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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. McDonnell v. State Farm Mutual Automobile Insurance Company (4/26/2013) sp-6776

McDonnell v. State Farm Mutual Automobile Insurance Company (4/26/2013) sp-6776

        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 



LORI McDONNELL, individually,                    ) 

                                              * 

and on behalf of her minor son, LUKE ,   )               Supreme Court Nos. S-14378/14407 

                                                ) 

                Appellants and                  )        Superior Court No. 3AN-09-09375 CI 

                Cross-Appellees,                ) 

                                                )        O P I N I O N 

        v.                                      ) 

                                                )       No. 6776 - April 26, 2013 

STATE FARM MUTUAL                               ) 

AUTOMOBILE INSURANCE                            ) 

COMPANY,                                        ) 

                                                )
 

                Appellee and                    )
 

                Cross-Appellant.                )
 

                                                ) 



                Appeal from the Superior Court of the State of Alaska, Third 

                Judicial District, Anchorage, Sen K. Tan, Judge. 



                Appearances:  Michael J. Schneider, Law Offices of Michael 

                J.   Schneider,   P.C.,   Anchorage,   for   Appellants   and   Cross- 

                Appellees.     Kimberlee  A.   Colbo,   Hughes   Gorski   Seedorf 

                Odsen   &   Tervooren,   LLC,   Anchorage,   for   Appellee   and 

                Cross-Appellant. 



                Before:      Carpeneti,      Chief   Justice,   Fabe,    Winfree,    and 

                Stowers, Justices, and Eastaugh, Senior Justice pro tem.** 



                STOWERS, Justice. 



        *       We do not use Luke's last name to protect his privacy. 



        **      Sitting   by   assignment   made   under   article   IV,   section   11   of   the   Alaska 



Constitution and Alaska Administrative Rule 23(a). 


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

I.      INTRODUCTION 



                Following a car accident with an uninsured motorist, Lori McDonnell filed 



suit against her insurer State Farm Mutual Automobile Insurance Company on behalf of 



herself and her minor son, Luke. McDonnell sought a declaratory judgment that:  (1) she 



was entitled to have her personal injury claims settled by appraisal under the mandatory 



appraisal statute, AS 21.96.035; and (2) a provision in her State Farm insurance policies 



requiring her to file suit against the insurance company within two years of the accident 



was void as against public policy.   The superior court ruled that the mandatory appraisal 



statute   did   not   apply  to  personal   injury   claims.    The    court   further  ruled   that   the 



contractual two-year limitations provision was enforceable, but only if State Farm could 



show     that  it  was  prejudiced    by   an  insured's    delay   in  bringing   suit,  and   that  the 



appropriate accrual date for the limitations period was the date State Farm denied an 



insured's claim, rather than the date of the accident. 



                McDonnell and State Farm both appeal.  McDonnell argues the mandatory 



appraisal   statute   applies   to   her  personal   injury   claims   and   the   two-year   limitation 



provision   is   wholly   void   as   against   public   policy. State   Farm   argues   the   two-year 



limitation provision is wholly enforceable.   For the reasons explained below, we affirm 



the superior court's rulings. 



II.     FACTS AND PROCEEDINGS 



                On August 7, 2007, McDonnell and her son were involved in a car accident. 



The driver of the other vehicle fled the scene and was never identified. 



                McDonnell   had   two   State   Farm   insurance   policies   that   both   provided 



uninsured   motorist   (UM)   and   underinsured   motorist   (UIM)   coverage.           McDonnell 



claimed that the accident had caused her and her son Luke to suffer back injuries.  State 



Farm agreed that McDonnell and her son were entitled to UM coverage but disputed that 



                                                  -2-                                             6776
 


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

the accident had caused all of their asserted injuries.          The parties were unable to settle 



McDonnell's claims. 



                McDonnell's insurance policies required her to bring suit against State 



Farm within two years of the accident if the parties could not agree on the amount of her 



damages. On August 7, 2009, McDonnell filed a complaint against State Farm on behalf 

of herself and Luke.1      She sought a declaratory judgment that the two-year limitation 



provision was unenforceable and that she was entitled to resolve her claims by appraisal 

under AS 21.96.035.2        State Farm argued the two-year limitations period was a fully 



enforceable   contract   provision   and   the   mandatory   appraisal   statute   did   not   apply   to 



McDonnell's personal injury claims. McDonnell and State Farm filed cross-motions for 



summary judgment on the mandatory appraisal issue. McDonnell also filed a motion for 



judgment on the pleadings on the enforceability of the two-year limitation provision. 



                Superior Court Judge Sen K. Tan granted State Farm's summary judgment 



motion, ruling that under the plain language of AS 21.96.035 the mandatory appraisal 



procedure did not apply to McDonnell's personal injury claims.   The superior court also 



granted in part McDonnell's motion for judgment on the pleadings, ruling that even 



though the issue was technically moot it should nevertheless be reviewed   under the 



public interest exception to the mootness doctrine. Relying on Estes v. Alaska Insurance 



        1       Another son, Landon, was also in the car at the time of the accident, and 



McDonnell's complaint asserted claims on his behalf as well.                 Landon's claims have 

been    settled  with   State  Farm,    and   he  is   not   a   party  to  this   appeal. We  refer  to 

McDonnell's and Luke's claims collectively as McDonnell's claims in this opinion. 



        2       Throughout the trial proceedings, the parties cited to the former mandatory 



appraisal statute, AS 21.89.035.  The statute was renumbered to AS 21.96.035 in 2010. 

See AS 21.96.035 (revisor's notes). For clarity and consistency, we cite to AS 21.96.035 

throughout this opinion. 



                                                  -3-                                            6776
 


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

                            3 

Guaranty Association,  the court then ruled that the contractual two-year limitations 



period was enforceable, but only if State Farm could show it had suffered prejudice from 



an insured's delay in filing suit.  The court also ruled that the appropriate accrual date for 



the limitations period was the date when State Farm denied an insured's claim, not the 



date of the accident. 



                Both   parties   appeal,   reiterating   their   arguments   whether   AS   21.96.035 



applies to McDonnell's UM personal injury claims, whether McDonnell's challenge to 



the   two-year   limitations   provision   was   moot, and   whether   that provision   is   void   as 



against public policy. 



III.    STANDARD OF REVIEW 



                We review a judgment on the pleadings under Alaska Civil Rule 12(c) and 

a   summary   judgment   under   Alaska   Civil   Rule   56   de   novo.4      Both   judgments   are 



appropriate where there are no genuine issues of material fact and the moving party is 

entitled to judgment as a matter of law.5          A judgment on the pleadings must be based 



solely on the pleadings, however, while a summary judgment may be supported by 

evidence outside the pleadings, such as affidavits and depositions.6 



        3       774 P.2d 1315, 1317-18 (Alaska 1989). 



        4       Allstate Ins. Co. v. Teel , 100 P.3d 2, 4 (Alaska 2004) (judgment on the 



pleadings);    State    Farm     Mut.    Auto.   Ins.  Co.   v.  Lestenkof,     155   P.3d    313,   316 

(Alaska 2007) (summary judgment). 



        5       In re Life Ins. Co. of Alaska , 76 P.3d 366, 368 (Alaska 2003); Hebert v. 



Honest Bingo , 18 P.3d 43, 46-47 (Alaska 2001). 



        6       See Alaska R. Civ. P. 12(c) ("If, on a motion for judgment on the pleadings, 



matters outside the pleadings are presented to and not excluded by the court, the motion 

shall be treated as one for summary judgment . . . ."); Alaska R. Civ. P. 56(c) (providing 

summary judgment motions may be supported by "the pleadings, depositions, answers 

                                                                                        (continued...) 



                                                  -4-                                             6776
 


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

               Whether State Farm is entitled to summary judgment on the mandatory 



appraisal issue turns on the interpretation of AS 21.96.035.          We apply our independent 



judgment to questions of statutory interpretation, adopting the rule of law that is "most 

persuasive in light of precedent, reason, and policy."7      Whether McDonnell is entitled to 



a judgment on the pleadings on the two-year limitation issue turns on the enforceability 

of that contract provision, a question of law that we review de novo.8 



IV.	    DISCUSSION 



        A.	    Mandatory        Appraisal     Under     AS   21.96.035    Does    Not   Apply    To 

               McDonnell's Personal Injury Claims. 

               Alaska   regulates   insurance   through   a   comprehensive   insurance   code.9 



Alaska Statute 21.96.035 provides that certain types of insurance policies must include 



an appraisal clause for resolving disputes over the value of a covered loss: 



               A    motor    vehicle   or  similar  policy,   a  policy   providing 

               property coverage, or any other policy providing first party 

               property,    casualty,   or  inland  marine    coverage,   issued   or 

                delivered    in  this  state,  must  include  an  appraisal   clause 

               providing a contractual means to resolve a dispute between 



        6(...continued) 



to interrogatories, and admissions on file, together with the affidavits . . . ."); see also 

Hebert , 18 P.3d at 46 ("The purpose of a Rule 12(c) motion is to provide a means of 

disposing of cases when the material facts are not in dispute and a judgment on the merits 

can be achieved by focusing on the content of the pleadings and any facts of which the 

court will take judicial notice.") (internal quotation marks omitted). 



        7      Life Ins. Co. of Alaska , 76 P.3d at 368 (quoting Jerue v. Millett , 66 P.3d 



736, 740 (Alaska 2003)). 



        8      See State Farm Mut. Auto. Ins. Co. v. Dowdy, 192 P.3d 994, 998 (Alaska 



2008); Teel, 100 P.3d at 4. 



        9      See AS 21.03.010(a) ("All persons transacting a business of insurance in 



this state . . . shall comply with the applicable provisions of [Alaska's insurance code]."). 



                                                -5-	                                          6776
 


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

                 the insured and the insurer over the value of a covered first 

                 party    loss  for   real  property,    personal    property,    business 

                 property, or similar risks.[10] 



The statute also describes in detail the appraisal process that the insurer and insured must 



follow: 



                 If the insured and the insurer fail to agree on the amount of a 

                 covered   first   party   loss,   either   may   make   written   demand 

                 upon the other to submit the dispute for appraisal.  Within 10 

                 days   of   the   written   demand,   the   insured   and   insurer   must 

                 notify the other of the competent appraiser each has selected. 

                 The two appraisers will promptly choose a competent and 

                 impartial umpire.   Not later than 15 days after the umpire has 

                 been    chosen,    unless    the  time   period    is  extended     by  the 

                 umpire,   each   appraiser   will   separately   state   in   writing   the 

                 amount of the loss.      If the appraisers submit a written report 

                 of agreement on the amount of the loss, the agreed amount 

                 will   be   binding     upon    the   insured    and   insurer.     If  the 

                 appraisers fail to agree, the appraisers will promptly submit 

                 their differences to the umpire.   A decision agreed to by one 

                 of the appraisers and the umpire will be binding upon the 

                 insured and insurer.[11] 



                 McDonnell describes AS 21.96.035 as mandating an "appraisal-arbitration 



process" and argues that she has a right to resolve her UM dispute with State Farm by 



way of this process.  She argues that under the plain language of the statute, the appraisal 



process applies to personal injury claims because the statute applies to disputes over the 



value   of   "a   covered   first   party's   loss   for   real   property, personal   property ,   business 

property, or similar risks."12        Although the insurance code does not define "personal 



         10      AS 21.96.035. 



         11      Id. 



        12       Id. (emphasis added). 



                                                     -6-                                                 6776 


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

property,"13 the general statutory definition under AS 01.10.060 provides, "In the laws 



of   the   state,   unless   the   context   otherwise   requires,   .   .   .   'personal   property'   includes 

money, goods, chattels, things in action, and evidences of debt."14              A "thing in action," 



also called a "chose in action," includes claims for damages, such as a personal injury 

claim.15   We have recognized that "a chose in action, such as [a plaintiff's] claim for 



personal injuries, is a form of property."16  McDonnell argues that we must presume the 



legislature knew the term "personal property" included personal injury claims,17 therefore 



this term should be given its plain meaning under the general statutory definition of 



"personal property." 



                State Farm counters that the general definition of "personal property" under 



AS 01.10.060 is not conclusive because the statute requires consideration of the context 



        13      See AS 21.97.900. 



        14      AS 01.10.060(a)(9) (emphasis added). 



        15      See Bergen v. F/V St. Patrick, 686 F. Supp. 786, 787 (D. Alaska 1988) ("A 



'thing in action' is a chose in action . . . ."); BLACK 'S  LAW            DICTIONARY 258, 1617 

(9th ed. 2009) (defining "chose in action" as synonymous with "thing in action" and as 

including "a claim for damages in tort" or "[t]he right to bring an action to recover a 

debt, money, or thing"). 



        16      Bush v. Reid , 516 P.2d 1215, 1219 (Alaska 1973) ("We begin with the 



understanding that a chose in action, such as Bush's claim for personal injuries, is a form 

of property."). 



        17      See    Young    v.  Embley,    143   P.3d   936,   945   n.51   (Alaska    2006)    (The 



legislature is "presumed to be aware of common-law terms of art."). 



                                                  -7-                                             6776
 


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

in which the term is used,18 and   McDonnell's interpretation is inconsistent with the 



ordinary meaning of the term "appraisal." 



                The superior court rejected McDonnell's interpretation of AS 21.96.035, 



ruling    that   the  context   and  structure   of   the  statute  show    the  mandatory     appraisal 



procedure is limited to disputes over the value of tangible property.  The court reasoned 



that:  (1) the statute's expedited timeline suggests the legislature did not intend for the 



process to apply to complex medical disputes; (2) the legislature specifically used the 



term "appraisal," which is not synonymous with "arbitration"; and (3) McDonnell's 



interpretation would require the "appraisal" of essentially all claims, thereby rendering 



superfluous the statute's limitation to certain types of property loss. The court also noted 



a   "conceptual   issue"   with   McDonnell's   argument   that   a   chose   in   action   is   personal 



property subject to mandatory appraisal, reasoning "the right to sue is the property right, 



not the injury on which the right to sue is based"; therefore McDonnell and her son 



"should not be able to arbitrate their right to sue when what they want is to arbitrate the 

value of the injury itself."19 



                We interpret statutes "according to reason, practicality, and common sense, 



considering      the  meaning     of  the  statute's   language,    its  legislative   history,  and   its 



        18      AS 01.10.060(a)(9) ("In the laws of the state, unless the context otherwise 



requires, . . . 'personal property' includes money, goods, chattels, things in action, and 

evidences of debt.") (emphasis added). 



        19      Judge Tan also noted that Superior Court Judge John Suddock had recently 



considered this issue in another case and reached the same conclusion.                   See Widby v. 

State Farm Mut. Auto. Ins. Co., No. 3AN-08-7866 CI (Alaska Super., Sept. 15, 2009). 

Judge Suddock ruled that the mandatory appraisal statute does not apply to personal 

injury    claims,   reasoning   "just   because   bodily   injury    claims   are   'choses   in  action' 

characterizable as personal property, the injured human body cannot itself be reasonably 

categorized as a personal property risk subject to appraisal by experts on a fifteen-day 

schedule."  Id . 



                                                   -8-                                             6776
 


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

purpose."20    We have rejected a mechanical application of the plain meaning rule in favor 



of a sliding scale approach to statutory interpretation.21        Thus, "[t]he plainer the statutory 



language is, the more convincing the evidence of contrary legislative purpose or intent 

must be."22 



                1.      Plain language of the statute 



                We conclude that the superior court's interpretation of AS 21.96.035 is 



more consistent with the plain language of the statute than McDonnell's interpretation. 



McDonnell is correct that under a very narrow and literal interpretation of the statute, 



AS   21.96.035   applies   to     disputes   over   the   value   of   "personal   property,"   which   is 



generally defined under AS 01.10.060(a)(9) as including "things in action," such as a 



personal injury claim.       But, as State Farm argues, the general statutory definition of 

"personal property" does not apply if  "the context [of the statute] otherwise requires."23 



McDonnell's   plain   language   argument   is   unpersuasive   when   the   text,   context,   and 



structure of the statute are considered as a whole. 



                First, AS 21.96.035 states that it applies to disputes over the value of a "loss 



for   real   property,   personal   property,   and   business   property,   or   other   similar   risks." 



Interpreting a "loss for . . . personal property" as a "loss for . . . a personal injury claim" 



as McDonnell advocates does not make sense, grammatically or conceptually.                       As the 



        20      Nelson v. Municipality of Anchorage , 267 P.3d 636, 639 (Alaska 2011). 



        21      Peninsula Mktg. Ass'n v. State , 817 P.2d 917, 922 (Alaska 1991). 



        22      Gov't      Emps.    Ins.   Co.    v.  Graham-Gonzalez,          107   P.3d    279,    284 



(Alaska 2005) (quoting Muller v. BP Exploration (Alaska) Inc. , 923 P.2d 783, 787-88 

(Alaska 1996)). 



        23      AS 01.10.060(a)(9). 



                                                   -9-                                             6776
 


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

superior court observed, McDonnell is not seeking an appraisal of a loss to her claim, but 



an appraisal of the underlying injury itself. 



                Second, if the legislature intended for "personal property" to include all 



"choses in action," then essentially all insurance claims would be subject to mandatory 



appraisal. This would render the statute's language limiting the appraisal process to "real 

property, . . . business property, and other similar risks" superfluous.24           When engaging 



in statutory interpretation, "[w]e must presume 'that the legislature intended every word, 



sentence, or provision of a statute to have some purpose, force, and effect, and that no 



words or provisions are superfluous,' " and "we must, whenever possible, interpret each 



part or section of a statute with every other part or section, so as to create a harmonious 

whole."25   Application of these principles convinces us that the legislature did not intend 



the phrase "personal property" to include all choses in action. 



                Third,    AS    21.96.035     mandates     an  "appraisal"     clause,  which     is  not 

synonymous with "arbitration," despite McDonnell's characterizations to the contrary.26 



As the Alabama Supreme Court has observed, "An agreement for arbitration ordinarily 



encompasses the disposition of the entire controversy between the parties . . . , whereas 



an agreement for appraisal extends merely to the resolution of the specific issues of 



        24      AS 21.96.035. 



        25      State, Dep't of Commerce, Cmty., & Econ. Dev., Div. of Ins. v. Progressive 



Cas. Ins. Co., 165 P.3d 624, 629 (Alaska 2007) (quoting Kodiak Island Borough v. 

Exxon Corp. , 991 P.2d 757, 761 (Alaska 1999)). 



        26      An insured made a similar argument in Merrimack Mutual Fire Insurance 



Co. v. Batts, and the Tennessee Court of Appeals observed, "[The insured's] argument 

that the appraisal clause in her insurance policy is an arbitration agreement overlooks the 

fact   that   arbitration   proceedings   and   appraisal   proceedings   are   not   the   same   thing." 

59 S.W.3d 142, 149-50 (Tenn. App. 2001). 



                                                  -10-                                            6776
 


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

actual cash value and the amount of loss."27        Questions of coverage, causation, or liability 



are not resolved by appraisal.28         The Fifth Circuit has also explained the differences 



between appraisal and arbitration: 



                Insurance      appraisals     are   generally     distinguished     from 

                arbitrations.   While both procedures aim to submit a dispute 

                to a third party for speedy and efficient resolution without 

                recourse     to  the   courts,   there  are   significant   differences 

                between them.        For example, an arbitration agreement may 

                encompass the entire controversy between parties or it may 

                be tailored to particular legal or factual disputes.  In contrast, 

                an   appraisal   determines   only   the   amount   of   loss,   without 

                resolving issues such as whether the insurer is liable under 

                the   policy.   Additionally,   an   arbitration   is   a   quasi-judicial 

                proceeding, complete with formal hearings, notice to parties, 

                and     testimony     of  witnesses.     Appraisals      are   informal. 

                Appraisers typically conduct independent investigations and 

                base their decisions on their own knowledge, without holding 

                formal hearings.[29] 



        27      Rogers v. State Farm Fire & Cas. Co. , 984 So. 2d 382, 388-89 (Ala. 2007) 



(quoting Cas. Indem. Exch. v. Yother, 439 So. 2d 77, 80 (Ala. 1983)).  The Rogers court 

also noted that this distinction between appraisal and arbitration is consistent with case 

law from other jurisdictions.  Id . 



        28      See id . at 389-92. 



        29      Hartford      Lloyd's    Ins.  Co.   v.  Teachworth ,     898   F.2d   1058,      1061-62 



(5th Cir. 1990) (internal citations omitted); see also Minot Town & Country v. Fireman's 

Fund Ins. Co. , 587 N.W.2d 189, 190 (N.D. 1998) (observing that there are "significant 

differences" between appraisal and arbitration); Miller v. USAA Cas. Ins. Co. , 44 P.3d 

663, 673 (Utah 2002) ("Although appraisal may be used as another form of alternative 

dispute resolution, it is not arbitration."); LEE R. RUSS & THOMAS F. SEGALLA , 15COUCH 

ON INSURANCE  209:8, at 209-16 to 209-17 (3d ed. 2005) (explaining that "appraisal is 

distinguished [from arbitration] by its more limited role" and that "[i]n the insurance 

context, appraisal is often sought to fix the amount of the loss, or replacement cost of real 

property," which must "be distinguished from the insured's right, if any, to recover on 

                                                                                         (continued...) 



                                                  -11-                                             6776
 


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

               Alaska's statutory scheme recognizes the distinction between appraisal and 



arbitration.  The mandatory appraisal process for insurance disputes is codified under 



AS   21.96.035,   while   arbitration   procedures   are   separately   codified   under   Alaska's 

Uniform Arbitration Act.30      As the superior court here and courts in other jurisdictions 



have    observed,    there  are  key  distinctions   between    the  appraisal   process   and   the 



arbitration process: Appraisal follows an expedited timeline and is resolved by a panel 



of   independent    appraisers,   while   arbitration  is  a  quasi-judicial  proceeding     that  is 



governed by a much more detailed statutory scheme and includes formal evidentiary 

hearings with depositions and witness testimony.31        Given these distinctions, interpreting 



the term "personal property" to include personal injury claims appropriate for appraisal 



under AS 21.96.035 would be problematic because the valuation of a personal injury 



claim would not be limited to valuation of the underlying injury.          The valuation would 



necessarily take into account issues such as coverage, liability, causation, and attorney's 



fees - in short, issues properly resolved by arbitration rather than appraisal. 



               For all of these reasons, we hold that the plain language of AS 21.96.035 



does not support interpreting "personal property" to include personal injury claims for 



the purposes of that statute. 



        29(...continued) 



the policy"). 



        30     AS 09.43.010-.595. 



        31     Compare AS 21.96.035 (mandatory appraisal process) with AS 09.43.050 



(right   to  present   evidence    and   cross-examine      witnesses   at  arbitration   hearing), 

AS    09.43.420    (arbitration  process),  and   AS    09.43.440    (procedures    for  witnesses, 

subpoenas, depositions, and discovery). 



                                               -12-                                           6776
 


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

                 2.      Legislative history 



                 Both     parties   argue    that  legislative    history   supports     their  respective 



interpretations of the mandatory appraisal statute.  The superior court did not discuss or 



expressly rely on legislative history in interpreting AS 21.96.035. The legislative history 



that the parties cite sheds little additional light on the meaning of AS 21.96.035 - it 



shows that the legislature consistently described the appraisal clause as a mechanism for 

resolving disputes over the value of a first-party property loss,32 but never defined the 



term   "property,"   which   is   precisely   the   issue   we   are   faced   with   here.  At   best,   the 



legislative history that the parties rely on shows that the legislature never expressly 



contemplated applying the appraisal provision to personal injury claims, and it does not 



contradict our plain-language interpretation of the statute. 



                 3.      Rules of policy considerations and interpretation 



                 McDonnell also cites several policy considerations and general rules of 



interpretation   in   support   of   her   argument   that   the   plain   language   of   AS   21.96.035 



mandates the appraisal of her personal injury claims.               She first cites the general rule of 



contract interpretation that arbitration clauses should be given the "broadest possible 

interpretation,"33      though    she   acknowledges        that  this  rule   specifically    refers   to  a 



        32       For example, AS 21.96.035 is initially described in the Bill Summary to 



House Bill (H.B.) 425 as "[a] new section requir[ing] that all automobile, homeowner, 

or dwelling policies include an appraisal clause to resolve a dispute between the insured 

and the insurer over the value of first party property loss. . . . Without an appraisal 

clause,   such    disputes    may    have   required    costly   litigation."   The     Comment   to     the 

Sectional Analysis also states that AS 21.96.035 "[a]dds [a] section to require that all 

automobile, homeowner, or dwelling policies include an appraisal clause for resolving 

a   dispute   of   property   value   and   details   for   the   clause   how   the   appraisal   clause   will 

operate." 



        33       See 4 AM .JUR .2D Alternative Dispute Resolution  50 (2007) ("Arbitration 



                                                                                           (continued...) 



                                                    -13-                                              6776
 


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

contractual arbitration clause, not a statutorily mandated appraisal clause.   She also cites 

our strong public policy favoring arbitration,34  the rule that remedial statutes should be 



broadly interpreted,35 and the rule that statutes regulating the relationship between an 



insurer and insured should be interpreted strictly against the insurance company and 

liberally in favor of the insured.36      Finally, she argues that her interpretation is consistent 



with the industry practice of arbitrating UM and UIM coverage disputes. 



                 As State Farm argues, most of these policy considerations and rules of 



interpretation apply to arbitration clauses, not appraisal clauses, and are only relevant if 



we first determine that AS 21.96.035 could reasonably be interpreted to require appraisal 



of a loss to a personal injury claim.   Because the text and context of the statute show the 



legislature did not intend for the mandatory appraisal process to apply to a chose in 



action   -   such   as   a   personal   injury   claim   -   general   rules   of   interpretation,   policy 



considerations, and industry practice cannot stretch the statute beyond its plain meaning 



        33(...continued) 



clauses are to be given the broadest possible interpretation in order to accomplish the 

purpose of resolving controversies out of court."). 



        34       See State v. Pub. Safety Emps. Ass'n, 257 P.3d 151, 155 (Alaska 2011) 



(quoting State v. Pub. Safety Emps. Ass'n, 235 P.3d 197, 201 (Alaska 2010)) ("Both the 

common law and Alaska statutes evince a strong public policy in favor of arbitration."). 



        35       See State for Use of Smith v. Tyonek Timber, Inc., 680 P.2d 1148, 1157 



(Alaska 1984) ("There is no question that a remedial statute is to be liberally construed 

to effectuate its purposes."). 



        36       See Makarka ex rel. Makarka v. Great Am. Ins. Co. , 14 P.3d 964, 966 



(Alaska   2000)   ("We   .   .   .   resolve   ambiguities   in   the   meaning   of   insurance   contracts 

against the insurer."). 



                                                   -14-                                              6776
 


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

to create such a requirement.37        Accordingly, we affirm the superior court's ruling that 



the plain language of AS 21.96.035 demonstrates that the legislature intended for the 



mandatory   appraisal statute to apply to disputes over the value of a loss to tangible 



property and not to the value of "choses in action" such as McDonnell's personal injury 



claims. 



        B.	      State     Farm's      Contractual       Two-Year        Limitation      Provision      Is 

                Enforceable Upon A Showing Of Prejudice, And Is Triggered By A 

                Breach Of The Insurance Contract. 



                The   parties   next   dispute   the   enforceability    of   the   two-year   limitation 



provision in State Farm's insurance policies.            Because McDonnell filed a motion for 



judgment on the pleadings on this issue, the superior court's ruling was based solely on 

the facts alleged in the pleadings.38 



                In   her   complaint,   McDonnell   alleged       that   "[t]he   only   reason   for   this 



litigation   is   the   purported   inclusion   in   the   policies   described   below   of   State   Farm 



Endorsement 6127BN," which "by its terms, demands that suit be filed against State 



Farm and the uninsured driver on or before the second anniversary of the crash . . . ." 



McDonnell        requested    a  declaratory    judgment      that  this  provision    was   "void    and 



unenforceable as a violation of Alaska's motor vehicle insurance scheme." In its answer, 



State Farm quoted the disputed provision in part and asserted that the provision was 



enforceable.     The disputed provision provides: 



        37      See Curran v. Progressive Nw. Ins. Co., 29 P.3d 829, 833 (Alaska 2001) 



("[P]ublic   policy   can   guide   statutory   construction   but   cannot   override   a   clear   and 

unequivocal statutory requirement."). 



        38      See  Alaska   R.   Civ.   P.   12(c);  Hebert   v.   Honest   Bingo ,   18   P.3d   43,   46 



(Alaska 2001). 



                                                  -15-	                                            6776
 


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

                b. If there is no agreement on the answer to either question in 

                 1.a above,[39]  then   the Insured   shall:    (1) within   two   years 



                immediately following the date of the accident file a lawsuit 

                in a state or federal court that has jurisdiction against: (a) us; 

                (b) the owner or driver of the uninsured motor vehicle . . . . 



                1.      Mootness 



                State Farm first argues, as it did before the superior court, that McDonnell's 



challenge to the enforceability of the two-year limitation provision as applied to UM 



claims   is   moot   because   she   filed   a   lawsuit   within   two   years   of   her   accident,   as   the 



provision requires.     The superior court agreed that McDonnell's claim was technically 



moot for this reason, but concluded review was appropriate under the public interest 



exception to the mootness doctrine.          We disagree that the claim is moot. 



                A justiciable controversy is one that is not hypothetical, abstract, academic, 

or moot.40    "A claim is moot if it is no longer a present, live controversy, and the party 



bringing the action would not be entitled to relief, even if it prevails."41             McDonnell's 



claim presents a live controversy and, if she prevails, she would be entitled to the relief 



she seeks.   As McDonnell argues, she filed this declaratory judgment action for the very 



purpose     of  challenging     the  two-year     limitation   provision,    not  for  the  purpose     of 



        39      Neither     party    quoted    the   contested     provision    in   full  or   attached 



McDonnell's insurance policies to their pleadings.             McDonnell attached her insurance 

policies to her motion for summary judgment on the mandatory appraisal issue, however. 

The policies show that the questions the insurer and insured must agree on are whether 

the insured is legally entitled to collect damages from the UM motorist and the amount 

of those damages. 



        40      Jefferson v. Asplund , 458 P.2d 995, 998-99 (Alaska 1969) (quoting Aetna 



Life Ins. Co. v. Haworth , 300 U.S. 227, 240-41 (1937)). 



        41      Fairbanks Fire Fighters Ass'n v. City of Fairbanks , 48 P.3d 1165, 1167 



(Alaska 2002). 



                                                  -16-                                             6776
 


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

complying with the provision and litigating the value of her UM claims.                      An insured 



should not be forced to purposefully violate a contractual limitation provision and risk 



losing   her   insurance   benefits   in   order   to   bring   a   justiciable   action   challenging   the 



enforceability of the provision.         Furthermore, if McDonnell prevails on this issue, she 



will   be   entitled   to   the   relief   she   seeks   -   a   declaratory   judgment   that   the   two-year 



limitation provision is unenforceable. She would then have additional time to assess her 



injuries and continue settlement negotiations with State Farm before she is required to 

file suit under the generally applicable statute of limitations.42             Because McDonnell's 



claim   is   not   moot,   we   need   not   consider   whether   it   falls   within   the   public   interest 

exception to the mootness doctrine.43 



                 2.      Ripeness 



                 State Farm also argues that McDonnell cannot challenge the enforceability 



of the two-year limitation provision as applied to UIM claims because her claims are 



only for UM coverage.          The superior court characterized this as a ripeness issue and 



ruled that it could consider arguments related to both UM and UIM coverage, reasoning 



that the statutes and case law generally do not distinguish between the two.  On appeal, 



State Farm argues that we should decline to consider any arguments pertaining to UIM 



claims.      McDonnell        argues    that  distinguishing      between     the  two    would     unduly 



fragmentize our analysis of the enforceability of the two-year limitation provision. 



        42       The parties dispute whether the two-year tort statute of limitations or the 



three-year   contract   statute   of   limitations   applies   to   UM   claims.    They   also   dispute 

whether the proper accrual date is the date of the accident or a breach of the insurance 

contract.   These issues are addressed infra, in Part IV.B.4. 



        43      See Mullins v. Local Boundary Comm'n, 226 P.3d 1012, 1018 (Alaska 



2010) ("Even if claims are moot, a court may still hear them if they fall within the public 

interest exception to the mootness doctrine."). 



                                                   -17-                                              6776
 


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

                The precise issue before us is whether State Farm's contractual limitation 



provision is enforceable against McDonnell's UM claims.                  Therefore, arguments that 



pertain only to UIM coverage would be hypothetical on the facts of this case.                  At least 



one other court has distinguished between UM and UIM claims when addressing statute 



of limitations issues, reasoning that there are important differences between the two types 

of coverage that may warrant different treatment for limitations purposes.44                 We agree 



with State Farm that there may be practical distinctions between UM and UIM claims for 



purposes of accrual of statutory or contractual periods of limitations, and we therefore 



analyze   the   enforceability   of   State   Farm's   contractual   limitation   provision   without 



reference to arguments that pertain solely to UIM claims. 



                3.      Overview of the parties' arguments 



                Turning to the merits of the parties' arguments, State Farm argues that we 

should hold the two-year tort statute of limitations45 generally applies to UM claims and 



that the cause of action accrues on the date of the accident; it argues that if we so hold, 



the two-year limitation provision in State Farm's policies simply mirrors the generally 



applicable limitations period and accrual date.  State Farm also argues that the two-year 



limitation provision is a fully enforceable contract provision because it is reasonable and 

unambiguous.       McDonnell argues that the three-year contract statute of limitations46 



generally applies to UM claims and the cause of action does not accrue until the insurer 



        44      Oganov v. Am. Family Ins. Grp., 767 N.W.2d 21, 26 (Minn. 2009) ("We 



recognized that differences exist between UIM and UM claims that may have a bearing 

on the appropriate accrual rule.       For example, a UM claimant does not have to recover 

first   from   the   uninsured   tortfeasor;   rather,   the   claimant   merely   must   show   that   the 

tortfeasor was uninsured.") (internal citations omitted). 



        45      See AS 09.10.070. 



        46      See AS 09.10.053. 



                                                  -18-                                            6776
 


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

breaches   the   insurance   contract;   she   argues   that   State   Farm's   contractual   limitation 



provision attempts to alter the statutory limitations period and accrual date that would 



generally     apply    to  UM    claims.    She    further   argues    that  State   Farm's    attempt    to 



contractually modify the generally applicable limitations period and accrual date for UM 



claims is wholly void as against public policy. 



                 As previously discussed, the superior court ruled that:              (1) the three-year 



statute of limitations for contract claims generally applies to insurance disputes; (2) this 



limitations period generally begins to run on the date the insurer denies an insured's 

claim; (3) under Estes v. Alaska Insurance Guaranty Association ,47 State Farm may 



enforce a shorter contractual limitations period only if it first demonstrates it has suffered 



prejudice   as   a   result   of   the  insured's   delay  in  filing  suit;   and  (4)  the  contractual 



limitations period does not commence until State Farm denies an insured's claim. 



                 We first address what limitations period and accrual date would generally 



apply to McDonnell's UM claims if State Farm's insurance policies did not require her 



to file suit within two years of the date of the accident.  We next consider whether State 



Farm's contractual provision is enforceable. 



                 4.      Generally applicable limitations period and accrual date 



                         a.      Limitations period 



                 We    have    previously    held   that  the   statute  of  limitations    for  contracts 

generally applies to insurance disputes.48         Under AS 09.10.053, the statute of limitations 



        47       774 P.2d 1315, 1316-17 (Alaska 1989). 



        48       See Brannon v. Cont'l Cas. Co., 137 P.3d 280, 284 (Alaska 2006) (applying 



the contract statute of limitations to a dispute over an insurer's contractual duty to defend 

the   insured);   Howarth       v.  First  Nat.   Bank    of  Anchorage ,      540   P.2d   486,     490-91 

(Alaska 1975) (applying the contract statute of limitations to a dispute over an insurer's 

                                                                                           (continued...) 



                                                   -19-                                              6776
 


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

for contract claims is three years.49       We have not specifically addressed the applicable 



statute of limitations for UM claims. 



                Other     jurisdictions   almost    uniformly    hold   that   the  contract   statute  of 

limitations   applies   to   UM   claims.50    These   courts   generally   reason   that   because   an 



insurer's duty to compensate an insured arises out of its insurance contract, not the mere 



occurrence of the underlying accident, the contract statute of limitations applies.  For 



example, the Mississippi Supreme Court held: "A cause of action against an insurer for 



        48(...continued)
 



denial of coverage for the insured's loss).
 



        49      Alaska Statute 09.10.053 provides: 



                Unless the action is commenced within three years, a person 

                may not bring an action upon a contract or liability, express 

                or   implied,    except    as  provided    in  AS    09.10.040,    or   as 

                otherwise provided by law, or, except if the provisions of this 

                section are waived by contract. 



        50      See    ALAN     I.  WIDISS      &   JEFFREY      E.   THOMAS ,     UNINSURED         AND 



UNDERINSURED MOTORIST INSURANCE   7.7, at 388-95 (3d ed. 2005) ("Appellate court 

decisions   almost   uniformly   hold   that   .   .   .   a   claim   for   uninsured   motorist   insurance 

benefits is a contractual right and, therefore, the contract statute of limitations applies.") 

(collecting cases); Jeffrey A. Kelso & Matthew K. Drevlow, When Does the Clock Start 

Ticking? A Primer on Statutory and Contractual Time Limitation Issues Involved in 

Uninsured and Underinsured Motorist Claims, 47 DRAKE L. REV . 689, 691 (1999) ("The 

statutory limitation of actions period applicable to UM/UIM motorist claims was once 

a highly litigated question.      In recent years, however, the courts seem to have come to 

a consensus regarding which limitation period should apply. . . . Almost all jurisdictions 

now hold that the statute of limitations for actions based on contract is the limitation 

period that is to apply to UM/UIM cases."); see also Transnational Ins. Co. v. Simmons, 

507 P.2d 693, 695 (Ariz. App. 1973) ("States such as Arizona which have no specific 

statute of limitations dealing with uninsured motorist claims have uniformly held . . . that 

the statute of limitations pertaining to written contracts governs a claim by insureds 

under the uninsured motorist coverage.") (collecting cases). 



                                                  -20-                                             6776
 


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

uninsured motorist benefits is an action on a contract.            As such, a three year statute of 

limitations period applies."51      The Ohio Supreme Court held:  "An insurance policy is a 



contract, and the relationship and rights of the insurer and insured are contractual in 

nature; therefore, a claim for UM/UIM coverage sounds in contract, not in tort."52                  And 



the Arizona Court of Appeals recently explained: "An action sounds in contract when 



the duty breached is created by the contractual relationship and would not exist but for 



the   contract.   .   .   .   But   for   the   insurance   contract,   State   Farm   would   have   no   duty   to 

compensate [the insured] for damages caused by the uninsured driver."53 



                State Farm cites cases from North Carolina and Georgia holding that the 

tort statute of limitations applies to UM claims.54          One commentator has observed that 



the insurance industry argued forcefully for this position for years, but North Carolina 

and Georgia are among the few courts that have adopted this reasoning.55                       Because 



applying   the   contract   statute   of   limitations   is   consistent   with   our   case   law   and   the 



majority of other jurisdictions, we hold the three-year contract statute of limitations 



generally applies to UM claims. 



        51      Mitchell v. Progressive Ins. Co. , 965 So. 2d 679, 683 (Miss. 2007) (internal 



citations omitted). 



        52      Sarmiento v. Grange Mut. Cas. Co., 835 N.E.2d 692, 695 (Ohio 2005). 



        53       Assyia v. State Farm Mut. Auto. Ins. Co. , 273 P.3d 668, 672-73 (Ariz. App. 



2012) (internal quotations omitted). 



        54       Vaughn v. Collum, 224 S.E.2d 416, 582 (Ga. 1976); Brown v. Lumbermens 



Mut. Cas. Co. , 204 S.E.2d 829, 832-33 (N.C. 1974). 



        55      Kelso, supra note 51, at 691-92. 



                                                  -21-                                             6776
 


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

                         b.      Accrual date 



                 Similarly, we have not yet specifically addressed when a UM claim accrues. 



But we have held that an insured's cause of action against her insurer generally accrues, 



and the statute of limitations begins to run, "at the time of the breach of the agreement," 



therefore "[a] cause of action for denial of coverage under an insurance policy accrues 

when coverage is disclaimed and the insured is notified."56 



                 Other jurisdictions are divided regarding the proper accrual date for UM 

claims.57   Overall, however, the "most commonly held rule in UM/UIM cases is that the 



cause of action, because it is contractual in nature, accrues on the date the contract is 

breached," which is generally the "denial of a claim for benefits."58                 For example, the 



Delaware   Supreme   Court   held   that   the   appropriate   accrual   date   for   a   UM   claim   is 



determined   by   the   contractual   nature   of   the   claim:     "We   think   the   answer   to    the 



remaining question - when a cause of action for uninsured motorist benefits accrues and 



        56      Brannon v. Cont'l Cas. Co. , 137 P.3d 280, 284 (Alaska 2006) (quoting 



K & K Recycling, Inc. v. Alaska Gold Co. , 80 P.3d 702, 725 (Alaska 2003)) (internal 

quotation marks omitted); see also Bauman v. Day, 892 P.2d 817, 827 (Alaska 1995) 

("Generally, the statute of limitations for an action in contract starts to run at the time of 

the breach."); Howarth v. First Nat. Bank of Anchorage , 540 P.2d 486, 490-91 (Alaska 

1975) ("The statute of limitations begins to run in contract causes of action from the time 

the right of action accrues. This is usually the time of the breach of the agreement . . . .") 

(internal    citations   omitted);  Fireman's       Fund    Ins.   Co.   v.   Sand  Lake   Lounge,     Inc. , 

514 P.2d 223, 227 (Alaska 1973) (holding an insured's cause of action accrued and 

limitations period began to run when the insurance company denied coverage). 



        57       See Kelso, supra note 51, at 692 ("Although there now seems to be some 



consensus on which statutory limitation period applies, the issue of accrual remains hotly 

contested.   .   .   .   [C]ourts   have   been   inconsistent   in   their   determination   of   the   accrual 

time."). 



        58      Id. at 694. 



                                                   -22-                                              6776
 


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

the three-year limitation . . . begins to run - logically follows from the contract nature 

of the action."59     The court reasoned: 



                 Under general principles of contract law, the time limitation 

                 of a contract claim limitation statute begins to run from the 

                 date of breach of contract. . . . Established contract case law 

                 thus    recognizes     that   until   a  breach    occurs,    there   is  no 

                 justiciable   controversy   under   the   contract   (here   a   policy) 

                 upon   which   a   party   may   sue.    So   long   as   the   parties   to   a 

                 contract     perform     in   accordance      with    the   bargained-for 

                 obligations, no party has a cause to complain.  It is only when 

                 one party contends the other party has ceased to perform in 

                 violation     of   the   contract    that   a  justiciable    controversy 

                 exists.[60] 



                 State Farm argues that it would be illogical to use breach of contract as the 



accrual date for UM claims in a case like this because a factfinder must first determine 



the amount of damages that McDonnell and her son are legally entitled to collect, and 



there will be no breach of the insurance contract unless and until State Farm then refuses 



to pay the damages owed. State Farm takes a narrow view of when an insurance contract 



is   breached.     Under      similar   circumstances,      the   Supreme      Judicial   Court    of  Maine 



concluded that it was not necessary for an insurer to deny all liability in order to breach 



an insurance contract; rather, the insurer's clear refusal to pay for certain medical bills 



after the insured had requested payment was sufficient to constitute an alleged beach of 

the contract and trigger the applicable limitations period.61            The Iowa Supreme Court also 



observed that "[u]nder general contract principles, the insured's claim typically accrues 



         59      Allstate Ins. Co. v Spinelli , 443 A.2d 1286, 1292 (Del. 1982).
 



         60      Id .
 



        61       Whitten v. Concord Gen. Mut. Ins. Co., 647 A.2d 808, 810-11 (Me. 1994).
 



                                                    -23-                                                  6776 


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

and   the   statue   of   limitations   begins   to   run   upon   the   insurer's   denial   of   coverage  or 

refusal to pay."62 



                We agree with this reasoning.  As we have previously held, a breach of the 

insurance contract occurs "when coverage is disclaimed and the insured is notified."63 



We take this opportunity to clarify that it is not necessary for an insurer to disclaim all 



coverage or liability in order to trigger the statute of limitations - a clear refusal to pay 



under the contract may be sufficient to constitute an alleged breach of the contract.  If the 



parties   disagree   over   when   the   contract   was   allegedly   breached   and   the   statute   of 



limitations began to run, the superior court will resolve this factual issue. 



                State Farm also argues that if a UM claim accrues when the contract is 



allegedly breached, then the insured could delay triggering the statute of limitations by 



waiting "years, if not decades" to present a UM claim to her insurance company.                     This 



argument is unpersuasive.         An insurance company can require the insured to make a 



claim or notice of potential claim within a certain period of time without requiring the 

insured to file suit against the insurer.64        And, as we have previously observed, once 



insurance companies have received notice of a claim, they "are not forced to stand by 



        62      Nicodemus       v.  Milwaukee       Mut.   Ins.  Co. ,  612    N.W.2d     785,     788-89 



(Iowa 2000) (emphasis added). 



        63      Brannon v. Cont'l Cas. Co. , 137 P.3d 280, 284 (Alaska 2006) (internal 



footnote omitted). 



        64      See, e.g., Weaver Bros v. Chappel, 684 P.2d 123, 124-25 (Alaska 1984) 



(interpreting a notice of claim provision in an insurance policy that required the insured 

to "promptly give to the [insurer] written notice, with all available particulars, of any 

accident involving loss or damages to person or property in which he, or any motor- 

vehicle owned or driven by him, has been involved, and of any claim made on account 

of any such accident . . . ," and holding this provision   was enforceable subject to a 

showing that the insurer had been prejudiced by untimely notice of a claim). 



                                                  -24-                                             6776
 


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

helplessly as memories fade and physical evidence is lost," but are "entitled to bring 

declaratory judgment actions to determine coverage at their own convenience."65 



                Because an alleged breach of contract accrual date is more consistent with 



Alaska     case   law,   the  contractual    nature   of  UM     claims,   and   a  majority    of  other 



jurisdictions, we hold that UM claims accrue when the contract is allegedly breached, 



which occurs when the insurer denies a claim or clearly refuses a demand for payment 



under the insurance contract. 



                In sum, we hold that the three-year statute of limitations for contract claims 



generally applies to UM claims, and that the limitations period is triggered by an alleged 



breach of the insurance contract. Because State Farm's contractual limitations provision 



attempts to modify (shorten) the limitations period and accrual date that would generally 



apply to McDonnell's UM claims, we must consider whether the provision is enforceable 



or void as against public policy. 



                5.       Contractual modification of the limitations period 



                A    contractual     provision    may     be  unenforceable      if  the   provision    is 

unreasonable, unconscionable, or void as against public policy.66              Courts have generally 



held that parties may contractually agree to a shorter limitations period if the contractual 



        65      Estes v. Alaska Ins. Guar. Ass'n , 774 P.2d 1315, 1318 n.1 (Alaska 1989). 



        66      See Curran v. Progressive Nw. Ins. Co., 29 P.3d 829, 837 (Alaska 2001) 



("[C]ontract provisions may be void as against public policy . . . ."); Moore v. Hartley 

Motors, Inc. , 36 P.3d 628, 631 (Alaska 2001) (discussing Municipality of Anchorage v. 

Locker , 723 P.2d 1261, 1264-67 (Alaska 1986)) ("In Locker , we concluded that a limited 

liability clause in a contract . . . was unconscionable and void as against public policy."); 

Inman v. Clyde Hall Drilling Co. , 369 P.2d 498, 500 (Alaska 1962) (considering whether 

a   notice   provision   in   an   employment   contract   is   void   as   against   public   policy,   and 

reasoning "[t]he facts of this case do not persuade us that the contractual provision in 

question is unfair or unreasonable," or that the provision "is offensive to justice"). 



                                                  -25-                                             6776
 


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

limitations provision is unambiguous, reasonable, and does not violate statutes or public 



policy:   "The general rule of contracts is that a contractual provision fixing limitation 



periods which differ from the time fixed by general statutes of limitations are binding on 



the contracting parties . . . unless they are precluded by statute or public policy, or are 

unreasonable or unreasonably short."67 



                In Fireman's Fund Insurance Co. v. Sand Lake Lounge, Inc. , we observed 



that it is not against the public interest for parties to a contract to agree to a shorter 



limitations period "if the time agreed upon is not so short as to be unreasonable in the 



light of the provisions of the contract and the circumstances of its performance and 

enforcement."68      And in Estes v. Alaska Insurance Guaranty Ass'n , we recognized                  the 



validity of a contractual limitation provision but held that, due to the nature of insurance 



        67      LEE R. RUSS & THOMAS F. SEGALLA , 15 COUCH ON INSURANCE  235:1, at 



235-39 (3d ed. 2005); see also  Voris v. Middlesex Mut. Assurance Co., 999 A.2d 741, 

748 (Conn. 2010) ("In short, we affirm the general principle that '[c]ontracting parties 

are   free   to   adopt   an   unambiguous   contract   provision'   limiting   the   time   in   which   an 

insurance claim must be filed . . . ."); Faeth v. State Farm Mut. Auto. Ins. Co. , 707 

N.W.2d      328,   334   (Iowa    2005)   ("We     have   recognized     the  validity   of  contractual 

limitations on the time for bringing suit against an insurer. . . . In order to be enforced, 

such provisions must be reasonable."); Taranto v. La. Citizens Prop. Ins. Corp., 62 So. 

3d   721,   728   (La.   2011)   ("In   the   absence   of   a   statutory   prohibition,   a   clause   in   an 

insurance policy fixing a reasonable time to institute suit is valid.") (emphasis omitted); 

Angel v. Reed , 891 N.E.2d 1179, 1181 (Ohio 2008) ("[T]he parties to a contract may 

validly limit the time for bringing an action on a contract to a period that is shorter than 

the general statute of limitations for a written contact, as long as the shorter period is a 

reasonable one.      A contract provision that reduces the time provided in the statute of 

limitations must be in words that are clear and unambiguous to the policy holder."); 

Progressive N. Ins. Co. v. Lyden , 986 A.2d 231, 235 (R.I. 2010) ("[A] limitations period 

in an insurance policy is a term to which the parties are specifically bound.") (internal 

quotation marks omitted). 



        68      514 P.2d 223, 226 (Alaska 1973) (quoting 1A CORBIN   ON  CONTRACTS 



 218, at 311-12 (1963)). 



                                                  -26-                                             6776
 


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

contracts, such provisions are enforceable only when the insurer can demonstrate that it 

has been prejudiced by the insured's delay in filing suit.69 



                The insurance provision at issue in Estes required the insured to commence 

any suit on the policy within one year of the insured's loss.70               We first observed that 



insurance   policies   differ   from   traditional,   private   contracts   because   "[a]n   insurance 



contract is not a negotiated agreement; rather its conditions are by and large dictated by 

the insurance company to the insured."71           Therefore, we reasoned that "time limit[s] on 



commencement   of         suit   clauses,   notice  of  loss  clauses,   proof   of  loss  clauses,   and 



cooperation clauses shall all be reviewed on the basis of whether their application in a 

particular case advances the purpose for which they were included in the policy."72 



Concluding   that   the   "primary   purpose   of   contractual   modifications   of   the   statute   of 



limitations is to avoid prejudice, specifically to avoid the extra danger of fraud and 

mistake associated with stale claims,"73 we held: 



                a   limitation   on   commencement         of  suit  clause   should   be 

                enforced only when the application in a particular case serves 

                the primary purpose for which it was included in the policy: 

                to avoid prejudice.  To avail itself of the contractual one-year 

                limit   on   commencement   of   suit   clause,   [the   insurer]   must 



        69      774 P.2d 1315, 1318, 1320 (Alaska 1989).
 



        70      Id . at 1316.
 



        71
     Id . at 1317 (quoting Brakeman v. Potomac Ins. Co. , 371 A.2d 193, 196 



(Pa. 1977)). 



        72      Id . at 1318. 



        73      Id . (citing Sand Lake Lounge, 514 P.2d at 226). 



                                                  -27-                                             6776
 


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

                 establish that it was prejudiced by [the insured's] delay in 

                 filing suit.[74] 



                 Thus,   we   have   recognized   the   enforceability   of   shortening   contractual 



limitations provisions in insurance policies, subject to a showing of prejudice by the 

insurer.75  We have not, however, considered whether a contractual provision shortening 



the applicable statutory limitations period for UM claims violates public policy. 



                 Some courts have held that contractual provisions that modify the statutory 



limitations   period   for   UM   claims   are   wholly   enforceable   and   do   not   violate   public 

policy.76  Other courts have held that provisions shortening the limitations period for UM 



claims are wholly void as against public policy.77           McDonnell essentially argues that we 



should adopt the reasoning of those courts that hold such limitation provisions are wholly 



void as against public policy, while State Farm argues that we should adopt the reasoning 



of those courts that hold unambiguous contractual limitation provisions must be enforced 



as written. 



        74      Id . at 1320.   We noted an insurance company could establish prejudice by 



showing "that witnesses had died or their memories faded during the insured's delay in 

filing suit, or that other evidence had been lost."  Id . at 1318. 



        75      Id. at 1318, 1320. 



        76       See Rory v. Cont'l Ins. Co., 703 N.W.2d 23, 31-34 (Mich. 2005) (holding 



a provision requiring the insured to bring a claim or suit for UM coverage within one 

year of the accident was enforceable because it did not violate law or public policy); 

Sarmiento      v.  Grange     Mut.    Cas.   Co.,   835   N.E.2d    692,   695-96     (Ohio    2005)    ("A 

contractual limitation period of two years does not violate the underlying purpose of 

UM/UIM   coverage,   because   the   limitation   period   does   not   eliminate   or   reduce   the 

UM/UIM coverage required by [the Ohio statute mandating such coverage]."). 



        77       See    Burgo      v.  Ill.  Farmers      Ins.   Co.,    290    N.E.2d      371,     373-74 



(Ill. App. 1972); State Farm Mut. Auto. Ins. Co. v. Fitts, 99 P.3d 1160, 1162 (Nev. 

2004). 



                                                   -28-                                              6776
 


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

                 McDonnell   makes   several   arguments   in   support   of   her   position   that   a 



shortening contractual limitation provision for UM claims violates public policy.  She 



first argues that we have already recognized a "mirror rule" similar to the rule adopted 

by the Illinois Court of Appeals in Burgo v. Illinois Farmer's Insurance Co.78                        The 



Burgo court addressed the enforceability of a policy provision requiring an insured to 



commence a lawsuit or arbitration proceedings on a UM claim within one year of the 

accident.79     The    court   held   that  the  one-year     limitation   diminished     the   statutorily 



mandated UM coverage and was therefore contrary to public policy and superceded by 



statute, reasoning: "The contractual limitation may not place an insured in a substantially 



different   position   than   he   would   have   been   had   the   tort-feasor   carried   the   required 

insurance coverage."80 



                 Most of the Alaska case law that McDonnell relies on merely recognizes 



the general rule that an insurance policy provision is unenforceable if void as against 

public policy.81     She also relies on  State Farm Mutual Automobile Insurance Co. v. 



Harrington , where we held that under former AS 21.89.020(c)(1), the policy limits for 



UM/UIM coverage must be equal to the liability coverage that the insured has voluntarily 



        78      Burgo , 290 N.E.2d at 373. 



        79      Id . at 371. 



        80      Id . at 373-74. 



        81       See  Curran   v.   Progressive   Nw.   Ins.   Co.,   29   P.3d   829,   833-34   (Alaska 



2001); McKnight v. Rice, Hoppner, Brown & Brunner , 678 P.2d 1330, 1334 n.4 (Alaska 

1984); Alaska Ins. Co. v. RCA Alaska Comm'cns, Inc. , 623 P.2d 1216 (Alaska 1981). 



                                                   -29-                                              6776
 


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

purchased.82     We have since referred to this as the "mirror rule"83 or the "mirror-image- 



offer requirement"84 of AS 21.89.020(c)(1).               This rule was derived from a statutory 



mandate,   however,   and   there   is   no   corresponding   statutory   provision   governing   the 



limitations period for UM claims.          Thus, our "mirror rule" does not apply here. 



                 McDonnell next argues that the two-year contractual limitation provision 



violates AS 21.09.150(b)(4), which instructs the Director of the Division of Insurance 



to suspend or revoke an insurer's license if the insurer refuses to pay claims or forces 

insureds to litigate claims "without just cause" as a general business practice.85                     She 



argues the two-year limitation provision violates this statute by forcing an insured to 



bring   suit   against   her   insurance   company   to   settle   her   claim.  As   discussed   above, 



contractual limitation provisions are generally enforceable, and the two-year contractual 



limitation provision here requires the insured to file suit only if the insurer and insured 



are unable to settle the claim.        The provision does not automatically require an insured 



to file suit in order to recover insurance benefits, and an insurance company does not act 



"without just cause" when it relies on the unambiguous terms of the insurance contract. 



        82       918 P.2d 1022, 1025-26 (Alaska 1996).               Alaska Statute 21.89.020(c)(1) 



was renumbered as AS 21.96.020(c)(1). 



        83       See Wing v. GEICO Ins. Co., 17 P.3d 783, 787 (Alaska 2001). 



        84       See Ayers v. United Servs. Auto. Ass'n, 160 P.3d 128, 133 (Alaska 2007). 



        85       AS 21.09.150(b)(4) ("The director shall, after a hearing, suspend or revoke 



an   insurer's   certificate   of   authority   if   the   director   finds   that   the   insurer   .   .   .   with   a 

frequency that indicates its general business practice in this state, has without just cause 

refused to pay proper claims arising under its policies, . . . or without just cause delays 

adjustment of claims, or compels the insured or claimant to accept less than the amount 

due them or to employ attorneys or to bring suit against the insurer or an insured to 

secure full payment or settlement of claims."). 



                                                   -30-                                              6776
 


----------------------- Page 31-----------------------

                McDonnell also argues that the two-year contractual limitation provision 



violates several provisions of the Alaska Unfair Claims Settlement Practices Act "if not 

in letter, at least in spirit."86    As McDonnell acknowledges, the two-year contractual 



limitation provision does not directly violate any of the statutory provisions she relies on. 



We see no direct or "in-spirit" violation of the Unfair Claims Settlement Practices Act 



in State Farm's contractual limitations period. 



                Finally,     McDonnell       argues    that  the   two-year     contractual    limitation 



provision     conflicts   with   Alaska's    UM     and   UIM    statutes,   specifically    the  statutes 



requiring an insured to exhaust available remedies before filing a UM or UIM claim with 

the insurer.87    As discussed above, this potential conflict is not an issue here because 



        86       She specifically argues that the two-year contractual limitation provision 



violates    AS    21.36.125(a)(1)      (which     prohibits    "misrepresent[ing]      facts   or  policy 

provisions relating to coverage of an insurance policy"), AS 21.36.125(a)(8) (which 

prohibits "compel[ing] an   insured   . . . in   a case in   which   liability   is clear to litigate 

recovery of an amount due under an insurance policy by offering an amount that does 

not have an objectively reasonable basis in law and fact"), AS 21.36.125(a)(12) (which 

prohibits   insurers   from   informing   their   insureds   of   "a   policy   of   appealing   from   an 

arbitration award in favor of an insured . . . for the purpose of compelling the insured . . . 

to accept a settlement"), and AS 21.36.125(a)(15) (which prohibits "fail[ing] to promptly 

provide a reasonable explanation of the basis in the insurance policy in relation to the 

facts or applicable law for denial of a claim"). 



        87      See     AS     28.20.445(e)(1)       ("Uninsured       and    underinsured       motorist 



coverage . . . may not apply to bodily injury, sickness, disease, or death of an insured or 

damage to or destruction of property of an insured until the limits of liability of all bodily 

injury and property damage liability bonds and policies that apply have been used up by 

payments,      judgments,     or  settlements.");     AS   28.22.201(a)(1)      ("The    uninsured     and 

underinsured motorist coverage required under this chapter . . . does not apply to bodily 

injury, sickness, disease, or death of an insured or damage to or destruction of property 

of an insured until the limits of liability bonds and policies that apply have been used up 

by payments or judgments or settlements."). 



                                                   -31-                                             6776
 


----------------------- Page 32-----------------------

there was no other available coverage that McDonnell was required to exhaust before 



filing her UM claims. 



                 In contrast, State Farm argues that we should hold the two-year contractual 



limitation provision to be wholly enforceable.             But we have already held in Estes that 

contractual limitation provisions are subject to a showing of prejudice.88                   State Farm 



argues that Estes is "distinguishable and not controlling here," but State Farm does not 



explain why Estes , which directly addressed the enforceability of a contractual limitation 



provision in an insurance contract, is not controlling precedent.   We note that the Estes 



principle   -   requiring   insurers   to   demonstrate   prejudice   when   seeking   to   enforce   a 

shortening   contractual   limitation   provision   -         has   been   reaffirmed   by   this   court,89 



recognized   as   the   prevailing   law   in   Alaska   by   the   Ninth   Circuit,90   and   adopted   as 



        88       See  Estes     v.  Alaska    Ins.  Guar.    Ass'n ,   774   P.2d    1315,   1318,     1320 



(Alaska 1989). 



        89      Long v. Holland Am. Line Westours, Inc. , 26 P.3d 430, 435 (Alaska 2001) 



(citing Estes , 774 P.2d at 1318) ("[T]his court has addressed clauses setting time limits 

on the commencement of suit in the context of insurance policies . . . [and] observed that 

it   would     be   inequitable     to   enforce    these    clauses    unless    prejudice     could    be 

demonstrated."); Alaska   Energy   Auth.   v.   Fairmont   Ins.   Co. ,        845   P.2d   420,   422-23 

(Alaska   1993)   (citing  Estes ,   774   P.2d   at   1318)   ("[O]ur     prior   decisions   have   held 

contractual time limitations to bring suit will not be enforced without some showing of 

prejudice."). 



        90      Allstate Ins. Co. v. Herron , 634 F.3d 1101, 1112 (9th Cir. 2011) (citing 



Estes , 774 P.2d at 1318) ("[A]n insurance company must establish that it suffered the 

prejudice that a cooperation clause was intended to avoid in order to escape liability 

based on the insured's breach of the clause."). 



                                                   -32-                                              6776
 


----------------------- Page 33-----------------------

persuasive authority by the New Mexico Supreme Court.91  We see no reason to abandon 



this principle for UM claims. 



                State Farm also argues that we should defer to the Division of Insurance's 



approval of Endorsement 6127BN, which contains the contested two-year contractual 



limitation provision.   We have held that the Division's approval of insurance policies is 

entitled to "some weight,"92 but we have also recognized that the Division's approval is 



merely a "screening mechanism, meant to catch unlawful insurance policies" and "cannot 

make an unlawful policy lawful."93          Thus, the Division's approval of the policy here is 



not dispositive of the issue before us and cannot overrule our holding in Estes requiring 



insurers to demonstrate prejudice before enforcing a contractual limitations provision. 



                In short, given that we have previously recognized (subject to the prejudice 



principle) the validity of contractual limitation provisions in  Sand Lake Lounge and 



Estes , a shorter limitations period for UM claims does not directly violate the statutes 



governing UM coverage. The Estes prejudice principle establishes a reasonable balance 



between protecting the insured from a shortened limitations period and protecting the 



insurer from stale claims; subject to this principle, we hold that State Farm's contractual 



two-year limitations provision is not void as against public policy.                 Accordingly, we 



affirm   the   superior   court's   ruling   that   State   Farm's   contractual   two-year   limitation 



provision is enforceable, subject to a showing of prejudice as required by Estes . 



        91      Roberts Oil Co. v. Transamerica Ins. Co. , 833 P.2d 222, 228-29 (N.M. 



1992) (adopting the Estes rule and reasoning). 



        92      Nelson v. Progressive Cas. Ins. Co. , 162 P.3d 1228, 1238 (Alaska 2007). 



        93      Ennen v. Integon Indem. Corp ., 268 P.3d 277, 287-88 (Alaska 2012). 



                                                  -33-                                            6776
 


----------------------- Page 34-----------------------

                 6.      Contractual modification of the accrual date 



                 As to when the contractual limitations period begins running, we have 



previously held in Estes and  Sand Lake Lounge that an insurance policy's one-year 

limitation period "began to run only after the claim was denied."94                 However, in those 



cases we were interpreting a contractual limitation provision that required the insured to 

file suit within one year of "the inception of the loss."95            We interpreted this phrase to 



mean "the date on which the insurance company denies coverage, that is, the date on 



which the cause of action accrues," concluding it would be unreasonable to interpret the 



phrase to mean the date of the underlying accident (in those cases, a fire rather than a car 

accident).96    We reasoned that our   holding was supported by an important practical 



consideration   -   "[i]n   insurance   loss   cases,   adequate   preparation   of   a   proof   of   loss 

requires a substantial amount of time."97          We also observed that if we were to interpret 



the   contractual   limitation   provision   as   commencing   on   the   date   of   the   underlying 



accident, "the operational effect of that decision would be to reduce the limitation period 

to considerably less than one year from the date the cause of action accrued."98 



                  Thus, we have previously interpreted an ambiguous contractual limitation 



provision as commencing on the date the insured's claim against her insurer accrued, 



meaning the date the insurer allegedly breached the insurance contract.  But we have not 



        94      Estes , 774   P.2d   at 1319 (citing Fireman's Fund Ins. Co. v. Sand Lake 



Lounge, Inc. , 514 P.2d 223, 226 (Alaska 1973)). 



        95       Sand Lake Lounge, 514 P.2d at 224. 



        96      Id . at 226-27. 



        97      Id . at 227.
 



        98      Id .
 



                                                   -34-                                              6776
 


----------------------- Page 35-----------------------

considered whether a contractual limitation provision that unambiguously modifies the 



accrual date is enforceable. 



                 McDonnell argues that the two-year limitation provision is unenforceable 



because it purports to start the limitations period before the insured's cause of action has 



accrued.  Some courts have enforced contractual provisions that modify the accrual date 

for UM claims.99       Other courts have held that such provisions are unreasonable and, 



therefore, unenforceable.100        We agree with the latter view. 



                 We start with the premise that, as discussed above, a UM claim arises out 



of the parties' insurance contract, therefore the cause of action generally accrues when 



the   contract   is   breached.   As   the   Delaware   Supreme   Court   explained,   "there   is   no 



justiciable controversy under the contract (here a policy) upon which a party may sue" 



until the contract is breached, because as long as the parties perform in accordance with 

the contract, no party has cause to complain.101           It is only when one party contends that 



the other has violated the contract that a justiciable controversy exists.102 



                 By shortening the accrual date for UM claims, State Farm's contractual 



limitation provision attempts to shorten the limitations period before an insured like 



         99      See    Hamm     v.  Allied   Mut.   Ins.   Co.,  612    N.W.2d     775,   779   n.1,   784 



(Iowa 2000) (stating the court would only apply the traditional accrual date for contract 

claims "[a]bsent specific language in the . . . policy concerning when the limitations 

period begins to run"); Angel v. Reed , 891 N.E.2d 1179, 1181-82 (Ohio 2008) (holding 

an unambiguous policy provision requiring the insured to bring suit within two years of 

the date of the accident must be enforced). 



         100     See    Nicodemus      v.  Milwaukee      Mut.    Ins.  Co.,   612   N.W.2d      785,   786 



(Iowa     2000);   State    Farm     Mut.   Auto.    Ins.  Co.   v.  Fitts,  99   P.3d   1160,      1162-63 

(Nev. 2004);  Kraly v. Vannewkirk, 635 N.E.2d 323, 329 (Ohio 1994). 



         101     Allstate Ins. Co. v. Spinelli , 443 A.2d 1286, 1292 (Del. 1982). 



         102     Id . 



                                                   -35-                                              6776
 


----------------------- Page 36-----------------------

McDonnell has a justiciable cause of action against her insurer.  Other courts have found 



such provisions unreasonable and invalid for this reason.  In Nicodemus v. Milwaukee 



Mutual Insurance Co. , the Iowa Supreme Court considered the validity of a contractual 



limitation   provision   that   attempted   to   shorten   the   date   of   the   commencement   of   the 

limitations period for UM claims to the date of the accident.103                 The Nicodemus court 



held    that   "the  contractual     limitations    provision     in  the  [insurance     policy],   which 



commences the limitations period before the insured's claim accrues, is unreasonable 



and, therefore, unenforceable," reasoning that "[a] contractual limitation provision that 



would      require   a  plaintiff   'to  bring   his  action   before    his  loss   or  damage     can   be 

ascertained' is per se unreasonable."104            Similarly, in Kraly v. Vannewkirk , the Ohio 



Supreme Court held that "the validity of a contractual period of limitations governing a 



civil action brought pursuant to the contract is contingent upon the commencement of 



the limitations period on the date that the right of action arising from the contractual 

obligation accrues."105      And in State Farm Mutual Automobile Insurance Co. v. Fitts, the 



Nevada   Supreme   Court   declined   to   enforce   a   policy   provision   that   commenced   the 



limitations   period   for   UM   and   UIM   claims   on   the   date   of   the   accident   and   instead 



reaffirmed the proposition that an insured's claim against an insurer does not accrue until 

the insurer breaches the contract.106 



                 We   agree   that   it   is   illogical   and   unreasonable   to   contractually   require 



commencement   of   the   limitations   period   for   a   UM   claim   before   the   insured   has   a 



         103     Nicodemus , 612 N.W.2d at 787.
 



         104     Id . at 786, 788-89 (quoting Douglass v. Am. Family Mut. Ins. Co. , 508
 



N.W.2d 665, 666 (Iowa 1993)). 



         105     Kraly , 635 N.E.2d at 329. 



         106     Fitts , 99 P.3d at1162-63. 



                                                    -36-                                              6776
 


----------------------- Page 37-----------------------

justiciable cause of action against her insurer.          If the limitations period for a UM claim 



commenced on the date of the accident, the insurer could potentially deny an insured's 



claim or refuse payment shortly before the limitations period ends, leaving the insured 



with insufficient time to file suit.      Similarly, the insurer could deny the insured's claim 



shortly after the limitations period ends, thereby barring the insured from filing suit at 



all.   Given   these   practical   considerations,   we   hold   that   to   the   extent   State   Farm's 



contractual two-year limitation provision purports to trigger the commencement of the 



limitations period before an insured's cause of action against the insurance company has 



accrued,   the   policy   provision   is   unreasonable   and     unenforceable.      Our   holding   is 



consistent with Sand Lake Lounge, where we held that it would   be   unreasonable to 



interpret a contractual limitation provision as commencing on the date of the insured's 



loss, because such an interpretation would considerably reduce the insured's time to file 

suit once the cause of action actually accrued.107           Accordingly, we affirm the superior 



court's ruling that State Farm's contractual limitations provision does not commence 



until   the   insured's   UM   claim   accrues,   which   occurs   when   the   insurer   has   allegedly 



breached the insurance contract, such as by refusing the insured's request for payment 



or denying the insured's claim. 



V.      CONCLUSION 



                We   AFFIRM   the   superior   court's   ruling   that   the   mandatory   appraisal 



statute, AS 21.96.035, does not apply to McDonnell's UM personal injury claims.  We 



also   AFFIRM   the   superior   court's   rulings   that   the   two-year   limitation   provision   in 



State Farm's insurance policies is enforceable against McDonnell's UM claims, subject 



        107     Fireman's Fund Ins. Co. v. Sand Lake Lounge, Inc. , 514 P.2d 223, 226-27 



(Alaska 1973). 



                                                  -37-                                               6776 


----------------------- Page 38-----------------------

to a showing of prejudice, and that the limitations period does not commence until the 



insurer allegedly breaches the insurance contract. 



                                          -38-                                    6776
 

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