Alaska Supreme Court Opinions made Available byTouch N' Go Systems and Bright Solutions


Touch N' Go
, the DeskTop In-and-Out Board makes your office run smoother.

  This site is possible because of the following site sponsors. Please support them with your business.
www.gottsteinLaw.com

You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Nelson v. Progressive Casualty Insurance Co. (06/29/2007) sp-6136

Nelson v. Progressive Casualty Insurance Co. (06/29/2007) sp-6136, 162 P3d 1228

     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

KATHERINE NELSON as assignee )
of SIULEO MILO ULISESE, an ) Supreme Court No. S- 11793
individual, LILII ULISESE, an )
individual, ANITA ULISESE, an ) Superior Court No.
individual, ) 3AN-04-05601 CI
)
Appellants, ) O P I N I O N
)
v. ) No. 6136 - June 29, 2007
)
PROGRESSIVE CASUALTY )
INSURANCE COMPANY, a foreign )
corporation, DANNY WITHERS, an )
individual, MATT DUFOUR, an )
individual, )
)
Appellees. )
)
          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Peter A. Michalski, Judge.

          Appearances:   Jason  Skala,  Law  Office  of
          Jason  Skala,  Eagle  River,  for  Appellant.
          Gary A. Zipkin, Guess & Rudd P.C., Anchorage,
          for Appellees.

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

          CARPENETI, Justice.

I.   INTRODUCTION
          This case concerns the validity and applicability of  a
named  driver exclusion in an automobile insurance  policy.   The
pedestrian   victim  of  a  hit-and-run  accident  involving   an
unlicensed  and  uninsured driver sued the  drivers  parents  for
negligently  entrusting their vehicle to their son.  The  parents
auto  insurance  carrier refused to cover  the  victims  personal
injury  claim  because the parents had previously excluded  their
son  from coverage under the policy.  The victim argues that  the
exclusion of the son under the policy should not bar coverage for
the  victims  claim  against  the  parents  for  their  negligent
entrustment  of the vehicle to their son.  Because  the  tort  of
negligent  entrustment  rests upon  the  sons  operation  of  the
vehicle,  which  the  parents  elected   to  exclude  from  their
insurance  coverage,  and because Alaskas insurance  laws  permit
such  exclusions, we affirm the superior courts grant of  summary
judgment to the insurance carrier.
II.  FACTS AND PROCEEDINGS
          The facts of this case are not in dispute.  On June 14,
2001,  Siuleo  Milo Ulisese, a twenty-one-year old uninsured  and
unlicensed  driver, drove his parents minivan along Fifth  Avenue
in  downtown  Anchorage.  The traffic signals at the intersection
of  Fifth  Avenue and C Street were not working.   While  driving
down Fifth Avenue, Siuleo turned left onto C Street, striking and
injuring  Katherine Nelson as she was crossing in the crosswalk.
          Siuleos  parents,  Anita and Lilii Ulisese,  owned  the
vehicle  Siuleo  was  operating at  the  time  of  the  accident.
Following the accident, Nelson filed an insurance claim with  the
Uliseses   automobile  insurance  carrier,  Progressive  Casualty
Insurance    Company.    After   conducting   an   investigation,
Progressive informed Nelson and the Uliseses that it was  denying
coverage  because Lilii had excluded Siuleo from  coverage  under
the  policy.1   Progressive based its denial on the Named  Driver
Exclusion  language in the Uliseses auto insurance policy,  which
states:
          If  you  have asked us to exclude any  person
          from coverage under this Policy, then we will
          not  provide  coverage for any claim  arising
          from  an accident or loss involving a vehicle
          or  rental  vehicle  being  operated  by  the
          excluded person.  THIS INCLUDES ANY CLAIM FOR
          DAMAGES MADE AGAINST YOU, A RELATIVE, OR  ANY
          OTHER   PERSON   OR  ORGANIZATION   THAT   IS
          VICARIOUSLY  LIABLE FOR AN  ACCIDENT  ARISING
          OUT  OF  THE OPERATION OF A  VEHICLE  BY  THE
          EXCLUDED DRIVER.
          
Progressive   further  denied  coverage  on  the  basis   of   AS
28.20.440(l), which provides:
          Notwithstanding any other provisions of  law,
          a person who resides in the same household as
          the  person named as insured or a person  who
          is  a relative of the person named as insured
          shall be excluded from coverage under a motor
          vehicle liability policy if the person  named
          as   insured  requests  that  the  person  be
          excluded from coverage.
          
          Nelson  filed a claim against Siuleo for negligence and
against  the  Uliseses for negligently entrusting  their  car  to
Siuleo.    The   claim  was  forwarded  to  Progressive.    After
investigating Nelsons claim, Progressive  refused  to  cover  the
Uliseses  for  liability to Nelson or for the cost  of  defending
against  Nelsons  complaint.   The  Uliseses  agreed  to  confess
judgment  to Nelsons claims subject to arbitration on the  amount
of  damages and an agreement by Nelson not to enforce the  damage
award  against the Uliseses.  The arbitration award  amounted  to
$177,253 plus costs and fees.  Anchorage Superior Court Judge Sen
K. Tan confirmed the award.  The arbitration  award was forwarded
to  Progressive,  which again denied coverage  for  the  Uliseses
claims   because Siuleo Milo[] was an excluded driver; therefore,
coverage does not apply for him, or any claims made against Lilii
and  Anita  Ulisese arising out of the operation of a vehicle  by
the excluded driver.
          On  March 25, 2004, Nelson, as assignee of the Uliseses
claim,  filed a complaint against Progressive.  The claim alleged
that  Progressive  and  its employees were negligent,  that  they
breached  their duty to defend the Uliseses, and that Progressive
wrongfully  breached  its  contract with  the  Uliseses  when  it
refused  to  cover  the negligent entrustment  claim.2   Superior
Court  Judge Peter A. Michalski granted partial summary  judgment
to  Progressive  on  the issue of coverage and dismissed  Nelsons
claims with prejudice.  Nelson appeals.
III.      STANDARD OF REVIEW
          We  will affirm summary judgment if there are no issues
of  material fact and the moving party is entitled to judgment as
a matter of law.3  Contract interpretation presents a question of
law,  which  we  review  de novo.4  When  interpreting  insurance
contracts  we  look  to  the  language  of  the  disputed  policy
provisions,  the language of other provisions of the policy,  and
to relevant extrinsic evidence.5



IV.  DISCUSSION
     A.   The   Excluded  Driver  Exception  to  Mandatory   Auto
          Insurance Coverage
          
          Alaska  law generally requires Alaska drivers to  carry
automobile insurance.6  Alaska Statute 28.22.101, a provision  of
the  Alaska Mandatory Automobile Insurance Act (AMAIA), lays  out
general  coverage  requirements for motor  vehicle  insurance  in
Alaska.   It  provides  that an owners  motor  vehicle  liability
policy  must  insure  the  person named  against  loss  from  the
liability  imposed  by  law  for  damages  that  arise  from  the
ownership,  maintenance,  or use of a designated  motor  vehicle.
Insurers  are  generally  not permitted to  issue  auto  policies
containing  provisions which reduce the scope of  coverage  below
the statutory minimum.7
          The   AMAIA   supplements  the  Motor  Vehicle   Safety
          Responsibility Act (MVSRA).8  The MVSRA requires an uninsured
driver  who  has been involved in an accident to prove  financial
responsibility for the future by posting a bond or  submitting  a
certificate  of  insurance.9  The MVSRA also requires  automobile
insurance  policies  to  provide minimum coverages  for  a  named
insured and other persons using a vehicle with the named insureds
permission.10   All policies issued in the state  must  meet  the
content  requirements imposed by the MVSRA, regardless of whether
the policies were required as proof under the act.
          The  AMAIA  and  the MVSRA coexist as part  of  Alaskas
Uniform Vehicle Code.11  They are not, however, coextensive.12  As
noted, the AMAIA supplements, but does not supplant the MVSRA.13
          In  1997 the legislature enacted an exception to  these
general  coverage  requirements.14  Alaska  Statute  28.20.440(l)
provides:
          Notwithstanding any other provisions of  law,
          a person who resides in the same household as
          the  person named as insured or a person  who
          is  a relative of the person named as insured
          shall be excluded from coverage under a motor
          vehicle liability policy if the person  named
          as   insured  requests  that  the  person  be
          excluded from coverage.
          
Subsection  .440(l) thus permits named insured  policyholders  to
exclude  select  individuals from coverage.  In  this  case,  the
Uliseses  endorsed an exclusion that exempted  their  son  Siuleo
from  coverage  under  their  auto policy.   Because  Siuleo  was
excluded  under  the  policy, Progressive  refused  coverage  for
Nelsons claim.
          Nelson raises two arguments in support of her assertion
that  Progressive  should cover her negligent entrustment  claim:
(1)  because  negligent entrustment is an independent  tort,  the
claim  does not arise from Siuleos operation of the car; and  (2)
the  named  insured  exclusion  is unenforceable  because  it  is
ambiguous and contrary to Alaska law.  We consider each in turn.

     B.   Nelsons  Claim  of  Negligent Entrustment  Arises  From
          Siuleos Negligent Act.
          
          Alaska  recognizes  the common law  tort  of  negligent
entrustment   and  follows  the  definition  in  the  Restatement
(Second) of Torts  390 (1965), which states:
          One  who supplies directly or through a third
          person a chattel for the use of another  whom
          the  supplier knows or has reason to know  to
          be likely because of his youth, inexperience,
          or otherwise, to use it in a manner involving
          unreasonable risk of physical harm to himself
          and others whom the supplier should expect to
          share  in  or  be endangered by its  use,  is
          subject   to  liability  for  physical   harm
          resulting to them.[15]
          
          Nelson   relies   on   our  discussion   of   negligent
          entrustment in Ardinger v. Hummell16 to support her claim that
because negligent entrustment is considered an independent  cause
of  action,  it  arises from the independent  negligence  of  the
entrusting  defendant and is therefore complete upon the  act  of
entrustment.  In Ardinger, we noted that negligent entrustment is
an independent cause of action against the [vehicle] owner and is
not  dependent  on  theories of agency, joint venture,  or  other
forms of vicarious liability.17  Nelson asserts that Form 9330 of
the  Progressive policy, which exempts from coverage claims  that
aris[e]  from  an  accident or loss involving a  vehicle  .  .  .
operated by the excluded person does not bar coverage because her
claim arose at the moment the Uliseses entrusted their vehicle to
Siuleo.   In  other words,  Nelson contends that her claim  arose
before Siuleo began driving the vehicle.
          Ardinger  does  not go as far as Nelson would  propose.
Ardinger   indicates  that  an  entrustor   need   not   actively
participate  in or direct the entrustees actions in order  to  be
held  liable for foreseeable harm done by the entrustee.18   This
does  not, however,  mean that the entrustors liability  did  not
arise  from the entrustees negligence.   The entrustees act,  and
the resulting injury, are still required.19
          Nelson  relies  on  the Kansas Supreme  Court  case  of
McCart  v.  Muir20  to support her argument  that  liability  for
negligent entrustment arises from the act of entrustment, not the
relationship  of the parties.21  Nelsons reliance  is  misplaced.
In  McCart, a jury found the father of a negligent driver  liable
for  negligently  entrusting a car to his son.22   The  issue  in
McCart  was  whether  an  entrustor must pay  for  an  entrustees
portion of the total negligence in apportioning fault.  Answering
in  the  negative,  McCart held that the jury  should  have  been
instructed  on  comparative negligence because [t]he  nature  and
extent  of negligence of the entrustor and entrustee are separate
and  distinct.   The  percentages of fault may  be  different  in
amount  and  should  be  determined  separately.23   McCart   was
concerned  with  comparative  liability.   Nowhere  does   McCart
suggest that an entrustees negligence in producing the injury  is
not  a required element of the claim.  On the contrary, the court
noted  all elements of negligent entrustment were shown: (1)  the
father . . . was instrumental in furnishing the motor vehicle  to
his  son,  Stephen;  (2) the father knew  or  should  have  known
Stephen  was  an  incompetent driver; and (3) the  negligence  of
Stephen in operating the vehicle was a cause of the damages.24
          Several courts have concluded that where the entrustees
excluded act is a but for cause of the injury, the injury is  not
covered under any theory of liability.25  The Ninth Circuit  drew
this  same  conclusion when interpreting Alaska law  in  Allstate
Insurance  Co.  v.  Ellison.26  In upholding an  exclusion  in  a
homeowners  policy for injuries arising out  of  the  use  of  an
airplane,  the court stated: Negligent entrustment requires  both
negligent  use by the entrustee and negligence by the  entrustor.
Recovery  must depend on the ownership or the use of the excluded
vehicle.27  The Wisconsin Supreme Court echoed this reasoning  in
Bankert v. Threshermens Mutual Insurance Co.,28 noting that [the]
negligent entrustment [of an automobile] is irrelevant unless the
          person to whom [the vehicle] is entrusted acts in a negligent
manner (creates an unreasonable risk) and in fact inflicts injury
as the result of such conduct.29
          We  cited Ellison with approval in Jones v. Horace Mann
Insurance Co.,30 a case in which a plaintiff unsuccessfully sought
to  recover  damages for negligent entrustment under a homeowners
policy that contained an exclusion covering motorized vehicles.31
The  victim  in  Jones  was injured in an  accident  involving  a
snowmachine being operated by a ten-year old friend.  The  victim
sued  the  drivers  parents for negligent  entrustment,  and  the
homeowners insurer denied coverage.  The exclusion at issue read:
This  policy  does not apply to bodily injury or property  damage
which  results  directly or indirectly from . . . the  ownership,
operation,   maintenance,  use,  occupancy,   renting,   loaning,
entrusting,  supervision,  loading  or  unloading  of   motorized
vehicles  .  . . owned or operated by or rented or loaned  to  an
insured.  32  We held that  the policy did not cover the accident
itself, and for that reason concluded that a change in the  legal
theory  of  liability  did not give rise to  coverage.33   Nelson
attempts  to distinguish Jones from the present case  by  arguing
that  Jones  involved an exclusion for a specific instrumentality
(a snowmachine), whereas the case before us involves an exclusion
for a specific driver (Siuleo Ulisese).  This difference does not
distinguish the case.  Other jurisdictions considering  negligent
entrustment  cases have consistently held that  the  analysis  of
exclusionary  language is not limited to the type  of  policy  at
issue.34
          We therefore hold that any liability on the part of the
Uliseses  for  their  alleged negligent  entrustment  necessarily
required  the  underlying negligence of Siuleo in  operating  the
vehicle.
     C.   Nelsons Interpretation of the Policy Is Unreasonable.
          Nelson  argues  that   the named  driver  exclusion  is
ambiguous  and that the Uliseses did not understand  it.   Nelson
further  asserts  that  the last clause  of  the  final  sentence
excludes  only  vicarious  liability, not  negligent  entrustment
claims, and limits the scope of the exclusion.  We consider these
arguments in turn.
          1.   The policy is not ambiguous.
          Nelsons first argument is that the term arising from in
the policy is ambiguous.  Progressive Form 9330, the named driver
exclusion election, states:
          No coverage is provided for any claim arising
          from an accident or loss that occurs while  a
          covered  vehicle  . . . is  operated  by  the
          excluded driver(s).  THIS INCLUDES ANY  CLAIM
          FOR DAMAGES MADE AGAINST YOU, A RELATIVE,  OR
          ANY  OTHER  PERSON  OR ORGANIZATION  THAT  IS
          VICARIOUSLY  LIABLE FOR AN  ACCIDENT  ARISING
          OUT  OF  THE OPERATION OF A . . . VEHICLE  BY
          THE EXCLUDED DRIVER.

(Emphasis added, capitalization in the original.)
          Ambiguity will be found where the contract as  a  whole
          and all extrinsic evidence support two different interpretations,
both  of  which  are  reasonable.35   A  contract  provision   is
considered ambiguous if it is reasonably susceptible to more than
one interpretation.36  We emphasize that only where inconsistent,
but  reasonable,  interpretations of the contract   are  possible
will ambiguity be found:  The mere fact that the parties disagree
about  the  proper interpretation of the contract does  not  mean
that the contract is ambiguous.37
          We have already determined that an entrustees negligent
act  is  a  necessary element of any negligent entrustment  claim
against  the  entrustor.    Nelsons claim  for  recovery  against
Progressive  therefore necessarily arises  from  Siuleos  act  of
driving the automobile.38  Moreover, the policys exclusion plainly
indicates  that any claim arising from Siuleos operation  of  the
automobile  is not covered.  Applying a reasonable interpretation
of  the phrase to the facts presented here, we are unable to find
any ambiguity.39
          2.   Nelsons interpretation is unreasonable.
          Nelson might still prevail despite our conclusion  that
this  policy  is  not ambiguous, for we need  not  find  that  an
ambiguity  exists  to  construe the policy under  the  reasonable
expectations  doctrine.40   This implicates her second  argument:
that  the  last  clause of the final sentence  of  the  exclusion
excludes  only  vicarious  liability, not  negligent  entrustment
claims,  and limits the scope of the exclusion.  And  because  an
insurance  policy is a contract of adhesion, we  construe  it  to
give effect to the insureds reasonable expectations.41  Thus  the
objectively  reasonable expectations of applicants  and  intended
beneficiaries regarding the terms of insurance contracts will  be
honored  even  though painstaking study of the policy  provisions
would  have negated those expectations.42   We discern reasonable
expectations from the language of the disputed provisions,  other
provisions,  and  relevant  extrinsic  evidence   .   .   .   .43
But  Nelsons claim is supported by none of these sources.  As  to
the  language  of  the  disputed provision,  Nelson  argues  that
vicariously liable modifies you  and thus that an insured is able
to  take  advantage of the exclusion only if his or her liability
is  vicarious, a grammatically tortured reading of the provision.
Both  the  placement  and  language  choice  indicate  that   the
provision  is  broad in excluding coverage: excluded  under  this
provision are the insured, relatives of the insured, and  persons
or  organizations vicariously liable for the accident.  Any other
interpretation of the exclusion would strain credulity  and  defy
reasonable expectations.44  As to other provisions, there are  no
other   provisions   in   the   contract   that   support    this
interpretation.   Finally,  as  to  extrinsic  evidence,   Nelson
provides  no  evidence supporting the Uliseses belief  that  they
would be covered, other than her own assertion.  On the contrary,
the  record  reflects that the Uliseses elected to remove  Siuleo
from  the  policy at two different times.  In 2000  the  Uliseses
listed three members of their household as excluded drivers.  The
auto  policy  premium was $1,427.  In February 2001  Lilii  added
Siuleo  to  the policy, and the premium increased to $3,859.   In
March  2001  Siuleo was again removed from the  policy,  and  the
          policy premiums returned to $1,427.  Given the repeated
fluctuations  in  policy  premiums  and  corresponding  financial
savings  in exchange for the exclusions,45  Nelson has failed  to
show  that  the  Uliseses maintained a reasonable expectation  of
coverage  for  injuries resulting from Siuleos operation  of  the
vehicle.
     D.   Progressives  Refusal  To Cover  Negligent  Entrustment
          Claims  Against the Named Insured Does Not  Violate  AS
          28.20.440(1).
          
          Nelson  next  argues  that  Progressives  named  driver
exclusion  is  impermissible under Alaskas  automobile  insurance
statutes.   She contends that while AS 28.20.440(l)  contemplates
exclusion  of  a named driver, the exclusion cannot  be  read  to
preclude  liability  coverage for the named policyholders  (Lilii
and  Anita  Ulisese).   Nelson  argues  subsection  .440(l)  thus
conflicts   with  the  statutorily  mandated  minimum   liability
protection  required by AS 28.22.101.  She further  asserts  that
Progressive Form 9330 exceeds the permissible scope of subsection
.440(l).
          In  response,  Progressive counters  that  in  enacting
subsection  .440(l),  the  legislature  carved  out   a   limited
exception  to  Alaskas  statutorily  mandated  minimum  liability
coverage  requirements.   For the reasons  set  forth  below,  we
agree.
          1.   The named driver exclusion is a valid exception to
               statutorily mandated liability coverage.
               
          Nelsons first argument is that application of the named
driver  exclusion  to her claims against the Uliseses  improperly
negates  the  Uliseses  statutorily  mandated  minimum  liability
coverage.46    Alaska  Statute  28.22.101  requires   an   owners
automobile  policy to insure the person named against  loss  from
the  liability  imposed by law for damages that  arise  from  the
ownership, maintenance, or use of a designated motor vehicle.  It
provides   for  a  named  insureds  liability  coverage   up   to
statutorily mandated limits.47  Lilii and Anita Ulisese,  as  the
named   insureds,   maintained  liability  coverage   under   the
Progressive policy.
          Alaska Statute 28.20.440(b)(2), part of the MVSRA, also
requires  that an owners automobile insurance policy  insure  the
named insured and every other person using the vehicle with their
permission against loss for damages arising out of the ownership,
maintenance, or use of the vehicle.  The stated policy behind the
MVSRA is to ensure that motorists be financially responsible  for
their  negligent acts so that innocent victims of  motor  vehicle
accidents  may  be recompensed for the injury and financial  loss
inflicted upon them.48
          However,  subsection  .440(l),  which  provides  for  a
specific  exception from policy coverage for a named driver,  can
be  read  in  harmony  with  the more general  provisions  of  AS
28.20.440  and  AS  28.22.101.49  The  inclusion  of  the  phrase
[n]otwithstanding  any other provisions of law plainly  indicates
that  subsection .440(1) was intended to be an exception to other
          potentially conflicting laws.  Insurers commonly allow their
insureds to use named  driver exclusions to avoid covering  high-
risk  drivers where the premium for such coverage would  be  cost
prohibitive to the named insured.50  Where the loss giving rise to
damages arises from Siuleos driving, subsection .440(l) precludes
coverage  under  the  Uliseses own  liability  policy  for  their
negligent  entrustment.  The minimum liability coverage otherwise
required of the Uliseses is thus circumscribed, but only  to  the
extent  that  the  claim  arose out of  Siuleos  operation  of  a
vehicle.
          Other jurisdictions have upheld named driver exclusions
as   permissible  exemptions  to  statutorily  mandated   minimum
liability coverage.51  In upholding the validity of named  driver
exclusions,  courts have relied on public policy rationales  that
balance   cost  reduction  with  the  desire  to  encourage   the
procurement of insurance coverage.52

          The legislative history of House Bill 218, which became
subsection .440(l), indicates that the legislature was  aware  of
the potential dangers of the named driver exclusion.  Minutes  of
a  House Labor and Commerce Committee meeting considering HB  218
reveal the committees concern that parents who elected to exclude
a  child  from coverage might be held personally liable  with  no
insurance  protection for the childs auto accident.53   Committee
testimony  in  favor of the exclusion noted,  however,  that  the
exclusion  would  enable a household with a high-risk  driver  to
maintain  auto coverage by excluding the high-risk driver,  while
encouraging the excluded driver to obtain his or her own policy.54
            In  providing  for  the  exclusion,  the  legislature
offered insureds a chance to avoid excessive premiums they  would
otherwise  be required to pay if they could not exclude  a  high-
risk driver.  Ultimately, this helps to minimize the risk that  a
policyholder may elect to forgo coverage altogether.55   It  also
encourages  responsibility  on  the  part  of  policyholders  and
excluded  drivers:   Policyholders are given a powerful  economic
incentive  to ensure that an excluded driver does not  operate  a
policyholders vehicle, while the excluded driver is encouraged to
obtain his own insurance.56
          Forcing  an  insurer to provide liability coverage  for
claims  arising  out of the excluded drivers use of  the  vehicle
also obviates the practical effect of the exclusion.  It skirts a
reasonable  reading  of the exclusions plain  language  and  give
insureds  the  benefit of a bargain for which they did  not  pay.
As the Arizona Court of Appeals noted in an analogous case:
          [I]t  is  inconceivable that the  legislature
          would purposely enact statutory language that
          authorized  the  insurer to exclude  coverage
          for   personal  liability  incurred  by   the
          unacceptable driver and to exclude  vicarious
          liability  incurred due to  the  unacceptable
          drivers  conduct, but not to exclude coverage
          for the named insureds personal liability for
          negligently entrusting a vehicle to the  same
          unacceptable driver.[57]
          
          In  light of the countervailing legislative policies at
issue,   the  legislatures concern with  enabling  households  to
secure affordable insurance, and the plain language of subsection
.440(l), we hold that the named driver exclusion is a permissible
exception to Alaskas minimum liability coverage provisions.58
          2.   The Division of Insurance approved Form 9330.
          Nelson  also argues that the named driver exclusion  in
Progressives  Form  9330 exceeds the scope  of  AS  28.20.440(l),
citing the following language on Form 9330: WARNING: If you  have
asked  us  to exclude coverage under this policy for any  person,
this  policy  will not meet the minimum coverage requirements  of
either   Alaskas  mandatory  automobile  insurance  or  financial
responsibility  laws.   Nelson contends that  subsection  .440(l)
does  not  contemplate  that insurers  could  exclude  the  named
policyholder from coverage, and asserts that Progressives warning
on  Form 9330 indicated it knew its attempt to limit coverage  is
prohibited by law.
          On  the contrary, however, Progressives warning was  in
compliance  with  Division of Insurance regulations  intended  to
make  policyholders aware of the law.  The Division of  Insurance
recognized  that  subsection  .440(l)  allowed  policyholders  to
exclude  members of their household from their policy in exchange
for  a  reduction in premium payments.  The Division of Insurance
bulletin 97-07 states:
          A  named driver exclusion should be signed by
          the  named insured each policy period, and  a
          policy  with a named driver exclusion  should
          carry  a  warning  that  the  policy  may  be
          inadequate  to satisfy the obligations  of  a
          motor  vehicle  owner or operator  under  the
          Alaska  Motor Vehicle Responsibility  Act  or
          the Alaska Mandatory Insurance Law.
          
          Bulletin  98-10 superseded bulletin 97-07.  It required
insurers  to file and receive approval from the director  of  the
division  for policy forms that comply with subsection .440(l).59
Bulletin 98-10 states: [a]n automobile liability insurance policy
that limits coverage for named persons other than as specified in
AS  28.20.440(l) must clearly indicate that the policy  does  not
meet  the  minimum coverage standards of either Alaskas mandatory
automobile insurance or financial responsibility laws.   Bulletin
98-10  requires  that exclusions that go beyond  AS  28.20.440(l)
must  be  reviewed  by  the Division of  Insurance.   Progressive
submitted, and the division approved, Progressives Form 9330.
          We  have not directly addressed what weight we give  to
Division  of Insurance approvals of insurance forms.60   We  have
previously  recognized  that other jurisdictions  have  suggested
that courts could give substantial deference to such approvals.61
In  Government  Employees Insurance Co. v. Graham-Gonzalez,62  we
looked  to  the divisions exercise of its delegated authority  to
regulate forms under Title 21, and its subsequent approval of the
application form in question, in finding that a statute requiring
insurers to offer under insured motorist coverage did not require
application forms to state the amount of the policy premium.   We
          noted that even if we applied our independent judgment, the
divisions  approval  of forms . . . would  be  entitled  to  some
deference. In such cases this court gives some weight to what the
agency  has  done, especially where the agency interpretation  is
longstanding. 63
          The   Division   of   Insurance  was  concerned   about
policyholders  unwittingly  executing  named  driver   exclusions
without understanding the scope of potential risks involved.  The
division  encouraged insurance companies to develop a  disclosure
form.   Progressive  included  a  plain  warning  on  Form   9330
notifying  insureds of the risks of the exclusion.64  It  appears
the  warning  language  on  Form 9330  was  in  response  to  the
divisions requirements.  The division required insurers to obtain
approval  from  the director of the division for this  exclusion,
and  Progressive did so.  The division approved Form 9330.  Lilii
Ulisese   signed   it.   The  division  clearly   intended   that
Progressives  exclusion  would eliminate  a  named  policyholders
coverage for claims arising out of the excluded drivers operation
of the vehicle.
          As  in  Graham-Gonzalez, it is unnecessary  for  us  to
determine the precise standard of review we should apply  to  the
divisions  approval of Form 9330.65  Even if we  give  only  some
weight  to  the divisions approval of Form 9330, it is consistent
with  our view of subsection .440(l). We have already noted  that
the  purpose  of subsection .440(l) is to allow policyholders  to
obtain  affordable auto insurance by giving them  the  option  to
exclude  a high-risk member of their household from their policy.
The  division  approved  the form, and  in  doing  so  must  have
contemplated  the  potential risks that could arise.   For  these
reasons  we find that subsection .440(l) and Form 9330 provide  a
narrow  exception  to  the minimum liability  coverage  otherwise
required by AS 28.20 and AS 28.22.66
V.   CONCLUSION
          The superior court correctly determined as a matter  of
law  that  the  named driver exclusion in the Uliseses  insurance
policy   operated   to  exclude  Nelsons  claim   for   negligent
entrustment.  The  excluded activity, Siuleos  operation  of  the
vehicle,  is  an  indispensable element of a claim  of  negligent
entrustment.  The Progressive exclusion is neither ambiguous  nor
illegal.  Finally, AS 28.22.440(l) sets forth a limited exception
to   the   statutorily  mandated  liability  coverage  provisions
otherwise required in AS 28.20 and AS 28.22.  We therefore AFFIRM
the decision of the superior court.

_______________________________
     1     It  is  undisputed that on March 5, 2001 Lilii Ulisese
endorsed  Progressive Form 9330, entitled NAMED DRIVER  EXCLUSION
ELECTION,  a provision of the Uliseses auto policy that  excluded
Siuleo from coverage.

     2     Nelsons  claims  against Progressive claims  adjusters
Danny Withers and Matt Dufour are not at issue in this appeal.

     3     Jones  v.  Horace Mann Ins. Co., 937 P.2d  1360,  1361
(Alaska 1997).

     4    Id.

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

     6    Progressive Ins. Co. v. Simmons, 953 P.2d 510, 521 n.13
(Alaska 1998).

     7     Burton  v. State Farm Fire & Cas. Co., 796 P.2d  1361,
1363 (Alaska 1990).

     8    AS 28.20.010.640.   [A]lthough the MVSRA has never been
a  mandatory  insurance law, as of 1968 the acts  policy  content
requirements  became mandatory for all policies  written  in  the
state.  Simmons, 953 P.2d at 520.

     9    See AS 28.20.010.

     10    AS 28.20.440(b)(2).

     11    Simmons, 953 P.2d at 21.

     12    Id. at 520-21.

     13    Id.

     14    Ch. 81,  113, SLA 1997.

     15     See  Neary  v. McDonald, 956 P.2d 1205, 1208  (Alaska
1998)  (applying Restatement (Second) of Torts  390 to  determine
whether  parents  had sufficient control of  their  sons  car  to
support  negligent entrustment claim against them by motorcyclist
injured in collision with sons car).

     16    982 P.2d 727 (Alaska 1999).

     17      Id.  at  733 (quoting Karen L. Ellmore,  Annotation,
Negligent  Entrustment of Motor Vehicle to Unlicensed Driver,  55
A.L.R.4th 1100, 1106 (1987)).

     18    Id.

     19     See, e.g., Restatement (Second) of Torts  390 cmt. b,
illus. 4:

          A  lends his car to his friend B for B to use
          to drive a party of friends to a country club
          dance.   A knows that B has habitually become
          intoxicated   at   such   dances.    On   the
          particular occasion B becomes intoxicated and
          while in that condition recklessly drives the
          car  into the carefully driven car of C,  and
          causes   harm  to  him.   A  is  subject   to
          liability to C.
 (Emphasis added.)

     20     641 P.2d 384 (Kan. 1982).

     21    Id. at 389-90.

     22    Id. at 387.

     23    Id. at 389.

     24    Id. at 388 (emphasis added).

     25    See Jay M. Zitter, Annotation, Validity, Construction,
and Application of Named Driver Exclusion in Automobile Insurance
Policy, 33 A.L.R.5th 121, 199-200 (1995).

     26     757  F.2d  1042, 1045 (9th Cir. 1985).  The  disputed
exclusion  stated:  We  do not cover bodily  injury  or  property
damage arising out of the ownership, maintenance, use, loading or
unloading of aircraft.  Id. at 1043-44.

     27    Id. at 1045.

     28    329 N.W.2d 150 (Wisc. 1983).

     29    Id. at 153.

     30    937 P.2d 1360 (Alaska 1997).

     31    Id. at 1367.

     32    Id.

     33     Id.  at 1367.  See also Northern Ins. Co. of New York
v.  Ekstrom,  784 P.2d 320, 323 (Colo. 1989) ([The term]  arising
out  of  has  been construed to bar coverage where, but  for  the
covered cause of loss, the injury would not have occurred. . .  .
The  exclusion applies to a specific instrumentality,  namely  an
automobile, rather than a theory of recovery.).

     34     See,  e.g., State Farm Mut. Auto. Ins. Co. v. Graham,
860  P.2d 566, 567-68 (Colo. App. 1993) (relying on previous case
involving  motor vehicle exclusion in homeowner policy to  decide
case  involving named driver exclusion); Pierce v. Oklahoma Prop.
&  Cas.  Ins. Co., 901 P.2d 819, 823-24 (Okla. 1995) (relying  on
previous  case  involving  excluded  instrumentality  clause   in
homeowners   policy  to  decide  case  involving   named   driver
exclusion).

     35    C.P. ex rel. M.L. v. Allstate Ins. Co., 996 P.2d 1216,
1222 at n.38 (Alaska 2000).

     36    Id.

     37     Jarvis v. Aetna Cas. & Sur. Co., 633 P.2d 1359,  1363
(Alaska 1981).

     38     Cf. New York Life Insur. Co. v. Rogers, 641 P.2d 218,
222 (Alaska 1982) (death likely due to hypothermia in water after
airplane  crash  excluded from coverage where it result[ed]  from
airplane travel).

     39     In  determining whether a policy exclusion  precluded
claims  result[ing] from airplane travel, we noted [t]he question
whether  such a death results from travel in an airplane must  be
answered by applying a reasonable interpretation of the phrase to
the facts presented. Id.  See also McCauley v. Metropolitan Prop.
& Cas. Ins. Co., 36 P.3d 1110, 1113 (Wash. App. Div. 1 1999) (The
phrase  arising out of means originating from, having its  origin
in, growing out of, or flowing from ); State Farm Mut. Auto. Ins.
Co.  v.  Graham, 860 P.2d 566, 567 (Colo. App. 1993), (concluding
phrase  arising  out  of not ambiguous in a claim  for  negligent
entrustment  as  such a claim was related to,  flowed  from,  and
would  not exist but for the acts of the entrusted driver).   But
see,  e.g.,  Pablo  v. Moore, 995 P.2d 460, 462-64  (Mont.  2000)
(applying  minority  rule  that  looks  to  specific  theory   of
coverage,  rather than underlying cause of injury,  to  determine
coverage and concluding phrase arising out of ambiguous in policy
exclusion); Marquis v. State Farm Fire & Cas. Co., 961 P.2d  1213
(Kan. 1998) (same).

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

     41     Id.; C.P. ex rel. M.L. v. Allstate Ins. Co., 996 P.2d
1216, 1222 (Alaska 2000).

     42     Bering  Strait Sch. Dist. v. RLI Ins. Co.,  873  P.2d
1292,  1295 (Alaska 1994) (quoting Robert Keeton, Basic  Text  on
Insurance Law  6.3(a), at 351 (1971)).

     43    Williams v. Crawford, 982 P.2d 250, 253 (Alaska 1999).

     44     See Ness v. Natl Indem. Co. of Nebraska, 247 F. Supp.
944,  947  (D.  Alaska 1965) (A court cannot and  should  not  do
violence  to  the  plain  terms of  a  contract  by  artificially
creating  ambiguity  where none exists.  In situations  in  which
reasonable expectations favor the insurer, and any other would be
strained  and tenuous, no compulsion exists to torture  or  twist
the language of the contract.).

     45     Some courts considering the validity of named  driver
exclusions  have analyzed whether the exclusion is  supported  by
consideration, as in the form of lower premiums.  See 7A  Lee  R.
Russ et al., Couch on Insurance  110:22 (3d ed. 1995).

     46     See  Ward  v.  Baker, 425 S.E.2d 245  (W.  Va.  1992)
(holding  named  driver exclusion of no force  or  effect  up  to
limits of states mandatory minimum insurance coverage limits).

     47    AS 28.22.101(a).

     48    AS 28.20.010.

     49     Progressive Ins. Co. v. Simmons, 953  P.2d  510,  516
(Alaska  1998)  (To  determine whether two  statutory  provisions
conflict, we must interpret them together, in context with  other
pertinent  provisions rather than in isolation, and with  a  view
towards producing a harmonious whole.).

     50    See Jay M. Zitter, Annotation, Validity, Construction,
and Application of Named Driver Exclusion In Automobile Insurance
Policy, 33 A.L.R.5th 121, 137-38 (1995).

     51     See, e.g., Lopez v. Dairyland Ins. Co., 890 P.2d  192
(Colo.  App.  1994) (holding named driver exclusion  valid  under
statutory  scheme  mandating insurers  offer  uninsured  motorist
coverage); State Farm Mut. Auto. Ins. Co. v. Washington, 641 A.2d
449 (Del. 1994) (holding named driver exclusion valid so long  as
not  used  to  delete  uninsured motorist  coverage);  Pierce  v.
Oklahoma  Prop.  &  Cas.  Ins. Co., 901  P.2d  819  (Okla.  1995)
(holding  named driver exclusion based on poor driving record  of
excluded   individual   consistent  with   compulsory   liability
insurance  laws); Tapio v. Grinnell Mut. Reinsurance, 619  N.W.2d
522 (S.D. 2000) (upholding named driver exclusion).  But see Ward
v.  Baker,  425 S.E.2d  245 (W. Va. 1992) (holding  named  driver
exclusion  of no force or effect up to limits of states mandatory
minimum insurance coverage limits).

     52     See, e.g., St. Paul Fire & Marine Ins. Co. v.  Smith,
787  N.E.2d 852, 858 (2003) (Ill. App.) (discussing public policy
rationales of sister states in upholding named driver exclusion);
Pierce,  901 P.2d at 823 (same).  But see Iowa Mut. Ins.  Co.  v.
Davis,   752  P.2d  166  (Mont.  1988)  (Although  not  expressly
prohibited  .  .  . a named driver exclusion is contrary  to  the
public policy of [Montanas mandatory insurance statutes], and is,
therefore, invalid.).

     53      1997-98  Minutes  of  the  House  Labor  &  Commerce
Committee, May 1, 1997, at 328.

     54    Id.

     55    See Taipo, 619 N.W.2d at 525.

     56     See  Zamora  v. Dairyland County Mut. Ins.  Co.,  930
S.W.2d  at  739, 741 (Tex. App. 1996) (holding that named  driver
exclusion  furthered  public policy  by  enabling  families  with
members having bad driving records to secure affordable insurance
and  deterred  insured  drivers from  entrusting  automobiles  to
unsafe drivers).

     57     State Farm Auto. Ins. Co. v. Dressler, 738 P.2d 1134,
1138 (Ariz. App. 1987).

     58     Our  decision today is confined to the  named  driver
exclusion  as it applies to liability coverage.  We do not  reach
the  issue  of whether the named driver exclusion is  valid  when
uninsured or underinsured motorist coverage is at issue.

     59      Insurance  forms  made part of a  policy,  including
Progressive  Form 9330, are subject to state regulation.   Alaska
Statute  21.42.120 requires forms that are to become part  of  an
insurance policy to be filed and approved by the director of  the
Division of Insurance.

     60     See  Govt Employees Ins. Co. v. Graham-Gonzalez,  107
P.3d  279,  286  (Alaska 2005) (noting that independent  judgment
standard  typically  applies  to question  of  law  unless  issue
involves agency expertise or determination of fundamental  policy
questions on subjects committed to the agency).

     61     Id. (citing McTaggart v. Liberty Mut. Ins., 983  P.2d
853,  957-58  (Kan.  1999) (noting that the interpretation  of  a
statute   by   an   administrative  agency   charged   with   the
responsibility of enforcing that statute is entitled to  judicial
deference)).   See also Lee v. John Deere Ins.  Co.,  802  N.E.2d
774,  779  (Ill.  2003)  (noting that  approval  of  director  of
division of insurance is entitled to great weight, although it is
not conclusive on the courts).

     62    107 P.3d at 286.

     63    Id. (quoting Diaz v. Silver Bay Logging, Inc., 55 P.3d
732, 741 (Alaska 2002)).

     64     Because named driver exclusions eliminate significant
coverage,   such  exclusions  must  be  accompanied   by   strict
requirements  in the policies so as to insure the  insureds  full
knowledge  and consent to the endorsement.   Phoenix Indem.  Ins.
Co.  v. Pulis, 9 P.3d 639, 643 (N.M. 2000) (citing Jay M. Zitter,
Annotation,  Validity,  Construction  and  Application  of  Named
Driver  Exclusion  in Automobile Insurance Policy,  33  A.L.R.5th
121, 2[a] at 137-38 (1995)).

     65    Graham-Gonzalez, 107 P.3d at 287.

     66     Nelson  finally argues that a deemer  clause  in  the
policys  general provisions, which provides that if any  part  of
the  policy fails to conform with Alaska law it shall  be  deemed
amended to conform with state requirements, mandates coverage  in
this  case.  Because we have held that the named driver exclusion
is  valid,  and  Nelsons argument on this point  presupposes  the
illegality of the exclusion, her argument fails.

This site is possible because of the following site sponsors. Please support them with your business.
www.gottsteinLaw.com
Case Law
Statutes, Regs & Rules
Constitutions
Miscellaneous


IT Advice, Support, Data Recovery & Computer Forensics.
(907) 338-8188

Please help us support these and other worthy organizations:
Law Project for Psychiatraic Rights
Soteria-alaska
Choices
AWAIC