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Makarka v. Great American Insurance Company (12/22/00) sp-5348

     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



GERALDINE MAKARKA and JOHN    )
MAKARKA, individually and     )    Supreme Court No. S-9230
as Legal Representatives for  )
the Estates of Christopher    )    Superior Court No.
Makarka and Brian Makarka,    )    3AN-97-6382 CI
minors; GERALDINE MAKARKA,    )
on behalf of Roy Makarka, a   )
minor; ROY VANDERPOOL,        )
individually and as a Legal   )
Representative for the        )
Estate of Matilda Vanderpool, )    O P I N I O N
                              )
               Appellants,    )    [No. 5348 - December 22, 2000]
                              )    
     v.                       )    
                              )
GREAT AMERICAN INSURANCE      )
COMPANY,                      )    
                              )        
               Appellee.      )
______________________________)    



          Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
                      Rene Gonzalez, Judge.


          Appearances:  William H. Ingaldson and Jim M.
          Boardman, Ingaldson Maassen, P.C., Anchorage,
for Appellants. Donald C. Thomas, Delaney, Wiles, Hayes, Gerety,
Ellis & Young, Inc., Anchorage, for Appellee. 


          Before:  Matthews, Chief Justice, Fabe,
          Bryner, and Carpeneti, Justices. [Eastaugh,
Justice, not participating.]

          
          BRYNER, Justice.

  
I.   INTRODUCTION
          Great American Insurance Company refused to defend or
indemnify its insured, Chris Callihan, because the "bodily injury"
he allegedly caused to the Makarka family by negligently repairing
a car occurred after Callihan's policy had been canceled.  On
appeal from summary judgment in favor of Great American, the
Makarka family -- now Callihan's successor in interest -- claims
that coverage for the bodily injury was triggered by either of two
events occurring before the policy was canceled: Callihan's
negligent repair or property damage that occurred in the course of
the repair.  But because the policy's language unambiguously
required the policy to be in effect when the Makarka family's
bodily injuries occurred, not when Callihan committed his negligent
acts, we affirm the superior court's summary judgment order.
II.  FACTS AND PROCEEDINGS
          On August 27, 1991, Shane Voliva ran a red light with his
truck and hit the Makarka family's automobile.  The impact killed
three passengers and injured two others.  Voliva was convicted of
criminally negligent homicide.  Later, the Makarka family (referred
to as Makarka and "he" for convenience) learned that the brakes on
Voliva's truck had been serviced ten months before the accident by
Chris Callihan at Ride-n-Shine, a garage owned by Gerik,
Incorporated (Gerik).  Makarka then sued Gerik and Callihan.
          Gerik tendered a claim for defense or indemnity to Great
American, its insurer when Callihan worked on Voliva's brakes, and
to Interstate Fire and Casualty, Gerik's insurer when the accident
occurred.  Great American refused to cover the claim, maintaining
that the "occurrence date of plaintiff's injuries [fell] outside of
Great American's coverages."  Interstate accepted the tender and
defended Gerik and Callihan in a wrongful death and personal injury
suit, which the parties settled.
          As part of the settlement, Callihan confessed judgment
and assigned his claim against Great American to Makarka.  Relying
on Callihan's confession of liability, Makarka then sued Great
American, alleging that Callihan's negligent repair of Voliva's
brakes had caused bodily injury to Makarka, that the Great American
policy was in effect and covered Callihan when he performed the
faulty work, and that Great American therefore breached its duty to
defend and indemnify Callihan on the underlying claim. 
          Great American moved for summary judgment.  The superior
court granted the motion, explaining that the bodily injury that
Makarka sustained in the collision was the event that triggered
coverage under the terms of the Great American policy and that
because the collision occurred after Gerik had canceled the policy,
the policy did not cover Makarka's claim.  Makarka appeals. 
III. DISCUSSION
     A.   Standard of Review
          Because Makarka stands in the shoes of mechanic Chris
Callihan, we must interpret the Great American policy to learn
whether it covered Callihan for liability due to Makarka's injury. 
On cross-motions for summary judgment, the trial court ruled that
it did not.  This court reviews summary judgment decisions de novo,
[Fn. 1] affirming the decision if there are no genuine issues of
material fact bearing on the legal questions presented and if the
answers to those legal questions require a decision in favor of the
moving party. [Fn. 2]  All factual inferences must be drawn in
favor of Makarka, the party opposing summary judgment. [Fn. 3]
          When interpreting contract language on appeal, we apply
our independent judgment. [Fn. 4]  When the contract is an
insurance policy, we pay special attention to four factors: (1) the
language of the disputed policy provisions; (2) the language of
related provisions in the policy; (3) relevant extrinsic evidence;
and (4) case law interpreting similar provisions. [Fn. 5] 
          Finally, we treat insurance contracts as contracts of
adhesion and construe them to provide coverage that a layperson
would reasonably have expected, given a lay interpretation of the
policy language. [Fn. 6]  "We therefore resolve ambiguities in the
meaning of insurance contracts against the insurer." [Fn. 7]
     B.   Callihan's Coverage for Makarka's Injury
          To learn whether the Great American policy covered
Callihan, we look first to the policy language.  Section II.A of
the Garage Coverage Form reads:
          We [Great American] will pay all sums an

"insured" legally must pay as damages because of "bodily injury" or
"property damage" to which this insurance applies caused by an
"accident" and resulting from "garage operations."
Thus, under this coverage term, five conditions must exist before
Great American will pay: (1) there must be an accident, (2)
resulting from garage operations, (3) that causes an insured to
incur legal liability, (4) based on bodily injury or property
damage, (5) to which the insurance applies. 
          Callihan's confession of judgment, in which he admits
that he negligently performed repairs to Voliva's brakes at the
Ride-n-Shine garage, creates a genuine issue of material fact
regarding the first three elements.  And it is undisputed that
three members of the Makarka family were killed and two were
injured when Voliva's truck hit Makarka's automobile, which
satisfies the requirement that there be bodily injury or property
damage.  Thus, the only coverage element upon which summary
judgment against Makarka could be based is whether Makarka's
injuries were injuries "to which this insurance applies."       
      That phrase refers the insured to the conditions and
exclusions that limit the policy.  In particular, Garage Condition
provision, part V.B.7, defines the coverage time frame:
          Under this Coverage Form, we cover "bodily

injury," "property damage" and "losses" occurring:
          a.   During the policy period shown in the
Declarations[.] 

Thus, this was an "occurrence" policy.  Such policies provide
coverage that is based on accidents or events that happen while the
policy is in force. [Fn. 8]  Since it is undisputed that Gerik
canceled this policy before Makarka's accident, Callihan was not
insured against liability stemming from bodily injury occurring in
that accident, unless some other, earlier event triggered coverage. 
          As the California Court of Appeals has ruled, 
          the time of the occurrence of an accident
          within the meaning of an indemnity policy is

not the time the wrongful act was committed, but the time when the
complaining party was actually damaged.[ [Fn. 9]]
Although courts have referred to this explanation as a "general
rule," [Fn. 10] it is merely a restatement of the terms of most
occurrence-based liability insurance policies.  Like most
occurrence policies, the Great American policy is triggered by
bodily injury or property damage for which legal damages are due:
"[Great American] will pay all sums an 'insured' legally must pay
as damages because of 'bodily injury' or 'property damage' . . . ." 
Thus, the proper moment to measure whether coverage is in force is
the moment the person seeking damages was injured.
          Makarka nevertheless argues that Callihan, by negligently
damaging Voliva's brakes, caused property damage while the policy
was in force that triggered coverage for all consequential injuries
related to the faulty brakes.  But Makarka's complaint against
Callihan never alleged that Makarka was owed compensation for
damage to Voliva's brakes -- a claim that properly would have
belonged to Voliva.  Instead, Makarka's complaint simply alleged
that he was owed compensation for bodily injuries caused by
Callihan's negligent repair. 
          Here, bodily injuries for which Makarka sought damages
occurred on August 27, 1991.  Because Makarka did not own Voliva's
truck at the time of repair, he could not show any reasonably
ascertainable facts that would give rise to a duty to defend when
the Great American policy was still in effect.  Since the Great
American policy was canceled by April 1, 1991, Great American did
not owe Callihan either a defense or indemnity for liability
stemming from an accident in August.
          Makarka points out, however, that courts have carved out
exceptions to the date-of-occurrence rule where the words
"occurrence" and "accident" introduce ambiguity into a policy's
terms [Fn. 11] and argues that this case should also be excepted. 
In particular, Makarka cites Insurance Company of North America v.
Sam Harris Construction Company. [Fn. 12]  Because the reasons
driving the cases Makarka cites are not present here, we decline to
follow them.  
          Sam Harris interpreted a policy that indemnified its
insured for injury or destruction of property "arising out of"
aircraft maintenance, but that limited itself to "occurrences or
accidents which happen during the policy period." [Fn. 13]  The Sam
Harris court ruled that because the policy failed to define the
term "occurrence," it had to be read broadly to include "events"
and "incidents," including "negligent repairs that do not cause
immediate injury but do result in a later accident." [Fn. 14]
      Therefore, the court ruled that the insurer had a duty to
defend the insured against a claim based on injury occurring after
the policy was canceled if the negligence occurred while the policy
was in force. [Fn. 15]
          The reasoning in Sam Harris does not apply here because
the Great American policy is not triggered by an "occurrence" or
"accident."  When used in a policy without further definition,
these nouns can sometimes create ambiguity, since, when negligence
and consequent injury occur separately, "occurrence" and "accident"
might refer to either the incident in which the negligence occurred
or the incident in which the injury was suffered.  But the Great
American policy avoids this potential ambiguity by specifying
precisely what must occur and when it must occur: under the policy,
the triggering events of coverage are "'bodily injury,' 'property
damage' and 'losses' occurring . . . [d]uring the policy period."
          We find nothing ambiguous in this phrasing.  "Occurring"
is the present participle of the verb "to occur," which means to
"come to pass[,] take place[, or] happen." [Fn. 16]  Thus, the
durational restriction in the Great American policy plainly limits
coverage to cases in which "bodily injury," "property damage," or
"losses" "come to pass," "take place," or "happen" during the
policy period. This language cannot reasonably be read as a
reference to negligent acts that predate the occurrence of injury.
          The word "accident" is also unambiguous as used in the
Great American policy.  The policy's coverage grant reads:
          We will pay all sums an "insured" legally must

pay as damages because of "bodily injury" or "property damage" to
which this insurance applies caused by an "accident" and resulting
from "garage operations."
(Emphasis added.)  In this sentence, the events that trigger
coverage are bodily injuries and property damage, not accidents. 
The phrase "caused by an accident" appears in the coverage term to
ensure that only injuries that are "not anticipated" are insured.
[Fn. 17]  As a modifier, rather than a triggering event, "caused by
an accident" is unambiguous.  
          Here, it is undisputed that Makarka's injuries were
caused by an "accident."  The problem is that the accident causing
these bodily injuries occurred long after Callihan performed his
faulty work on Voliva's brakes and long after the Great American
policy was canceled.  And Makarka fares no better if Callihan's
negligent work is viewed as an "accident," since the property
damage caused by that "accident" is not the damage at issue in
Makarka's complaint.  
          Thus, unlike the language contained in the policies in
Sam Harris and the other cases cited by Makarka, the language of
the Great American policy is not ambiguous.  Since the date of
policy cancellation and the date of  Makarka's accident were not
disputed, a reasonable insured [Fn. 18] would not expect coverage
for that accident under this policy.  The superior court
appropriately ordered summary judgment on the coverage question.
     C.   Duty to Defend
          Makarka contends that Callihan's tender of the lawsuit
defense to Great American created a reasonable expectation of
coverage that required Great American to provide a defense.  Our
duty-to-defend cases have established that where "vagaries [of] law
and fact" are sufficient to create the potential that an insured
will incur covered liability, the insurer must defend [Fn. 19] and
that failure to defend gives rise to an indemnity remedy, even if
it could later be proved that no coverage was due. [Fn. 20]  The
potential for coverage may be shown either on the face of the
complaint or through facts the insurer knew or could have
reasonably ascertained that would bring an otherwise uncovered
complaint within the policy's coverage. [Fn. 21]
          Here, Makarka's complaint presents no factual ambiguity
regarding coverage, nor does Makarka point to facts outside the
complaint that could have formed a factual basis for coverage.  The
complaint alleged negligent repair of Voliva's brakes during the
policy term and an accident, due in part to brake failure, outside
the policy term.  No claim was made for damage to Voliva's brakes. 
Thus, Gerik tendered a claim to Great American for bodily injury
that occurred after Gerik had canceled the Great American policy. 
Further, Makarka points to no extrinsic fact outside the complaint
that would have brought Makarka's claim under the policy.  He does
claim that there was ambiguity about the "degree of property
damage" to Voliva's brakes, but since Makarka made no claim for
property damage to Voliva's brakes, any dispute over that fact is
immaterial to the issue of coverage. 
          A duty to defend may also exist where the resolution of
a contested legal question may lead to covered liability against
the insured.  But a duty to defend does not arise whenever an
insurer and an insured have a dispute over coverage.  In O'Neill
Investigations, Inc. v. Illinois Employers Insurance of Wausau,
[Fn. 22] we heard a case of first impression regarding an insurer's
duty to defend the insured against the state's suit for injunctive
relief, civil penalties, and an order "for restoration to
individuals of monies or property acquired by defendants as the
result of conduct complained of" under the Consumer Protection Act.
[Fn. 23]  Because the state's complaint did "not allege a
'negligent act, error, or omission' or 'seek damages,'" [Fn. 24]
the insurer refused to provide O'Neill with a full defense. [Fn.
25]  O'Neill, on the other hand, argued that there was "an
ambiguity as to whether restitutionary relief such as that sought
by the state constitutes 'damages' within the intended coverage of
the policy." [Fn. 26]
          In O'Neill, as here, we considered the policy language
and the undisputed facts of the case and found that because the
policy did not provide coverage for the claims alleged against the
insured, the insurer was correct in its assertion that it had no
duty to defend the claim. [Fn. 27]  We then extended our analysis
to be certain that a reasonable insured would expect neither
coverage nor a defense under the policy. [Fn. 28]  Finding that a
reasonable lay interpretation of the policy would not encompass
coverage under the circumstances, we found no ambiguity, no
coverage, and therefore no duty to defend. 
          As O'Neill established, where coverage turns solely on
the interpretation of policy language that has never been reviewed
by this court, that fact alone is not enough to create a
possibility of coverage that required a defense.  Given the level
of scrutiny directed at an insurer's decision not to provide
coverage, insurers who accurately interpret their policies and give
their insureds timely notice of the reason why there is no coverage
are not required to provide a defense merely because we have yet to
interpret that particular policy language. [Fn. 29] 
          Here, Great American's denial letter assessed Makarka's
claim for bodily injury and accurately explained that the injury
occurred outside of the period covered under the Great American
policy.  Thus, the superior court correctly granted Great American
summary judgment on the question of whether it had a duty to defend
Callihan. [Fn. 30]
IV.  CONCLUSION
          The superior court's grant of summary judgment is
AFFIRMED.


                            FOOTNOTES


Footnote 1:

     See Moore v. Allstate Ins. Co., 995 P.2d 231, 233 (Alaska
2000).


Footnote 2:

     See Great American Ins. Co. v. Bar Club, Inc., 921 P.2d 626,
627 (Alaska 1996).


Footnote 3:

     See Fejes v. Alaska Ins. Co., 984 P.2d 519, 522 (Alaska 1999).


Footnote 4:

     See Neal & Co., Inc. v. City of Dillingham, 923 P.2d 89, 92
n.1 (Alaska 1996); Bar Club, 921 P.2d at 627.


Footnote 5:

     See Cox v. Progressive Cas. Ins. Co., 869 P.2d 467, 468 n.1
(Alaska 1994).


Footnote 6:

     See Fejes, 984 P.2d at 522 (quoting INA Life Ins. Co. v.
Brundin, 533 P.2d 236, 241 (Alaska 1975)).


Footnote 7:

     Id.


Footnote 8:

     Such policies may be distinguished from "claims-made"
policies, which insure against liability stemming from any claim
brought against an insured, regardless of when the claim accrued. 
See Martin J. McMahon, Annotation, "Event Triggering Liability
Insurance Coverage as Occurring Within Period of Time Covered by
Liability Insurance Policy Where Injury or Damage Is Delayed --
Modern Cases," 14 ALR 5th 695, 721-22 sec. 2[a] (1993).


Footnote 9:

     Remmer v. Glens Falls Indem. Co., 295 P.2d 19, 21 (Cal. App.
1956) cited in Montrose Chemical Corp. v. Admiral Ins. Co., 913
P.2d 878, 890 (Cal. 1995). 


Footnote 10:

     See Montrose Chemical, 913 P.2d at 890.


Footnote 11:

     See Insurance Co. of North America v. Sam Harris Constr. Co.,
583 P.2d 1335, 1336-37 (Cal. 1978); Sylla v. United States Fidelity
& Guar. Co., 127 Cal. Rptr. 38, 40-41 (Cal. App. 1976).


Footnote 12:

     583 P.2d at 1335.


Footnote 13:

     Id. at 1336.


Footnote 14:

     Id. at 1337.


Footnote 15:

     See id.


Footnote 16:

     Webster's New International Dictionary of the English Language
Unabridged 1561 (3d ed. 1969).


Footnote 17:

     See Fejes v. Alaska Ins. Co., 984 P.2d 519, 523 (Alaska 1999)
(defining "accident" as "anything that begins to be, that happens,
or that is a result which is not anticipated and is unforeseen and
unexpected" (quoting INA Life Ins. Co. v. Brundin, 533 P.2d 236,
242 n.23 (Alaska 1975))).


Footnote 18:

      Makarka points to evidence that Gerik submitted a claim to
Great American as evidence that Gerik and Callihan had a reasonable
expectation of coverage under the Great American policy.  The mere
submission of a claim is insufficient to raise a genuine issue of
material fact regarding an expectation of coverage, particularly in
light of the unambiguous policy language in this case.  


Footnote 19:

     Continental Ins. Co. v. United States Fidelity & Guar. Co.,
528 P.2d 430, 435 (Alaska 1974).


Footnote 20:

     See Theodore v. Zurich General Accident & Liab. Ins. Co., 364
P.2d 51, 55-56 (Alaska 1961).


Footnote 21:

     See State, Dep't of Transp. and Pub. Facilities v. State Farm
Fire & Cas. Co., 939 P.2d 788, 792 n.1 (Alaska 1997).


Footnote 22:

     636 P.2d 1170 (Alaska 1981).


Footnote 23:

     Id. at 1174 (internal quotation marks omitted).


Footnote 24:

     Id.


Footnote 25:

     The insurer had offered to fund 50% of O'Neill's defense as a
compromise.  Id. at 1172.


Footnote 26:

     Id. at 1174.


Footnote 27:

     See id. at 1175.


Footnote 28:

     See id. at 1175-77.


Footnote 29:

     Of course, insurers who misinterpret their policies or who
refuse to defend their insureds in the face of a reasonable
expectation of coverage do so at the risk of indemnifying any loss
due to claims they should have defended.  See Afcan v. Mutual Fire,
Marine & Inland Ins. Co., 595 P.2d 638, 646-47 (Alaska 1979).


Footnote 30:

     Because we hold that there was no duty to defend, we need not
reach the issue of what remedy would be due if that duty existed.