Opinion ID: 2514213
Heading Depth: 3
Heading Rank: 2

Heading: Harrington Reformation of the Umbrella Policy

Text: State Farm paid Holderness the $2,000,000 facial limit of his personal liability umbrella policy, but refused to pay him prejudgment interest and Civil Rule 82 attorney's fees in excess of that amount. Holderness argued below that his umbrella policy qualified as automobile insurance under AS 21.89.020 and triggered reformation of the policy to include prejudgment interest and attorney's fees under Harrington. The superior court disagreed, ruling that umbrella policies are not automobile insurance under AS 21.89.020 and, accordingly, that Harrington does not apply. Alaska Statute 21.89.020(c) requires insurers to offer underinsured motorist coverage in amounts equal to the limits purchased for liability coverage. The statute provides, in relevant part: An insurance company offering automobile liability insurance in this state for bodily injury or death shall, initially and at each renewal, offer coverage prescribed in AS 28.20.440 and 28.20.445 or AS 28.22 for the protection of the persons insured under the policy who are legally entitled to recover damages for bodily injury or death from owners or operators of uninsured or underinsured motor vehicles.... Coverage required to be offered under this section must include the following options: (1) policy limits equal to the limits voluntarily purchased to cover the liability of the person insured for bodily injury or death[.][ [7] ] Our cases have interpreted this provision to mean that if an automobile liability policy fails to include equal liability and underinsured motorist coverage, the policy must be reformed to make the underinsured motorist coverage equal to the limits voluntarily purchased for liability. [8] In Harrington, we specifically considered whether a policy reformed to provide such underinsured motorist coverage must also include attorney's fees and prejudgment interest in addition to the policy's facial limits, as would be required in a case involving liability coverage. [9] We held that underinsured motorist coverage must include those additional amounts. [10] Noting that we had interpreted policy limits similarly in other contexts, we found this interpretation consistent with the underlying goal of AS 21.89.020(c): to provide for the insured ... the same benefit level as that provided by the insured to those asserting claims against the insured. [11] Here, we must decide whether Harrington applies to Holderness's umbrella policy. We based our decision in Harrington on AS 21.89.020(c), which, by its own terms, only applies to automobile liability insurance. While subsection (c) of AS 21.89.020 does not define automobile liability insurance, subsection (a) of the same provision sets forth a core definition, describing an automobile liability policy as one that insures an owner or operator of a motor vehicle against loss resulting from liability for bodily injury or death, or for property injury or destruction, or both. [12] Accordingly, we apply this definition in determining whether subsection (c)'s requirement of equal liability and underinsured motorist coverage applies to Holderness's umbrella policy. Holderness's umbrella policy expressly covers losses arising from his liability for personal injury or property damage in excess of the limits covered by his underlying State Farm policies: If you are legally obligated to pay damages for a loss, we will pay your net loss minus the retained limit. Our payment will not exceed the amount shown on the Declarations as Policy LimitsCoverage LPersonal Liability.[ [13] ] The umbrella policy defines a loss as an accident that results in personal injury or property damage during the policy period. Net loss is the total of the damages the insured must pay for the loss and the reasonable expenses incurred in settling or trying the case. The retained limit is the amount the insured or the underlying insurance must pay before the umbrella policy begins to pay. The policy additionally covers expenses we incur and costs taxed against you in suits we defend, including attorney's fees, [14] as well as prejudgment interest awarded against you on that part of the judgment we pay under Coverage L. Although the umbrella policy might have been phrased to exclude coverage for liability stemming from the ownership or operation of an automobile, it was not. By contrast, it specifically excludes coverage for any loss involving your maintenance, use, handling or ownership of any aircraft. This language persuades us that the umbrella policy falls within the ambit of AS 21.89.020(a) and (c), because the policy insures Holderness as an owner or operator of a motor vehicle against loss resulting from liability for bodily injury or death, or for property injury or destruction, or both. [15] Indeed, State Farm acknowledges that Holderness's umbrella policy might qualify as an automobile liability policy under the literal terms of AS 21.89.020; but State Farm insists that this insurance code provision incorporates by reference a traffic code provision, AS 28.22.121(b), that precludes umbrella policies from being treated as automobile liability insurance. State Farm's argument unfolds as follows. Subsection (c) of AS 21.89.020the insurance code provision that requires equal liability and underinsured motorist coverage specifically refers to, and directs insurers offering automobile liability coverage to comply with, two separate parts of the motor vehicle code, the Alaska Mandatory Automobile Insurance Act (AMAIA) [16] and the Motor Vehicle Safety Responsibility Act (MVSRA): [17] An insurance company offering automobile liability insurance in this state ... shall ... offer coverage prescribed in AS 28.20.440 and 28.20.445 [of the MVSRA] or AS 28.22 [of the AMAIA] for the protection of the persons insured under the policy who are legally entitled to recover damages caused by an uninsured or underinsured motorist. [18] State Farm points out that one of the incorporated AMAIA provisions, AS 28.22.121(b), expressly excludes umbrella policies from its definition of motor vehicle liability policies: A policy is excluded from the application of this chapter if the automobile or motor vehicle liability coverage is provided only on an excess or umbrella basis. [19] In State Farm's view, because this AMAIA exclusion is incorporated in AS 21.89.020(c), this subsection necessarily excludes umbrella policies from its requirement of equal liability and underinsured motorist coverage. Thus, State Farm insists, it is impossible to apply AS 21.89.020(c) to umbrella policies without nullifying AS 28.22.121(b). The superior court found this argument persuasive, concluding that the exclusion of umbrella policies from the requirements of AS 21.89.020, governing what an insurer must offer in a policy, is necessary to give effect to the Legislature's intention to exclude umbrella policies from AS 28.22, governing what an insured must obtain in a policy. But closer examination of these provisions reveals no actual conflict between the insurance code's treatment of umbrella policies as automobile liability insurance and the AMAIA's exclusion of such policies from its own requirements. The provisions of the insurance code and the AMAIA dealing with automobile insurance are counterparts, each dealing with the same subject but addressing different parties. The motor vehicle code's AMAIA requires drivers to buy certain minimum liability and underinsured motorist coverages, [20] whereas the insurance code's AS 21.89.020 requires insurance companies to offer drivers certain minimum levels and combinations of these coverages. Considered from the point of view of the parties affected by each of these statutory regimes, any potential conflict between the insurance code's AS 21.89.020 and the AMAIA's AS 28.22.121(b) is more apparent than real. Since the AMAIA's function is to set minimum levels of coverage that drivers must buy and to specify what provisions these mandatory policies must contain, the act's exemption of umbrella policies simply enables drivers to buy excess or umbrella policies that do not duplicate various provisions that the AMAIA already requires to be included in their underlying mandatory coverage. [21] In keeping with the AMAIA's relatively narrow focus, that act's exemption for umbrella policies operates only within the sphere of the AMAIA itself; AS 28.22.121(b) thus provides that [a] policy is excluded from the application of this chapter [that is, from the AMAIA] if the ... coverage is provided only on an excess or umbrella basis. [22] By its own terms, then, this exemption does not reach beyond the AMAIA and so cannot nullify coverage that other statutory regimes independently require insurers to offer. The insurance code's AS 21.89.020 imposes this kind of independent coverage requirement. Apart from prescribing general compliance with applicable provisions of the AMAIA, AS 21.89.020(c)(1) commands that underinsured motorist coverage offered under section .020 include ... policy limits equal to the limits voluntarily purchased to cover ... liability. And as we have already indicated, AS 21.89.020(a) describes automobile liability broadly enough to include umbrella policies like the State Farm policy at issue here. Accordingly, the AMAIA's internal exemption for umbrella policies fails to reach these externally imposed coverage requirements of the insurance code. We find further support for this conclusion when we consider how the insurance code and the AMAIA interact with a third statutory regime, the MVSRA. We described this interaction in Progressive Insurance Co. v. Simmons. [23] We noted in Simmons that the AMAIA's coverage limits generally parallel those of the MVSRA; while these two acts coexist as components of the Alaska Uniform Vehicle Code, they are not coextensive. [24] Thus, we observed, the AMAIA supplements, but does not supplant, the MVSRA. [25] Concerning the insurance code, we separately noted that the original version of AS 21.89.020 required that all policies issued in the state meet the content requirements imposed by the MVSRA and expressly referred to subsection 28.20.440(b)(3) of the MVSRA, which required uninsured motor vehicle coverage. [26] We thus recognized that, [a]lthough the MVSRA has never been a mandatory insurance law, as of 1968 the act's policy content requirements became mandatory for all policies written in the state. [27] We further observed in Simmons that, upon enactment of the AMAIA in 1989, AS 21.89.020's language incorporating the content requirements of the MVSRA was amended to include a reference to the AMAIA. [28] Given that AS 21.89.020(c) now incorporates the content requirements of both the MVSRA and the AMAIA, which are generally parallel but not coextensive, we went on to ask, How should this language be interpreted where the contents of policies required under the mandatory act differ from the content requirements of the MVSRA? [29] Answering this question, we interpreted AS 21.89.020(c) to demand primary compliance with the MVSRA unless the AMAIA imposes broader requirements: In our view, this language means that all policies in the state must continue to conform to the content requirements of the MVSRA, and that if the content requirements of the mandatory act are broader than those of the MVSRA, those requirements must also be complied with as to persons covered by the mandatory act.[ [30] ] In the present case, the content requirements of the MVSRA and the AMAIA stand in conflict: the MVSRA contains no equivalent to the categorical exclusion of umbrella policies set out in the AMAIA's 28.22.121(b). [31] In this respect, the MVSRA provides for broader coverage than the AMAIA. Thus, under Simmons, even assuming that AS 21.89.020(c) did not independently mandate equal liability and underinsured motorist coverage, the subsection's incorporation of the MVSRA's comparable content requirements [32] would prevail over its incorporation of the AMAIA's umbrella policy exclusion. For these reasons, we hold that the superior court erred in concluding that AS 28.22.121(b) excludes Holderness's umbrella policy from being treated as an automobile liability policy under AS 21.89.020(a) and from being reformed, under Harrington, to provide equal liability and underinsured motorist coverage, as prescribed by AS 21.89.020(c).