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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. State Farm Mutual Automobile Insurance Company v. Lestenkof (09/29/2006) sp-6049
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,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| STATE FARM MUTUAL AUTOMOBILE | ) |
| INSURANCE COMPANY, | ) Supreme Court No. S-11754 |
| ) | |
| Appellant, | ) |
| ) Superior Court No. | |
| v. | ) 3AN-03-5197 CI |
| ) | |
| DONNA LESTENKOF, Personal | ) O P I N I O N |
| Representative of the Estate of | ) |
| TIMOTHY LESTENKOF, | ) |
| ) | |
| Appellee. | ) No. 6049 - September 29, 2006 |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Morgan Christen, Judge.
Appearances: Kimberlee A. Colbo, Hughes
Bauman Pfiffner Gorski & Seedorf LLC,
Anchorage, for Appellant. Phillip Paul
Weidner, A. Cristina Weidner Tafs, Weidner &
Associates, Inc., Anchorage, for Appellee.
Before: Bryner, Chief Justice, Matthews,
Eastaugh, Fabe, and Carpeneti, Justices.
MATTHEWS, Justice.
I. INTRODUCTION
This case presents the question of whether an
automobile insurer must pay unlimited Alaska Civil Rule 82
attorneys fees to settle an underinsured motorist insurance claim
if it has already paid unlimited fees on the same underlying
projected jury verdict to settle a liability insurance claim. We
conclude that because the policyholder was not underinsured with
respect to court-awarded attorneys fees, the insurer need not pay
any additional attorneys fees.
II. FACTS AND PROCEEDINGS
On September 25, 1998, an automobile driven by Keith
Odden collided with a motor home driven by Warren Redfearn.
Timothy Lestenkof, a passenger in Oddens car, died from the
injuries he sustained in the crash.
At the time of the accident, Odden carried an
automobile insurance policy issued by State Farm. The policy
included liability coverage of up to $50,000 of bodily injury per
person and $100,000 per accident, with equivalent
uninsured/underinsured motorist (UIM) coverage.
As State Farms attorney acknowledged during oral
argument, the facts of this case are unusual because Oddens
policy, unlike most policies issued in Alaska, did not contain a
valid endorsement limiting Alaska Civil Rule 82 attorneys fees.1
While Oddens policy did include language purporting to limit
attorneys fees, the attempted limitation failed to conform with
an Alaska Division of Insurance form, Attorney Fees Coverage
Notice A, and was therefore invalid.2 The central purpose of
Notice A is to inform the policyholder that the insurer will not
pay that portion of any attorneys fees that is in excess of fees
calculated by applying the schedule for contested cases in Alaska
Rule of Civil Procedure 82(b)(1) to the limit of liability of the
applicable coverage.3 Since State Farm failed to validly limit
its attorneys fees coverage, State Farm remained responsible for
paying unlimited Rule 82 fees to those with liability claims
against Odden.4
Donna Lestenkof, Timothys widow and the personal
representative of his estate, pursued a wrongful death claim
against Odden.5 State Farm began settlement negotiations by
offering Lestenkof $50,000, which State Farm described as the
settlement value of this matter.
While settlement negotiations under Oddens liability
policy were ongoing, State Farm sent Lestenkofs attorney a check
for $62,313 pursuant to Oddens UIM coverage. The $62,313 figure
included $50,000, the amount of the facial policy limit, and pre-
judgment interest and Rule 82 attorneys fees calculated based on
that limit. The $62,313 was not a settlement but rather an
advance payment of the minimum that State Farm believed it owed
Lestenkof under the UIM policy.
State Farm subsequently made another offer to settle
Lestenkofs liability coverage claim against Odden, this time in
the amount of $172,160.27, which consisted of the $50,000 facial
limit of the policy, prejudgment interest on the $50,000 amount,
and Rule 82 fees based on the assumption that the claim had gone
to a jury trial and the jury had returned a verdict of
$1,000,000. Lestenkof accepted the offer.
Lestenkof also appears to have settled with the insurer
of the other driver, Redfearn, for approximately $124,000, the
amount of Redfearns policy limits.
Once State Farm settled the liability claim against
Odden, Lestenkof asked State Farm to pay approximately an
additional $110,000 under Oddens UIM coverage. The $110,000
amount represented the difference between what State Farm had
just paid in the liability settlement ($172,160.27) and the
advance payment State Farm had already made pursuant to the UIM
coverage ($62,313). Lestenkof argued that the $172,160.72
liability settlement amount represented full liability policy
limits and implied that the UIM policy should have the same full
policy limits.
State Farm disagreed. State Farm argued that because
Lestenkof had already received, as part of the advance payment
made under Oddens UIM insurance, the $50,000 facial policy limit
of the UIM policy and prejudgment interest and attorneys fees
calculated on that amount, the additional amount Lestenkof was
now requesting constituted attorneys fees on a projected
$1,000,000 verdict. According to State Farm, because the estate
had already received Rule 82 attorneys fees based on that verdict
as part of the liability settlement, it was not entitled to any
additional fees. Indeed, State Farm believed that it had already
paid too much in the way of attorneys fees since it had included
some fees in its advance UIM payment.
The parties were unable to resolve their disagreement.
State Farm ultimately filed a complaint asking the superior court
to declare that Lestenkof had no right to unlimited Rule 82
attorneys fees as part of Oddens UIM coverage, arguing that an
additional payment would result in Lestenkof receiving a double
recovery. Both parties filed for summary judgment.
After reviewing the motions for summary judgment, the
superior court concluded that State Farm remains obligated to pay
unlimited Rule 82 attorneys fees under its UIM coverage. The
superior court provided two reasons for its conclusion. First,
the superior court explained that it understood from State Farm
Mutual Automobile Insurance Co. v. Harrington6 that if an
insurance policy includes a valid limitation on attorneys fees,
policy limits include attorneys fees on the face amount of the
policy, and that if liability and UIM coverage are both in place,
fees must be paid on both. As a result, the superior court
viewed State Farms argument that it should not have to pay fees
under both types of coverage in this case as an argument that
insurance policies without Rule 82 attorneys fees limitations
should be treated differently from policies containing such
limitations, something the court was unwilling to do. Second,
the superior court pointed out that there was insufficient
evidence to assess State Farms double recovery argument, since
the parties had not agreed on a projected jury verdict for the
purposes of the UIM coverage.
Following the superior courts decision, State Farm and
Lestenkof agreed to a $1,000,000 projected verdict for purposes
of the UIM coverage. The agreement made it clear that the
projected verdict was based on damages attributable to Oddens
conduct.
State Farm appeals the superior courts decision that it
must pay unlimited attorneys fees as part of its UIM coverage.
III. STANDARD OF REVIEW
Because this appeal involves a superior courts ruling
on summary judgment and presents a pure question of law, we apply
a de novo standard of review, adopting the rule of law that is
most persuasive in light of precedent, reason, and policy.7
IV. DISCUSSION
Lestenkof argues that our decision in Harrington8
mandates that State Farm pay Lestenkof the same amount (give the
same protection) under Oddens UIM coverage as it did under Oddens
liability coverage. The superior court agreed.
In Harrington, the deceased was killed while riding as
a passenger. Her personal representative sought to collect UIM
benefits under two policies, the deceaseds own and that of the
driver of the car the deceased was riding in. The liability
section of both policies provided additional coverage for limited
Rule 82 attorneys fees.9 While the only reference to attorneys
fees was made in the liability rather than the UIM sections of
the policies, the personal representative sought to collect
attorneys fees as part of the policy limits of the UIM coverages.10
We decided that as used in AS 21.89.020, a statute which requires
insurance companies to offer UIM coverage equal to the limits
voluntarily purchased to cover the liability of the person
insured,11 the word limits includes not just the numerical facial
limit of the policy but also the protection afforded in addition
to facial limits for items such as prejudgment interest, costs
and attorneys fees.12 The personal representative in Harrington
was therefore able to collect the sought-after limited attorneys
fees as part of the UIM coverage.13
In Wing v. GEICO Insurance Co., we described our
decision in Harrington as articulating a mirror rule.14 Lestenkof
urges us to uphold the superior courts decision in this case,
thereby preserving a UIM award that is the mirror image of
Lestenkofs liability recovery.
An examination of Harrington, the case that first
articulated what has since been referred to as the mirror rule,
makes it clear that we did not intend courts automatically to
award an amount under UIM coverage that duplicates the award that
would be required under the policys liability coverage. We
explained in Harrington that we were requiring insurers to pay
attorneys fees as part of UIM coverage because we had previously
construed policy limits to include not only facial limits but
such other sums as are payable in addition to facial limits.15
The other sums derive from the coverages insurers provide in
addition to coverage for bodily injury and property damage, such
as coverage for prejudgment interest16 and Rule 82 attorneys fees.17
Whether the insurer has to make an equal payment, or any payment,
under a particular type of UIM coverage depends not only on the
existence of mirror-image coverage, but also on the extent of the
underinsured loss for that type of coverage.
Policy coverage for court-awarded attorneys fees only
applies to court-awarded attorneys fees that either are awarded
or potentially would be awarded on an adverse verdict against an
insured. Our recent case of Maloney v. Progressive Specialty
Insurance Co.18 establishes this point. In Maloney the question
was whether an offer made by an insurer to an unrepresented
plaintiff was a policy limits offer when the offer did not
include a component for Rule 82 attorneys fees. We held that the
offer was a policy limits offer because unrepresented litigants
have no right to recover Rule 82 fees. The insurer properly
conducted its evaluation of the case based on the facts that
existed at the time of the offer:
Progressive needed to calculate its maximum
potential liability by simply assuming that
[the case] went to trial and received an
adverse verdict as of the date of its offer.
Here, because Maloney was apparently not
represented on the date of the original
offer, she had no right to expect, and
Progressive had no duty to offer, a payment
of Rule 82 fees in addition to the nominal
policy limit.[19]
Maloneys damages easily exceeded the limits of the policy in
question.20 Thus, if coverage for court-awarded attorneys fees
were fungible with coverage for bodily injury, the fees coverage
could have been applied to Maloneys damages without
overcompensating Maloney. But this was not permitted. Thus
coverage for court-awarded attorneys fees may only be applied to
liability, or potential liability, for court-awarded attorneys
fees.
Similarly, in the present case, based on the agreed
hypothetical verdict, there is no uncompensated prospective
liability for Rule 82 attorneys fees. The parties have agreed
that we should view this case as if a jury had awarded a verdict
of $1,000,000 to Lestenkof as compensation for damages
attributable to Oddens negligent conduct. We thus assume that
the case was tried, and
(1) the jury returned a verdict of $1,000,000 against
Odden;
(2) the court awarded $131,068.49 in prejudgment
interest to Lestenkof. The $131,068.49 figure assumes, as State
Farm did when proposing a settlement amount for Lestenkofs
liability claim, that the relevant interest rate for calculating
prejudgment interest is eight percent a year and that the number
of days from the trigger date for prejudgment interest to
judgment is 598;21 and
(3) the court, applying Rule 82(b)(1)s contested with
trial attorneys fees schedule to the total award of $1,131,068.49
(the verdict plus prejudgment interest), awarded Rule 82
attorneys fees in the amount of $115,606.85 to Lestenkof.
State Farm, in its capacity as Oddens liability
insurer, would have been responsible for paying Lestenkof the
following portions of the total owed by Odden:
(1) $50,000, the facial limit of Oddens liability
policy;
(2) $6,553.42, the amount of the prejudgment interest
calculated using the $50,000 facial policy limit amount.22 Alaska
Statute 28.22.101(d) requires that when an automobile insurer
offers coverage for prejudgment interest as part of a policy
providing the minimum statutory amount of liability coverage,
here $50,000, the prejudgment interest coverage must be in
addition to the $50,000 facial policy limit.23
(3) $115,606.85 in Rule 82 attorneys fees. State Farm
must calculate attorneys fees from the total award rather than
from the facial policy limit plus covered prejudgment interest
since Oddens policy does not contain a valid endorsement limiting
the amount of fees State Farm must pay.
State Farm paid these three amounts to settle
Lestenkofs liability claim.
Lestenkof would be entitled to additional amounts from
State Farm in its capacity as Oddens underinsured motorist
insurer if Odden was underinsured with respect to any element of
the total award. Lestenkof should receive, pursuant to Oddens
UIM policy and its attendant prejudgment interest and court-
awarded attorneys fees coverages:
(1) The $50,000 facial policy limit of Oddens UIM
coverage. Odden is underinsured with respect to the principal
amount of the damages awarded, since his liability policy covered
only $50,000 of the posited $1,000,000 verdict.
(2) $6,553.42 in prejudgment interest calculated from
the face amount of the UIM coverage.24 Odden is underinsured with
respect to the prejudgment interest awarded to Lestenkof, since
his liability policy covered only $6,553.42 of the posited
$131,068.49 interest award.
(3) No amount for Rule 82 attorneys fees. Odden is not
underinsured with respect to court-awarded attorneys fees, since
his liability policy covered the entire posited $115,606.85 fees
award.
We conclude therefore that although Oddens UIM coverage
included mirror-image coverage for unlimited court-awarded
attorneys fees, that coverage may not be invoked under the facts
of this case. Odden was fully insured, rather than underinsured,
with respect to his potential liability for court-awarded
attorneys fees. As a result, Lestenkof may not recover Civil
Rule 82 attorneys fees as part of her UIM claim.
V. CONCLUSION
For the above reasons we REVERSE the superior courts
ruling that State Farm remains obligated to pay additional
attorneys fees pursuant to Oddens UIM coverage.
_______________________________
1 Endorsements limiting or attempting to limit the amount
of Rule 82 fees payable as costs under a liability insurance
policy are discussed in Russell v. Criterion Ins. Co., 917 P.2d
664 (Alaska 1996), and Therchik v. Grant Aviation, Inc., 74 P.3d
191 (Alaska 2003).
2 3 Alaska Administrative Code (AAC) 26.550(a)(1)(A).
Attorney Fees Coverage Notice A is the notice that must be
conformed to for the liability policy at issue here. Alaska Dept
of Commerce & Econ. Dev., Div. of Ins., Attorney Fees Coverage
Notice A, available at
http://www.dced.state.ak.us/insurance/bulletins/96-04.htm. In
Therchik, 74 P.3d at 195-98, we held that an endorsement that did
not conform with Notice A was invalid. The insurer was therefore
liable for full Rule 82 fees.
3 Alaska Dept of Commerce & Econ. Dev., Div. of Ins.,
Attorney Fees Coverage Notice A, available at
http://www.dced.state.ak.us/insurance/bulletins/96-04.htm.
4 Therchik, 74 P.3d at 195-98; 3 AAC 26.510 (requiring
insurers who have a right or duty to provide a defense for an
insured to provide coverage for the payment of attorney fees
taxable as costs against the insured under Alaska Rule of Civil
Procedure 82); 3 AAC 26.550 (permitting insurers to limit their
attorneys fees exposure only if they include a valid limiting
endorsement in the insureds policy).
5 All references to Lestenkof in this opinion are to
Donna Lestenkof in her capacity as the personal representative of
her husbands estate.
6 918 P.2d 1022 (Alaska 1996).
7 In re Estate of Maldonado, 117 P.3d 720, 722 (Alaska
2005) (internal quotation marks omitted).
8 918 P.2d 1022.
9 Id. at 1023-25.
10 Id. at 1025.
11 AS 21.89.020(c)(1).
12 Harrington, 918 P.2d at 1025-26.
13 Id. at 1024, 1027.
14 17 P.3d 783, 787 (Alaska 2001).
15 918 P.2d at 1026 (emphasis added).
16 See Hughes v. Harrelson, 844 P.2d 1106, 1107 (Alaska
1993) (requiring insurers to provide coverage for prejudgment
interest in addition to the statutory minimum amount of liability
coverage).
17 See 3 AAC 26.510 (requiring insurers with a duty to
defend the insured to provide, as an additional amount of
coverage, payment for at least some Civil Rule 82 attorneys
fees).
18 99 P.3d 565 (Alaska 2004).
19 Id. at 568-69 (footnote omitted) (alteration in
original).
20 Id. at 567.
21 598 divided by 365, multiplied by 0.08, multiplied by
$1,000,000, equals $131,068.49.
22 598 divided by 365, multiplied by 0.08, multiplied by
$50,000, equals $6,553.42.
23 Hughes v. Harrelson, 844 P.2d 1106, 1107 (Alaska 1993).
24 The $6,553.42 amount assumes that State Farm paid
prejudgment interest as of the date of judgment. Because State
Farm paid Lestenkof prejudgment interest under Oddens UIM
coverage as part of the advance payment it made in November 1999,
it paid Lestenkof less than $6,553.42 (since only a little over a
year had elapsed between the time of the accident and the making
of the advance payment). State Farm need not now pay Lestenkof
an additional amount of prejudgment interest, however, given that
the UIM payment was made before the date of the assumed award.
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