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Blood v. Kenneth Murray Insurance, Inc. (4/25/2003) sp-5685
Blood v. Kenneth Murray Insurance, Inc. (4/25/2003) sp-5685
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
JAMES D. BLOOD, )
) Supreme Court No. S-10123
Appellant, )
) Superior Court No.
v. ) 4FA-99-1306 CI
)
KENNETH MURRAY INSURANCE, ) O P I N I O N
INC. and PROGRESSIVE )
INSURANCE COMPANIES, INC., ) [No. 5685 - April 25, 2003]
)
Appellees. )
________________________________)
Appeal from the Superior Court of the State
of Alaska, Fourth Judicial District,
Fairbanks, Charles R. Pengilly, Judge.
Appearances: Robert John, Law Office of
Robert John, Fairbanks, for Appellant.
Michael C. Kramer and Dennis C. Cook, Cook
Schuhmann & Groseclose, Inc., for Appellees.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
EASTAUGH, Justice.
I. INTRODUCTION
James D. Blood was injured while riding as a passenger
in an automobile operated by an uninsured driver. Blood
submitted an uninsured motorist/underinsured motorist (UM/UIM)
claim, but his insurer denied coverage. Blood then sued the
insurer and insurance agent. We consider here whether Blood
waived his right to arbitrate UM/UIM issues by seeking a
declaration of coverage and damages in his lawsuit against the
insurer and the agent. Because we conclude that Blood did not
waive that right, we reverse the order dismissing his lawsuit and
remand for further proceedings, including trial of the coverage
dispute.
II. FACTS AND PROCEEDINGS
In March 1996 James Blood purchased from Kenneth A.
Murray Insurance, Inc. (KMI) an automobile liability insurance
policy issued by Progressive Insurance Company.
Blood did not pay the renewal premium on his policy,
and Progressive sent three termination-of-coverage notices to him
at the address in Progressive's files. Blood no longer lived at
that address, and the letters were returned undelivered.
Although Progressive mailed the notices, they were returned to
KMI.
Blood later purchased another policy from KMI. The
parties dispute whether Blood told KMI that he had moved and
whether KMI should have asked Blood if he had moved. When Blood
failed to make payments on this policy, Progressive again sent
notices to Blood at the address in its files - Blood's old
address.
On August 2, 1997 Blood was injured in an automobile
accident while riding in a car driven by an uninsured driver.
Blood filed a claim and a demand for arbitration with Progressive
under his uninsured motorist coverage. Progressive denied the
claim; it asserted that Blood's policy had lapsed before the
accident because he had not paid the renewal premium.
Progressive also denied Blood's arbitration request, on the
ground that arbitration only applied to liability and damages
issues, not coverage disputes.
Blood then sued Progressive and KMI for a declaration
of coverage and an award of damages. Blood's complaint alleged
that KMI was negligent in failing to use reasonable efforts to
obtain his "last known address," and that therefore Progressive's
attempts to cancel his policy for non-payment under AS 21.36.2201
and AS 21.36.2602 were ineffective.
In July 2000 Blood moved for partial summary judgment
on the policy dispute. The defendants moved for dismissal. The
court denied both motions because material factual disputes
existed.
A five-day trial was scheduled to begin on February 26,
2001. During a hearing to resolve pretrial motions on the
morning of the first day of the trial, Blood's counsel informed
the superior court and the defendants that Blood was in Florida,
and that financial difficulties prevented him from attending the
trial in person. Blood's counsel asked that Blood be allowed to
testify telephonically. The court refused, holding that Blood's
credibility was critical to the case and that the defendants
would be prejudiced if they could not test his credibility in
person.
During further discussion about pretrial issues,
Blood's counsel commented that he only sought a declaration of
coverage from the court so that he could proceed to arbitration.
The defendants responded that Blood had waived his right to
arbitration by filing a lawsuit requesting damages, by failing to
seek arbitration in his complaint (or not claiming that the
defendants wrongly denied arbitration), and by indicating up to
the day of trial an intention to litigate both damages and
coverage issues.
The superior court heard more argument on this issue
the next day. The court noted that Progressive had rejected
Blood's demand for arbitration in 1997. The court also thought
that the defendants were not prejudiced by Blood's failure to
plead arbitration, because any effort they had put into defending
a damages case would be equally applicable to an arbitration.
Nonetheless, the court held that Blood had waived his right to
arbitration by failing to request it in his complaint. The court
cited Hillman v. Nationwide Mutual Fire Insurance Co.3 and
International Brotherhood of Teamsters v. King4 in support of its
decision.
In light of its ruling that arbitration was no longer
an available remedy, the court next held that Blood had to prove
damages in court. Blood's counsel responded that he was "not
prepared to present a damages case." The court relied on this
concession and dismissed Blood's case, ruling that "if he can't
prove damages, he can't prevail."
Blood's counsel then moved to "stay" the trial so Blood
could testify in person and so he could amend his complaint to
include arbitration. [Exc. 300 (23: 19-24)] The court denied
these motions. Blood's motion for reconsideration was
unsuccessful. Blood appeals.
III. DISCUSSION
A. Blood Did Not Waive His Right to Arbitration.
1. Standard of review
Whether a waiver occurred is a question of fact. A
trial court's finding of waiver will therefore be set aside on
review only if it is clearly erroneous.5
2. Failure to plead arbitration
Progressive's insurance policy gave
Blood the right to arbitrate UM/UIM disputes.6
The superior court ruled that Blood waived this
arbitration right by failing to state in his
complaint that he was seeking arbitration. The
court based its ruling on International
Brotherhood of Teamsters v. King7 and Hillman v.
Nationwide Mutual Fire Insurance Co.,8 which it
interpreted as holding that the remedy of
arbitration "was waived by virtue of the failure
to plead it."
In Teamsters, we held that the defendant
had waived its right to demand arbitration by
failing to plead an affirmative defense of
arbitration as required by Alaska Rule of Civil
Procedure 8(c),9 by availing itself of discovery
procedures which were probably unavailable under
arbitration, and by delaying for over three years
in raising the issue of arbitration.10
The superior court read Teamsters to
require Blood to plead arbitration in his
complaint or waive that remedy. In Teamsters we
interpreted Rule 8(c) to require a defendant
seeking arbitration to raise that remedy as a
defense in its answer if it did not want to waive
its right.11 But more recently, we explained in
Loyal Order of Moose v. International Fidelity
Insurance Co. that "a demand for arbitration [is
not] equivalent to the affirmative defense
`arbitration and award.' "12
The superior court cited Hillman for the
same principle as Teamsters. In Hillman, we held
that the defendant insurance company did not waive
its right to arbitrate the uninsured motorists
claim. We ruled that a plaintiff who initiates
litigation in violation of an arbitration clause
cannot later claim waiver by the defendant.13
The superior court in the present case
did not explain why it thought Hillman supported
its conclusion. Possibly it reasoned that if the
insureds in Hillman could not claim waiver of
arbitration by the defense because the plaintiffs
knowingly initiated litigation in violation of the
arbitration clause, then Blood, the insured in
this case, could not oppose waiver when he did the
same thing. But claiming and opposing waiver
raise distinct issues. The insureds in Hillman
could not claim waiver because they had suffered
no prejudice; whether Blood can successfully
oppose a claim that he waived arbitration turns
largely on whether his actions in pursuing his
lawsuit unequivocally indicated a purpose to
abandon his right to arbitrate.14
The holdings in Teamsters and Hillman
did not require Blood to plead arbitration in his
complaint or be deemed to have forever waived that
remedy. But Blood may nonetheless have impliedly
waived his right to arbitration.
3. Implied waiver of contractual right
to arbitrate
The law favors arbitration.15 Waiver is
not to be lightly inferred,16 and courts should
resolve doubts concerning whether there has been a
waiver in favor of arbitration.17
Waiver is an "express or implied
voluntary and intentional relinquishment of a
known or existing right."18 Progressive does not
contend that Blood expressly relinquished his
right to arbitration. The superior court did not
consider whether Blood impliedly waived his right
to arbitration. Instead, it determined that
Blood's failure to specifically plead arbitration
waived that remedy. Because we have concluded
that Blood's failure to plead it in his complaint
did not waive the arbitration remedy, we must
determine whether Blood impliedly waived his
arbitration rights. We conclude that he did not.
We explained the requirements for
implied waiver of contractual rights in Powers v.
United Services Automobile Ass'n, where we
observed:
To prove an implied waiver of a legal right,
there must be direct, unequivocal conduct
indicating a purpose to abandon or waive the
legal right . . . . Neglect to insist upon a
right only results in an estoppel, or an
implied waiver, when the neglect is such that
it would convey a message to a reasonable
person that the neglectful party would not in
the future pursue the legal right in
question. Even where neglect results in
prejudice to another party, for an implied
waiver to arise there must be direct,
unequivocal conduct indicating a purpose to
abandon the right.[19]
Blood argues that rather than engaging in "direct,
unequivocal conduct indicating a purpose to abandon" or to waive
his right to arbitration, he consistently sought arbitration
before and during the litigation. In 1997 when he first
submitted his claim to Progressive, Blood made a written demand
for arbitration. Progressive rejected this demand, asserting
that under the policy, arbitration only applied to disputes about
liability or damages, not to disputes over the existence of
coverage.
Blood's complaint did not seek arbitration or claim
that Progressive wrongly rejected his demand for arbitration.
Instead, it alleged breach of contract, bad faith, malpractice,
negligence, and breach of fiduciary duty. It requested a
"declaratory judgment stating that the Progressive policy was in
effect" and sought "general and special damages . . . interest,
costs, attorney fees and other recovery as allowed by law."
In his memorandum accompanying his motion for partial
summary judgment on liability, Blood asked the superior court to
rule that the insurance policy was in effect and to "order the
parties to arbitration." He also filed a proposed order that
would have ordered the parties to arbitrate. Eight days before
trial was to begin, Blood filed written objections to all of the
defendants' proposed jury instructions that framed the case as a
personal injury suit. He argued in his objections that if
coverage exists, "this matter should be sent to an arbiter to
determine the full amount of [Blood's] losses as all parties
reasonably expected."
Blood's preliminary witness list and his Alaska Civil
Rule 26(a) initial disclosures both indicate that he intended to
litigate damages in court. Both documents identify physicians
who had treated Blood for his injuries after the car accident,
and the initial disclosure list indicates that the doctors would
have information on Blood's "injuries, aftermath and prognosis."
But even though these documents were inconsistent with
arbitrating the UM/UIM claim, the superior court record also
contains repeated assertions of Blood's interest in arbitration.
Neglecting to insist upon a right only results in an implied
waiver of that right if that neglect "convey[s] a message to a
reasonable person that the neglectful party would not in the
future pursue the legal right in question."20 To the extent that
Blood's actions throughout the litigation process might have left
a reasonable person confused about his intentions, that confusion
simply confirms that there was no unequivocal waiver. Blood did
not clearly and unequivocally abandon his intent to pursue
arbitration.
The defendants' own conduct is consistent with a
conclusion that they did not understand that Blood, by suing
them, had unequivocally waived his right to arbitrate UM/UIM
issues, if there was coverage. Progressive's answer to Blood's
initial complaint raised arbitration as an affirmative defense:
"In the event that this court concludes that the policy in
question remained in force on the date of the accident in
question, plaintiff's claim is subject to the arbitration
provision of the policy and plaintiff's claims should be
dismissed in favor of arbitration." And defendants did not
pursue the damages aspect of the case extensively during
discovery. They did not depose any damage-related witnesses,
they did not seek a physical exam of Blood under Alaska Civil
Rule 35, and their witness lists did not name any damage-related
witnesses. Motion practice centered on what both parties
conceded was the main issue in the lawsuit - whether KMI should
have learned of Blood's new address. The defendants devoted
little attention to the liability and damages issues.
Because Blood sued not only Progressive, but also KMI,
his damages claims do not compel a finding that he was
unequivocally waiving arbitration. Had Blood sued only
Progressive, his efforts to litigate liability and damages issues
might have implied that he was no longer interested in
arbitrating those issues if the court found coverage. But Blood
was also pursuing KMI on the independent theory that it breached
the duties that an insurance agent owes the insured. As to these
claims, it is not obvious that Blood (or KMI) had any right to
arbitration. Normally, someone in Blood's position, suing the
agent on a theory it negligently failed to secure uninsured
motorist coverage, would have to prove at trial both the
existence of the insurance producer's breach of duties owed to
the would-be insured and the damages the breach caused - i.e.,
the amount recoverable had the coverage been in place. To prove
the latter, he would have to prove the uninsured motorist's fault
and the damages that fault caused. Therefore it is not
unexpected that Blood took steps to prove liability and damages
at trial in the context of his claim against KMI. The existence
of the KMI claim consequently weighs against finding that Blood's
lawsuit established an unequivocal waiver of a right to arbitrate
liability and damages in his claim against Progressive.
We conclude that it was error to find that Blood waived
his right to seek arbitration.
It follows that it was also error to dismiss Blood's
case based on Blood's professed inability to present damages at
the scheduled trial. Because any inability to prove damages
would have had no bearing on the narrow coverage issue and would
not obviate the need to try the coverage issue, and because Blood
claimed he could try the coverage issue without testifying at
trial, it was error not to conduct a trial to resolve the
coverage issue. We therefore remand for further proceedings to
resolve the coverage dispute.
Our conclusion that Blood did not waive his right to
arbitration moots issues arising out of Blood's unsuccessful
requests for a continuance and for leave to amend his complaint.
B. Blood's Trial Theory Will Control Whether He May
Testify Telephonically.
The superior court refused to allow Blood to testify
telephonically. The court ruled that Blood's credibility was
"so critical" that the defendants had to have the opportunity to
cross-examine him in person before the jury.
Blood's credibility is highly pertinent to the issues
of liability and damages which will now be set for arbitration.
Our ruling today makes it unnecessary to decide whether those
rulings are error.
It is conceivable that on remand the issue of coverage
will not turn on Blood's credibility. If it does not, the
dispute about whether he can testify by telephone will be
immaterial. If Blood's testimony is relevant, trial of the
coverage issue must be scheduled at a time Blood is prospectively
available to testify in person. If that is not possible, the
court shall provide Blood a fair opportunity to preserve his
testimony, such as by videotaped deposition, upon adequate notice
to opposing counsel.
We cannot foresee whether Blood's testimony will be
relevant to the coverage issue. The relevance of his testimony
depends on precisely what issues control the coverage dispute on
remand.
C. The Superior Court Properly Denied Summary
Judgment.
1. Standard of review
We review a denial of summary judgment de novo to
determine whether any genuine issues of material fact exist and
whether the moving party is entitled to judgment as a matter of
law on the established facts.21 "All reasonable inferences of
fact from proffered materials must be drawn against the moving
party and in favor of the non-moving party."22
2. The superior court properly denied
Blood's summary judgment motion against KMI.
Blood argues that he was entitled to summary judgment
because KMI had a duty to ask him for his new address in light of
the three pieces of returned mail it had in its files when Blood
obtained the second policy.
Blood relies on either AS 21.36.220 or AS 21.36.240,
and AS 21.36.260 to support his argument. Section .220 imposes a
duty on an insurance company to notify a policyholder about a
cancellation of an existing policy.23 Section .240 imposes the
same duty for failure to renew a policy.24 Both statutes refer to
AS 21.36.260, which states that "if a notice is required from an
insurer . . . the insurer shall (1) mail the notice by first
class mail to the last known address of the insured . . . ."
Blood relies on Jefferson v. Alaska 100 Insurance, Inc.25
in arguing that an insurance agent has a "duty to exercise
reasonable care, skill, and diligence . . . to inform the insured
of termination of coverage."
Blood also relies on Rosenberg v. Smidt26 in contending
that the defendants have a duty to use due diligence to determine
a party's "last known address." In Rosenberg, we analyzed the
phrase "last known address" in a different context but concluded
"that the last known address is that address most likely to give
the affected party notice. The trustee is obligated to exercise
due diligence to determine that address . . . ."27
Even if Blood is correct that KMI and Progressive owed
him such a duty, there remains the question whether the
defendants exercised due diligence. As the superior court
correctly noted:
Even if every single detail of what took
place there is stipulated, which it's not,
but even supposing it were, [the] finder of
fact still has to determine whether [KMI]
breached a duty it owed and whether [KMI] was
negligent. That in itself is a fact
question, not in the sense of what happened,
but in the sense of what is traditionally
determined by a trier of fact.[28]
Assuming a jury could find that KMI was negligent for
failing to ask for Blood's new address, we cannot hold that a
jury could only reach this result.
Lastly, Blood argues that he should receive summary
judgment on a theory of promissory estoppel. He argues that he
relied on KMI's insurance expertise and that "it is reasonable to
expect that when he gave KMI his [new] address, that address
would be the one at which Progressive would contact him
concerning his policy." This argument is without merit because
there is a genuine dispute whether Blood gave KMI his new
address. The superior court properly denied summary judgment to
Blood on the coverage issue.
IV. CONCLUSION
We therefore AFFIRM the denial of summary judgment to
Blood, but REVERSE the decision that Blood waived his right to
arbitration, REVERSE the dismissal of Blood's case, and REMAND
for further proceedings, including trial on the coverage issue.
_______________________________
1 AS 21.36.220 requires an insurance company to mail notice of
cancellation to the insured before it cancels a policy.
2 AS 21.36.260 requires the insurance company to "mail the
notice . . . to the last known address of the insured."
3 758 P.2d 1248, 1253 (Alaska 1988).
4 572 P.2d 1168, 1173-75 (Alaska 1977).
5 Miscovich v. Tryck, 875 P.2d 1293, 1302 (Alaska 1994).
6 The UM/UIM portion of the policy states in pertinent part:
Determination of whether an insured
person is legally entitled to recover damages
and the amount of damages will be made by
agreement between the insured person and us.
If no agreement is reached, the decision may
be made by arbitration if we or the insured
person make a written demand for arbitration
. . . .
7 572 P.2d 1168 (Alaska 1977).
8 758 P.2d 1248 (Alaska 1988).
9 Alaska Civil Rule 8(c) provides: "In pleading to a
preceding pleading, a party shall set forth affirmatively . . .
arbitration and award . . . ."
10 572 P.2d at 1174.
11 Id. at 1173.
12 797 P.2d 622, 629 n.16 (Alaska 1990); see also Victor v.
State Farm Fire & Cas. Co., 795 F. Supp. 300, 304 n.6 (D. Alaska
1992) (observing that identical Federal Rule of Civil Procedure
8(c) "is limited to the situation where a dispute has already
been arbitrated and an award has been obtained, not to situations
where arbitration has not yet taken place").
13 758 P.2d at 1253.
14 See Wausau Ins. Cos. v. Van Biene, 847 P.2d 584, 588 (Alaska
1993).
15 Bd. of Educ., Fairbanks North Star Borough Sch. Dist. v.
Ewig, 609 P.2d 10, 13 (Alaska 1980) (affirming decision of
arbitrator); Int'l Bhd. of Teamsters v. King, 572 P.2d 1168, 1173
(Alaska 1977).
16 Co. of Kingston v. Latona Trucking, Inc., 159 F.3d 80, 83
(2d Cir. 1998) (holding waiver occurred despite general policy
favoring arbitration).
17 See Doctor's Assocs., Inc. v. Distajo, 107 F.3d 126, 130 (2d
Cir. 1997) (ruling no waiver of right to compel arbitration)
(citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24 (1983)).
18 Powers v. United Servs. Auto. Ass'n, 6 P.3d 294, 298-99
(Alaska 2000) (holding no waiver absent direct, unequivocal
conduct indicating purpose to abandon right to arbitration).
19 Id. at 299.
20 Airoulofski v. State, 922 P.2d 889, 894 (Alaska 1996).
21 Reeves v. Alyeska Pipeline Serv. Co., 926 P.2d 1130, 1134
(Alaska 1996).
22 Id.
23 AS 21.36.220 provides in pertinent part:
(a) An insurer may not exercise its right to
cancel a personal insurance policy unless,
for a named insured who is
(1) less than 70 years of age, a written
notice of cancellation is mailed to the named
insured as required by AS 21.36.260 at least
30 days before the effective date of
cancellation; however, if cancellation is for
nonpayment of premium, the notice shall be
mailed to the named insured as required by AS
21.36.260 at least 20 days before the
effective date of cancellation . . . .
24 AS 21.36.240 provides in pertinent part: "An insurer may not
fail to renew a policy unless a written notice of nonrenewal is
mailed to the named insured as required by AS 21.36.260 at least
20 days for a personal insurance policy . . . ."
25 Jefferson v. Alaska 100 Ins., Inc., 717 P.2d 360, 364
(Alaska 1986).
26 727 P.2d 778 (Alaska 1986).
27 Id. at 783.
28 See Beaux v. Jacob, 30 P.3d 90, 96 n.5 (Alaska 2001) (noting
that "[w]hether particular conduct is negligent is a question of
fact normally reserved for the trier of fact"); Dobos v.
Ingersoll, 9 P.3d 1020, 1026 (Alaska 2000) (explaining that
"whether [a party] was negligent was a question of fact properly
determined by the jury").
