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Tush v. Pharr (4/25/2003) sp-5684
Tush v. Pharr (4/25/2003) sp-5684
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,
email corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
TRUDY TUSH, )
) Supreme Court No. S-10229
Appellant, )
) Superior Court No.
v. ) 3AN-99-10897 CI
)
JOHN C. PHARR, THOMAS P. ) O P I N I O N
OWENS, JR., and OWENS & )
TURNER, P.C., ) [No. 5684 -
April 25, 2003]
)
Appellee. )
_______________________________ )
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, John E. Reese, Judge.
Appearances: Kristi Nelson Pennington and
Richard D. Pennington, Pennington &
Associates, Anchorage, and Gary Eschbacher,
G.R. Eschbacher Law Offices, Anchorage, for
Appellant. David Karl Gross and Timothy J.
Petumenos, Birch, Horton, Bittner and Cherot,
Anchorage, for Appellee John C. Pharr. James
D. Gilmore, Gilmore & Doherty, Anchorage, for
Appellees Thomas P. Owens, Jr. and Owens &
Turner, P.C.
Before: Matthews, Eastaugh, Bryner, and
Carpeneti, Justices. [Fabe, Chief Justice,
not participating.]
CARPENETI, Justice.
I. INTRODUCTION
Trudy Tush appeals the trial courts grant of summary
judgment against her on four separate motions. Because genuine
issues of material fact remain on all four, we reverse the order
of the superior court granting summary judgment on each motion
and we remand the case to the superior court for further
proceedings.
II. FACTS AND PROCEEDINGS
A. Facts
Trudy Tush and her former husband Larry Tush sued
Hector Perez to evict him. Tush owns numerous rental properties
and has been involved in real estate investment for over twenty
years. Perez was one of her tenants.
On August 23, 1993 Tush, acting pro se for herself and
Larry, sued to evict Perez from her rental property at 1201
Chugach Way in Anchorage, a single family residence (Chugach
property).1 Perez obtained legal representation from Alaska
Legal Services. Perez answered Tushs complaint and filed
numerous counterclaims against Tush alleging intentional
infliction of emotional distress, willful diminution of essential
services, breach of the covenant of good faith and fair dealing,
harassment, retaliatory eviction, unlawful termination of
utilities, and failure to maintain and repair the premises. Tush
then hired attorney John C. Pharr to represent her and Larrys
interests.
Throughout her real estate investments, Tush and her
spouse managed the properties by themselves. To obtain insurance
for the properties, Tush would normally telephone an insurance
broker and attempt to purchase whatever her bank required her to
carry, while investigating to find the cheapest price. I would
tell them what I wanted and . . . they would get it for me.
Tush had rental property insurance, including liability
coverage, for the Chugach property. Tush purchased this policy
from the Umialik Insurance Company. Umialik covered a number of
Tushs properties. After the policy was obtained, certain tenants
filed claims against Tush. One tenant from 1117 Chugach Way,
which Tush also owned, alleged improper notice of eviction and
intentional infliction of emotional distress. Tush notified her
insurance broker, who notified Umialik of the claim. Umialik
hired Tush an attorney, provided her a defense, and settled the
claim for $5,000.
Umialik subsequently refused to renew the policy. Tush
then sought coverage for her properties from other companies.
She eventually decided on State Farm Fire and Casualty Company
(State Farm). Tush applied for insurance from State Farm over
the telephone. Tush obtained a separate policy for the Chugach
property from other properties she owned on Chugach Way. Tushs
application was filled out by an insurance agent speaking with
Tush over the phone. Tush never signed the application. The
application states that Tush had not had a loss in the last three
years, had never had an insurance carrier deny renewal, and that
Tushs last insurance company was Liberty National. All of these
statements are false. State Farm issued Tush a policy including,
among other things, liability coverage with limits of $1,000,000
per occurrence.
Tush was deposed on September 15 and September 20,
1993. At the deposition, Tush was asked questions regarding her
insurance coverage for the Chugach property. Pharr objected as
to relevance, and Tush largely refused to respond.2 Later, Tush
was marginally more forthcoming on the subject of insurance, but
she answered the question whether she had liability insurance on
the premises at 1201 Chugach with, No, its just the value of the
house.
In November Pharr received a settlement offer from
Perez for $25,000, including attorneys fees and costs. Pharr
alleged that he discussed the offer with Tush in his office and
then mailed it to her for documentation purposes. Pharr further
claimed that when he showed it to Tush she laughed and tossed it
down on the desk. According to Pharr, no further discussion was
held regarding this settlement offer. Tush denied that the
$25,000 settlement offer was ever communicated to her.
There was then no action in the Perez lawsuit until
October 1994, when Dan Fitzgerald entered his appearance on
behalf of Perez by filing a second amended answer and additional
counterclaims. Pharr claims that, at around this time, he
discussed the new counterclaims filed by Fitzgerald with Tush.
Pharr recounted their conversation at his deposition:
its been my experience that insurance
actually draws lawsuits because the claimant
is after the insurance. Its more of a fat
easy target than trying to execute on
somebodys property, for example. So they may
you know, the other side may have been under
some impression that there was insurance, and
that they were going to go after that
insurance. And once they found out there
wasnt any insurance, theyd be discouraged
from pursuing it.
On December 28, 1994 Fitzgerald successfully had the case removed
to the superior court.
Tush and Larry divorced in 1995. Tush believed the
divorce created a conflict of interest in Pharrs representation.
Because of this perceived conflict of interest, Tush terminated
Pharrs services on January 4, 1995, instructing him to do nothing
further in her case. There was no other reason why Pharrs
services were terminated; Tush was generally happy with the work
he had done in the case. At no time during Pharrs representation
of Tush did Pharr ever ask to see any of Tushs insurance
policies, nor did he himself investigate or direct Tush to
investigate whether her insurance would cover any of Perezs
claims.
On January 24, 1995 Pharr received Perezs second set of
requests for production. Two requests asked for production of
Tushs insurance policies. Although these requests for production
arrived in Pharrs office after Tush had terminated his services,
Pharr accepted service of the document because he was the
attorney of record and had not received notice of who Tushs new
attorney would be. Pharr, however, did not attempt to answer the
discovery request, mailing it to Tush with an explanation of when
her responses were due.3 On February 6, 1995 Pharr sent a letter
to Fitzgerald attempting to discourage him from pursuing the case
based on his belief that there was no insurance coverage
involved. This letter was copied to Tush. Pharr also answered
Perezs new counterclaims (filed by Fitzgerald on February 20) to
protect Tushs interests while she was obtaining new
representation.
Robert Reiman entered his appearance as Tushs attorney
in February 1995. In May 1996 Perez made an offer of judgment to
Tush for $50,000. Reiman alleged that Tush was informed of this
offer but refused to accept it. In January 1997 the parties had
a settlement conference and Tush offered $20,000 in an attempt to
settle the case. This offer was refused. At a second settlement
conference Perez offered to settle for $450,000. Tush countered
with a piece of property worth approximately $50,000 and $20,000
in cash paid out over a period of time. Perez then made a
counteroffer of $400,000. This offer was not accepted and
settlement negotiations between the parties ended.
While Reiman represented Tush, Fitzgerald moved to
compel the answers to the second set of requests for production.
Reiman alleges he produced the declaration page from the State
Farm policy.4 Although Reiman thought it may provide coverage on
one or more of the claims, he did not attempt to contact State
Farm and tender the claim. Reiman alleges he suggested to Tush
that she tender the claim to State Farm and that she told him in
response that she did not want to do so.
Tush fired Reiman and replaced him in January 1997 with
attorney Tom Owens. Owens accepted representation in the matter
after a continuance of the trial date was obtained by Reiman.
The Perez lawsuit went to trial. In November 1997 a
jury found in favor of Perez and awarded a verdict, including
punitive damages, in excess of $1,600,000.
On April 8, 1998 Tush received notice that State Farm
would no longer be insuring her other properties under a separate
policy due to misrepresentation regarding prior cancellation or
refusal to issue or renew similar insurance by an insurer.
Tush again retained new counsel. Counsel then tendered
the Perez claim to State Farm on February 4, 1999. State Farm
undertook an investigation to determine coverage. On February
22, 1999 State Farm disclaimed coverage under Tushs primary
insurance policy because the claim was not tendered on a timely
basis, prejudicing its ability to defend and breaching the
policys prompt reporting requirement. State Farm further
investigated and concluded that the Tushes were not covered under
any of their other insurance policies for the Perez judgment,
because of both the delay in tendering the claim and the policys
intentional acts exclusion.
B. Proceedings
A. In October 1999 Tush filed the present case alleging that
her attorneys, Pharr, Reiman,5 Owens and Owens & Turner P.C.,
acted below the standard of care during the course of the Perez
lawsuit by failing to tender her claim to State Farm. She
alleged causes of action for professional negligence, breach of
fiduciary duty, and breach of contract. Tush contended that had
State Farm been given notice of the counterclaims, it would have
acted on them under Tushs insurance policy and provided a defense
and either settled the claim or paid any verdict.
Four motions for summary judgment were filed by the
defendants in this matter. The first was filed by Pharr on June
30, 2000, arguing that because Tush testified the Chugach
property did not have coverage, he was under no duty to further
investigate whether or not such a policy existed. The second
motion for summary judgment was filed September 21 by Reiman. In
his motion Reiman argued that not only did he not have a duty to
tender the claim, but also that even if such a duty existed, he
was not the cause of Tushs injury as the misrepresentations in
her application for coverage to State Farm voided the policy ab
initio. The third motion for summary judgment was filed October
5, also by Pharr. In it, Pharr joined in Reimans motion and
further argued that even if Tush was correct that a duty existed,
any negligence on the part of the defendants was not the cause of
Tushs harm as State Farm would have denied coverage under the
intentional acts exclusion. The final motion for summary
judgment was filed by Owens and Owens & Turner P.C. In it, Owens
argued that regardless of his or his firms actions State Farm
would have denied the claim because of Tushs failure to tender it
in a timely fashion. Owens also joined in Reimans motion for
summary judgment and Pharrs second motion for summary judgment.
Superior Court Judge John E. Reese granted each motion
for summary judgment, specifically adopting as to each the
arguments made by defendants.
Tush now appeals.
III. STANDARD OF REVIEW
We review a trial courts grant of summary judgment de
novo and affirm if the record presents no genuine issues of
material fact and the moving party is entitled to judgment as a
matter of law.6 All reasonable factual inferences are drawn in
favor of the non-moving party.7
Contract language interpretation is a question of law,
subject to our de novo review.8 Insurance contracts are
interpreted by looking to the language of the disputed policy
provisions, the language of other provisions of the policy, and
to relevant extrinsic evidence. In addition, we also refer to
case law interpreting similar provisions.9
IV. DISCUSSION
A claim of legal malpractice consists of four elements:
(1) the duty of the
professional to use such skill, prudence, and diligence as other
members of the profession commonly possess and exercise; (2) a
breach of that duty; (3) a proximate causal connection between
the negligent conduct and the resulting injury; and (4) actual
loss or damage resulting from the professionals negligence.10
A. Summary Judgment Was Improperly Granted on Pharrs First
Motion for Summary Judgment Because Material Facts Were in
Dispute as to Pharrs Duty To Investigate.
Pharr argues he did not breach his duty of care to Tush
by failing to further investigate the issue of insurance. Tush
responds that reasonable minds could differ on whether or not
Pharr had a duty to further investigate, creating a genuine issue
of material fact in dispute. We agree with Tush.
Because the question of whether a tort duty exists is
usually a question for the trier of fact and therefore not
susceptible to summary adjudication, summary judgment on the
question of a tort duty is only appropriate when the undisputed
facts support only one reasonable inference.11
But the facts pertinent to Pharrs initial motion for
summary judgment supported more than one inference. The question
before the court concerned the first element of a legal
malpractice claim: Did Pharr have a duty to investigate Tushs
insurance? For several reasons we conclude that material facts
concerning this issue were in dispute.
First, Tushs deposition testimony on the question of
what type of insurance she carried on her rental properties was
ambiguous. She testified that all of her properties were
covered, but then she answered the question, Is it liability
insurance? by saying, No, its just the value of the house, a
statement that implies, but does not clearly state, that the
insurance covers only loss of premises. But then, when asked if
her other policies strictly insured the value of the house, she
responded I really dont know. Finally, when asked if she knew
the extent of her insurance coverage and other information
pertaining to her policies, Tush responded, I leave that up to
the insurance agent and I talk to him about it. Pharr contends
that Tushs sworn testimony that she did not have liability
insurance relieved him of the duty to inquire further. But given
the ambiguous nature of Tushs deposition responses,12 Pharrs
defense that he was entitled to rely on his clients deposition
testimony raises disputed issues of fact.
Second, Pharr relies on his assertion that Tush told
him in a separate conversation that she had no liability
insurance on the subject property. But Tush denied that such a
conversation ever took place, creating a further material factual
dispute.
Third, Tush offered substantial expert opinion to
support the proposition that an attorney faced with the situation
facing Pharr had a duty to obtain and inspect the insurance
policies so as to competently advise his client. Expert Robert
Wainscott opined, It has been my experience that it is the
standard and essential practice of the attorney to immediately
seek out all insurance policies that may possibly provide
coverage for a date of event and tender the claims or
counterclaims to the carrier or carriers who wrote the policies.
Expert James A. Hanson offered the opinion that, after Tushs
deposition, prudence required a full review of her insurance
policies by her counsel. Expert Roger Holmes added, It is the
standard of care for a lawyer representing a client in a personal
injury, bodily injury or property damage claim to help the client
ascertain the availability of insurance coverage which might
provide for a defense and/or indemnity to the client. This
should be done as soon as possible after the commencement of the
case. To be sure, there was contrary expert testimony. But at
the least, a material fact dispute existed on the attorneys duty.13
Finally, Pharr admitted that he adopted the position
that Tush was better off without liability insurance, because in
his experience the existence of such insurance attracted
plaintiffs.
Pharr cites a number of cases for the proposition that
a lawyer has no duty to investigate the truth or falsity of his
or her clients representations.14 But these cases involved
unambiguous situations, and Pharrs argument assumes that Tushs
deposition testimony stating she does not have liability
insurance was unequivocal. As noted above, this is far from the
case. The rule that an attorney can rely on a clients factual
representations absent circumstances indicating otherwise
provides scant support for Pharr, because there are numerous
circumstances indicating otherwise here: the ambiguity of Tushs
deposition statements, her denial that she told Pharr outside of
the deposition that she had no liability insurance, and expert
opinion to the contrary. As stated in Milliner v. Elmer Fox &
Co.,15 one of the cases upon which Pharr relies, [a]s a general
rule, an attorney is not required to investigate the truth or
falsity of facts and information furnished by [a] client, and his
failure to do so would not be negligence . . . unless facts and
circumstances of the particular legal problem would indicate
otherwise.16 The court in Harline v. Barker,17 applying Milliner,
looked to see if there were any special circumstances indicating
that the clients representation could not be relied on and found
there were.18 Here too, the circumstances of Tushs testimony
arguably should have alerted Pharr that her single representation
that she did not have liability insurance might have required
further investigation. A review of Tushs testimony shows that
the issue of what insurance she had was far from clear. When
asked if she knew the extent of her insurance coverage or other
information pertaining to her policies, Tush answered I leave it
up to the insurance agent and I talk to him about it. Also,
Tushs testimony clearly stated that she was in possession of
other insurance policies as well. Given that Pharr knew this,
there is a material fact dispute as to whether he should have
inquired as to whether any of these policies might have provided
possible coverage for the Perez claim.
Because reasonable minds could differ as to whether
Pharr had a duty to further investigate whether Tush had
liability insurance for the Chugach property, summary judgment on
Pharrs first motion was inappropriate.
B. Summary Judgment Was Improperly Granted on Pharrs Second
Motion for Summary Judgment Because Material Facts Were in
Dispute as to Whether State Farm Would Have Denied Coverage or
Could Have Done So Successfully.
To make out a prima facie claim for attorney
malpractice, Tush must show that the defendants were the cause of
her injury. Pharrs second motion for summary judgment argued
that Tush is unable to do this because regardless of the
defendants actions, State Farm would have denied Tushs claim due
to misrepresentations in her application or under the intentional
acts exclusion of her policy.19 Tush claims that any argument as
to what State Farm would or could have done had the claim been
tendered is speculative and that there are genuine issues of
material fact in dispute with regard to both her alleged
misrepresentations in obtaining her State Farm policy and the
intentional acts exclusion of that policy. Again we agree with
Tush.
1. There are disputed issues of material fact as to
whether the misrepresentations in Tushs insurance
application would have caused or permitted State
Farm to void the policy ab initio.
Tush argues that by ruling that regardless of whether
the claim was promptly tendered to State Farm, that company would
have denied coverage due to the material misrepresentations in
Tushs application, the superior court improperly resolved a
genuine issue of disputed material fact and misapplied the
applicable law. Pharr responds that the superior court correctly
decided this causation issue. Causation issues such as this are
normally left for the trier of fact where unresolved fact
questions remain, although the court may decide the matter where
the evidence is such that reasonable minds cannot differ.20
Tushs policy for the Chugach property contains a
provision dealing with concealment, misrepresentation, and fraud.
Under it, the policy is void in any case of fraud by the insured
as it relates to the policy. The policy is also void if the
insured intentionally conceals or misrepresents a material fact
concerning the policy or the covered property.
Under AS 21.42.110,
All statements and descriptions in an
application for an insurance policy or
annuity contract, or in negotiations for the
policy or contract, by or in behalf of the
insured or annuitant, shall be considered to
be representations and not warranties.
Misrepresentations, omissions, concealment of
facts, and incorrect statements may not
prevent a recovery under the policy or
contract unless either
(1) fraudulent;
(2) material either to the acceptance of
the risk, or to the hazard assumed by the
insurer; or
(3) the insurer in good faith would
either not have issued the policy or
contract, or would not have issued a policy
or contract in as large an amount, or at the
same premium or rate, or would not have
provided coverage with respect to the hazard
resulting in the loss, if the true facts had
been made known to the insurer as required
either by the application for the policy or
contract or otherwise.
Tushs application for insurance was made by telephone
and, as a result, she did not sign the application. Tush denied
that she had been asked about prior losses or cancellations,
testified that she had told the State Farm agent that her
previous insurance had just been canceled, and testified that she
did not understand prior losses to mean insurance claims. Tush
offered expert opinion to the effect that because of the
uncertainty introduced by Tushs testimony, State Farm might not
have denied coverage or might have defended Tush under a
reservation of rights.21 Under these circumstances, the question
whether State Farm would have voided the policy ab initio a
question that required speculation as to what another would have
done was one for the jury.22 Moreover, although State Farm has
maintained that even an unsigned application can be canceled,
summary judgment would still be inappropriate. Simply because
State Farm had the option to cancel the policy does not mean that
it would have done so had the claim been promptly tendered under
these circumstances.
Further, what State Farm might have done in response to
a tender of defense is by no means the complete inquiry. Even if
State Farm would have denied coverage or refused to defend, the
question whether such actions would have been legally sustainable
if challenged must also be decided.
Pharr relies on Bennett v. Hedglin,23 but that case is
distinguishable factually from the present case. In Bennett, we
upheld the superior courts grant of summary judgment against
Bennetts claim for insurance coverage because it was clear that
Bennett made the misrepresentation on the application. Even
though Tushs actions in this case and in the Perez lawsuit may
cast her credibility into question,24 summary judgment is
unavailable where credibility issues are to be resolved.
Because how the misstatements on Tushs application came
about and what actions State Farm would or could have taken after
discovering the misstatements are unclear and in dispute, summary
judgment should not have been granted on these grounds.
2. There are disputed issues of material fact as to whether the
intentional acts exclusion in Tushs policy would have precluded
coverage.
Pharr contends that the intentional acts exclusion
would have precluded coverage for the Perez claims under Tushs
State Farm policy. Tush argues in opposition that State Farm
could not properly have denied a defense based on the policys
intentional acts exclusion under Alaska law.
Tushs rental dwelling policy provides business
liability coverage where State Farm agrees to pay up to our limit
of liability for the damages for which the insured is legally
liable . . . including malicious prosecution and wrongful
eviction. (Emphasis in original.) However, this coverage does
not extend to bodily injury, personal injury, or property damage
. . . which is either expected or intended by an insured; or . .
. to any person or property which is the result of willful and
malicious acts of an insured[.] (Emphasis in original.)
An insurers duty to defend and its obligation to
indemnify are separate and distinct contractual elements. 25 The
duty to defend is broader than the duty to provide coverage.26 A
duty to defend arises whenever a complaint sufficiently alleges
an issue of liability covered by the policy on its face, even if
the allegations of the complaint are false or groundless.27 The
insurer may therefore be obligated to defend even where it has no
ultimate liability under the policy.28 And, the presence of other
allegations in the complaint which are not within policy coverage
does not relieve [an insurer] of its duty to defend.29
Pharr is correct that the Perez counterclaims have as
their basis intentional conduct. However as even Pharrs own
expert, Daniel T. Quinn, opined, State Farm might have agreed to
defend in any event. First, while Counts I and III through VI of
the Perez complaint allege intentional misconduct, Count II
alleges in part that [p]laintiffs deliberately or negligently
failed to provide essential services to the rental premises.
(Emphasis added.) Quinn opined that although the majority of the
complaint pleads intentional acts, in such a situation he would
advise the insurer to defend, possibly under a reservation of
rights. Wainscott opined that even more of the counts might have
been accepted for coverage by State Farm, and that the remainder
would be accepted by State Farm under a reservation of rights.
Disputed questions of fact precluded summary judgment here.
Finally, although Tushs policy excludes intentional
acts, the policy explicitly covers injuries arising out of
wrongful eviction, a tort that may be committed either as
intentional or unintentional and otherwise actionable under the
rules governing liability for negligent, reckless or
ultrahazardous conduct. 30 Tushs policy does not differentiate
between intentional and negligent wrongful eviction.
Accordingly, because the policy includes wrongful eviction, it
must be deemed to be excluded from the intentional acts
exclusion.31
In sum, disputed issues of material fact preclude
summary judgment on Pharrs second motion for summary judgment
concerning whether State Farm would or could have denied coverage
because of misrepresentations in the application. These include
whether Tush was responsible for the misrepresentation and
whether State Farm would have denied coverage and a defense under
the facts of this case. Summary judgment was also inappropriate
on the question of whether the intentional acts exclusion of the
policy barred coverage, because at least one of the counts of the
original Perez counterclaims alleged negligence by Tush, and the
policy specifically included wrongful eviction. Thus, reasonable
minds could differ as to whether the defendants failure to tender
the claim was the cause of Tushs injury, making the question of
causation one for the jury.
C. Summary Judgment Was Improperly Granted on Owenss
Motion Because Whether Tushs Claim Would Have Been
Untimely Had Owens Tendered it to State Farm Involves
Disputed Questions of Fact.
Owens claims that regardless of whether it was
negligent for him to have failed to tender Tushs claim to State
Farm, Tush suffered no damage as the claim would have been deemed
untimely. Owens bases this argument on the fact that by the time
Owens had agreed to represent Tush, three and one-half years had
passed and the case had escalated from one in which plaintiff
offered to settle for $25,000 to one where plaintiff demanded
$450,000 to settle. Tush argues that the question of whether
State Farm would have denied coverage is a question of fact for a
jury, making the superior courts entry of summary judgment
improper.
We have recognized the strong societal interest in
preserving insurance coverage for accident victims so long as the
preservation is equitable for all parties involved.32 Therefore,
absent prejudice, regardless of the reasons for the delayed
notice, there is no justification for excusing the insurer from
its obligations under the policy.33
The burden of showing prejudice from a delay in notice
rests with the insurer, not the insured.34 Generally proof of
prejudice to the insurer is a question of fact.35
Tushs State Farm policy requires the insured to
promptly notify the insurer in the event of any occurrence that
might result in a claim. The policy also states, If a claim is
made or suit is brought against any insured, you must see to it
that we receive prompt written notice of the claim or suit. It
is undisputed that notice of the Perez judgment against Tush was
not made promptly. The parties dispute the existence of any
issues of genuine material fact as to whether State Farm was
prejudiced by Tushs delay and whether State Farm might have
accepted the claim regardless.
Owens cites many cases for the proposition that a delay
of three and one-half years constitutes prejudice,36 arguing that
State Farm would have denied the claim even if he had tendered
it. However, in those cases the plaintiffs were suing their
insurance companies. Here, State Farm is not a party to this
appeal. Therefore, whether three and one-half years is untimely
is irrelevant if no prejudice resulted to State Farm or if State
Farm would have accepted the claim anyway.
1. There is no factual dispute that State Farm was prejudiced
by the delay.
The parties agree that Tush delayed over three years in
tendering the case to State Farm. Owens claims the delay in
tendering the claim was unreasonable and every expert retained in
the matter agrees, primarily because the delay prejudiced State
Farm from being able to properly investigate and possibly settle
the matter. Tush argues that the denial of participation in the
settlement process is not sufficient to constitute prejudice and
that even if it was, whether State Farm might have accepted the
claim is a genuine issue of material fact in dispute.
The evidence of prejudice to State Farm is
overwhelming. Wainscott, an expert retained by Tushs counsel,
opined that [i]t is clear that State Farm was prejudiced by the
late notice since the opportunity to settle the claim for as
little as $25,000 existed early in the case. In his supplemental
report Wainscott stated further that [t]here can be no question
that State Farms rights were prejudiced by the late notice. In
43 years of insurance experience, I dont believe Ive ever seen a
case with more evidence of prejudice to a carrier. And, Holmes,
another of Tushs retained experts, also agreed: In my mind, the
fact that they could have possibly settled for a lesser amount
than when they came into the case is prejudice. Reimans expert
agreed, noting State Farm suffered extreme prejudice and that the
timely reporting requirement would have entitled them to deny
that coverage if they so desired.
2. Whether State Farm would have denied a defense of the claim,
even if prejudice did exist, is a disputed issue of material
fact.
Owens argues that State Farms conduct is not relevant
to Tushs legal malpractice case against Owens because this is not
a coverage dispute between an insurer and an insured. However,
because Owens is making a causation argument, in order to prevail
on summary judgment he must show not only that State Farm was
prejudiced but also that there is no genuine issue of material
fact that State Farm would have denied the claim because of the
prejudice. Owens has not met this burden.
To bolster his position, Owens produced an expert
opinion from William Marr, a team manager for State Farm. In
Marrs opinion, had Owens tendered the claim to State Farm six to
eight months before trial, when he first agreed to represent
Tush, State Farm likely would have denied the claim as untimely
and as prejudicial to its ability to properly investigate. Tush
responded with the expert opinion of Roger Holmes, who opined
that Marrs prediction of how State Farm would have reacted was
wrong: I read what Mr. Marr said would have happened. And, in my
opinion, that isnt what would have happened. They would have
defended the case under a reservation of rights, or they would
have defended it without a reservation of rights, if they decided
that CHI counsel was too expensive. Expert witness Robert
Wainscott also testified that State Farm would have most likely
proceeded with a defense had Owens tendered the case, especially
after the trial date was continued: And at the point in time
where Tom Owens had an extension of time . . . I would have, I
would have proceeded with the coverage. I believe they would
have accepted the tender, probably, under reservation of rights,
I would guess. Im just guessing. Im guessing what I would have
done if I was in their shoes.
In sum, even if State Farm suffered prejudice by the
delay in tender, there is a genuine question of material fact as
to whether State Farm might have accepted the tender of the Perez
claim. In these circumstances, summary judgment on Owenss motion
was improper.
V. CONCLUSION
Because genuine issues of material fact remain with
regard to each of the four summary judgment motions, we REVERSE
the decision of the superior court granting summary judgment and
we REMAND this case for further proceedings.
_______________________________
1 Tush v. Perez, 3AN-93-7673 CI.
2 The following colloquy ensued:
Q: Are any of the rental properties insured?
A: Yes.
Q: And with whom?
A: Im not going to answer.
Q: Do you have an agent youre not willing
to state who your agent is?
A: No.
Q: Do you have an agent?
Mr. Pharr: I think weve already answered
this to the extent that we are
going to answer it.
Ms. Hood: This is the first time Ive asked
that particular question.
Mr. Pharr: Go ahead and answer ask your
question.
. . . .
Q: My question is, do you have an insurance
agent?
A: I guess this is the fourth time youve
asked me that.
Q: And your answer is?
A: Im not going to answer.
Q: Okay. Is your property particularly at
1201 Chugach insured?
A: Yes.
Q: And with whom is that insured?
A: Im not going to answer.
3 Pharr did answer these requests on behalf of Larry whom
he still represented at this time. However, Pharr claims that
because Larry was out of town and [he] had to do something
regarding the discovery, he simply said [Larry] does not have any
of these documents you want and objected to the requests as
overbroad. Pharr eventually withdrew from his representation of
Larry as well.
4 Fitzgerald stated in an affidavit that no insurance
policy was ever produced by Tush or any of her lawyers during the
course of the Perez lawsuit.
5 Reiman subsequently settled with Tush and the court
dismissed the cause of action against him with prejudice.
6 Lincoln v. Interior Regl Hous. Auth., 30 P.3d 582, 585-
86 (Alaska 2001).
7 Id. at 586.
8 Cox v. Progressive Cas. Ins. Co., 869 P.2d 467, 468 n.1
(Alaska 1994).
9 Id. (internal citation omitted).
10 Doe v. Hughes, Thorsness, Gantz, Powell & Brundin, 838
P.2d 804, 806 (Alaska 1992) (quoting Belland v. O.K. Lumber Co.,
797 P.2d 638, 640 (Alaska 1990)).
11 Arctic Tug & Barge, Inc. v. Raleigh, Schwarz & Powell,
956 P.2d 1199, 1203 (Alaska 1998).
12 The complete exchange was as follows:
Q: Miss Tush, do you have insurance for the
rental properties?
A: Yes.
Q: And who is your agent, or do you have an
agent?
A: Yes.
Q: And who is your agent?
A: Conrad with State Farm.
Q: Conrad at State Farm?
A: Uh-huh.
Q: And is he a local agent?
A: Yes.
Q: And does he insure all of your rental
properties?
A: No.
Q: Which ones are uninsured?
A: I dont have anything uninsured.
Q: Oh, I see. Who else insures your rental
properties?
A: It used to be Home State, I dont know
what they are called now.
Q: So you have insurance policies with
Conrad at State Farm and Home State?
A: Yes.
Q: Are there any other insurance agents
with whom you have policies?
A: No.
Q: Are there any other insurance policies
that you have with regard to the rental
properties?
A: No.
Q: Okay. And youve already stated that you
dont have copies of policies, are you
aware of your coverage limits or any
other information pertaining to those
policies?
A: I leave that up to the insurance agent
and I talk to him about it.
Q: Do you have insurance for 1201 Chugach?
A: Yes.
Q: Do you know the extent of the insurance,
what type of insurance it is?
A: Its valued at $20,000, if thats what
youre referring to.
Q: Is it liability insurance?
A: No, its just the value of the house.
Q: Okay. Are your other insurance policies
strictly insuring the value of the
house?
A: I really dont know.
Q: Who has your policy on 1201 Chugach,
Conrad or Home State?
A: State Farm.
Q: Have you ever dealt with an adjuster
regarding your rental properties?
A: No.
Q: So you wouldnt know the name of the
adjuster that you would deal with if
there were to be an issue regarding your
rental properties?
A: No.
Q: Okay.
A: Ive never had to contact one.
Q: Okay. Have you ever had to make a claim
on any of your policies for liability to
tenants of any kind?
A: No.
13 Haisley v. Grant, 486 P.2d 367, 370-71 (Alaska 1971)
(holding that the weight to be accorded to an experts opinion is,
for all practical purposes, exclusively within the province of
the jurors as triers of the facts.).
14 Loyd v. Paine Webber, Inc., 208 F.3d 755, 760 (9th Cir.
2000) (holding that in certain circumstances attorney had no duty
to independently investigate whether clients were engaging in
fraudulent conduct); Heine v. Newman, Tannenbaum, Helpern,
Syracuse & Hirschtritt, 856 F. Supp. 190, 195 (S.D.N.Y. 1994)
(holding that attorney was not negligent in relying on
representations made by client); Parksville Mobile Modular, Inc.
v. Fabricant, 422 N.Y.S.2d 710 (N.Y. App. Div. 1979) (noting that
attorney generally should not be held liable for ignorance of
facts client neglected to state); Milliner v. Elmer Fox & Co.,
529 P.2d 806, 808 (Utah 1974).
15 529 P.2d 806 (Utah 1974).
16 Id. at 808 (emphasis added).
17 854 P.2d 595 (Utah App. 1993).
18 Id. at 599-600 (reversing grant of summary judgment for
defendant attorneys because a reasonable juror could have found
that attorneys breached duty to Harline by failing to ask him
about court orders needing attention or to investigate ongoing
bankruptcy proceedings).
19 Pharrs second motion for summary judgment and Reimans
motion for summary judgment, in which Pharr and Owens joined,
will be considered together in this section as both deal with
similar issues of causation.
20 Sharp v. Fairbanks N. Star Borough, 569 P.2d 178, 183-
84 (Alaska 1977).
21 Tush offered the expert opinion of David G. Sever, who
worked for over thirty years in the insurance industry as a
claims adjuster and an underwriting manager, for the proposition
that the misrepresentations in the application would not provide
a basis for State Farm to void coverage. Because Tush did not
sign the application, according to Sever, she made no written
representations to the insurance company of any type or kind.
Severs opinion supports the conclusion that what action State
Farm would have taken on discovering the misrepresentations is a
question of fact for a jury. Pharr claims what State Farm would
have done is immaterial, arguing that what is important is
whether the policy could have been voided. This argument is
unpersuasive, for in making his causation argument, Pharr must
show that State Farm would have voided the policy to prevail. If
State Farm might not have voided the policy, given the
uncertainty of Tushs responsibility for the misstatements in the
application, Pharrs alleged malpractice could have been the cause
of loss to Tush.
22 See, e.g., Hawaiian Life Ins. Co., Ltd. v. Laygo, 884
F.2d 1300, 1303 (9th Cir. 1989) (holding that insured who
allegedly made misrepresentations is entitled to opportunity to
explain actions and that relationship between insured and agent
in filling out application should be developed on record). If
the matter was to be determined by this court, however, each of
these factual inferences would have to be resolved in favor of
Tush as the nonmoving party.
23 995 P.2d 668 (Alaska 2000).
24 For example, it is uncontested that similar
misrepresentations appear on insurance applications Tush made
from 1993 to 1998. Tush claimed that each time the insurance
agent failed to ask her the pertinent questions.
25 Fejes v. Alaska Ins. Co., Inc., 984 P.2d 519, 522
(Alaska 1999) (quoting Sauer v. Home Indem. Co., 841 P.2d 176,
180 (Alaska 1992)).
26 Id.
27 Allstate Ins. Co. v. Roelfs, 698 F. Supp. 815, 817 (D.
Alaska 1987).
28 Fejes, 984 P.2d at 522.
29 Sauer, 841 P.2d at 181.
30 See Barkett v. Brucato, 264 P.2d 978, 986 (Cal. App.
1953) (listing elements of wrongful eviction tort) (quoting
Restatement of Torts 822 (1939)).
31 E.g., Stanback v. Westchester Fire Ins. Co., 314 S.E.2d
775, 779 (N.C. App. 1984) (finding that policy covering personal
injury which defined personal injury to include intentional torts
that also had an exclusion for all intentional acts ambiguous and
that such ambiguity should and would be resolved in insureds
favor).
32 Weaver Bros., Inc. v. Chappel, 684 P.2d 123, 125
(Alaska 1984).
33 Id. (reversing grant of summary judgment in favor of
insurer due to insurers failure to offer no more than mere
allegations of prejudice from insureds six- year delay in
tendering claim under policy).
34 Id. at 126 (noting that [t]he insurer is in a better
position to demonstrate that its ability to investigate, defend
or settle a claim has been impaired).
35 Id.
36 See, e.g., AVCO Corp. v. Aetna Cas. & Sur. Co., 679
A.2d 323, 328 (R.I. 1996) (holding that delay of two and one-half
years did not constitute immediate notice as required by policy,
as no judicial holding or legal authority . . . would equate
immediate as meaning within two and one-half years thereafter);
Martinson v. Mass. Bay Ins. Co., 947 F. Supp. 124 (S.D.N.Y. 1996)
(holding two-year delay from notice of claims and fourteen-month
delay from time action commenced untimely and upholding insurers
denial of coverage). Under New York law, however, an insureds
failure to comply with a notice-of-claim provision is generally a
complete defense to actions against the insurer for coverage.
Id. at 128 (citing Olin Corp. v. Ins. Co. of N. Am., 966 F.2d
718, 723 (2d Cir. 1992)). Because Alaska law requires a showing
of prejudice in addition to an insureds failure to comply, see
Weaver Bros., 684 P.2d at 126 and supra text accompanying n.33,
New York law is generally inapplicable on this issue.
