Court Opinion

ID: 5148754
Source: CourtListenerOpinion
Date Created: 2022-01-02 01:46:56.936418+00
Date Added: 2024-06-11T08:24:55.814588
License: Public Domain

EASTAUGH, Justice,
dissenting.
Although I agree that the insurers breached duties they owed their insureds, the *1212Clarks, I disagree with this court's analysis of the effects of those breaches.
The superior court originally found that the insureds breached the navigational warranty. It based this conclusion on its findings that the JAMIE LYNN was in the Bering Sea near the Pribilof Islands, not Bristol Bay or the waters surrounding the Alaska Peninsula, and was therefore outside the geographical area covered by the policy. The superior court recited substantial, indeed overwhelming, evidence in support.1 The only dispute about the vessel's location concerned its exact position in the Bering Sea, not whether it was within the area covered by the insurance policy. The superior court also found this breach by the Clarks to be material because it significantly increased the risk plaintiff Fulton would be injured.
But the superior court later equitably es-topped the insurers from raising the breach of the navigational warranty. It did so because it found that the insurers had breached duties they owed the insureds, the Clarks, by interviewing them without first informing them of potential coverage issues (particularly the question of whether the vessel had been outside covered waters) when they did not have counsel present.
Prejudice is an essential element of equitable estoppel.2 To satisfy that element, the superior court first presumed that the breach prejudiced the Clarks; it cited three decisions as authority for adopting that presumption.3 The superior court also found that the interviews "actually prejudiced" the Clarks. In that regard, it stated that
As the record indicates, there was in fact dispute over the exact location of the JAMIE LYNN ... It is difficult to ascertain with precision the extent to which the intervention of competent legal counsel could bave helped the Clarks develop a more favorable factual record. The Clarks were prejudiced by [the insurers'] access to them without full disclosure of their rights or the presence of counsel.
It did not discuss any other circumstances supporting its finding of actual prejudice.
Affirming, this court first holds that the superior court did not err in finding that the insurers breached duties to the insureds. I agree with that holding.
This court next holds that it was not error to equitably estop the insurers from relying on the Clarks' alleged breach of the navigational warranty.4 I disagree with that holding.
In discussing estoppel's essential element of prejudice, this court first concludes that prejudice is to be presumed.5 It alternative ly holds that the superior court did not clearly err in finding that the insurers' breach actually prejudiced the Clarks.6 Although the court does not expressly say so, it necessarily must reason that actual prejudice was established conclusively by the fact the insurers interviewed the Clarks when they had no attorney present and before notifying them that the insurers were looking into coverage.7 This latter conclusion effectively rejects as irrelevant any evidence that the prejudice the Clarks suffered at the interviews was purely transitory and did not actually affect the outcome of the critical factual dispute: whether the vessel was in covered waters.
Applying the clear error standard of review8 compounds the problem by ignoring the question, reviewed under an abuse of discretion or independent judgment stan*1213dard, whether post-interview evidence is irrelevant to the issue of prejudice.
1 would follow this analysis: (1) the insurers are equitably estopped from relying on a breach of the navigational warranty only if the insureds establish all essential elements of equitable estoppel; (2) prejudice is an essential element of equitable estoppel; (8) prejudice may not be conclusively presumed; (4) any possible presumption of prejudice 9 disappeared in this case when the insurers produced evidence, independent of any derived from the interviews, that the insureds breached the navigational warranty; and (5) even assuming all elements of equitable es-toppel are present, the remedy should be commensurate with the prejudice suffered.
This approach is based on this assumption: in determining whether the insureds were prejudiced, and in selecting an appropriate remedy for the breach, the court must determine whether, and the extent to which, the insurers' breach actually hampered the insureds' ability to fairly dispute the vessel's location. The real coverage question is whether the vessel was in covered waters. The real estoppel question is whether the insurers' breach affected the outcome: of the coverage issue. If the insurers' wrongful acts did not affect the outcome of the dispute about the vessel's location, there is no fustifi-cation in law or fact for completely foreclosing the insurers from trying the navigational warranty issue by providing evidence of the vessel's location.
The superior court's equitable estoppel findings relied in part upon a presumption of prejudice. This court also presumes prejudice.10 Most cases discussing a presumption of prejudice concern breach of one of an insurer's primary duties, typically the duty to defend.11 Not all duties and breaches are created equal.12 But it is not necessary to decide whether the breaches here should give rise to a presumption of prejudice, because there was ample evidence that the vessel was not within covered waters. This evidence rebutted any presumption by establishing that the two interviews did not actually affect resolution of the factual dispute about where the vessel was. |
And I also see no justification for adopting a conclusive and irrebuttable presumption of prejudice here. Nothing about the nature of the breaches here was so gravely inappropri- . ate that we should prevent the insurers from attempting to rebut a presumption of prejudice.
I would therefore next have the court consider the alternative finding of "actual prejudice." ' In doing so, this court should apply its independent judgment because it is reviewing the superior court's implicit relevancy ruling when the superior court looked only to the interview events in deciding whether the Clarks were prejudiced. The superior court effectively ruled that the overwhelming evidence showing that the vessel was outside covered waters was irrelevant to the issue of prejudice, even though that evidence was not derived from the flawed interviews.
I think it was necessary to consider that evidence. -It was relevant because it tended to show that the flawed interviews caused the Clarks no lasting prejudice or, indeed, any prejudice at all,. The existence of that evidence and its subsequent preservation *1214through depositions rebuts any notion that the flawed interviews materially prejudiced the Clarks. Independent sources establishing the vessel's location rendered immaterial any prejudice resulting from any admissions the Clarks made during the interviews.
Nor can I imagine how this independent evidence of the vessel's true location might have remained unknown to the insurers had the interviews not been flawed. Assume the insurers had notified the Clarks of the coverage issue and interviewed the Clarks while they had counsel present. What could the Clarks or their counsel have done that would have favorably affected resolution of the location issue?
Refusing to attend the interviews or to answer questions about location would have been unavailing. The Clarks' contractual duty to cooperate would have foreclosed that course.13 And if the Clarks had followed that approach, the insurers could have investigated further and learned that the vessel was not in covered waters. Because refusing to be interviewed would have gained them nothing, the Clarks were not prejudiced by the loss of any opportunity to follow such a course.
They alternatively might have professed ignorance, or claimed faulty memories. But that would have gained them nothing, because it would not have prevented the insurers from investigating and discovering the relevant facts from other sources. Loss of the opportunity to follow this course did not prejudice the Clarks.
They might alternatively have asserted that the vessel was in covered waters. This alternative was open to them only if they told what they believed to be the truth.14 Because there is no indication that the insurers kept them from telling the truth at the interviews, it is hard to see how the breaches harmed them. Moreover, when counsel represented them in later proceedings, both Clarks gave deposition testimony indicating that the vessel was outside covered waters.15 This testimony would have negated any self-serving statements they might have made at the interviews. And the other evidence would have overwhelmingly rebutted such statements.
Perhaps counsel could have prompted the Clarks to truthfully recount additional details favorable to coverage. But nothing kept them from recounting those details later. And again, the evidence of the actual location was overwhelmingly contrary to coverage.
We can assume that the Clarks were prejudiced if they did things during the interviews that later hampered them in litigating the vessel's true location. I would not find that they were hampered if they inevitably would have lost because there was no genuine dispute about the vessel's location. But if they made harmful admissions that, for valid reasons, they could have avoided but for the insurers' breaches,16 lasting prejudice could have been avoided by preventing the insurers from relying on the admissions and their fruits.17 The remedy for that prejudice was not to completely estop the insurers from relying on the navigational warranty and to prevent them from proving its breach by *1215independent evidence, but to restore the insureds to the position they would have occupied absent the insurers' breaches.
The court concludes that it is unfair to make these insureds prove the essential es-toppel element of prejudice.18 Assuming the court's fairness concerns are not remedied by adopting a presumption of prejudice, it should be sufficient to shift the burden to the insurers to prove lack of prejudice. Instead, the court creates a conclusive presumption of prejudice, and renders that presumption irre-buttable by preventing the insurers from disputing this essential element of estoppel: I see no justification for making this presumption irrebuttable.
Thus, I think it is legally incorrect to assume that the only evidence relevant to prejudice concerns the interview events. Alternatively, I think it was clear error to find prejudice in the face of overwhelming independent location evidence, absent evidence of how the interview breaches actually harmed the Clarks. And if the interview breaches did prejudice the Clarks, it was error to altogether foreclose litigation on the navigational warranty when a lesser equitable remedy would have restored them to the positions they occupied absent these relatively minor and immaterial breaches. Finally, it was error to estop the insurers from raising an issue that was not dependent on information learned at the interviews.
We should therefore reverse and remand for further proceedings.

. United States District Court Judge James M. Fitzgerald also made findings of fact in the federal declaratory judgment proceeding that found that the JAMIE LYNN was outside covered waters.

. See Miscovich v. Tryck, 875 P.2d 1293, 1302 (Alaska 1994); Dressel v. Weeks, 779 P.2d 324, 329 (Alaska 1989).

. The superior court cited CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113, 1119 (Alaska 1993); Sauer v. Home Indemnity Co., 841 P.2d 176, 182-83 (Alaska 1992); and Continental Insurance Co. v. Bayless & Roberts, Inc., 608 P.2d 281, 291 (Alaska 1980).

. See Op. at 1209.

. See Op. at 1206-1207.

. See Op. at 1209.

. See Op. at 1208.

. See Op. at 1204.

. For cases which presume prejudice to the insured where an insurer materially breaches the contract or acts in bad faith, see Kirk v. Mount Airy Insurance Co., 134 Wash.2d 558, 951 P.2d 1124, 1126-27 (1998); and Safeco Insurance Co. v. Butler, 118 Wash.2d 383, 823 P.2d 499, 504 (1992). Both of these cases, however, recognized a rebuttable rather than a conclusive presumption. I do not read the three cases noted above in footnote 3 to discuss, much less endorse, a presumption of prejudice.

. See Op. at 1206-1209.

. See, eg., Safeco, 823 P.2d at 504 (listing cases presuming prejudice where insurer had assumed defense of action and later attempted to withdraw).

. See, eg., Luke v. American Family Mut. Ins. Co., 476 F.2d 1015, 1020 (8th Cir.1972) (noting difference between liability of insurer which meets its duty to defend insured but fails to exercise good faith in settling within policy limits, and insurer which breaches its contract by failing to defend and then rejects reasonable settlement offer); Montrose Chem. Corp. v. Superior Court, 6 Cal.4th 287, 24 Cal.Rptr.2d 467, 861 P.2d 1153, 1157 (1993) (discussing differences between insurer's duties to defend and to indemnify).

. The cooperation clause reads in pertinent part:
The Insured shall render every assistance to Underwriters hereof to facilitate investigation or adjustment of claims ... and to co-operate {[sic] fully in the securing of evidence. ...

. We must presume that they would not have knowingly falsified their answers on this issue, because doing so would have both precluded granting them equitable relief, and would have violated their contractual duty to cooperate. We must also conclusively presume that counsel would not have encouraged them or knowingly permitted them to falsify their answers.

. In his deposition in the federal civil personal injury action, Chris Fulton again indicated that the JAMIE LYNN was sixteen hours outside the Pribilof Islands at the time of Fulton's injury. Likewise, Walter Clark, in his November 18, 1986, deposition in the federal declaratory judgment action, testified that the JAMIE LYNN was fifty miles off the Pribilof Islands at the time of Fulton's injury.

. Falsification or refusal to answer relevant questions would not have been a valid form of avoidance.

. Cf. Snodgrass v. Baize, 405 N.E.2d 48, 54 (Ind.App.1980) (applying exclusionary remedy instead of estopping insurer from relying on policy defense).

. See Op. at 1208.