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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. State Farm Mutual Automobile Insurance Company v. Lestenkof (03/09/2007) sp-6111

State Farm Mutual Automobile Insurance Company v. Lestenkof (03/09/2007) sp-6111, 155 P3d 313

     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

STATE FARM MUTUAL AUTOMOBILE )
INSURANCE COMPANY, ) Supreme Court No. S-11754
)
Appellant, )
) Superior Court No.
v. ) 3AN-03-5197 CI
)
DONNA LESTENKOF, Personal ) O P I N I O N
Representative of the Estate of )
TIMOTHY LESTENKOF, )
)
Appellee. ) No. 6111 - March 9, 2007
)
          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Morgan Christen, Judge.

          Appearances:   Kimberlee  A.  Colbo,   Hughes
          Bauman   Pfiffner  Gorski  &   Seedorf   LLC,
          Anchorage,   for  Appellant.   Phillip   Paul
          Weidner, A. Cristina Weidner Tafs, Weidner  &
          Associates, Inc., Anchorage, for Appellee.

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

          MATTHEWS, Justice.

I.   INTRODUCTION
          This   case   presents  the  question  of  whether   an
automobile  insurer  must  pay unlimited  Alaska  Civil  Rule  82
attorneys fees to settle an underinsured motorist insurance claim
if  it  has  already paid unlimited fees on the  same  underlying
projected jury verdict to settle a liability insurance claim.  We
conclude that because the policyholder was not underinsured  with
respect to court-awarded attorneys fees, the insurer need not pay
any additional attorneys fees.
II.  FACTS AND PROCEEDINGS
          On  September 25, 1998, an automobile driven  by  Keith
Odden  collided  with  a motor home driven  by  Warren  Redfearn.
Timothy  Lestenkof,  a passenger in Oddens  car,  died  from  the
injuries he sustained in the crash.
          At   the  time  of  the  accident,  Odden  carried   an
automobile  insurance policy issued by State  Farm.   The  policy
included liability coverage of up to $50,000 of bodily injury per
person    and    $100,000   per   accident,    with    equivalent
uninsured/underinsured motorist (UIM) coverage.
            As  State  Farms  attorney acknowledged  during  oral
argument,  the  facts  of  this case are unusual  because  Oddens
policy, unlike most policies issued in Alaska, did not contain  a
valid  endorsement limiting Alaska Civil Rule 82 attorneys fees.1
While  Oddens  policy  did include language purporting  to  limit
attorneys  fees, the attempted limitation failed to conform  with
an  Alaska  Division  of Insurance form, Attorney  Fees  Coverage
Notice  A,  and was therefore invalid.2  The central  purpose  of
Notice A is to inform the policyholder that the insurer will  not
pay  that portion of any attorneys fees that is in excess of fees
calculated by applying the schedule for contested cases in Alaska
Rule of Civil Procedure 82(b)(1) to the limit of liability of the
applicable  coverage.3  Since State Farm failed to validly  limit
its  attorneys fees coverage, State Farm remained responsible for
paying  unlimited  Rule  82 fees to those with  liability  claims
against Odden.4
          Donna   Lestenkof,  Timothys  widow  and  the  personal
representative  of  his estate, pursued a  wrongful  death  claim
against  Odden.5   State  Farm began settlement  negotiations  by
offering  Lestenkof $50,000, which State Farm  described  as  the
settlement value of this matter.
          While  settlement  negotiations under Oddens  liability
policy were ongoing, State Farm sent Lestenkofs attorney a  check
for  $62,313 pursuant to Oddens UIM coverage.  The $62,313 figure
included $50,000, the amount of the facial policy limit, and pre-
judgment interest and Rule 82 attorneys fees calculated based  on
that  limit.   The  $62,313 was not a settlement  but  rather  an
advance  payment of the minimum that State Farm believed it  owed
Lestenkof under the UIM policy.
          State  Farm subsequently made another offer  to  settle
Lestenkofs liability coverage claim against Odden, this  time  in
the  amount of $172,160.27, which consisted of the $50,000 facial
limit  of the policy, prejudgment interest on the $50,000 amount,
and  Rule 82 fees based on the assumption that the claim had gone
to  a  jury  trial  and  the  jury  had  returned  a  verdict  of
$1,000,000.  Lestenkof accepted the offer.
          Lestenkof also appears to have settled with the insurer
of  the  other driver, Redfearn, for approximately $124,000,  the
amount of Redfearns policy limits.
          Once  State  Farm settled the liability  claim  against
Odden,  Lestenkof  asked  State  Farm  to  pay  approximately  an
additional  $110,000  under  Oddens UIM  coverage.  The  $110,000
amount  represented the difference between what  State  Farm  had
          just paid in the liability settlement ($172,160.27) and the
advance  payment State Farm had already made pursuant to the  UIM
coverage   ($62,313).   Lestenkof  argued  that  the  $172,160.72
liability  settlement  amount represented full  liability  policy
limits and implied that the UIM policy should have the same  full
policy limits.
          State  Farm disagreed.  State Farm argued that  because
Lestenkof  had  already received, as part of the advance  payment
made  under Oddens UIM insurance, the $50,000 facial policy limit
of  the  UIM  policy and prejudgment interest and attorneys  fees
calculated  on  that amount, the additional amount Lestenkof  was
now   requesting  constituted  attorneys  fees  on  a   projected
$1,000,000 verdict.  According to State Farm, because the  estate
had already received Rule 82 attorneys fees based on that verdict
as  part of the liability settlement, it was not entitled to  any
additional fees.  Indeed, State Farm believed that it had already
paid  too much in the way of attorneys fees since it had included
some fees in its advance UIM payment.
          The  parties were unable to resolve their disagreement.
State Farm ultimately filed a complaint asking the superior court
to  declare  that  Lestenkof had no right to  unlimited  Rule  82
attorneys  fees as part of Oddens UIM coverage, arguing  that  an
additional payment would result in Lestenkof receiving  a  double
recovery.  Both parties filed for summary judgment.
          After  reviewing the motions for summary judgment,  the
superior court concluded that State Farm remains obligated to pay
unlimited  Rule  82 attorneys fees under its UIM  coverage.   The
superior  court provided two reasons for its conclusion.   First,
the  superior court explained that it understood from State  Farm
Mutual  Automobile  Insurance  Co.  v.  Harrington6  that  if  an
insurance  policy includes a valid limitation on attorneys  fees,
policy  limits include attorneys fees on the face amount  of  the
policy, and that if liability and UIM coverage are both in place,
fees  must  be  paid  on both.  As a result, the  superior  court
viewed  State Farms argument that it should not have to pay  fees
under  both  types of coverage in this case as an  argument  that
insurance  policies  without Rule 82 attorneys  fees  limitations
should  be  treated  differently from  policies  containing  such
limitations,  something the court was unwilling to  do.   Second,
the  superior  court  pointed  out that  there  was  insufficient
evidence  to  assess State Farms double recovery argument,  since
the  parties had not agreed on a projected jury verdict  for  the
purposes of the UIM coverage.
          Following the superior courts decision, State Farm  and
Lestenkof  agreed to a $1,000,000 projected verdict for  purposes
of  the  UIM  coverage.  The agreement made  it  clear  that  the
projected  verdict  was based on damages attributable  to  Oddens
conduct.
          State Farm appeals the superior courts decision that it
must pay unlimited attorneys fees as part of its UIM coverage.
III. STANDARD OF REVIEW
          Because  this appeal involves a superior courts  ruling
on summary judgment and presents a pure question of law, we apply
a  de  novo standard of review, adopting the rule of law that  is
          most persuasive in light of precedent, reason, and policy.7
IV.  DISCUSSION
          Lestenkof  argues  that  our  decision  in  Harrington8
mandates that State Farm pay Lestenkof the same amount (give  the
same protection) under Oddens UIM coverage as it did under Oddens
liability coverage.  The superior court agreed.
          In  Harrington, the deceased was killed while riding as
a  passenger.  Her personal representative sought to collect  UIM
benefits  under two policies, the deceaseds own and that  of  the
driver  of  the  car the deceased was riding in.   The  liability
section of both policies provided additional coverage for limited
Rule  82  attorneys fees.9  While the only reference to attorneys
fees  was  made in the liability rather than the UIM sections  of
the  policies,  the  personal representative  sought  to  collect
attorneys fees as part of the policy limits of the UIM coverages.10
We decided that as used in AS 21.89.020, a statute which requires
insurance  companies to offer UIM coverage equal  to  the  limits
voluntarily  purchased  to  cover the  liability  of  the  person
insured,11 the word limits includes not just the numerical facial
limit  of the policy but also the protection afforded in addition
to  facial  limits for items such as prejudgment interest,  costs
and  attorneys fees.12  The personal representative in Harrington
was  therefore able to collect the sought-after limited attorneys
fees as part of the UIM coverage.13
          In  Wing  v.  GEICO  Insurance Co.,  we  described  our
decision in Harrington as articulating a mirror rule.14  Lestenkof
urges  us  to uphold the superior courts decision in  this  case,
thereby  preserving  a  UIM award that is  the  mirror  image  of
Lestenkofs liability recovery.
          An  examination  of  Harrington, the  case  that  first
articulated  what has since been referred to as the mirror  rule,
makes  it  clear  that we did not intend courts automatically  to
award an amount under UIM coverage that duplicates the award that
would  be  required  under the policys  liability  coverage.   We
explained  in Harrington that we were requiring insurers  to  pay
attorneys  fees as part of UIM coverage because we had previously
construed  policy  limits to include not only facial  limits  but
such  other  sums as are payable in addition to facial  limits.15
The  other  sums  derive from the coverages insurers  provide  in
addition to coverage for bodily injury and property damage,  such
as coverage for prejudgment interest16 and Rule 82 attorneys fees.17
Whether the insurer has to make an equal payment, or any payment,
under  a particular type of UIM coverage depends not only on  the
existence of mirror-image coverage, but also on the extent of the
underinsured loss for that type of coverage.
          Policy  coverage for court-awarded attorneys fees  only
applies  to court-awarded attorneys fees that either are  awarded
or  potentially would be awarded on an adverse verdict against an
insured.   Our  recent  case of Maloney v. Progressive  Specialty
Insurance Co.18 establishes this point.  In Maloney the  question
was  whether  an  offer made by an insurer  to  an  unrepresented
plaintiff  was  a  policy limits offer when  the  offer  did  not
include a component for Rule 82 attorneys fees.  We held that the
offer  was  a policy limits offer because unrepresented litigants
          have no right to recover Rule 82 fees.  The insurer properly
conducted  its  evaluation of the case based on  the  facts  that
existed at the time of the offer:
          Progressive  needed to calculate its  maximum
          potential  liability by simply assuming  that
          [the  case]  went  to trial and  received  an
          adverse verdict as of the date of its  offer.
          Here,  because  Maloney  was  apparently  not
          represented  on  the  date  of  the  original
          offer,  she  had  no  right  to  expect,  and
          Progressive had no duty to offer,  a  payment
          of  Rule  82 fees in addition to the  nominal
          policy limit.[19]
          
Maloneys  damages  easily exceeded the limits of  the  policy  in
question.20   Thus, if coverage for court-awarded attorneys  fees
were  fungible with coverage for bodily injury, the fees coverage
could   have   been   applied   to   Maloneys   damages   without
overcompensating  Maloney.  But this  was  not  permitted.   Thus
coverage for court-awarded attorneys fees may only be applied  to
liability,  or  potential liability, for court-awarded  attorneys
fees.
          Similarly,  in  the present case, based on  the  agreed
hypothetical  verdict,  there  is  no  uncompensated  prospective
liability  for  Rule 82 attorneys fees.  When  they  settled  the
case,  the  parties  agreed  to  a  projected  jury  verdict   of
$1,000,000.  Thus, in analyzing the question before us, we assume
that the case was tried, and
          (1)  the  jury returned a verdict of $1,000,000 against
Odden;
          (2)   the  court  awarded  $131,068.49  in  prejudgment
interest to Lestenkof.  The $131,068.49 figure assumes, as  State
Farm  did  when  proposing  a settlement  amount  for  Lestenkofs
liability  claim, that the relevant interest rate for calculating
prejudgment interest is eight percent a year and that the  number
of  days  from  the  trigger  date for  prejudgment  interest  to
judgment is 598;21 and
          (3)  the court, applying Rule 82(b)(1)s contested  with
trial attorneys fees schedule to the total award of $1,131,068.49
(the   verdict  plus  prejudgment  interest),  awarded  Rule   82
attorneys fees in the amount of $115,606.85 to Lestenkof.
          State   Farm,  in  its  capacity  as  Oddens  liability
insurer,  would  have been responsible for paying  Lestenkof  the
following portions of the total owed by Odden:
          (1)   $50,000,  the  facial limit of  Oddens  liability
policy;
          (2)   $6,553.42, the amount of the prejudgment interest
calculated using the $50,000 facial policy limit amount.22  Alaska
Statute  28.22.101(d)  requires that when an  automobile  insurer
offers  coverage  for prejudgment interest as part  of  a  policy
providing  the  minimum statutory amount of  liability  coverage,
here  $50,000,  the  prejudgment interest  coverage  must  be  in
addition to the $50,000 facial policy limit.23
          (3)  $115,606.85 in Rule 82 attorneys fees.  State Farm
          must calculate attorneys fees from the total award rather than
from  the  facial policy limit plus covered prejudgment  interest
since Oddens policy does not contain a valid endorsement limiting
the amount of fees State Farm must pay.
          State   Farm  paid  these  three  amounts   to   settle
Lestenkofs liability claim.
          Lestenkof would be entitled to additional amounts  from
State  Farm  in  its  capacity  as Oddens  underinsured  motorist
insurer if Odden was underinsured with respect to any element  of
the  total  award.  Lestenkof should receive, pursuant to  Oddens
UIM  policy  and  its attendant prejudgment interest  and  court-
awarded attorneys fees coverages:
          (1)  The  $50,000  facial policy limit  of  Oddens  UIM
coverage.   Odden is underinsured with respect to  the  principal
amount of the damages awarded, since his liability policy covered
only $50,000 of the posited $1,000,000 verdict.
          (2)   $6,553.42 in prejudgment interest calculated from
the face amount of the UIM coverage.24  Odden is underinsured with
respect  to the prejudgment interest awarded to Lestenkof,  since
his  liability  policy  covered only  $6,553.42  of  the  posited
$131,068.49 interest award.
          (3) No amount for Rule 82 attorneys fees.  Odden is not
underinsured with respect to court-awarded attorneys fees,  since
his  liability policy covered the entire posited $115,606.85 fees
award.
          We conclude therefore that although Oddens UIM coverage
included   mirror-image  coverage  for  unlimited   court-awarded
attorneys fees, that coverage may not be invoked under the  facts
of this case.  Odden was fully insured, rather than underinsured,
with   respect  to  his  potential  liability  for  court-awarded
attorneys  fees.   As a result, Lestenkof may not  recover  Civil
Rule 82 attorneys fees as part of her UIM claim.
V.   CONCLUSION
          For  the  above reasons we REVERSE the superior  courts
ruling  that  State  Farm  remains obligated  to  pay  additional
attorneys fees pursuant to Oddens UIM coverage.
          In the Supreme Court of the State of Alaska



State Farm Mutual Automobile    )
Insurance Co.,                  )  Supreme Court No. S-11754
                                   Appellant,  )
                   v.           )            Order
                                )   Petition for Rehearing
Donna Lestenkof,                )
                                )
                                    Appellee.   )        Date  of
Order:  3/9/2007
                                )
Trial Court Case # 3AN-03-05197CI

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

     On  consideration  of the Petition for  Rehearing  filed  on
12/20/2006,

     It is Ordered:

     1.   The  Petition  for Rehearing is Denied.   However,  the
          text of the courts opinion on page 9, lines 10-13,  has
          been modified.

     2.   Opinion No. 6049, issued on 9/29/2006, is Withdrawn.

     3.   Opinion  No. 6111 is issued on this date in its  place,
          reflecting the changes.

     Entered by the direction of the court.

     
                                   Clerk of the Appellate Courts


                                   
                                   Marilyn May

cc:  Supreme Court Judges
     Judge Christen
     Trial Court Appeals Clerk
     Central Staff
     West Publishing for Opinions

Distribution:

     A Cristina Weidner-Tafs
     Phillip Weidner & Associates, APC
     330 L Street  Suite 200
     Anchorage AK 99501

     Phillip P Weidner
     Weidner & Associates  Inc
     330  L  Street   Suite 200
     Anchorage AK 99501

     Kimberlee Colbo
     Hughes Bauman
     3900 C Street Suite 1001
     Anchorage AK 99503
_______________________________
     1    Endorsements limiting or attempting to limit the amount
of  Rule  82  fees  payable as costs under a liability  insurance
policy  are discussed in Russell v. Criterion Ins. Co., 917  P.2d
664  (Alaska 1996), and Therchik v. Grant Aviation, Inc., 74 P.3d
191 (Alaska 2003).

     2     3  Alaska  Administrative Code (AAC)  26.550(a)(1)(A).
Attorney  Fees  Coverage  Notice A is the  notice  that  must  be
conformed to for the liability policy at issue here.  Alaska Dept
of  Commerce  & Econ. Dev., Div. of Ins., Attorney Fees  Coverage
Notice               A,               available                at
http://www.dced.state.ak.us/insurance/bulletins/96-04.htm.     In
Therchik, 74 P.3d at 195-98, we held that an endorsement that did
not conform with Notice A was invalid.  The insurer was therefore
liable for full Rule 82 fees.

     3     Alaska  Dept of Commerce & Econ. Dev., Div.  of  Ins.,
Attorney     Fees    Coverage    Notice    A,    available     at
http://www.dced.state.ak.us/insurance/bulletins/96-04.htm.

     4     Therchik,  74 P.3d at 195-98; 3 AAC 26.510  (requiring
insurers  who  have a right or duty to provide a defense  for  an
insured  to  provide coverage for the payment  of  attorney  fees
taxable  as costs against the insured under Alaska Rule of  Civil
Procedure  82); 3 AAC 26.550 (permitting insurers to limit  their
attorneys  fees  exposure only if they include a  valid  limiting
endorsement in the insureds policy).

     5     All  references to Lestenkof in this  opinion  are  to
Donna Lestenkof in her capacity as the personal representative of
her husbands estate.

     6    918 P.2d 1022 (Alaska 1996).

     7     In  re  Estate of Maldonado, 117 P.3d 720, 722 (Alaska
2005) (internal quotation marks omitted).

     8    918 P.2d 1022.

     9    Id. at 1023-25.

     10    Id. at 1025.

     11    AS 21.89.020(c)(1).

     12    Harrington, 918 P.2d at 1025-26.

     13    Id. at 1024, 1027.

     14    17 P.3d 783, 787 (Alaska 2001).

     15    918 P.2d at 1026 (emphasis added).

     16     See  Hughes v. Harrelson, 844 P.2d 1106, 1107 (Alaska
1993)  (requiring  insurers to provide coverage  for  prejudgment
interest in addition to the statutory minimum amount of liability
coverage).

     17     See  3 AAC 26.510 (requiring insurers with a duty  to
defend  the  insured  to  provide, as  an  additional  amount  of
coverage,  payment  for  at least some Civil  Rule  82  attorneys
fees).

     18    99 P.3d 565 (Alaska 2004).

     19     Id.  at  568-69  (footnote  omitted)  (alteration  in
original).

     20    Id. at 567.

     21     598 divided by 365, multiplied by 0.08, multiplied by
$1,000,000, equals $131,068.49.

     22     598 divided by 365, multiplied by 0.08, multiplied by
$50,000, equals $6,553.42.

     23    Hughes v. Harrelson, 844 P.2d 1106, 1107 (Alaska 1993).

     24     The  $6,553.42 amount assumes that  State  Farm  paid
prejudgment  interest as of the date of judgment.  Because  State
Farm  paid  Lestenkof  prejudgment  interest  under  Oddens   UIM
coverage as part of the advance payment it made in November 1999,
it paid Lestenkof less than $6,553.42 (since only a little over a
year  had elapsed between the time of the accident and the making
of  the  advance payment).  State Farm need not now pay Lestenkof
an additional amount of prejudgment interest, however, given that
the UIM payment was made before the date of the assumed award.

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