Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-35172/USCOURTS-ca9-13-35172-0/pdf.json

Parties Involved:
Attorneys Liability Protection Society, Inc.
Appellee
Ingaldson Fitzgerald, P.C.
Appellant
National Risk Retention Association
Amicus Curiae

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ATTORNEYS LIABILITY

PROTECTION SOCIETY, INC., a

Risk Retention Group,

Plaintiff-Appellant,

v.

INGALDSON FITZGERALD, P.C.,

FKA Ingaldson, Maassen &

Fitzgerald, P.C.,

Defendant-Appellee.

No. 13-35115

D.C. No.

3:11-CV-00187-SLG

ATTORNEYS LIABILITY

PROTECTION SOCIETY, INC., a

Risk Retention Group,

Plaintiff-Appellee,

v.

INGALDSON FITZGERALD, P.C.,

FKA Ingaldson, Maassen &

Fitzgerald, P.C.,

Defendant-Appellant.

No. 13-35172

D.C. No.

3:11-CV-00187-SLG

ORDER

CERTIFYING 

QUESTIONS TO

THE SUPREME

COURT OF ALASKA

Filed September 10, 2014

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2 ALPS V. INGALDSON FITZGERALD

Before: Jerome Farris, Dorothy W. Nelson,

and Jacqueline H. Nguyen, Circuit Judges.

Order

SUMMARY*

Certification to Alaska Supreme Court

The panel certified two questions to the Alaska Supreme

Court. 

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 a policy

provision entitling an insurer to

reimbursement of fees and costs incurred by

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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ALPS V. INGALDSON FITZGERALD 3

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?

COUNSEL

Kevin Hartzell and Angela Probasco, Kutak Rock, Omaha,

NE, for petitioner/cross-respondent.

Jim M. Boardman and William H. Ingaldson, Ingaldson

Fitzgerald, P.C., Anchorage, AK, for respondent/crosspetitioner. 

Rick A. Cigel and Michael B. Kadish, The Cigel Law Group,

P.C., Los Angeles, CA, for amicus curiae National Risk

Retention Association.

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4 ALPS V. INGALDSON FITZGERALD

ORDER

Pursuant to Alaska Rule of Appellate Procedure 407(a),

we respectfully ask the Alaska Supreme Court to answer the

following certified questions of Alaska law as set forth

below:

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 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

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ALPS V. INGALDSON FITZGERALD 5

because there was no possibility of

coverage?

The Alaska Supreme Court’s answer to these questions

may be determinative of this appeal, and we are unable to

find controlling precedent from the Alaska Supreme Court. 

We are also cognizant of the states’ role as the primary

regulators of “the business of insurance.” Grp. Life & Health

Ins. Co. v. Royal Drug Co., 440 U.S. 205, 211 (1979);

15 U.S.C. § 1012. Additionally, we note that two federal

district courts in Alaska reached conflicting interpretations of

Alaska law on reimbursement of defense costs incurred

pursuant to a reservation of rights. Unionamerica Ins. Co. v.

Gen. Star Indem. Co., No. A01–0317–CV (HRH), 2005 WL

757386, *8 (D. Alaska Mar. 7, 2005); Attorneys Liab. Prot.

Soc’y, Inc. v. Ingaldson & Fitzgerald, P.C., No.

3:11–cv–00187–SLG, 2012 WL6675167, *4 (D.Alaska Dec.

21, 2012). We do not presume to bind the Alaska Supreme

Court to our framing of these questions of state law, and we

recognize that the Alaska Supreme Court may, in its

discretion, answer these questions in any form that it chooses.

I

The facts underlying this litigation are not disputed. 

Attorneys Liability Protection Society, Inc. (“ALPS”) is a

Risk Retention Group (“RRG”) chartered in Montana. 

Ingaldson Fitzgerald, P.C. (“Ingaldson”) is a professional

corporation located in Alaska. ALPS provided Ingaldson’s

malpractice insurance coverage from April 29, 2007 to April

29, 2008.

This coverage dispute arises from Ingaldson’s

representation of Robert Kane in a criminal proceeding and

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6 ALPS V. INGALDSON FITZGERALD

representation of Mark Avery and Security Aviation in

litigation involving the May Smith Trust, for which Avery

was a trustee. On April 13, 2006, Ingaldson received

$150,000 as a retainer for its representation of Kane. 

Ingaldson drew down the $150,000 to pay its fees and

returned a portion of the retainer to Kane, leaving a $0

balance in its trust account by April 10, 2007.

Security Aviation filed for bankruptcy on December 21,

2006. Through the course of the bankruptcy, the bankruptcy

trustee successfully brought suit against Ingaldson, and

obtained a judgment in the total amount of $115,297.44,

inclusive of fees and costs. The bankruptcy court awarded

judgment after finding that (1) the conveyance of funds from

Ingaldson’s trust account to Kane was a conversion of funds

owned bySecurityAviation, (2) Ingaldson converted Security

Aviation’s funds when it used the retainer to pay its legal

fees, and (3) Ingaldson conveyed funds from its trust account

in violation of 11 U.S.C. §§ 364, 327, and 362(a)(4).

Through the course of the bankruptcy’s litigation against

Ingaldson, Ingaldson was represented by self-selected

independent counsel paid for by ALPS. When ALPS agreed

to bear the costs of Ingaldson’s defense, it did so reserving its

right to deny coverage later and to seek reimbursement of

defense costs if the policy did not cover the claims against

Ingaldson. On September 23, 2011, ALPS filed an action in

federal district court seeking a declaration that the ALPS

policy did not cover the claims against Ingaldson and that

ALPS had no obligation under the policy to provide an appeal

bond in the underlying suit against Ingaldson. ALPS also

sought to recover the expenses it incurred providing a defense

to Ingaldson. The district court held that Alaska Statute

§ 21.96.100(d) precluded reimbursement of ALPS’s expenses

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ALPS V. INGALDSON FITZGERALD 7

because the expenses were incurred subject to a reservation

of rights. ALPS appealed.

II

Alaska Statute § 21.96.100(d) states, “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 statute plainly requires the insurer to cover

defense costs if it either covers the claims against its insured,

or defends pursuant to a reservation of rights. We note that

if § 21.96.100(d) were the only authority, reimbursement

would not be available in light of the statute’s mandatory

language. In this case, however, the parties agreed to a policy

that allows reimbursement, and the insurer reiterated the

possibility it would seek reimbursement in its reservation of

rights letter. The statute does not squarely address whether

the insurer can later seek reimbursement of fees assumed

under a reservation of rights in this situation.

Passage of Alaska Statute § 21.96.100(d) in 1995

followed CHI of Alaska, Inc. v. Emp’rs Reinsurance Corp.,

844 P.2d 1113 (Alaska 1993). In CHI, the Alaska Supreme

Court recognized an insured’s right to independent counsel

where an insurer accepted defense of a claim pursuant to a

reservation of its right to disclaim coverage later. Id. at 1115. 

The Alaska Supreme Court also determined that the insurer

has the unilateral right to select independent counsel, subject

to the covenant of good faith and fair dealing. Id. at 1121. 

Like § 21.96.100(d), the CHI holding does not reach the

precise issue presented in the present case. CHI did not

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8 ALPS V. INGALDSON FITZGERALD

address the insurer’s rights in the event that noncoverage is

later found, especially where, as here, the insurance policy

and reservation of rights letter clearly permit the insurer to

seek reimbursement of defense costs.

If § 21.96.100(d) prohibits reimbursement in the event of

noncoverage, the second question is whether reimbursement

is precluded even where the duty to defend never arose. 

Under Alaska law, an insurer has a duty to defend its insured

where “vagaries of law and fact are sufficient to create the

potential that an insured will incur covered liability . . . .” 

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

969 (Alaska 2000) (quotation omitted). The duty to defend

is a distinct obligation of the insurance contract, and can arise

even where the insurer ultimately faces no liability. Sauer v.

Home Indem. Co., 841 P.2d 176, 180 (Alaska 1992) (citing

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

645 (Alaska 1979)). In the present case, the claims against

Ingaldson involved funds held in the firm’s trust account. 

The ALPS policy excluded coverage for disputes concerning

trust account funds and client fees. Thus, it may be that the

duty to defend never arose, and reimbursement of ALPS’

defense costs may not violate any prohibition on

reimbursement created by § 21.96.100(d) in this

circumstance.1

1 We do not reach the merits of the parties’ arguments, and our

description of the controversies presented by the parties shall not be

construed as a comment on the merits of either party’s position in this

appeal.

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ALPS V. INGALDSON FITZGERALD 9

III

This matter is stayed pending proceedings in the Alaska

Supreme Court, and this case is hereby withdrawn from

submission. The parties shall notify this court whether the

Alaska Supreme Court accepts the certified questions in a

joint report within 30 days of that court’s decision. If the

questions are accepted, the parties shall file a joint status

report with this court six months after the date of acceptance

and every six months thereafter.

The Clerk of Court shall provide a signed copy of this

order under the official seal of the United States Court of

Appeals for the Ninth Circuit. The Clerk of Court shall also

provide a copy of the record in this case, in whole or in part,

to the Alaska Supreme Court upon request.

IT IS SO ORDERED.

____________________________

Judge Jacqueline H. Nguyen

Presiding Judge

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