Opinion ID: 2598807
Heading Depth: 3
Heading Rank: 1

Heading: Summary Judgment Was Improperly Granted on Pharr's First Motion for Summary Judgment Because Material Facts Were in Dispute as to Pharr's Duty To Investigate.

Text: Pharr argues he did not breach his duty of care to Tush by failing to further investigate the issue of insurance. Tush responds that reasonable minds could differ on whether or not Pharr had a duty to further investigate, creating a genuine issue of material fact in dispute. We agree with Tush. Because the question of whether a tort duty exists is usually a question for the trier of fact and therefore not susceptible to summary adjudication, summary judgment on the question of a tort duty is only appropriate when the undisputed facts support only one reasonable inference. [11] But the facts pertinent to Pharr's initial motion for summary judgment supported more than one inference. The question before the court concerned the first element of a legal malpractice claim: Did Pharr have a duty to investigate Tush's insurance? For several reasons we conclude that material facts concerning this issue were in dispute. First, Tush's deposition testimony on the question of what type of insurance she carried on her rental properties was ambiguous. She testified that all of her properties were covered, but then she answered the question, Is it liability insurance? by saying, No, it's just the value of the house, a statement that implies, but does not clearly state, that the insurance covers only loss of premises. But then, when asked if her other policies strictly insured the value of the house, she responded I really don't know. Finally, when asked if she knew the extent of her insurance coverage and other information pertaining to her policies, Tush responded, I leave that up to the insurance agent and I talk to him about it. Pharr contends that Tush's sworn testimony that she did not have liability insurance relieved him of the duty to inquire further. But given the ambiguous nature of Tush's deposition responses, [12] Pharr's defense that he was entitled to rely on his client's deposition testimony raises disputed issues of fact. Second, Pharr relies on his assertion that Tush told him in a separate conversation that she had no liability insurance on the subject property. But Tush denied that such a conversation ever took place, creating a further material factual dispute. Third, Tush offered substantial expert opinion to support the proposition that an attorney faced with the situation facing Pharr had a duty to obtain and inspect the insurance policies so as to competently advise his client. Expert Robert Wainscott opined, It has been my experience that it is the standard and essential practice of the attorney to immediately seek out all insurance policies that may possibly provide coverage for a date of event and tender the claims or counterclaims to the carrier or carriers who wrote the policies. Expert James A. Hanson offered the opinion that, after Tush's deposition, prudence required a full review of her insurance policies by her counsel. Expert Roger Holmes added, It is the standard of care for a lawyer representing a client in a personal injury, bodily injury or property damage claim to help the client ascertain the availability of insurance coverage which might provide for a defense and/or indemnity to the client. This should be done as soon as possible after the commencement of the case. To be sure, there was contrary expert testimony. But at the least, a material fact dispute existed on the attorney's duty. [13] Finally, Pharr admitted that he adopted the position that Tush was better off without liability insurance, because in his experience the existence of such insurance attracted plaintiffs. Pharr cites a number of cases for the proposition that a lawyer has no duty to investigate the truth or falsity of his or her client's representations. [14] But these cases involved unambiguous situations, and Pharr's argument assumes that Tush's deposition testimony stating she does not have liability insurance was unequivocal. As noted above, this is far from the case. The rule that an attorney can rely on a client's factual representations absent circumstances indicating otherwise provides scant support for Pharr, because there are numerous circumstances indicating otherwise here: the ambiguity of Tush's deposition statements, her denial that she told Pharr outside of the deposition that she had no liability insurance, and expert opinion to the contrary. As stated in Milliner v. Elmer Fox & Co., [15] one of the cases upon which Pharr relies, [a]s a general rule, an attorney is not required to investigate the truth or falsity of facts and information furnished by [a] client, and his failure to do so would not be negligence ... unless facts and circumstances of the particular legal problem would indicate otherwise.  [16] The court in Harline v. Barker, [17] applying Milliner, looked to see if there were any special circumstances indicating that the client's representation could not be relied on and found there were. [18] Here too, the circumstances of Tush's testimony arguably should have alerted Pharr that her single representation that she did not have liability insurance might have required further investigation. A review of Tush's testimony shows that the issue of what insurance she had was far from clear. When asked if she knew the extent of her insurance coverage or other information pertaining to her policies, Tush answered I leave it up to the insurance agent and I talk to him about it. Also, Tush's testimony clearly stated that she was in possession of other insurance policies as well. Given that Pharr knew this, there is a material fact dispute as to whether he should have inquired as to whether any of these policies might have provided possible coverage for the Perez claim. Because reasonable minds could differ as to whether Pharr had a duty to further investigate whether Tush had liability insurance for the Chugach property, summary judgment on Pharr's first motion was inappropriate. B. Summary Judgment Was Improperly Granted on Pharr's Second Motion for Summary Judgment Because Material Facts Were in Dispute as to Whether State Farm Would Have Denied Coverage or Could Have Done So Successfully. To make out a prima facie claim for attorney malpractice, Tush must show that the defendants were the cause of her injury. Pharr's second motion for summary judgment argued that Tush is unable to do this because regardless of the defendants' actions, State Farm would have denied Tush's claim due to misrepresentations in her application or under the intentional acts exclusion of her policy. [19] Tush claims that any argument as to what State Farm would or could have done had the claim been tendered is speculative and that there are genuine issues of material fact in dispute with regard to both her alleged misrepresentations in obtaining her State Farm policy and the intentional acts exclusion of that policy. Again we agree with Tush. 1. There are disputed issues of material fact as to whether the misrepresentations in Tush's insurance application would have caused or permitted State Farm to void the policy ab initio. Tush argues that by ruling that regardless of whether the claim was promptly tendered to State Farm, that company would have denied coverage due to the material misrepresentations in Tush's application, the superior court improperly resolved a genuine issue of disputed material fact and misapplied the applicable law. Pharr responds that the superior court correctly decided this causation issue. Causation issues such as this are normally left for the trier of fact where unresolved fact questions remain, although the court may decide the matter where the evidence is such that reasonable minds cannot differ. [20] Tush's policy for the Chugach property contains a provision dealing with concealment, misrepresentation, and fraud. Under it, the policy is void in any case of fraud by the insured as it relates to the policy. The policy is also void if the insured intentionally conceals or misrepresents a material fact concerning the policy or the covered property. Under AS 21.42.110, All statements and descriptions in an application for an insurance policy or annuity contract, or in negotiations for the policy or contract, by or in behalf of the insured or annuitant, shall be considered to be representations and not warranties. Misrepresentations, omissions, concealment of facts, and incorrect statements may not prevent a recovery under the policy or contract unless either (1) fraudulent; (2) material either to the acceptance of the risk, or to the hazard assumed by the insurer; or (3) the insurer in good faith would either not have issued the policy or contract, or would not have issued a policy or contract in as large an amount, or at the same premium or rate, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise. Tush's application for insurance was made by telephone and, as a result, she did not sign the application. Tush denied that she had been asked about prior losses or cancellations, testified that she had told the State Farm agent that her previous insurance had just been canceled, and testified that she did not understand prior losses to mean insurance claims. Tush offered expert opinion to the effect that because of the uncertainty introduced by Tush's testimony, State Farm might not have denied coverage or might have defended Tush under a reservation of rights. [21] Under these circumstances, the question whether State Farm would have voided the policy ab initio a question that required speculation as to what another would have donewas one for the jury. [22] Moreover, although State Farm has maintained that even an unsigned application can be canceled, summary judgment would still be inappropriate. Simply because State Farm had the option to cancel the policy does not mean that it would have done so had the claim been promptly tendered under these circumstances. Further, what State Farm might have done in response to a tender of defense is by no means the complete inquiry. Even if State Farm would have denied coverage or refused to defend, the question whether such actions would have been legally sustainable if challenged must also be decided. Pharr relies on Bennett v. Hedglin, [23] but that case is distinguishable factually from the present case. In Bennett, we upheld the superior court's grant of summary judgment against Bennett's claim for insurance coverage because it was clear that Bennett made the misrepresentation on the application. Even though Tush's actions in this case and in the Perez lawsuit may cast her credibility into question, [24] summary judgment is unavailable where credibility issues are to be resolved. Because how the misstatements on Tush's application came about and what actions State Farm would or could have taken after discovering the misstatements are unclear and in dispute, summary judgment should not have been granted on these grounds. 2. There are disputed issues of material fact as to whether the intentional acts exclusion in Tush's policy would have precluded coverage. Pharr contends that the intentional acts exclusion would have precluded coverage for the Perez claims under Tush's State Farm policy. Tush argues in opposition that State Farm could not properly have denied a defense based on the policy's intentional acts exclusion under Alaska law. Tush's rental dwelling policy provides business liability coverage where State Farm agrees to pay up to our limit of liability for the damages for which the insured is legally liable ... including malicious prosecution and wrongful eviction. (Emphasis in original.) However, this coverage does not extend to bodily injury, personal injury, or property damage ... which is either expected or intended by an insured; or ... to any person or property which is the result of willful and malicious acts of an insured[.] (Emphasis in original.) `An insurer's duty to defend and its obligation to indemnify are separate and distinct contractual elements.' [25] The duty to defend is broader than the duty to provide coverage. [26] A duty to defend arises whenever a complaint sufficiently alleges an issue of liability covered by the policy on its face, even if the allegations of the complaint are false or groundless. [27] The insurer may therefore be obligated to defend even where it has no ultimate liability under the policy. [28] And, the presence of other allegations in the complaint which are not within policy coverage does not relieve [an insurer] of its duty to defend. [29] Pharr is correct that the Perez counterclaims have as their basis intentional conduct. However as even Pharr's own expert, Daniel T. Quinn, opined, State Farm might have agreed to defend in any event. First, while Counts I and III through VI of the Perez complaint allege intentional misconduct, Count II alleges in part that [p]laintiffs deliberately or negligently failed to provide essential services to the rental premises. (Emphasis added.) Quinn opined that although the majority of the complaint pleads intentional acts, in such a situation he would advise the insurer to defend, possibly under a reservation of rights. Wainscott opined that even more of the counts might have been accepted for coverage by State Farm, and that the remainder would be accepted by State Farm under a reservation of rights. Disputed questions of fact precluded summary judgment here. Finally, although Tush's policy excludes intentional acts, the policy explicitly covers injuries arising out of wrongful eviction, a tort that may be committed either as intentional or `unintentional and otherwise actionable under the rules governing liability for negligent, reckless or ultrahazardous conduct.' [30] Tush's policy does not differentiate between intentional and negligent wrongful eviction. Accordingly, because the policy includes wrongful eviction, it must be deemed to be excluded from the intentional acts exclusion. [31] In sum, disputed issues of material fact preclude summary judgment on Pharr's second motion for summary judgment concerning whether State Farm would or could have denied coverage because of misrepresentations in the application. These include whether Tush was responsible for the misrepresentation and whether State Farm would have denied coverage and a defense under the facts of this case. Summary judgment was also inappropriate on the question of whether the intentional acts exclusion of the policy barred coverage, because at least one of the counts of the original Perez counterclaims alleged negligence by Tush, and the policy specifically included wrongful eviction. Thus, reasonable minds could differ as to whether the defendants' failure to tender the claim was the cause of Tush's injury, making the question of causation one for the jury. C. Summary Judgment Was Improperly Granted on Owens's Motion Because Whether Tush's Claim Would Have Been Untimely Had Owens Tendered it to State Farm Involves Disputed Questions of Fact. Owens claims that regardless of whether it was negligent for him to have failed to tender Tush's claim to State Farm, Tush suffered no damage as the claim would have been deemed untimely. Owens bases this argument on the fact that by the time Owens had agreed to represent Tush, three and one-half years had passed and the case had escalated from one in which plaintiff offered to settle for $25,000 to one where plaintiff demanded $450,000 to settle. Tush argues that the question of whether State Farm would have denied coverage is a question of fact for a jury, making the superior court's entry of summary judgment improper. We have recognized the strong societal interest in preserving insurance coverage for accident victims so long as the preservation is equitable for all parties involved. [32] Therefore, absent prejudice, regardless of the reasons for the delayed notice, there is no justification for excusing the insurer from its obligations under the policy. [33] The burden of showing prejudice from a delay in notice rests with the insurer, not the insured. [34] Generally proof of prejudice to the insurer is a question of fact. [35] Tush's State Farm policy requires the insured to promptly notify the insurer in the event of any occurrence that might result in a claim. The policy also states, If a claim is made or suit is brought against any insured, you must see to it that we receive prompt written notice of the claim or suit. It is undisputed that notice of the Perez judgment against Tush was not made promptly. The parties dispute the existence of any issues of genuine material fact as to whether State Farm was prejudiced by Tush's delay and whether State Farm might have accepted the claim regardless. Owens cites many cases for the proposition that a delay of three and one-half years constitutes prejudice, [36] arguing that State Farm would have denied the claim even if he had tendered it. However, in those cases the plaintiffs were suing their insurance companies. Here, State Farm is not a party to this appeal. Therefore, whether three and one-half years is untimely is irrelevant if no prejudice resulted to State Farm or if State Farm would have accepted the claim anyway.
The parties agree that Tush delayed over three years in tendering the case to State Farm. Owens claims the delay in tendering the claim was unreasonable and every expert retained in the matter agrees, primarily because the delay prejudiced State Farm from being able to properly investigate and possibly settle the matter. Tush argues that the denial of participation in the settlement process is not sufficient to constitute prejudice and that even if it was, whether State Farm might have accepted the claim is a genuine issue of material fact in dispute. The evidence of prejudice to State Farm is overwhelming. Wainscott, an expert retained by Tush's counsel, opined that [i]t is clear that State Farm was prejudiced by the late notice since the opportunity to settle the claim for as little as $25,000 existed early in the case. In his supplemental report Wainscott stated further that [t]here can be no question that State Farm's rights were prejudiced by the late notice. In 43 years of insurance experience, I don't believe I've ever seen a case with more evidence of prejudice to a carrier. And, Holmes, another of Tush's retained experts, also agreed: In my mind, the fact that they could have possibly settled for a lesser amount than when they came into the case is prejudice. Reiman's expert agreed, noting State Farm suffered extreme prejudice and that the timely reporting requirement would have entitled them to deny that coverage if they so desired.
Owens argues that State Farm's conduct is not relevant to Tush's legal malpractice case against Owens because this is not a coverage dispute between an insurer and an insured. However, because Owens is making a causation argument, in order to prevail on summary judgment he must show not only that State Farm was prejudiced but also that there is no genuine issue of material fact that State Farm would have denied the claim because of the prejudice. Owens has not met this burden. To bolster his position, Owens produced an expert opinion from William Marr, a team manager for State Farm. In Marr's opinion, had Owens tendered the claim to State Farm six to eight months before trial, when he first agreed to represent Tush, State Farm likely would have denied the claim as untimely and as prejudicial to its ability to properly investigate. Tush responded with the expert opinion of Roger Holmes, who opined that Marr's prediction of how State Farm would have reacted was wrong: I read what Mr. Marr said would have happened. And, in my opinion, that isn't what would have happened. They would have defended the case under a reservation of rights, or they would have defended it without a reservation of rights, if they decided that CHI counsel was too expensive. Expert witness Robert Wainscott also testified that State Farm would have most likely proceeded with a defense had Owens tendered the case, especially after the trial date was continued: And at the point in time where Tom Owens had an extension of time ... I would have, I would have proceeded with the coverage. I believe they would have accepted the tender, probably, under reservation of rights, I would guess. I'm just guessing. I'm guessing what I would have done if I was in their shoes. In sum, even if State Farm suffered prejudice by the delay in tender, there is a genuine question of material fact as to whether State Farm might have accepted the tender of the Perez claim. In these circumstances, summary judgment on Owens's motion was improper.