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

Touch N' Go, the DeskTop In-and-Out Board makes your office run smoother. Visit Touch N' Go's Website.
  This site is possible because of the following site sponsors. Please support them with your business.

You can search the entire site. or go to the recent opinions, or the chronological or subject indices. United Airlines, Inc. v. State Farm Fire & Casualty Co. (7/26/2002) sp-5601

United Airlines, Inc. v. State Farm Fire & Casualty Co. (7/26/2002) sp-5601

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,


                              )    Supreme Court No. S-9672
             Appellant,            )
                              )    Superior Court No. 3AN-94-5086
     v.                       )
                              )    O P I N I O N
COMPANY,                                )    [No. 5601 - July 26,
             Appellee.             )

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

          Appearances:  William F. Brattain  II,  Baker
          Brattain, LLC, Anchorage, for Appellant.  Rod
          R.  Sisson, Sisson & Knutson, Anchorage,  for

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

          EASTAUGH, Justice.


          I.   Adrian Sanders sued the State of Alaska and United

Airlines, Inc. (UAL) for injuries he suffered when his motorcycle

struck  a  UAL baggage cart train.  The baggage train  originated

from  premises  subleased  to UAL.   The  state  had  leased  the

premises  to the Krogstads, who had subleased them to UAL.   Does

the  Krogstad/UAL  sublease require UAL  to  indemnify  and  hold

harmless  the  Krogstads and their subrogated liability  insurer,

State  Farm,  against  claims  arising  from  Sanderss  injuries?

Because  Sanderss claims against the state and the  states  claim

against  the  Krogstads were in connection with .  .  .  personal

injury  arising  from or out of any occurrence at UALs  subleased

premises  or  from  [UALs] use of those  premises,  the  sublease

required  UAL to indemnify the Krogstads insurer for amounts  the

insurer  paid to discharge Sanderss claims.  We therefore  affirm

the superior courts grant of summary judgment against UAL.


          I.   The present appeal arises out of Adrian Sanderss July 1992

motorcycle accident.  We addressed legal disputes resulting  from

the  accident  on two prior occasions.1  Sanders was  riding  his

motorcycle on Old International Airport Road in Anchorage when he

struck  the  rear of a slow-moving baggage train comprised  of  a

baggage tug and five baggage carts.2  The accident occurred  near

Anchorage International Airport, a facility operated by the State

of  Alaska.3   The  state  condoned UALs  practice  of  operating

baggage  trains  on the road without warning lights.4   When  the

accident occurred UAL was transporting cargo to the airport  ramp

area from nearby property it leased from Rebecca Fox-Krogstad and

Sam  Krogstad.5  The Krogstads leased the property from the state

and subleased it to UAL.6

          The  state informed the Krogstads in July 1993 that the

state  had received a letter from Sanders threatening litigation.

The  state  told them it expected the Krogstads to indemnify  and

defend   the  state  against  Sanderss  claims.   The   Krogstads

potential  liability to the state arose from the lease  agreement

between  the Krogstads, as lessee, and the state, as  lessor;  we

refer  to  this  agreement as the state/Krogstad lease.7   In  an

August 1993 letter the Krogstads informed UAL of the states claim

against the Krogstads, and invoked UALs obligations to indemnify,

defend  and hold [the Krogstads] harmless for and from any claim,

loss,  liability,  and  expense . . . arising  out  of  [Sanderss

accident].  UALs potential liability to the Krogstads arose  from

the  sublease  between  UAL, as lessee,  and  the  Krogstads,  as

          lessor; we refer to this agreement as the Krogstad/UAL sublease.8

UAL rejected the Krogstads tender.

          The  Krogstads also informed State Farm, their insurer,

of  Sanderss  potential claim against the state  and  the  states

potential  claim against the Krogstads.  State Farm  acknowledged

that  the Krogstads insurance policy covered claims arising  from

Sanderss  accident, but expressed its belief  that  UAL  was  the

proper party to handle the investigation and potential claims.

          Sanders  filed a complaint against UAL, the state,  and

others in June 1994.  The complaint alleged a number of causes of

action against the state, including negligence, defective product

or systems, negligent design of the roadway system, and breach of

duties owed by a landlord to a tenant.9  As an insured under  the

Krogstads  State Farm policy, the state tendered its defense  and

demand  for  indemnity to State Farm.  State  Farm  rejected  the

states  tender, reasoning that the policy did not cover  Sanderss

claims.  State Farm later agreed to defend the state subject to a

reservation of rights to disclaim coverage.

          The state filed a third-party complaint in October 1996

against  the  Krogstads based on the indemnity provision  of  the

state/Krogstad lease.  The complaint claimed that  the  indemnity

provision  covered any damages awarded against the state  arising

out of Sanderss complaint, including all expenses incurred by the

state   in   defending  itself.   Invoking  the  terms   of   the

Krogstad/UAL sublease, the Krogstads then asked UAL to  indemnify

and  defend  them against the states claims.  UAL again  rejected

the Krogstads tender.

          We  held  in  May 1997 that State Farm had  a  duty  to

defend the state because the accident arose out of the use of the

leased  premises for their authorized purpose.10   The  Krogstads

sought  judgment in November 1997 requiring UAL to  pay  for  the

Krogstads defense against the states third-party complaint.   The

state resolved its third-party claim in April 1998 following  our

decisions in State, Department of Transportation v. State  Farm11

          and State, Department of Transportation v. Sanders.12  Sanders

settled with the state on April 21, 1998 for $2.09 million.13  On

the  same date the state released, upon receipt of $1.77 million,

the  Krogstads and their insurers from any third-party  liability

related to Sanderss accident and the resulting litigation.  State

Farm  paid  the  $1.77  million.  UAL settled  with  Sanders  for


          The  superior court permitted State Farm to  substitute

for  the  Krogstads in their complaint against UAL in June  1998.

State  Farms  fourth-party complaint stated that  UAL  is  liable

under the [Krogstad/UAL sublease] for the $1,770,000 paid to  the

State  by  State Farm to settle the States third-party  complaint

against the Krogstads . . . [and] for all fees and costs incurred

by State Farm in defending the Krogstads against the States third-

party  complaint.   UAL  moved  and State  Farm  cross-moved  for

summary   judgment.   The  superior  court  denied  UALs  summary

judgment  motion and granted State Farms cross-motion in February

2000.   Final judgment was entered for State Farm in  April  2000

for:  $1.77  million, representing the settlement amount  between

the   Krogstads  and  the  state;  $31,641.01,  representing  the

reasonable  attorneys fees and costs State Farm incurred  in  the

summary   judgment  proceedings  against  UAL;  and   $31,954.55,

representing  the  reasonable  attorneys  fees  and   costs   the

Krogstads  incurred  in defending against the states  third-party


          UAL appeals.


     A.   Standard of Review

          We  review  a grant of summary judgment de  novo.14   A

summary  judgment movant must establish that there are no genuine

issues of material fact and that it is entitled to judgment as  a

matter  of law.15  We will draw all reasonable factual inferences

in  favor  of  UAL, the party opposing summary  judgment.16   But

[w]hen  there  is  no  dispute about  the  factual  circumstances

          surrounding [a] contract, the interpretation of an indemnity

provision presents a question of law.17

     B.   The Superior Court Did Not Err in Granting Summary Judgment
          to State Farm.
          1.   The  plain language of the indemnity clause in the
               Krogstad/UAL sublease requires UAL to indemnify and defend the
               Krogstads against the states third-party claim.
          UAL argues that the indemnity provision, section 7.5(b)

of the Krogstad/UAL sublease, does not require it to indemnify or

defend the Krogstads against the states third-party claim.18  The

provision requires UAL to indemnify the Krogstads from all suits,

actions,  damages, liability, and expenses in connection  with  .

.  .  personal injury . . . arising from or out of any occurrence

at the Premises, or from the use by [UAL] . . . of the Premises .

. . .  (Emphasis added.)  UAL argues that the Krogstads potential

liability   on a claim asserted by Sanders against the state  and

tendered  to  the  Krogstads for defense and indemnity   did  not

aris[e]  from  or  out of any occurrence at or UALs  use  of  the

premises.   We are unpersuaded.  The states third-party complaint

against  the Krogstads clearly arose from UALs operation  of  the

baggage  cart  in  connection  with  UALs  use  of  the  premises

subleased to UAL by the Krogstads.

          UAL   argues  that  the  indemnity  provision  of   the

state/Krogstad  lease is broader than that  of  the  Krogstad/UAL

sublease because the Krogstads contracted to indemnify the  State

for  any  and  all claims related to the property, even  for  the

States own negligence.  UAL assumed no such broad obligations  to

the Krogstads.  UAL is correct that it owes the Krogstads no duty

to  indemnify them for their own negligence.19  But the Krogstads

liability to the state was not due to the Krogstads negligence.

          UAL  also argues that the term Lessor in section 7.5(b)

of  the  Krogstad/UAL sublease includes the state.  The  relevant

portion  of section 7.5(b) exempts UAL from liability  caused  by

the  negligence  of  Lessor, its agents, contractors,  employees,

servants,  invitees, or licensees.  UAL states in a parenthetical

          comment in its brief that this passage includes the Krogstads and

the  Krogstad[s]  lessor - the State of Alaska  .  .  .  .   This

reading  would excuse UAL from its indemnity duty, but we  reject

UALs  interpretation.  The Krogstad/UAL sublease clearly  defines

Lessor to be Sam and Rebecca Fox-Krogstad.20  There is no support

in  the  record for UALs interpretation of the term  Lessor.  And

UALs interpretation is at odds with the plain meaning of the term

Lessor as it appears in the Krogstad/UAL sublease.

          2.   The facts of this case do not require us to address UALs

               status as an insurer or non-insurer.

          1.   UAL urges us not to treat it as an insurer.  It argues that

insurance  contracts can and often are construed as contracts  of

adhesion,21  while  commercial leases and commercial  contractual

indemnity  provisions are seldom construed in this  manner.   UAL

correctly notes that commercial leases frequently do not  involve

parties  in disparate bargaining positions, as is often the  case

with  insurance  contracts.   But  the  fact  that  UAL  and  the

Krogstads  are  both sophisticated parties does not  assist  UALs

claim  that  the  states  third-party  claim  falls  outside  the

coverage of the Krogstad/UAL sublease.  Indeed, to the extent the

two  parties are sophisticated commercial entities,22  UAL  could

reasonably expect the broad indemnity provision of section 7.5(b)

of  the  sublease to cover claims exactly like  this  one   i.e.,

claims  arising  out  of  UALs routine,  authorized  use  of  the


          Furthermore,  section  13 of the Krogstad/UAL  sublease

gave UAL notice of the Krogstads relationship with the state  and

the  duties  the Krogstads undertook to the state:  [UAL]  hereby

accepts the Premises subject to the terms and provisions  of  the

prime lease between the State of Alaska and the [Krogstads].  The

sublease  UAL  signed  with the Krogstads contained  undertakings

equivalent  to  those undertaken by the Krogstads to  the  state.

UAL  could  reasonably expect that it faced  potential  liability

arising  from  the  Krogstads contractual relationship  with  the


          Finally,  we have stated that the cost of insurance  to

cover  indemnification  can be incorporated  into  the  costs  of

conducting business.23  Any uncertainty relating to UALs potential

liability  due to the indemnity clause should properly have  been

reflected in the price UAL paid to sublease the premises.  In any

event,  we  do  not  need  to treat UAL as  an  insurer  to  give

reasonable  effect  to  the plain language  of  the  Krogstad/UAL

indemnity clause.24

          UAL also urges us not to treat its obligation under the

Krogstad/UAL  sublease  as we might treat  the  obligation  of  a

similarly situated insurer.25  We have held that where an insurer

breaches  its  contract,  it  is  liable  for  the  amount  of  a

reasonable  settlement reached by the insured which falls  within

the coverage provided by the policy.26  UAL cites Rogers & Babler,

Division of MAPCO Alaska v. State27 in arguing that this court has

not  imposed such penalt[ies] on non-insurers, particularly under

simple  indemnity agreements.  But MAPCO does not require  us  to

determine  whether the indemnity clause puts UAL in the  position

of an insurer.  In the MAPCO passage UAL cites, we were primarily

addressing  whether  an  indemnity  clause  stating  that   [t]he

contractor  shall  indemnify and save harmless  [the  indemnitee]

also implied a duty to defend.28  We held that it did not and that

nothing  else in the clause suggested that it did.29  We did  not

address issues relating to treating non-insurers as insurers.

          In  any  event, the plain language of the  Krogstad/UAL

sublease  imposes duties on UAL with respect to lawsuits  arising

from  its  use  of  the premises.   Because UAL could  reasonably

expect to cover under the Krogstad/UAL sublease the states third-

party  claim against the Krogstads, there is no need to  consider

whether  an  indemnity clause issued by a commercial  non-insurer

should  be  given the same interpretation as an indemnity  clause

issued  by  an  insurer.  Our determination that  UALs  liability

extends  to  the states third-party claim against  the  Krogstads

          turns on interpretation of the plain language of the indemnity

clause of the sublease.  It does not, as UAL argues, require  all

future contractual indemnitors, in all commercial settings,  [to]

become insurers.30

          3.   UALs remaining arguments do not require us to reverse the

               superior courts grant of summary judgment to State Farm.

          1.   UAL argues that State Farm would have no subrogation claim

against  UAL  had State Farm not breached duties it owed  to  the

state.  UAL cites Alyeska Pipeline Service Co. v. H.C. Price  Co.

as  support  for the proposition that the remedy  for  breach  of

contract  is to place the non-breaching party in the  same  legal

position  it  would have occupied but for the breach.31   Alyeska

differs from the current dispute because the party bringing  suit

in  Alyeska was a party to the contract.32  UAL is simply a third

party  requesting relief for an alleged breach  of  an  agreement

the  State Farm insurance policy covering the state  to which UAL

is  not a party.  It cannot rely on any breach of duty State Farm

owed the state.  Because the State Farm policy covering the state

and  the  Krogstads imposed no duty benefitting UAL, any possible

breach  by  State  Farm  is irrelevant  to  UALs  duties  to  the


          UAL further argues that it should only be forced to pay

some  pro rata share of the indemnity and defense obligation  and

that  UAL and State Farm were joint insurers.  The plain language

of  section  7.5(b)  of  the Krogstad/UAL  sublease  dooms  these

arguments.    The  Krogstads  were  contractually   required   to

indemnify  the  state for losses arising from  UALs  use  of  the

subleased  premises,  and the Krogstads simply  transferred  that

liability  to  UAL  via  the  sublease  indemnity  clause.    The

settlement  paid  by  State Farm arose out of  UALs  use  of  the

premises.   UALs obligation to indemnify the Krogstads under  the

indemnity  clause does not depend on State Farms actions  as  the

states or the Krogstads insurer.

          In  its reply brief UAL questions the reasonableness of

          the settlement.  The issue was not before the superior court and

is therefore not now properly before us.33


          Because  we  hold  that  the  plain  language  of   the

indemnity  clause  requires UAL to indemnify  the  Krogstads,  we

AFFIRM the superior courts final judgment in favor of State Farm.

     1     State,  Dept of Transp. v. State Farm (State Farm  I),
939  P.2d  788 (Alaska 1997); State, Dept of Transp. v.  Sanders,
944 P.2d 453 (Alaska 1997).

     2    State Farm I, 939 P.2d at 789.

     3    Sanders, 944 P.2d at 455 & n.1.

     4    State Farm I, 939 P.2d at 789.

     5    State Farm I, 939 P.2d at 789-90.

     6    Id. at 789.

     7     Section  16  of the state/Krogstad lease required  the
Krogstads  to indemnify the state for liability relating  to  the
leased property:

          The  [Krogstads] shall indemnify, defend, and
          hold the [state] harmless from any liability,
          action,  claim, suit, loss, property  damage,
          or personal injury of whatever kind resulting
          from  or arising out of any act of commission
          or   omission  by  the  [Krogstads],  [their]
          agents,  employees, or customers  or  arising
          from  or  connected with the [Krogstads]  use
          and   occupation  of  the  Premises  or   the
          exercise of the rights and privileges granted
          by this lease.
          Section  17  of  the state/Krogstad lease  obliged  the
Krogstads  to  obtain  insurance to protect  the  state  and  the

          (a)   At  no  expense  to  the  [state],  the
          [Krogstads]  shall secure and keep  in  force
          during   the  term  of  this  lease  adequate
          insurance to protect both the [state] and the
          [Krogstads]   against  comprehensive   public
          liability and property damage in no less than
          the  following  amounts: (i) Property  damage
          arising from one occurrence in the amount  of
          not  less than $50,000.  (ii) Personal injury
          or  death  in  an  amount of  not  less  than
          $100,000   per   person  and   $300,000   per
          occurrence.  .  . . (b) . . .  All  insurance
          required  by this covenant must . .  .  (iii)
          include a waiver of subrogation by which  the
          insurer  waives  all  rights  of  subrogation
          against  the [state] for payments made  under
          the policy.
     8    Section 7.1 of the sublease sets out UALs obligation to
acquire  insurance and to include the Krogstads as an  additional

          At no expense to [the Krogstads], [UAL] shall
          obtain  and  keep in force and effect  during
          the   term   of  this  Lease,  a  policy   of
          comprehensive   public  liability   insurance
          insuring [UAL] against any liability  arising
          out  of  the  ownership, use,  occupancy,  or
          maintenance  of the Premises  and  all  areas
          appurtenant   thereto,   and   naming    [the
          Krogstads]  as an additional insured  to  the
          extent  of  the  liability assumed  by  [UAL]
          under  Paragraph 7.5 herein.  Such  insurance
          shall  be  in  an  amount of  not  less  than
          $500,000 for injury to or death of one person
          in  any one accident or occurrence and in  an
          amount of not less than $1,000,000 for injury
          to  or  death of more than one person in  any
          one  accident or occurrence.  Such  insurance
          shall  further insure [UAL] against liability
          for  property  damage of at  least  $100,000.
          The  limits  of  said  insurance  shall  not,
          however,   limit  the  liability   of   [UAL]
          hereunder.   If [UAL] shall fail  to  procure
          and  maintain said insurance, [the Krogstads]
          may,  but  shall not be required to,  procure
          and  maintain  the  same at  the  expense  of
          Section  7.5(b) of the sublease sets out UALs  duty  to
indemnify for injury or property loss:

          [UAL]  shall  indemnify,  defend,  and   hold
          harmless  [the  Krogstads]  from  all  suits,
          actions, damages, liability, and expenses  in
          connection  with  loss  of  life,  bodily  or
          personal  injury, or property damage  arising
          from   or  out  of  any  occurrence  at   the
          Premises, or from the use by [UAL] or  [UALs]
          agents,   contractors,  employees,  servants,
          invitees,  or  licensees of the Premises  and
          the  Complex  including, but not limited  to,
          sidewalks,   common  areas,  and   facilities
          within  the  Complex, unless  caused  by  the
          negligence   of   [the  Krogstads],   [their]
          agents,   contractors,  employees,  servants,
          invitees, or licensees.
     9    State Farm I, 939 P.2d at 793.

     10    Id.

     11    939 P.2d 788 (Alaska 1997).

     12    944 P.2d 453 (Alaska 1997).

     13    The state also paid $110,000 to Sanderss minor son.

     14    State Farm I, 939 P.2d at 790 (citation omitted).

     15     Reeves v. Alyeska Pipeline Serv. Co., 926 P.2d  1130,
1134  (Alaska  1996) (citing Zeman v. Lufthansa German  Airlines,
699 P.2d 1274, 1280 (Alaska 1985) (citation omitted)).

     16    Id. (citation omitted).

     17     Duty Free Shoppers Group Ltd. v. State, 777 P.2d 649,
652 (Alaska 1989) (citation omitted).

     18    See supra note 8.

     19    Id.

     20    The relevant provision is section 1 of the Krogstad/UAL

          PARTIES.   This lease . . . is  made  by  and
          between   SAM   KROGSTAD  and  REBECCA   FOX-
          KROGSTAD,  as  husband and wife (Lessor)  and
          UNITED AIRLINES (Lessee).
          UAL  does not argue, and the record does not establish,
that   the  contract  language  agents,  contractors,  employees,
servants, invitees or licensees applies to the state.

     21     Bering Straits Sch. Dist. v. RLI Ins. Co.,  873  P.2d
1292, 1294-95 (Alaska 1994).

     22     UALs  vice  president of airport affairs  signed  the
Krogstad/UAL sublease.

     23     Manson-Osberg Co. v. State, 552 P.2d 654, 659 (Alaska
1976)  (giving effect to plain language of  indemnity  clause  as
reasonably  construed  in commercial cases because  insurance  is
increasingly used as means of allocating risk); see also  Burgess
Const.  Co. v. State, 614 P.2d 1380, 1383 (Alaska 1980)  (holding
anticipated costs of obtaining insurance to cover indemnification
included  as  part  of  bid  on  project);  but  cf.  Kissick  v.
Schmierer, 816 P.2d 188, 191 n.4 (Alaska 1991) (refusing to adopt
construed  approach  for  non-commercial  setting  because   non-
commercial  cases  are distinguishable: for  example,  commercial
entities  are usually in essentially equal bargaining  positions,
unlike  non-commercial  entities; also, commercial  entities  can
incorporate cost of insurance to cover indemnification).

     24    Manson-Osberg, 552 P.2d at 659.

     25    E.g., C.P. ex rel. M.L. v. Allstate Ins. Co., 996 P.2d
1216, 1222 (Alaska 2000) ([W]here a clause in an insurance policy
is  ambiguous  in the sense that it is reasonably susceptible  to
more  than one interpretation, we accept the interpretation  that
most favors the insured.).

     26     Grace  v. Ins. Co. of N. Am., 944 P.2d 460,  464  n.7
(Alaska  1997) (citing Afcan v. Mut. Fire, Marine &  Inland  Ins.
Co., 595 P.2d 638, 646-47 (Alaska 1979)).

     27     713  P.2d 795, 800 n.4 (Alaska 1986) (reasoning  that
because  contractual indemnitor had no duty  to  defend  in  that
case,  court need not reach issue whether contractual  indemnitor
was  liable  for  whole  settlement where it  refused  to  tender

     28    Id. at 800.

     29    Id. at 799-800.

     30     In addition, nowhere in MAPCO were we called upon  to
decide whether to treat non-insurers as insurers.  See id. at 800
n.4  (declining specifically to address this issue in context  of
liability flowing from breach of duty to defend).

     31    694 P.2d 782, 787 (Alaska 1985) (citations omitted).

     32    Id. at 784.

     33     Pierce  v.  Pierce, 949 P.2d 498, 500  (Alaska  1997)
(citation omitted).