability covered by the insurance
policy would violate . . . basic equity
principles, as well as violate sound public
policy. Such action, if permitted, would (1)
allow the insurer to expend premiums
collected from its insured to secure a
judgment against the same insured on a risk
insured against; (2) give judicial sanction
to the breach of the insurance policy by the
insurer; (3) permit the insurer to secure
information from its insured under the guise
of policy provisions available for later use
in the insurer's subrogation action against
its own insured; (4) allow the insurer to
take advantage of its conduct and conflict of
interest with its insured; and (5) constitute
judicial approval of a breach of the
insurer's relationship with its own insured.
Id. at 1214-15 (quoting Home Ins. Co. v. Pinski Bros., Inc., 500
P.2d 945, 949 (Mont. 1972)).
The cases giving rise to the rule prohibiting
subrogation against one's own insured all involve situations in
which the insurer paid out on a loss to its insured and then
sought to hold a second coinsured party under the same insurance
contract liable for the loss. See Atlas Assurance Co. of America
v. Mistic, 822 P.2d 897 (Alaska 1991) (husband and wife); Alaska
Ins. Co. v. RCA Alaska Communications, Inc., 623 P.2d 1216
(Alaska 1981) (landlord and tenant); Baugh-Belarde Constr. Co. v.
College Utils. Corp., 561 P.2d 1211 (Alaska 1977) (general
contractor and subcontractor); Graham v. Rockman, 504 P.2d 1351
(Alaska 1972) (bailor and bailee). Here, in contrast, the two
insureds have unrelated insurance contracts. Thus, we must
determine whether the differences between these two factual
contexts compel a different result.
Maynard argues that the same conflict of interest
concerns exist in this case. In support, he points to the fact
that he was required to submit to an independent medical
examination (IME) as a condition of receiving his Medical
Payments Coverage. Then, because he failed to object, the
results of this examination were turned over to the claims
adjustor who was handling the defense of his claim against
Madison.7 The claims adjustor proceeded to use the exam results
to try to obtain a favorable settlement for State Farm.
Although some conflict concerns do exist in the IME
situation, we conclude that they are not as great as in the
coinsureds setting. In both cases, the insured party has a duty
to assist the insurance company in its investigation of the loss.
However, differences in the nature of the coverage necessarily
define the scope of the investigation. Because the insured is
entitled to Medical Payments Coverage no matter who is at fault,
the only issues in the context of an IME are the extent of the
injury and the reasonableness of the medical expenses.8 In
contrast, where the insurance company carries out an
investigation of a claim under a general liability policy, the
scope of the inquiry will likely be much broader. Thus, there is
greater danger that information discovered as a result of the
coinsured's duty to cooperate will be used to establish liability
against him.
Regarding the more general concerns about the insurer's
fiduciary duties to its insured, State Farm notes:
The right to reimbursement provision is a
contractual setoff distinct from a
subrogation action. Enforcement of the
provision is not the functional equivalent to
suit against one to whom the insurer owes an
indemnity obligation.
In other words, where both the claimant and tortfeasor are
insured by the same company, this provision does not give rise to
a cause of action initiated by the insurance company against its
insured. Instead, it is an automatic setoff which occurs only as
a result of the insured seeking damages which he has already been
compensated for under his own policy.
Finally, to the extent that an insured party is
disadvantaged with respect to his nonmedical claims,9 simply
permitting double recovery of medical expenses is a poor means to
compensate for this harm.10 Such a rule would make the insured's
recovery for these losses dependent on the fortuity of how great
or small his medical expenses were, rather than on the actual
harm resulting from the insurance company's breach of its
fiduciary duty.
2. Windfall
Maynard argues that allowing State Farm to seek
reimbursement gives it a windfall due to the way in which
insurance companies calculate their premiums. In Cooper v.
Argonaut Insurance Cos., 556 P.2d 525, 527 (Alaska 1976), we
acknowledged that in determining actuarial risk -- and therefore
insurance premiums -- insurance companies do not consider the
possibility of recovery of the loss from third parties because of
the difficulty of determining the mathematical probability of
such recovery. Thus, when an insurer does recover a loss from a
liable third party it receives a windfall. Here, where the
insurer insures both parties in a car accident, the windfall is
certain. This is because the insurance company has collected
premiums from both parties but only pays out once for the insured
loss. Maynard concludes, "Given the potential for abuses and the
conflicts of interest when State Farm insures both parties to a
claim, equity favors having the unanticipated windfall fall to
the injured insured." Finally, Maynard argues that although he
admittedly would receive a double recovery for his medical
expenses, this court will countenance such a recovery where
public policy warrants. As an example, he cites the collateral
source rule, which states that "a tort-feasor is not entitled to
have his liability reduced merely because [the] plaintiff was
fortunate to have received compensation for his injuries or
expenses from a collateral source."11 Tolan, 699 P.2d at 1267
(quoting Ridgeway v. North Star Terminal and Stevedoring, Inc.,
378 P.2d 647, 650 (Alaska 1963)).
The superior court below rejected this argument, and we
reject it as well. The medical payments provision performs
numerous important functions. It permits speedy reimbursement
for medical expenses without regard to fault; it assures coverage
when the insured is involved in an accident with an uninsured or
underinsured driver; and in situations where both parties to an
accident are insured by the same insurer it sometimes eliminates
the need for costly litigation to determine fault. Although
there may be some merit to the argument that insurance companies
receive a small windfall,12 as noted above, the language of the
insurance policy unambiguously precludes double recovery.
Further, both this court and courts from other states generally
disfavor double recoveries unless strong policies warrant. See,
e.g., Murray v. Feight, 741 P.2d 1148, 1159-60 (Alaska 1987);
Cozzi v. Government Employees Ins. Co., 381 A.2d 1235, 1240 (N.J.
Super. 1977). We conclude that no such policies exist in this
case because the windfall and any conflict of interest which
arises out of the fact that State Farm insured both Maynard and
Madison are minimal.
IV. CONCLUSION
Neither the insurance contract language nor public
policy prohibits State Farm from seeking reimbursement for the
medical expenses it paid under Maynard's Medical Payments
Coverage if he proceeds with his action against Madison. We
therefore AFFIRM the superior court's grant of summary judgment
in favor of State Farm.
_______________________________
1 Summary judgment was granted in favor of State Farm on
Maynard's class action before the class was certified.
2 State Farm argues that settlement of the Maynard-
Madison litigation renders this appeal moot. First, State Farm
argues that because the settlement agreement was structured so
that none of the compensation was for medical expenses, it may
not seek reimbursement. Second, State Farm notes that Maynard
has already been made whole for all injuries arising out of the
accident. He has received compensation for his medical expenses
through his own Medical Payments Coverage, and compensation for
all other damages through his settlement with Madison.
A case is moot if the party bringing the action would
not be entitled to any relief even if they prevail. See Kleven
v. Yukon-Koyukuk School District, 853 P.2d 518, 523 & n.8 (Alaska
1993). In the present case, the settlement agreement was amended
to reserve "Maynard's rights enumerated in Maynard v. State Farm
Auto Insurance Co., 3AN-93-6074 Civ." We interpret this language
as meaning that if he prevails on the merits of this appeal,
Maynard may pursue his claim for medical expenses against Madison
free from State Farm's claims for reimbursement. Thus, we
conclude this case is not moot.
3 Maynard also relies on a letter from Joe Huddleston, an
attorney representing State Farm in an unrelated action brought
by another claimant, Dale Johnson. Although this letter may be
evidence of a course of dealing on the part of State Farm, it
does not change our estoppel analysis.
4 Maynard also cites Alaska Pacific Assurance Co. v.
Collins, 794 P.2d 936 (Alaska 1990), for the proposition that in
insurance litigation, an insured need not demonstrate all of the
typical elements of estoppel but need only show that the insurer
took inconsistent positions in the litigation. However, Collins
is more properly characterized as dealing with the issue of
waiver. In that case, the insurer consistently maintained in its
summary judgment briefing, testimony at trial, and argument over
proposed jury instructions, that only a particular exclusion
applied, and on only one occasion suggested that any other
exclusion might apply. Id. at 942. It was only on appeal that
the insurer sought to raise a second exclusion which might limit
coverage. We therefore concluded that the insurer had waived
this defense. In contrast, we do not consider a single letter
written by a claims adjustor early in the litigation sufficient
to constitute waiver.
5 Maynard's argument that he would be entitled to partial
reimbursement for attorney's fees if he recovered medical
expenses in his suit against Madison is based on Cooper v.
Argonaut Insurance Co., 556 P.2d 525 (Alaska 1976). In Cooper,
we held that an insurer must pay its pro rata share of attorney's
fees when it benefits from a lawsuit filed by its insured against
a third party. State Farm argued before the trial court that
because any reimbursement which it might receive as a result
would ultimately come from itself, it would not be benefitted by
Maynard pursuing this action. This argument would hold true
whether State Farm's theory was based on subrogation or
reimbursement.
6 This language is necessary because we held in Tolan v.
ERA Helicopters, Inc., 699 P.2d 1265, 1267 (Alaska 1985), that an
insured who has received payment under an insurance policy may
still bring a claim against the tortfeasor for the covered loss.
7 This practice, known as "backdooring," was held to be a
violation of the insurer's fiduciary duty to its insured by a
California appeals court. Betts v. Allstate Ins. Co., 201 Cal.
Rptr. 528, 534-35 (Cal. App. 1984). However, in Betts the
insured expressly refused to give authorization to Allstate to
share her files. Here, the letter demanding that Maynard submit
to a medical examination put the insured on notice of its
practice to share information unless Maynard submitted a written
request that it not be done.
8 We acknowledge the risk that an insured party will
inadvertently make a statement during the course of the IME which
could affect recovery in a later action. However, this risk is
relatively small because determining liability is not the purpose
of the IME.
We note that despite Maynard's discussion of several
hypothetical instances in which an insured might be prejudiced,
in the present case, the claims adjustor used nothing more than
the doctor's medical evaluation in his settlement negotiations.
Maynard was therefore placed in no worse position than had he
submitted to a medical exam pursuant to Alaska Civil Rule 35. To
the extent he disagreed with the doctor's prognosis, he would be
entitled to have his own doctor evaluate his condition and
testify at trial.
9 For example, an insurance company might use information
it received as a result of the IME regarding the extent of the
injuries in order to assess the validity of damage claims for
pain and suffering.
10 We note that the harm which results, if any, is not
from the insurer seeking reimbursement. It arises from the
information which is gained by the insurer when the insured
initially seeks his Medical Payments Coverage. As such, denying
reimbursement will not "solve" the potential conflict which
arises from the receipt of this information. That is, even if
the insured is allowed a double recovery for his medical
expenses, the insurer will still have the IME results to use in
defending or settling the insured's non-medical claims.
11 This rule is based on the culpability of the
tortfeasor, and, as such, is not applicable to compensation
payments made by an insurer. Cozzi v. Government Employees Ins.
Co., 381 A.2d 1235, 1240 (N.J. Super. 1977).
12 State Farm notes, however, that Maynard presented no
evidence that insurance companies do not factor the chance of
recovery into their premium rates.
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