Title: Fulton v. Lloyds & Inst. of London

State: alaska

Issuer: Alaska Supreme Court

Document:

903 P.2d 1062 (1995) Christopher FULTON, individually and as assignee of Walter E. Clark, Appellant and Cross-Appellee, v. LLOYDS AND INSTITUTE OF LONDON UNDERWRITING COMPANIES, including John Crawley, individually and as representative on behalf of certain underwriters at Lloyds of London subscribing to Policy No. BH0150TAA, Excess Insurance Company, Ltd.; London & Hull Maritime Insurance Co., Ltd.; Cornhill Insurance PLC `M' A/C; Insurance Company of North America `G' (Uk); The Prudential Group 9; and The Baltica (UK) JA; and Property Marine, Appellees and Cross-Appellants. Nos. S-6284, S-6334. Supreme Court of Alaska. October 6, 1995. Randall E. Farleigh, Farleigh & Shamburek, Anchorage, for Appellant and Cross-Appellee. Brewster H. Jamieson, Diane L. Wendlandt, Lane Powell Spears Lubersky, Anchorage, for Appellees and Cross-Appellants. Before MOORE, C.J., and RABINOWITZ, MATTHEWS, COMPTON and EASTAUGH, JJ. MATTHEWS, Justice. This dispute over insurance coverage for an accident at sea comes to us after the conclusion of suits in state and federal courts and while liquidation proceedings for one insurer are underway in the State of Washington. The findings of the trial court guide us through the maze: In the present case, Fulton alleges that Pacific Marine committed various acts in connection with its defense of the Clarks which precluded Pacific Marine from denying coverage for Fulton's accident.[2] Fulton filed a *1066 motion for partial summary judgment seeking a determination that if Pacific Marine would be precluded by its acts in the defense of the Clarks from denying coverage, Lloyds would likewise be precluded. Lloyds opposed the motion and the trial court denied it on the ground that "Pacific Marine cannot be viewed as the agent of [Lloyds].... Because there has been no allegation that [Lloyds], through some kind of consensual arrangement, ever held control over the conduct of Pacific Marine, plaintiff's motion on this issue is DENIED." Both parties agreed to submit the case to the court on the existing record. At the conclusion of the trial the court held that Lloyds was not estopped from denying coverage based on the lack of an agency relationship between Lloyds and Pacific Marine. The trial court then turned to the various coverage defenses asserted by Lloyds. The court concluded that Lloyds' claim that the no assignment clause in the policy had been breached by Walter Clark's assignment of his claim against Pacific Marine to Fulton, its claim that the no crabbing clause had been violated, and its claim that the crew warranty had been violated, were unavailing. However, the court held that the navigational warranty had been violated in that the JAMIE LYNN was outside of the geographical area described in the policy and that its presence outside of that area "significantly increased the risk that plaintiff would be injured in the way that he was injured" because of the rough water in the Bering Sea. The court concluded that the breach of this navigational warranty voided the policy, and thus entered judgment in favor of Lloyds. On appeal, Fulton argues that the trial court erred in concluding (1) that Lloyds was not precluded from denying coverage assuming that Pacific Marine would have been so precluded by its conduct in connection with the defense of the Clarks; and (2) that the navigation warranty was breached and, assuming such a breach, that the breach significantly increased the risk. On cross-appeal, Lloyds argues that the trial court erred in (1) failing to hold that Fulton was collaterally estopped from bringing this case by the federal district court's decision which was subsequently vacated at the direction of the Court of Appeals for the Ninth Circuit; (2) refusing to enforce the no assignment clause of the policy; (3) refusing to enforce the no crabbing warranty; (4) holding that the crew warranty was not breached; (5) refusing to amend the caption of the case by deleting Lloyds' name; (6) refusing to hold that the assignment from Walter Clark to Fulton was invalid because it was accompanied by a covenant not to execute; (7) refusing to admit the statement of Christopher Clark, who was deceased at the time of trial, made to an insurance adjuster as to where the boat was at the time of the accident; and (8) failing to consider the no crabbing warranty as a part of the navigational warranty. Except for the first point raised by Fulton, we have determined that none of these points is meritorious and we determine them summarily.[3] *1067 Fulton argues here, as he did before the trial court, that Lloyds was bound by Pacific Marine's decisions and conduct in defending the Clarks under the policy. Fulton points out that there was only one policy with two subscribing insurer groups, and the policy language concerning the defense obligation under the policy makes no distinction between the subscribing insurer groups. Fulton argues: "As a matter of contract law, the duty to defend and related legal consequences flowing from that duty voluntarily assumed under [the policy] are not divisible when they were not separately addressed or divided between [Lloyds] and Pacific Marine under the policy." Lloyds' response is that it occupied the same position as would an insurer which issued a policy of excess insurance because the word excess was used in the policy in connection with Lloyds in various endorsements.[4] Lloyds also argues that "[a]lthough *1068 the excess insurance was subject to the same terms and conditions as the primary insurance, it was issued as a separate policy of insurance." It is our view that Fulton's argument on this point is correct. Only one policy was issued Walter Clark. It is policy number 85-PI-O8744 with a limit of $500,000 for which Clark was charged a single premium of $9,600. The lead paragraph of the policy makes it clear that all of the subscribing companies are subject to the terms and conditions of the policy. The paragraph states: The attached protection and indemnity endorsement states the following with respect to rights and obligations concerning the defense of claims: As both Pacific Marine and Lloyds are subscribing companies to the policy, they are both included within the term "this Company." Under the introductory clause of the policy set forth above they are both "subject to the terms and conditions" of the protection and indemnity endorsement. Policies of insurance are to be construed in accordance with the reasonable expectations of the assured: "The objectively reasonably expectations of applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would *1069 have negated those expectations." Bering Strait School Dist. v. RLI Ins. Co., 873 P.2d 1292, 1295 (Alaska 1994) (quoting Robert Keeton, Basic Text on Insurance Law § 6.3(a), at 351 (1971)). To ascertain reasonable expectations "we look to the language of the disputed policy provisions, the language of other provisions of the insurance policy, and to relevant extrinsic evidence. In addition, we refer to case law interpreting similar provisions." Bering Strait, 873 P.2d at 1295 (quoting Stordahl v. Government Employees Ins. Co., 564 P.2d 63, 66 (Alaska 1977)). An insured in the position of Walter Clark reasonably would expect both insurers to be responsible for and bound by decisions made in "the direction" of "litigation or negotiations," given the fact that there was only one policy and that both subscribing insurers had severally undertaken identical duties under the policy. As between the subscribing insurers, there doubtless was some sort of an understanding that Pacific Marine would have initial defense responsibilities. However, such an understanding would do nothing to change the impression conveyed by the language of the policy that there would be only one defense to which both insurers would be bound since there was only one policy. Our conclusion is consistent with the letter written to the Clarks by Property Marine on behalf of Lloyds shortly after the litigation was commenced. The letter expressed and emphasized Lloyds' view that there was only a single policy rather than separate policies and that Lloyds' liability was dependent on liability of Pacific Marine first being established. The letter stated in part as follows: As noted above, Lloyds argues that it was in the same position that it would have been had it issued a separate policy of excess insurance because the word "excess" was used in connection with Lloyds in various endorsements in the policy. This argument lacks merit. While excess insurers under policies separate from those issued by primary insurers are often not responsible for the defense of a claim against the insured until the limits of the primary policy are exhausted, this is by no means a blanket rule applicable to all of the permutations in which the primary insurer/excess insurer relationship appears, nor is it independent of the particular language of the policies involved. See, e.g., Signal Cos. v. Harbor Ins. Co., 27 Cal. 3d 359, 165 Cal. Rptr. 799, 805, 612 P.2d 889, 895 (1980) ("We expressly decline to formulate a definitive rule applicable in every case in light of varying equitable considerations which may arise, and which affect the insured and the primary and excess carriers, and which depend upon the particular policies of insurance, the nature of the claim made, and the relation of the insured to the insurers."); Guaranty Nat'l Ins. Co. v. American Motorists Ins. Co., 758 F. Supp. 1394, 1396 (D.Montana 1991), aff'd, 981 F.2d 1108 (9th Cir.1992) (unconditional promise in excess policy to provide a defense binds excess carrier to pro rata defense costs; court "emphasized that the holding in any particular case addressing the issue of allocation of defense costs between primary and excess insurers must be considered in light of the particular facts of each case and the various policies involved."); cf., Alaska Rural Elec. Co-op. Ass'n v. INSCO Ltd., 785 P.2d 1193, 1195 (Alaska 1990) (Excess insurer not required to drop down to provide primary coverage when primary insurer insolvent "absent policy language to the contrary.").[5] *1070 In summary, Fulton's argument is that Pacific Marine violated certain duties owed by an insurer in the defense of its insured and that both Pacific Marine and Lloyds were estopped from relying on policy and coverage defenses. The superior court did not rule on whether any such violations occurred. Instead it held that the presence of such violations would be irrelevant because they would not bind Lloyds. For the reasons expressed above we find that this conclusion is erroneous. However, we do not express any view as to whether there were material breaches of any defense duties under the policy. This point must be determined on remand. REVERSED and REMANDED. [1] Footnotes and record citations have been omitted. [2] The allegations of wrongful conduct on the part of Pacific Marine are that it "elected to deny coverage to the Clarks ... while failing to notify the Clarks of said intent to deny coverage until after [Pacific Marine] had obtained interviews of the Clarks and information therefrom favorable to [Pacific Marine's] position against the Clarks"; and that when Pacific Marine notified the Clarks of its decision to defend under a reservation of rights to later deny coverage, the Clarks rejected this conditional defense but Pacific Marine nonetheless proceeded to defend the Clarks. [3] The trial court's factual finding as to the location of the boat at the time of the accident and its conclusion that this location was outside of the warranted policy area is not clearly erroneous. The trial court's conclusion that breach of the navigational warranty as to location significantly increased the risk of an accident such as that suffered by Fulton is likewise not clearly erroneous given the finding that the waters of the Bering Sea where the accident occurred are generally rougher than the areas where navigation was permitted under the policy. Lloyds' collateral estoppel point lacks merit for it ignores the requirement that the issue which has been already litigated must be final. Murray v. Feight, 741 P.2d 1148, 1153 (Alaska 1987). The Ninth Circuit remanded the district court case "with a direction to dismiss. See United States v. Munsingwear, Inc., 340 U.S. 36, 39 [71 S. Ct. 104, 106, 95 L. Ed. 36] (1950)." In Munsingwear the United States Supreme Court explained that reversing or vacating judgments as moot and remanding with a direction to dismiss clears the path for future relitigation of the issues between the parties and eliminates a judgment, review of which was prevented through happenstance. When that procedure is followed, the rights of all parties are preserved; none is prejudiced by a decision which in the statutory scheme was only preliminary. Id. at 40, 71 S. Ct. at 107. The Ninth Circuit's reference to Munsingwear makes it plain that this is not an appropriate case for application of the doctrine of collateral estoppel. Concerning the policy warranties, the trial court correctly required that the breach of such warranties contribute to the injury or increase the risk of the injury. Highlands Ins. Co. v. Koetje, 651 F. Supp. 346, 347 (W.D.Wash. 1987). Cf., Estes v. Alaska Ins. Guar. Ass'n, 774 P.2d 1315, 1318 (Alaska 1989) ("time limit on commencement of suit clauses, notice of loss clauses, proof of loss clauses, and cooperation clauses [in insurance policies] should all be reviewed on the basis of whether their application in a particular case advances the purpose for which they were included"). Lloyds' arguments concerning its policy and coverage defenses, points 2, 3, 4, 5, 6, & 8, and its evidentiary argument, point 7, are moot in view of our determination that the trial court's holding that the navigational warranty was breached and the breach was material must be affirmed. The trial court's determination concerning the navigational warranty will be dispositive unless on remand the court finds that there was a material breach in connection with the defense duties owed the insured which gives rise to an estoppel to rely on policy and coverage defenses. E.g., Sauer v. Home Indem. Co., 841 P.2d 176, 184 (Alaska 1992) ("[I]nsurance company which wrongfully refuses to defend is liable for the judgment which ensues even though the facts may ultimately demonstrate that no indemnity is due."); Davis v. Criterion Ins. Co., 754 P.2d 1331, 1332 (Alaska 1988) (unjustified denial of coverage "put to an end [insurer's] right to demand compliance by the insured with other terms of the agreement."). If such a breach is found, the estoppel will run to all of the policy and coverage defenses asserted. If not, the insured's breach of the navigational warranty is alone sufficient to negate coverage. Lloyds' argument that its name should have been deleted is erroneous. Lloyds argues that it is "an association of individual insurance companies," rather than an individual insurance company. However, an association may be sued in its common name. Alaska R.Civ.P. 17(b). Further, Lloyds was named as a subscribing company in the insurance policy. If the association did not wish to be treated as an insurance company, it should not have allowed itself to be named as such. Taggart v. Wachter, 179 Md. 608, 21 A.2d 141, 146 (1941) ("[C]ourts which have had to deal with [associations of individuals exchanging contracts among themselves] have recognized the necessity of treating them to an extent as entities."); Thomas Canning Co. v. Canners' Exch. Subscribers at Warner Inter-Insurance Bureau, 219 Mich. 214, 189 N.W. 214, 219 (1922) ("[A]n action at law against defendant in the associate character and name by which it contracted will lie."); Mountain Timber Co. v. Manufacturing Wood Workers Underwriters, 98 Wash. 167, 167 P. 93, 94 (1917) (nothing in policy limited right to sue association under name policy issued). [4] For example, the signature lines for endorsements were written as follows: ___________________________________________________ PACIFIC MARINE INSURANCE/PROPERTY MARINE 100% P & I ___________________________________________________ LLOYDS AND INSTITUTE OF LONDON UNDERWRITING COMPANIES/PROPERTY MARINE 100% EXCESS P & I As another example, the subscription sheet to the policy was divided in three columns; in relevant part it read as follows: [5] Lloyds' argument that its undertaking to insure was issued as a separate policy of insurance can most charitably be described as puzzling. The record citations furnished by Lloyds do not demonstrate that a separate policy of insurance was issued, no such policy appears in the record, and the existence of a separate policy would be in conflict with the letter written on behalf of Lloyds set forth above at page 1069.