FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ALLSTATE INSURANCE COMPANY, 

No. 09-35203 Plaintiff-Appellee,

D.C. No.

v.  3:04-cv-00043-TMB

CHARLES HERRON,

OPINION Defendant-Appellant. 

Appeal from the United States District Court

for the District of Alaska

Timothy M. Burgess, District Judge, Presiding

Argued and Submitted

July 30, 2010—Anchorage, Alaska

Filed March 10, 2011

Before: Mary M. Schroeder, Diarmuid F. O’Scannlain and

Richard R. Clifton, Circuit Judges.

Opinion by Judge O’Scannlain

3379
COUNSEL

Mark A. Sandberg, Sandberg, Wuestenfeld & Corey, Anchorage, Alaska, argued the cause for the appellants and filed the

briefs.

Gary A. Zipkin, Guess & Rudd, Anchorage, Alaska, argued

the cause for the appellee. Mark Wilkerson, Wilkerson Hozubin, Anchorage, Alaska filed the brief.

OPINION

O’SCANNLAIN, Circuit Judge:

We must decide, among other issues, whether an insurance

company’s failure to settle a claim against its insured by a

ALLSTATE INSURANCE v. HERRON 3383
claimant’s stated settlement deadline constitutes a breach of

the insurer’s duty of good faith and fair dealing under Alaska

law. 

I

A

On September 14, 2002, Charles Herron was involved in a

single-car accident, in which his passenger Angelina Trailov

was severely injured.1 At the time, Allstate Insurance Company (“Allstate”) provided car insurance to Herron under a

policy obtained by Herron’s parents, which provided a maximum of $100,000 bodily injury coverage for each person

injured.

Allstate learned of Herron’s accident two days after it

occurred and began its investigation that same day. Allstate

contacted Herron’s mother and discussed the scope of Herron’s insurance but unsuccessfully attempted to contact

Trailov at the hospital to which she had been airlifted. A week

later, Allstate sent a letter to Herron’s parents, advising them

that it was working on the claim. Herron’s father faxed a copy

of the letter to Herron’s attorney, who in turn faxed a copy of

the letter to Trailov’s attorney, Michele Power. 

Shortly thereafter, Allstate sent a letter to Power requesting

a complete description of Trailov’s injuries, information

regarding Trailov’s treating physicians and any ongoing treatment she was receiving, and access to Trailov’s medical

records or bills as Power received them. Allstate received the

medical release form signed by Trailov’s mother, Mary Kenick, as well as a letter requesting a copy of Herron’s insurance

policy. 

1We take the facts of this case as stipulated by the parties in the district

court. 

3384 ALLSTATE INSURANCE v. HERRON
In February of 2003, Power sent Allstate a letter demanding

that it pay its full policy limits for Trailov’s injury. The letter

did not specify a deadline for Allstate’s response. Allstate

acknowledged receipt of Power’s letter, and forwarded Herron a copy of the letter, informing him that his policy does not

cover punitive damages. Herron’s attorney responded insisting that Allstate accept Power’s policy-limits offer and stating

that if it refused to do so, Herron would look to Allstate for

all damages awarded, including punitive damages.

In April, Power again wrote to Allstate, stating that

Power’s offer to settle at policy limits would be revoked on

May 16, 2003 and that Power would file a lawsuit on

Trailov’s behalf “unless there is some discussion regarding

pre-filing resolution.” On May 9, Allstate acknowledged

receipt of Power’s letter, and stated that Allstate anticipated

responding by May 16. On May 12, Allstate paid Trailov

$25,000 to compensate a portion of her medical expenses. On

May 16, Allstate faxed a letter to Power indicating that it had

not yet completed its investigation, but that it would do so and

respond to her settlement offer by the end of the month. True

to its word, Allstate faxed Power a letter offering to settle at

Herron’s $100,000 policy limit in addition to $12,500 in attorneys’ fees on May 30. That same day, Allstate received a letter from attorney Douglas Johnson indicating that Allstate had

failed to meet Power’s deadline and that Johnson had been

retained by Trailov as co-counsel to file suit against Allstate.

B

Allstate filed a complaint against Herron in the U.S. District Court for the District of Alaska, seeking declaratory

relief. Allstate sought a declaration that “its good faith attempt

to settle Trailov and Kenick’s claims satisfied its obligation to

its insured,” and that it “is not obligated to pay any portion of

the confessed judgment that exceeds the limit of the bodily

injury coverage afforded Herron under the Policy.” But before

he was served with the complaint in the federal lawsuit, HerALLSTATE INSURANCE v. HERRON 3385
ron confessed to judgment in the amount of $1,937,500

against himself in favor of Kenick and Trailov in Alaska

Superior Court and assigned all of his rights against Allstate

to Kenick and Trailov. In exchange, Kenick and Trailov

entered into a covenant not to execute the judgment against

Herron’s personal assets. Kenick and Trailov then initiated a

lawsuit in Alaska state court against Allstate, attempting to

collect under Herron’s assigned rights. 

In light of Herron’s actions, Allstate amended its complaint, seeking additional declarations that (1) Herron

breached the cooperation clause of the insurance contract by

consenting to entry of judgment and assigning his rights without Allstate’s permission;2

 (2) Herron’s breach was not

excused by any prior material breach by Allstate; (3) Herron’s

breach voided the insurance contract; and (4) either Allstate’s

liability is limited to the amount of bodily injury coverage or,

in the alternative, Herron’s breach voided the contract and all

liability coverage. 

Herron responded with a motion requesting that the district

court decline jurisdiction over Allstate’s suit or, in the alternative, stay proceedings. Herron argued that, because he had

assigned any claims he may have had against Allstate to Kenick and Trailov, Herron was no longer a real party in interest

to the controversy and Allstate’s action should therefore be

prosecuted in state court along with Kenick and Trailov’s

2The insurance agreement’s cooperation clause states: 

When [Allstate] ask[s], an insured person must cooperate with

[Allstate] in the investigation, settlement and defense of any

claim or lawsuit. If [Allstate] ask[s], that person must also help

[Allstate] obtain payment from anyone who may be jointly

responsible. [Allstate] can’t be obligated if an insured person voluntarily takes any action or makes any payments except as specified in this policy. 

This provision effectively bars Herron from settling any covered claims

against him without Allstate’s authorization. 

3386 ALLSTATE INSURANCE v. HERRON
nonremovable tort claims. The district court denied the

motion and retained jurisdiction over Allstate’s request for

declaratory relief, concluding that jurisdiction was proper

because the suit did not involve any unsettled areas of state

law, nor did it risk duplicative litigation. Herron then filed a

motion to dismiss Allstate’s suit as moot or, in the alternative,

to substitute Kenick and Trailov for himself as party defendants. The district court again denied Herron’s motion,

although it suggested that Allstate consider adding Kenick

and Trailov as defendants. 

Allstate and Herron each filed motions for summary judgment, both of which the district court denied.3 Before trial,

Allstate filed a motion in limine seeking to exclude evidence

of various instances of purported bad-faith behavior. The district court had previously concluded that Herron suffered no

harm as a result of these purported transgressions, and granted

Allstate’s motion. 

After a six-day trial, the court submitted a single question

to the jury: “Considering all the facts and circumstances contained in the evidence submitted to you, did Allstate act reasonably by offering policy limits on May 30, 2003?” The jury

answered, “Yes.” After the jury delivered its verdict, Allstate’s counsel indicated that he would submit a proposed

judgment to the court, and the judge replied, “Okay.” But the

next day, before Allstate filed its proposed judgment, the district court entered a judgment indicating only that “Allstate

did act reasonably by offering policy limits on May 30,

2003.” Less than a week later, Allstate filed a motion to

amend the judgment to reflect several additional declarations

that Allstate sought in its complaint. Namely, Allstate sought

to amend the judgment to state:

3The order denying Allstate’s motion for summary judgment was published. See Allstate Ins. Cos. v. Herron, 393 F. Supp. 2d 948 (D. Alaska

2005). 

ALLSTATE INSURANCE v. HERRON 3387
1. The jury returned a verdict in favor of Allstate

on June 11, 2008, finding that under all the facts

and circumstances Allstate acted reasonably by

offering policy limits on May 30, 2003.

2. It is undisputed that Herron breached the insurance contract by consenting to entry of judgment

and assigning his rights without Allstate’s consent.

3. Pursuant to the jury’s verdict, Herron’s breach

was not excused by any prior breach by Allstate.

4. Herron’s breach voided the insurance policy’s

liability coverage.

5. Herron’s assignment of rights to Trailov and

Kenick is null and void because Herron had no

rights to assign as of the date of assignment. 

The district court granted Allstate’s motion, and filed the

amended judgment as requested. 

Herron timely appeals.

II

Herron first claims that the district court improperly exercised jurisdiction over Allstate’s suit for declaratory relief.

Under the Declaratory Judgment Act, a district court may “declare the rights and other legal relations of any interested

party seeking such declaration.” 28 U.S.C. § 2201(a); Gov’t

Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1222 (9th Cir. 1998)

(en banc). So long as the court’s exercise of jurisdiction over

the suit “passes constitutional and statutory muster,” the district court has discretion to determine whether maintaining

jurisdiction over the declaratory action would be appropriate.

Dizol, 133 F.3d at 1223. In making such a determination, a

3388 ALLSTATE INSURANCE v. HERRON
district court is to consider a variety of factors, including

whether retaining jurisdiction would: (1) involve the needless

determination of state law issues; (2) encourage the filing of

declaratory actions as a means of forum shopping; (3) risk

duplicative litigation; (4) resolve all aspects of the controversy in a single proceeding; (5) serve a useful purpose in

clarifying the legal relations at issue; (6) permit one party to

obtain an unjust res judicata advantage; (7) risk entangling

federal and state court systems; or (8) jeopardize the convenience of the parties. Id. at 1225 & n.5. Because the district

court “is in the best position to assess how judicial economy,

comity and federalism are affected in a given case,” id. at

1226, we review the district court’s decision to retain jurisdiction over a declaratory judgment action for abuse of discretion, id. at 1223. 

[1] Here, the district court did not abuse its discretion by

maintaining jurisdiction over Allstate’s declaratory judgment

action. This case presents a straightforward contract dispute

between Allstate and Herron, over which the district court has

jurisdiction based on the parties’ diversity.4 28 U.S.C. § 1332.

Allstate’s complaint seeks a declaration merely that Herron

breached the insurance contract and voided its coverage by

consenting to the entry of judgment against him and by

assigning his contractual rights against Allstate. The district

court decided no issues of Alaska law outside of that defining

Herron and Allstate’s contractual relationship. There is thus

little concern that Allstate’s declaratory judgment action

entangled federal and state court systems or that the district

court allowed Allstate unfairly to select a favorable or inconvenient forum for determining its rights under the contract.

Moreover, Herron never initiated his own action against Allstate that would risk duplicative litigation of these same contractual rights. In short, we see no concern that would have

4Herron is a resident of Alaska and Allstate is incorporated in and maintains its principal place of business in Illinois.

ALLSTATE INSURANCE v. HERRON 3389
required the district court to refuse to exercise jurisdiction

over Allstate’s action.

Herron counters that, under the guise of a contract suit, Allstate has in fact sought a declaration of its defense to the tort

suit filed by Kenick and Trailov in Alaska state court. In particular, he contends that the jury’s finding that under “all facts

and circumstances, . . . Allstate act[ed] reasonably by offering

policy limits on May 30, 2003,” is simply a statement of Allstate’s nonliability to Kenick and Trailov’s tort claims. Herron argues that the district court therefore erred by allowing

Allstate to use this declaratory judgment action to handpick

its preferred forum for litigating the merits of Kenick and

Trailov’s state tort action. Cf. Cunningham Bros., Inc. v. Bail,

407 F.2d 1165, 1167-68 (7th Cir. 1969) (“[T]o compel potential personal injury plaintiffs to litigate their claims at a time

and in a forum chosen by the alleged tort-feasor would be a

perversion of the Declaratory Judgment Act.”).

[2] But Herron misunderstands the connection between the

action here and Kenick and Trailov’s tort suit against Allstate.

The issues in this suit and the tort suit overlap solely because

Kenick and Trailov’s rights against Allstate are entirely derivative of Herron’s rights under his insurance agreement. The

jury’s declaration of Allstate’s reasonableness pertains to

Alaska law defining an insurer’s contractual obligations to its

insured, not tort law. See Continental Ins. Co. v. Bayless &

Roberts, Inc., 608 P.2d 281, 293 (Alaska 1980). That declaration may well be fatal to Kenick and Trailov’s tort claims

against Allstate, but only because an unexcused breach of the

contract by Herron may have thus prevented him from assigning any rights against Allstate to Kenick and Trailov in the

first place. At bottom, Allstate’s suit sounds in contract, not

tort, regardless whether the merits of this action have become

entwined with a defense Allstate may potentially raise to Kenick and Trailov’s derivative tort action. Accordingly, we are

satisfied that the district court did not abuse its discretion by

3390 ALLSTATE INSURANCE v. HERRON
maintaining jurisdiction over Allstate’s declaratory judgment

action.

III

Herron next contends that the district court erred by refusing to direct a verdict that Allstate materially breached the

insurance contract when it failed to accept Power’s offer to

settle at policy limits by May 16, 2003. We review the district

court’s denial of a motion for directed verdict de novo.

Oglesby v. S. Pac. Transp. Co., 6 F.3d 603, 605 (9th Cir.

1993). To succeed on his claim, Herron must demonstrate that

the evidence, when viewed in the light most favorable to Allstate, requires a rational juror to conclude that Allstate materially breached the contract by offering to settle at policy limits

on May 30, 2003. See Maheu v. Hughes Tool Co., 569 F.2d

459, 469 (9th Cir. 1977). 

[3] In Alaska, “[w]hen a plaintiff makes a policy limits

demand, the covenant of good faith and fair dealing places a

duty on an insurer to tender maximum policy limits to settle

a plaintiff’s demand when there is a substantial likelihood of

an excess verdict against the insured.” Jackson v. Am. Equity

Ins. Co., 90 P.3d 136, 142 (Alaska 2004). This obligation

stems from an insurer’s general “duty to act in good faith to

protect the interests of the insured,” id., and it requires the

insurer to “exercise not only good faith, but also ordinary care

and reasonable diligence and caution,” Continental Ins. Co.,

608 P.2d at 293 (internal quotation marks omitted). If an

insurer unreasonably refuses to settle at policy limits, “it has

materially breached its contractual obligation to the insured

. . . and cannot escape liability on the ground that the insured

failed to comply with other terms of the contract subsequent

to [the insurer’s] own breach.” Grace v. Ins. Co. of N. Am.,

944 P.2d 460, 464 (Alaska 1997) (ellipsis in original) (internal quotation marks omitted). Thus, if Allstate breached its

obligation to tender policy limits in response to Power’s settlement offer, Herron would be entitled to coverage, even in

ALLSTATE INSURANCE v. HERRON 3391
excess of his policy, for his liability to Trailov and Kenick,

regardless of any subsequent breach on his part. See Jackson,

90 P.3d at 142; Grace, 944 P.2d 464-65. 

Because the parties stipulated that Allstate could have

determined that Herron’s liability exceeded the limits of his

insurance policy by May 16, 2003, Herron contends that, as

a matter of law, Allstate breached its duty to settle at policy

limits by failing to meet Power’s May 16 deadline. But the

parties’ stipulation did not preclude a rational jury from finding that Allstate nevertheless acted reasonably by offering to

settle at policy limits only two weeks later. In essence, the

parties’ stipulation did not require a jury to conclude that Allstate should have determined Herron’s liability to exceed the

policy limits and should have offered to settle by May 16. 

[4] Indeed, the jury found that Allstate’s decision to offer

to settle on May 30, 2003 was reasonable, and we have no

cause to question the jury’s conclusion based upon the record

before us. Allstate began its investigation two days after Herron’s accident occurred and was consistently in contact with

Power throughout the process. Although Power placed a May

16 deadline on her offer to settle, her language was not steadfast; rather, she merely stated that by the deadline there must

be “some discussion regarding pre-filing resolution.” Allstate

twice responded to this settlement offer by the deadline, and

it even paid a portion of Trailov’s medical bills on May 12.

On May 16, Allstate stated that it would have a final answer

by the end of the month, and on May 30, Allstate in fact

accepted Power’s offer to settle at policy limits. 

[5] Viewing this evidence in the light most favorable to

Allstate, it is not clear that Allstate failed to comply with the

terms of Power’s deadline, let alone that it failed reasonably

to offer to settle at policy limits. A rational jury could find

that Allstate acted reasonably. Because Herron is not entitled

to judgment that Allstate breached its duty of good faith and

3392 ALLSTATE INSURANCE v. HERRON
fair dealing, the district court did not err in refusing to grant

Herron’s motion for a directed verdict.5

IV

[6] Herron next contends that the district court improperly

excluded evidence at trial relating to alleged contract breaches

by Allstate other than its failure to accept Power’s settlement

offer by May 16, 2003. In particular, Herron contends that the

district court should have permitted him to introduce evidence

that Allstate (1) violated its own procedures and Alaska insurance regulations in investigating Herron’s accident, (2) never

sent Herron a letter notifying him of his potential for excess

liability, (3) failed to investigate properly the claims against

Herron, and (4) failed to advise Herron and his counsel of Allstate’s settlement negotiations. The district court excluded

evidence relating to each of these claims under Federal Rules

of Evidence 401 and 403. We review the district court’s evidentiary decisions for abuse of discretion, and “the appellant

is . . . required to establish that the error was prejudicial.”

Tritchler v. Cnty. of Lake, 358 F.3d 1150, 1155 (9th Cir.

2004).

[7] Standing alone, none of these additional alleged

breaches would entitle Herron to prevail on the merits of this

action. Under Alaska law, only a material breach by an

insurer excuses an insured’s subsequent breach. Great Divide

Ins. Co. v. Carpenter ex rel. Reed, 79 P.3d 599, 608-10

(Alaska 2003). “[A] material breach is one that will or may

5Herron also claims that the district court erred by not granting summary judgment in his favor on this issue. But “this court will not engage

in the pointless academic exercise of deciding whether a factual issue was

disputed after it has been decided.” Banuelos v. Constr. Laborers’ Tr.

Funds for S. Cal., 382 F.3d 897, 903 (9th Cir. 2004). Whether an insurer

acted in good faith is normally a factual issue for the jury to decide, see

Jackson, 90 P.3d at 141-44, and the jury’s finding that Allstate “act[ed]

reasonably by offering policy limits on May 30, 2003” thus defeats Herron’s claim. 

ALLSTATE INSURANCE v. HERRON 3393
result in the other party not receiving substantially what [that

party] bargained for.” Machado v. State, 797 P.2d 677, 683

(Alaska Ct. App. 1990) (internal quotation marks omitted)

(second alteration in original). The breach must have an

adverse impact on the relationship between the parties. Great

Divide, 79 P.3d at 610. Herron does not argue that any of

these additional breaches adversely impacted him or his relationship with Allstate. Herron argues instead that any breach

by an insurer excuses an insured’s subsequent breach. But

Herron glosses over the materiality requirement, and his argument finds no support in Alaska law. Without a showing of

prejudice, none of these additional breaches could have been

“material,” and thus, under Alaska law, none of these additional breaches could have excused Herron’s subsequent

breach.6

[8] Second, even if they occurred, these alleged breaches

shed little light on whether Allstate materially breached the

contract by failing to accept Power’s settlement offer by May

16, 2003. In assessing that claim, the only relevant considerations are when Allstate should have known that Herron’s liability was likely to exceed policy limits and, correspondingly,

when Allstate reasonably should have offered to settle at such

limits. Whether Allstate followed its internal procedures or

provided adequate information to Herron is hardly relevant to

6On these same grounds, we reject Herron’s argument that the district

court should have granted summary judgment or a directed verdict in his

favor on his claim that Allstate breached its duty to notify him of his

potential for excess liability, see Jackson, 90 P.3d at 142. Without considering whether Allstate was required, as Herron claims, to send him a letter

expressly informing him of his potential for excess liability, we conclude

that any breach of such duty is irrelevant to the present case. Herron does

not argue that he suffered any harm as a result of Allstate’s purported

breach, and thus, any breach could not have been material. The district

court did not err by refusing to grant summary judgment or a directed verdict on this point, as it would not have affected the conclusion that Herron’s breach of the contract was not excused by a prior material breach by

Allstate. 

3394 ALLSTATE INSURANCE v. HERRON
such considerations. At most, these assorted breaches may

suggest that Allstate’s handling of Trailov’s claim was somewhat out of the ordinary. But Herron was allowed to present

ample evidence regarding Allstate’s handling of the claim.7

Whatever minimal probative value that evidence of these

additional allegations would have with respect to the reasonableness of Allstate’s settlement decision is greatly outweighed by the misleading and potentially prejudicial effect

that discussion of other “breaches” may have on a jury. See

Fed. R. Evid. 403. The district court thus did not abuse its discretion in excluding evidence of these purported breaches.

V

[9] Finally, we consider whether the district court abused

its discretion by granting Allstate’s motion to amend the judgment. Under Federal Rule of Civil Procedure 59(e), a party

may move to have the court amend its judgment within

twenty-eight days after entry of the judgment. “Since specific

grounds for a motion to amend or alter are not listed in the

rule, the district court enjoys considerable discretion in granting or denying the motion.” McDowell v. Calderon, 197 F.3d

1253, 1255 n.1 (9th Cir. 1999) (en banc) (per curiam) (internal quotation marks omitted). But amending a judgment after

its entry remains “an extraordinary remedy which should be

used sparingly.” Id. (internal quotation marks omitted). In

general, there are four basic grounds upon which a Rule 59(e)

motion may be granted: (1) if such motion is necessary to correct manifest errors of law or fact upon which the judgment

rests; (2) if such motion is necessary to present newly discovered or previously unavailable evidence; (3) if such motion is

necessary to prevent manifest injustice; or (4) if the amendment is justified by an intervening change in controlling law.

Id.

7For example, Herron was allowed to present evidence regarding relevant industry standards for handling a claim, various internal Allstate procedures, documents related to Allstate’s investigation and evaluation, and

even expert testimony assessing Allstate’s actions. 

ALLSTATE INSURANCE v. HERRON 3395
A

[10] A court considering a Rule 59(e) motion is not limited

merely to these four situations, however. See id. at 1255 (stating that under unusual circumstances an amendment outside

the listed situations may be appropriate). For instance, Rule

59(e) amendment may be particularly appropriate where, as

here, the amendment reflects the purely clerical task of incorporating undisputed facts into the judgment. See Molnar v.

United Techs. Otis Elevator, 37 F.3d 335, 337-38 (7th Cir.

1994) (holding that the district court did not abuse its discretion by amending a judgment to reflect the jury’s conclusion

that the defendant’s conduct was willful). Such an amendment

does not raise the concern that a party has abused Rule 59(e)

to “raise arguments or present evidence for the first time when

they could reasonably have been raised earlier in the litigation.” Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877,

890 (9th Cir. 2000). This is particularly true in this case, as

Allstate sought to amend the judgment specifically to reflect

the relief sought in its complaint, and the district court previously stated on the record that it would allow Allstate to submit a proposed form of judgment.

[11] Accordingly, the district court did not abuse its discretion by adding paragraphs (2) and (3) of the amended judgment. Paragraph (2) adds only the undisputed fact that Herron

breached the insurance contract by consenting to entry of

judgment against him and assigning his rights without Allstate’s consent. Herron readily admits that this action was a

material breach of the contract’s cooperation clause, and at

trial, the only question regarding this breach was whether it

was excused by a prior material breach by Allstate. Paragraph

(3) adds that Herron’s breach indeed was not excused by any

prior material breach. This addition flows directly from the

jury’s finding that Allstate acted reasonably in offering to settle on May 30, 2003. Because Allstate acted reasonably, it did

not breach its duty of good faith and fair dealing to Herron,

3396 ALLSTATE INSURANCE v. HERRON
and Herron alleges no other material breaches which would

have excused his own breach.

B

[12] Paragraph (4) of the amended judgment, however,

adds more than undisputed facts. Paragraph (4) states, “Herron’s breach [of the cooperation clause] voided the insurance

policy’s liability coverage.” Under Alaska law, “ ‘an insured’s

breach of [a] cooperation clause relieves a prejudiced insurer

of liability under the policy.’ ” Grace, 944 P.2d at 464 (quoting Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, 735 P.2d

451, 458-59 (Ariz. 1987)) (alteration in original) (emphasis

added). In order to “satisfy the consumer’s reasonable expectation that [insurance] coverage will not be defeated on arbitrary procedural grounds,” an insurance company must

establish that it suffered the prejudice that a cooperation

clause was intended to avoid in order to escape liability based

on the insured’s breach of the clause. Estes v. Alaska Ins.

Guar. Ass’n, 774 P.2d 1315, 1318 (Alaska 1989). The insurer

bears the burden of proving such prejudice. Weaver Bros.,

Inc. v. Chappel, 684 P.2d 123, 126 (Alaska 1984).

[13] Here, Allstate did not show that it suffered prejudice

as a result of Herron’s breach, and the jury did not consider

the issue of prejudice to Allstate. Indeed, there is good reason

to believe that Allstate was not prejudiced by Herron’s confession of judgment, given that Allstate determined Herron’s

liability to be easily in excess of its policy and in fact tendered

a policy limits settlement to Kenick and Trailov. Regardless,

the narrow verdict issued by the jury did not reach the issue

of Allstate’s nonliability under its policy to Herron. 

Allstate contends that a jury need not consider whether

Herron’s breach prejudiced Allstate, because such prejudice

has been stipulated by Herron. Namely, Allstate argues that

Herron’s stipulation that his consent to the entry of judgment

in Trailov’s favor “was a material breach of the cooperation

ALLSTATE INSURANCE v. HERRON 3397
clause in his insurance contract,” presumes that such breach

caused prejudice to Allstate. As discussed, supra Part IV, a

material breach is one that has an “adverse impact on the relationship between the insurer and the insured.” Great Divide,

79 P.3d at 610 (internal quotation marks omitted). Allstate

argues that Herron’s stipulation therefore includes the fact

that Allstate suffered prejudice, and thus that the court may

presume such prejudice occurred even without submitting the

issue to a jury.

[14] We are not persuaded by Allstate’s argument. The

prejudice required to relieve an insurer of its liability under

the contract following a breach of a cooperation clause is not

the same as the prejudice required to show that a particular

contract breach was “material.” “[C]ooperation clauses should

. . . be reviewed on the basis of whether their application in

a particular case advances the purpose for which they were

included in the policy.” Estes, 774 P.2d at 1318. To relieve its

liability, Allstate “must establish that it suffered as a result of

[Herron’s breach] such prejudice as the [cooperation clause]

was intended to avoid,” id., not simply that the breach had an

“adverse impact” on their relationship. Indeed, without such

a showing, Herron’s stipulation that his action “was a material

breach of the cooperation clause,” does not necessarily

include an admission that such breach was a material breach

of the insurance contract itself. This distinction is pivotal, and

finding a material breach of the contract itself is fundamental

to concluding that Allstate was fully relieved of its liability

under the insurance policy. Cf. id. (stating that to allow a nonprejudiced insurer to escape liability simply because the

insured breached a cooperation clause would be to void coverage “on arbitrary procedural grounds”). Because the issue of

prejudice to Allstate was neither stipulated nor considered by

the jury, the district court abused its discretion by amending

the judgment in paragraph (4) to state that “Herron’s breach

voided the insurance policy’s liability coverage.”

3398 ALLSTATE INSURANCE v. HERRON
C

[15] Paragraph (5) of the amended judgment, which states

that Herron’s assignment of rights to Kenick and Trailov is

“null and void because [he] had no rights to assign as of the

date of the assignment,” is derivative of paragraph (4)’s statement that Herron’s actions voided his insurance policy. But

because Allstate remains liable to Herron within the insurance

policy’s limits, Herron retained assignable rights against Allstate to the extent of that liability. Accordingly, the addition

of paragraph (5) was erroneous as well.

VI

The judgment of the district court is

AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED. 

Each party shall bear its own costs. 

ALLSTATE INSURANCE v. HERRON 3399