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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Allstate Insurance Company v. Teel (10/01/2004) sp-5832

Allstate Insurance Company v. Teel (10/01/2004) sp-5832

     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


ALLSTATE INSURANCE                 )
COMPANY and TINA WATTS,            )    Supreme Court No. S-11039
                              )
             Appellants,                )    Superior Court No.
                              )    4FA-02-1736 CI
     v.                       )
                              )    O P I N I O N
MONICA FOSTER TEEL,                )
                              )    [No. 5832 - October 1, 2004]
             Appellee.                  )
_______________________________    )


          Appeal  from the Superior Court of the  State
          of    Alaska,   Fourth   Judicial   District,
          Fairbanks, Mark I. Wood, Judge.

          Appearances:   Mark E. Wilkerson,  Anchorage,
          for  Appellants.  Ward M. Merdes,  Fairbanks,
          and   Lawrence   F.  Reger,  Fairbanks,   for
          Appellee.

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

          CARPENETI, Justice.


I.   INTRODUCTION

          I.   An insurance policy defined insured person as someone

legally entitled to recover damages for injury to the occupant of

an  insured vehicle.  The parties dispute whether this  provision

covers  an  individual, Monica Foster Teel, who seeks to  recover

for  her own emotional distress resulting from the death  of  her

son,  Cory  Foster,  an  occupant of the  insured  vehicle.   The

superior  court ruled that Teel was an insured person  under  the

provision.    Because we conclude that the policy  language  does

not clearly exclude Teel from coverage, we affirm the decision of

the superior court.

II.  FACTS AND PROCEEDINGS

          On  November 16, 1997 Cory Foster, Monica Foster  Teels

eleven-year-old  son,  was  seriously injured  in  an  automobile

accident.   Cory  was  a  passenger in  a  car  driven  by  Keith

OFlanagan, who was intoxicated at the time of the accident.  Cory

was treated at the Fairbanks Memorial Hospital, during which time

he was tended to by Teel until his death on November 23, 1997.

          At  the time of the crash, both Teel and OFlanagan were

insured by Allstate under separate automobile insurance policies.

Teel  filed a claim against OFlanagans liability policy for Corys

death,  and  in  November 1998 she was paid the policy  limit  of

$50,000, plus attorneys fees and interest.  Teel next asserted  a

claim  for the negligent infliction of emotional distress  (NIED)

under the Uninsured/Underinsured Motorist (UM/UIM) provisions  of

her  own Allstate policy.  Allstate denied coverage and the claim

went  to arbitration.  At arbitration Teel was awarded her UM/UIM

policy limit of $100,000, plus attorneys fees and interest.

          Teel  then  claimed coverage for NIED under the  UM/UIM

coverage in OFlanagans policy.  Teel argued that she was entitled

to  UM/UIM  benefits because she was an insured under  OFlanagans

policy.   For  the purpose of UM/UIM coverage, OFlanagans  policy

defines an insured person as:

          1.   [The  named  insured] and  any  resident
               relative.
          2.   Any person while in, on, getting into or
               out  of  [the insureds] auto  with  [the
               insureds] permission.
          3.   Any other person who is legally entitled
               to  recover because of bodily injury  to
               [the  insured], a resident relative,  or
               an  occupant of [the insureds] auto with
               [the insureds] permission.
               
(Emphasis added.)  Allstate denied Teels claim.

          Following   the  denial  of  her  NIED  claim   against

OFlanagans Allstate policy, Teel filed a civil complaint  against

Allstate  and  Tina Watts, an Allstate employee,  in  July  2002.

First,  Teel  argued  that she was a person legally  entitled  to

recover  UM/UIM  benefits under OFlanagans  Allstate  policy  for

Corys  bodily injury.  Second, Teel alleged that Watts and  other

Allstate  personnel had acted fraudulently by failing  to  inform

her  that she was entitled to recover under both policies and  by

inducing her to accept only the limits of her own policys  UM/UIM

benefits  at arbitration.  Allstate moved to dismiss Teels  claim

under Alaska Civil Rule 12(b)(6).  Allstate argued that Teel  was

not  an  insured person under the UM/UIM provisions of OFlanagans

policy   and that, even if she was, she would not be entitled  to

recover  because  all available UM/UIM coverage under  OFlanagans

policy  had already been paid.  Teel cross-moved for judgment  on

the  pleadings,  arguing that she qualified as an insured  person

under the policy and was entitled to coverage.

          Superior  Court  Judge  Mark I. Wood  denied  Allstates

motion  to dismiss and granted Teels motion for judgment  on  the

pleadings.   Judge Wood held that under Alaska law  the  disputed

policy language  defining an insured as [a]ny other person who is

legally entitled to recover because of bodily injury to . . . any

occupant  of your insured auto  must be interpreted in accordance

with  the reasonable expectations of laypersons.  Judge Wood held

that  because  a  reasonable layperson would have  no  reason  to

believe that the policy language would exclude Teels NIED  claim,

Teel  was  an  insured under the UM/UIM provisions in  OFlanagans

policy.   Allstates motion for reconsideration was denied  and  a

final judgment on the issue of coverage was entered on April  11,

2003.  Allstate appeals.

III. STANDARD OF REVIEW

          We  review  a  grant of a motion for  judgment  on  the

pleadings  de novo.1  The interpretation of contractual  language

is a question of law, which we also review de novo.2

IV.  DISCUSSION

          Allstates Policy Covers Teels Direct Claim.

          Allstate  correctly notes that NIED claims are  direct,

          not derivative.3  Allstate argues that Teel is not an insured

person under OFlanagans UM/UIM coverage because her injuries  are

not derivative, and therefore not because of injuries suffered by

Cory, an occupant of the vehicle.  Allstate also argues that this

court  should  follow  cases from other jurisdictions  construing

similar policy language to exclude claims for emotional distress.

          We  interpret insurance contracts by looking to (1) the

language  of  the  disputed provisions in the policy,  (2)  other

provisions  in the policy, (3) extrinsic evidence, and  (4)  case

law  interpreting  similar provisions.4  We  construe  grants  of

coverage broadly and interpret exclusions narrowly.5  We use  the

doctrine  of reasonable expectations when reviewing the terms  of

an  insurance  policy.6  Under this doctrine,  [t]he  objectively

reasonable  expectations of applicants and intended beneficiaries

regarding  the terms of insurance contracts will be honored  even

though the painstaking study of the policy provisions would  have

negated those expectations.7

          Allstates   UM/UIM  policy  provision   provides   that

Allstate  will pay all damages that an insured person is  legally

entitled to recover from the owner or operator of an uninsured or

underinsured auto because of . . . bodily injury sustained by  an

insured person.  The policy defines an insured person as:

          1.   [The  named  insured] and  any  resident
               relative.
          2.   Any person while in, on, getting into or
               out  of  [the insureds] auto  with  [the
               insureds] permission.
          3.   Any other person who is legally entitled
               to  recover because of bodily injury  to
               [the  insured], a resident relative,  or
               an  occupant of [the insureds] auto with
               [the insureds] permission.
               
(Emphasis added.)

          Teel  seeks to recover damages for OFlanagans negligent

infliction  of  emotional distress, which was  caused  when  Teel

observed  Corys  injuries soon after the accident.   A  plaintiff

must  usually suffer physical injury in order to recover under  a

theory  of  NIED,8  but  may  also recover  under  the  bystander

          exception if she (1) was located near the scene of the accident,

(2)  had  shock  resulting from the sensory  and  contemporaneous

observance of the accident, and (3) had a close relationship with

the victim.9  Teel seeks to recover under the bystander exception

and admits that her NIED claim is direct rather than derivative.10

Allstate  argues  that the policy language  clearly  covers  only

derivative  claims  brought by third parties,  such  as  loss  of

consortium or reimbursement for funeral expenses, and  that  this

court  should  read  the  policy language,  legally  entitled  to

recover  because  of bodily injury to . . . an occupant  of  [the

insureds] auto, to completely exclude all non-derivative claims.

          That Teels claim is direct does not bar the claim.  The

wording  of Allstates policy does not exclude direct  claims   it

states  that  one would be entitled to recover so  long  as  ones

damages  were  because of bodily injury to  an  occupant  of  the

insured vehicle.  Websters Dictionary defines the term because of

to  mean by reason of or on account of.11  Legal causation  is  a

stricter  standard,  generally requiring that  (1)  but  for  the

occurrence of the event the injury would not have occurred,12 and

(2)  the  event  was  a significant and important  cause  of  the

injury.13  In  light of both the common and legal definitions  of

causation,  we  cannot say that the policy language  excludes  an

NIED claim.

          If  Teel  can prove all of the elements of a  bystander

NIED  claim, then her injuries were because of the bodily  injury

suffered  by  her  son:  The injuries suffered by  an  individual

entitled to recover under the bystander exception to NIED claims,

though  not  derivative, are the natural and probable consequence

of  contemporaneously witnessing the bodily  injury  suffered  by

someone with whom they have a close relationship.14  We therefore

conclude  that a party who has met the burden of proving  his  or

her  NIED claim would satisfy the causal requirement between  the

accident and the injury that the Allstate policy requires.

          Allstate  relies  heavily on  a  case  decided  by  the

          Colorado court of appeals, Wieprzkowski v. State Farm Mutual Auto

Insurance  Co.,15  and  a case decided by the  Delaware  superior

court, Gill v. Nationwide Mutual Insurance Co.,16 where the policy

provisions at issue were similar to the one at bar.  In each case

the  court  interpreted the policy language as excluding  a  non-

insured  individuals claim of emotional distress arising from  an

accident and as including only derivative claims, such as  claims

for funeral expenses or loss of consortium.

          In Wieprzkowski, the plaintiff, Karen Wieprzkowski, was

injured  when  a bus in which she was a passenger struck  another

vehicle.17   Wieprzkowskis mother was killed in the accident  and

her  body rested upon Wieprzkowski during the two hours  that  it

took  rescue  crews  to extricate Wieprzkowski  from  the  bus.18

Wieprzkowski sought to recover additional UIM benefits under  her

parents  automobile  policy after recovering  liability  benefits

under  the  policy held by another party to the accident.19   The

insurance  policy at issue provided UIM coverage for  any  person

entitled  to  recover  damages because of  bodily  injury  to  an

insured.20  Wieprzkowski argued that she was entitled to  recover

under  the policy because she suffered emotional distress as  the

result  of  bodily  injury  to an insured  (her  mother).21   The

Colorado  court of appeals rejected Wieprzkowskis claim,  holding

that  Wieprzkowskis emotional distress was not the type of injury

that  is  because of bodily injury to an insured, as the  damages

sought  were  for Wieprzkowskis own direct emotional  injuries.22

The  court  believed that the insurance policy covered  only  the

consequential  damages of an accident, such as  medical  payments

made  for  the  insured,  wrongful  death  claims,  and  loss  of

consortium claims.23

          In  Gill v. Nationwide Mutual Insurance Co., the policy

language at issue covered others for damages they may be  legally

entitled  to  recover  because of bodily injury  suffered  by  an

insured.24   The  plaintiffs, who were not themselves  considered

insured  individuals under the policy, sought to recover  damages

          for emotional distress.25  The Delaware superior court held that

the  plaintiffs were not entitled to recover for their  emotional

distress  because  their  injuries were not  derivative  and  the

policy   language  provided  compensation  only  for   derivative

injuries, such as wrongful death.26

          We  decline  to follow those cases.   First,  Allstates

policy  provision  clearly covers an individual  who  is  legally

entitled  to  recover because of bodily injury to an occupant  of

the  insured  vehicle.   Second, neither  Wieprzkowski  nor  Gill

considered  the  reasonable expectations of  a  layperson.27   In

contrast,  we  have  held that, although we will  not  ignore  or

rewrite  provisions  in an insurance contract,  even  unambiguous

language in an insurance contract will be interpreted to  comport

with the reasonable expectations of a layperson.28

          Allstate  also argues that the phrase legally  entitled

puts  the  reasonable  layperson  on  notice  that  whether   one

qualifies under this provision is governed by the law.   Allstate

contends that because our decision in State Farm Mutual Insurance

Co.  v. Lawrence characterizes NIED claims as direct rather  than

derivative,29  Teel, as a reasonable layperson, should  not  have

expected  that  her  NIED  claim  would  be  covered.   Allstates

argument  is refuted by our case law holding that the  reasonable

layperson cannot and should not be expected to understand  subtle

legal  distinctions when interpreting the terms of  an  insurance

contract.30  Laypersons are not expected to interpret a  contract

as  a  lawyer  might,  and  we  give  effect  to  the  reasonable

expectations of a layperson, even if a  painstaking study of  the

policy  provisions  would  have negated  those  expectations.  31

Allstates  interpretation would require  Teel  to  be  intimately

familiar  with the characterization of NIED claims, be  aware  of

the  interpretations  of similar policy language  made  by  other

courts  in  other jurisdictions, and then interpret  Lawrence  in

such a way as to preclude coverage.

          Under both common and legal parlance, a successful NIED

          claim would be because of injury to an occupant of the insured

vehicle.   The  fact  that  Teels  recovery  is  direct  and  not

derivative  does  not extinguish the causal relationship  between

the accident and her injury, as required by the policy.

V.   CONCLUSION

           Because  the disputed policy provision does not  limit
coverage to derivative injuries, but rather provides coverage for
those   whose  injuries  are  legally  caused  by  and  are   the
foreseeable result of injury to an insured, resident relative, or
occupant  of the insured vehicle, we AFFIRM the decision  of  the
superior court.
_______________________________
     1    Hebert v. Honest Bingo, 18 P.3d 43, 46 (Alaska 2001).

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

     3     In  State  Farm  Mutual Automobile  Insurance  Co.  v.
Lawrence,  we  characterized claims  for  emotional  distress  as
direct  rather  than derivative injuries, in which  a  party  can
recover solely based upon another partys injuries.  26 P.3d 1074,
1079   (Alaska   2001).    Claims  of  emotional   distress   are
fundamentally different from derivative claims, such as  loss  of
consortium.   Id.  We reasoned that [u]nlike claims for  loss  of
consortium,  claims for emotional distress concern injuries  that
the  claimants  have  suffered directly, rather  than  derivative
injuries that resulted from injury to another.  Id.

     4     Bering  Strait Sch. Dist. v. RLI Ins.  Co.,  873  P.2d
1292, 1295 (Alaska 1994).

     5    Id.

     6     West  v.  Umialik Ins. Co., 8 P.3d 1135, 1138  (Alaska
2000).

     7     C.P. ex rel. M.L. v. Allstate Ins. Co., 996 P.2d 1216,
1222 (Alaska 2000) (quoting Bering Strait, 873 P.2d at 1295).

     8    Kallstrom v. U.S., 43 P.3d 162, 165 (Alaska 2002).

     9    Id.

     10    See State Farm Mut. Auto. Ins. Co. v. Lawrence, 26 P.3d
1074, 1079 (Alaska 2001).

     11     Websters  II New Riverside University Dictionary  161
(1988).

     12    Rhines v. State, 30 P.3d 621, 625 (Alaska 2001).

     13    Id.

     14     See, e.g., Estate of Gocha v. Shimon, 573 N.W.2d 218,
221  (Wis. App. 1997) (parents emotional distress was natural and
probable consequence of witnessing accident that killed son).

     15    976 P.2d 891 (Colo. App. 1999).

     16    1994 WL 150902 (Del. Super. 1994).

     17    Wieprzkowski, 976 P.2d at 892.

     18    Id.

     19    Id.

     20    Id.

     21    Id. at 892.

     22    Id. at 893.

     23    Id.

     24    1994 WL 150902, *3 (Del. Super. 1994).

     25    Id.

     26    Id.

     27     Wieprzkowski,  976  P.2d at 892 (interpreting  policy
language  according  to  the general rules  for  construction  of
contracts); Gill, 1994 WL 150902, at *3 (giving effect  to  plain
and  ordinary meaning of contractual language).  Colorado  courts
consider  the  reasonable expectations of the  insured  layperson
only  when  the terms of the policy are ambiguous,  Farmers  Ins.
Exch.  Co.  v. Chacon, 939 P.2d 517, 522 (Colo. App.  1997),  and
otherwise   rely   upon   traditional  principles   of   contract
interpretation.  Wieprzkowski, 976 P.2d at 892.  Delaware  courts
also   consider  the  reasonable  expectations  of  the   insured
layperson when the contractual language has been characterized as
ambiguous.  Hallowell v. State Farm Mut. Ins. Co., 443 A.2d  925,
926 (Del. 1982).

     28     Farquhar  v. Alaska Natl Ins. Co., 20 P.3d  577,  579
(Alaska 2001).

     29    26 P.3d 1074, 1079 (Alaska 2001).

     30     See ONeill Investigations, Inc. v. Illinois Employers
Ins. of Wausau, 636 P.2d 1170, 1175-76 (Alaska 1981).

     31     Safety Natl Ins. Cas. Corp. v. Pacific Employers Ins.
Co.,  927 P.2d 748, 750 (Alaska 1996) (quoting Robert E.  Keeton,
Basic Text on Insurance Law  6.3(a), at 351 (1971)).