FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ATTORNEYS LIABILITY

PROTECTION SOCIETY, INC., a

Risk Retention Group,

Plaintiff-Appellant/

Cross-Appellee,

v.

INGALDSON FITZGERALD, P.C.,

FKA Ingaldson, Maassen &

Fitzgerald, P.C.,

Defendant-Appellee/ 

Cross-Appellant.

Nos. 13-35115

 13-35172

D.C. No.

3:11-cv-00187-SLG

OPINION

Appeal from the United States District Court

for the District of Alaska

Sharon L. Gleason, District Judge, Presiding

Argued August 14, 2014

Submitted June 10, 2016

Anchorage, Alaska

Filed September 23, 2016

Before: Jerome Farris, Dorothy W. Nelson,

and Jacqueline H. Nguyen, Circuit Judges.

Opinion by Judge Nelson
2 ALPS V. INGALDSON FITZGERALD

SUMMARY*

Diversity/Preemption

The panel reversed the district court’s summary judgment

order precluding plaintiff, Attorneys Liability Protection

Society, from recovering defense fees and costs that it

incurred in underlying litigation; and affirmed the district

court’s conclusion that the underlying claims were not

covered by the insurance policy issued by plaintiff to a

defendant law firm.

Plaintiff, a Risk Retention Group chartered in Montana,

provided malpractice insurance coverage to the defendant law

firm located in Alaska. The district court concluded that even

though plaintiff’s policy did not cover the claims in the

underlying suit involving the law firm, plaintiff was not

entitled to reimbursement of the expenses it incurred in

providing a defense because the insurance policy’s

reimbursement provision did not comply with Alaska

insurance law and was therefore unenforceable.

The panel held that Alaska Statute § 21.96.100(d)’s

prohibition on reimbursements of fees and costs incurred by

an insurer defending a non-covered claim was preempted by

the Liability Risk Retention Act of 1986, 15 U.S.C. §§ 3901-

3906. The panel determined that the Alaska statute placed a

restriction on Alaska contracts that was not contemplated by

the Liability Risk Retention Act, and that was not precluded

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

been prepared by court staff for the convenience of the reader.
ALPS V. INGALDSON FITZGERALD 3

by all other states. The panel further determined that no

exception applied to save the Alaska law from preemption.

The panel rejected defendant’s argument that plaintiffwas

estopped from denying coverage because it failed to attend

settlement conferences. The panel determined that there was

no indication that defendant was prejudiced by plaintiff’s

failure to attend settlement sessions. Moreover, plaintiff

informed defendant from the outset that it intended to assert

coverage defenses, provided independent counsel to

defendant, and acted consistently with its view that coverage

did not exist. 

COUNSEL

Kevin Hartzell (argued), Kutak Rock LLP, Omaha, Nebraska,

for Plaintiff-Appellant/Cross-Appellee.

William H. Ingaldson (argued) and Jim M. Boardman,

Ingaldson Fitzgerald P.C., Anchorage, Alaska,forDefendantAppellee/Cross-Appellant.

OPINION

NELSON, Circuit Judge:

Attorneys Liability Protection Society (ALPS) appeals

from the district court’s grant of summary judgment to

Ingaldson Fitzgerald, P.C. (Ingaldson), which denied ALPS

reimbursement of defense fees expended in an underlying

insurance litigation. Ingaldson cross-appeals the district

court’s grant of summary judgment to ALPS that the claims
4 ALPS V. INGALDSON FITZGERALD

asserted in the underlying litigation were not covered by the

policyALPS issued to Ingaldson. We REVERSE the district

court’s order denying ALPS reimbursement of defense fees,

AFFIRM the district court’s conclusion that the underlying

claims were not covered, and REMAND for proceedings

consistent with this opinion.

FACTUAL BACKGROUND & PROCEDURAL HISTORY

The facts underlying this litigation are not disputed. 

ALPS is a Risk Retention Group (RRG)1

chartered in

Montana. Ingaldson is a law firm located in Alaska. ALPS

provided Ingaldson’s malpractice insurance coverage from

April 29, 2007, to April 29, 2008.

Ingaldson’s policy with ALPS insured the firm against

claims arising from “an act, error or omission in professional

services that were or should have been rendered by

[Ingaldson].” The policy expressly excluded from coverage

any claims arising from conversion or disputes over fees. 

The policy also required Ingaldson to reimburse ALPS for

fees and costs that ALPS incurred in defending non-covered

claims.

In 2008, the bankruptcy trustee for the bankrupt estate of

a former client of Ingaldson, in conjunction with another

former client of the firm, brought a claim against Ingaldson

in the U.S. Bankruptcy Court for the District of Alaska. The

1 Under the Liability Risk Retention Act of 1986 (LRRA), 15 U.S.C.

§§ 3901–3906, an RRG is defined as “any corporation or other limited

liability association . . . whose primary activity consists of assuming, and

spreading all, or any portion, of the liability exposure of its group

members.” 15 U.S.C. § 3901(a)(4)(A).
ALPS V. INGALDSON FITZGERALD 5

suit concerned Ingaldson disbursing from and withdrawing

fees and costs against a $150,000 retainer. The former client

and the trustee sought recovery of that retainer, and asserted

claims against Ingaldson for, among other things, restitution,

disgorgement, and conversion.

Ingaldson notified ALPS of the underlying suit. ALPS

accepted Ingaldson’s tender of the defense in the underlying

suit, but did so with the caveat that ALPS “reserved ‘all

rights.’” ALPS explained that the underlying suit alleged

activities that “d[id] not appear to implicate the provision of

service or activities by [Ingaldson] as an attorney in an

attorney-client relationship,” and thus “d[id] not appear to be

professional services within the Policy’s coverage.” ALPS

also asserted that the claims in the underlying suit sought

restitution that was not within the policy’s definition of

covered “damages” and that the policy did not cover claims

related to disputes over fees, dishonest or criminal acts, or the

conversion of funds in client trust accounts. ALPS

specifically reserved the right to reimbursement for the

portion of fees incurred in the defense of claims that were

deemed not covered under the policy.

Ingaldson retained independent counsel to defend it in the

bankruptcy litigation, and ALPS paid the fees charged by that

counsel. The bankruptcycourt twice granted partial summary

judgment 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. ALPS also sought to recover the expenses it

incurred providing a defense to Ingaldson.
6 ALPS V. INGALDSON FITZGERALD

The district court determined that the policy did not cover

the claims in the underlying suit. It also concluded that ALPS

had no obligation to provide an appeal bond. Nevertheless,

the district court determined that ALPS was not entitled to

reimbursement of the expenses it incurred defending

Ingaldson in the underlying suit. The district court reasoned

that while the policy provided ALPS with a right to

reimbursement, the reimbursement provision did not comply

with Alaska insurance law and was therefore unenforceable. 

Specifically, the district court concluded that the

reimbursement provision was inconsistent with Alaska

Statute § 21.96.100(d), which provides that in furnishing the

insured with independent counsel, an insurer “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 district court

determined that “Alaska law prohibits the inclusion of a right

to reimbursement in insurance policies in the state and does

not allow ALPS to provide insurance policy coverage that

contradicts that prohibition.” The district court rejected

ALPS’s argument that the LRRA preempted Alaska Statute

21.96.100(d).2

ALPS appealed. It argued that the district court erred for

three reasons: (1) Alaska law does not prohibit an insurer

from enforcing a contractual right to reimbursement of

defense costs for noncovered claims; (2) the underlying suit

2 The LRRA broadly preempts “any State law, rule, regulation, or

order to the extent that such law, rule, regulation, or order would . . . make

unlawful, or regulate, directly or indirectly, the operation of a risk

retention group.” 15 U.S.C. § 3902(a)(1). The district court

held—erroneously in our view as discussed infra—that the exception

contained in § 3905(c) saved Alaska Statute § 21.96.100(d) from

preemption.
ALPS V. INGALDSON FITZGERALD 7

was never potentially covered by the ALPS policy; and (3) an

interpretation of Alaska Statute § 21.96.100 that prohibited an

insurer from including a reimbursement provision in an

insurance policy would be preempted by the LRRA.

Ingaldson cross-appealed the district court’s ruling that

the ALPS policy did not cover the claims against Ingaldson

in the underlying suit. Ingaldson argued that ALPS is

estopped from denying coverage under Alaska law because

it did not attend settlement sessions and therefore breached

the covenant of good faith and fair dealing.

We certified two questions concerning interpretation of

Alaska law to the Alaska Supreme Court. Specifically, we

asked 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 the insurer defending claims under a
8 ALPS V. INGALDSON FITZGERALD

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?

The Alaska Supreme Court answered “yes” to each

question, undermining the first and second bases for ALPS’s

appeal. Attorneys Liab. Prot. Soc’y, Inc. v. Ingaldson

Fitzgerald, P.C., 370 P.3d 1101, 1112 (Alaska 2016).

In this opinion, we address ALPS’s third argument—that

the LRRA preempts § 21.96.100(d). We also address

Ingaldson’s cross-appeal.

JURISDICTION

The district court had jurisdiction pursuant to 28 U.S.C.

§ 1332. We have jurisdiction pursuant to 28 U.S.C. § 1291.

STANDARD OF REVIEW

We review the district court’s orders granting summary

judgment de novo. Walls v. Cent. Contra Costa Transit

Auth., 653 F.3d 963, 966 (9th Cir. 2011).
ALPS V. INGALDSON FITZGERALD 9

ANALYSIS

1. The LRRA preempts Alaska Statute

§ 21.96.100(d)’s prohibition on reimbursement of

fees and costs incurred by an insurer defending a

non-covered claim.

In ALPS’s chartering state, Montana, insurers are

permitted to seek reimbursement of fees expended defending

a non-covered claim pursuant to a reservation of rights. 

Travelers Cas. & Sur. Co. v. Ribi Immonochem Research,

Inc., 108 P.3d 469, 480 (Mont. 2005). The district court held,

and the Alaska Supreme Court confirmed, that Alaska Statute

§ 21.96.100(d) prohibits such reimbursements. We must

decide whether the LRRA preempts Alaska’s prohibition.

When considering whether the LRRA preempts a state

law, we first determine whether the challenged aspect of the

state law offends the LRRA’s broad preemption language. 

See Alliance of Nonprofits for Ins., Risk Retention Grp. v.

Kipper, 712 F.3d 1316, 1321 (9th Cir. 2013). If so, we

consider whether one of the LRRA’s exceptions, which are

contained in §§ 3902(a)(1) and 3905, applies to save the state

law. See id. If no exception applies, the law is preempted.

We conclude that § 21.96.100(d)’s prohibition on

reimbursement of fees and costs incurred by an insurer

defending a non-covered claim offends the LRRA’s broad

preemption language and that no exception applies to save the

law.

The LRRA leaves regulation of an RRG to the state where

the RRG is chartered, and broadly preempts “any [nonchartering] State law, rule, regulation, or order to the extent
10 ALPS V. INGALDSON FITZGERALD

that such law, rule, regulation, or order would . . . make

unlawful, or regulate, directly or indirectly, the operation of

a risk retention group.” 15 U.S.C. § 3902(a)(1).

Section 21.96.100(d) places a restriction on Alaska

contracts that is “not contemplated by the LRRA, and that is

not [precluded] by all other states.” Wadsworth v. Allied

Prof’ls Ins. Co., 748 F.3d 100, 108 (2d Cir. 2014). Although

ALPS is permitted by its chartering state, Montana, to require

reimbursement of fees and costs incurred defending noncovered claims, ALPS would not be permitted to include such

a provision in a contract issued in Alaska. Section

21.96.100(d) therefore “regulates” ALPS’s operations in

Alaska and impermissibly conflicts with the LRRA.3

There is no exception that applies to save § 21.96.100(d)

from preemption. The exceptions announced in § 3902(a)(1)

concern unfair claim settlement laws, false practices laws,

taxes levied against other insurers, registration requirements,

and financial stability regulations. None of these permits the

regulation of the substantive terms of policies issued by an

RRG. The only substantive policy term a non-chartering state

3 One of our sister circuits applied a similar analysis in finding a state

statute preempted by the LRRA. In Wadsworth, the Second Circuit

considered a New York statute that permitted a tort victim with an

unsatisfied judgment to bring suit directly against a tortfeasor’s insurer. 

748 F.2d at 101. The policy at issue was issued by an RRG domiciled in

Arizona to a chiropractor in New York. Id. A tort victim of the

chiropractor sued the RRG to enforce a judgment left unsatisfied by the

chiropractor. Id. at 102. The RRG argued that the direct-suit provision

was preempted by the LRRA. Id. The Second Circuit agreed, concluding

that the direct-suit provision was preempted by the LRRA because it

conflicted with the “any regulation” language in § 3902(a)(1). Id. at 107

(“A clearer prohibition would be hard to devise.”).
ALPS V. INGALDSON FITZGERALD 11

may require is a notice to the insured that RRGs are not

subject to all of the insurance laws of the non-chartering state. 

See 15 U.S.C. § 3902(a)(1)(I).

We disagree with the district court’s conclusion that

§ 3905(c) saves § 21.96.100(d) from preemption. Section

3905(c) prevents an RRG from providing insurance that is

otherwise prohibited in the state where the policy is insured. 

It states:

The terms of any insurance policy provided

by a risk retention group or purchased by a

purchasing group shall not provide or be

construed to provide insurance policy

coverage prohibited generally by [the] State

. . . whose law applies to such policy.

15 U.S.C. § 3905(c). In our view, § 3905(c) allows nonchartering states to restrict the types of insurance coverage,

such as for punitive damages or intentional conduct, that may

be provided in the state. See H.R. Rep. 99-865, at 19 (1986)

(“Possible examples include coverage for punitive damages,

or for intentional, fraudulent, or criminal conduct.”). It does

not allow non-chartering states to regulate general policy

terms. The district court’s interpretation of § 3905(c) would

permit that section to overtake § 3902’s broad preemption

scheme. If the district court’s interpretation were correct,

non-chartering states could simply “prohibit” coverage that

did not comply with every aspect of state insurance law. In

other words, if we were to accept the district court’s

interpretation, non-chartering states could fashion their

insurance laws in a way to ensure they fall into this exception,

thereby always avoiding preemption. We do not believe

Congress intended such a result. Estate of Magnin v. Comm’r
12 ALPS V. INGALDSON FITZGERALD

of Internal Revenue, 184 F.3d 1074, 1078 (9th Cir. 1999)

(“We must interpret [a] statute to give effect to all of its

parts.”).4

2. ALPS did not breach the implied covenant of good

faith and fair dealing.

In its cross-appeal, Ingaldson argues that ALPS is

estopped from denying coverage because ALPS failed to

attend settlement conferences. According to Ingaldson,

ALPS thereby breached the implied covenant of good faith

and fair dealing. We disagree.

Under Alaska law, estoppel has four elements: “(1) the

party to be estopped must know the facts; (2) he must intend

that his conduct shall be acted on or must so act that the party

asserting the estoppel has a right to believe it is so intended;

(3) the latter must be ignorant of the true facts; and (4) he

must rely on the former’s conduct to his injury.” O’Neill

Investigations, Inc. v Ill. Emp’rs. Ins. of Wausau, 636 P.2d

1170, 1178 (Alaska 1981) (internal quotation marks omitted).

4 We reject Ingaldson’s circular argument that its policy with ALPS

has a clause expressly conforming it to Alaska law, thereby incorporating

§ 21.96.100 even if it is otherwise preempted. Alaska law applies only

insofar as it is not preempted by federal law. So even if the policy

conforms to Alaska law, Alaska law must conform to the LRRA. The

policy’s clause providing for reimbursement of fees and costs to ALPS

remains valid.

We also reject Ingaldson’s argument that the McCarran-FergusonAct,

15 U.S.C. §§ 1011–12, saves § 21.96.100(d). We have squarely held that

even though the McCarran-Ferguson Act reserves insurance regulation to

the states, the LRRA was meant to be an exception for RRGs. Nat’l

Warranty Ins. Co. RRG v. Greenfield, 214 F.3d 1073, 1077 (9th Cir.

2000).
ALPS V. INGALDSON FITZGERALD 13

In the insurance context, most cases turn on the last

element—whether the insured was prejudiced bythe insurer’s

conduct. Generally, prejudice to an insured occurs when an

insurer obtains an unfair advantage bymisleading, deceiving,

or withholding information from the insured. See, e.g.,

Progressive Cas. Ins. Co. v. Skin, 211 P.3d 1093, 1103

(Alaska 2009) (finding possible estoppel of excluded driver

defense when insurer contacted insured to ask which family

members were excluded from policy without sharing purpose

of inquiry); Lloyd’s & Inst. of London Underwriting Cos. v.

Fulton, 2 P.3d 1199, 1207–08 (Alaska 2000) (finding

estoppel where insurer gained full access to insured,

investigated a later-asserted coverage defense, and never

informed insured of right to independent counsel).

Here, there is no indication that Ingaldson was prejudiced

by ALPS’s failure to attend settlement sessions. ALPS

informed Ingaldson from the outset that it intended to assert

coverage defenses, provided independent counsel to

Ingaldson, and acted consistently with its view that coverage

did not exist. Cf. Sauer v. Home Indem. Co., 841 P.2d 176,

182 (Alaska 1992) (finding estoppel where insurer failed to

give reasonable notice of coverage defense). We reject

Ingaldson’s argument that ALPS is estopped from denying

coverage.5

5 We note that this is not a case where ALPS could have tendered a

settlement to the policy limit, thereby avoiding an excess judgment against

Ingaldson. At no time did the amount in controversy in the underlying

dispute approach the policy’s $2 million limit. See Jackson v. Am. Equity

Ins. Co., 90 P.3d 136, 142 (Alaska 2004) (“When 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.”) (emphasis added).
14 ALPS V. INGALDSON FITZGERALD

CONCLUSION

We REVERSE the district court’s order precluding

ALPS from recovering fees and costs incurred defending

Ingaldson in the underlying dispute, we AFFIRM the district

court’s holding that the claims in the underlying dispute were

not covered under the policy, and REMAND for further

proceedings consistent with this opinion.