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Great Divide Insurance Co. v. Carpenter (10/24/2003) sp-5746
Great Divide Insurance Co. v. Carpenter (10/24/2003) sp-5746
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
GREAT DIVIDE INSURANCE )
COMPANY, ) Supreme Court Nos. S-9774/9843
)
Appellant/Cross-Appellee, )
) Superior Court No.
v. ) 1JU-96-1125 CI
)
RAYMOND CARPENTER, a minor, ) O P I N I O N
through his natural mother, DOROTHY )
REED, )
)
Appellees/Cross-Appellants. ) [No. 5746 - October
24, 2003]
)
Appeal from the Superior Court of the State
of Alaska, First Judicial District, Juneau,
Larry R. Weeks, Judge.
Appearances: Paul D. Stockler, Anchorage,
and William R. Hickman, Earl M. Sutherland,
Reed McClure, Seattle, Washington, for
Appellant/Cross-Appellee. Mark Clayton
Choate, Wailuku, Maui, Hawaii, for
Appellees/Cross-Appellants.
Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.
PER CURIAM
MATTHEWS, Justice, concurring.
EASTAUGH, Justice, dissenting.
A jury awarded compensatory damages of $1,540,000 and
punitive damages of $2,600,000 against Great Divide Insurance
Company on claims that it had breached its duties to its insured,
Gowdy & Son, while defending a claim brought by Raymond
Carpenter. The five main issues presented in the appeal are:
1. Did the policy issued by Great Divide to Gowdy & Son
cover the accident that resulted in injury to Carpenter?
2. Was the jury determination that Great Divide did not
fulfill its legal obligations to Gowdy & Son in accord with the
law?
3. Was the jury determination that Great Divide did not
fulfill its legal obligations to Gowdy & Son supported by the
evidence?
4. Should the issue of punitive damages have been
submitted to the jury?
5. Was the jury award of punitive damages supported by the
evidence?
Carpenter has cross-appealed, raising the question
whether the superior court erred in refusing to rule as a matter
of law that Great Divide was bound by the arbitration-based
compensatory damage judgment of more than $2,000,000 entered in
Carpenter v. Gowdy.1
We conclude that the policy covered the accident, that
the finding of a breach was legally justified, that there was
sufficient evidence that Great Divide breached its defense
duties, but that the claim for punitive damages should not have
been submitted to the jury because there was no pretrial notice
of this claim. Our decision on this issue moots consideration of
the fifth issue as to whether the jury award of punitive damages
was supported by the evidence. We also conclude that the court
properly ruled that Great Divide was not bound by the judgment in
Carpenter v. Gowdy. We thus affirm the award of compensatory
damages and reverse the award of punitive damages.
I. FACTS AND PROCEEDINGS
A. The Underlying Accident and Coverage
Elmer and Dan Gowdy, d/b/a Gowdy & Son, operated a
floor-covering business in Douglas. The business was operated
out of Elmer's house that was heated in part by woodstoves. On
September 3, 1993, Rick Ostman, a sometime employee of Gowdy &
Son, was felling dead trees on the property of John Vavalis in
order to obtain firewood to heat Elmer's house. Raymond
Carpenter, age eleven, was struck by a falling tree cut by
Ostman. He suffered serious, permanent injuries, including brain
damage. On the day of the accident, a Sunday, Dan Gowdy was also
on the Vavalis property skidding logs that Vavalis had sawn to
Vavalis's new portable mill. Dan was working without
remuneration to help Vavalis as "the neighborly thing to do."
Elmer Gowdy was also on the Vavalis property "off and on" on the
day of the accident. He had directed Ostman to go to the
property to cut three dead spruce trees for firewood. Ostman's
trial testimony as to whether Elmer or Dan had told him what
trees to cut is unclear. Initially he said Elmer told him, then
that he could not remember if it was Dan or Elmer, and then that
Dan did so. Ostman testified that he was being supervised by Dan
at the Vavalis property.
At the time of the accident Gowdy & Son was insured by
Great Divide under a commercial general liability policy with an
"each occurrence" limit of $1,000,000. In the policy
declarations sheet Gowdy & Son was described as a partnership
whose business was "floor-covering installation." Its only
relevant premium classification was "floor-covering installation
- not ceramic, tile or stone." The policy contained a
classification limitation stating that "[t]his insurance does not
apply to `bodily injury' . . . for operations which are not
classified or shown on the . . . Declarations, its endorsements
or supplements."
B. Carpenter v. Gowdy
Carpenter sued Dan Gowdy, but not Elmer Gowdy or Gowdy
& Son, on February 3, 1995, claiming that the tree that injured
him was negligently felled. Carpenter contended that Dan Gowdy
was directly and vicariously responsible for this negligence;
directly for failing to exercise adequate supervision and
vicariously under principles of respondeat superior. The
complaint alleged that Dan Gowdy "operated a business in Juneau
generally engaged in the operation of the felling of trees," and
that at the time of the accident Dan was cutting trees on the
property at the request of John Vavalis.
When Dan was served with the complaint, he took it to
attorney Jim Bradley, a family friend. Bradley gave some advice
to Dan and attended a deposition with him, but did not enter an
appearance. On August 21, 1995, Bradley wrote a letter for Dan's
signature tendering the defense to Great Divide. Upon receiving
this letter Great Divide assigned adjuster Greg Anson, whose
office was in Arizona, to handle the claim. On August 25, 1995,
Anson read the complaint and the policy and identified a
potential coverage question based on the classification
limitation. He called Anchorage attorney Patrick McKay, who had
previously represented Great Divide in numerous cases. According
to Anson's contemporaneous notes, McKay told him that the
classification limitation would be upheld. The notes also
stated that Great Divide should assign attorney Paul Stockler to
file a declaratory judgment action on coverage.
On August 28, 1995, Anson had a telephone conversation
with Dan Gowdy. Anson, again according to his notes, advised Dan
that a coverage question existed under the classification
exclusion and that Great Divide would conduct a defense under a
reservation of rights. Anson's notes indicate that Dan said he
had nothing to do with cutting trees on the property, that he was
operating a skidder at the time of the accident, and that he and
his father were hired by the property owner to remove felled
trees. Dan also told Anson that his deposition had already
partly been taken and was slated to continue on that day, and
that he was not currently represented by counsel. Anson called
McKay, who was able to cancel the deposition.
On August 31, 1995, Anson wrote both Elmer and Dan
Gowdy. He acknowledged receipt of the Carpenter complaint and
stated that according to the complaint "Dan Gowdy was conducting
a tree-clearing operation" at the time of the accident. Anson
stated that he had assigned Pat McKay to defend the Gowdys but
that the defense would be "under a full reservation of rights"
and that the defense would not "constitute either an admission of
coverage under the policy, or an acknowledgment of any
responsibility to pay damages in any judgment against you by
Raymond Carpenter." The letter went on to observe that the
limits of liability under the policy were $300,000 per
occurrence. Relying on the classification limitation exclusion,
the letter stated:
Clearly, the pleadings contained in the
lawsuit indicate that injury sustained by the
plaintiff were [sic] as a result of your
conducting a tree clearing operation and is
not in any way related to the business
description of your policy. Therefore, if it
is determined that there would be no
liability coverage available to your [sic]
under the above policy, I encourage you to
seek and obtain counsel at your own choosing
and expense to defend your interests in this
matter.
Anson's letter concluded: "If you feel I have overlooked an
allegation in the complaint which would be covered under your
policy, or potentially covered under your policy, please point
out such language to me and I will be happy to reconsider our
position."
McKay appeared in the case as counsel for Dan Gowdy and
conducted the defense on his behalf. Soon after McKay assumed
the defense, Dan was interviewed in person by Mike Trevethan, an
independent adjuster hired by Great Divide. Trevethan asked
questions that were relevant to liability and coverage issues.
In the process of conducting the defense McKay took and
participated in a number of depositions and forwarded reports of
the depositions to Great Divide. Whether McKay's questions
during the depositions were designed to elicit facts showing no
coverage rather than no liability is a disputed issue in the
current litigation.
In December 1995 McKay, acting on behalf of Dan, filed
a third-party claim against Rick Ostman and John Vavalis,
claiming that their negligence had contributed to the accident.
In early January 1996 Carpenter filed an amended complaint adding
Elmer Gowdy as a defendant. Elmer's attorney, Loren Domke, wrote
Great Divide and asked that he be appointed as Elmer's lawyer to
defend the case at Great Divide's expense. Great Divide agreed
and thereafter McKay and Domke cooperated in conducting the
defense of the Carpenter action.
The case was set for trial to begin in June 1996. At a
mediation conference held in April 1996, Carpenter and the Gowdys
agreed to a procedure by which the case would be settled.
Contingent on the outcome of an arbitration proceeding, the
Gowdys agreed to confess judgment and assign to Carpenter any
rights or claims that they had against Great Divide arising out
of Great Divide's conduct of their defense. In exchange
Carpenter agreed not to execute on the other assets of the
Gowdys. The arbitrator would determine whether the Gowdys were
legally responsible for Carpenter's injuries and would determine
Carpenter's damages. No fault would be apportioned to Vavalis,
Ostman, or Raymond Carpenter. The arbitrator would be selected
by Carpenter's counsel. Great Divide was aware of the settlement
procedures but did not agree to the settlement or participate in
the arbitration called for by the settlement. On July 27, 1998,
the arbitrator found that the Gowdys were liable and awarded
Carpenter damages of $2,006,000. A judgment was entered in
accordance with the arbitration award.
C. Great Divide v. Carpenter
Great Divide's present action against both Gowdys and
Carpenter was filed on May 28, 1996, seeking a declaration that
there was no coverage because of the classification limitation
exclusion. Carpenter answered in his own right and as the
assignee of the Gowdys, generally denying that the claims were
excluded from coverage. He also asserted a counterclaim that
alleged that Great Divide, upon being notified of the Carpenter
claim "which on its face was possibly covered by the policy,
. . . reserved the right to deny coverage, failed to retain
independent counsel for Dan Gowdy and failed to obtain
independent counsel for Elmer Gowdy until after he had been
prejudiced by the absence of counsel." This was alleged to be a
breach of the policy and the implied covenant of good faith and
fair dealing and to preclude by estoppel Great Divide from
denying coverage. Carpenter sought compensatory but not punitive
damages.
Great Divide answered the counterclaim denying that
Carpenter was entitled to any relief. After discovery and
pretrial proceedings Great Divide sought to limit the claims at
trial, arguing that Carpenter had abandoned his claim that there
was coverage based on comments in his initial disclosure
statement. The court denied this motion, ruling that the central
issue in the declaratory judgment case "is whether there is
coverage."
The trial began on August 16, 1999. Carpenter's
counsel first mentioned punitive damages after the jury had been
selected. Great Divide's counsel objected that punitive damages
had not been pled and noted that he would oppose any motion to
amend the counterclaim to add punitive damages. Counsel also
sought a protective order barring any reference to punitive
damages. The court initially ordered Carpenter's counsel not to
refer to punitive damages in his opening statement. But at the
close of the evidence the court ruled that it would give an
instruction on punitive damages.
At the trial both sides agreed that Anson had erred in
advising Dan in the August 31, 1995 letter that counsel of Dan's
own choosing in the defense of the Carpenter suit would have to
be paid for by Dan.2 Alaska decision and statutory law require
an insurance company to provide independent counsel selected by
the insured at the company's expense in cases where the company
defends under a reservation of rights.3 The significance of this
mistake was disputed. Also at issue was the broader question of
whether the conduct of the defense by Great Divide and McKay was
appropriate.
Great Divide's expert witness, attorney Michael
Geraghty, testified that McKay's conduct was appropriate and that
"if anything, [he] bent over backwards to protect his client, who
was Dan Gowdy, and, really, to the prejudice of the insurance
company . . . ." Geraghty also testified that Anson's failure to
advise Dan Gowdy that he could select his own defense counsel,
who would be paid by Great Divide, had no impact on the defense
of the case in light of the effective representation provided by
McKay. Carpenter's expert witness, John Partlow, an insurance
claims supervisor, testified that Great Divide should have
conducted an investigation designed to find coverage. Instead,
Anson made an initial decision that there was no coverage, and
thereafter Great Divide showed no inclination to re-examine that
decision. Partlow stated that this "borders on unconscionable."
Partlow also opined that McKay had a duty to try to develop facts
that would support coverage.
Anson, McKay, and Dan Gowdy also testified concerning
their respective activities in connection with the Carpenter
case. Anson, who no longer worked for Great Divide, described
what he remembered about his conduct pertaining to the case.
McKay testified that he believed that his role was to defend Dan
Gowdy in the Carpenter case, not to become involved in coverage
issues. He testified that his deposition questions were designed
to lead to the exoneration of Dan. Dan Gowdy testified that
despite the letter to Great Divide that Bradley drafted and he
signed claiming coverage and requesting a defense, he did not
believe the accident was covered by the policy. He also
testified that after the first few conversations he had with
McKay, McKay told him that he could pick his own lawyer. Bradley
later told him the same thing. But Dan did not testify that
either McKay or Bradley told him that the lawyer he chose would
be paid for by Great Divide. Both Gowdy and Bradley were
satisfied with McKay throughout the defense of the Carpenter
case.
At the close of the evidence Great Divide moved for a
directed verdict on the question of policy coverage. The court
reserved judgment until after the return of the verdict. When
the verdict was returned, the court denied the motion and
affirmatively ruled that there was coverage.
The jury returned a special verdict that concluded that
Great Divide did not fulfill its duties to the Gowdys and
assessed compensatory damages of $1,540,000.4 The jury also
found that McKay did not fulfill his obligations to Dan Gowdy and
that Great Divide had been shown by clear and convincing evidence
to have been reckless and indifferent to the rights of the Gowdys
and deserved punishment. In subsequent bifurcated proceedings
the jury concluded that punitive damages of $2,600,000 should be
awarded against Great Divide.
Following post-judgment motions the trial court entered
judgment against Great Divide in favor of Carpenter for
$1,540,000 plus interest from August 27, 1999, and punitive
damages of $2,600,000 plus interest from the date of judgment.
Great Divide appeals and Carpenter cross-appeals.
II. DISCUSSION
A. The Accident Was Covered by the Policy.
Great Divide argues that the superior court should have
granted its motion for a directed verdict declaring that its
policy did not cover the accident. It contends that the
classification limitation excludes coverage. Great Divide also
argues that the superior court erred in acting as the trier of
fact on coverage issues and that the question of coverage should
have been submitted to the jury.
The business description of Gowdy & Son contained in
the declarations sheet of the policy was "floor-covering
installation," and the relevant classification for premium
purposes was the same. The classification exclusion provided
that "[t]his insurance does not apply to `bodily injury' . . .
for operations which are not classified or shown on the . . .
Declarations, its endorsements or supplements."
Great Divide argues that felling the tree that injured
Carpenter was an "operation" within the meaning of the
classification exclusion, and since tree felling was not listed
in the declarations, there was no coverage. Carpenter argues
that the tree felling was an incidental activity that supported
the floor-covering operation. The trial court accepted
Carpenter's view, noting testimony that Elmer Gowdy burned three
to four cords of wood each winter as "supplemental heat for the
business/residence." The court ruled that the connection between
the cutting of the tree and the business was "not strong" but
sufficient, stating:
the fact that there was firewood that was
going to the place where the business worked
out of, I believe it was not prohibited under
the policy. And given the benefits that the
business got out of this, and the operations,
that I believe there was coverage.
I looked at the jury verdict as an
advisory opinion as to what they thought on
the issue. But I believe that there was
coverage, and I will deny the motion and find
coverage.
We interpret insurance policies in accordance with the
following principles:
To the extent that there are no relevant
unresolved or controversial facts, the
construction of an insurance contract is a
matter for the court. A policy's meaning is
determined by examining the language of the
disputed policy provisions, the language of
other provisions in the policy, relevant
extrinsic evidence, and case law interpreting
similar provisions. An insurance policy may
be considered a contract of adhesion and as
such should be construed so as to provide the
coverage which a layman would reasonably have
expected, given his lay interpretation of the
policy language. We therefore resolve
ambiguities in the meaning of insurance
contracts against the insurer.[5]
We agree with Carpenter and the superior court that
activities that merely support a classified business are covered
under policies like the one presently before us. Businesses
necessarily engage in much conduct that is incidental to and
supportive of revenue-earning operations. Businesses must, for
example, acquire supplies, equipment and fuel, pay bills, bank,
repair what they use, and send their employees on countless
errands in support of operations. Where a business heats its
premises by wood, cutting dead trees for firewood can reasonably
be viewed as an incidental support activity.6
The result would be different if, as alleged in
Carpenter's initial complaint, the Gowdys were in the business of
cutting trees and the tree that injured Carpenter had been cut in
the course of that business. In that case tree felling would be
a revenue-earning activity and thus an "operation," as used in
the classification exclusion, and coverage would be excluded.7
Great Divide's second contention concerning coverage is
that the court invaded the province of the jury in determining
coverage. This argument is inconsistent with Great Divide's
position before the trial court. During the course of discussing
instructions the court asked what issues the jury should decide
and what issues the court should decide. Counsel for Great
Divide stated that
the Court has to decide whether or not
there's coverage. . . . If the Court decides
that there is no coverage . . . the court
should dismiss the jury and the case is
dismissed. If the judge - if Your Honor
decides there is coverage, then the jury has
these four questions to decide that I've
. . . laid out in my verdict form.
Great Divide is precluded from now taking a position inconsistent
with the position it took at trial.
Further, only one special verdict question was asked
relevant to coverage, namely whether the accident occurred
"during the course and scope of business of Elmer & Dan Gowdy,
d/b/a Gowdy & Son?" The jury answered "yes." The court
considered this answer to be advisory only, but reached the same
conclusion. Great Divide did not request any other jury
instructions or special verdict questions pertaining to coverage,
nor does it now contend that any other facts were disputed.
Under these circumstances the meaning of the policy was properly
a matter for the court.8
B. The Jury Determination that Great Divide Did Not
Fulfill Its Defense Obligations Was Not Legally or
Factually Erroneous.
In the special verdict the jury was asked: "Did Great
Divide fulfill its obligation to Dan and Elmer Gowdy under the
contract of insurance in accord with the law?" The jury answered
"no" to this question. Great Divide challenges this finding with
a number of legal arguments and one factual argument confusingly
grouped together under a section of its brief captioned "The Jury
Verdict Finding Bad Faith Is Not Supported by the Evidence." In
order to understand these arguments, the jury instructions on
Great Divide's duties must be described.
The court began by instructing on the obligations of an
attorney appointed by an insurance company to defend its insured
when coverage is disputed. The court explained the duties of
appointed counsel and particularized them to the facts of the
case as follows:
Meanwhile, the attorney hired by the
insurance company to defend the insured must
zealously represent the interests of the
insured, not the insurance company. He may,
indeed must send progress reports to the
insurance company telling it how the case is
going. But he must not use his relationship
with the insured, his client, to improperly
give advantage to the insurance company in
its coverage dispute with the insured.
In this case you must determine whether
it is more likely than not that Patrick McKay
failed in his obligation to represent his
client by improperly providing coverage
information to Great Divide, or taking other
actions.
The court then addressed in particular and general form the
defense obligations of an insurance company:
In every insurance policy, there is an
implied obligation of good faith and fair
dealing on the part of both parties. Raymond
Carpenter also alleges that Great Divide
Insurance Company breached the covenant of
good faith and fair dealing in other ways,
including that it did not properly and fully
investigate the claim before deciding to file
a declaratory judgment action; that Great
Divide did not affirmatively look for
coverage to protect the insured; and that
Great Divide did not inform the insured of
the correct amounts of liability coverage
provided by the policy; and that Great Divide
incorrectly told the insureds that they would
have to pay for their own counsel to protect
their interests. If you find that any of the
above occurred, you must determine if it is
more probable than not that Great Divide
breached the covenant of good faith and fair
dealing.
An insurance company which fails to deal
fairly and in good faith with its insured by
refusing unreasonably to pay the insured for
a valid claim covered by the policy is liable
for all damages resulting from such conduct.
The duty to defend arises if the complaint,
on its face, alleges facts which, standing
alone, give rise to a possible finding of
liability covered by the policy; or, if the
complaint does not contain such allegations,
where the true facts are within or
potentially within the policy coverage, and
are known or reasonably ascertainable to the
insured [sic].
When investigating a claim, an insurance
company has a duty to diligently search for
evidence which supports its insured's claim.
If it seeks to discover the evidence that
defeats the claim, it holds its interests
above that of its insured.
Great Divide does not argue that these instructions
misstate the law, nor does it contend that it is not vicariously
liable, as the instructions assume, for any dereliction of its
appointed counsel, McKay. Thus, for purposes of this case the
legal validity of the instructions is assumed.
We turn now to the various legal arguments that Great
Divide presents in its challenge to the jury's verdict that it
did not fulfill its defense obligations. Great Divide begins by
quoting a treatise to the effect that an insurance company does
not breach its policy by unjustifiably reserving its rights to
deny coverage.9 Great Divide does not develop this point further
or explain how it relates to the court's instructions. But the
point appears to be an oblique attack on the court's instruction
that an insurance company has an obligation to diligently seek
out evidence that will support coverage. Great Divide may be
saying that if an insurance company can with impunity reserve its
rights regardless of what a proper investigation might show
concerning coverage, then it is inconsistent to require it to
make an investigation seeking out coverage. We doubt that such
an argument, if actually made, would have merit. The covenant of
good faith and fair dealing governs all aspects of the insurer-
insured relationship, and we see no reason to exempt reservation-
of-rights decisions. But we need not do more than express
skepticism, for the point is not properly before us. It is
inadequately briefed; it is also waived because it was not raised
below.10
Great Divide's second argument is that since the Gowdys
suffered no damages because of the covenant not to execute aspect
of their settlement agreement, Great Divide cannot be liable for
breach of its defense obligations. This argument lacks merit.
Our case law permits an insured whose insurer has committed a
material breach of one of its defense obligations to enter into a
settlement agreement with the injured claimant.11 Ordinarily the
insured is barred by the cooperation clause of the policy from
settling without the insurer's consent. But the prior breach by
the insurer precludes it from relying on the cooperation clause
as a defense to liability for the settlement.12 And the insured's
settlement may involve an assignment of the insured's right
against the insurer to the claimant together with a covenant not
to execute against the other assets of the insured.13
The covenant not to execute ordinarily means that the
insured has not suffered a personal loss. But covenant
settlement agreements are given effect because it is thought that
an insured that has been placed at economic risk by its insurer's
breach should be allowed to protect itself by shifting the risk
to the breaching insurer without first subjecting itself to
potential financial ruin. As the Supreme Court of Minnesota
stated in approving a covenant settlement agreement:
If as here, the insureds are offered a
settlement that effectively relieves them of
any personal liability, at a time when their
insurance coverage is in doubt, surely it
cannot be said that it is not in their best
interest to accept the offer. Nor, do we
think, can the insurer who is disputing
coverage compel the insureds to forgo a
settlement which is in their best
interest.[14]
Covenant settlement agreements are enforceable against
an insurance company if the agreements are reasonable. If such
agreements were not enforceable, claimants would not make them
and insureds would often suffer financial ruin before they could
vindicate their rights against their insurers. Affording
insurers the right to relitigate liability and damages issues
resolved by agreement "would destroy the purpose served by
allowing insureds to enter into [covenant settlement] agreements
because claimants would never settle with insureds if they never
could receive any benefit."15 But insurers are not precluded from
litigating the defenses they relied on in denying coverage, or
reserving their rights to disclaim coverage, or other issues
pertaining to whether they have breached their obligations.16
Covenant settlement agreements can be abused. The
insured who is fortunate enough to be able to make such an
agreement has no incentive not to agree to very high damage
awards. In recognition of this, we have been careful to hold
that an insurance company that has materially breached its
defense obligations whose insured has made such an agreement is
not automatically bound by the agreement. Instead, the agreement
must be reviewed for reasonableness by the trier of fact.17
Great Divide's third legal challenge to the jury
determination that it violated its defense duties is to suggest
that we adopt a recent California case limiting covenant settle
ment agreements to cases in which the insurer has failed entirely
to provide a defense,18 or a Texas case that ruled that such
agreements are void as against public policy.19
In Washington Insurance Guaranty Ass'n v. Ramsey,20 we
rejected the argument that the only defense obligation breach
that would justify enforcement of a covenant settlement
agreement is an outright refusal to defend. In that case, the
insurer defended the action but unreasonably refused to settle
within policy limits. The insured then entered into a covenant
settlement agreement with the plaintiff. We declined to hold the
agreement invalid despite the specific argument that such
agreements were only enforceable where there is a refusal to
defend. We adhere to our decision in Ramsey.21 The focus of our
case law has been on whether the insurer "has materially breached
its contractual obligation to the insured."22 Where such has
occurred the insurer cannot escape liability merely because the
insured has taken control of the defense and settled the case in
a manner that, except for the insurer's material breach, would
violate the cooperation clause or other terms of the insurance
contract.23
With respect to Great Divide's argument that we should
adopt the Texas rule holding that covenant settlement agreements
are void as against public policy, we disagree. That approach is
contrary to our case law and contrary to the decisions of most of
the other states whose courts have ruled on the validity of
covenant settlement agreements.24
In summary, we conclude that the legal challenges
presented by Great Divide to the jury's determination that it is
liable for failing to fulfill its defense obligations do not
require reversal of the judgment.
Great Divide raises only one factual argument
challenging the sufficiency of the evidence to support the jury's
verdict. The argument is that Great Divide's failure to advise
Dan Gowdy that it would pay for independent counsel selected by
Dan was a mere technical violation of its defense duties. We
discuss and reject this argument in the following paragraphs.
Great Divide argues that its failure to advise Dan
Gowdy that it would pay for independent counsel selected by Dan
was an inconsequential failure because at some fairly early time
McKay and Bradley advised Gowdy of his CHI rights.25 But while
there is uncontradicted testimony that Dan Gowdy was told that he
could select his own counsel, it is not clear that he was ever
told that counsel of his selection would be paid by Great Divide.
Even at trial he seemed not to understand this point.
We reject Great Divide's contention that failure to
advise Dan Gowdy of his CHI rights was necessarily
inconsequential. Independent counsel of Gowdy's choosing might
have developed the theory of coverage which the trial court, and
this court, accepted: that felling the tree for firewood to heat
the business was incidental to the classified business and not a
separate operation. If this had been done, Anson, who invited
the presentation of overlooked theories of coverage in his August
31, 1995 letter, might have reconsidered his position on
coverage. This could have greatly changed prospects for a
settlement between Carpenter and Great Divide. Another
possibility is that Great Divide might have chosen to defend
without a reservation of rights in order to maintain control of
the defense. Of course these are merely possibilities. But we
held in Lloyds v. Fulton that an insurer's breach of its duty to
provide a conflict free defense "must be considered a material
breach . . . unless the breach clearly has no adverse impact on
the relationship between the insurer and the insured."26 In the
present case Anson's failure to advise Dan Gowdy of his CHI
rights was not clearly without adverse impact, and thus properly
can be considered a material breach.
Finally, we also observe that the jury was instructed
on other theories under which it could find that Great Divide
breached its defense obligations. The sufficiency of the
evidence to support a compensatory damage award under these
theories has not been challenged. Thus Great Divide's claim that
the verdict concerning its breach of its defense obligations is
factually unsupported fails.
C. The Issue of Punitive Damages Should Not Have Been
Submitted To the Jury.
We turn now to Great Divide's contention that punitive
damages should not have been submitted to the jury because the
claim for punitive damages was not pled and no notice of such a
claim was given prior to trial.
Carpenter's counterclaim alleged that Great Divide
reserved the right to deny coverage, failed to retain independent
counsel for Dan Gowdy, failed to obtain independent counsel for
Elmer Gowdy until after he had been prejudiced by the absence of
counsel, and failed to obtain a written waiver of the right to
independent counsel from Dan Gowdy. The counterclaim alleged
that this conduct "constituted a breach of the insurance
contract, a violation of the implied covenant of good faith and
fair dealing and a violation of Alaska law in effect at the time
of plaintiff's conduct." The counterclaim went on to allege that
the Gowdys were prejudiced by this conduct and that as a
consequence of this conduct Great Divide "is estopped from
denying coverage under the contract of insurance and is liable to
Raymond Carpenter, Gowdy's assignee, for the full amount of any
liability the Gowdys incur as a result of the injuries suffered
by Raymond Carpenter on September 3, 1993." In the wherefore
clause of the counterclaim, judgment was sought by Carpenter
"[a]s and for his special and general damages, an amount to be
determined at trial;" plus interest, costs and fees and "[s]uch
other and further relief as the court may grant in equity."
A scheduling order of December 30, 1998, required the
parties to file proposed jury instructions in advance of trial.
Carpenter filed proposed instructions on July 14, 1999, a month
before the trial began. No jury instructions on punitive damages
were included.
The first indication by Carpenter that he sought
punitive damages occurred in comments his counsel made to the
trial court on the first day of trial. Great Divide immediately
objected on the ground that punitive damages had not been pled
and asked for a protective order preventing any reference to
punitive damages during the course of the trial. The court
initially barred reference to punitive damages. On the second
day of trial the court ruled that it would not bar Carpenter from
"exploring those avenues that you believe will sustain a punitive
damages claim," while indicating that it would decide later
whether punitive damages would be submitted to the jury.
Ultimately the court instructed the jury on punitive damages.
Pleadings provide an opposing party with notice of the
nature of claims being asserted.27 The Alaska Rules of Civil
Procedure require a party who seeks special damages to
specifically state this in a pleading.28 But the rules do not
require that punitive damages be specifically pled.
Some jurisdictions have ruled on the question whether a
litigant must include a reference to punitive damages in
pleadings. The North Carolina Supreme Court has held that a
plaintiff need not explicitly plead punitive damages in order to
recover them, though the pleading must "fairly apprise[] opposing
parties of facts which will support an award of punitive damages
. . . ."29 The Oregon Supreme Court has similarly commented that
"exemplary damages are so intimately connected with general
damages that if the general allegations are sufficient to show
the wrong complained of was inflicted with malice or oppression
or other like circumstances, the complaint will be sufficient to
authorize the infliction of punitive or exemplary damages."30
We agree with the approach taken by these authorities.
We believe that although punitive damages need not be pled in a
complaint, the complaint should, at a minimum, allege conduct
that meets the legal standard for the award of punitive damages.
Alternatively, a sufficiently early notification in the course of
pretrial proceedings that punitive damages are being sought could
also serve to give fair notice to the opposing party.
Since the advent of tort reform in 1986, punitive
damages have been governed by statute. They may be awarded only
on proof by clear and convincing evidence that a defendant's
conduct was either outrageous, including acts done with malice or
bad motives, or evidenced reckless indifference to the interests
of another.31
In the present case we have little doubt that fair
notice that punitive damages would be sought was not given. The
conduct alleged in the counterclaim was not necessarily
outrageous or recklessly indifferent, nor was it so
characterized. The allegation that Great Divide violated the
implied covenant of good faith and fair dealing is not sufficient
to support a claim for punitive damages.32 Further, the body of
the complaint seeks only a judgment for the full amount of the
liability the Gowdys incurred as a result of Carpenter's
injuries, with no claim for personal wrongs to the Gowdys for
their treatment by Great Divide. Consistent with the body of the
counterclaim, the wherefore clause of the counterclaim simply
requested special and general damages, both of which are
categories of compensatory rather than punitive damages. No
pleadings subsequent to the counterclaim gave notice that
punitive damages would be sought. One occasion for the assertion
of punitive damages would have been in proposed jury instructions
as required by the scheduling order. Carpenter's proposed
instructions did not include punitive damages instructions. For
these reasons we conclude that appropriate standards relating to
notice of punitive damages claims were not satisfied in this
case.
The trial court did not rule on whether punitive
damages would be submitted to the jury until after the close of
the evidence in the process of deciding on jury instructions. At
that point, following Great Divide's renewal of its objection to
punitive damages instructions, the court stated:
Well, I believe that it places Great
Divide in a difficult situation. I do
believe that we've litigated the issues
during the course of the trial. I'll give
the instruction. I guess I do that because
Mr. Choate moved for a continuance, and Great
Divide wanted to go ahead with the trial at
the trial date that it was set. And, to some
extent, you're in a difficult position
because of that decision. And I acknowledge
that it wasn't your desire to be in that
place where you had to make that decision.
I'll give the instruction . . . .
We agree that Great Divide was placed in a difficult
situation given the lack of fair notice of the punitive damages
claim. It was prejudiced because it had done no legal or factual
preparation or discovery related to punitive damages. Great
Divide's counsel made a persuasive showing of prejudice. He
argued that depositions of supervisors of Great Divide would have
been taken inquiring about Great Divide's training methods,
claims handling practices, and company policy with respect to the
CHI decision. He contended that the purpose of these inquiries
would be to establish that at worst a mistake was made, as
opposed to deliberate or malicious acts deserving of punishment.
He noted that the pre-trial phase of the case was over, and with
these witnesses being thousands of miles away, "I can't go redo
all those depositions . . . ."
But we do not agree with the continuance rationale
employed by the trial court. The continuance motion was filed on
August 10, the week before trial was to begin. The motion did
not mention punitive damages. It was based on two reasons. The
first was so that the deposition of Anson could be taken, and the
second was so that additional motion practice could take place in
order to decide unresolved questions of law. The Anson
deposition was taken without the need for a continuance. The
time for motions on questions of law had expired on June 15,
1999. Further, the objective underlying this reason was to
narrow issues, rather than broaden them. Thus it is hard to see
how it could later be related to punitive damages.
Carpenter argues though that "the punitive damages
claim arose primarily as a result" of the deposition testimony of
Anson. Carpenter does not further explain this rationale, and we
do not find it to be persuasive. What Anson did and did not do
was evident from Great Divide's claims file that had been
furnished to Carpenter much earlier in the case. Carpenter's
expert, Partlow, concluded before Anson's deposition was taken
that Great Divide's conduct was not merely a mistake but rather a
willful attempt to avoid its obligations.33 Further, much of the
focus of Carpenter's claim for punitive damages was on the
conduct of McKay, and Anson's deposition contributed no
significant new knowledge about McKay's conduct.
In summary, we conclude that Great Divide did not have
fair notice that punitive damages were being sought, that it was
prejudiced when the court instructed on punitive damages, and
that the court abused its discretion when it so instructed the
jury.
D. Great Divide Was Not Automatically Bound by the
Judgment in Carpenter v. Gowdy.
On cross-appeal, Carpenter argues that the trial court
erred in failing to rule that the amount of the judgment in
Carpenter v. Gowdy was binding on Great Divide. Carpenter sought
such a ruling after the jury was selected but before evidence was
presented. Great Divide contended that not only was the judgment
not binding but should be inadmissible. As a back-up position,
Great Divide contended that if the judgment was admitted in
evidence then the details of Carpenter's injury should not be
included.
The court declined to rule that the judgment was
binding, allowed the fact of the judgment to go to the jury, but
ruled that the details of Carpenter's injuries and his course of
recovery would not be admitted. During oral argument leading up
to this ruling, Great Divide's counsel stated that if Carpenter's
counsel believed that the Carpenter v. Gowdy judgment "is binding
on this court, it could be argued and be in a jury instruction."
But no jury instruction concerning the effect of the judgment was
given, nor was one requested.
Carpenter's argument that Great Divide is bound as a
matter of law by the judgment entered in Carpenter v. Gowdy is in
conflict with our case law. We have held that covenant
settlement agreements can only be binding on an insurance company
that does not consent to them if they are found to be reasonable.34
In Ramsey and in Grace we indicated that a number of factors are
relevant to the question of reasonableness:
The releasing person's damages; the merits of
the releasing person's liability theory; the
merits of the released person's defense
theory; the released person's relative faults
[sic]; the risks and expenses of continued
litigation; the released person's ability to
pay; any evidence of bad faith, collusion or
fraud; the extent of the releasing person's
investigation and preparation of the case;
and the interest of the parties not being
released.[35]
Grace makes it clear that these factors should be considered by
the jury in a jury-tried case.36
Although the settlement agreement in the present case
was combined with an arbitration proceeding that at least
superficially resembled a contested trial, the fact that the
judgment in Carpenter v. Gowdy was entered by arbitration rather
than by agreement does not eliminate the applicability of the
requirement that covenant settlement agreements must be found to
be reasonable before they may be given effect. The arbitration
proceeding was not truly adversarial since Carpenter had already
agreed not to execute against the Gowdys at the time that the
proceeding took place. Further, the arbitrator was chosen solely
by Carpenter's counsel, and the parties agreed to exclude
considerations of comparative fault. These factors prevent the
Carpenter v. Gowdy judgment from being accorded unquestioned
acceptance.37
Carpenter's argument that the court erred in refusing
to hold that Great Divide was bound by the underlying judgment
must be rejected for the above reasons. Carpenter does not claim
that the court erred in failing to submit to the jury the
question whether the settlement and resulting judgment were
reasonable, or that the court erred in refusing to permit
detailed evidence of Carpenter's injury and course of recovery.
If these points had been raised and argued, they might have merit
and could warrant setting aside the judgment for compensatory
damages and remanding for a new trial on the issue of the
reasonableness of the settlement.38 But as these points have not
been raised and this remedy is not sought, the award of
compensatory damages must stand.
III. CONCLUSION
For the above reasons the judgment is AFFIRMED as to
compensatory damages and REVERSED as to punitive damages. This
case is REMANDED for modification of the judgment consistent with
the views expressed herein.39
MATTHEWS, Justice, concurring.
I concur fully in the reasoning and the result of the
per curiam opinion. I write separately merely to express my view
on an issue that the opinion does not reach: whether the
evidence was sufficient to warrant submission of the issue of
punitive damages to the jury. For the reasons set forth below, I
conclude that it was not.
In State Farm Mutual Automobile Insurance Co. v.
Weiford40 we summarized our approach in reviewing punitive damage
awards:
Punitive damages have a two_fold
purpose: "to punish the wrongdoer and to
deter the wrongdoer and others like him from
repeating the offensive act." Providence
Washington Ins. Co. of Alaska v. City of
Valdez, 684 P.2d 861, 863 (Alaska 1984).
Since these objectives go beyond the primary
purpose of tort law, to provide just
compensation for the wrong done, "punitive
damages are not favored in law. They are to
be allowed only with caution and within
narrow limits." Alaska Placer Co. v. Lee,
553 P.2d 54, 61 (Alaska 1976). Consistent
with this approach, we have limited punitive
damages to cases where the wrongdoer's
conduct could fairly be categorized as
"outrageous, such as acts done with malice or
bad motives or reckless indifference to the
interests of another." State Farm Fire &
Casualty Co. v. Nicholson, 777 P.2d 1152,
1158 (Alaska 1989); Alyeska Pipeline Serv.
Co. v. Beadles, 731 P.2d 572, 574 (Alaska
1987); Ross Lab., Div. of Abbott Lab. v.
Thies, 725 P.2d 1076, 1081 (Alaska 1986).
Malice may be inferred if the acts exhibit "a
callous disregard for the rights of others."
Alyeska Pipeline Serv. Co. v. O'Kelley, 645
P.2d 767, 774 (Alaska 1982). However, "where
there is no evidence that gives rise to an
inference of actual malice or conduct
sufficiently outrageous to be deemed
equivalent to actual malice," the trial court
need not, and indeed should not, submit the
issue of punitive damages to the jury. Id.;
Beadles, 731 P.2d at 574.
Despite the narrow range in which
punitive damages may be awarded, the role of
the appellate court in reviewing punitive
damages awards is limited. We will reverse a
punitive damages award "only if we have a
firm conviction based on the record as a
whole that the trial court erred and we must
intervene to prevent a miscarriage of
justice." Alaska Village, Inc. v. Smalley,
720 P.2d 945, 948 (Alaska 1986).[41]
Great Divide argues that the evidence of fault in this case
simply shows that Great Divide's employee Anson mistakenly sent
letters "that wrongly stated the Gowdys' policy limits, and
wrongly stated that the Gowdys could obtain independent counsel
at their own expense. There was no evidence of malice or
reckless indifference, just mistakes."
Carpenter responds with a one-sentence summary of the
facts that he contends justify the award: "Systemic ignorance of
basic law in conjunction with the taking advantage of the insured
to obtain coverage information warranted punishment." I assume
that Carpenter means to include within this statement the three
main shortcomings identified by his expert witness Partlow:
(1) The failure of Anson to advise Dan Gowdy of his
right to select his own defense counsel who would be
paid for by Great Divide (CHI counsel);
(2) The failure of Great Divide, and McKay, to conduct
an investigation designed to establish coverage; and
(3) McKay's conduct that favored Great Divide to the
prejudice of Dan Gowdy by asking questions during
depositions that were designed to elicit facts showing
no coverage and by submitting reports to Great Divide
containing information regarding coverage that was
unfavorable to Dan Gowdy.
I proceed to discuss each of these three points.
1. Failure To Advise of CHI Rights
The only clear misconduct in this case was Anson's
failure to advise Dan Gowdy of his right to select his own
counsel whose fees would be paid by Great Divide. Today's
opinion explains that this was not a mere technical violation of
Great Divide's defense duties.42
But it is one thing to conclude (as we do) that Anson's
failure to advise Dan Gowdy of his CHI rights was a material
breach, and another to conclude (and today's opinion does not so
conclude) that the breach was outrageous and deserving of
punishment. Anson testified that he was adjusting claims in all
fifty states. He stated that as of August 1995 he was aware of
the CHI decision in Alaska, but he also testified that his
understanding was that if insureds "requested an independent
counsel of their choosing, then yes, we would provide that for
them." While Anson's testimony concerning his understanding of
CHI was confused and inconsistent with his August 31, 1995
letter, there is little to suggest that his failure to comply
with the requirements of CHI was other than a negligent mistake.
In February 1996 Elmer Gowdy's attorney, Loren Domke, requested
that he be allowed to defend Elmer as CHI counsel. Great Divide
complied with this request, and thereafter at least one partner
to the Gowdy & Son partnership was afforded CHI rights by Great
Divide. Thus, although Anson's mistake concerning CHI coverage
was a material breach of Great Divide's defense obligations,
"there is no evidence that gives rise to an inference of actual
malice or conduct sufficiently outrageous to be deemed equivalent
to actual malice."43
2. Failure To Seek Out Coverage
a. Great Divide
There is evidence that would justify finding that after
reviewing the complaint Anson concluded that there was no
coverage, and thereafter, in the words of the court's
instruction, he did not fulfill his "duty to diligently search
for evidence which supports" coverage. But this was more a
matter of attitude than a failure of conduct. Anson did send a
field adjuster to investigate facts relating to both liability
and coverage, and his investigation appears to have been
reasonably thorough, if not particularly imaginative.
The allegations of the complaint provide the initial
guide to whether an insurance company has a duty to defend. The
duty to defend arises "if the complaint on its face alleges facts
which, standing alone, give rise to a possible finding of
liability covered by the policy . . . ."44 If the complaint does
not contain allegations indicating coverage, there is nonetheless
a duty to defend "if facts underlying the complaint are within,
or potentially within, the policy coverage and are known or
reasonably ascertainable by the insurer."45
The allegations of Carpenter's initial complaint
affirmatively excluded coverage. The complaint alleged that the
falling tree that injured Carpenter was cut in the course of Dan
Gowdy's tree-felling business. If this had been true, the
classification exclusion would have excluded coverage. Even
though the allegations of the complaint negated coverage, this
did not discharge Great Divide from its duty to take reasonable
steps to ascertain whether the facts underlying the complaint
were potentially within policy coverage. Complaints may be
amended, and in any case the allegation in question was not
binding on Dan Gowdy. Nonetheless, the fact that the allegations
of the complaint explicitly negate coverage serves to explain
Anson's quick judgment and negative mind-set on the coverage
issue. I believe that his conduct concerning the duty to seek
out coverage, at worst, can only reasonably be characterized as
negligent.
b. McKay
McKay conceived of his role in defending Dan Gowdy as
limited to providing a defense to the Carpenter complaint. He
testified "I was there to do the liability. I wasn't there to do
the coverage."
The trial court did not instruct the jury that an
attorney appointed by an insurance company to defend an insured
must seek out coverage for the insured, although Partlow, a non-
lawyer, testified that he thought attorneys had this duty. In
CHI we discussed the role of counsel appointed by an insurer,
noting a split of authority as to whether appointed counsel
should report information that might give rise to a policy
defense to the insurer. Both sides of this debate seemed to
agree that it would be appropriate for appointed counsel "to be
involved only in the defense of the liability claim, not in
coverage issues," if this is made clear at the outset of the
engagement.46 Although it is unclear whether McKay told Dan Gowdy
that he would not be involved in coverage issues, his failure to
become involved in coverage issues seems to have been within the
expectations of Dan Gowdy and Bradley. I do not believe that it
can reasonably be regarded as outrageous.
3. McKay's Deposition Questions and Reports to Great Divide
At trial Carpenter claimed that deposition questions
asked by McKay were intended to negate coverage. The questions
generally sought information that might show that Rick Ostman was
neither employed nor being supervised by Dan Gowdy at the time of
the accident. McKay explained that if he could establish those
facts Dan Gowdy would be exonerated. The deposition was taken
before Elmer Gowdy or Gowdy & Son were added as defendants.
Both McKay and Carpenter are right as to the impact of the
questions. If it could be established that Ostman was not
working for or being supervised by Dan, Dan would have no
liability. He would also have no coverage, but that would be
irrelevant if he was not liable. I believe that the questions
are reasonably viewed as embodying a plausible litigation
strategy, and that the evidence is lacking that McKay asked them
because of a misplaced loyalty to Great Divide.47
McKay also wrote two reports to the insurance company
that were cited as examples of improper communication to Great
Divide. The court instructed the jury that an attorney who
represents an insured cannot supply information detrimental to
the insured to the insurance company. As we noted in CHI with
respect to insurer appointed counsel, there is a split of
authority as to the nature of the obligation of appointed counsel
to report information that may give rise to a policy defense.48
But assuming the correctness of the instruction, the duty not to
supply detrimental information cannot be met simply by refusing
to report at all to the insurance company. The statute that was
enacted to flesh out CHI obligations, AS 21.89.100, requires that
even CHI counsel consult with the insurer "on all matters
relating to the civil action" and to "disclose to the insurer in
a timely manner all information relevant to the civil action,
except information that is privileged and relevant to disputed
coverage."49
The reports that McKay submitted to Great Divide are
mainly summaries of non-privileged deposition testimony. Some of
the testimony that is reported is relevant to both liability and
coverage as described above. But the reports never mention the
topic of coverage. They only discuss various strategies
concerning the defense of Dan Gowdy in the Carpenter case. In my
view the reports are consistent with the reporting requirements
expressed in AS 21.89.100 and I do not believe that they can be
reasonably read as showing that McKay in writing them was intent
on bolstering Great Divide's coverage defense.
In summary, Great Divide did not correctly advise Dan
Gowdy of his CHI rights and did not investigate coverage with an
open-minded attitude. But Great Divide did appoint counsel who
provided an acceptable and ultimately successful defense of Dan
Gowdy in cooperation with CHI counsel for Elmer Gowdy. And Great
Divide's early negative attitude toward coverage is
understandable, though not excusable, because the allegations of
Carpenter's complaint themselves negated coverage. Under these
circumstances while Great Divide's failures may have been
material breaches of its defense duties, they cannot reasonably
be characterized as outrageous. I thus have a definite and firm
conviction "based on the record as a whole that the trial court
erred and we must intervene to prevent a miscarriage of justice."50
On this ground as well as on lack of fair notice grounds, I
conclude that the award of punitive damages must be vacated.
EASTAUGH, Justice, dissenting.
A. Introduction
I disagree with this court's conclusion that the
insurance policy covered Raymond Carpenter's claims. I therefore
respectfully dissent. The activity that injured Raymond
Carpenter, cutting down a tree, was not one of the two classified
operations - floor covering and sheet-metal work - covered by the
policy. Nor is it reasonable to view this activity as an
"incidental support activity" to the operations the policy
actually did cover. Finally, I think it important not to confuse
the operation that harmed Carpenter - cutting down trees - with
its purpose - gathering fuel.
B. Facts
Great Divide's insurance policy provided commercial
general liability coverage to the Gowdys' business, a partnership
doing business as Gowdy & Son. It covered liability for bodily
injury "to which this insurance applies." This coverage was
subject to this exclusion for bodily injury claims arising from
non-classified business operations:
EXCLUSION - CLASSIFICATION LIMITATION
The following exclusion is added to COVERAGES
A, B and C (Section I): This insurance does
not apply to "bodily injury," . . . for
operations which are not classified or shown
on the Commercial General Liability Coverage
Declarations, its endorsements or
supplements.
The policy's declarations pages described the Gowdys'
business as "Floor Covering Installation" and specified premiums
for the two categories of work listed under the policy's
"Classification" declaration. The two listed classifications
were "Floor Covering Installation - not ceramic, tile or stone"
and "Sheet Metal Work - outside." Each of these two
classifications specified code numbers, the bases for calculating
the premium, the applicable premium rate, and the total premium.
The premium charged for each classification was dependent on
various bases, including payroll. These were the only premiums
paid by the Gowdys for this policy.
The policy did not list tree-felling as a classified
operation.
On September 3, 1993, Rick Ostman cut down the tree
that struck Raymond Carpenter; it was to be used for firewood to
help heat Elmer Gowdy's home, where Elmer performed
administrative tasks for the partnership. Elmer also stored
business equipment in the attached garage.
Findings of the superior court and the advisory jury
establish that Ostman was working for Gowdy & Son at the time of
the accident and that the accident occurred "during the course
and scope" of the Gowdys' business. In denying Great Divide's
motion for a directed verdict on coverage, the superior court
commented that, although "the connection to the business itself
was not strong," gathering firewood to heat the business premises
was sufficiently business-related that it "was not prohibited
under the policy."51 Although the issue was hotly contested
at trial, Great Divide does not appeal the superior court's
finding that Ostman was working for Gowdy & Son when he cut down
the tree. The superior court, in finding coverage, referred to
opinions of Carpenter's insurance expert to the effect that the
classified operations exclusion did not exclude coverage for
business activities that are "necessarily ancillary" to the main
business activities.
C. The Policy Did Not Cover Carpenter's Claims.
Great Divide argues that, as a matter of law, the
policy excludes claims arising from this accident, even if Ostman
was working for the business when he cut down the tree. It
contends that the accident did not occur during a classified
operation, and that the policy consequently does not cover
Carpenter's injuries.
Carpenter responds that the superior court's findings
of fact and the advisory jury's special verdict support the
superior court's conclusion. But as Great Divide points out, it
is not determinative that Ostman was working for Gowdy & Son when
he cut the tree down: that the tree was felled in the course of
Gowdy & Son's business is a necessary but not sufficient
condition for coverage.
Carpenter also argues that the firewood-gathering job
was "reasonably incidental" to the Gowdys' classified operations
and should therefore be covered by the policy, even though the
policy does not explicitly cover incidental operations. This
court accepts that argument.52 It affirms because it concludes
that the tree-cutting activity that injured Raymond Carpenter
"can reasonably be viewed as an incidental support activity" to a
business that heats its premises by wood.53 It reasons that this
activity differed from a "revenue-earning activity" that would
have been an "operation" subject to the classification limitation
exclusion in the policy.54 I disagree with these conclusions.
The question of coverage under the Great Divide policy
presents a question of contract interpretation and does not turn
on disputed fact issues.55
Great Divide supports its interpretation of the
classification limitation by noting that the Gowdys' premium was
computed solely with reference to the two classified operations.
This circumstance, in itself, would not preclude coverage.
Courts have rejected attempts to deny coverage on the sole ground
that the injury occurred outside listed classifications used for
premium-setting purposes.56 Rather, courts have stated that an
insurer wishing to limit coverage to classified activities should
include an express exclusion to this effect.57
Great Divide included such an express exclusion in the
Gowdy & Son policy. That exclusion provides: "This insurance
does not apply to `bodily injury' . . . for operations which are
not classified or shown on the . . . Coverage Declarations." The
question is therefore whether this express exclusion is
sufficient. I think that it is. The language is plain enough on
its face. Nothing implies that tree-felling, even if it is
conducted for business as opposed to private purposes, is an
operation that is within either of the two operations classified
in the policy's coverage declarations.
My reading of the exclusion is confirmed by two cases
applying New York law and upholding similar exclusions in
commercial liability policies like Great Divide's. In Mount
Vernon Fire Insurance Co. v. Chios Construction Corp., a United
States district court applied New York law to a policy structured
exactly like the Gowdy & Son policy: a declarations page listed
classified operations and a classification limitation endorsement
excluded coverage for claims arising from anything else.58 The
only classified operation was "Carpentry - Interior."59 The
claimant sought coverage for injuries sustained while cleaning
steel beams.60 Relying on the classification limitation, the
court held that the insurance company had no duty to defend -
much less indemnify - its insured, reasoning that "there is not
even a metaphysical possibility that the . . . injury is
covered."61
The Appellate Division of the Supreme Court of New York
relied upon a similar classification limitation in Ruiz v. State
Wide Insulation & Construction Corp.62 The classified operation
in Ruiz was "painting."63 Plaintiffs alleged personal injuries
and property damage stemming from a fire that started while the
third-party defendant was repairing their roof.64 Relying on the
classification limitation, the appellate court reversed the trial
court's denial of the insurer's motion for summary judgment,
reasoning that "[t]he terms of the policy are clear and
unambiguous and their construction may be determined as a matter
of law."65
The parties have not directed us to any other cases
interpreting similar language, and I am not aware of any. I find
these cases persuasive.
Contrary to what this court thinks, it does not matter
whether Gowdy & Son was to be paid for cutting down this tree.66
Whether the tree-felling activity was a separate source of
revenue for the business is inconsistent with this court's
justification for finding coverage; it is also irrelevant. It is
inconsistent because the court's decision turns on its conclusion
that Ostman's activity supported the floor-covering operation.67
That conclusion necessarily assumes that there was a business
nexus, and thus that heating the business premises (and therefore
by extension gathering fuel, and, by further extension, cutting
the tree) advanced the business's profit-making purposes. If the
applicability of the exclusion did turn on a business purpose,
i.e., profit-making, it would have been satisfied by the court's
inherent assumption that Ostman's activity advanced the floor-
covering business. (The fact that the tree-felling activity was
not revenue-generating nonetheless helps illustrate why this
activity was so remote from any covered operations.)
And whether the business was to be paid for cutting the
tree is also irrelevant to the words of the policy. No words in
the exclusion imply that it turns on whether the unclassified
activity is revenue-generating. It is hard to imagine all the
"incidental" non-income generating business operations that might
be covered on this theory. Cutting trees for use as fuel
sometime in the future would seem no different than demolishing
the old business premises, excavating for and building new
premises, driving a well to serve the business, or installing
electrical power and gas lines. Some or all of these activities
would seem to be unclassified operations. Just because these
activities might not generate revenue should not determine
whether they are unclassified operations.
In my view, timber felling, even for purposes of
heating the business premises, is in the category of "operations
which are not classified or shown" on the insuring declarations.
The next question is whether, as Carpenter argues,
gathering firewood was "reasonably incidental" to the insureds'
classified operations and is therefore covered even though the
policy does not explicitly cover incidental operations. This
court concludes that the tree-cutting activity that injured
Raymond Carpenter "can reasonably be viewed as an incidental
support activity" to a business that heats its premises by wood.68
It reasons that this activity differed from a "revenue-earning
activity" that would have been an "operation" subject to the
classification limitation exclusion in the policy.69
The first problem with this interpretation of the
insurance contract is that the words of the contract do not
support it. Likewise, this interpretation is hard to square with
the results in Mount Vernon Fire Insurance Co.70 and Ruiz,71
discussed above. One would expect those cases to have ended
differently if there were any legitimate basis for thinking such
a policy covers incidental activities.
A second problem is that any incidental activity
coverage must be somehow anchored in the policy language. I
assume that some liability policies in Alaska can properly be
read to provide some undefined coverage for some "incidental"
activities. But any such "incidental activity" coverage must be
consistent with the words of the policy. The only pertinent
Alaska cases brought to our attention involved policies that did
not contain an exclusion equivalent to the classification
limitation exclusion in the Great Divide policy. In a case in
which policy language did not explicitly provide for such
coverage or attempt to exclude it, this court held that
incidental activities were covered. Thus, we held in Hale v.
Fireman's Fund Insurance Co. that a produce-stand owner's
"premises-operations" policy provided coverage for "necessary and
incidental" operations.72 Hale is distinguishable because the
policy did not contain an exclusion like the one that controls
here. Moreover, there we relied on extrinsic evidence in finding
coverage: the policy in Hale had replaced an earlier policy which
explicitly provided coverage for "necessary or incidental"
operations.73 I am not aware of any extrinsic evidence here that
permits an inference that the Gowdys thought they were purchasing
specific coverage for tree-felling operations or general coverage
for activities "incidental" to the two classified operations.
There is instead evidence that Dan Gowdy had good reason to think
he would not be covered for tree-felling, and indeed thought
after the accident that the policy did not cover Carpenter's
claims.
This court has approvingly cited a federal district
court decision which, applying Minnesota law, reasoned that
parties to an insurance contract language containing a "loading-
unloading" clause "most likely intended to cover . . . all
hazards from the initial loading until the goods were unloaded
including all incidental and necessary parts of the unloading
process."74 Again, there was no exclusion like the one at issue
here. Furthermore, there the incidental activity was at least
closely related in time and place to the unloading process.
Nonetheless, the Eighth Circuit reversed on the ground the
unloading process had been completed before the accident
occurred.75 There is no such close connection here between the
two classified operations and the activity that harmed Raymond
Carpenter.
A third problem is that the court's conclusion that it
is "reasonable" to find incidental activity coverage here seems
at odds with the usual approach in interpreting an insurance
policy. The court's conclusion seems to ignore the absence of
policy language or extrinsic evidence implying coverage. But
assuming we can look to post-formation circumstances, I am not
willing to say as a matter of law that it is "reasonable" to find
coverage for this activity. Cutting down trees in early
September for future use in heating a home also used for
administrative purposes seems too remote in purpose, time, and
place to be "incidental" to Gowdy & Son's classified business
operations.76 The activity was not conducted to fulfill any
particular contract; it did not occur at the business premises or
at a job site; it did not occur on a day when job work was being
performed; and it seems to have taken place well in advance of
the time the wood would be needed.
Carpenter's position might be more plausible had Ostman
cut down the tree to obtain wood to be used for flooring for a
specific floor-covering job. But virtually every business-
related activity could be deemed "incidental" to the covered
operations under the expansive view of the policy the court takes
here. Accepting Carpenter's position vitiates the policy's
classification scheme and transforms a limited policy into a
comprehensive one. Conducting business activities at Elmer
Gowdy's home is justifiably regarded as "incidental" to the
classified operations. Perhaps the step-removed activity of
stoking the wood stove is also. And perhaps stock-piling fuel on
the premises should be also, although it is another step removed.
But going onto someone else's land and cutting down trees for
future use as fuel is far too attenuated to be "reasonably" held
to be "incidental."
Inherent in the court's opinion is a conclusion that
cutting down the tree was close enough to the revenue-generating
activity of floor-covering to be incidental or supportive, and
thus covered, but not so close that it can be deemed to be
revenue-generating, and thus not covered. Both aspects of this
conclusion are alien to the actual policy language. The policy
said nothing about covering incidental or supporting activities,
and the exclusion did not depend on whether a particular
operation did (or would) generate revenue.
Finally, Ostman's activity was the sort that was
subject to a separate classification, for a substantial
additional premium.77 There are marked differences between the
accident activity and the classified activity of floor-covering.
Tree-felling poses altogether different personal injury hazards;
the causes, frequency, and consequences of accidents differ
greatly. Tree-felling requires different skills that are
exclusive to that profession; it requires specialized training
and equipment, and greater physical strength. Tree-felling is a
separate profession. The activities are not related; they are
not commonly performed by the same business. Ostman was cutting
down trees. He was not simply using his hands to pick up wood
that was already downed. Surely the policy would not have
covered mechanized extraction of other fuels, such as coal or
oil, to be used for heat. Common sense distinguishes this
activity from activities that might be genuinely incidental.
Assuming that some activities which merely support the
two classified activities are nonetheless within coverage,
cutting down trees cannot be considered within the penumbra of
either classification.
The court may assume that the coverage of such a policy
is inherently broad. Certainly the result reached here has the
effect of broadly providing coverage the policy does not
expressly provide. A commercial general liability policy
"affords specific coverage for specific losses."78 That the
"incidental" coverage found here is not reasonable is confirmed
by the annual premium. It was less than $2,000, little more than
what many motorists pay for routine automobile coverage, even
though this policy had facial liability limits of $1,000,000.
Based on his own experience with the cost of a timber policy, Dan
Gowdy did not think the policy covered this accident.
D. Conclusion
Having concluded that the insurance policy did not
cover Raymond Carpenter's claims, I would reverse and remand for
entry of judgment for Great Divide.79
_______________________________
1No. 1JU-95-245 Civil (Alaska Super, 1st Dist.).
2The parties also agreed that Anson erroneously stated that the
policy limits were $300,000 rather than $1,000,000. Great
Divide's current adjuster on the case testified that the policy
was initially written with $300,000 limits, but they were later
raised to $1,000,000. She stated that this was the source of
Anson's mistake and that she corrected it in a letter to the
Gowdys that she sent in June 1996 after she took over the case.
3CHI of Alaska, Inc. v. Employers Reinsurance Group, 844 P.2d
1113 (Alaska 1993); AS 21.89.100 (originally enacted effective
July 1, 1995), ch. 62, 107, SLA 1995.
4In answer to a later interrogatory from the court the jury
explained that the award consisted of $1,000,000 as the amount of
the policy's coverage, prejudgment interest of $538,014, and
$1,086 representing premiums paid by the Gowdys.
5Fejes v. Alaska Ins. Co., 984 P.2d 519, 522 (Alaska 1999)
(citations omitted).
6Carpenter's counsel offered an apt hypothetical illustration of
a business that heated its premises with fuel oil, positing a
case where an employee bought a barrel of oil and handled it in a
manner that injured a third party. In such a case, he argued, it
would be unreasonable to contend that buying and handling the oil
was a separate "operation," as distinct from an activity in
support of the classified operation.
7In the two cases that Great Divide has cited in which courts
upheld classification limitations exclusions, the "operations"
that were excluded were not merely incidental to the classified
business; rather they were separate sources of revenue. The
cases are distinguishable on this basis. The cases are Mt.
Vernon Fire Ins. Co. v. Chios Constr. Corp., 1996 WL 15668
(S.D.N.Y. 1996) (iron work a separate classification from
"carpentry-interior"); Ruiz v. State Wide Insulation & Constr.
Corp., 703 N.Y. Supp. 2d 257 (N.Y. App. Div. 2000) (roof repair
an operation separate from "painting").
8See Fejes, 984 P.2d at 522.
9Great Divide quotes Allan D. Windt, Insurance Claims & Disputes
2.15, at 63 (3d ed. 1995), as follows:
Whether or not the coverage defenses
specified by the insurance company in its
reservations of rights letter are justified
should, in most instances, be irrelevant. By
reserving its rights, the company is merely
putting the insured on notice of those
defenses that it believes might ultimately
serve to reduce or eliminate its duty to
indemnify. That duty, however, has not yet
come into existence, since the insured has
not yet become legally obligated to pay
damages. An unjustified reservation,
therefore, cannot constitute a breach of
contract.
10Points that are inadequately briefed are considered waived.
State v. O'Neill Investigations, Inc., 609 P.2d 520, 528 (Alaska
1980). Instructions may not be challenged on appeal on grounds
not raised in the trial court in the absence of plain error.
Alaska Marine Pilots v. Hendsch, 950 P.2d 98, 109-110 (Alaska
1997); Conam Alaska v. Bell Lavalin, Inc., 842 P.2d 148, 152-53
(Alaska 1992); see also Alaska R. Civ. P. 51(a).
11See Grace v. Ins. Co. of N. America, 944 P.2d 460 (Alaska 1997);
Washington Ins. Guar. Ass'n v. Ramsey, 922 P.2d 237, 239, 246-48
(Alaska 1996); Continental Ins. Co. v. Bayless & Roberts, Inc.,
608 P.2d 281, 286 (Alaska 1980).
12Grace, 944 P.2d at 464, 465 & authorities there cited.
13See authorities cited in note 11, supra.
14Miller v. Shugart, 316 N.W.2d 729, 733-34 (Minn. 1982).
15United Servs. Auto Ass'n v. Morris, 741 P.2d 246, 253 (Ariz.
1987).
16Grace, 944 P.2d at 467; Bayless & Roberts, 608 P.2d at 288
(accepting argument that insurer "must either (1) affirm the
policy, defend the suit, and pay any resulting adverse judgment,
thus waiving both the alleged breach by the insured and any
possible coverage defenses, or (2) repudiate the policy and
withdraw from the defense, taking its chances that its claim of a
breach by the insured would stand up in a subsequent suit on the
policy.").
17Grace, 944 P.2d at 467-68; Ramsey, 922 P.2d at 247-48; Bayless &
Roberts, 608 P.2d at 293 n.20. We revisit this subject in our
discussion of Carpenter's cross-appeal, infra.
18Safeco Ins. Co. v. Superior Court, 84 Cal. Rptr. 2d 43 (Cal.
App. 1999).
19State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996).
20922 P.2d 237, 246 (Alaska 1996).
21In Bayless & Roberts, 608 P.2d at 281, the insurer also did not
refuse to defend; instead it attempted to defend under a
reservation of rights to later disclaim coverage. We held that a
covenant settlement agreement was valid where the insured had
rejected the conditional tender of defense: "[I]f an insured
refuses to accede to the insurer's reservation of rights, the
carrier must either accept liability under the policy and defend
unconditionally or surrender control of the defense and be held
liable if it guessed wrong on the coverage issue." Id. at 288.
Although Bayless & Roberts was a policy defense case rather than
a coverage defense case, in CHI of Alaska, Inc. v. Employers
Reinsurance Group, 844 P.2d 1113 (Alaska 1993), we adopted the
rule of decision of Bayless & Roberts in the context of a
coverage defense. We note also that cases in other jurisdictions
have given effect to covenant settlement agreements where the
insurer offered a defense but did not accept responsibility to
pay the insured's liability exposure. See, e.g., Miller v.
Shugart, 316 N.W.2d 729 (Minn. 1982); United Servs. Auto. Ass'n
v. Morris, 741 P.2d 246 (Ariz. 1987).
22Grace, 944 P.2d at 464-65 & cases there cited.
23Id.
24See, Justin A. Harris, Judicial Approaches to Stipulated
Judgments, Assignments of Rights, and Covenants Not To Execute in
Insurance Litigation, 47 Drake L. Rev. 853 n.31 & accompanying
text.
25See supra note 2 and accompanying text.
262 P.3d 1199, 1209 (Alaska 2000).
27Martin v. Mears, 602 P.2d 421, 427 (Alaska 1979).
28Alaska R. Civ. P. 9(h).
29Holloway v. Wachovia Bank & Trust Co., NA, 452 S.E.2d 233, 238
(NC 1994).
30Stark v. Epler, 117 P. 276, 278 (Or. 1911).
31AS 09.17.020(b).
32State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152, 1158
(Alaska 1989) (upholding compensatory damages for bad faith
conduct while finding insufficient evidence to support award of
punitive damages); State Farm Mut. Auto. Ins. Co. v. Weiford, 831
P.2d 1264, 1269 (Alaska 1992) (concluding there was sufficient
evidence to support a jury finding of bad faith on which a
compensatory damage award was based but not a finding of
outrageousness supporting punitive damages).
33This testimony was the centerpiece of Carpenter's counsel's
closing argument to the jury that Great Divide's conduct
warranted punitive damages.
34Grace v. Ins. Co. of N. America, 944 P.2d 460, 467-68 (Alaska
1997); Washington Ins. Guar. Ass'n v. Ramsey, 922 P.2d 237, 247
(Alaska 1996); Continental Ins. Co. v. Bayless & Roberts, 608
P.2d 281, 293 n.20 (Alaska 1980).
35Ramsey, 922 P.2d at 247-48. These factors are taken from Glover
v. Tacoma Gen. Hosp., 658 P.2d 1230, 1236 (Wash. 1983), overruled
on other grounds by Crown Controls, Inc. v. Smiley, 756 P.2d 717,
719 (Wash. 1988).
36944 P.2d 467-68.
37According to section 57 of the Restatement (Second) of Judgments
even where an indemnitee fully litigates a claim the indemnitor
is not bound except upon a showing that "the indemnitee defended
the action with due diligence and reasonable prudence."
Restatement (Second) of Judgments 57(1)(b)(ii) (1982).
38We do not imply that counsel's failure in this regard was a
mistake. Giving up the current award of compensatory damages
carries both the possibility of increasing the award and the risk
of reducing it if a future jury were to find the settlement to be
unreasonable.
39Great Divide has raised a number of other arguments. We have
considered each of them and find them to be either without merit
or mooted by this decision.
40831 P.2d 1264, 1266 (Alaska 1992).
41Id. at 1266 (footnote omitted).
42Slip Op. at 20-21.
43Weiford, 831 P.2d at 1266.
44Afcan v. Mutual Fire, Marine & Inland Ins. Co., 595 P.2d 638,
645 (Alaska 1979).
45Fejes v. Alaska Ins. Co., 984 P.2d 519, 522 (Alaska 1999).
46CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d
1113, 1116 (Alaska 1993).
47McKay clearly was not seeking to protect Great Divide when he
recommended to Dan Gowdy that he accept the covenant settlement
agreement. His role at that point was correctly described by
Great Divide's expert Geraghty as protective of Gowdy "to the
prejudice of the insurance company."
48844 P.2d at 1116.
49AS 21.89.100(e).
50Alaskan Village, Inc. v. Smalley, 720 P.2d 945, 948 (Alaska
1986).
51The advisory jury answered "yes" to this special verdict
question: "Did the accident resulting in injury to Raymond
Carpenter occur during the course and scope of business of Elmer
and Dan Gowdy d/b/a Gowdy and Son?"
52Slip Op. at 11.
53Slip Op. at 12.
54Id.
55We review findings of fact under the clearly erroneous standard.
Alaska Foods, Inc. v. Am. Mfrs. Mut. Ins. Co., 482 P.2d 842, 848
(Alaska 1971). We use our independent judgment to determine the
legal significance of those facts. Alaska Travel Specialists,
Inc. v. First Nat'l Bank of Anchorage, 919 P.2d 759, 762 (Alaska
1996). "The construction of an insurance contract is a matter
for the court, unless its interpretation is dependent upon the
resolution of controverted facts." State v. State Farm Fire &
Cas. Co., 939 P.2d 788, 790 (Alaska 1997). Even when facts are
disputed, we review the words of any contract de novo. Tsakres
v. Owens, 561 P.2d 1218, 1222 (Alaska 1977). We treat insurance
contracts as contracts of adhesion, resolving ambiguities against
the insurer. Makarka v. Great Am. Ins. Co., 14 P.3d 964, 966
(Alaska 2000). We construe insurance contracts to provide
coverage that a layperson would have reasonably expected. Id.
To determine reasonable coverage expectations, we look to the
language of the disputed provision, the language of the other
provisions of the policy, relevant extrinsic evidence, and case
law interpreting similar provisions. Hale v. Fireman's Fund Ins.
Co., 731 P.2d 577, 580 (Alaska 1987).
56See, e.g., Mount Vernon Fire Ins. Co. v. Belize NY, Inc., 277
F.3d 232, 239 (2d Cir. 2002) (holding that insurer cannot rely
upon classification scheme to deny coverage because policy fails
to provide that classifications define covered risks); Feurzeig
v. Ins. Co. of the West, 69 Cal. Rptr. 2d 629, 634 n.5 (Cal. App.
1997) (collecting cases and holding that rating classification
could not be construed as additional limitation on coverage
absent express language indicating that such construction was
intended by parties).
57E.g., Mount Vernon Fire Ins. Co., 277 F.3d at 239 (noting that
"[i]f [insurer] wished to limit the coverage based on
classifications, it should have done so specifically"); Thompson
v. Harold Thompson Trucking, 748 P.2d 430, 435 (Kan. App. 1987)
(collecting cases and stating that "an insurance company wishing
to limit the scope of coverage to that classification of
operations listed in the declarations can do so by express
exclusion") (citations omitted).
581996 WL 15668, *1 (S.D.N.Y. Jan. 17, 1996).
59Id.
60Id. at *2.
61Id. at *3. The court noted the "heavy burden" borne by an
insurer seeking to avoid its obligation to defend, concluding
that the insurer met that burden by showing that the policy
exclusion was "stated in clear and unmistakable language, . . .
subject to no other reasonable interpretation, and applie[d] in
the particular case." Id. at *1, *3 (citation omitted).
62703 N.Y.S.2d 257, 258 (N.Y. App. Div. 2000).
63Id.
64Id.
65Id. at 259.
66Cf. Slip Op. at 12.
67Slip Op. at 11.
68Slip Op. at 12.
69Id.
701996 WL 15668 at *3.
71703 N.Y.S.2d at 259.
72731 P.2d 577, 580 (Alaska 1987).
73Id. at 580.
74See Marwell Constr., Inc. v. Underwriters at Lloyd's, London,
465 P.2d 298, 304 (Alaska 1970), quoting from the district
court's decision, Johnson, Drake & Piper v. Liberty Mut. Ins.
Co., 258 F. Supp. 603, 610 (D. Minn. 1966), rev'd, 390 F.2d 410,
413 (8th Cir. 1968). The ground for the Eighth Circuit's
reversal, that the unloading process had been completed before
the accident, is irrelevant to the case before us.
75Johnson, Drake & Piper, 390 F.2d at 413.
76Rick Ostman testified that Elmer Gowdy performed administrative
tasks for the business at his home. Ostman also testified that
Elmer stored floor covering equipment and materials in the
garage, but that none of the wood-burning stoves used to burn
firewood were located in the garage. But even if the garage were
heated by wood-burning stoves, and assuming that equipment
storage is sufficiently connected to the classified operations to
be deemed "reasonably incidental" thereto, the firewood-gathering
operation - which is itself at most incidental to an activity
that is already incidental to the classified operation - would
still be too attenuated.
77Dan Gowdy testified that he previously had a timber liability
policy for a firewood operation that he used to run. He
testified that the policy's insurance premiums were "exorbitant."
78Friar v. Statutory Trs. of Kirkwood Sports Ass'n, Inc., 959
S.W.2d 808, 811 (Mo. App. 1997).
79Given my conclusion that the policy does not cover these claims,
it is necessary to reach Carpenter's alternative argument that
Great Divide's conduct estops it from denying coverage. I would
hold as to that issue that Great Divide's conduct does not estop
it from denying coverage. See Lloyds & Inst. of London
Underwriting Cos. v. Fulton, 2 P.3d 1199, 1212-15 (Alaska 2000)
(Eastaugh, J., dissenting). Because I conclude that there was no
coverage, it is not necessary for me to reach the other issues
addressed in the court's opinion.
