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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Ennen v. Integon Indemnity Corporation (1/20/2012) sp-6637

Ennen v. Integon Indemnity Corporation (1/20/2012) sp-6637

       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, email 
        corrections@appellate.courts.state.ak.us. 

                THE SUPREME COURT OF THE STATE OF ALASKA 

JACOB ENNEN,                                  ) 
                                              )      Supreme Court No. S-13832 
               Appellant,                     ) 
                                              )      Superior Court No. 3AN-08-04378 CI 
        v.                                    ) 
                                              )      O P I N I O N 
INTEGON INDEMNITY
                            ) 
CORPORATION,
                                 )      No. 6637 - January 20, 2012 
GMAC INSURANCE
                               ) 
MANAGEMENT CORPORATION, 
                     ) 
CRAIG ALLEN, and ALLEN LAW 
                  ) 
GROUP,
                                       ) 
                                              ) 
               Appellees.                     ) 
                                              ) 
                                              ) 
INTEGON INDEMNITY                             ) 
CORPORATION and                               )      Supreme Court No. S-13922 
GMAC INSURANCE                                ) 
MANAGEMENT CORPORATION,                       ) 
                                              ) 
               Cross-Appellants,              ) 
                                              ) 
        v.                                    ) 
                                              ) 
JACOB ENNEN, CRAIG ALLEN,                     ) 
and ALLEN LAW GROUP,                          ) 
                                              ) 
               Cross-Appellees.               ) 
                                              ) 

----------------------- Page 2-----------------------

               Appeal from the Superior Court of the State of Alaska,  Third 
               Judicial District, Anchorage, Craig Stowers, Judge. 

               Appearances:   W.   Michael   Moody,   Atkinson,         Conway     & 
               Gagnon, Anchorage, for Appellant/Cross-Appellee Ennen. 
               Daniel T. Quinn and Marc G. Wilhelm, Richmond & Quinn, 
               P.C., Anchorage, and John A. Bennett and Stuart D. Jones, 
               Bullivant     Houser     Bailey   P.C.,   Portland,    Oregon,     for 
               Appellees/Cross-Appellants   Integon   Indemnity   Corp.   and 
               GMAC Insurance Management Corp. Thomas A. Matthews 
               and Kenneth G. Schoolcraft, Jr., Matthews & Zahare, P.C., 
               Anchorage, for Appellees/Cross-Appellees Craig Allen and 
               Allen Law Group. 

               Before:     Carpeneti,    Chief   Justice,   Fabe,    Winfree,    and 
               Christen, Justices. [Stowers, Justice, not participating.] 

               FABE, Justice.
 
               WINFREE, Justice, dissenting in part.
 

I.      INTRODUCTION 

               Jacob Ennen was seriously injured while he was a passenger in Gordon 

Shanigan's   car.   Shanigan's   insurer,   Integon   Indemnity   Corporation   (Integon),   paid 

$50,000   to   cover   Shanigan's   possible   liability   to   Ennen.  Under   Alaska   insurance 

statutes, Ennen would also likely have been entitled to underinsured motorist benefits 

under    Shanigan's    policy.   However,   Integon's   policy     was   inconsistent   with  these 

statutes, and Integon told Ennen that he was not entitled to any additional money.             Six 

years later, some time after Integon learned that its underinsured motorist provision 

violated Alaska insurance statutes, Integon paid Ennen underinsured motorist benefits 

plus interest and fees.    Ennen sued Integon for bad faith.         Integon filed a third-party 

complaint against Ennen's attorney, Craig Allen. 

                                                -2-                                           6637
 

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

                Before trial, the superior court dismissed Integon's claims against Allen on 

the   ground   that   allowing   Integon   to   implead   Ennen's   attorney   would   violate   public 

policy.    The superior court held that because Ennen did not own the insurance policy, 

Integon did not owe him a duty of good faith and fair dealing.  Accordingly, the superior 

court concluded that Ennen had no cause of action for bad faith.               But, in the event this 

ruling were to be reversed on appeal, the superior court made an alternate finding that 

while Integon had committed the tort of bad faith, Ennen had suffered no damages as a 

result.  We reverse on both counts.          The superior court was justifiably cautious about 

extending the bad faith cause of action to a new class of plaintiffs, but we conclude that 

Ennen, as an insured, is eligible under our existing case law to bring a cause of action for 

bad   faith.  We   also   conclude   that   Ennen   established   facts   that   would   entitle   him   to 

damages.     We affirm the dismissal of Integon's third-party claim against Allen on the 

alternative ground that Allen was not a proximate cause of Ennen's harm. 

II.     FACTS AND PROCEEDINGS 

                On November 7, 2000, Gordon Shanigan drove his car off of the Seward 

Highway, seriously injuring his passenger, Jacob Ennen.                Shanigan was killed in the 

accident.  Ennen was 18 years old and resided in Wasilla.  Shanigan and Ennen had left 

a party earlier that evening, but only after overcoming attempts by other partygoers to 

prevent Shanigan from driving.  A blood test documented that Shanigan had consumed 

alcohol and marijuana was found in the vehicle.               Ennen required multiple intensive 

surgeries, including brain surgery, and physical and cognitive therapy. 

                Shanigan   had   an   automobile   insurance   policy   with   Integon   Indemnity 

Corporation, a subsidiary of GMAC Insurance Management Corporation (GMAC). 

This policy provided liability coverage "for bodily injury or property damage for which 

any insured becomes legally responsible because of an auto accident."                 Believing that 

Shanigan would be liable to Ennen, Integon paid Ennen the $50,000 limit for bodily 

                                                  -3-                                            6637
 

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

injury   liability.   In   exchange,   Ennen   released   Integon   from   any   claims   against   it   or 

Shanigan's estate. 

                Integon's policy also had a provision for underinsured   motorist (UIM) 

benefits.   The policy provided that Integon would pay damages to an "insured[,] caused 

by an accident[,] which such insured is legally entitled to recover from the owner or 

operator   of   an   .   .   .   underinsured   motor   vehicle." The   policy   defined   "insured"   as 

including "[a]ny person occupying your covered auto with the permission of the named 

insured."   As Shanigan's passenger, Ennen was thus an "insured" under the policy.  The 

policy also provided that "[u]nderinsured motor vehicle means a land motor vehicle or 

trailer of any type to which a liability bond or policy applies at the time of the accident 

but the limits of that bond   or policy are . . . [l]ess than the limit of liability for this 

coverage."     Though this policy had been approved by Alaska's insurance regulators, it 

violated two Alaska statutes.  Alaska Statute 28.22.101(e) and AS 28.20.440(b)(3) both 

require that automobile insurance policies issued in Alaska provide for uninsured and 

underinsured motorist coverage in the amount of $50,000 per person and $100,000 per 

accident.    Integon's policy violated AS 28.22.101(e) and AS 28.20.440(b)(3) because 

the   policy   would   only   pay   UIM     benefits   if   the   underinsured   vehicle   had   liability 

coverage that was less than the UIM coverage in an insurance policy (here, $50,000 per 

person   and   $100,000   per   accident).      Both   Integon   and   Ennen   now   agree   that   this 

limitation was unlawful.        In this case, because Shanigan's liability coverage (provided 

by Integon) was exactly the same as the UIM coverage available to Ennen pursuant to 

Alaska statute, under the policy's language Ennen was not entitled to UIM benefits. 

Though the policy was legally incorrect, Ennen's attorney, Craig Allen, concluded that 

Ennen did not have a claim to any benefits beyond $50,000 in liability coverage based 

on the policy's language. 

                                                   -4-                                             6637
 

----------------------- Page 5-----------------------

                Integon later learned that it had been improperly handling Alaska UIM 

claims.    In 2007 Integon paid Ennen's UIM benefits plus prejudgement interest.  On 

January 11, 2008, Ennen filed a complaint in superior court against Integon, GMAC, and 

Integra Insurance Services, alleging bad faith.  On April 14, 2008, Integon filed a third- 

party complaint against Allen and his law firm, arguing that he was responsible for some 

of any damages suffered by Ennen.             On March 20, 2009, Integon made an offer of 

judgment of $300,000.   Ennen declined.   On April 1, 2009, the superior court dismissed 

Integon's complaint against Allen, holding that it would violate public policy to allow 

a defendant to implead the plaintiff's attorney for malpractice. 

                The case was tried without a jury for eight days in June and July 2009. 

During the trial, Integon filed two motions for a directed verdict under Alaska Rule of 

Civil Procedure 50.        On   February 2, 2010, the superior court issued an "Order and 

Decision     on   Defendants'     Motions    for  Directed    Verdict   and   Findings    of   Fact   and 

Conclusions of Law." The superior court concluded that because Ennen was not a "first- 

party insured" on Shanigan's policy, he had no cause of action for bad faith against 

Shanigan's insurer. But the superior court made alternate factual findings to apply in the 

event this ruling were to be reversed on appeal.           The superior court found that Integon 

had   recklessly,   though   not   willfully,   disregarded   its   obligations   under   Alaska   law. 

However,   the   superior   court   found   that   Ennen   had   not   suffered   any   damages   and 

accordingly awarded neither compensatory nor punitive damages.                   The superior court 

awarded Integon $10,000 in Rule 68 attorney's fees. 

                Ennen appeals the ruling that he has no cause of action and also argues that 

he was entitled to damages.   Integon appeals, arguing that it did not act in bad faith and 

that it deserved additional attorney's fees. 

                                                  -5-                                            6637
 

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

III.	   STANDARD OF REVIEW 

                We apply our independent judgment when reviewing a superior court's 
interpretation of statutes.1     We review rulings on questions of fact under the clearly 

erroneous standard.2      "We may affirm the superior court on any basis appearing in the 

record."3 

IV.	    DISCUSSION 

        A.	     Ennen, As An Additional Insured, Has A Cause Of Action For Bad 
                Faith Against Integon. 

                In State Farm v. Nicholson, we held that an insured's action against its 
insurer for breach of the implied covenant of good faith and fair dealing sounded in tort.4 

David and Noreen Nicholson had a homeowner's insurance policy with State Farm and 
made   a   claim   after   a   water   main   broke.5 State   Farm   initially   denied   coverage   but 

eventually   agreed   to   cover   the   loss,   although   at   a   level   less   than   satisfactory   to   the 
Nicholsons.6     The Nicholsons sued for bad faith, arguing that "bad faith handling of 

insurance claims should . . . be recognized" as a tort.7          We noted that courts in other 

jurisdictions had previously recognized such bad faith tort claims in two contexts.  First, 

        1       Hertz v. Carothers, 784 P.2d 659, 660 (Alaska 1990).
 

        2       Dunn v. Dunn, 952 P.2d 268, 270 (Alaska 1998).
 

        3       Far N. Sanitation, Inc. v. Alaska Pub. Utils. Comm'n, 825 P.2d 867, 869
 

n.2 (Alaska 1992). 

        4       State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152, 1156-57 (Alaska 

 1989). 

        5       Id. at 1153. 

        6       Id. at 1153-54. 

        7       Id. at 1154. 

                                                 -6-	                                          6637
 

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

some courts had recognized a tort of bad faith when an insurer mishandled a claim made 
by the insured after a third party had sued the insured (a liability or third-party claim).8 

Second, some courts, starting with the California Supreme Court in 1973, had recognized 

a   tort   of  bad  faith   when  an   insurer   mishandled   a   claim   made   by    parties   like   the 

Nicholsons,   where   the   insureds   sought   coverage   for   damage   to   themselves   or   their 
property (an indemnity or first-party claim).9            In Nicholson, we recognized the latter 

cause of action.10    We held that while not every breach of a contract could give rise to a 

tort claim, the "special relationship between the insured and insurer in the insurance 
context" justified the existence of a tort cause of action.11          We also stated that the "tort 

of bad faith in the insurance context can be traced to the covenant of good faith and fair 
dealing, a contractual duty implied in all insurance policies."12 

                But in O.K. Lumber Co. v. Providence Washington Insurance Co., we held 
that a tort victim could not sue the tortfeasor's insurer for bad faith.13            O.K. Lumber, a 

company operating a building supply store in Fairbanks, suffered two accidents.  First, 

drilling activity by a company insured by Providence Washington caused O.K. Lumber's 

        8       Id. at 1155; see also  3   Alaska Administrative Code (AAC) 26.300(10) 

(2010) (" '[T]hird-party claimant' means any person asserting a claim against any other 
person."); BLACK 'S LAW DICTIONARY 873 (9th ed. 2009) ("liability insurance"). 

        9       Nicholson, 777 P.2d at 1155-56 (citing Gruenberg v. Aetna Ins. Co., 510 

P.2d 1032 (Cal. 1973)); see also 3 AAC 26.300(5) (" '[F]irst-party claimant' means a 
person asserting a right to payment under his or her own coverage."); BLACK 'S LAW 
DICTIONARY 873 (9th ed. 2009) ("indemnity insurance"). 

        10      Nicholson, 777 P.2d at 1155-56. 

        11      Id. at 1156. 

        12      Id. at 1154. 

        13      759 P.2d 523, 526 (Alaska 1988). 

                                                   -7-                                             6637
 

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

plant   to   burn   down.14  Second,   a   tractor   trailer   insured   by   Providence   Washington 

collided with a pickup truck owned by O.K. Lumber.15              O.K. Lumber sued Providence 

Washington for its alleged mishandling of these two claims, seeking special and punitive 
damages.16     We framed the issue as "whether the insurer's duty of good faith and fair 

dealing benefits anyone other than the named insured."17              We held that no such duty 

existed,    quoting    the  Rhode     Island   Supreme     Court    for  the  proposition    that   the 

"relationship between the claimant and an insurance carrier for a third party alleged to 

be liable is an adversary relationship giving rise to no fiduciary obligation on the part of 
such insurance carrier to the claimant."18 

                This   case   asks  whether    the  rule  announced      in O.K.    Lumber   bars   an 

additional insured from bringing a cause of action for bad faith.           In Nicholson, we held 

that a policyholder may bring a claim for bad faith against an insurer.  In O.K. Lumber, 

we held that a third party suing a policyholder could not bring a claim for bad faith 

against the policyholder's insurer.       This case presents the question whether an insured 
who is not the actual policyholder may bring an action for bad faith.19 

        14      Id. at 524. 

        15      Id. at 525. 

        16      Id. 

        17      Id. 

        18      Id. at 525-26 (quoting Auclair v. Nationwide Mut. Ins. Co., 505 A.2d 431, 

431 (R.I. 1986)). 

        19      See BLACK 'S LAW DICTIONARY 879 (9th ed. 2009) (defining "insured" as 

"[a] person who is covered or protected by an insurance policy"); 3 LEE  R. RUSS  & 
THOMAS  F.  SEGALIA, COUCH   ON  INSURANCE  40:25 (3d ed. 2005) ("At the named 
insured's request, an insurance company may permit other individuals or entities to be 
                                                                                      (continued...) 

                                                 -8-                                            6637
 

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

                The superior court ruled that "Ennen . . . has no contractual relationship 

with the defendants" and accordingly "[t]here is no implied covenant of good faith and 

fair dealing between defendants and Ennen."  The superior court acknowledged that we 

might recognize a new cause of action for a party, like Ennen, who was an unnamed 

insured. But the superior court held that until we did so it was bound by its interpretation 

of existing precedent. 

                1.      Alaska cases 

                We have previously recognized the rights of additional unnamed insureds 

to insurance contracts.      We have specifically stated that "an unnamed party may have 
rights as an implied beneficiary of an insurance contract."20              In Simmons v. Insurance 

Company of North America, for example, we recognized the rights of insureds other than 
the policyholder.21     Teisha Simmons, the daughter of James Walldow, was injured in a 

car accident.22    James Walldow and Carol Mills ran a school bus operation; the bus was 

insured   in   Mills's   name.23    Mills's   policy   provided   for   coverage   of   an   individual 

        19(...continued) 

added as an additional insured on the named insured's insurance policy.                   Often this is 
accomplished pursuant to a specific endorsement expressly naming the individual or 
entity   as   an   additional   insured   on   the   policy. A   policy   may   also   contain   a   blanket 
additional   insured     endorsement   which       provides   coverage   to    a   limited   category   of 
individuals or entities without having to be expressly identified."). 

        20      Stewart-Smith   Haidinger,   Inc.   v.   Avi-Truck,   Inc.,   682   P.2d   1108,   1112 

(Alaska 1984). 

        21       17 P.3d 56, 61-62 (Alaska 2001). 

        22      Id. at 58. 

        23      Id. at 58-59 (bus insured   under Mills's name doing business as Happy 

Puppy Enterprises). 

                                                   -9-                                             6637
 

----------------------- Page 10-----------------------

insured's family members.24         We held that Simmons could sue for reformation and could 

argue that it was the parties' intention to include Walldow on the insurance contract.25 

Because      we   recognized      in  Simmons    the    right   of   an  additional   insured    to  sue  for 

reformation, we now conclude that it would be incongruous to limit other contract rights 

to policyholders only. 

                 We explicitly applied the "beneficiary" reasoning used in Simmons in Loyal 
Order of Moose, Lodge 1392 v. International Fidelity Insurance Co.26                         Lodge 1392, 

based     in  Fairbanks,   contracted      with   a  construction     firm   to  build   a  new    facility.27 

International Fidelity Insurance acted as surety.28  The construction firm failed to perform 

to the Lodge's satisfaction, and the Lodge sued the surety for bad faith in tort.29                      We 

framed   the   issue   as   being   whether   Alaska   "recognize[s]   the   tort   of   bad   faith   in   the 
principal and surety context of a commercial construction claim."30                   We held that there 

was such a cause of action, referencing Nicholson and O.K. Lumber: 

                 In our view the relationship of a surety to its obligee - an 
                 intended      creditor     third-party     beneficiary      -    is   more 
                 analogous   to   that   of   an   insurer   to   its   insured   than   to   the 
                 relationship between an insurer and an incidental third-party 
                 beneficiary.  CompareNicholson, 777 P.2d at 1157 with O.K. 

        24       Id. at 59.
 

        25       Id. at 60, 63-64.
 

        26       797 P.2d 622, 628 (Alaska 1990).
 

        27       Id. at 623. 

        28       Id. 

        29       Id. at 624-26. 

        30       Id. at 626. 

                                                    -10-                                               6637
 

----------------------- Page 11-----------------------

                Lumber v. Providence Washington Ins. Co., 759 P.2d 523, 
                 526 (Alaska 1988).[31] 

We thus explained the distinction between Nicholson and O.K. Lumber as based on third- 

party beneficiary law. 

                 We have recognized that an intended third-party beneficiary of a contract 

has the right to enforce the contract:         "We will recognize a third-party right to enforce 

a   contract   upon   a   showing   that   the   parties   to   the   contract   intended   that   at   least   one 
purpose of the contract was to benefit the third party."32          It follows that an intended third- 

party beneficiary of an insurance contract should be able to bring a cause of action for 

bad faith against the insurer.       If an intended third-party beneficiary can enforce every 

        31      Id. at 628. 

        32       Smallwood   v.   Cent.   Peninsula   Gen.   Hosp.,   151   P.3d   319,   324   (Alaska 

2006).  We follow the approach of the Restatement (Second) of Contracts on third-party 
beneficiary law: 

                 (1)     Unless     otherwise      agreed    between      promisor     and 
                 promisee,      a  beneficiary     of   a   promise     is  an   intended 
                 beneficiary if recognition of a right to performance in the 
                 beneficiary is appropriate to effectuate the intention of the 
                 parties and either 

                         (a)     the    performance      of  the   promise     will 
                         satisfy   an   obligation   of   the   promisee   to   pay 
                         money to the beneficiary; or 

                         (b)     the    circumstances       indicate     that   the 
                         promisee   intends   to   give   the   beneficiary   the 
                         benefit of the promised performance. 

                 (2)     An incidental beneficiary is a beneficiary who is not an 
                 intended beneficiary. 

Rathke v. Corr. Corp. of Am., 153 P.3d 303, 310 (Alaska 2007) (quoting RESTATEMENT 
(SECOND) OF  CONTRACTS  302 (1981)). 

                                                   -11-                                              6637
 

----------------------- Page 12-----------------------

other right in an insurance contract, it would be an aberration if the beneficiary could not 

also enforce this right. 

                 An   intended   beneficiary   can   sue   to   enforce   an   insurance   contract.       An 

incidental beneficiary, such as a tort victim injured by the insured, on the other hand, 
cannot   enforce   the   contract   between   the   insured   and   insurer.33      The   tort   victim   is   a 

beneficiary of the defendant's insurance contract in the sense that the contract makes it 

more likely that there will be money for the tort victim to collect.                  But the tort victim 

only benefits from the existence of the insurance contract indirectly:  The insured did not 

purchase   the   policy   with   the   intention   to   benefit   the   tort   victim;   rather,   the   insured 
purchased the policy to protect the insured from tort liability.34               Thus, the tort victim is 

only an incidental beneficiary. 

                 The distinction between intended and incidental third-party beneficiaries 

divides those parties who have a cause of action for bad faith and those who do not.  The 

policyholder   of   an   insurance   contract   and   intended   third-party   beneficiaries   of   an 

insurance contract, such as additional insureds, have a cause of action for bad faith; 

incidental third-party beneficiaries do not.            Courts in other jurisdictions agree, holding 

that    insurers   owe    a   duty   of  good    faith   and   fair  dealing    to   intended    third-party 
beneficiaries.35 

         33      See Ellis v. City of Valdez, 686 P.2d 700, 704 (Alaska 1984). 

         34      See   Smallwood,   151   P.3d   at   324   (holding   that   determining   whether   a 

beneficiary is intended or incidental "should . . . focus[] on the intent of the promisee"). 

         35      See Donald v. Liberty Mut. Ins. Co., 18 F.3d 474, 479 (7th Cir. 1994); 

Donaldson v. Liberty Mut. Ins. Co., 947 F. Supp. 429, 432-33 (D. Haw. 1996); Nahom 
v. Blue Cross & Blue Shield of Ariz., 885 P.2d 1113, 1117 (Ariz. App. 1994) (holding 
that    where    "the    contract    itself  [indicates]    an   intention    to  benefit"    a  third-party 
beneficiary, the beneficiary has a right to recover); Cancino v. Farmers Ins. Grp., 145 
                                                                                             (continued...) 

                                                     -12-                                               6637
 

----------------------- Page 13-----------------------

                Integon challenges the relevance of third-party beneficiary law by pointing 

to a passage from O.K. Lumber in which we noted:               "O.K. Lumber argues that a third 

party claimant may sue for breach of this covenant, either because it is a third party 
beneficiary   of   the   covenant   or   because   public   policy   so   dictates. We   disagree."36 

Integon argues that this language means that we already rejected a distinction based on 

third-party    beneficiary    law.   This    is  not  accurate.    O.K.    Lumber,     an   incidental 

beneficiary, argued that third-party-beneficiary law supported finding that it had a cause 
of action for bad faith.37    But incidental beneficiaries never have the power to enforce 

contract rights.   In O.K. Lumber, we therefore had no occasion to address, and did not 

decide, whether intended beneficiaries have a cause of action for bad faith.  Our decision 

in  Loyal    Order    of  Moose,    decided    two   years   after O.K.    Lumber,     confirms    this 

interpretation.   In Loyal Order of Moose, we characterized the holding in O.K. Lumber 
as limited to "incidental third-party beneficiar[ies]."38 

        35(...continued) 

Cal. Rptr. 503, 506 (Cal. App. 1978); Hendren v. Allstate Ins. Co., 672 P.2d 1137, 1140- 
41 (N.M. App. 1983); Escalante v. Sentry Ins., 743 P.2d 832, 837-38 (Wash. App. 1987), 
overruled on other grounds by Ellwein v. Hartford Accident & Indem. Co., 15 P.3d 640, 
647 n.10 (Wash. 2001). But see Braesch v. Union Ins. Co., 464 N.W.2d 769, 776 (Neb. 
1991), overruled on other grounds by Wortman ex rel. Wortman v. Unger, 578 N.W.2d 
413, 417 (Neb. 1998); Kleckley v. Nw. Nat'l Cas. Co., 526 S.E.2d 218, 219-20 (S.C. 
2000). 

        36      O.K. Lumber Co. v. Providence Washington Ins. Co ., 759 P.2d 523, 525 

(Alaska 1988). 

        37      Id. 

        38      Loyal Order of Moose, Lodge 1392 v. Int'l Fid. Ins. Co., 797 P.2d 622, 628 

(Alaska 1990). 

                                                 -13-                                           6637
 

----------------------- Page 14-----------------------

                2.      Other jurisdictions 

                The positions on this issue taken by other jurisdictions, particularly those 

jurisdictions on which we have relied in our previous decisions on bad faith, support 

finding that an additional insured, like Ennen, has a potential cause of action for bad 

faith. 

                State Farm v. Nicholson, the decision in which we created the cause of 
action    for   bad   faith   against   insurers,   cited   to   California's   caselaw  on  this   issue.39 

California was the first state to create the tort of bad faith against an insurer.40        Nicholson 

expressly based its holding on the California Supreme Court's opinion in Gruenberg v. 
Aetna .41   In Nicholson, we quoted extensively from Gruenberg as well as from other 

courts that had followed Gruenberg in adopting the cause of action for bad faith.42 

                In O.K. Lumber, we also relied on California's decisions, citing to Murphy 
v. Allstate Insurance Co.,43 another California insurance bad faith case decided three 

        39      State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152, 1155 (Alaska 

 1989). 

        40      Gruenberg v. Aetna Ins. Co., 510 P.2d 1032 (Cal. 1973) (holding that an 

insured has a cause of action when   her insurer mishandles her claim for damage to 
herself or her property); Comunale v. Traders & Gen. Ins. Co., 328 P.2d 198 (Cal. 1958) 
(in   bank)   (holding   that   an   insured   has   a   cause   of   action   for   bad   faith   if   an   insurer 
mishandles a claim by a third   party against the insured); Douglas R. Richmond, An 
Overview of Insurance Bad Faith Law and Litigation, 25 SETON HALL L. REV . 74, 77-78 
(1994). 

        41      Nicholson, 777 P.2d at 1155. 

        42      Id. at 1155-56. 

        43      553 P.2d 584 (Cal. 1976). 

                                                  -14-                                            6637
 

----------------------- Page 15-----------------------

years after Gruenberg.44       Murphy had sued Pollard for the wrongful death of her young 

son.45   Pollard   was   insured   by   Allstate.46    After   negotiations   between   Murphy   and 

Allstate faltered, Murphy sued Allstate "alleging breach of the duty of good faith to its 
insured."47     The   California   Supreme   Court   explained   that   while   there   is   an   implied 

covenant of good faith and fair dealing between the insurer and insured, that duty did not 
extend to an "injured claimant."48          We relied on Murphy to support the statement that 

"the duty of good faith and fair dealing benefits only the insured and does not give rise 
to a cause of action in favor of a third party claimant."49 

                In explaining the insurer's obligation to act in good faith, the California 

Supreme Court in Murphy cited to another insurance bad faith case decided one year 
earlier, Johansen v. California State Automobile Association Inter-Insurance Bureau.50 

In Johansen, the California Supreme Court held that an additional insured could bring 

an action for bad faith against the insurer.   Muriel Johansen was injured by the negligent 
driving   of   Gary   Dearing,   the   minor   son   of   Joyce   Dearing.51  Joyce   Dearing   had   an 

automobile       insurance    policy   with   California    State   Automobile      Association     Inter- 

        44      O.K. Lumber Co. v. Providence Washington Ins. Co., 759 P.2d 523, 526 

(Alaska 1988). 

        45      Murphy, 553 P.2d at 586. 

        46      Id. 

        47      Id.
 

        48
     Id. at 588. 

        49      O.K. Lumber, 759 P.2d at 525-26. 

        50      538 P.2d 744 (Cal. 1975). 

        51      Id. at 745-46. 

                                                   -15-                                             6637
 

----------------------- Page 16-----------------------

Insurance Bureau (CSAAIB).52             CSAAIB was recalcitrant about settling, and Johansen 

eventually sued the Dearings, obtaining a judgment well in excess of policy limits.53 

Gary Dearing, the additional insured minor,54 then assigned his rights to Johansen, who 

sued CSAAIB for bad faith.55           Johansen had been assigned the rights of an additional 

insured and was therefore acting as an additional insured. The court thus noted that "the 

rights at issue here are those of Gary Dearing, the insured," and the court's "inquiry . . . 

focus[ed] on the nature of the relationship between the defendant insurer and its insured, 
[Gary] Dearing."56      The court then held that Johansen did have a cause of action for bad 

faith   "sound[ing]      in  both   contract    and   tort."57  The    treatise  Insurance      Bad   Faith 

Litigation, which we cited in Nicholson,58 points to Johansen as an example of the rule 

that an additional insured may sue for bad faith: 

                 Ordinarily, a defendant cannot be sued for bad faith under an 
                 insurance     policy    unless   the  defendant     was    a  contracting 
                 party. . . . But the duty of good faith extends to any insured 
                 entitled   to   benefits   under   the   policy.   .   .   .   In  Johansen   v. 
                 California      State   Automobile      Association     Inter-Insurance 
                 Bureau      .  .  .  [t]he  fact  that  [Gary]    Dearing     was   not   a 

        52       Id. at 746. 
 

        53       Id. at 746-47.
 

        54       The statement of facts in Johansen does not clarify Dearing's status as an
 

insured, but it was fully explained in a later opinion.  Cancino v. Farmers Ins. Grp., 145 
Cal. Rptr. 503, 504-05 n.2 (Cal. App. 1978). 

        55       Johansen, 538 P.2d at 747. 

        56       Id. 

        57       Id. at 750 (internal quotation marks omitted). 

        58       State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152, 1154-55 (Alaska 

1989). 

                                                    -16-                                              6637
 

----------------------- Page 17-----------------------

                contracting party was regarded as immaterial, given his status 
                as an insured entitled to benefits.[59] 

After Johansen, the lower California courts confirmed that an additional insured could 
sue an insurer for bad faith.60   In Cancino v. Farmers Insurance Group, for instance, the 

California Court of Appeals concluded that theJohansen decision required it to hold that 
an additional insured has a cause of action for bad faith.61         Thus, by the time we cited 

California case law in Nicholson and O.K. Lumber, it was well established in California 

that an additional insured could sue for bad faith. 

                We agree with the California Supreme Court that whether an insured is a 

policyholder   or   an   additional   insured   makes   no   difference. Both   policyholders   and 

additional insureds are "insured," and as such are entitled to bring causes of action for 

bad faith. 

                3.	    An   "adversarial"   relationship   between   Shanigan   and   Ennen 
                       does not prevent Ennen from having a cause of action for bad 
                       faith. 

                Integon    argues   that  the  relationship    between    Ennen    and   Integon   is 

adversarial and that there can be no fiduciary duty between them.  Integon reasons that 

it stood in two sets of shoes.      First, it represented Shanigan, whom it protected from 

claims by Ennen. Second, Integon represented Ennen as Shanigan's passenger.  Integon 

        59      WILLIAM T.BARKER & RONALD D.KENT,NEW APPLEMAN INSURANCE BAD 

FAITH LITIGATION   7.03[1] (2d ed. 2010).  Note that this treatise is an updated version 
(with a slightly revised title) of the treatise WILLIAM M. SHERNOFF, SANFORD M. GAGE 
& HARVEY  R. LEVINE, INSURANCE  BAD  FAITH  LITIGATION (1984), which we cited in 
Nicholson, 777 P.2d at 1154-55. 

        60     See  Cancino v. Farmers Ins. Grp., 145 Cal. Rptr. 503 (Cal. App. 1978); 

Nw. Mut. Ins. Co. v. Farmers Ins. Grp., 143 Cal. Rptr. 415 (Cal. App. 1978). 

        61      Cancino, 145 Cal. Rptr. at 505-06. 

                                                -17-	                                         6637
 

----------------------- Page 18-----------------------

argues that because Shanigan and Ennen were adverse parties, Integon could not owe 

duties of good faith to both.       Integon, pointing to language from O.K. Lumber, argues 

that this adversarial relationship precludes Ennen from having a cause of action for bad 

faith:   "An insurer could hardly have a fiduciary relationship both with the insured and 
a claimant because the interests of the two are often conflicting."62         Integon is correct that 

where the driver of a vehicle becomes liable to a passenger, there will be a tension 

between the insurer's role as protector of the driver against suits by the passenger and 

the insurer's role as the insurer of the passenger.         Indeed, it is possible to say that this 

tension will exist whenever a policyholder becomes liable to an additional insured and 

the policy provides underinsured benefits because the additional insured will be able to 

make claims under the policy both as a tort claimant against the policyholder and as an 

additional insured. 

                We agree with Integon that when it comes to Ennen's liability claim, Ennen 

and   Shanigan   are   adversarial   parties:   Ennen   was   seeking   recovery   for   damage   that 

Shanigan allegedly caused him.  Under O.K. Lumber, Ennen could not bring a cause of 
action for bad faith against Shanigan's insurer for failing to pay Ennen's liability claim.63 

But the situation is different for Ennen's UIM claim.           As to a UIM claim, the insurer's 

two roles are separate.  The insurer's role as the insurer to an adversary in the context of 

liability claims does not affect the insurer's role as the insurer to the passenger in the 

context of the passenger seeking UIM benefits. As one commentator has noted, "the fact 

that    the   insurer    may     in   some     instances    take    the   same     position    as   the 

uninsured/underinsured motorist with respect to the motorist's liability and the insured's 

        62      O.K. Lumber Co. v. Providence Washington Ins. Co., 759 P.2d 523, 526 

(Alaska 1988). 

        63      Id. at 525-26. 

                                                 -18-                                              6637 

----------------------- Page 19-----------------------

damages,      does   not  (in  most   jurisdictions)   negate   the  duty   of  good   faith  and   fair 
dealing."64   The Seventh Circuit Court of Appeals' decision in Craft v. Economy Fire & 

Casualty Co. explained in detail why an adversarial relationship between an insurer and 

a party claiming UIM benefits does not preclude an insurer from owing a duty of good 
faith and fair dealing to both its named insured and a party claiming UIM benefits.65 

That court concluded: 

                [T]here     is  nothing   inherent    in  the  nature    of  uninsured 
                motorist protection that is inconsistent with a requirement 
                that the insurance company attempt in good faith to reach 
                agreement with its insured and that any attempt to force the 
                insured to settle for less than his claim be predicated on a 
                bona fide dispute as to the amount of liability.[66] 

Other courts have also applied the tort of bad faith in the UIM context.67             Accordingly, 

we conclude that Ennen's adverse position to Shanigan on Ennen's liability claim does 

not preclude Integon from owing Ennen a duty of good faith on Ennen's UIM claim. 

        B.	     The Superior Court Ruling That Integon Acted In Bad Faith Was Not 
                Clearly Erroneous. 

                The superior court made alternate findings.           In the event that Ennen was 

determined to have a cause of action for bad faith, the superior court found that Integon 

acted in bad faith.     Specifically, the superior court found that while Integon did not 

engage in an "intentional" scheme to "deceive and deny UIM claims," Integon's conduct 

was "grossly reckless."      The superior court found that Integon acted recklessly at both 

        64      BARKER & KENT, supra note 59, at  6.02[2][c].
 

        65
     572 F.2d 565, 568 (7th Cir. 1978). 

        66      Id.
 

        67
     See, e.g., LeFevre v. Westberry, 590 So. 2d 154, 159 (Ala. 1991); Voland 

v. Farmers Ins. Co. of Ariz., 943 P.2d 808, 811 (Ariz. App. 1997). 

                                                 -19-	                                           6637
 

----------------------- Page 20-----------------------

the "front end" (Integon's submission of a legally improper policy to the Alaska Division 

of Insurance) and the "back end" (Integon's wrongful denial of UIM claims after the 

policy   was   approved   by   the   Division   of   Insurance).    The   court   stated   that   Integon 

"exhibited a shocking level of indifference and reckless disregard for the information 

they undisputably had in their possession concerning the state of Alaska insurance law, 

concerning      national    industry   standards,    and   concerning      their  own    organizational 

knowledge, standards, and practices." 

                We have explained that the tort of bad faith "requires that the insurance 
company's refusal to honor a claim be made without a reasonable basis."68                       Integon 

concedes that it did not recognize that Ennen was owed UIM benefits.  It acknowledges 

that it made "a series of mistakes" but argues that its mistakes were neither intentional 

nor   evidence   of   "reckless   indifference."     Integon   argues   that   its   conduct   was   only 

negligent. 

                1.	     Integon was not entitled to rely on the approval of its policy by 
                        the Alaska Division of Insurance. 

                Integon argues it was entitled to rely on the policy's UIM language once 

the policy was approved by the Alaska Division of Insurance but cites no authority for 

this proposition.      Integon's obligation to comply with applicable insurance statutes is 

independent of its obligation to submit proposed policies to the Division of Insurance. 

Alaska law provides that an insurance policy may not contain a provision inconsistent 
with   statutory   requirements.69     The   Division   of   Insurance   may   approve   a   substitute 

provision  only  if   it   is   "not   less   favorable   .   .   .   to   the   insured   or   beneficiary   than   the 

        68      Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321, 1324 (Alaska 

1993). 

        69      AS 21.42.140(b). 

                                                  -20-                                               6637 

----------------------- Page 21-----------------------

provisions otherwise required."70         The Division of Insurance's approval is a screening 

mechanism, meant to catch unlawful insurance policies.                Approval by the Division of 

Insurance cannot make an unlawful policy lawful.                Obtaining Division of Insurance 

clearance does not authorize an insurer to issue policies that are not in accordance with 

Alaska statutes. 

                In addition, even though the Division of Insurance failed to notify Integon 

that its policy was legally incorrect, Integon had a number of opportunities to correct its 

policy.   After the policy was approved, many other parties sought UIM benefits from 

Integon.  Even if Integon was entitled to rely on the policy language, it had ample notice 

from other sources that the policy language was unlawful.  We conclude that the record 

supports the superior court's determination that Integon acted in bad faith. 

                2.      Integon's evidentiary objections 

                Integon   argues   that   the   superior   court   improperly   based   its   alternative 

findings on inadmissible evidence about Integon's behavior toward insureds who were 

not parties to Ennen's litigation.        The superior court made numerous findings of fact 

concerning Integon's handling of other claims besides Ennen's.                  Ennen characterizes 

Integon's argument as that the superior court violated Alaska Rule of Evidence 404(b), 

which provides that "[e]vidence of other crimes, wrongs, or acts is not admissible if the 

sole purpose for offering the evidence is to prove the character of a person in order to 

show that the person acted in conformity therewith." 

                We conclude that the superior court did not rely on any improper evidence 

about third-party claims.       The superior court referenced third-party cases to show that 

        70      Id. 

                                                  -21-                                              6637 

----------------------- Page 22-----------------------

Integon had notice that it was not paying proper UIM claims.71          This finding supported 

the   superior   court's   conclusion  that   Integon  knew   of   the   statutes   governing  UIM 

provisions and that Integon therefore should have known that it was not properly paying 

Ennen's claim. 

        C.     The Statute Of Limitations Does Not Bar Ennen's Bad Faith Claim. 

               Alaska    Statute   09.10.070(a)    provides   that  an  action  in  tort  must  be 

"commenced within two years of the accrual of the cause of action."  The superior court 

held that this statute of limitations did not bar Ennen's action.         The superior court's 

ruling was based on two grounds:         equitable estoppel and the discovery rule.        Ennen 

argues that either the discovery rule or the doctrine of equitable estoppel "is sufficient 

to preclude application of the statute of limitations." 

               While Integon does challenge the application of the discovery rule, it has 

not appealed or addressed the superior court's alternative equitable estoppel ruling.  The 

superior court held that Integon was "equitably estopped from asserting any statute of 

limitations defense." We have stated that "the party seeking to assert [equitable estoppel] 

[must] show that the other party made some misrepresentation, or false statement, or 

acted fraudulently and that he reasonabl[y] relied on such acts or representations of the 
other party, and due to such reliance did not institute suit timely."72     We have also stated 

that "equitable estoppel requires more than inaction or silence by a person who has no 

obligation to speak or act. . . . Yet there can be circumstances where inaction or silence 

        71     See, e.g., Alaska R. Evid. 404(b)(1) ("Evidence of other . . . acts . . . is, 

however, admissible for other purposes, including . . . proof of . . . knowledge, . . . or 
absence of mistake or accident."). 

        72     Groseth v. Ness, 421 P.2d 624, 632 n.23 (Alaska 1966). 

                                               -22-                                           6637 

----------------------- Page 23-----------------------

combined with acts or representations can give rise to an appropriate situation calling for 
the application of the estoppel doctrine."73 

                Ennen argues that Integon has waived its appeal of the superior court's 

ruling on equitable estoppel because Integon's cross-appellant's brief does not address 

the issue of equitable estoppel.         We agree.     Integon's cross-appellant's brief, despite 

extensively   discussing   issues   relating      to  the   statute   of   limitations,   never   mentions 

equitable estoppel.      Integon's entire argument in its cross-appellant's brief focuses on 

application of the discovery rule.          Because Integon has not challenged on appeal the 

superior   court's   ruling   that   equitable   estoppel   bars   the   application   of   the   statute   of 

limitations, its arguments on the discovery rule are irrelevant. 

        D.	     The Superior Court's Ruling In Favor Of Allen Can Be Affirmed On 
                The Alternative Ground That Allen's Conduct Was Not A Proximate 
                Cause Of Ennen's Damages. 

                Integon filed a third-party complaint against Craig Allen, Ennen's former 

attorney,   and   the   Allen   Law   Group.    Allen   represented   Ennen   when   Ennen   sought 

insurance benefits from Integon, and Integon maintained that Allen should have realized 

that   Integon's   policy   language   was   defective.       Integon   argued   that   AS   09.17.080, 

providing for apportionment of damages among multiple tortfeasors, allowed Integon to 

bring in Allen as a third-party defendant.            Allen filed a motion to dismiss, which the 

superior court granted.       The superior court dismissed Allen from the suit, ruling that, 

while AS 09.17.080 "standing alone" permitted Integon's third-party action, allowing 

the   action   would   "disrupt   the   strong   public   policies"   supporting   the   attorney-client 

relationship.   Integon   cross-appeals,   arguing   that   the   superior   court   was   mistaken   in 

dismissing Allen from the case. 

        73      Id. at 632 n.25 (internal citations omitted). 

                                                  -23-                                                6637 

----------------------- Page 24-----------------------

                 Ennen     maintains     that   any   error   in  dismissing     Integon's     third-party 

complaint against Allen was harmless because there was no prejudice to Integon.  In 

support of this argument, Ennen first points to the superior court's ruling that Integon 

could attribute any fault of Allen to Ennen through agency principles.                     According to 

Ennen, Integon was not prejudiced by the order dismissing its third-party claim against 

Allen because the trial court ruled that Allen's fault could be attributed to Ennen, not 

Integon,   and   Integon   was   therefore   only   responsible   for   its   own   share   of   the   fault. 

Whether Allen's fault could be allocated to Ennen under agency principles presents an 

interesting question, but it is not properly before us. Neither party   has appealed the 

ruling, and we do not need to rely on it to conclude that Integon was not prejudiced.  But 

the superior court also found after a bench trial that even if negligent, Allen was not 

legally at fault for Ennen's damages. Allen maintains that this finding entitles him to a 

favorable judgment against Integon.            We agree. 

                 We can affirm the superior court's judgment on any ground supported by 
the record.74   To apportion fault to a party under AS 09.17.080, that party's conduct must 

be a legal cause of the plaintiff's harm.75           Thus, legal causation is a prerequisite for 

allocation of fault to Allen.  The superior court determined in its alternative findings of 

        74      In    re  Estate   of  Fields,   219   P.3d    995,   1003    (Alaska    2009)    (quoting 

Gilbert M. v. State, 139 P.3d 581, 586 (Alaska 2006)). 

        75       AS 09.17.080(b) ("In determining the percentages of fault, the trier of fact 

shall consider both the nature of the conduct of each person at fault, and the extent of the 
causal relation between the conduct and the damages claimed."); Fancyboy v. Alaska 
Village   Elec.   Co-op.,   Inc.,   984   P.2d   1128   (Alaska   1999)   (applying   the   doctrine   of 
proximate cause to equitable apportionment); see also Lake v. Construction Machinery, 
Inc., 787 P.2d 1027, 1031 (Alaska 1990), superseded by statute, Ch. 26,  36, SLA 1997 
("A third party tortfeasor may escape liability by proving that it was not negligent or that 
its negligence did not proximately cause the employee's injury."). 

                                                   -24-                                              6637
 

----------------------- Page 25-----------------------

fact   that  "[t]here   is  no  proximate     cause    between    [Allen's]    conduct    and   Ennen's 

damages." 

                The     superior    court   reasoned     in  part  that   Integon    had   a  "separate, 

independent, and super[s]eding duty to properly identify Ennen's UIM claim, to properly 

evaluate it, and to properly and timely pay it," and that "[a]s such, Allen's malpractice 

is not a proximate cause of any harm to Ennen."  We review findings of proximate cause 
for clear error.76   Integon argues, however, that the superior court was legally mistaken 

when it stated that Integon had a "separate, independent, and super[s]eding duty" to 

properly deal with Ennen's claim.           Integon argues that it owed no duty to Ennen as an 

additional insured.     But, as we have concluded, Integon did in fact owe a duty of good 

faith and fair dealing to Ennen. 

                The dissent argues that the superior court's causation analysis was premised 

on    the  erroneous     conclusion     "that  Integon    had   a  'super[s]eding     duty'   to  Ennen 
precluding a liability finding on Allen's part."77        It is true that Alaska does not recognize 

a "superseding duty" doctrine.          But while the superior court did characterize Integon's 

duty to deal properly with Ennen's claim as "separate, independent, and super[s]eding," 

its proximate cause analysis was based upon a factual comparison of the two parties' 

actions. Although the dissent asserts that the trial court "did not actually compare the 
conduct of Integon and Allen,"78 the superior court did make a factual finding contrasting 

Integon's   "reckless   and   knowingly   indifferent"   conduct   with   Allen's   "mere[]   .   .   . 

        76      State v. Guinn, 555 P.2d 530, 538 (Alaska 1976) (citing State v. Abbott, 498 

P.2d   712,   727   (Alaska   1972))   ("The   proper   standard   for   review   of   the   finding   of 
proximate causation is . . . the 'clearly erroneous' standard[.]"). 

        77      Dissent at 31. 

        78      Dissent at 30-31. 

                                                  -25-                                             6637
 

----------------------- Page 26-----------------------

negligence" and found that "Allen had nothing to do with" Integon's "bad faith claims 

practices."     The   superior   court   found   that,   had   Integon   complied   with   Alaska   law, 

Allen's ignorance of the law "would not have been a legal cause of harm to Ennen." 

                 We agree with the superior court's conclusion regarding causation.  The 

superior court conducted an eight-day trial and heard the evidence regarding Integon's 

conduct.      Even    assuming      that   Allen  was   negligent   for   failing   to  detect   Integon's 

deceptive practices - practices the superior court described as "recklessly deceptive" 

and "intentionally indifferent" - we conclude that a reasonable fact finder could have 

decided that Allen's negligence was not a proximate cause of Ennen's damages. 

                 We have described the proximate cause analysis as an "intangible legal 
policy element."79      The cental question is "whether the conduct has been so significant 

and important a cause that the defendant should be legally responsible."80 

                 The   superior   court   found   that   Integon's   conduct   was   "shocking   .   .   .   a 

practice and pattern of grossly reckless ignorance and incompetence" in violation of 

Alaska law. The superior court noted that other claimants had been similarly injured and 

that at least one other attorney had also failed to recognize Integon's misconduct.  We 

        79        Vincent by Staton v. Fairbanks Mem'l Hosp., 862 P.2d 847, 851 (Alaska 

1993); see also Glen O. Robinson, Multiple Causation in Tort Law: Reflections on the 
DES Cases, 68 VA . L. REV . 713, 713 (1982) (proximate cause is "susceptible to endless 
philosophical      argument,      as  well   as  practical   manipulation");      William     L.  Prosser, 
Proximate Cause in California, 38 CAL.L.REV . 369, 369, 375 (1950) ("Proximate cause 
remains a tangle and a jungle, a palace of mirrors and a maze . . . [it] covers a multitude 
of sins . . . [and] is a complex term of highly uncertain meaning under which other rules, 
doctrines and reasons lie buried."). 

        80       Vincent by Staton, 862 P.2d at 851;see also Robles v. Shoreside Petroleum, 

Inc., 29 P.3d 838, 841 (Alaska 2001); Conklin v. Hannoch Weisman, 678 A.2d 1060, 
1072     (N.J.   1996)   (holding    that   the   substantial   factor   test   is   best   suited   "for   legal 
malpractice   cases   in   which   inadequate   or   inaccurate   legal   advice   is   alleged   to   be   a 
concurrent cause of harm"). 

                                                   -26-                                              6637
 

----------------------- Page 27-----------------------

conclude that the evidence supports the superior court's findings that Integon's conduct 

was grossly reckless and that Allen's negligence was not a proximate cause of Ennen's 

harm.   We therefore affirm the superior court's judgment in favor of Allen and against 

Integon on this alternative ground. 

        E.      Ennen Was Entitled To Damages. 

                The superior court held that Ennen had suffered no injury due to Integon's 

delayed payment of UIM benefits.           Finding that Ennen had suffered no "emotional or 

financial distress," the court awarded no compensatory damages.               The court explained 

that "[w]hatever financial distress that Ennen suffered because of the belated payment 

of his UIM benefits" was only "the lost use of money," which was compensated by 

prejudgment interest.  Ennen argues that it was erroneous for the superior court "to rule 

that   Ennen's   damages   were   fully   compensated   by   payment   of   interest   on   the   UIM 

coverage."     Ennen   maintains   that   he   was   entitled   to   an   award   of   compensatory   or 

nominal damages.       We agree. 

                Ennen suffered a financial loss as a result of Integon's failure to pay UIM 

benefits in 2000.     He was deprived of the UIM benefits to which he was entitled under 

the policy.   We have previously approved compensatory damage awards for financial 

deprivations      suffered   from    an  insurer's    unreasonable     withholding     of   insurance 
proceeds.81   Similarly, other jurisdictions award compensatory damages for the financial 

hardships suffered when an insurer withholds insurance proceeds in bad faith.  In Silberg 

v. California Life Insurance Co., an insurer refused to pay medical bills necessary to treat 
a workplace injury suffered by the insured.82         The California Supreme Court reversed a 

        81      State Farm Mut. Auto. Ins. Co. v. Weiford, 831 P.2d 1264, 1270 (Alaska 

1992). 

        82      521 P.2d 1103, 1105 (Cal. 1974). 

                                                 -27-                                             6637 

----------------------- Page 28-----------------------

trial court's denial of a $75,000 award to cover the distress suffered by the insured due 
to the financial difficulties caused by his inability to pay his medical bills.83 

                At trial Ennen presented evidence of the financial and emotional distress 

he suffered.  Between 2000, when Ennen suffered his accident, and 2007, when Integon 

paid the UIM benefits, Ennen testified that he suffered from not having the insurance 

proceeds.  He testified that he received public assistance, that at times he was unable to 

afford heating oil, and that he was frequently short of food. Here, once it was established 

that (1) Integon had committed bad faith in withholding Ennen's insurance proceeds and 

(2) Ennen suffered "financial and emotional hardship" from not having the insurance 

proceeds, it was error not to award compensatory damages.  The superior court reasoned 

that prejudgment interest compensated Ennen for this lost time-value of money.  But in 

Nicholson, we quoted the Texas Supreme Court for one of the justifications of the bad 

faith cause of action: "[W]ithout such a cause of action insurers can arbitrarily deny 

coverage and delay payment of a claim with no more penalty than interest on the amount 
owed."84   Interest alone does not compensate Ennen for his financial hardship and related 

distress, and at a minimum he is entitled to nominal damages.85              We therefore remand, 

directing the superior court to calculate damages consistent with this opinion. 

        83      Id. at 1107-08, 1110-11. 

        84      State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152, 1156 (Alaska 

1989) (quoting Arnold v. Nat'l Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 
1987)). 

        85      See Anchorage Chrysler Ctr., Inc. v. DaimlerChrysler Motors Corp.,  221 

P.3d 977, 990 (Alaska 2009) (stating that nominal damages are appropriate where a 
plaintiff shows   "actual loss   or   injury"   but fails   to   prove   "the   extent and   amount   of 
damages"). 

                                                 -28-                                            6637
 

----------------------- Page 29-----------------------

      F.     Attorney's Fees 

             We vacate the superior court's award of attorney's fees for Integon and 

remand for a new award of attorney's fees for Ennen under Civil Rule 82. 

V.    CONCLUSION 

             For the foregoing reasons, we AFFIRM in part, REVERSE in part, and 

REMAND the superior court judgment for proceedings consistent with this opinion. 

                                        -29-                                   6637
 

----------------------- Page 30-----------------------

WINFREE, Justice, dissenting in part. 

                 I respectfully disagree with the court's resolution of Integon Indemnity 

Corporation's (Integon) appeal of the trial court's dismissal of Integon's third-party 

complaint against Craig Allen and Allen Law Group (Allen). 

                 Integon filed a third-party claim against Allen for allocation of fault under 

AS   09.17.080,   asserting   Allen   was   at   least   concurrently   at   fault   for   Jacob   Ennen's 

(Ennen)   damages   arising   from   the   failure   to   promptly   pay         under-insured   motorist 

coverage benefits.  The trial court dismissed Integon's third-party complaint, setting out 

the following question: 

                         This court agrees that the language of AS 09.17.080 
                 would, standing alone, permit [Integon to allocate fault to 
                 Allen].      The      question     is  whether      the   public    policy 
                 considerations that underlie the relationship between a client 
                 and   his   attorney   (or   former   attorney)     outweigh   the   clear 
                 language and general intent of the statute, such that, on the 
                 limited, narrow facts of this case, the statute will be held not 
                 to apply. 

                 The trial court resolved this question as follows: 

                 The court concludes that it would contravene public policy to 
                 permit   [Integon]   to   bring   an   apportionment   claim   against 
                 [Allen] when Ennen himself has not asserted a claim against 
                 Allen. . . .  Also of great significance is the fact that [Integon] 
                 may still argue and ask the [factfinder] to apportion the fault 
                 of Allen (if any) to Ennen, under principles of agency and 
                 vicarious liability.    (Emphasis in original.) 

                 The court avoids deciding whether this ruling was correct by affirming on 

the    alternative   ground     that  after   a  bench    trial,  the  trial  court   concluded      Allen's 

professional   negligence   was   not   a   proximate   cause   of   any   damage   to   Ennen.          The 

fundamental flaw in the court's decision is describing the trial court's conclusion as a 

finding   of   fact   rather   than   as   a   conclusion   of   law. The   trial   court   did   not   actually 

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compare the conduct of Integon and Allen, as required by AS 09.17.080,1 and then find 

as a matter of fact that Integon should be allocated 100% of the fault.                 The trial court 

compared legal duties and concluded as a matter of law that Integon had a superseding 

duty to Ennen precluding a liability finding on Allen's part: 

                        Had   defendants   done   their   job   as   they   should   have 
                (and they agree their performance in not properly and timely 
                identifying and paying Ennen's UIM claim was negligent), 
                Ennen's first attorney's lack of knowledge and experience 
                with Alaska law would not have been a legal cause of harm 
                to Ennen.     The defendants had a separate, independent, and 
                super[s]eding duty to properly identify Ennen's UIM claim, 
                to properly evaluate it, and to properly and timely pay it.  As 
                such,   Allen's   malpractice   is   not   a   proximate   cause   of   any 
                harm to Ennen, at least with respect to Ennen's claim against 
                defendants. 

                The trial court's superseding duty analysis was legally incorrect - to the 

extent Alaska has even recognized the concept of superseding duty, it must give way to 
the legislature's allocation of fault mandate.2       The proximate cause ruling, based on legal 

duty, not on a finding of fact, simply does not support the court's alternative affirmance 

        1       See AS 09.17.080 (providing for fault to be allocated to a party, "the trier 

of fact shall consider both the nature of the conduct of each person at fault, and the extent 
of the causal relation between the conduct and the damages claimed"); AS 09.17.900 
(defining   "fault"   for   AS   09.17.080   as   "acts   or   omissions   that   are   in   any   measure 
negligent, reckless, or intentional towards the person . . . .  Legal requirements of causal 
relation apply both to fault as the basis for liability and to contributory fault"). 

        2       See Sowinski v. Walker, 198 P.3d 1134, 1149-56 (Alaska 2008) (discussing 

transition to pure comparative negligence with pure several liability and overruling prior 
dram shop cases that found no fault could be allocated to minor who illegally purchased 
alcohol). 

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of the trial court's ruling on Integon's third-party complaint against Allen for allocation 
of fault.3 

               I would reach the underlying question whether the trial court correctly 

dismissed Integon's third-party claim against Allen.          Because the court does not reach 

this question, I note only that I have serious doubts whether the dismissal was legally 

correct - if the court did not share those doubts, it would not need to rely on an infirm 

alternative ground for affirmance of the trial court's ruling. 

        3      Even if the trial court's proximate cause ruling could be viewed as a finding 

of fact, I would conclude that finding was clearly erroneous.  Allen's conduct, as out-of- 
state counsel representing an Alaskan on matters of Alaska law, was nearly as shocking 
as Integon's - I am not as willing as the trial court to excuse Allen's "lack of knowledge 
and experience with Alaska law" given Allen's undertaking on Ennen's behalf.  And if 
Ennen had sued Allen along with Integon, is there any real doubt there would have been 
an actual and realistic allocation of fault between those two defendants?   I fail to see why 
Ennen's failure to sue Allen should change the result. 

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