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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Whitney v. State Farm Mutual Automobile Insurance Co. (8/19/2011) sp-6590

Whitney v. State Farm Mutual Automobile Insurance Co. (8/19/2011) sp-6590, 258 P3d 113

        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 
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ZEBULEON WHITNEY,                              ) 
                                               )       Supreme Court No. S-13942 
                        Appellant,             ) 
                                               )       Superior Court No. 3AN-09-06987 CI 
        v.                                     ) 
                                               )       O P I N I O N 
STATE FARM MUTUAL                              ) 
AUTOMOBILE INSURANCE                           )       No. 6590 - August 19, 2011 
COMPANY,                                       ) 
                        Appellee.              ) 

                Appeal from the Superior Court of the State of Alaska, Third 
                Judicial District, Anchorage, Peter A. Michalski, Judge. 

                Appearances:       Mark   A.   Sandberg   and   Peter   A.   Sandberg, 
                Wuestenfeld & Corey, Anchorage, for Appellant.              James K. 
                Wilkens, Bliss, Wilkens & Clayton, Anchorage, for Appellee. 

                Before:   Carpeneti, Chief Justice, Fabe, Winfree, Christen, 
                and Stowers, Justices. 

                CARPENETI, Chief Justice. 


                The driver of a pickup truck collided with a bicyclist, seriously injuring the 

bicyclist.    The   bicyclist   sought   a   settlement   agreement   in   excess   of   the   maximum 

coverage of the driver's insurance policy.  The insurance company responded with an 

offer   to   tender   policy   limits,   which   the   bicyclist   refused. After   a   series   of   court 

proceedings in both state and federal court, the driver sued his insurance company, 

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complaining in part that his insurance company had breached its duty to settle.                  The 

insurance company moved for partial summary judgment on a portion of the duty to 

settle   claims.   The   superior   court   granted   the   motion.  The   parties   then   entered   a 

stipulation by which the driver dismissed all remaining claims, preserving his right to 
appeal,1 and final judgment was entered in the insurance company's favor.  Because the 

insurance company's rejection of the bicyclist's settlement demand and its responsive 

tender of a policy limits offer was not a breach of the duty to settle, we affirm the 

superior court's grant of summary judgment to that extent.              But because the superior 

court's order exceeded the scope of the insurance company's motion for partial summary 

judgment, we reverse the superior court's order to the extent it exceeded the narrow issue 

upon which summary judgment was appropriate.                We remand for further proceedings 

concerning the surviving duty to settle claims. 


                On July 6, 2006, Zebuleon Whitney was leaving a gas station in his Dodge 

Ram pickup.      He pulled out in front of a bicyclist, Michael Giannechini, whom he had 

seen coming down the road to Whitney's left.            The vehicles collided and Giannechini 

was seriously injured.   The parties do not dispute that Whitney was the primary cause of 

the accident. 

                Whitney's Dodge was insured by an automobile liability policy issued by 

State Farm, which had a policy limit of $100,000 for injury to a single person, and 

$300,000 per occurrence.         However, a family may have multiple State Farm insurance 

policies, as State Farm issues separate policies for each vehicle.  Giannechini's counsel, 

Daniel Libbey, knew that Whitney's parents owned several vehicles, and that Whitney 

had a brother who was part of the same household. On April 5, 2007, Libbey sent a letter 

        1       If the driver were able to overturn the partial summary judgment order on 

appeal, he would be able to reinstate most of the dismissed claims. 

                                                 -2-                                              6590 

----------------------- Page 3-----------------------

entitled "Settlement Offer" to State Farm counsel John Burns, who had been retained by 

State   Farm   to   represent   Whitney.   The   letter   acknowledged   receiving   copies   of   the 

insurance policies for the Whitney family's other vehicles, and requested a copy of an 

expired policy on one such vehicle.         The letter also stated Libbey's understanding that 

State Farm issues a separate policy on each vehicle it insures, and that "[i]f Zebuleon is 

not a named insured on these policies, then he is defined as a covered insured (as a 

resident relative) and entitled to stacking of additional coverage for his liability for this 

accident."   Libbey offered no legal basis for this conclusion. 

                The letter offered to settle "any and all liability claims" against Whitney 

"for disbursal of policy limits . . . for each and every applicable policy of insurance."  It 

gave State Farm 30 days in which to respond.  The letter also stated that "[i]f this offer 

is rejected or lapses, no further offers to settle for policy limits will be made or accepted." 

While the offer was open, State Farm did not tell Whitney of the settlement offer. 

                On May 2, 2007, a State Farm claim representative responded to Libbey's 

letter.  The letter stated that "[t]he State Farm policy does not allow for the stacking of 

liability coverages," and "[i]f an insured has more than one State Farm policy, the greater 

of the liability limits will apply."      State Farm offered to settle for the policy limit of 

$100,000, plus applicable interest and attorney's fees through May 4, for an estimated 

total of $120,918.77. 

                Giannechini did not accept State Farm's policy limits offer.  In September 

2007, Giannechini filed suit against Whitney.  State Farm wrote to Whitney to inform 

him he had been sued and that State Farm had retained Burns to defend him.                    It also 

advised him that the lawsuit could exceed the policy limits of State Farm's policies. 

State Farm evaluated the claim as being worth between $375,000 and $475,000. 

                In October 2008, the parties reached a settlement agreement.               Whitney 

allowed entry of judgment of $950,000 against himself in exchange for Giannechini's 

                                                 -3-                                            6590

----------------------- Page 4-----------------------

agreement      not to execute on the judgment against Whitney.               Whitney also assigned 

rights to Giannechini to pursue State Farm for any claims arising out of the motor vehicle 


                In the meantime, State Farm had filed a federal declaratory relief action in 

September 2008, asking the federal court to declare that no policy except the Dodge Ram 

policy provided coverage for the accident.          State Farm then filed a motion for summary 

judgment in the declaratory relief action.         Realizing by then that State Farm's position 

was correct, Libbey did not contest the declaratory relief sought. In November 2008, the 

federal court entered final declaratory judgment in favor of State Farm.  State Farm paid 

Giannechini $130,951.37 in November 2008.                In March 2009, Giannechini reassigned 

to Whitney the right to bring a lawsuit. 

                Whitney filed the present lawsuit in May 2009.  He alleged that State Farm 

had acted in bad faith, and that individual adjusters within State Farm had breached their 

duty of care to him. State Farm filed a motion for partial summary judgment on a portion 

of Whitney's bad faith claim, asking for a dismissal of "Plaintiff's claims alleging State 

Farm breached its duty to settle."  Specifically, State Farm argued that it had satisfied its 

duty to tender policy limits in response to a policy limits demand, as required by Jackson 
v. American Equity Insurance Co.2            Whitney opposed State Farm's motion, claiming 

other breaches of the duty to settle such as failure to promptly attempt settlement, failure 

to inform Whitney of Libbey's offer, and failure to accept Libbey's offer.                  State Farm 

responded that "Whitney substantially misconstrues the breadth of the current motion for 

partial summary judgment."          State Farm argued that Whitney's claims were irrelevant 

to   the   narrow   issue   in   its   motion,   which  was   concerned   only   with   whether,   under 

        2       90 P.3d 136 (Alaska 2004). 

                                                   -4-                                               6590 

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Jackson, State Farm's May 2, 2007 letter had been an appropriate response to Libbey's 


                A hearing on the motion for partial summary judgment took place before 

Superior Court Judge Peter A. Michalski in February 2010.                  During the hearing, State 

Farm emphasized that its motion was confined to only a small subset of Whitney's bad 

faith claims, namely those addressed by Jackson and the related case Bohna v. Hughes, 

Thorsness, Gantz, Powell & Brundin: 

                I am not seeking a dismissal of the entirety of [Whitney's] 
                breach of good faith obligation claims. I understand there are 
                factual issues involved. 

                         But a core transaction in this case occurred in April 
                and May of 2007.        And one thing missing from [Whitney's] 
                total argument here was any reference back to the Bohna case 
                that said, in that exact circumstance, a policy limits offer, . . . 
                what is an insurance company's obligation?  It's to quantify 
                and tender the amount of policy limits. 

                         I'm limiting my motion here to a request that the Court 
                 say that State Farm complied with that precise legal duty, as 
                articulated in Jackson and Bohna.  The rest of the claims of 
                bad faith, in terms of what counsel did following that set of 
                events,   is   still   a   question   that   needs   to   get   addressed   and 
                resolved either on motion or at trial, but that's not before your 
                Honor now.        It's simply whether or not State Farm satisfied 
                the  Bohna/Jackson  duty   in   terms   of   how   to   respond   to   a 
                policy limits offer. 

                The order that State Farm drafted, however, was broader in scope than the 

question in State Farm's motion, stating in part that "State Farm satisfied its duty to settle 

by its May 2, 2007 offer."        On April 26, 2010, the superior court granted State Farm's 

motion, signing the draft order without modifying the language. 

        3        828 P.2d 745 (Alaska 1992), superseded by statute on other grounds as 

recognized in Petrolane Inc. v. Robles, 154 P.3d 1014, 1019 (Alaska 2007). 

                                                   -5-                                                6590 

----------------------- Page 6-----------------------

               The parties negotiated a stipulation whereby Whitney agreed to dismiss his 

remaining claims and allow entry of final judgment in favor of State Farm.  However, if 

Whitney was able to overturn the partial summary judgment order on appeal, he could 

reinstate all of the liability claims voluntarily dismissed by the stipulation other than any 

claim for punitive damages.     The parties jointly requested that the superior court enter 

final judgment.   The court entered final judgment in favor of State Farm on June 16, 

2010, dismissing all of Whitney's claims. 

              Whitney appeals the partial summary judgment order. 


              We review summary judgment orders de novo, "drawing all reasonable 

inferences in the nonmovants' favor and viewing all facts in the light most favoring 
them."4 A grant of summary judgment will be affirmed if there are no genuine issues of 

material fact and the moving party is entitled to judgment as a matter of law.5 

              If there are no genuine disputes of material fact, the existence and scope of 
a legal duty are questions of law which we review de novo.6 


       A.	     The   Superior   Court's   Order   Exceeded   The   Scope   Of   State   Farm's 
              Motion For Partial Summary Judgment. 

              Every insurance contract contains within it the implied covenant of good 

faith and fair dealing, which requires the contracting parties to avoid behavior that will 

       4      Kaiser v. Sakata, 40 P.3d 800, 803 (Alaska 2002) (quoting Brady v. State, 

965 P.2d 1, 8 (Alaska 1998)). 

       5       Olivit v. City & Borough of Juneau, 171 P.3d 1137, 1142 (Alaska 2007) 

(citingNorville v. Carr-Gottstein Foods, Co., 84 P.3d 996, 1000 n.1 (Alaska 2004)); see 
Alaska R. Civ. P. 56(c). 

       6      Diblik v. Marcy, 166 P.3d 23, 25 (Alaska 2007) (citingArctic Tug & Barge, 

Inc. v. Raleigh, Schwarz & Powell, 956 P.2d 1199, 1204 (Alaska 1998)). 

                                             -6-	                                       6590

----------------------- Page 7-----------------------

"injure the right of the other to receive the benefits of the agreement."7     As part of its 

duty to act in good faith, an insurer has a duty to settle - that is, an "obligation[] under 

a contract of liability insurance . . . to settle a claim that has been brought against the 
insured when it is appropriate to do so."8  An insurer must "investigate claims and inform 

the insured of all settlement offers and the possibility of excess recovery by the injured 
claimant."9  In addition, when a plaintiff makes a policy limits demand, the insurer must 

"tender maximum policy limits to settle a plaintiff's demand when there is a substantial 
likelihood of an excess verdict against the insured."10  In such a situation, the insurance 

company is obligated to determine "the amount of a money judgment which might be 

rendered against its insured," and to tender in settlement its contractual share of the 
judgment.11   Should the insurer breach its duty to tender its full policy limits, the insured 

may sue for damages.12 

               In its motion for partial summary judgment, State Farm moved for judgment 

on one component of the duty to settle - an insurance company's duty under Jackson 

       7       Guin v. Ha, 591 P.2d 1281, 1291 (Alaska 1979) (citing Crisci v. Sec. Ins. 

Co. of New Haven, 426 P.2d 173, 176 (1967); Comunale v. Traders & Gen. Ins. Co., 328 
P.2d 198, 200-01 (1958)). 

       8       ALLAN D.WINDT,INSURANCE CLAIMS AND DISPUTES  5:01 (5th ed. 2007). 

       9       O.K. Lumber Co., Inc. v. Providence Wash. Ins. Co., 759 P.2d 523, 525 

(Alaska 1988) (citing Kranzush v. Badger State Mut. Cas. Co., 307 N.W.2d 256, 259 
(Wis. 1981)). 

       10     Jackson v. Am. Equity Ins. Co., 90 P.3d 136, 142 (Alaska 2004) (citing 

Schultz v. Travelers Indem. Co., 754 P.2d 265, 266-67 (Alaska 1988)). 

       11     Id. (quoting Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin, 828 

P.2d 745, 768 (Alaska 1992)) (internal quotation marks omitted). 

       12      See O.K. Lumber, 759 P.2d at 525 (citing Cont'l Ins. Co. v. Bayless & 

Roberts, Inc., 608 P.2d 281 (Alaska 1980); Guin, 591 P.2d at 1291). 

                                             -7-                                        6590

----------------------- Page 8-----------------------

to tender policy limits in response to a policy limits demand.     Confusingly, the motion 

could have been interpreted as asking for a dismissal of all of Whitney's duty to settle 

claims.  However, State Farm's attorney subsequently clarified to the superior court that 

he was not seeking a dismissal of Whitney's bad faith claims altogether, but rather an 

acknowledgment that in the case of "a policy limits offer, . . . an insurance company's 

obligation [is] to quantify and tender the amount of policy limits." State Farm's attorney 

then confirmed that he was "limiting [the] motion here to a request that the Court say that 

State Farm complied with that precise legal duty." 

              The superior court granted State Farm's motion.  The order State Farm had 

drafted, however, used language much broader than the scope of its motion, stating that 

"State Farm satisfied its duty to settle by its May 2, 2007 offer," and dismissing all of 

Whitney's duty to settle claims.     The superior court nevertheless  signed the order as 

drafted, with no edits and with no explanation of the court's legal reasoning. 

              In oral argument before us, State Farm conceded that its draft order was 

overly broad for the narrow question in its motion.  Based on this concession, we reverse 

the   superior  court's  grant  of  partial  summary    judgment   and   remand   for  further 

proceedings.     But on the narrow issue that was validly before the superior court - 

whether State Farm breached its duty to settle by failing to accept Libbey's April 2007 

offer - we affirm, as discussed below. 

       B.	     State Farm Did Not Breach The Duty To Settle By Refusing Libbey's 
              April 2007 Offer. 

              Whitney argues that a question of fact exists as to whether State Farm 

should have accepted Libbey's settlement offer.  We disagree, and find that State Farm's 

response to Libbey's offer did not breach the duty to settle. 

                                             -8-	                                       6590

----------------------- Page 9-----------------------

               An insurance company's implied covenant of good faith and fair dealing 
obligates it to "accept reasonable offers of settlement in a prompt fashion."13 Libbey's 

April 2007 letter, however, triggered no such obligation.          First, the letter erroneously 

presumed that multiple policies applied to the accident, and that the vehicle policies of 

Whitney's   family   members   could   be   stacked   to   give   Whitney   additional   liability 

coverage.     Second, Libbey's offer imposed a number of additional conditions - for 

instance, the requirement that State Farm produce "a certified copy of the declarations 

pages and related insurance policy(ies)" for "each and every policy that applies to protect 

[Whitney]"   from   an   excess   verdict.    As   State   Farm   argues,   "State   Farm   had   no 

responsibility, right or authority [over] (or even knowledge of) . . . the existence or 

production of insurance policies and records of any other insurance company." 

               Finally, State Farm responded in 27 days to Libbey's letter with a policy 

limits offer - State Farm's May 2 letter.        State Farm's response was safely within the 

30-day deadline that Libbey had given State Farm to respond, and fulfilled its duty to 
tender policy limits in response to a policy limits demand under Jackson and Bohna.14 

We conclude that State Farm did not breach its duty to settle by not accepting Libbey's 

April 2007 offer. 

        C.     The Balance Of Whitney's Claims Remain Open For Litigation. 

               Whitney's complaint alleged a number of duty to settle claims outside the 

scope of State Farm's summary judgment motion: that State Farm failed to attempt 

settlement promptly, that State Farm breached the duty to settle by failing to inform 

Whitney of Libbey's settlement offer until it had expired, and that State Farm should 

        13     Guin, 591 P.2d at 1291. 

        14     See Jackson, 90 P.3d at 142; Bohna, 828 P.2d at 768. 

                                                -9-                                            6590 

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have communicated other pieces of information15 to Whitney that the insurance company 

did not.   These claims remain open for litigation. 


                Because State Farm timely offered policy limits in response to Libbey's 

April 2007 offer, we AFFIRM the superior court on the narrow question of whether State 

Farm breached its duty to settle by rejecting the offer.           But because State Farm's draft 

order exceeded the scope of the issue presented in its motion, we REVERSE the superior 

court's grant of partial summary judgment to the extent it exceeded the narrow grounds 

set out above and REMAND for further proceedings. Whitney's remaining duty to settle 

claims remain open for litigation. 

        15      Whitney claims that he had retained an expert, who was prepared to testify 

that State Farm had an obligation to 

                a) write an excess letter to advise Whitney that the value of 
                the claim being made against him could exceed the policy 
                limits   of   the   policy   or   policies   written   by   State   Farm,   b) 
                advise    Whitney      to  notify  any   excess    carrier,  c)  advise 
                Whitney      of  his  right  to  separate    counsel    to  protect  his 
                uninsured interests, d) advise Whitney that he was entitled 
                [to] be notified of all settlement offers and demands, and e) 
                advise Whitney of his right to participate in any settlement 

                                                  -10-                                              6590 
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