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Safety National Casualty Corp. v. Pacific Employers Insurance Co. (11/29/96), 927 P 2d 748
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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, telephone (907) 264-0607, fax (907)
264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
SAFETY NATIONAL CASUALTY )
CORPORATION, )
) Supreme Court No. S-7335
Appellant, )
) Superior Court No.
) 3AN-93-3832 Civil
v. )
) O P I N I O N
PACIFIC EMPLOYERS INSURANCE )
COMPANY, a corporation; FIRST )
STATE INSURANCE COMPANY, a ) [No. 4440 - November 29, 1996]
corporation; and FLORIDA )
INSURANCE GUARANTY ASSOCIA- )
TION, INC., a corporation, )
)
Appellees. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Milton M. Souter, Judge.
Appearances: Brooks W. Chandler and Krista S.
Stearns, Hicks, Boyd, Chandler & Falconer,
Anchorage, for Appellant. Mark A. Sandberg
and William W. Wuestenfeld, Sandberg,
Wuestenfeld & Corey, Anchorage, for Appellees.
Before: Compton, Chief Justice, Rabinowitz,
Matthews and Fabe, Justices. [Eastaugh,
Justice, not participating.]
FABE, Justice.
I. INTRODUCTION
This is a dispute between two insurers, one primary and
the other excess. The primary insurer entered into a settlement
agreement on behalf of its insured and now seeks to hold the excess
insurer responsible for a share of attorney's fees under Alaska
Civil Rule 82. We hold that the excess insurer is not responsible
for a portion of Rule 82 attorney's fees.
II. FACTS AND PROCEEDINGS
A. Background
On November 18, 1985, Norbert Brey was injured in a car
accident. Brey was allegedly riding in an infant car seat
manufactured by Spalding & Evenflo Companies, Inc. (Spalding).
Brey's representatives sued Spalding. Spalding carried several
layers of insurance, provided by four different carriers: First
State Insurance Company (First State), Safety Mutual Casualty
Corporation (Safety), Integrity Insurance Company (Integrity), and
Pacific Employers Insurance Company (Pacific). Only Safety and
Pacific are parties to this appeal. Safety alleges that Spalding's
liability insurance policies had the following limits:
Insurer Policy Limits
First State up to $1 million
Safety $1 million to $2 million
Integrity $2 million to $5 million
Pacific $5 million to $11 million
Safety paid Spalding $1,400,100 to settle Brey's claim. Of that
sum, approximately $510,000 was the remainder of Safety's $1
million liability policy limit, which had been eroded by prior
payments. The rest of the settlement, approximately $890,000,
represented attorney's fees payable under Rule 82 and Schultz v.
Travelers Indemnity Co., 754 P.2d 265, 265 (Alaska 1988). This
figure for attorney's fees was established by applying Rule 82 to
a hypothetical jury award of $9 million.
Safety demanded contribution from the other insurers for
the Rule 82 fees. Pacific refused to contribute, arguing that it
was an excess insurer (EN1) and thus had no obligation to pay any
share of the Rule 82 fees.
Safety advanced the entire settlement amount and reserved
the right to pursue contribution from the other insurers. Safety
then brought a declaratory judgment action to determine the other
insurers' obligations for Rule 82 fees. Safety argued that Pacific
adopted the supplemental payments terms of the Safety policy
through Pacific's "following form"clause, making it a co-insurer
for such payments.
Pacific moved for judgment on the pleadings and/or
summary judgment. Safety filed a cross-motion for partial summary
judgment. After oral argument, the superior court ruled that
Pacific was an excess insurer and thus not responsible for a share
of Rule 82 fees. Safety appeals.
B. The Policies
While acknowledging that Pacific is an excess liability
insurer, Safety argues that as to Rule 82 fees, Pacific and Safety
are co-primary insurers. The relevant language from both policies
follows.
Pacific's Certificate of Excess Insurance lists Safety
and another insurance company not a party to this action as the
primary insurers. It also states that "this certificate is to
indemnify the Insured in accordance with the applicable insuring
agreements, exclusions and conditions of the primary insurance for
excess loss as specified in Item 6 (Description of Excess
Insurance) of the declarations." The certificate further provides,
in its "following form"clause:
The insurance afforded by this certificate
shall follow that of the primary insurance
except:
. . . (2) the insurance afforded by
this certificate shall not apply to
any expenses for which insurance is
provided in the primary insurance .
. . .
The Safety policy provided that Safety would pay the
"ultimate net loss"owed by the insured as damages. According to
Safety, the limit on its "ultimate net loss"obligation was $1
million. The Safety policy also had a supplemental payments clause
which provided that in addition to the ultimate net loss, Safety
would "pay all expenses incurred by the Corporation, [and] all
costs taxed against the Insured in any suit defended by the
Corporation." The parties do not dispute that this supplemental
payments clause obligates Safety to pay for Rule 82 attorney's
fees.
III. DISCUSSION
This case involves the interpretation of a written
contract based solely on documentary evidence, which we review in
our independent judgment. Horace Mann Ins. Co. v. Colonial Penn
Ins. Co., 777 P.2d 1162, 1164 (Alaska 1989).
Insurance contracts are interpreted "in accordance with
the reasonable expectations"of the insured. Fulton v. Lloyds &
Inst. of London Underwriting Cos., 903 P.2d 1062, 1068 (Alaska
1995). This is true even if "painstaking study of the policy
provisions would have negated those expectations." State v.
Underwriters at Lloyds, 755 P.2d 396, 400 (Alaska 1988) (quoting
Robert E. Keeton, Basic Text on Insurance Law sec. 6.3(a), at 351
(1971)).
Safety admits that it provided unlimited primary coverage
for Rule 82 fees. Spalding, by paying its premium to Safety,
acquired coverage for any and all court-taxed costs. Safety
acknowledges that its coverage for such costs was unlimited. (EN2)
The purpose of insurance is to protect against third-party claims,
not to insure the solvency of the underlying insurers, absent
policy language to the contrary. See Alaska Rural Elec. Coop.
Ass'n, 785 P.2d at 1195 (holding that absent policy language to the
contrary, excess insurer will not be presumed to have duty to drop
down and cover losses insured by primary insurer). The insured
would not reasonably expect the excess insurer to provide
duplicative coverage for court-taxed costs, having already covered
such costs completely in the primary insurance. (EN3)
There is no indication in the record or the policy that
Spalding intended to "double insure"against court-taxed costs.
Nor is there any indication that the insured thought that Pacific
and Safety were co-primary insurers for any purpose. (EN4) In the
absence of such indications, we assume that Spalding reasonably
expected to insure against the risk of paying court- taxed costs
once.
The general expectation that governs the relationship
between primary and excess insurers is "that the primary insurer
will conduct all of the investigation, negotiation and defense of
claims until its limits are exhausted." John A. Appleman,
Insurance Law and Practice sec. 4682, at 28 (Berdal ed. 1979).
Only when the primary insurer's limits are exhausted do obligations
on the part of the excess insurer arise. Id. at 29-30. 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. State Farm Mut. Auto. Ins. Co.
v. Harrington, 918 P.2d 1022, 1026-27 (Alaska 1996); Schultz v.
Travelers Indem. Co., 754 P.2d 265, 267 (Alaska 1988). Here Safety
did not exhaust its policy limits when it paid both the $510,000,
representing the remainder due under its facial limits, and the
approximate sum of $890,000, representing what the parties agreed
would be attorney's fees under Rule 82. Since these sums were
within the Safety policy limits, Pacific has no liability to
reimburse Safety for them.
IV. CONCLUSION
We conclude that the insured would not have reasonably
expected Pacific to provide coverage already provided in the Safety
policy. The judgment of the superior court is AFFIRMED.
ENDNOTES:
1. Excess insurers provide coverage for claims that exceed the
primary insurance coverage. Because of the relatively smaller risk
of such a catastrophic loss, excess insurance carries
proportionately lower premiums that reflect the lesser probability
that such insurance will ever be called upon. See Alaska Rural
Elec. Coop. Ass'n v. INSCO Ltd., 785 P.2d 1193, 1194 (Alaska 1990).
2. Safety was not required to provide unlimited coverage. In
1985, at the time of the events that gave rise to this case, 3 AAC
29.010(a) (repealed July 1, 1996) allowed insurers to limit their
exposure for Rule 82 fees subject to certain restrictions, such as
a notice requirement and a minimum level of coverage. On July 1,
1996, that regulation was replaced with 3 AAC 26.500 -.550. The
new regulations also allow insurers to limit their exposure to Rule
82 fees, but the notice requirement and minimum standards now
depend on the terms of the policy.
3. Had Safety limited its liability for Rule 82 fees, Spalding
probably would have wanted to procure additional coverage for
court-taxed costs beyond the Safety policy limits. To the extent
that the Safety policy did not cover all court-taxed costs, the
Pacific excess insurance presumptively could have been ready to
fill the breach.
4. Compare our recent decision in Fulton, 903 P.2d at 1062. In
Fulton, only one policy was issued to the insured. Id. at 1068.
Lloyds contended that it was only an excess insurer and thus could
not be bound by the primary insurer's decisions and conduct in the
defense of the insured. Id. at 1067-69. However, we found that
because only a single policy was issued and it did not specifically
differentiate the duties of the two carriers, the insured would
reasonably expect both insurers to be responsible for the defense
of the insured. Id. at 1068-69. Unlike the policies in Fulton,
the policies issued here were separate and distinct.
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