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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Coughlin v. Government Employees Insurance Co. (4/18/2003) sp-5681

Coughlin v. Government Employees Insurance Co. (4/18/2003) sp-5681

     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,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA
                                

COLLEEN COUGHLIN,             )
                              )    Supreme Court No. S-10072
             Appellant,            )
                              )    Superior Court No.
     v.                       )    4FA-99-1853 CI
                              )
GOVERNMENT EMPLOYEES     )    O P I N I O N
INSURANCE COMPANY (GEICO),    )
                              )    [No. 5681 - April 18, 2003]
             Appellee.             )
________________________________)



          Appeal from the Superior Court of the State
          of Alaska,  Fourth Judicial District,
          Fairbanks, Charles R. Pengilly, Judge.

          Appearances:  Allen Vacura, Stepovich Law
          Office, Fairbanks, for Appellant.  Susan D.
          Mack and Mark E. Wilkerson, Wilkerson &
          Associates, Anchorage, for Appellee.

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

          FABE, Chief Justice.
          EASTAUGH, Justice, dissenting.


I.   INTRODUCTION

          Colleen Coughlin received a $10,000 payment for medical

expenses for injuries she sustained in a two-car accident.  Her

insurance company, by terms of the insurance policy, acquired a

lien on any recovery Coughlin obtained from the other driver.

Coughlin settled with the other driver's insurance company for

$40,000 and assumption of responsibility for payment of the

$10,000 for medical coverage.  Coughlin asserted she had

exhausted the $50,000 facial limit of the other driver's policy

and that she could therefore draw upon her own underinsured

motorist coverage.  Coughlin's insurance company claims that she

failed to exhaust the policy limits of the other driver's

insurance.  We conclude that Coughlin did exhaust the policy

limits of the other driver's insurance policy and therefore

reverse the superior court's grant of summary judgment in favor

of Coughlin's insurance company.

II.  FACTS AND PROCEEDINGS

          Colleen Coughlin was injured in an automobile accident

in August 1993. She was insured by Government Employees Insurance

Company (GEICO), and the driver of the other car, Kevin Babosky,

was insured by Colonial Insurance.  Babosky's policy had a facial

limit of $50,000 per person.  Coughlin's policy covered $10,000

in medical payments and $50,000 in underinsured motorist coverage

(UIM).  GEICO paid Coughlin $10,000 for medical expenses,

resulting in a medical lien against any recovery Coughlin made.

          Coughlin filed suit against Babosky and offered in

April 1996 to settle the case for the policy limits of $50,000,

plus attorney's fees and prejudgment interest. Babosky rejected

the offer and the parties settled on different terms later that

year.  Under the terms of the settlement, Coughlin released

Babosky and Colonial from all liability in exchange for $40,000

"and the assumption of responsibility for the subrogation claim

of Geico Insurance Company, in the amount of TEN THOUSAND

DOLLARS."  Before signing the settlement agreement, Coughlin's

attorney faxed a letter to a GEICO claims adjuster, Colrain

Ingersoll, on July 3, 1996 asking for GEICO's consent to

Coughlin's settlement with Colonial.  The letter stated that

Coughlin was "receiving policy limits from Colonial [of]

$50,000."  Ingersoll signed the consent request from Coughlin and

faxed it back to Coughlin's counsel on July 10, 1996.  Coughlin

then signed the settlement agreement with Colonial on July 12,

1996.

          GEICO settled its subrogated claim for Coughlin's

medical expenses with Colonial for $5,000.  It is unclear from

the record on what date this claim was settled, though the claims

representative for GEICO stated she believed the claim was

settled "several months" before Coughlin settled with Colonial.

However, a letter from counsel for Colonial dated July 5, 1996

implies that the matter was as of that time unresolved by stating

that "Colonial has agreed to address the Geico lien directly."

          Coughlin sent a letter to GEICO in March 1998

requesting that it pay $50,000 under Coughlin's underinsured

motorist coverage.  The letter asserted that Colonial had paid

its policy limits of $50,000 and requested attorney's fees and

interest from GEICO.  GEICO denied any underinsured motorist

payment, claiming that Coughlin did not receive policy limits

from Colonial because she settled for $40,000 and GEICO settled

for $5,000 for the medical lien, totalling only $45,000 on a

facial limit of $50,000.  GEICO responded that even if Colonial

had paid $50,000, Coughlin still would not have received policy

limits because she did not receive attorney's fees or interest.

GEICO maintained that Coughlin should have known that Alaska law

defined policy limits to include attorney's fees and interest

because Coughlin requested those add-ons in her letter to GEICO

requesting the underinsured motorist payment.

          Coughlin filed suit against GEICO in August 1999,

alleging bad faith and fraud and seeking damages under the

underinsured motorist provision of her policy.  In September 2000

both sides moved for summary judgment.  Coughlin argued that

Ingersoll's consent letter established that Coughlin received

policy limits from Colonial.  Coughlin further argued that GEICO

could not then avoid underinsured motorist liability by settling

its subrogated claim for less than the face value of the medical

lien and that if GEICO settled for less just to avoid

underinsured motorist payment, it acted in bad faith.  GEICO

opposed Coughlin's motion.

          GEICO argued in its motion for summary judgment that

Coughlin did not settle for policy limits with Colonial because

she only received $45,000 on a liability limit of $50,000.  GEICO

further argued that Coughlin did not settle for policy limits

because she did not receive prejudgment interest or attorney's

fees.  GEICO asserted that counsel for Coughlin knew from

experience that the subrogated $10,000 medical lien would settle

for less than that amount.  Coughlin responded that she was not

told of GEICO's settlement with Colonial, that the settlement of

the medical lien occurred after Coughlin's settlement with

Colonial, and that the settlement she reached with Colonial - for

$40,000 plus responsibility for GEICO's $10,000 medical lien -

constituted policy limits.

          The superior court, Judge Charles R. Pengilly

presiding, granted GEICO's motion for summary judgment.  The

court held that even if Coughlin had received $50,000 from

Colonial, she did not settle for policy limits because this

amount did not include the attorney's fees that Colonial

otherwise would have had to pay.  The court advised that if

Coughlin was confused about what the policy limit would be she

should have pursued a declaratory action.  The court posited that

it was "common knowledge" that insurance companies do not resolve

claims based on medical liens for the face value of the lien and

that Coughlin should have known that she was settling for much

less than $50,000.  The court also concluded that Ingersoll's

signature on the consent letter was not an acceptance of

Coughlin's agreement with Colonial as one for policy limits.

Rather, the court held that her signature only allowed Coughlin

to pursue excess coverage; it was not a commitment to provide

such coverage.  Finally, the court stated that such commitment,

even if it were found to exist, was based on misrepresentations

by Coughlin because she never actually received policy limits

from Colonial.  As a result, the court refused to allow her to

characterize the settlement in such a way as to be eligible for

additional recovery.  Coughlin appeals the grant of summary

judgment.

III. DISCUSSION

     A.   Standard of Review

          We review a grant of summary judgment de novo.1  We

apply our independent judgment to questions of statutory

interpretation,2 adopting the rule of law "that is most

persuasive in light of precedent, reason, and policy."3  When

reviewing statutory interpretation, we apply a sliding scale in

which "[t]he plainer the meaning of the language of the statute,

the more convincing any contrary legislative history must be."4

     B.   Coughlin Settled for the Full Policy Limits.

          The parties do not dispute that AS 28.20.445(e)(1)5

requires a claimant to exhaust the underlying liability policy

limits before pursuing underinsured motorist benefits.6  What is

in dispute is whether Coughlin received policy limits from

Colonial.  Repeating its argument before the superior court,

GEICO asserts that Coughlin did not exhaust Babosky's policy

limits because Colonial only paid out $45,000.  GEICO argues

alternately that Colonial's "actual" policy limit exceeded

$50,000 because Colonial was required to pay costs, interest, and

attorney's fees and Coughlin received none of these.  We reject

both of these arguments.  We hold both that Coughlin exhausted

Colonial's policy limits when she received $40,000 in cash plus

Colonial's agreement to assume responsibility for her $10,000

medical lien and that costs, interest, and attorney's fees are

not to be included in determining whether policy limits have been

exhausted for the purpose of drawing upon underinsured motorist

coverage.

          1.   The subrogated medical lien

          In exchange for signing a settlement releasing Babosky

and Colonial from future legal liability, Coughlin received

$40,000 in cash from Colonial and Colonial agreed to assume

responsibility for GEICO's subrogated $10,000 medical lien.

GEICO at some point settled this medical lien with Colonial for

$5,000.  As a result, Colonial in actuality only paid out $45,000

on Coughlin's claim against Babosky.

          According to AS 28.20.445(e)(1), uninsured and

underinsured motorist coverage cannot be drawn upon "until the

limits of liability of all bodily injury and property damage

liability bonds and policies that apply have been used up by

payments, judgments or settlements."  In Curran v. Progressive

Northwestern Insurance Co., we interpreted this statute to mean

that the insured must " `exhaust' or `use up' all underlying

liability coverage before recovering under [an underinsured

motorist] policy."7  GEICO argues that Curran defeats Coughlin's

claim because Coughlin did not exhaust her underlying liability

coverage and thus cannot draw on her underinsured motorist

policy.

          But neither fact pattern in Curran, a consolidation of

two cases, resembles the present case.  In the first fact pattern

in Curran, the injured party, who suffered serious injuries in a

single-vehicle accident while riding as a passenger with her

husband, offered to give both her own insurance company and that

of her husband a $50,000 "credit" against her claims prior to

seeking underinsured motorist coverage.8  But because this

proposed "credit" was not a settlement, judgment, or payment from

her husband's insurer, we held that the injured party had not

satisfied the requirements of AS 28.20.445(e)(1).9  In the second

fact pattern addressed in Curran, the injured party in a two-

vehicle accident was offered a $60,746.03 settlement for a

$50,000 insurance policy10 by the insurance company for the driver

of the other car.11  The injured party refused this settlement

offer but eventually settled for $25,000.12  This amount was far

less than the policy limits and consequently precluded the

applicability of underinsured motorist coverage.13  Curran,

therefore, is of little assistance in resolving the present issue

other than to affirm that policy limits must be exhausted before

underinsured motorist coverage can be drawn upon.

          The present case does not involve Coughlin offering

GEICO a credit against her underinsured motorist coverage,

whereby she would be able to draw upon her underinsured motorist

coverage but reduce her recovery by the amount necessary to

exhaust her other claims.  We held in Curran that this would

defeat the purpose of AS 28.20.445(e)(1) because it would "allow

a UIM claimant like Curran to bypass the liability insurer

altogether and effectively use UIM coverage as primary

insurance."14  Coughlin, however, is making no such attempt here.

Coughlin settled her claim for what to her was worth $50,000 - a

$40,000 payment plus payment of the $10,000 medical lien.  GEICO

claims that the $10,000 medical lien was only worth $5,000

because that is what GEICO settled for with Colonial.  However,

Coughlin cannot be held responsible for what GEICO ultimately

does with the claim.  GEICO was under no obligation to settle the

claim for $5,000 and could have chosen to pursue the full amount

in litigation if necessary.

          Furthermore, it is unlikely that Coughlin could have

settled for more than the combined $40,000 payment and $10,000

medical lien.  The facial limit of the Colonial policy was

$50,000.  The superior court concluded that Coughlin, through her

legal counsel, should have known that the medical lien would

settle for less than face value because this is common knowledge.

But even if true, there is no reason to believe that Colonial

would have offered to settle for a $45,000 payment and assumption

of responsibility for payment of the $10,000 medical lien, which

according to GEICO's reasoning would have resulted in a final

payout of $50,000.  In effect, the reasoning of the superior

court would discourage settlements, a result we wish to avoid,15

by preventing the assumption of liens as part of a settlement

agreement.  The ultimate value of the lien cannot be known

definitively beforehand, and insurance companies are unlikely to

settle claims for potentially more than the face value of the

policy limits in the hope that they will be able to settle the

assumed lien for less than its stated amount.

          While it is true that Coughlin could have settled with

Colonial for a single payment of $50,000 and then herself paid

GEICO the $10,000 reimbursement for the medical payments GEICO

made through its policy with her, there is nothing legally

requiring Coughlin to do this.  The parties reaching the

agreement cannot be expected to settle for what would be more

than the face value of the policy if the terms of the settlement

were fully enforced and collected.  The value of the settlement

to both Coughlin and Colonial was $50,000 at the time the

settlement agreement was reached; that is the measure by which to

determine whether Coughlin has exhausted the face value of the

Colonial policy.

                    2.   Policy limits do not include prejudgment
               interest and attorney's fees for the purpose of
               drawing upon underinsured motorist coverage.
               
          GEICO argues that even if Coughlin did settle for

$50,000, this is less than her full policy limits because it does

not include attorney's fees and prejudgment interest which, GEICO

contends, would raise Coughlin's actual policy limits well above

$50,000. In support of this argument, GEICO relies on cases in

which we have held that insurers who contract to pay all

litigation costs are required therefore to pay Alaska Civil Rule

82 attorney's fees and prejudgment interest.16  While the cases

that GEICO cites do support this proposition,17 they are not

dispositive of the present case.  The cases cited by GEICO and

the dissent do not purport to interpret the statutory meaning of

"policy limits"; they simply consider what meaning the term

should be given in a particular contractual setting - that is,

for purposes of determining the amount that an insurer must

tender to satisfy an insured's unqualified demand for "policy

limits."

          We have considered items such as attorney's fees and

prejudgment interest to be in addition to the face amount of

policy limits.18  They can be considered incorporated into overall

policy limits to the extent that insurance companies are legally

obligated to pay them, but they do not necessarily bear on the

question of whether "limits of liability . . . have been used up"

for purposes of AS 28.20.445(e)(1).

          We conclude that the term "limits of liability" as used

in the statute refers to facial coverage, and not extras.  In

reaching this conclusion we look to the purpose of the statute:

to ensure that UIM coverage is secondary rather than primary

coverage while at the same time making the benefit of UIM

coverage broadly available.19

          Given the dual purposes of AS 28.20.445(e)(1), it is

difficult to believe that the legislature would use the term

"limits" in a sense that would engender litigation and

uncertainty in many cases.  In such cases as Bohna v. Hughes,

Thorsness, Gantz, Powell & Brundin, "policy limits" is a concept

that describes the maximum amount that an insurance company would

have to pay under a policy if it went to trial and received an

adverse verdict.20  But the amount of policy limits under this

definition is sometimes a guess - as where attorney's fees are a

percentage of the expected verdict rather than a percentage of

the facial coverage - and it would be unlikely that the

legislature in enacting AS 28.20.445(e)(1) would have intended to

incorporate such an uncertain concept in a context where the

purpose is not maximization of coverage but the establishment of

a definite and readily ascertainable threshold.21

          Indeed, there are strong policy reasons for not

including attorney's fees and prejudgment interest in the

determination of whether policy limits have been satisfied for

the purpose of invoking underinsured motorist coverage.  As with

the ultimate value of liens, the monetary value of attorney's

fees and prejudgment interest is quite speculative.  Until the

matter is concluded, it may be difficult if not impossible to

determine what attorney's fees and prejudgment interest will be.

We are wary of starting a new litigation industry centered on

disputing attorney's fees for settlement agreements and making

sure that no dime is left on the table.  This would unjustifiably

hinder settlement negotiations by virtually eliminating the

possibility of certainty that one has settled for the full face

value of one's policy limits.  We therefore hold that a policy

limit is exhausted for the purposes of invoking underinsured

motorist coverage when the full face value of the policy is paid

through "payments, judgments or settlements,"22 regardless of how

payment of attorney's fees and prejudgment interest is resolved.

The dissent believes that this ruling will "burden the wrong

people" by transferring to the UIM insurer the expenses of

defending the alleged tortfeasor and challenging the plaintiff's

damages claims.23  Consequently, according to the dissent, UIM

coverage will become more expensive.24  We do not anticipate this

result.  If the plaintiff sustained injuries in excess of the

face value of the tortfeasor's policy, that excess remains

regardless of whether the plaintiff received attorney's fees and

prejudgment interest.

          Thus, we hold that the policy limits are exhausted when

the face value of the policy is paid to the insured; any payment

or non-payment of attorney's fees and prejudgment interest is

independent of this determination.

IV.  CONCLUSION

          In summary, as a matter of statutory construction,

"limits of liability of all bodily injury . . . policies," as

that phrase is used in AS 28.20.445(e)(1), refers only to the

face amount of coverage.  Moreover, Colonial, when it agreed to

pay Coughlin $40,000 in addition to assuming responsibility for

the $10,000 GEICO medical lien, used up the $50,000 face amount

of the policy.  Accordingly, we REVERSE the grant of summary

judgment and REMAND for proceedings consistent with this opinion.

EASTAUGH, Justice, dissenting.

          A.  Introduction.  I respectfully disagree with Part

III.B.2 of the court's opinion.  It holds that payment of the

"face value" of Kevin Babosky's policy exhausted his liability

coverages, satisfying AS 28.20.445(e)(1) for purposes of invoking

Colleen Coughlin's underinsured motorist (UIM) coverage.25  It

consequently holds that exhaustion did not require payment of the

"add-ons" which Babosky's liability coverages also covered.26

This holding is contrary to the result subsection .445(e)(1)

requires.  I will first explain how we should resolve the issue

and then explain my disagreement with the court's analysis.

           B.  How We Should Decide this Issue.  This case poses

a practical question important to insurers and their injured

insureds: What triggers the underinsured motorist coverage,

requiring the UIM insurer (here, GEICO) to pay?  Alaska Statute

28.20.445(e)(1) answers that question: The UIM insurer must pay

after "the limits of liability of all bodily injury . . .

liability . . . policies . . . have been used up."27

          What do the legislature's unqualified words "limits of

liability" mean?  Read in isolation by ignoring companion

sections in AS 28.20, they could have two different theoretical

meanings.  They could mean the amounts potentially payable under

all the liability coverages of any underlying liability policy.

This is the meaning I think they have.  Or they could mean the

facial (or numerical) limits specified in the declarations of any

underlying policy.28      These qualifiers are necessary because

we have consistently used the unqualified phrase "policy limits"

to include all liability coverages.  See, e.g., Farquhar v.

Alaska Nat'l Ins. Co., 20 P.3d 577, 580-81 (Alaska 2001) ("We

found that `policy limits' meant the facial limit of the policy,

plus Rule 82 attorney's fees.") (quoting Schultz v. Travelers

Indem. Co., 754 P.2d 265, 267 (Alaska 1988)).    This is the

meaning the court gives them in this case.  Our job is to

determine the meaning the legislature gave them.29

          We need not guess.  Subsection .445(e)(1) is part of

the Motor Vehicle Safety Responsibility Act.  Nearby passages in

that act reveal the meaning the legislature intended.  Alaska

Statute 28.20.070(a) specifies the mandatory minimum numerical

limits applicable to automobile liability policies effective in

Alaska.  It requires each policy to have "a limit, exclusive of

interest and costs, of not less than $50,000 because of bodily

injury . . . ."30  Similarly, AS 28.20.440(b)(2) specifies

mandatory minimum "limits exclusive of interest and costs" of

$50,000 for a vehicle owner's liability insurance policy.31  Both

subsections specify the mandatory minimum facial, or numerical,

limits automobile liability policies must have in Alaska.

          The legislature's choice of terminology controls here.

When the legislature meant to refer to the facial policy limits,

as it did in subsections .070(a) and .440(b)(2), it did not use

the unqualified words "limit," "limits," or "limits of

liability."  Instead, in subsection .070(a) it qualified "limit"

with the phrase "exclusive of interest and costs."  And in

subsection .440(b)(2) it qualified "limits" with the same phrase.

The legislature must have been aware of its own usage.  Section

.445 immediately follows section .440.  There would have been no

reason to use those phrases to qualify "limit" or "limits" in

subsections .440(b)(2) and .070(a) if the legislature intended

its unqualified words "limit," "limits," or "limits of liability"

to mean only the facial policy limits.32  Had the legislature

intended the words "limits of liability" in AS 28.20.445(e)(1) to

refer only to the facial limits of underlying insurance, it would

have used the same qualifying phrase it used elsewhere in the

Motor Vehicle Safety Responsibility Act when it meant to specify

the facial limits.  That it did not demonstrates that it meant

the unqualified words "limits of liability" in subsection

.445(e)(1) to refer to all amounts payable under a policy's

liability coverages, and not just its facial limits.

          We recently summarized our approach to statutory

construction in an opinion that considered whether policyholders

had exhausted the underlying liability limits of an insurance

policy:

               We apply a sliding scale approach to
          statutory interpretation: to determine the
          meaning of a statute we look to its
          legislative history, even if its language is
          plain on its face.  But "the plainer the
          meaning of the language of the statute, the
          more convincing any contrary legislative
          history must be."  When a statute's meaning
          appears clear and unambiguous, the party
          urging another meaning "bears a
          correspondingly heavy burden of demonstrating
          contrary legislative intent."  We decline to
          "modify or extend a statute where the
          statute's language is clear and the
          legislative history reveals no ambiguity."[33]
          
          Applying that approach, we must apply the language of

the statute as written.  We begin with analysis of the language

of the statute.34  Statutory context, revealed in subsections

.440(b)(2) and .070(a), confirms the meaning the legislature

intended.

          Further, reading "limits of liability" in AS

28.20.445(e)(1) to mean the same thing as "limits exclusive of

interest and costs" in AS 28.20.440(b)(2) or "limit, exclusive of

interest and costs" in AS 28.20.070(a) conflicts with our rule of

statutory construction under which we give effect to all words of

the statute and render none superfluous.35  Reading the unadorned

phrase in subsection .445(e)(1) to refer only to facial limits

makes superfluous the qualifying words in subsections .440(b)(2)

and .070(a).

          No legislative history suggests that the legislature

meant something different.  Nothing brought to our attention

outweighs the plain meaning of the legislature's words.  Nor, for

reasons I will discuss in the next part, do the legislative

purposes permit a contrary reading.  Instead, two precepts of

Alaska's approach to UIM confirm the reading the plain statutory

language requires.

          First, the requirement that policies contain

underinsured motorist coverage reflects what this court has

described as "Alaska's current excess approach."36  We have stated

that this approach is

          premised upon the idea that the injured
          person is entitled to recover under his or
          her own underinsured motorist coverage to the
          extent that the tortfeasor's liability
          insurance coverage is insufficient to
          compensate the insured person fully for his
          or her loss, subject only to the limits of
          the underinsured motorist coverage.[37]
          
          We described the purpose of Alaska's excess UIM

approach as follows:  "Excess coverage thus strives to provide

additional coverage, as needed to fully compensate injured

motorists, after available liability coverage has been completely

exhausted."38  Classifying UIM coverage as "excess" confirms that

all underlying liability coverages, including coverage for any

"add-ons," must be exhausted.  In dealing with primary-excess

coverage disputes, we require complete exhaustion of underlying

primary liability coverages, including liability coverage add-

ons, before the excess coverage comes into play.39  There is no

conceptual difference relevant here between excess coverage and

UIM coverage.

          The court states that UIM and excess coverage disputes

are distinguishable.  It asserts in support that the UIM

statute's "concern with making UIM coverage widely available

distinguishes it significantly from excess coverage," that

"excess coverage insures against catastrophic loss," and that

"UIM coverage, unlike excess coverage, does not contemplate

extreme or unusual circumstances."40  In my view, these assertions

do not support the distinction the court draws.  The noted

"concern" is only one of several principles underlying Alaska's

current UIM statute.  Other principles -  treating the UIM

coverage as excess, requiring exhaustion of the underlying

coverages, and aiming for full compensation - refute the proposed

distinction and outweigh whatever relevance the availability

principle may have here.  And excess coverage is not

extraordinary or limited to catastrophic claims.  It is simply

the coverage purchased to cover claims exceeding the primary

coverage.  It is routinely available to consumers, who may, for

economic reasons, carry minimum primary limits and use excess

coverage to extend their limits.  Given that motor vehicle

accidents can easily generate non-catastrophic claims exceeding

the primary limits, excess insurance is not limited to "extreme

or unusual circumstances."41  It has the same ultimate purpose as

UIM coverage: to satisfy the claims of an injured victim to the

extent the tortfeasor's underlying liability coverage is

insufficient to compensate the victim fully.42

          Second, it is anomalous to speak of "complete

exhaustion" in terms of "full compensation"43 unless the injured

claimant is truly being compensated for the loss of use of the

money damages suffered at the moment of injury, and for the

costs, including attorney's fees, of obtaining that compensation.

The concept of making the claimant whole to the extent of the

available coverage has driven this court to reason that

prejudgment interest is part of compensatory damages44 and

therefore part of the maximum limits of a policy that covers

prejudgment interest.45  It has likewise driven this court to hold

that a policy's coverage of the plaintiff's litigation costs

awardable against the insured is a liability coverage an insurer

must tender when making a "policy limits" settlement offer.46  Our

past decisions require the conclusion that "full compensation" is

not achieved for purposes of triggering UIM coverage under

subsection .445(e)(1) unless all applicable underlying liability

coverages have been paid.

          This interpretation of the statute is also compelled by

our past treatment of similar terms in insurance policies.

Policies often cover not only an insured's liability for tort

damage awards, but also an insured's liability for additional

awards, such as for costs and interest.  We refer to such

coverages as "add-ons" that must be added to a policy's numerical

limits.47   Add-ons are part of a policy's liability coverage.  An

insurer must therefore pay them to pay "policy limits" - the

maximum amount the policy would cover if judgment were entered

against the insured at trial.48  Because a judgment would include

these additional awards, the limits of a policy covering

liability for these additional awards are not exhausted until the

coverages for the insured's exposure for these additional awards

are exhausted too.  These coverages are part of the "limits of

liability."

          Colonial's "limits of liability" consequently include

everything Colonial would have had to pay had a judgment been

entered against its insured after trial.  It is undisputed that

Colonial's policy covered Babosky not only for liability for

damage awards, but also for liability for prejudgment interest,

attorney's fees, and cost awards, and that with the add-ons,

Colonial's liability coverage substantially exceeded the policy's

$50,000 facial limits.49  No one claims that Colonial paid more

than $50,000.  Colonial therefore did not exhaust its "limits of

liability" per subsection .445(e)(1) for purposes of implicating

GEICO's UIM coverage.50

          C.  The Court's Opinion.  Because the opinion

implicitly concludes that the legislature's words do not resolve

the exhaustion question, it embarks on an avoidable analytical

voyage.  It then arrives in the wrong port.  The opinion first

translates the legislature's words into the court's words, but

then chooses not to give those words the meaning we have given

them in equivalent insurance disputes.   It bases this choice in

reliance on its perception of public policy and the legislature's

purposes.  The statute's clarity precludes reliance on those

interpretive aids, but I think the court's policy and purpose

assessment is incorrect in any event.  The court ultimately reads

"limits of liability" - the controlling words in AS

28.20.445(e)(1) - to include no liability coverages except the

facial policy limits.51  I disagree with each stage of the court's

approach.

          1.  The statute's words.  Because the opinion does not

recognize or enforce the distinctions the legislature drew, it

does not give the legislature's words the meaning intended.  I

discussed this proposition above.

          2.  The court's words.  The court's opinion substitutes

its words for the legislature's, translating the statute's words

into "policy limits."52  This substitution obscures the need to

focus on the legislature's words, and forces the opinion to try

to explain why "policy limits" means something different in UIM

coverage cases than in other insurance exhaustion contexts.  It

also results in a public policy analysis that is unsupported by

the words the legislature used.

          But if we are going to ignore the effect of the

legislature's qualifying words,  our past decisions should guide

us.  There is no logical or functional difference between this

case and our policy limits cases.  Both deal with this central

question: what must the tortfeasor's insurer pay to exhaust its

policy limits (or, in the statute's words, the "limits of

liability")?  We should answer the question the same way in both

contexts.

          The cases discussed above hold that the policy limits

of a liability policy are not exhausted unless liability

coverages for add-ons are also paid.  Our usage is also

instructive.  When we wish to speak of the numerical limit set

out in a liability policy's declarations, we have qualified our

words to make our meaning clear.53

          The court here uses similar qualifiers to make its

meaning clear.54  That it must do so when it intends to exclude

coverage for add-ons illustrates the incongruity of reading

subsection .445(e)(1)'s unqualified phrase as though the

legislature qualified it.

          3.  Public policy and legislative purposes.  The

opinion relies on public policy and the court's perception of the

purposes underlying UIM coverage to justify its choice not to

follow our policy limits cases.55  This reliance is unwarranted.

          Public policy and legislative purposes are inherently

weak interpretative aids. There is no need to resort to them when

the statute's words are so clear.  They are especially unhelpful

here because they do not speak specifically to the narrow issue

before us.  At best, they reflect broad considerations which do

not explain what the statute means in this specific context.  At

worst, they reflect the court's own projections about what the

legislature must not have intended,56 and its own expressions of

public policy not voiced by the legislature.57  Relying on public

policy seems particularly chancy here, given that the result  -

allowing partial exhaustion to trigger the UIM coverage - is

inconsistent with the legislature's express words and purposes.

          Concerns about possible delays do not justify ignoring

the statute's words.  More significant disputes about the

underlying coverage (whether exclusions apply, for example) would

not justify triggering the UIM coverage.  Disputes over coverage

for add-ons will occasionally delay exhausting the underlying

liability limits, but I doubt that they will unduly delay UIM

claims.  First, a liability insurer with a good-faith interest in

litigating a coverage dispute about add-ons can "exhaust" the

policy limits by agreeing to pay whatever the court will require

when it resolves the add-ons dispute.58   This agreement has the

effect of exhausting the limits, whatever they prove to be,

triggering UIM coverage.  A liability insurer has incentive to

enter into such an agreement to avoid bad faith claims.  And if

the liability insurer is engaging in bad faith in a policy limits

situation, the UIM insurer relies at its peril on the liability

insurer's recalcitrance.59  Further, no difficulty in determining

the extent and amount of add-ons coverage has prevented us from

treating the add-ons as something an insurer must pay to maximize

the liability coverage it owes its insured.  We have assumed that

this total figure is "quantifiable" and have imposed on the

insurer a duty to tender a specific amount to discharge policy

limits.60  And indeed, a UIM claim may have to await a liability

and damages trial on the plaintiff's claims against the

tortfeasor.  Only then will it be known whether the tortfeasor

was actually underinsured.

          The court supposes that a statutory purpose of  "making

the benefit of UIM coverage broadly available" supports its

reading of the statute.61  It is not apparent how disputes about

the underlying insurer's obligations could reduce the

availability of UIM coverage.  If a claim is worth more than the

underlying limits of liability, there is little chance in a given

case the UIM coverage will not be implicated.62  A social policy

of making UIM coverage more readily available would not justify

reading the statute to say something it does not.  The court also

states that "it is difficult to believe" that the legislature

might use terminology that would "engender litigation and

uncertainty in many cases."63  Perhaps so, but this general

speculation cannot justify a reading contrary to the statute's

words.  There is no reason to think the legislature intended to

adopt a different standard for exhaustion than we have adopted.

          The court also expresses concern about the uncertainty

of determining policy limits.  It recognizes that this "is

sometimes a guess" and "is quite speculative."64  It is "wary of

starting a new litigation industry."65  But an existing litigation

industry already stands prepared to dispute every aspect of

personal injury claims.                 In short, the court draws

a bright line which the legislature did not draw.  And it does so

assuming that full exhaustion carries detriments with it.  That

is not a public policy choice open to us, given the words of the

statute.

          4.  Marginal benefit.  The result benefits Coughlin by

allowing her to make a UIM claim, but the social benefits the

court anticipates are hypothetical or improbable, and will likely

be outweighed by the detriments.

          First, I think the harm to the purpose of exhaustion

outweighs any possible prejudice to UIM coverage.  The

legislature chose an excess UIM approach.66  The court's reading

of the statute is inconsistent with making excess coverage

available to fully compensate injured motorists "after available

liability coverage has been completely exhausted."67  The

underlying coverage has not been exhausted.  The result may mean

that the claimant will never be made whole for loss of use of her

prospective damages award or costs and fees incurred in

recovering from the underlying insurer.  And requiring UIM

insurers to compensate plaintiffs prematurely may reduce

recalcitrant underlying insurers' exposure to liability for

excess judgments and bad faith claims.  If so, it would deprive

personal injury plaintiffs of their main tool in seeking policy

limits settlements from the tortfeasors' insurers.

          Second, I predict that the result will burden the wrong

people.  It will burden purchasers of underinsured motorists

coverage (which will now be more easily implicated) and benefit

tortfeasors who purchase liability coverage (whose insurers will

now have less need to pay add-ons if the claimant has a UIM

insurer to pursue).  It may transfer from the alleged

tortfeasor's insurer to the UIM insurer the expense of defending

the other driver and challenging the plaintiff's damages claims.

If so, it will make UIM coverage more expensive, again at the

expense of the parties who are not at fault.

          D.  Conclusion.  In short, I think the superior court
correctly analyzed this issue.  I would therefore affirm.
_______________________________
1Cabana  v.  Kenai  Peninsula Borough, 50 P.3d 798,  801  (Alaska
2002).
2Tesoro Petroleum Corp. v. State, 42 P.3d 531, 535 (Alaska 2002);
Progressive Ins. Co. v. Simmons, 953 P.2d 510, 512 (Alaska 1998).
3Progressive, 953 P.2d at 512 (quoting Guin v. Ha, 591 P.2d 1281,
1284 n.6 (Alaska 1979)).
4Curran v. Progressive Northwestern Ins. Co., 29 P.3d 829, 831-32
(Alaska 2001).
5AS 28.20.445(e)(1) provides:

                  (e)    Uninsured   and   underinsured
          motorists coverage
          
                (1)   may  not apply to bodily  injury,
          sickness, disease, or death of an insured  or
          damage  to or destruction of property  of  an
          insured until the limits of liability of  all
          bodily  injury and property damage  liability
          bonds and policies that apply have been  used
          up by payments, judgments or settlements.
          
6Curran, 29 P.3d at 833.
7Id.
8Id. at 830.
9Id. at 834-38.
10The settlement amount included a base payment of $40,000 and an
additional  $20,746.03  for prejudgment interest  and  attorney's
fees.  Id. at 831 n.3.
11Id. at 831.
12Id.
13Id. at 835.
14Id.
15Anchorage  Sch. Dist. v. Anchorage Daily News, 779  P.2d  1191,
1193  (Alaska  1989) ("We recognize the important  public  policy
served  by those measures which encourage settlement."); Interior
Credit  Bureau, Inc. v. Bussing, 559 P.2d 104, 106 (Alaska  1977)
("Stipulations  and settlements are favored in law  because  they
simplify,  shorten  and  settle  litigation  without  taking   up
valuable court resources.").
16It  should be noted that it is unclear from the record and from
the  trial  proceedings below if payment of prejudgment  interest
was  included in Colonial's insurance contract with Babosky, that
being the insurance contract which Coughlin would need to exhaust
before  she  could  draw upon her underinsured motorist  coverage
from  GEICO.  As we held in Farquhar v. Alaska National Insurance
Co.,  the  inclusion of prejudgment interest in policy limits  is
dependent upon the contractual terms of the insurance policy.  20
P.3d  577,  580-81 (Alaska 2001); see also Schultz  v.  Travelers
Indem. Co., 754 P.2d 265, 267 (Alaska 1988) ("In determining what
constitutes  the  maximum  limits of  insurance  coverage,  i.e.,
policy  limits,  it  is necessary for the  court  to  review  the
contractual  obligations  undertaken  by  the  insurer   in   the
insurance policy in question in light of the applicable statutes,
regulations   and  court  opinions  which  have  addressed   this
issue.").   Because  we  hold that prejudgment  interest  is  not
included  in the policy limits for the purpose of determining  if
policy limits had been exhausted, this issue is moot and need not
be addressed upon remand.
17See Safety Nat'l Cas. Corp. v. Pacific Employers Ins. Co.,  927
P.2d  748, 751 (Alaska 1996) ("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."); Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin,
828 P.2d 745, 768 n.58 (Alaska 1992) ("[T]he term `policy limits'
is  self_explanatory even without any prior cases.  Policy limits
necessarily are what an insurance company would have to pay under
its   policy  if  it  went  to  trial  and  received  an  adverse
verdict.");  Schultz, 754 P.2d at 267 ("[P]olicy  limits  .  .  .
include[  ] the amount of attorney's fees which would  have  been
awarded had this case gone to trial.").
18In  describing a settlement offer in Curran, we stated that  "a
$20,746.03  additional  payment  for  prejudgment  interest   and
attorney's  fees . . . would not have counted against the  policy
limit."  29 P.3d at 831 n.3.
19The dissent argues that no relevant conceptual difference exists
between  UIM  and excess coverage.  Dissent at 21.  However,  the
statute's  concern  with  making UIM  coverage  widely  available
distinguishes  it  significantly from  excess  coverage.   Excess
coverage insures against "catastrophic loss."  Safety Nat'l  Cas.
Corp.  v.  Pacific  Employers Ins. Co., 927  P.2d  748,  750  n.1
(Alaska  1996).  UIM coverage, unlike excess coverage,  does  not
contemplate  extreme or unusual circumstances, but rather  exists
to  compensate  an  injured  insured  "to  the  extent  that  the
tortfeasor's  liability  insurance coverage  is  insufficient  to
compensate the injured person fully for his or her loss."  Curran
v.  Progressive Northwestern Ins. Co., 29 P.3d 829,  832  (Alaska
2001).
20828 P.2d 745, 755 n.20 (Alaska 1992) (citation omitted).
21The  dissent contends that language in the Motor Vehicle Safety
Responsibility  Act  supports its argument that  extras  must  be
exhausted   to   trigger  UIM  coverage.    Dissent   at   17-20.
Specifically,  the  dissent  looks  to  AS  28.20.070(a)  and  AS
28.20.440(b)(2).  These sections prescribe the required amount of
insurance  that each driver in Alaska must carry.   We  recognize
that  both  sections contain the language "exclusive of  interest
and costs" in imposing Alaska's mandatory minimum limits.  But we
do  not agree that the absence of such qualifying language in  AS
28.20.445(e)(1) compels the conclusion that the phrase "limits of
liability" means all "amounts potentially payable under  all  the
liability coverages of any underlying liability policy."  Dissent
at  16.   Alaska Statutes 28.20.440(b)(2) and 28.20.070(a) define
the  bare  limits  of  mandatory coverage.  Both  statutes  state
explicitly   that  the  mandatory  minimum  policy   limits   are
"exclusive of interest and costs."  In similarly plain  language,
AS  28.20.445(e)(1)  refers  to  "bodily  injury"  and  "property
damage" limits but not to the extras that can constitute elements
of policy limits in other contexts.
22AS 28.20.445(e)(1).
23Dissent at 29.
24Dissent at 30.
25Slip Op. at 14.  There is no claim that GEICO's policy terms are
more favorable to Coughlin than subsection .445(e)(1).
26Slip Op. at 14.
27AS 28.20.445(e)(1) provides in pertinent part:

          (e)   Uninsured  and  underinsured  motorists
          coverage
                (1)   may  not apply to bodily  injury,
          sickness, disease, or death of an insured  or
          damage  to or destruction of property  of  an
          insured until the limits of liability of  all
          bodily  injury and property damage  liability
          bonds and policies that apply have been  used
          up by payments, judgments or settlements .  .
          . .
          
(Emphasis added.)

28I  use  a  qualifier,  such as "facial"  or  "numerical,"  with
"limits"  or "policy limits" to refer to the numerical  liability
limits specified in the policy's declarations.

            The   court's  opinion  uses  these  and   equivalent
qualifiers  for  the same purpose.  It therefore  speaks  of  the
"$50,000  `facial limit,' " (Slip Op. at 2), the "face  value  of
the  Colonial  policy," (id. at 10), "the face amount  of  policy
limits," (id. at 11), "facial coverage," (id.), "full face  value
of one's policy limits," (id. at 13), and "full face value of the
policy."  (id.).   (Although we have sometimes used "face  value"
when  referring to the facial limits of liability  policies,  the
concept  of  "value" seems better suited to describing  life  and
property loss coverages.)

           This  practice  is consistent with  our  past  use  of
qualifying words or descriptive phrases when we refer only to the
numerical  limits, see, e.g., State Farm Mut. Auto. Ins.  Co.  v.
Harrington,  918  P.2d  1022, 1025-26 (Alaska  1996)  ("numerical
facial  limit"; "facial limits"; "facial policy limits");  Hughes
v.  Harrelson, 844 P.2d 1106, 1108 (Alaska 1993) ("minimum policy
limits"); Tucker v. United Servs. Auto. Ass'n, 827 P.2d 440,  441
(Alaska  1992)  ("base  liability limit");  Wold  v.  Progressive
Preferred  Ins.  Co.,  52 P.3d 155, 162 (Alaska  2002)  ("nominal
policy  limits"), or when context makes our meaning clear,  e.g.,
Curran  v.  Progressive Northwestern Ins. Co., 29 P.3d 829,  830,
831,  835  n.35  (Alaska  2001) ("policy  limit  of  $50,000  per
person";  "$50,000  policy limits"; "facial  policy  limits  plus
applicable add-ons").

29Curran, 29 P.3d at 831; Baker v. State, 30 P.3d 118, 118 (Alaska
App. 2001).
30AS 28.20.070(a) provides:

          A  policy  or bond is not effective under  AS
          28.20.060 unless it is issued by an insurance
          company  or surety company authorized  to  do
          business in this state, except as provided in
          (b)  of  this  section, and if  the  accident
          resulted  in  bodily injury or death,  unless
          the  policy  or bond is subject to  a  limit,
          exclusive of interest and costs, of not  less
          than  $50,000 because of bodily injury to  or
          death of one person in any one accident  and,
          subject to the same limit for one person,  to
          a  limit of not less than $100,000 because of
          bodily  injury  to or death of  two  or  more
          persons  in  any  one accident,  and  if  the
          accident  has  resulted  in  injury  to,   or
          destruction  of, property to a limit  of  not
          less  than  $25,000 because of injury  to  or
          destruction of property of others in any  one
          accident.
          
31AS 28.20.440(b)(2) provides:

          The  owner's  policy  of liability  insurance
          must
               . . . .
                (2)   insure the person named and every
          other  person  using  the  vehicle  with  the
          express  or implied permission of  the  named
          insured,  against  loss  from  the  liability
          imposed by law for damages arising out of the
          ownership, maintenance, or use of the vehicle
          within  the United States or Canada,  subject
          to  limits  exclusive of interest and  costs,
          with  respect  to each vehicle,  as  follows:
          $50,000 because of bodily injury to or  death
          of  one  person  in  any one  accident,  and,
          subject  to  the same limit for  one  person,
          $100,000 because of bodily injury to or death
          of  two  or more persons in any one accident,
          and   $25,000   because  of  injury   to   or
          destruction of property of others in any  one
          accident . . . .
32The  legislature  used similar terminology  in  AS  28.22,  the
Mandatory  Motor  Vehicle Insurance Act.  Thus,  AS  28.22.101(d)
requires in part that a motor vehicle liability policy be subject
to  "limits exclusive of interest and costs" of "$50,000  because
of  bodily injury to or death of one person."  AS 28.22.201(a)(1)
provides that underinsured motorists coverage required by Chapter
22  "does  not apply to bodily injury . . . until the  limits  of
liability  bonds  and policies that apply have been  used  up  by
payments or judgments or settlements."
33Curran, 29 P.3d at 831-32 (footnotes omitted).
34Bullock v. State, Dep't of Cmty. & Reg'l Affairs, 19 P.3d 1209,
1214 (Alaska 2001); Gerber v. Juneau Bartlett Mem'l Hosp., 2 P.3d
74, 76 (Alaska 2000).
35Louisiana Pacific Corp. v. State, Dep't of Revenue, 26 P.3d 422,
427 (Alaska 2001); Kodiak Island Borough v. Exxon Corp., 991 P.2d
757,  761  (Alaska  1999); Romann v. State,  991  P.2d  186,  190
(Alaska  1999); Fancyboy v. Alaska Village Elec. Coop., 984  P.2d
1128,  1133  (Alaska 1999); Rydwell v. Anchorage Sch. Dist.,  864
P.2d 526, 528 (Alaska 1993).
36Curran, 29 P.3d at 832.
37Progressive Ins. Co. v. Simmons, 953 P.2d 510, 517 n.6  (Alaska
1998).
38Curran, 29 P.3d at 832.
39"Only  when  the  primary insurer's  limits  are  exhausted  do
obligations  on  the  part of the excess insurers  arise.   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."  Safety Nat'l Cas. Corp.  v.
Pacific  Employers  Ins.  Co., 927 P.2d 748,  751  (Alaska  1996)
(citations omitted).
40Slip Op. at 11 n.19.
41Id.
42Cf. Curran, 29 P.3d at 832 quoted above in the text.
43Cf.  Curran, 29 P.3d at 832 (describing purpose of UIM coverage
as coverage needed to "fully compensate" after liability coverage
has been "completely exhausted").
44Guin v. Ha, 591 P.2d 1281, 1287 (Alaska 1979).
45Tucker, 827 P.2d at 441.
46Harrington,  918 P.2d at 1025-26; Schultz v.  Travelers  Indem.
Co., 754 P.2d 265, 267 (Alaska 1988).
47Curran, 29 P.3d at 835 n.35.
48Wold, 52 P.3d at 162-63; see, e.g., Tucker, 827 P.2d at 440-41 &
n.3.

          An insurance carrier's agreement to settle  a
          claim  for  "policy  limits"  obligates   the
          company   to   pay   its  maximum   potential
          liability available under the policy. . . .
               . . . .
                .  .  .  Whether the disputed  coverage
          involves  the  base  liability  limit,  court
          costs,  or  prejudgment interest, it  is  the
          insured's total potential liability which  is
          of  concern  to  the  insured  in  a  "policy
          limits" settlement.
          
Tucker, 827 P.2d at 440-41.

49GEICO  asserts on appeal that the parties do not  dispute  that
Colonial's  policy  covered  prejudgment  interest,  costs,   and
attorney's  fees.  Coughlin does not dispute this assertion,  and
represents  that  "had she held out for fees and  interest,"  her
recovery  from Colonial would have been about $67,750.  According
to  a  demand  Coughlin made on GEICO, the Rule 82 add-on  for  a
$50,000 policy would be $7,500.
50I agree with the court's resolution of the medical lien issue in
Part III.B.1., but my conclusion that Colonial's limits were  not
exhausted would moot the lien issue.
51Slip  Op.  at  13 ("We therefore hold that a  policy  limit  is
exhausted  for  the  purposes of invoking  underinsured  motorist
coverage when the full face value of the policy is paid . . .  ."
(Emphasis  added.)   The court's footnote to that  passage  cites
subsection .445(e)(1).).
52Slip Op. at 6, 10-14.
53See cases cited supra note 4.
54See supra note 4.
55Slip Op. at 11-14.
56See, e.g., Slip Op. at 12 ("it is difficult to believe that the
legislature   would  use";  "it  would  be  unlikely   that   the
legislature . . . would have intended").
57See, e.g., Slip Op. at 13 ("there are strong policy reasons").
58This  appears to have been the practice followed in Schultz  v.
Travelers Indem. Co., 754 P.2d 265, 266-67 (Alaska 1988).
59Insistence on actual payment may expose an excess insurer to  a
bad faith claim for anticipatorily repudiating its contract.  Cf.
Grace  v.  Ins. Co. of N. Am., 944 P.2d 460, 467 &  n.15  (Alaska
1997)  ("[The  excess  insurer's] duty was  triggered  when  Bell
became  liable for sums in excess of INA's lower coverage  limit,
rather than when the underlying limits were actually paid.").
60E.g., Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin,  828
P.2d 745, 768 (Alaska 1992).
61Slip Op. at 11.
62Coughlin's demand letter to her UIM insurer alleged total losses
exceeding  $150,000.  She asserts on appeal her damages  exceeded
$172,000.
63Slip Op. at 12.
64Slip Op. at 12, 13.
65Slip Op. at 13.
66Curran  v. Progressive Northwestern Ins. Co., 29 P.3d 829,  832
(Alaska 2001).
67Id.