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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C. (3/25/2016) sp-7095

Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C. (3/25/2016) sp-7095

          Notice:   This opinion is subject to correction before publication in the P                    ACIFIC  REPORTER.  

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                      THE SUPREME COURT OF THE STATE OF ALASKA                                      



ATTORNEYS  LIABILITY                                           )  

PROTECTION  SOCIETY,  INC.,                                    )                                          

                                                                          Supreme Court No. S-15683  

a  Risk  Retention  Group,                                     )  

                                                               )                                         

                                                                          9th Cir. Case Nos. 13-35115/  

           Plaintiff                                           )          13-35172  

           Cross-Appellant/Appellee,                           )                                         

                                                                          U.S. District Court No.  

                                                               )          3:11-cv-00187-SLG  

           v.                                                  )  

                                                               )                                  

                                                                          O P I N I O N  

                                                    

INGALDSON FITZGERALD, P.C.,                                    )
  

                                          

f/k/a Ingaldson, Maassen &                                                                                     

                                                               )
         No. 7095 - March 25, 2016  

                   

Fitzgerald, P.C.,                                              )
  

                                                               )
  

           Defendant                                           )
  

           Appellee/Cross-Appellant.                           )
  

                                                               )
  



                                                                                                   

                     Certified Question from the United States Court of Appeals  

                                                                                                          

                     for  the  Ninth  Circuit  on  Appeal  from  the  United  States  

                                                                                                       

                     District Court for the District of Alaska, Sharon L. Gleason,  

                                   

                     District Judge.  



                                                                                                      

                     Appearances:             Kendra  E.  Bowman  and  Scott  J.  Gerlach,  

                                                                                  

                     Delaney Wiles, Inc., Anchorage, and Kevin D. Hartzell and  

                                                                                                                

                     Angela Probasco, Kutak Rock LLP, Omaha, Nebraska, for  

                                                                                                    

                     Plaintiff-Cross-Appellant/Appellee.  William H.  Ingaldson  

                                                                                                          

                     and      Jim      M.      Boardman,            Ingaldson          Fitzgerald,          P.C.,  

                                                                                                                      

                     Anchorage,             for      Defendant-Appellee/Cross-Appellant.  

                                                                                                  

                     Daniel Wilkerson, Assistant Attorney General, Anchorage,  

                                                                                                               

                     and  Craig  W.  Richards,  Attorney  General,  Juneau,  for  

                                                                         

                     Amicus Curiae State of Alaska.  


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

                        Before:   Stowers, Chief Justice, Fabe and Bolger, Justices,                                 

                                                                                                        *   [Winfree and  

                        and Matthews and Eastaugh, Senior Justices.                                                           

                        Maassen, Justices, not participating.]  

                                                                  



                        FABE, Justice.  

                                      



I.          INTRODUCTION  



                        Today we resolve two questions certified to us by the United States Court  

                                                                                                                                                  



of Appeals for the Ninth Circuit:  

                                                             



                        1.          Does Alaska  law  prohibit  enforcement  of  a  policy  

                                                                                                                        

                        provision entitling an insurer to reimbursement of fees and  

                                                                                                                             

                        costs  incurred  by  the  insurer  defending  claims  under  a  

                                                                                                                                 

                        reservation of rights, where (1) the insurer explicitly reserved  

                                                                                                                     

                        the right to seek such reimbursement in its offer to tender a  

                                                                                                       

                        defense provided  by  independent  counsel,  (2) the  insured  

                                                                                                                      

                        accepted the defense subject to the reservation of rights, and  

                                                                                                                              

                        (3)  the  claims  are  later  determined  to  be  excluded  from  

                                                                                                                           

                        coverage under the policy?  

                                                            



                        2.          If the answer to Question 1 is "Yes," does Alaska law  

                                                                                                                              

                        prohibit enforcement of apolicy provision entitling an insurer  

                                                                                                                        

                        to reimbursement of fees and costs incurred by the insurer  

                                                                                                                       

                        defending claims under a reservation of rights, where (1) the  

                                                                                                                               

                        insurer          explicitly           reserved           the       right       to      seek        such  

                                                                                                                         

                        reimbursement in its offer to tender a defense provided by  

                                                                                                                               

                        independent  counsel,  (2) the  insured  accepted the  defense  

                                                                                                                      

                        subject  to  the  reservation  of  rights,  and  (3)  it  is  later  

                                                                                                                           

                        determined  that  the  duty  to  defend  never  arose under  the  

                                                                                                                              

                                                                                                                       [  ]  

                        policy because there was no possibility of coverage? 1 

                                                                                                     



The answer to both questions is "yes."  

                                                           



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



Constitution and Alaska Administrative Rule 23(a).                                 



            1           Attorneys Liab. Prot. Soc'y, Inc. v. Ingaldson Fitzgerald, P.C.  (ALPS 9th  

                                                                                                                                                      

Cir.), 766 F.3d 1180, 1181 (9th Cir. 2014).  

                                                                   



                                                                           -2-                                                                     7095
  


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

II.            FACTS AND PROCEEDINGS           



                             The facts of this case are not in dispute for the purpose of resolving the                                                                              



                                          2  

certified questions.                                                                                                                                                     

                                               Ingaldson Fitzgerald is an Alaska law firm.  Attorneys Liability  



                                                                                                                                                              

Protection Society, Inc. (ALPS) is a Montana insurance company and risk-retention  



                                                                                                                                                                                        

group.  From April 29, 2007, to April 29, 2008, ALPS insured Ingaldson Fitzgerald.  



                                                                                                                                                                             

                             IngaldsonFitzgerald'sinsurancepolicywith ALPSinsured thefirmagainst  



                                                                                                                                                                             

claims arising from"an act, error or omission in professional services that were or should  



                                                                                                                                                                                

have been rendered by [Ingaldson Fitzgerald]."  The policy expressly excluded from  



                                                                                                                                                                                  

coverage any claims arising from conversion or disputes over fees.   The policy also  



                                                                                                                                                                                     

contained a provision providing that Ingaldson Fitzgerald would reimburse ALPS for  



                                                                                                                           

fees and costs ALPS incurred in defending non-covered claims.  



                                                                                                                                                                                       

                             In 2008 the bankruptcy trustee for the bankrupt estate of a former client of  



                                                                                                                   

Ingaldson Fitzgerald, in conjunction with a separate former client of the firm, brought  



                                                                                                                                                                                    

a claim against the firm in the U.S. Bankruptcy Court for the District of Alaska. The suit  



                                                                                                                                                                                    

concerned Ingaldson Fitzgerald's actions in disbursing from and withdrawing fees and  



                                                                                                                                                                                  

costs against  a  retainer.                               The former  client and the trustee sought recovery  of that  

                  3   and asserted claims against Ingaldson Fitzgerald for, among other things,  

retainer,                                                                                                                                                                   

restitution, disgorgement, and conversion.4  

                                                                   



               2             Attorneys Liab. Prot. Soc'y, Inc. v. Ingaldson &Fitzgerald, P.C.                                                                         (ALPS D.   



Alaska), No. 3:11-cv-00187-SLG, 2012 WL 6675167, at *1 (D. Alaska Dec. 21, 2012).                                                                                             

Additionally, when answering certified questions we "rely . . . on the federal court's fact                                                                                         

 statements and the excerpt.                                We make no independent fact determinations."                                                           C.P. ex rel.     

M.L.  v. Allstate Ins. Co.                          , 996 P.2d 1216, 1218 n.1 (Alaska 2000).                                    



               3             ALPS D. Alaska , 2012 WL 6675167, at *1.  

                                                                                                                    



               4             Id.  



                                                                                           -3-                                                                                  7095
  


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

                      Ingaldson   Fitzgerald   notified   ALPS   of   the   underlying   suit.     ALPS  



responded by accepting Ingaldson Fitzgerald's tender of the defense in the underlying   

                                                                                               5  In its reservation of rights  

suit, but with the caveat that ALPS "reserved 'all rights.' "                                                                      



letter, ALPS explained that the underlying suit made allegations of activities that "d[id]  

                                                                                                                                   



not appear to implicate the provision of services or activities by [Ingaldson Fitzgerald]  

                                                                                                                           



as  an  attorney  in  an  attorney-client  relationship,"  and  thus  "d[id]  not  appear  to  be  

                                                                                                                                        



professional services within the Policy's coverage."  The letter also asserted that the  

                                                                                                                                       



claims in the underlying suit sought restitution that was not within the policy's definition  

                                                                                                                             



of covered "damages" and that the policy did not cover claims related to disputes over  

                                                                                                                                     



fees, dishonest or criminal acts, or the conversion of trust account funds.   ALPS's  

                                                                                                                                



reservation of rights letter also specifically included the right to be reimbursed for the  

                                                                                                                                       



portion of fees incurred in the defense of claims that were deemed not covered under the  

                                                                                                                                        



policy.  



                      Ingaldson Fitzgerald then retained independent counsel to defend against  

                                                                                                                                 



the former  client and the trustee's claim, and ALPS paid the fees incurred by that  

                                                                                                                                      

attorney.6   During adversary proceedings in the underlying suit, the bankruptcy court in  

                                                                                                                                          



the  District  of  Alaska  twice  granted  partial  summary  judgment  against  Ingaldson  

                                                                                                                            

Fitzgerald.7  The trustee then dismissed the remaining cause of action, sought entry of  



final judgment, and moved for attorney's fees and costs.8  

                                                                                   



           5         Id.  



           6         Id.  



           7          See  In  re  Avery,  No.  A06-00455-DMD,  2011  WL  4474927,  at  *4-6  (Bankr.  



D.  Alaska  July   19,  2011);  In  re  Avery ,  461  B.R.  798,  816-20  (Bankr.  D.  Alaska  2011).  



           8          See  In  re  Avery ,  No.  A06-00455-DMD,  2011  WL  5330789,  at  *2  (Bankr.  



D.  Alaska  Nov.  4,  2011).  



                                                                    -4-                                                             7095
  


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

                               In September 2011 ALPS filed suit against Ingaldson Fitzgerald in the                                                                                    



United States District Court for the District of Alaska.  ALPS sought declarations that               



its policy did not cover the underlying claims and that it was not obligated to furnish an                                                                                                       



appeal bond, as well as a monetary award reimbursing it for the cost of defending                                                                                             



Ingaldson Fitzgerald.                              The district court determined that Ingaldson Fitzgerald did not                                                                            



meaningfully  contest either of the first two requests for declaratory relief and thus                                                                                                      

                                                                                                                                          9  But Ingaldson Fitzgerald  

granted ALPS its desired declarations on summary judgment.                                                                                                                     



did contest ALPS's claimfor reimbursement of the cost of defense in the underlying suit,  

                                                                                                                                                                                             



and it moved for partial summary judgment on this point.  ALPS opposed Ingaldson  

                                                                                                                                                                               



Fitzgerald's motion and cross-moved for summary judgment.  

                                                                                                                      



                               The  district  court  granted  Ingaldson  Fitzgerald's  motion  for  partial  

                                                                                                                                                                                      

                                             10  The district court noted that the policy provided ALPS with a right  

summary judgment.                                                                                                                                                                         

                       

to  reimbursement11                              but  concluded  that  the  reimbursement  provision  was  not  in  

                                                                                                                                                                                                



compliance   with   Alaska   insurance   law   and   that   the   provision   was   therefore  

                                                                                                                                                                               

                                  12       Specifically,  the  district  court  concluded  that  the  reimbursement  

unenforceable.                                                                                                                                                    



provision was inconsistent with AS 21.96.100(d), which provides that in furnishing the  

                                                                                                                                                                                               



insured with independent counsel, an insurer "shall be responsible only for the fees and  

                                                                                                                                                                                              



costs to defend those allegations for which the insurer either reserves its position as to  



               9              Attorneys   Liab.   Prot.   Soc'y,   Inc.   v.   Ingaldson   &   Fitzgerald,   P.C.,   No.  



3:11-cv-00187-SLG  (D.  Alaska  Jan.  24,  2013).  



               10             See  ALPS  D.  Alaska ,  2012  WL  6675167,  at  *2-5.  



               11             Id.  at  *2.  



               12             Id.  at  *4.  



                                                                                                -5-                                                                                       7095
  


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

                                                        13  

coverage or accepts coverage."                              The district court also determined that "Alaska law                                   



prohibits the inclusion of a right to reimbursement in insurance policies in the state and                                                        



does   not   allow   ALPS   to   provide   insurance   policy   coverage   that   contradicts   this  

                       14  The district courtthereforegrantedIngaldsonFitzgerald partial summary  

prohibition."                                                                                                                           

judgment on ALPS's claim for reimbursement. 15  

                                                        

                        ALPS appealed to the Ninth Circuit.16                                  The Ninth Circuit certified two  

                                                                                                                                                 



questions to this court, distinguishing between situations in which an insurer has a duty  

                                                                                                                                                 



to defend but ultimately faces no liability and situations in which the duty to defend  

                                                                                                                                            

never arises.17              We granted the Ninth Circuit's request that we answer the certified  

                                                                                                                                         



questions.  The parties provided full briefing of the issues, and the Alaska Division of  

                                                                                                         



Insurance filed an amicus brief at our request.  Oral argument was held before this court  

                                                                                                                                               



on December 15, 2015.  

                                



III.        STANDARD OF REVIEW  

                                              



                        Alaska Appellate Rule 407(a) permits us to accept certified "questions of  

                                                                                                                                                     



law of this state which may be determinative of the cause then pending in the certifying  

                                                                                                                                       



court and as to which it appears to the certifying court there is no controlling precedent  

                                                                                                                                       



in [this court's] decisions."  We have explained that "[i]n deciding a certified question  

                                                                                                                       



of law, we must 'stand in the shoes of the certifying court, yet exercise our independent  

                                                                                                                                   



            13         Id.  



            14         Id.  at *5.   



            15         Id.  



            16  

                                                                                              

                       ALPS 9th Cir. , 766 F.3d 1180 (9th Cir. 2014).  



            17  

                                              

                       Id. at 1181.  



                                                                          -6-                                                                  7095
  


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

                              18  

judgment.' "                       This entails "selecting the rule of law that is most persuasive in light of                                                                                      

precedent, reason, and policy."                                         19  



                               Weinterpret statutes "according toreason, practicality,and common sense,  

                                                                                                                                                                                            



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

                                                                                                                                                                                       

purpose."20  We "use a sliding scale approach to statutory interpretation, in which 'the  

                                                                                                                                                                          



plainer thestatutory languageis, themoreconvincing theevidenceofcontrary legislative  

                                                                                                                                                                                  

purpose or intent must be.' "21  

                                                                 



 IV.	           DISCUSSION  



                A.	            When   An   Insurer   Has   A   Duty   To   Defend,   Alaska   Law   Prohibits  

                               Enforcement   Of   A   Policy   Provision   Entitling   That   Insurer   To  

                               Reimbursement Of Fees And Costs Incurred During The Defense Of                                                                                                      

                                Claims Under A Reservation Of Rights.                                                               



                               Answering    the    first    certified    question    requires   us    to    answer    two  



 sub-questions.  First, does Alaska law generally require insurers to pay defense costs,  

                                                                                                                                                                                            



without reimbursement, when they reserve rights?                                                                       And second, if so, does Alaska law                                        



bar attempts to contract around this requirement?                                                                   The answer to both questions is yes,                                        



 even in circumstances where (1) an insurer explicitly reserved the right to seek such                                                                                                        



reimbursement in its offer to tender a defense provided by independent counsel, (2) the                                                                                                           



                                                                                                                                                                                                  

 insured accepted the defense subject to the reservation of rights, and (3) the claims are  



                                                                                                                                                       

 later determined to be excluded from coverage under the policy.  



                18             Schiel   v.   Union   Oil   Co.   of   Cal.,  219   P.3d   1025,   1029   (Alaska   2009)  



 (quoting  Edenshaw v. Safeway, Inc.                                                , 186 P.3d 568, 569 (Alaska 2008)).                               



                19             Id. (citing Kallstrom v. United States, 43 P.3d 162, 165 (Alaska 2002)).  

                                                                                                                                                                                                       



                20             Municipality of Anchorage v. Stenseth, 361 P.3d 898, 905 (Alaska 2015)  

                                                                                                     

 (citing State, Div. of Workers' Comp. v. Titan Enters., 338 P.3d 316, 320 (Alaska 2014)).  

                                                                                                                                                                                                           



                21             Id.  (alteration omitted) (citations omitted) (quoting McDonnell v. State  

                                                                                                                                                                                             

Farm Mut. Auto. Ins. Co., 299 P.3d 715, 721 (Alaska 2013)).  

                                                                                                                              



                                                                                                 -7-	                                                                                        7095
  


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

                                 1.             Alaska case law                           



                                Before turning to the text of AS 21.96.100, we first survey the common law                                                                                                        



context in which the statute was passed.                                                              Our examination of an insurer's options in                                                           



policy defense situations begins with                                                     Continental Insurance Co. v. Bayless & Roberts,                                                   



         22  

Inc.                                                                                                                                                                                                    

                 In Continental an insured was sued, and its insurer became convinced that the  



                                                                                                           23  

                                                                                                                                                                                                             

insured had breached the insurance contract.                                                                     The insurer informed the insured that it  



                                                                                                                                                                                                     

would only continue to defend the case subject "to a reservation of [the insurer's] right  



                                                                                                                                           24  

                                                                                                                                                                                          

to later deny liability on the ground of the alleged breach."                                                                                    We rejected this approach  



                                                                                                                                                                                                         

and  held  that  in  policy  defense  situations  "the  insured  has  a  right  to  demand  an  

                                                         25   We further recognized three options for an insurer seeking to  

                                                                                                                                                                                                           

unconditional defense." 



meet this right:  "affirm the policy and defend unconditionally," "repudiate the policy  

                                                                                                                                                                                                



and withdraw from the defense," or "offer its insured the right to retain independent  

                                                                                                                                                                                  



counsel to conduct his [or her] defense, and agree to pay all the necessary costs of that  

                                                                                                                                                                                                       

defense."26  

                            



                22              608 P.2d 281 (Alaska 1980).                                                Policy defenses arise when "the insurer                                            



claims that the policy has been breached by the insured,"                                                                               CHI of Alaska, Inc. v. Emp'rs                         

Reinsurance   Corp.,   844   P.2d   1113,   1115   (Alaska   1993),  and   were   at   issue   in  

 Continental.   608 P. 2d at 283.                                          Coverage defenses, like those at issue in this case, arise                                                                

when the insurer asserts that "a particular claim [in the underlying suit] does not come                                    

within the coverage of the policy."                                                   CHI of Alaska, Inc.                            , 844 P.2d at 1115.             



                23               Continental Ins. Co., 608 P.2d at 283.  

                                                                                                                             



                24              Id.  



                25              Id. at 291.  

                                              



                26              Id. at 291 & n.17.  

                                                               



                                                                                                     -8-                                                                                            7095
  


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

                      We elaborated upon our conclusion in                            Continental  when we decided                     CHI  



                                                                                             27  

of Alaska, Inc. v. Employers Reinsurance Corp.                                 in 1993.                                                 

                                                                                                 In CHI an insured was sued  



                                                                                                    

under multiple theories, and its insurer agreed to defend on all claims, "conditional on  



                                                                                                                                  

reserving its rights to disclaimcoverage" with respect to one of the claims that it believed  

                                                          28  Because the reservation of rights created a conflict  

                                                                                                                                   

might be excluded under the policy. 

of interest, the insured demanded that the insurer pay for independent counsel.29                                                       The  

                                                                                                                                         



insured then sued for a declaration that it was entitled to select independent counsel and  

                                                                                                                                          



have that counsel defend both the claim as to which the insurer had reserved its rights  

                                                                                                                                      

and the claims as to which the insurer had accepted coverage.30  

                                                                                                           



                      In  CHI we held that the same rights and options that existed in policy  

                                                                                                                                     

defense situations under Continental also applied in coverage defense situations.31   In so  

                                                                                                                                            



doing, we explicitly held that where the injured third party's allegations state a claim  

                                                                                                                                      



within an exception to policy coverage, but facts known or ascertainable to the insurer  

                                                                                                                                    



also disclose a claim within or potentially within the policy's coverage, the insurer must  

                                                                                                                                        

                                                                                    32   We have therefore confirmed an  

still provide the insured with independent counsel.                                                                                        

                                                                       



           27         844  P.2d   1113.  



           28         Id.  at   1114.  



           29         Id.  



           30         Id.  



           31         Id.  at  1118  ("We  conclude  that  the  right  to  independent  counsel  recognized  



in  Continental  should  also  apply  to  cases  involving  coverage  defenses.").  



           32         See  id.  at  1118-19  (stating  that  we  adhere  to  the  dicta  in  National  Indemnity  



Co.  v.  Flesher,  469  P.2d  360,  367  n.22  (Alaska  1970)  that  reached  the  same  conclusion).  



                                                                     -9-                                                              7095
  


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

insurer's obligation to provide and "pay all the necessary costs of" independent counsel                                                



                                                                                                     33  

when reserving the right to assert a later coverage defense.                                              



                                                      

                       2.          Statutory text  



                                                                                                                                                    

                       Soon after we issued our decision in CHI, the Alaska Legislature passed a  



                                                                                                                                               

statute that codified the requirements that bind insurers as set out in Continental and  



                                                                                                                                        

CHI.  The text of that statute, AS 21.96.100, reads in relevant part as follows:  



                                            

                       Subpart (a) provides:  



                                                                                                                           

                       If an insurer has a duty to defend an insured under a policy of  

                                                                                                                      

                       insurance and a conflict of interest arises that imposes a duty  

                                                                                                                 

                       on the insurer to provide independent counsel to the insured,  

                                                                                                                  

                       the insurer shall provide independent counsel to the insured  

                                                                                                          

                       unless the insured in writing waives the right to independent  

                       counsel.  



                                                            

                       Subpart (c) requires:  



                                                                                                                         

                       [I]f the insurer reserves the insurer's rights on an issue for  

                                                                                                               

                       which   coverage   is   denied,   the   insurer   shall   provide  

                                                                                                                   

                       independent  counsel  to  the  insured  as  provided  under  

                                                          

                       [subpart] (a) of this section.  



                                                                                                                                                

                       Subpart (d) specifies that if the insured selects independent counsel, the  



                                                                                                                                              

insurer may requirethat theindependentcounselhaveadequateexperienceand may limit  



                                                                                                                                          

the independent counsel's rates to the rate the insurer would pay an attorney in a similar  



                       

case.  It also stipulates:  



                                                                                                                       

                       In   providing   independent   counsel,   the   insurer   is   not  

                                                                                                              

                       responsible for the fees and costs of defending an allegation  

                                                                                                                         

                       for   which   coverage   is   properly   denied   and   shall   be  

                                                                                                                    

                       responsible  only  for  the  fees  and  costs  to  defend  those  

                                                                                                                 

                       allegations for which the insurer either reserves its position  

                                                                                                                  

                       as to coverage or accepts coverage. The independent counsel  



           33  

                                                                                                                                              

                       Continental Ins.  Co. v. Bayless & Roberts, Inc., 608 P.2d 281, 291 n.17  

               

(Alaska 1980).  



                                                                       -10-                                                                 7095  


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

                                     shall   keep    detailed    records    allocating    fees    and    costs  

                                     accordingly.  



                                     Finally, subpart (f) provides that an insured may waive the right to select                                                                                          



independent counsel if the insured signs a waiver that includes, among other things, a                                                                                                                                                       



section reading, "I have been advised of my right to select independent counsel to                                                                                                                                                        



represent me in this lawsuit and of my right under state law to have all reasonable                                                                                                                              



expenses of an independent counsel paid by my insurer."                                                                                



                                     As the Ninth Circuit recognized, this statute "does not squarely address                                                                                                              



whether the insurer can later seek reimbursement of fees assumed under a reservation of                                                                                                                                                    



rights" where "the parties agreed to a policy that allows reimbursement, and the insurer                                                                                                                                     



                                                                                                                                                                                                                                            34  

reiterated the possibility it would seek reimbursement in its reservation of rights letter."                                                                                                                                                       



Thus, the question before us is whether the statute is correctly read as a prohibition on  

                                                                                                                                                                                                      



reimbursement. To resolve this question, we take a "sliding-scale approach [to statutory  

                                                                                                                                                                                                                        



interpretation] where '[t]he plainer the statutory language is, the more convincing the  

                                                                                                                                                                                                                                       

evidence of contrary legislative purpose or intent must be.' "35   A review of the statutory  

                                                                                                                                                                                                                        



text indicates that reimbursement is prohibited, and because there is no evidence of  

                                                                                                                                                                                                                                         



contrary   legislative   purpose   or   intent,   we   conclude   that   the   statute   prohibits  

                                                                                                                                                                                                                    



reimbursement provisions.  

                                                                             



                                     Language in subsections (a) through (d) of the statute leads us to this  

                                                                                                                                                                                                                                     



conclusion.   The discussion throughout those subsections focuses on the mandatory  

                                                                                                                                                                                                                  



requirement that insurers pay for the cost of independent counsel. The statute details the  

                                                                                                                                                                                                                                        



                  34                 ALPS 9th Cir.                          , 766 F.3d 1180, 1183 (9th Cir. 2014).                                                                        



                  35  

                                                                                                                                                                                                                               

                                     Ayres  v. United Servs.  Auto. Ass'n ,  160  P.3d  128,  129  (Alaska 2007)  

                                                                                                                                                                                                                     

(alteration in original) (quoting Muller v. BP Exploration (Alaska) Inc., 923 P.2d 783,  

                                             

787-88 (Alaska 1996)).  



                                                                                                                  -11-                                                                                                            7095
  


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

                                                                                                                                      36  

circumstances   under   which   "the   insurer   shall   provide   independent   counsel."                                                   It  



discusses what happens when the insurer provides "independent counsel                                                  at the insurer's     



                37  

                                                                                                                                            

expense."           And it articulates the parameters of "the obligation of the insurer to pay the  



        38  

                                                                                                                         

fee."        Thus, the statute regulates the relationship between insurer and insured when  



                                                                                                                                             

independent counsel is provided and clearly allocates to the insurer the responsibility to  



                                                                                                                                 

pay the fees and costs of such counsel.  Any effort by the insurer to shift such expenses  



                                                                       

to an insured would violate the allocation that the statute requires and would therefore  



                     

be invalid.  



                                                                                                                                  

                      ALPS reads those clauses to mean that an insurer can fulfill its statutory  



                                                                                                                                     

obligations by paying fees and costs, while explicitly reservingthe right to recoup money  



                                                                                                                                                  

for those payments should the claims turn out to be uncovered claims under the policy.  



                                                                                                                                

But that reading is inconsistent with the legislature's general approach to insurance  



                                                                                                                   39  

                                                                                                                                             

regulations.  The insurance industry is a "highly regulated industr[y]."                                               In a number of  



                                                                                                                                           

other contexts, we have held unenforceable insurance policy provisions that have run  



                                                                                                                                      

afoul of applicable regulations or statutes.  For example, we have invalidated policy  



                                                                                                                                        

provisions that were not in compliance with applicable regulations and had not been  



                                                                  40  

                                                                                                                                         

approved by the Division of Insurance;                                provisions that were not in compliance with  



           36         AS  21.96.100(a)  (emphasis  added);  see  also  AS  21.96.100(c).
   



           37         AS  21.96.100(d)  (emphasis  added).
   



           38
        Id.  (emphasis  added).   



           39         A.  Fred  Miller,  Attorneys  at  Law,  P.C.  v.  Purvis,  921  P.2d  610,  613  (Alaska  



 1996).    



           40         See  Therchik  v.  Grant  Aviation,  Inc.,  74  P.3d  191,  195-200  (Alaska  2003).  



                                                                     -12-                                                              7095
  


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

                                                                                                                                          41  

applicable statutes but                     had  been approved by the Division of Insurance;                                                  and provisions   



                                                                                                                                                       42  

that unambiguously attempted to modify a statutorily mandated accrual date.                                                                                        

                                                                                                                                                             In light  



                                                                                                                                                                             

of that history, the statute's silence on the question of reimbursement is instructive:  



                                                                                                                                                                  

There is no provision suggesting that AS 21.96.100 permits reimbursement, so we must  



                                                                                                                          

conclude that the statutory scheme prohibits reimbursement.  



                                                                                                                                                                          

                          And subsection (f), the waiver provision, further clarifies that to enforce a  



                                                                                                                                                                             

reimbursement  provision  would  be  inconsistent  with  the  purpose  of  the  statute.  



                                                                                                                                                   

Subsection (f) specifies that "[a]n insured may waive the right to select independent  



                                                                                                                                                                     

counsel by signing a statement" that includes, among other things, acknowledgment that  



                                                                                                                                                          

the insured understands his or her "right under state law to have all reasonable expenses  



                                                                                                                                                                      

of an independent counsel paid by my insurer."  Nowhere in the waiver provision is the  



                                                                                                                                                       

possibility of reimbursement mentioned.   It is difficult to believe that the legislature  



                                                                                                                                                                    

would have drafted a waiver provision that did not at least mention the possibility  of a  



                                                                                                                                                                       

contractual right to reimbursement if the legislature had contemplated a scenario in  



                                                                                                                                                      

which  an insurance policy  could  obviate the insured's right to have all reasonable  



                                                                                     

expenses of independent counsel paid for.  



                                                                                                                                                          

                          We have previously held that insurance policies are contracts of adhesion  

                                                                                                                                                               43    "In  

                                                                                                                                                                     

and must be interpreted according to the reasonable expectations of the insured. 



other words, '[t]he objectively reasonable expectations of . . . beneficiaries regarding the  

                                                                                                                                                                      



terms of insurance contracts will be honored even though painstaking study of the policy  

                                                                                                                                                                



             41           See Ennen v. Integon Indem. Corp.                                     , 268 P.3d 277, 288 (Alaska 2012).                                      



             42           See McDonnell v. State Farm Mut. Auto. Ins. Co.                                                    , 299 P.3d 715, 732-33          



(Alaska 2013).                   



             43           See C.P. ex rel. M.L. v. Allstate Ins. Co., 996 P.2d 1216, 1222 (Alaska  

                                                                                                                                                            

2000) (citing Jones v. Horace Mann Ins. Co., 937 P.2d 1360, 1362 n.3 (Alaska 1997)).  

                                                                                                                                                             



                                                                                  -13-                                                                           7095
  


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

                                                                                                                                                                                44  

 provisions   would   have   negated   those   expectations.'   "                                                                                                                        In   AS   21.96.100(f),   the  



 legislature provided detailed waiver language that informs an insured's expectations.                                                                                                                                                                                       



 And it is objectively reasonable for an insured party to base its expectations on that                                                                                                                                                                      



 language.   That the waiver provision omitted any discussion of the insured's possible                                                                                                                                                         



 liability for reimbursement of attorney's fees is yet another compelling indication that                                                                                                                                                                     



 the statute precludes reimbursement.                                                                              



                                          Contrary to this interpretation, ALPS argues that we should adopt the                                                                                                                                                



 position taken by the California Supreme Court.                                                                                                              California has similarly imposed                                                



 "limits on the ability of liability insurers to control third-party litigation against the                                                                                                                                                                    

                                                                                                                                                 45   And California appears to be the only  

 insured" through both "case and statutory law."                                                                                                                                                                                                            



jurisdiction with an independent counsel statute to have evaluated insurers' ability to  

                                                                                                                                                                                                                                                                   



 seek reimbursement for the costs of defending claims that are ultimately excluded from  

                                                                                                                                                                                                                                                           



 coverage.  ALPS therefore urges us to follow the path set by Buss v. Superior Court, in  

                                                                                                                                                                                                                                                                    



 which  the  California  Supreme  Court  rejected  the  argument  that  enforcement  of  

                                                                                                                                                                                                                                                                 



                                                                                                                                                                                                                    46  

 contractual reimbursement rights conflicted with California's statute.                                                                                                                                                    

                                                                                                                                                                                               



                                          But  as  the  Division  of  Insurance  argues  in  its  amicus  brief,  Buss  is  

                                                                                                                                                                                                                                                                   



 inapposite because the California statute "contains no equivalent to the language in  

                                                                                                                                                                                                                                                                   



 AS 21.96.100(d) that states the insurer 'shall be responsible only for the fees and costs  

                                                                                                                                                                                                                                                          



 to  defend  those  allegations  for  which  the  insurer  either  reserves  its  position  as  to  

                                                                                                                                                                                                                                                                  



 coverage or accepts coverage.' " ALPS maintains that Buss remains instructive because  

                                                                                                                                                                                                                                                  



                     44                  Id.  (alteration in original) (quoting                                                                    Bering Strait Sch. Dist. v. RLI Ins. Co.                                                                             ,  



 873 P.2d 1292, 1295 (Alaska 1994)).                                                         



                     45                  Buss v. Superior Ct., 939 P.2d 766, 785 (Cal. 1997) (citing C                                                                                                                        AL. C           IV. C          ODE  

                                                                                                                                                                                                     

  2860;                 San Diego Navy Fed. Credit Union v. Cumis Ins. Soc'y, Inc.                                                                                                                          , 208 Cal. Rptr. 494,                           

 501-02 (Cal. App. 1984)).                                                         



                     46                  Id. at 783 & n.25.  

                                                                                 



                                                                                                                               -14-                                                                                                                       7095
  


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

AS 21.96.100(d) does not actually address reimbursement at all, so provisions within the                                                                                                       



policy contract may fill the gaps on the reimbursement issue.                                                                             But unlike our statute, the                         



California statute is not silent on the issue of reimbursement.                                                                                     To the contrary, the                      



California statute provides that "[t]his subdivision does not invalidate other different or                                                                                                      



additional policy provisions pertaining to attorney's fees or providing for methods of                                                                                                          

                                                                                                       47    The Alaska Statutes contain no similar  

settlement of disputes concerning those fees."                                                                                                                                        



provision, so Buss does not assist us.  

                                                                                      



                              3.              Legislative history  

                                                                          



                              Legislative  history  bolsters  our  conclusion  that  the  statute  allocates  

                                                                                                                                                                                



responsibility to pay for independent counsel to the insurer when the insurer reserves  

                                                                                                                                                                                  



rights.  In 1994 the legislature considered two bills with identical provisions relating to  

                                                                                                                                                                                                 



the  appointment  of  independent  counsel,  and  those  provisions  largely  tracked  the  

                                                                                                                                                                                             

language now found in AS 21.96.100.48  

                                                                                                                                                                            

                                                                                                The minutes of the House Rules Committee  



                                                                                                                                                                            

indicate  that  the  Commissioner  of  the  Department  of  Commerce  and  Economic  



                                                                                                                                                                                       

Development described those provisions as "codification[s] of a court case . . . in which  



                                                                                                                                                 

the policyholder is entitled [to] representation [by independent counsel],  proposed by  

                                                                                                                                  49     Neither bill passed, but in  

                                                                                                                                                                                                 

the insurer defending the case on behalf of the insured." 



 1995  the  legislature  considered  a  bill  that  an  officer  of  the  Division  of  Insurance  

                                                                                                                                                                              

described as "the successor bill" to those failed bills.50                                                                        An assistant attorney general  

                                                                                                                                                                                    



               47              CAL. C          IV. C      ODE   2860(c).                     



               48             See  House Bill (H.B.) 534, 18th Leg., 2d Sess.  88 (1994); Senate Bill                                                                                      



                                                                                                       

(S.B.) 362, 18th Leg., 2d Sess.,  88 (1994).  



               49             Minutes,  H.  Rules  Comm.,  Hearing  on  S.B.  362,  18th  Leg.,  2d  Sess.  

                                                                                                                                                                  

(May 9, 1994) (testimony of Paul Fuhs, Comm'r, Dep't of Commerce & Econ. Dev.).  

                                                                                                                                                                                      



               50             Minutes, Sen. Labor & Commerce Comm. Hearing on S.B. 53, 19th Leg.,  

                                                                                                                                                                                          

                                                                                                                                                                      (continued...)  



                                                                                              -15-                                                                                       7095
  


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

testified before the House Labor and Commerce Committee thatthe independent counsel                                                                                        



provision "implements an Alaska Supreme Court decision from 1993, which is called                                                                                             



CHI of Alaska v. Employers Reinsurance                                                 ," and he characterized                           CHI  as standing for the                   



proposition that "a purchaser of insurance has a unilateral right to select independent                                                                        

counsel to represent them, and they can do that at the insurance compan[y's] expense."                                                                                                51  



                             The legislature's understanding of the statute's effects was illuminated two  

                                                                                                                                                                                   

years later, when the statute was amended.52  As originally enacted, the statute did not  

                                                                                                          



include  the  following  two  sentences  that  are  currently  incorporated  in  the  text  of  

                                                                                                                                                                          



AS 21.96.100(d):  "In providing independent counsel, the insurer is not responsible for  

                                                                                                                                                                                    



the fees and costs of defending an allegation for which coverage is properly denied and  

                                                                                                                                                                                   



shall be responsible only for the fees and costs to defend those allegations for which the  

                                                                                                                                                                                    



insurer either reserves its position as to coverage or accepts coverage.  The independent  

                                                                                                                                                                

counsel  shall  keep  detailed  records  allocating  fees  and  costs  accordingly."53                                                                                           The  

                                                                                                                                                                                



sponsoring  Representative,  Brian  S.  Porter,  explained  that  he  had  proposed  the  

                                                                                                                                                                                  



amendment in an effort to clarify that insurers were not responsible for fees and costs to  

                                                                                                                                                                                      

defend those allegations for which it denied claims.54  Representative Porter's discussion  

                                                                                                                                                                    



              50(...continued)  



 1st  Sess.  (Mar.  2,   1995)  (testimony  of  Joan  Brown,  Admin.  Officer,  Div.  of  Ins.).  



              51             Minutes,  H.  Labor  &  Commerce  Comm.  Hearing  on  S.B.  53,  19th  Leg.,  1st  



Sess.  (May  5,   1995)  (testimony  of  Dave  Stebing,  Assistant  Attorney  Gen.).  



              52             See  ch.  26,    34,  SLA   1997.  



              53             Compare  ch.  62,     107,  SLA   1995,  with  AS  21.96.100(d).  



              54             Minutes,   H.   Judiciary   Comm. Hearing   on  H.B.   58,   20th   Leg.,   1st   Sess.  



(Feb. 21, 1997)   (testimony   of   Rep.   Brian   S.   Porter)   (explaining   that   the   amendment  

combated a  "practice"  that  "had  made  it  seem  apparently  required  that   [insurers]  also  

                                                                                                                                                             (continued...)  



                                                                                         -16-                                                                                  7095
  


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

of the amendment provides insight into his understanding that insurers were "required                   



to provide a defense" for covered claims, and "where they had a reservation of right[s],                                                    



                                                                                  55  

they were also required to provide a defense."                                         



                                                                                                                                          

                        In other words, the amendment did not seek to abrogate what one testifying  



                                                                                                                                                  

attorney  described  as  a  rule  from  "the  Supreme  Court  and  the  legislature"  that  



                                                                                                                                                

"individuals who have purchased insurance are entitled to independent counsel when  

                                                                                             56   Importantly, the same testifying  

                                                                                                                                          

there was a [r]eservation of [r]ights letter submitted." 



attorney  described  the  amendment  as  an  attempt  to  clarify  that  insurers  were  not  

                                                                                                                                                    



responsible for the defense of non-covered claims as imposing a "fiscal check" on  

                                                                                                                                                     



insured  parties,  who  would  "act  reasonably"  now  that  they  "ha[d]  to  pay  their  

                                                                                                                                                 

attorney."57             If  reimbursement  had  been  generally  available  when  reserved-right  

                                                                                                                                



situations turned out to involve non-covered claims, then insured parties would already  

                                                                                                                                             



be subject to the "fiscal check" the amendment sought to impose.  This further suggests  

                                                                                                                                           



that the legislature understood the requirement imposed by AS 21.96.100(a)-(d) that  

                                                                                                                                                   



            54(...continued)  



                                                                                                                                                   

cover the third area, denied claims"); see also H. Judiciary Comm., S.S.H.B. 58 Bill File,  

                                                                                                                                                       

Sectional Summary, 20th Leg., 1st Sess. at 9177 (containing Rep. Porter's summary of  

                                                                                                                                                   

the amendment) ("This section makes an insurer responsible only for the costs and  

                                                                                                                                                     

attorney fees incurred by an independent counsel defending against claims for which the  

                                                                                                                                              

insurer has either accepted coverage or reserved it[s] right to deny coverage. The insurer  

                                                                                                                                                     

is not responsible for costs and attorney fees incurred in defending against claims for  

                                                     

which the insurer has denied coverage.").  



            55          Minutes,H.JudiciaryComm. Hearing onH.B.58, supra note54 (testimony  

                                                                                                                                        

of Rep. Brian S. Porter).  

                               



            56          Minutes, H. Judiciary Comm. Hearing on H.B. 58, 20th Leg., 1st Sess.  

                                                                                                                                          

(Feb. 24, 1997) (testimony of Mike Barcott, Attorney, Faulkner, Banfield, Doogan &  

                                                                                                                                                       

Holmes).  

                  



            57         Id.  



                                                                         -17-                                                                    7095
  


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

 insurers reserving rights "shall provide" and "be responsible . . . for the fees and costs"                                                           

 of independent counsel not to include an implied right of reimbursement.                                                                 58  



                                                                                                    

                         4.           The position of the Division of Insurance  



                                                                                                                                                        

                         The Division of Insurance has authority to regulate insurance forms under  



                                                          59  

                                                                                                                                            

 Title 21 of the Alaska Statutes.                              Although we interpret statutes using our independent  



                   60  

                                                                                                                                                      

judgment,              we also afford "some weight" to an agency's interpretation of the statute,  



                                                                                                                         61  

                                                                                                                                                            

 "especially  where  the  agency  interpretation  is  longstanding."                                                            The  Division  has  



                                                                                                                                                            

 "approved  some  policies  containing  reimbursement  provisions,  but  .  .  .  has  not  



                                                                                                                                  62  

                                                                                                                                                  

 specifically  considered  whether  they  conflict  with  AS  21.96.100."                                                                The  Division  



                                                                                                                                                               

 contends that these past approvals are "not dispositive" and maintains that, contrary to  



                                                                                                                                                            

 its past practice, "[a] policy provision entitling an insurer to reimbursement of fees and  



                                                                                                                                                

 costs for defending claims under a reservation of rights when the claims are ultimately  



                                                                                           

 denied would be counter to . . . AS 21.96.100."  



                                                                                                                                                       

                         We agree that the past practice of the Division is not dispositive: In Ennen  



                                                                                                                                                            

v. Integon Indemnity Corp., we held that in a bad-faith action, an insurance company was  



             58          AS 21.96.100(a), (d).              



             59  

                                                                                                                                                          

                         See, e.g., AS 21.42.130 ("The director [of the Division of Insurance] shall  

                                                                                                                                                     

 disapprove a form . . . if the form . . . is in any respect in violation of or does not comply  

                                        

with this title. . . .").  



             60          Municipality of Anchorage v. Stenseth, 361 P.3d 898, 904 (Alaska 2015).  

                                                                                                                                                                     



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

                                                                                                                                                        

 (quoting Gov't Emps. Ins. Co. v. Graham-Gonzalez, 107 P.3d 279, 286 (Alaska 2005)).  

                                                                                                                                                                     



             62          The Division has approved "at least six policies . . . that contain a provision  

                                                                                                                                                 

requiring the insured to reimburse the insurer for fees and costs incurred by the insurer  

                                                                                                                                                      

 in defending claims that are later determined not to be covered."  Because risk retention  

                                                                                                                                                   

 groups are not subject to state regulation that would require prior approval, the Division  

                                                                                                                                                   

has not specifically reviewed contracts issued by risk retention groups.  

                                                                                                                        



                                                                              -18-                                                                       7095
  


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

not entitled to rely on the Division's approval of policy language when that language did                                                                                        



                                                                                                63  

not comply with applicable insurance statutes.                                                                                                                                  

                                                                                                     We come to the same conclusion in this  



                                                                                                                                                                                   

case, particularly because the Division has effectively disavowed its past practice in  



                                                                                                                                                                     

favor of the more considered interpretation it advances in its amicus brief. We therefore  



                                                                                                                        

do not afford any weight to the Division's past practice.  



                                                                                                                                                                                

                            Instead, weafford somedeferencetotheinterpretation ofAS21.96.100 that  

                                                                                          64     The Division, noting that AS 21.96.100  

                                                                                                                                                                  

the Division has advanced in its briefing. 



recognizes an "inherentconflict ofinterest between an insured and[an]insurer defending  

                                                                                                                                                                   



under  a  reservation  of  rights  and  resolves  it  by  requiring  an  insurer  to  provide  

                                                                                                                                                                      



independent counsel and pay for it," concludes that "[a] policy provision allowing for  

                                                                                                                                                                                 



reimbursement of these costs would undermine the statutory requirement that the insurer  

                                                                                                                                                                         



pay themin the first place." The Division therefore concludes that "under AS 21.96.100,  

                                                                                                                                                                 



if an  insurer has a duty to defend and elects to reserve its rights on an issue, it is  

                                                                                                                                                                                   



obligated to provide and pay for independent counsel."  

                                                                                                  



                            Because all evidence of statutory purpose and legislative intent aligns with  

                                                                                                                                                                              



the Division's interpretation of the statute, we must conclude that the reimbursement  

                                                                                                                                                        



provision in this case is unenforceable.  Thus, the answer to the first question is "yes":  

                                                                                                                                                                          



When an insurer has a duty to defend, Alaska law prohibits enforcement of a policy  

                                                                                                                                                                         



              63            268 P.3d 277, 288 (Alaska 2012).                                          



              64            See, e.g.         ,  State v. Dupier                 , 118 P.3d 1039, 1050 n.62 (Alaska 2005) ("The                                            



                                                                                                                                                                                   

weight accorded to opinions of the Attorney General is largely within our discretion. In  

general, they are not controlling but are entitled to some deference." (citing                                                                                         State v.   

                                                                                                                                                                            

Kenaitze Indian Tribe, 83 P.3d 1060, 1066 n.22 (Alaska 2004))); Bullock v. State, Dep't  

                                                                                                                                                                   

of Cmty. & Reg'l Affairs, 19 P.3d 1209, 1216 (Alaska 2001) ("When an executive  

interprets legislation, that interpretation 'is entitled to be given weight by the court in                                                                                        

                                                                                                                                                                     

construing the intent of the statute.' " (quoting Flisock v. State, Div. of Ret. & Benefits,  

                                                                             

818 P.2d 640, 645 (Alaska 1991))).  



                                                                                       -19-                                                                                  7095
  


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

provision entitling that insurer to reimbursement of fees and costs incurred during the                                                                                                                                                 



defense of claims under a reservation of rights.                                                                                       We come to this conclusion even in                                                 



cases where, as is true here, (1) the insurer explicitly reserved the right to seek such                                                                                                                                           



reimbursement in its offer to tender a defense provided by independent counsel, (2) the                                                                                                                                                 



insured accepted the defense subject to the reservation of rights, and (3) the claims are                                                                                                                                              



later determined to be excluded from coverage under the policy.                                                                                                                      



                   B.	               AlaskaLawProhibits                                              Enforcement Of APolicy                                                    ProvisionEntitling                                      An  

                                     Insurer To Reimbursement Of Fees And Costs Incurred During The                                                                                                                                  

                                     Defense Of Claims Under A Reservation Of Rights Even When It Is                                                                                                                                       

                                     Later Determined That There Was No Possibility Of Claim Coverage.                                                                                                                                             



                                                                                                                                                                                                                                            65  

                                     Theduty                  to defend and the duty                                       to indemnifyareindependentobligations.                                                                                  



                                                                                                                                                                                                                                        

In  CHI  we  articulated  the  scope  of  the  duty  to  defend  in  circumstances  where  an  



                                                                                                                                                                                                                                    

insurance company contests coverage:   The duty arises "if the complaint on its face  



                                                                                                                                                                                                                                          

alleges facts which, standing alone, give rise to a possible finding of liability covered by  



                                                                                                                                                                                                                                        

the policy or, if the complaint does not contain such allegations, where 'the true facts are  



                                                                                                                                                                                                                

within,  or  potentially  within,  the  policy  coverage  and  are  known  or  reasonably  



                                                                                   66  

                                                                                                                                                                                                                                         

ascertainable to the insurer.' "                                                          In other words, the duty to defend attaches, if at all, on  



                   65                Afcan  v.  Mut.  Fire,  Marine  &  Inland  Ins.  Co.,  595  P.2d  638,  645  (Alaska  



 1979).   



                   66                CHI  of  Alaska,  Inc.  v.  Emp'rs  Reinsurance  Corp.,  844  P.2d  1113,  1115  n.5  



(Alaska  1993)  (emphasis  in  original)  (citation  omitted)  (first  quoting  Afcan ,  595  P.2d  at  

645;  then  quoting  Nat'l  Indem.  Co.  v.  Flesher,  469  P.2d  360,  366  (Alaska  1970)).   That  

the  complaint  may  allege  causes  of  action  beyond  the  scope  of  the  policy  is  immaterial:   

"The   duty  to   defend  is  triggered  if  there   is at  least   one   cause   of   action   alleged  in  the  

complaint  for  which  there  is  a  possibility  of  coverage  under  the  policy.   The  presence  of  

additional  causes  of  action  not  covered  by  the  policy  does  not  defeat  the  duty  to  defend."   

State,  Dep't  of  Transp.  &  Pub.  Facilities  v.  State  Farm  Fire  &  Cas.  Co.,  939  P.2d  788,  

792  (Alaska   1997)  (citation  omitted) (citing  Sauer v. Home Indem.  Co.,  841  P.2d   176,  

 181  (Alaska   1992)).   



                                                                                                                   -20-	                                                                                                          7095
  


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

the basis of the complaint and known or reasonably ascertainable facts at the time of the                                                                                                



                       67  

complaint.                                                                                                                                                            

                             Even if coverage is ultimately denied, and even if it were later determined  



                                                                                                                                                                                      

that there was no possibility of coverage, that denial has no retroactive effect on the duty  



      

to defend.  



                                                                                                                                                                                          

                             But what about a circumstance, ALPS asks, in which "the insurer, in an  



                                                                                                                                                                                         

abundance of caution, provides independent defense counsel regardless of whether the  



                                                                                                                                                                                    

insurer  has  a  duty  to  defend?"                                             This  "abundance  of  caution"  hypothetical  only  



                                                                                                                                                                                       

underscores the importance of preserving the balance we struck in  Continental:   An  



                                                                                                                                                                                        

insurer may "affirmthe policy and defend unconditionally[,] . . . repudiate the policy and  



                                                                                                                                                                                   

withdraw from the defense," or reserve rights and "offer its insured the right to retain  



                                                                                                                                                                          

independent counsel to conduct his [or her] defense, and agree to pay all the necessary  

                                               68  To allow insurance companies to disavow the duty to defend but  

                                                                                                                                                                                         

                            

costs of that defense." 



provide independent defense counsel out of "an abundance of caution" gives the insurer  

                                                                                                                                                                                



an incentive to automatically reserve rights in hopes of obtaining reimbursement for  

                                                                                                                                                                                        



attorney's fees and to protect itself from claims of bad faith or breach that could result  

                                                                                                                                                                     



from a repudiation of the policy. Such a result is inconsistent with AS 21.96.100: Under  

                                                                                                                                                                                  



the statute the determinative event giving rise to the insurer's duty to pay independent  

                         



counsel is not the often-difficult determination as to the possibility or impossibility of  

                                                                                                                                                                                           



coverage, but the objective act of the insurer taken when reserving its position as to  

                                                                                                                                                                                    



coverage.  And it is certainly inconsistent with our previous decisions on this issue.  We  

                                                                                                                                                                                        



conclude that Alaska law prohibits reimbursement of fees and costs incurred by the  

                                                                                                                                                                                        



               67             In answering the second certified question, we are asked to assume that the                                                                                



duty to defend never arose under the policy.                                                       We therefore do not need to discuss ways                                         

in which a duty to defend might arise for the first time after an insurer correctly denies                                                                                       

a defense.              



               68             608 P.2d 281, 291 & n.17 (Alaska 1980).  

                                                                                                           



                                                                                           -21-                                                                                     7095
  


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

                                                                                                                                                                                                                                                                                                                          

insurer defending claims under a reservation of rights, even in circumstances where it is  



                                                                                                                                                                                                                                                                                                          

later discovered that there was "no possibility of coverage" under the policy. The answer  



                                                                                                                                                                    

to the second certified question is therefore "yes."  



V.                       CONCLUSION  



                                                  The answer to both certified questions is "yes":                                                                                                                                              Alaska law prohibits                             



enforcement of a policy provision entitling an insurer to reimbursement of fees and costs                                                                                                                                                                                                                         



incurred by the insurer defending claims under a reservation of rights, where (1) the  

                                                                                                                                                                                                                                                                                                                        



insurer explicitly reserved the right to seek such reimbursement in its offer to tender a  

                                                                                                                  



defense provided by independent counsel, (2) the insured accepted the defense subject                                                                                                                                                                                                                    



to the reservation of rights, and (3) the claims are later determined to be excluded from                                                                                                                                                                                                                         



coverage under the policy; and, Alaska law also prohibits enforcement of a policy                                                                                                                                                                                                                          



provision entitling an insurer to reimbursement of fees and costs incurred by the insurer                                                                                                                                                                                                                 



defending claims under a reservation of rights, where (1) the insurer explicitly reserved                                                                                                                                                                                                           



the   right   to  seek   such   reimbursement   in   its   offer   to   tender   a   defense   provided   by  



independent counsel, (2) the insured accepted the defense subject to the reservation of                                                                                                     



rights, and (3) it is later determined that the duty to defend never arose under the policy                                                                                                                                                                                                                  



because there was no possibility of coverage.                                                                                        



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