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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. C.P. v. Allstate Insurance Company (3/3/00) sp-5245

C.P. v. Allstate Insurance Company (3/3/00) sp-5245

     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.



             THE SUPREME COURT OF THE STATE OF ALASKA
                                 


C.P. by and through her next       )
friend, M.L., M.L., individually,  )    Supreme Court No. S-8606
and D.B.,                          )
                                   )    United States District
               Plaintiffs,         )    Court No. J96-0017 CV (JKS)
                                   )
          v.                       )    O P I N I O N
                                   )
ALLSTATE INSURANCE COMPANY and     )    [No. 5245 - March 3, 2000]
SHERYL NORTON,                     )
                                   )
               Defendants.         )
___________________________________)



          Certified Question from the United States
District Court for the District of Alaska,
                 James K. Singleton, Chief Judge.


          Appearances:  Steven Lewis Hempel, Juneau, for
Plaintiffs.  Gregory W. Lessmeier, Lessmeier & Winters, Juneau, and
Peter J. Valeta and Jeffrey A. Berman, Ross & Hardies, Chicago,
Illinois, for Defendants. Bruce P. Babbitt, Jameson, Babbitt,
Stites & Lombard, P.L.L.C., for Amicus Curiae J.D. Glass & Door,
Inc. 


          Before: Matthews, Chief Justice, Eastaugh,
          Fabe, Bryner, and Carpeneti, Justices.  


          EASTAUGH, Justice.


I.   INTRODUCTION
          The adult son of homeowners assaulted a child visiting
their home.  The child and her parents sued the homeowners,
claiming they negligently caused her injuries.  Invoking exclusions
for intentional and criminal acts, the homeowners' liability
insurer refused to defend.  The homeowners settled with the
claimants and assigned their rights against their insurer, and the
child's family then sued the insurer and its adjuster.  The United
States District Court for the District of Alaska, where that suit
is pending, has asked us to answer certified questions of state
law: (1) does the insurer's salaried claims adjuster owe tort
duties to the insureds; (2) does the insurance policy cover claims
that the homeowners negligently failed to do things that would have
protected the child; and (3) does a declaration of no coverage
affect the insurer's liability under the policy?  Applying our
existing case law, we answer "yes" to the first question.  We also
answer "yes" to the second question, because the insurance policy
did not unambiguously withhold coverage for claims alleging that
the homeowners acted negligently, and that their own conduct, not
derivative of their adult son's, was a legal cause of injury. 
Having found coverage, we do not reach the third question.
II.  FACTS AND PROCEEDINGS
          Dolan and Eleanor Lancaster were homeowners who resided
in their home with their adult son, Harold Lancaster, and Harold's
daughter, C.L. [Fn. 1]  C.P., an eleven-year-old friend of C.L.,
spent the night of November 11, 1995, with C.L. in the Lancaster
home.  C.P.'s parents did not know that Dolan and Eleanor were out
of town that night and that Harold Lancaster was staying at the
house.  While C.P. was at the Lancasters' home, Harold Lancaster
physically and sexually assaulted her.
          Allstate Insurance Company had issued a homeowner's
insurance policy to Dolan and Eleanor Lancaster.  The policy
covered liability for bodily injury "arising from an accident," and
required Allstate to defend the insureds against covered claims. 
It excluded coverage for injury resulting from intentional or
criminal acts.  It also contained a "joint obligations" clause.  
          In December 1995 C.P. and her parents sued Harold, Dolan,
and Eleanor for personal injury.  The complaint alleged that Harold
assaulted C.P., causing injury to her.  It also alleged that the
elder Lancasters were negligent (in failing to disclose Harold's
presence or his alleged propensity to assault children and in
failing to watch over C.P.), and that "[a]s a direct and proximate
result" of the elder Lancasters' negligence, the plaintiffs
suffered damages. [Fn. 2]  The claims against the elder Lancasters
were based on their alleged negligence, and did not attempt to
attribute Harold's acts to them.
          The elder Lancasters tendered to Allstate the defense of
C.P.'s claims against the elder Lancasters.  Allstate assigned
Sheryl Norton, a salaried Allstate employee, to investigate C.P.'s
claims.  Norton in turn consulted attorney Mark Wilkerson.
Wilkerson raised doubts about coverage which Norton relayed to her
superiors.  Allstate then denied coverage and notified all three
Lancasters that it would not defend them against C.P.'s claims. 
          In April 1996 Dolan and Eleanor Lancaster entered into a
settlement agreement with C.P.  Per the agreement, Dolan and
Eleanor confessed judgment to C.P. and agreed that the amount of
C.P.'s damages would be arbitrated.  Dolan and Eleanor also
assigned to C.P. the right to assert the elder Lancasters' claims
against Allstate and permitted C.P. to continue to pursue claims
against Harold.  C.P. agreed not to collect damages from Dolan and
Eleanor except as necessary to prosecute the assigned claims.  The
claims went to arbitration; the Lancasters did not appear and
offered no evidence.  The arbitrator found Dolan and Eleanor's
liability to be $474,330.
          C.P. sued Allstate on the elder Lancasters' assignment.
After proceedings not relevant here, Chief Judge James K. Singleton
of the United States District Court for the District of Alaska
issued a certification order asking us to answer three questions of
state law.  We quote the questions below.  Summarized, they concern
the potential tort duties of Allstate's adjuster, Allstate's
coverage obligations, and the effect of a declaration of no
coverage. 
          We accepted certification of these three questions. [Fn.
3]
III. DISCUSSION
     A.   Standard of Review
          The certified questions are questions of law.  To answer
them, we adopt the rule of law that is most persuasive in light of
precedent, reason, and policy. [Fn. 4]   
     B.   Does an Insurer's Salaried Adjuster Owe the Insureds a
Tort Duty of Reasonable Care?

          The district court first poses this certified question:

          Does a salaried employee in the claims
department of an insurance company owe those who are insured by the
company a duty enforceable in a tort action against the employee
personally to exercise reasonable care in connection with claims by
the insureds that are assigned to the employee for investigation,
evaluation and adjustment, to avoid interfering with the insureds'
rights under the policy of liability insurance to receive a defense
and indemnity against tort claims made against them by third-
parties? 
          C.P. argues that Alaska law already recognizes a cause of
action against liability insurers' adjusters for negligent
adjustment (including investigation and evaluation) of a claim.
C.P. relies on two cases -- Continental Insurance Co. v. Bayless &
Roberts, Inc. [Fn. 5] and Sauer v. Home Indemnity Co. [Fn. 6] -- to
support her contention.  Amicus J.D. Glass & Door, Inc. supports
C.P.'s contention. 
          Allstate contends that an insured's claims for negligent
adjustment are contract claims which can only be made against
Allstate itself.  (Allstate also contends that the settlement
agreement permitted C.P. to sue only Allstate, and that the
Lancasters' assignment does not cover suits against Norton.  We do
not consider this contention because it is not part of the
certified question.)
          The Continental line of cases answers the broad question
posed.  The Continental Insurance Company discovered midway through
its defense of its insured, Bayless & Roberts (B & R), that B & R
had changed its story as to the facts of the third-party liability
claim being litigated. [Fn. 7]  When Continental refused to defend
B & R further, B & R sued it and its claims adjuster, Arthur
Stanford. [Fn. 8] 
          Stanford held the title of branch manager at the
Underwriters Adjusting Company. [Fn. 9]  But we recognized that
Underwriters Adjusting was a subsidiary of Continental Corporation
and functioned as the claims department of Continental Insurance
Company, another subsidiary. [Fn. 10]  We also concluded that
Stanford was "Continental's claims adjuster" [Fn. 11] and that
"Continental assigned the adjustment of the . . . claim against B
& R to Stanford." [Fn. 12]
          B & R's suit against Stanford alleged that "Stanford
breached his fiduciary duty in failing to adequately investigate"
the claim in question, and in failing to fully inform B & R,
Continental, and Continental's attorney of the facts of the case.
[Fn. 13]
Stanford contended that "he had no duty to B & R under his contract
with Continental that would subject him to personal liability."
[Fn. 14]
We concluded that "Stanford could not be held liable for a breach
of the fiduciary duty of good faith arising out of the insurance
contract, but he could be held liable for negligence arising out of
a breach of the general tort duty of ordinary care." [Fn. 15]
          Allstate argues that Continental is "legally and
factually inapplicable here" because it concerned a "third party
adjuster," not an "employee" of the insurer, and it concerned
defense of a claim, not negligent "investigation."  But we treated
Stanford as though he were the insurer's employee, [Fn. 16] and the
suit dealt directly with Stanford's allegedly negligent
investigation. [Fn. 17]
          Allstate alternatively contends that two cases we decided
after Continental -- O.K. Lumber Co. v. Providence Washington
Insurance Co. [Fn. 18] and Alaska Pacific Assurance Co. v. Collins
[Fn. 19] -- "clearly dictate a finding that the employee is not
personally liable."  C.P. asserts that Sauer dictates the opposite
result.  
          Both cases Allstate cites are inapposite, and each
undercuts Allstate's argument.  In O.K. Lumber, Providence
Washington insured two companies that caused property damage to
O.K. Lumber. [Fn. 20]  When O.K. Lumber sued the two companies,
Providence Washington defended them.  In one suit, O.K. Lumber
recovered a substantial judgment that exceeded what Providence
Washington had unsuccessfully offered to pay.  In the other,
Providence Washington eventually paid O.K. Lumber's entire claim. 
O.K. Lumber then sued Providence Washington for bad faith. [Fn. 21] 
We held that third parties cannot maintain a cause of action
against insurers for bad faith: "An insurer could hardly have a
fiduciary relationship both with the insured and a claimant because
the interests of the two are often conflicting." [Fn. 22]  
          O.K. Lumber is distinguishable because Providence
Washington's insureds had not assigned their rights to O.K. Lumber. 
But we recognized there that "[t]he insured's cause of action for
breach of the implied covenant is assignable to the injured third
party claimant." [Fn. 23]  Because C.P. is the assignee of the
insureds' rights against their insurer, she is suing as a first
party, not as a third party.  O.K. Lumber therefore supports C.P.'s
claim.
          Collins is also distinguishable, but nonetheless supports
C.P.'s claim.  The insured there sued his liability insurer for bad
faith failure to provide a defense, and the jury found for the
insured. [Fn. 24]  Although we reversed the verdict because a jury
instruction had erroneously assumed facts not stipulated, we took
pains to reaffirm that "it was proper for the superior court to
permit [the insured] to sue on the implied covenant of good faith
and fair dealing in tort . . . ." [Fn. 25]
          C.P. refers us to Sauer, in which Delores Gross was sued
by residents of her trailer park. [Fn. 26]  She notified her
liability insurer, Home Indemnity, which retained Larry Larson, an
adjuster with Northern Adjusters. [Fn. 27]  Larson investigated and
sent a report to Home Indemnity; Home Indemnity then apparently
forgot about the claim. [Fn. 28]  Gross eventually filed for
bankruptcy, and sued Larson, Northern Adjusters, and Home Indemnity
for "negligent failure to investigate, adjust, resolve or defend"
her claim. [Fn. 29]  
          Summary judgment was entered against Gross.  We reversed,
noting: "In [Continental] we recognized that an insurance adjuster
owes a duty of care to the insured which is independent of any
contractual obligation arising out of the insurance policy, and
that a breach of this duty is actionable." [Fn. 30]  But we also
noted that "there was no motion before the court concerning the
adjusters' liability, separate from that of Home Indemnity, and the
record does not otherwise demonstrate the adjusters' right to
summary judgment . . . ." [Fn. 31] 
          Continental, which involved an adjuster whom we treated
as a direct employee of the insurer, and Sauer, which involved an
independent adjuster, establish that an insurer's adjusters
personally owe duties to an insured under a liability policy to
adjust (investigate and resolve) claims against the insured.  O.K.
Lumber and Collins confirm that proposition. 
          Does it matter that Norton was Allstate's salaried
employee?  Continental broadly indicates that it does not.  
          The certification order suggests that Restatement
(Second) of Torts sec. 766C (1979) might convince us to draw a
distinction between salaried employees and independent adjusters.
Section 766C bars recovery for nonphysical harm resulting from
interference with contract.  Because the parties' briefs have not
addressed the Restatement issue, we decline to address sec. 766C
here.
[Fn. 32]
          Thus, existing Alaska law answers the first question. 
The answer is "yes": the insurer's salaried insurance adjuster owes
the insureds the described duty of care.

     C.   Does the Insurance Policy Cover Claims that the
Homeowners Negligently Failed to Prevent a Child from Being Harmed
by Criminal or Intentional Acts?

          The second certified question asks:

          Does a homeowner's liability insurance policy
that provides coverage against "accidental" injuries and excludes
coverage for intentional and criminal acts (whether or not
prosecuted), treats the acts of one insured as the acts of all
insureds, and promises to defend the homeowner against suits for
"covered damages" even if the allegations are groundless, false or
fraudulent, obligate the insurer to defend and indemnify an insured
homeowner who is sued for (1) negligent supervision of an adult son
who resides on the premises and allegedly sexually assaulted a
young guest of his daughter's (the homeowner's granddaughter) on
the insured premises, (2) negligent failure to warn the parents of
the injured child that the adult son would be left in charge of the
premises during an extended absence by the homeowners, and (3)
negligent failure to protect a visitor lawfully on the premises
from foreseeable criminal activity, i.e., a sexual assault by a
resident?

          Well-known principles of insurance contract
interpretation govern our analysis.  The liability of an insurer is
generally determined by the terms of the policy it has issued. [Fn.
33]  Where an insurance company by plain language limits the
coverage of its policy, we recognize that restriction. [Fn. 34] 
But because an insurance policy is a contract of adhesion, we
construe it to give effect to the insured's reasonable
expectations. [Fn. 35]  In other words, "[t]he objectively
reasonable expectations of applicants and intended beneficiaries
regarding the terms of insurance contracts will be honored even
though painstaking study of the policy provisions would have
negated those expectations." [Fn. 36]   
          Construction of an insurance policy under the principle
of reasonable expectations does not depend on a prior determination
of policy ambiguity. [Fn. 37]  But where a clause in an insurance
policy is ambiguous in the sense that it is reasonably susceptible
to more than one interpretation, we accept the interpretation that
most favors the insured. [Fn. 38]
          In order to determine 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, relevant extrinsic evidence, and case law interpreting
similar provisions. [Fn. 39]  We construe grants of coverage
broadly and interpret exclusions narrowly. [Fn. 40] 
          1.   Coverage for "accident"  
          The family liability coverage part of Allstate's policy
covered "an insured person" against liability claims for "bodily
injury . . . arising from an accident."  It provides: "Subject to
the terms, limitations and conditions of this policy, Allstate will
pay damages which an insured person becomes legally obligated to
pay because of bodily injury or property damage arising from an
accident and covered by this part of the policy." 
          This part also imposed defense duties on Allstate: "If an
insured person is sued for [covered damages], we will provide a
defense . . . even if the allegations are groundless, false or
fraudulent."  Harold, Dolan, and Eleanor Lancaster are "insured
persons" under Allstate's policy.  There is no dispute about
whether C.P. suffered "bodily injury" as the policy defines that
term. 
          Allstate first argues that there is no coverage because
C.P.'s damages arise not from an "accident," as that word is used
in the liability coverage part, but from Harold's non-accidental
acts.  Allstate reasons that the elder Lancasters' purported
negligence was only "an antecedent contributing circumstance," and
"not the proximate cause of the loss."  In essence, Allstate
reasons that because Harold's conduct caused C.P. to suffer injury,
it is irrelevant that his parents' independent conduct also
allegedly contributed causally to the loss.  C.P. argues that from
the elder Lancasters' perspective, "this was an accidental loss,"
and cites in support the arbitrator's finding to that effect.
          The policy does not define "accident." [Fn. 41]  Nor does
it specify whether we are to apply the term subjectively -- from
the perspective of either the insured claiming coverage or the
victim -- or objectively. [Fn. 42]   Absent contract language
clearly specifying an objective perspective, our practice of
enforcing the insured's reasonable expectations requires us to
determine whether the loss was the result of an accident from the
perspective of the insureds claiming coverage.
          From the standpoint of the elder Lancasters, it is not
unreasonable that their interpretation of the policy focuses on the
acts C.P. attributed to them, as distinct from the acts she
attributes to Harold.  They were sued for their conduct, not
Harold's.  C.P. did not attempt to make them vicariously liable for
Harold's acts.  Rather, her complaint alleged that the elder
Lancasters' negligence legally caused injury to her.  To prevail
against them on that theory, C.P. had to prove that her injuries
resulted from their negligence, i.e., from unintended or unexpected
consequences of their conduct, regardless of whether there was more
than one cause of her injuries. [Fn. 43]  Thus, their liability was
effectively contingent on proof that an "accident" was a cause of
harm to C.P.
          Allstate's argument that the Lancasters' negligence was
only "a" cause and not "the proximate cause" of C.P.'s injuries is
unavailing.  The policy covers claims for injury "arising from an
accident."  That language does not incorporate any requirement that
an accident have been "the proximate cause."  Nor does it foreclose
coverage if an accident was only "a" cause.  The language "arising
from" is consistent with multiple causes.  It is also consistent
with our case law that recognizes in a tort context that a claimant
need only prove that a breach of duty is "a" proximate cause of
harm, not "the" proximate cause. [Fn. 44]
          Only a few cases appear to have dealt with this precise
issue and identical policy language. [Fn. 45]  In Allstate
Insurance Co. v. Worthington, [Fn. 46] the Tenth Circuit, applying
Utah law, found coverage where a man took hostages at a hospital
and fatally wounded a nurse.  The man's ex-wife (Brown) was sued
for negligently entrusting weapons to him and failing to warn the
victims. [Fn. 47]  Worthington reasoned that neither the policy's
intentional and criminal act exclusions nor its joint obligations
clause barred coverage for the negligence claims against Brown.
[Fn. 48]  Further, the court held that the allegations against her
constituted an "accident" under the policy's terms, even if her ex-
husband's acts were intentional. [Fn. 49] 
          The Eighth Circuit reached the opposite conclusion in
Allstate Insurance Co. v. Steele. [Fn. 50]  In that case, a
sixteen-year-old boy raped his twelve-year-old stepsister while she
was visiting her father and stepmother. [Fn. 51]  The victim's
mother asserted a negligent supervision claim against the father
and stepmother. [Fn. 52]  The court, applying Minnesota law,
reasoned that under the insurance policy's exclusions and joint
obligations clause, one insured's intentional act barred coverage
for claims against other insureds for negligent supervision. [Fn.
53]  Further, the court found that the stepbrother's intentional
and criminal sexual conduct was not an "accident" within coverage
provisions of the policy. [Fn. 54]   
          Allstate argues that Worthington is unpersuasive, and,
moreover, is now contrary to Utah law. [Fn. 55]  We nonetheless
find its reasoning more persuasive and more consistent with the
principles that govern insurance coverage disputes in Alaska.     
          Reading the liability coverage language in isolation, we
consequently reject Allstate's "accident" argument and hold that
C.P.'s claims against the elder Lancasters were within the
liability coverage part.
          2.   The exclusions and the joint obligations clause  
          The coverage language was potentially subject to other
relevant policy provisions: the criminal and intentional act
exclusions and the joint obligations clause.  The intentional act
exclusion excluded coverage for bodily injury "resulting from . . .
an act or omission intended or expected to cause bodily injury."
[Fn. 56]  The criminal act exclusion excluded coverage for bodily
injury "resulting from . . . a criminal act or omission." [Fn. 57] 
The joint obligations clause is found in the policy's "insuring
agreement." The joint obligations clause provides: "The terms of
this policy impose joint obligations on persons defined as an
insured person.  This means that the responsibilities, acts and
failures to act of a person defined as an insured person will be
binding upon another person defined as an insured person."  
          Allstate argues that both exclusions apply because C.P.'s
injuries resulted from Harold's intentional and criminal acts. 
Further, it argues that the joint obligations clause attributes the
conduct of one insured person -- Harold -- to the other insured
persons -- the elder Lancasters, thus confirming that the
exclusions apply to the claims against Dolan and Eleanor.  It
consequently does not matter to Allstate that only Harold's conduct
was intentional or criminal and that the elder Lancasters'
unintentional and noncriminal acts may also have been a causal
factor in C.P.'s injuries.
          C.P. does not deny that she was injured as a result of
Harold's intentional or criminal acts.  But she contends that the
Lancasters' negligence also caused her injuries, and that their
negligence should be treated independently for purposes of
determining coverage.  Her claims against the elder Lancasters
allege their direct liability and are based on her theory that they
negligently breached duties they owed to her.  Her claims do not
attempt to make the elder Lancasters vicariously liable for
Harold's intentional and criminal actions.  According to her, the
relevant question is "what coverage does the policy provide, or
possibly provide, for losses resulting from a combination of both
covered and excluded causes?"  She asserts that the policy does not
unambiguously exclude her claims because the exclusions do not
explicitly exclude coverage for a claim "which results partly or
entirely from an excluded cause, regardless of the cause, causes,
or combination of causes of the loss."
          The district court correctly noted that there is
"[p]ersuasive but conflicting authority" in other jurisdictions
regarding the effect of such policy language in context of injuries
allegedly caused by both negligent acts and intentional or criminal
acts.  It also correctly noted that we have considered the effect
of "multiple causation" in cases resolving insurance disputes, but
not in a case involving a joint obligations clause.  Finally, the
court recognized that Allstate's policy contains no "severability
of interest" clause that would clearly limit the effect of an
exclusion to the person claiming coverage. [Fn. 58]
          Allstate refers us to cases applying similar policy
language and holding that innocent insureds are not covered in
comparable circumstances. [Fn. 59]  C.P. seeks to distinguish these
cases. Some of these cases cannot be distinguished; they involve
policy terms that are substantially identical to the terms of
Allstate's policy here. [Fn. 60]
          Our analysis here focuses on the policy's language and
our case law.  The district court has not referred us to any
extrinsic evidence relevant to the contracting parties'
expectations.
          The exclusions do not resolve the question presented
here: is there coverage for a loss claimed to have resulted from a
combination of covered and uncovered conduct?  Instead, they
specify the types of injury to be excluded: injury resulting from
criminal or intentional conduct. [Fn. 61]  In doing so, they do not
expressly exclude injury caused in part by both unintentional or
noncriminal conduct.  The terms can be interpreted broadly to
exclude the resulting harm even if negligence was a contributing
cause, or they can be read narrowly to apply only to injuries
caused solely by intentional or criminal conduct.  We must
interpret exclusions narrowly. [Fn. 62]  And our discussion above
concerning coverage for an "accident" applies equally here.  From
the perspective of insureds whose acts are alleged to have
negligently, but not criminally or intentionally, been a cause of
a claimant's injury, these exclusions do not apply to the
negligence claims against them.  Likewise, with respect to C.P.,
the elder Lancasters' alleged conduct was allegedly negligent, and
therefore neither intentional nor criminal.  It thus triggered
neither exclusion.
          The broad exclusionary reading Allstate urges is
permissible.  But we conclude that reading the exclusions narrowly
is more consistent with the insureds' reasonable expectations that
they will be covered against claims that they negligently caused
injury.
          Worthington, which interpreted identical policy language,
supports this conclusion.  The court there declined Allstate's
invitation to focus only on the intentional act or "underlying
cause" of the complainant's injury. [Fn. 63]  Instead, the court
focused on the actual allegations of negligence against the
nonacting insured and reasoned that this negligence constituted an
"accident" under the policy terms and that the policy's intentional
act exclusion was inapplicable to these claims. [Fn. 64]  
          We next consider the effect of Allstate's joint
obligations clause.  We assume for discussion's sake that Allstate
is correct in asserting that this clause has the effect of
attributing Harold's intentional and criminal conduct to the elder
Lancasters. [Fn. 65]  But, for two reasons, this attribution does
not resolve the issue of whether the exclusions apply to the
negligence claims against the elder Lancasters.  First, it is not
clear how the joint obligations clause even bears on the
exclusionary language critical here.  The pertinent language of the
intentional act exclusion, Exclusion 1.a), [Fn. 66] seems to apply
without regard to who has acted intentionally.  In comparison,
Exclusion 1.b) [Fn. 67] applies only to acts of "an insured
person."  If it does not matter for purposes of Exclusion 1.a)
whether an insured person was the intentional actor, the joint
obligations clause, which attributes Harold's acts to the elder
Lancasters, is not relevant to Exclusion 1.a) either.  That means
that the exclusion must be interpreted without reference to the
joint obligations clause. 
          Second, if the joint obligations clause does apply to
this exclusion, it does not resolve the multiple-cause problem
discussed above.  Attributing Harold's alleged conduct to the elder
Lancasters still leaves open the possibility that the injury was
the result of both intentional and negligent acts.  Allstate had to
take the complaint's allegations as true, and had to assume that
the elder Lancasters' negligent acts or omissions were at least a
contributing cause of C.P.'s injuries.  Simply attributing Harold's
intentional conduct to the elder Lancasters does not clearly and
unambiguously withdraw coverage for C.P.'s claim that the elder
Lancasters' negligent, unintentional conduct injured her.  
          A similar analysis applies to the pertinent criminal act
exclusion, Exclusion 2.a).  Again, the joint obligations clause
does not clearly apply to this exclusion because it is not
unambiguously limited to the acts of insured persons. [Fn. 68]  And
again, the joint obligations clause does not deal unambiguously
with multiple causes of injury.
          We conclude that the attribution is irrelevant to either
exclusion where the claims against the insureds who claim coverage
are based on their negligent, unintentional, noncriminal conduct.
          A provision in a different part of Allstate's policy
supports our conclusion that the joint obligations clause does not
unambiguously resolve the problem of multiple causation.  The
property loss coverage part contains this exclusion:
          We do not cover loss to the property . . .
resulting in any manner from:
          
          . . . . 

          7.   One or more of the items listed below, if
that item is one of two or more causes of a loss and if the other
causes(s) of the loss is (are) excluded by this policy:
               a)   Conduct, act, failure to act, or
decision of any person, group, organization or governmental body
whether intentional, wrongful, negligent or without fault.  

This exclusion makes it clear that there is no coverage for
property losses in cases of multiple causes where all of the causes
are excluded under the policy.  Moreover, this clause defines one
class of excluded losses in terms of a cause, which, even though it
could be covered if it acted alone, is excluded because it combines
with a cause of loss expressly excluded by the policy.  This clause
therefore has the effect of excluding losses in multi-cause
situations.  This clause demonstrates that Allstate knew how to
address this multi-cause problem when it wanted to.  No equivalent
provision is to be found in Allstate's liability coverage.  The
joint obligations clause does not address this issue.  
          The property coverage part provides a second interesting
comparison.  It covers a "direct loss" caused by some events which
are otherwise excluded. [Fn. 69]  The policy defines "direct loss"
to include a loss caused by a named peril if it "is the last in
time to occur when the loss is caused by more than one peril." 
This definition again demonstrates that Allstate knew how to deal
with losses with multiple causes, in this example by using a last-
in-time approach. 
          We have held that the presence of a multi-cause exclusion
is significant. [Fn. 70]  In State Farm Fire & Casualty Co. v.
Bongen, [Fn. 71] we held that a multi-cause exclusion was not
ambiguous and that "an insurer may expressly preclude coverage when
damage to an insured's property is caused by both a covered and an
excluded risk." [Fn. 72]  The clause in Bongen expressly and
unambiguously resolved the problem presented by a loss that was
caused in part by both a covered cause and an excluded cause. [Fn.
73] 
          The Lancasters' policy contains no equivalent clause in
its liability coverage part.  Its use of analogous clauses in the
property loss coverage part demonstrates that Allstate knew how to
phrase an exclusion unambiguously when it wished to address
multiple causes.  An insured familiar with the entire policy could
reasonably conclude from the absence of a similar clause in the
liability coverage part that Allstate was not attempting to exclude
multiple causes with respect to the intentional and criminal act
liability exclusions.
          Both sides discuss the efficient proximate cause doctrine
in passing.  Allstate argues that we have never adopted the
doctrine in Alaska and that, in any event, it must yield to
unambiguous policy provisions.  It also argues that Harold's
conduct, not that of the elder Lancasters, was the efficient cause
of the loss.  In Bongen we considered the "efficient proximate
cause" rule, which we described as follows:
          "[W]hen a loss is sustained by a sequence or
concurrence of at least two causes, one covered under [an
insurance] policy and the other excluded under the policy, the
cause setting the chain of events in motion is the cause to which
the loss is attributed . . . ."  Other courts have defined
efficient proximate cause to mean the predominant cause, rather
than the cause which is first in time.[ [Fn. 74]]   
We decided "to recognize the efficient proximate cause rule only
when the parties have not chosen freely to contract out of it."
[Fn. 75] We held there that the unambiguous policy terms excluded
the loss. [Fn. 76] Justice Matthews, dissenting, stated that "it
seems correct to conclude that we have impliedly accepted the
efficient proximate cause doctrine.  Moreover, as noted, the
efficient proximate cause doctrine is widely accepted among
American jurisdictions.  There is no reason not to accept it in
Alaska." [Fn. 77]
          Allstate and the Lancasters did not contract out of the
efficient proximate cause rule, but that does not mean that it
applies here in order to defeat coverage.  The doctrine is a court-
made rule applied to preserve insureds' reasonable expectations.
[Fn. 78]  If a policy is ambiguous because it can be interpreted
reasonably both to cover and not to cover particular losses, there
is no reason to invoke the efficient proximate cause rule because
the ambiguous policy terms must be interpreted in favor of
coverage.  Perhaps the rule would apply if the claimant has
asserted that the insured seeking coverage has acted both
intentionally and negligently.  Consider, for example, an insured
homeowner who unjustifiably points a loaded pistol at a visitor,
who then flees in fright and is injured when he falls on the
homeowner's negligently maintained icy steps.  What is the
predominant cause of the injury, the criminal assault or the
negligent maintenance?  But C.P.'s complaint does not claim that
the elder Lancasters' acts were both negligent and intentional or
criminal.  And Allstate does not suggest that they knew Harold had
any propensity to assault children and that their conduct was in
fact intentional. [Fn. 79]  Accordingly, we see no reason to apply
the efficient proximate cause rule here. [Fn. 80]
          We conclude from the language of the entire policy that
Allstate did not clearly and unambiguously exclude coverage for the
claims that the elder Lancasters negligently contributed to C.P.'s
injuries.  We therefore hold that Allstate's policy covered C.P.'s
claims against the elder Lancasters.  
     D.   What Is the Effect of a Declaration of Coverage or Non-
          Coverage?

          Finally, the district court asks:
          Where an insurer obtains a declaratory
judgment against the insured determining that the policy of
insurance does not cover a liability asserted against the insured
in a personal injury action, does this judgment terminate the
insurer's duty to defend the insured in the personal injury action
both retroactively and prospectively?  In other words, does the
duty to defend survive a judicial determination that the underlying
claim was not within the terms of the policy, and if not, does the
successful assertion of a coverage defense in the declaratory
judgment action eliminate any liability for failing to provide a
defense while the issue of coverage was being determined?  If the
duty to defend does survive a determination that there was no duty
to indemnify, or if a successful insurer is still liable for
failing to provide a defense during the interim while the issue of
coverage was undecided, what is the measure of damages for breach
of the duty to defend in such a case?
          This question perceptively raises intriguing issues about
the effect of a successful coverage defense, and the procedural
implications of parallel lawsuits litigating personal injury and
declaratory relief coverage disputes. [Fn. 81]  But these issues
are moot because our answer to the second question establishes that
Allstate's policy covered C.P.'s claims against the elder
Lancasters.  That necessarily means that Allstate materially
breached its contractual duties by failing to defend the elder
Lancasters against C.P.'s claims and by anticipatorily denying a
duty to indemnify them.  Our reported cases thoroughly discuss the
legal effects of a liability insurer's material breach of duties it
owes its insureds. [Fn. 82]  We therefore need not answer the third
certified question.
IV.  CONCLUSION
          We therefore answer "yes" to Questions One and Two.  We
decline to answer Question Three, because it is mooted by our
answer to Question Two.



                            FOOTNOTES


Footnote 1:

     We rely here on the federal court's fact statements and the
excerpt.  We make no independent fact determinations.


Footnote 2:

     The certification order characterizes the claims against the
elder Lancasters as claims for "negligent failure to warn and
negligent failure to provide a safe environment on the insured
premises."  The second certified question describes the suit as one
for negligent supervision of the adult son, negligent failure to
warn C.P.'s parents, and negligent failure to protect a visitor.
The federal court's characterization of the claims is not critical
to our analysis.


Footnote 3:

     Alaska Rule of Appellate Procedure 407(a) provides:

          The supreme court may answer questions of law
certified to it by the Supreme Court of the United States, a court
of appeals of the United States, [or] a United States district
court . . . when requested by the certifying court if there are
involved in any proceeding before it questions of law of this state
which may be determinative of the cause then pending in the
certifying court and as to which it appears to the certifying court
there is no controlling precedent in the decisions of the supreme
court of this state.


Footnote 4:

     See City of Fairbanks v. Amoco Chem. Co., 952 P.2d 1173, 1176
(Alaska 1998) (concerning certified questions); D.D. v. Insurance
Co. of N. Am., 905 P.2d 1365, 1367 n.3 (Alaska 1995) (same).


Footnote 5:

     608 P.2d 281 (Alaska 1980).


Footnote 6:

     841 P.2d 176 (Alaska 1992).


Footnote 7:

     See Continental, 608 P.2d at 284-85.


Footnote 8:

     See id. at 285-86.


Footnote 9:

     See id. at 287.


Footnote 10:

     See id.


Footnote 11:

     Id. at 285.


Footnote 12:

     Id. at 287.


Footnote 13:

     Id. at 286 (emphasis added).


Footnote 14:

     Id. at 287.


Footnote 15:

     Id.  We also noted that "[t]his conclusion is consistent with
our decision in Austin v. Fulton Insurance Co., 498 P.2d 702
(Alaska 1972)."  Id. at 287-88.


Footnote 16:

     See id. at 285-87.


Footnote 17:

     See id. at 286. 


Footnote 18:

     759 P.2d 523 (Alaska 1988).


Footnote 19:

     794 P.2d 936 (Alaska 1990).


Footnote 20:

     See O.K. Lumber, 759 P.2d at 524-25.


Footnote 21:

     See id. at 525.


Footnote 22:

     Id. at 526.


Footnote 23:

     Id. at 525.


Footnote 24:

     See Collins, 794 P.2d at 940.


Footnote 25:

     Id. at 947.


Footnote 26:

     See Sauer, 841 P.2d at 178.


Footnote 27:

     See id. at 179.


Footnote 28:

     See id. at 179-80.


Footnote 29:

     Id. at 180.


Footnote 30:

     Id. at 184.


Footnote 31:

     Id.


Footnote 32:

     We note that we have rejected the distinction between physical
and economic losses which seems to underlie sec. 766C.  SeeMattingly
v. Sheldon Jackson College, 743 P.2d 356, 360 (Alaska 1987).  And
although we have not previously discussed sec. 766C, we have
declared
that agents can be held personally liable for their independent
tortious acts.  See Griffith v. Taylor, 937 P.2d 297, 308 (Alaska
1997) (holding attorney potentially liable for independent torts
committed while working for firm); Barber v. National Bank of
Alaska, 815 P.2d 857, 861-63 (Alaska 1991) (holding mortgage
collection employee potentially liable for negligence and
misrepresentation committed while working for bank).


Footnote 33:

     See Jones v. Horace Mann Ins. Co., 937 P.2d 1360, 1362 n.3
(Alaska 1997).


Footnote 34:

     See Insurance Co. of N. Am. v. State Farm Mut. Auto. Ins. Co.,
663 P.2d 953, 955 (Alaska 1983).  See also AS 21.42.230 (providing
"[e]ach insurance contract shall be construed according to the
entirety of its terms and conditions as set out in the policy and
as amplified, extended, or modified by a rider, endorsement, or
application that is a part of the policy"). 


Footnote 35:

     See Jones, 937 P.2d at 1362 n.3 (quoting Bering Strait Sch.
Dist. v. RLI Ins. Co., 873 P.2d 1292, 1294-95 (Alaska 1994)).


Footnote 36:

     Bering Strait Sch. Dist., 873 P.2d at 1295 (quoting Robert
Keeton, Basic Text on Insurance Law sec. 6.3(a), at 351 (1971)). 


Footnote 37:

     See Stordahl v. Government Employees Ins. Co., 564 P.2d 63, 66
(Alaska 1977).


Footnote 38:

     See Starry v. Horace Mann Ins. Co., 649 P.2d 937, 939 (Alaska
1982).  An ambiguity does not exist, however, merely because the
parties disagree as to the interpretation of a term.  An ambiguity
exists only where the contract as a whole and all the extrinsic
evidence support two different interpretations, both of which are
reasonable.  See Modern Constr., Inc. v. Barce, Inc., 556 P.2d 528,
529 (Alaska 1976).  


Footnote 39:

     See Stordahl, 564 P.2d at 66.


Footnote 40:

     See Hahn v. Alaska Title Guar. Co., 557 P.2d 143, 145 (Alaska
1976); Starry, 649 P.2d at 939.


Footnote 41:

     In ordinary usage, "accident" is commonly defined to mean
"[a]n unexpected and undesirable event . . . ."  Webster's II New
Riverside University Dictionary 71 (1994).  Black's Law Dictionary
states: "An accident within accident insurance policies is an event
happening without any human agency, or, if happening through such
agency, an event which, under circumstances, is unusual and not
expected by the person to whom it happens."  Black's Law Dictionary
15 (6th ed. 1990).  A leading insurance encyclopedia states, "an
accident is a distinctive event that is unforeseen and unintended,
which takes place at a date which can be fixed with reasonable
certainty."  9 Couch on Insurance sec. 126:26 (3d ed. 1999)
(citations
omitted).  In Alaska we have adopted a broad definition of accident
based on "the reasonable understanding or expectations of the
average person: if in common parlance an 'accidental result' is an
'accident,' the accidental results should be covered."  INA Life
Ins. Co. v. Brundin, 533 P.2d 236, 240 (Alaska 1975). 


Footnote 42:

     One encyclopedia states: "Most courts employ an objective
standard to determine whether injury was intentional.  In
accordance with this view, an act of sexual abuse is regarded as
intentional where injury is the natural and probable consequence of
the insured's actions."  9 Couch on Insurance sec. 127:26.  But
other
courts apply a subjective standard.  See id. (citing cases
utilizing subjective standard).  See also Black's Law Dictionary,
at 15, defining "accident."


Footnote 43:

     See 9 Couch on Insurance sec. 126:27.


Footnote 44:

     See, e.g., Buoy v. ERA Helicopters, Inc., 771 P.2d 439, 445
(Alaska 1989); Bakke v. State, 744 P.2d 655, 656 (Alaska 1987).


Footnote 45:

     Allstate refers us to Allstate Insurance Co. v. Roelfs, 698 F.
Supp. 815 (D. Alaska 1997).  Applying Alaska law, the court there
held that the intentional injury caused by one insured bars
coverage for claims of negligence against other insureds.  See id.
at 822.  But the policy language in Roelfs differs from the
Lancasters' policy language.  Roelfs therefore does not assist our
analysis of the present policy. 


Footnote 46:

     46 F.3d 1005, 1012-13 (10th Cir. 1995).


Footnote 47:

     See id. at 1007.


Footnote 48:

     See id. at 1010.


Footnote 49:

     Id.


Footnote 50:

     74 F.3d 878 (8th Cir. 1996).


Footnote 51:

     See id. at 880. 


Footnote 52:

     See id. 


Footnote 53:

     See id. at 881.


Footnote 54:

     Id. at 880.


Footnote 55:

     See State Farm Fire & Cas. Co. v. Geary, 869 P.2d 952, 954
(Utah App. 1994).


Footnote 56:

     Exclusion 1 addresses intentional acts.  It provides in
pertinent part:
          
          We do not cover bodily injury or property
damage resulting from: 
          a)   an act or omission intended or expected
to cause bodily injury or property damage.  This exclusion applies
even if the bodily injury or property damage is of a different kind
or degree, or is sustained by a different person or property, than
intended or expected; or
          b)   an act or omission committed by an
insured person while insane or while lacking the mental capacity to
control his or her conduct . . . .


Footnote 57:

     Exclusion 2 addresses criminal acts.  It provides in pertinent
part:

          We do not cover bodily injury or property
damage resulting from: 
          a)   a criminal act or omission; or
          b)   an act or omission which is criminal in
nature and committed by an insured person who lacked the mental
capacity to appreciate the criminal nature or wrongfulness of the
act or omission . . . .


Footnote 58:

     Cf. State v. Underwriters at Lloyd's, London, 755 P.2d 396,
399-400 (Alaska 1988); Marwell Constr., Inc. v. Underwriters at
Lloyd's, London, 465 P.2d 298, 305 (Alaska 1970). 


Footnote 59:

     See, e.g., Steele, 74 F.3d at 880-81; Castro v. Allstate Ins.
Co., 855 F. Supp. 1152, 1154 (S.D. Cal. 1994).


Footnote 60:

     See Steele, 74 F.3d at 880-81; Castro, 855 F. Supp. at 1154-
55. 


Footnote 61:

     In Hale v. Fireman's Fund Insurance Co., 731 P.2d 577, 579
(Alaska 1987), we discussed an exclusion denying coverage for
bodily injury "arising out of the ownership, maintenance,
operation, use, loading or unloading of (1) any automobile . . .
owned or operated by . . . any insured."  We held there that the
policy contained the exclusion to preclude coverage for the exact
type of loss involved in that case.  See id. at 581.  But that case
did not involve multiple alleged causes.  See id.


Footnote 62:

     See State v. Arbuckle, 941 P.2d 181, 184 n.3 (Alaska 1997);
Whispering Creek Condominium Owner Ass'n v. Alaska Nat'l Ins. Co.,
774 P.2d 176, 178 (Alaska 1989). 


Footnote 63:

     Worthington, 46 F.3d at 1010.


Footnote 64:

     Id.


Footnote 65:

     But cf. id. at 1009 (finding that identical "joint obligations
clause" refers only to affirmative duties to make payments and pay
premiums).


Footnote 66:

     See supra note 56.


Footnote 67:

     See supra note 56.


Footnote 68:

     The text of Exclusion 2.a) itself does not require that the
criminal act have been committed by an insured person.  Although
Exclusion 2 is subject generally to a caveat that it applies
regardless of whether "the insured person is actually charged with,
or convicted of, a crime," that general caveat may be intended to
apply only when it is an insured person who acts criminally.  If
so, when a person who is not an insured acts, there must be a
conviction.  We conclude that the joint obligations clause does not
unambiguously cause this exclusion to deny coverage for negligent
contributing causes.


Footnote 69:

     See, e.g., Section I Coverage A Exclusion 1, which contains an
exception providing: "[w]e do cover direct loss caused by fire
explosion or theft resulting from water damage." 


Footnote 70:

     See State Farm Fire & Cas. Co. v. Bongen, 925 P.2d 1042
(Alaska 1996).  


Footnote 71:

     925 P.2d 1042 (Alaska 1996). 


Footnote 72:

     Id. at 1045.


Footnote 73:

     See id. at 1043.  The clause read in pertinent part:

          We do not insure under any coverage for any
loss which would not have occurred in the absence of one or more of
the following excluded events.  We do not insure for such loss
regardless of: (a) the cause of the excluded event; or (b) other
causes of the loss; or (c) whether other causes acted concurrently
or in any sequence with the excluded event to produce the loss; or
(d) whether the event occurs suddenly or gradually, involves
isolated or widespread damage, arises from natural or external
forces, or occurs as a result of any combination of [the
following].

Id. 


Footnote 74:

     Id. at 1043 n.1 (quoting Schroeder v. State Farm Fire & Cas.
Co., 770 F. Supp. 558, 561 (D. Nev. 1991)).  


Footnote 75:

     Id. at 1045 (quoting Alf v. State Farm Fire & Cas. Co., 850
P.2d 1272, 1277 (Utah 1993)).


Footnote 76:

     See id.


Footnote 77:

     Id. at 1049 (Matthews, J., dissenting).


Footnote 78:

     See id. at 1052 (Matthews, J., dissenting); Garvey v. State
Farm Fire & Cas. Co., 770 P.2d 704, 710-11 (Cal. 1989); Kish v.
Insurance Co. of N. Am., 883 P.2d 308, 312 (Wash. 1994).  See also
2 Eric Mills Holmes, Holmes's Appleman on Insurance 2d sec. 6.2
(1996).


Footnote 79:

     Cf. Worthington, 46 F.3d at 1009-10.  Construing the evidence
most favorably to C.P., the district court stated in its
certification order that the elder Lancasters knew Harold was an
alcoholic, "but they had no specific advance notice that Harold
might sexually molest a child."


Footnote 80:

     Cf. Mutual of Enumclaw v. Wilcox, 843 P.2d 154, 159 (Idaho
1992) (finding injuries caused by molestation, not negligent
failure to supervise).


Footnote 81:

     One significant question is the effect of a final judgment of
liability resulting from breach of the defense duty notwithstanding
a subsequent declaration that the policy did not cover the claim. 
See Amato v. Mercury Cas. Co., 61 Cal. Rptr. 2d 909, 914 (Cal. App.
1997) (finding that insurer who wrongfully refuses to defend must
pay full default judgment even if claim was not covered by policy);
cf. Grace v. Insurance Co. of N. Am., 944 P.2d 460, 468 (Alaska
1997) (finding that insurer had no duty to defend but that evidence
that insurer had taken position that it had no duty to indemnify
until limits of insured's underlying policies were actually paid
created fact issue as to whether insurer anticipatorily repudiated
policy).

          C.P. argues that the arbitration award conclusively
established the issues of negligence, causation, and damages, and
binds Allstate.  The district court did not certify this issue to
us, and we need not reach it in answering the first two certified
questions.


Footnote 82:

     See, e.g., CHI of Alaska v. Employers Reinsurance, 844 P.2d
1113, 1115-16 (Alaska 1993); Sauer, 841 P.2d at 181-84; Klondike
Indus. Corp. v. Gibson, 741 P.2d 1161, 1167 (Alaska 1987).