Court Opinion

ID: 9782359
Source: CourtListenerOpinion
Date Created: 2023-08-30 18:25:37.416076+00
Date Added: 2024-06-11T12:15:52.310549
License: Public Domain

MATTHEWS, Justice,
concurring.
I coneur fully in the reasoning and the result of the per curiam opinion. I write separately merely to express my view on an issue that the opinion does not reach: whether the evidence was sufficient to warrant submission of the issue of punitive damages to the jury. For the reasons set forth below, I conclude that it was not.
In State Farm Mutual Automobile Insurance Co. v. Weiford1 we summarized our approach in reviewing punitive damage awards:
Punitive damages have a two-fold purpose: "to punish the wrongdoer and to deter the wrongdoer and others like him from repeating the offensive act." Providence Washington Ins. Co. of Alaska v. City of Valdez, 684 P.2d 861, 868 (Alaska 1984). Since these objectives go beyond the primary purpose of tort law, to provide just compensation for the wrong done, "punitive damages are not favored in law. They are to be allowed only with caution and within narrow limits." Alaska Placer Co. v. Lee, 553 P.2d 54, 61 (Alaska 1976). Consistent with this approach, we have limited punitive damages to cases where the wrongdoer's conduct could fairly be categorized as "outrageous, such as acts done with malice or bad motives or reckless indifference to the interests of another." State Farm Fire & Casualty Co. v. Nicholson, 777 P.2d 1152, 1158 (Alaska *6151989); Alyeska Pipeline Serv. Co. v. Beadles, 731 P.2d 572, 574 (Alaska 1987); Ross Lab., Div. of Abbott Lab. v. Thies, 725 P.2d 1076, 1081 (Alaska 1986). Malice may be inferred if the acts exhibit "a callous disregard for the rights of others." Alyeska Pipeline Serv. Co. v. O'Kelley, 645 P.2d 767, 774 (Alaska 1982). However, "where there is no evidence that gives rise to an inference of actual malice or conduct sufficiently outrageous to be deemed equivalent to actual malice," the trial court need not, and indeed should not, submit the issue of punitive damages to the jury. Id.; Beadles, 731 P.2d at 574.
Despite the narrow range in which punitive damages may be awarded, the role of the appellate court in reviewing punitive damages awards is limited. We will reverse a punitive damages award "only if we have a firm conviction based on the record as a whole that the trial court erred and we must intervene to prevent a miscarriage of justice." Alaska [Alaskan] Village, Inc. v. Smalley, 720 P.2d 945, 948 (Alaska 1986).[2]
Great Divide argues that the evidence of fault in this case simply shows that Great Divide's employee Anson mistakenly sent letters "that wrongly stated the Gowdys' policy limits, and wrongly stated that the Gowdys could obtain independent counsel at their own expense. There was no evidence of malice or reckless indifference, just mistakes."
Carpenter responds with a one-sentence summary of the facts that he contends justify the award: "Systemic ignorance of basic law in conjunction with the taking advantage of the insured to obtain coverage information warranted punishment." I assume that Carpenter means to include within this statement the three main shortcomings identified by his expert witness Partlow:
(1) The failure of Anson to advise Dan Gowdy of his right to select his own defense counsel who would be paid for by Great Divide (CHI counsel);
(2) The failure of Great Divide, and McKay, to conduct an investigation designed to establish coverage; and
(38) McKay's conduct that favored Great Divide to the prejudice of Dan Gowdy by asking questions during depositions that were designed to elicit facts showing no coverage and by submitting reports to Great Divide containing information regarding coverage that was unfavorable to Dan Gowdy.
I proceed to discuss each of these three points.
1. Failure To Advise of CHI Rights
The only clear misconduct in this case was Anson's failure to advise Dan Gowdy of his right to select his own counsel whose fees would be paid by Great Divide. Today's opinion explains that this was not a mere technical violation of Great Divide's defense duties.3
But it is one thing to conclude (as we do) that Anson's failure to advise Dan Gowdy of his CHT rights was a material breach, and another to conclude (and today's opinion does not so conclude) that the breach was outrageous and deserving of punishment. Anson testified that he was adjusting claims in all fifty states. He stated that as of August 1995 he was aware of the CHI decision in Alaska, but he also testified that his understanding was that if insureds "requested an independent counsel of their choosing, then yes, we would provide that for them." While Anson's testimony concerning his understanding of CHI was confused and inconsistent with his August 81, 1995 letter, there is little to suggest that his failure to comply with the requirements of CHT was other than a negligent mistake. In February 1996 Elmer Gowdy's attorney, Loren Domke, requested that he be allowed to defend Elmer as CHI counsel. Great Divide complied with this request, and thereafter at least one partner to the Gowdy & Son partnership was afforded CHI rights by Great Divide. Thus, although Anson's mistake concerning CHI coverage was a material breach of Great Divide's defense obligations, "there is no evi*616dence that gives rise to an inference of actual malice or conduct sufficiently outrageous to be deemed equivalent to actual malice." 4
2. Failure To Seek Out Coverage
a. Great Divide
There is evidence that would justify finding that after reviewing the complaint Anson concluded that there was no coverage, and thereafter, in the words of the court's instruction, he did not fulfill his "duty to diligently search for evidence which supports" coverage. But this was more a matter of attitude than a failure of conduct. Anson did send a field adjuster to investigate facts relating to both liability and coverage, and his investigation appears to have been reasonably thorough, if not particularly imaginative.
The allegations of the complaint provide the initial guide to whether an insurance company has a duty to defend. The duty to defend arises "if the complaint on its face alleges facts which, standing alone, give rise to a possible finding of liability covered by the5 If the complaint does not contain allegations indicating coverage, there is nonetheless a duty to defend "if facts underlying the complaint are within, or potentially within, the policy coverage and are known or reasonably ascertainable by the insurer." 6
The allegations of Carpenter's initial complaint affirmatively excluded coverage. The complaint alleged that the falling tree that injured Carpenter was cut in the course of Dan Gowdy's tree-felling business. If this had been true, the classification exclusion would have excluded coverage. Even though the allegations of the complaint negated coverage, this did not discharge Great Divide from its duty to take reasonable steps to ascertain whether the facts underlying the complaint were potentially within policy coverage. Complaints may be amended, and in any case the allegation in question was not binding on Dan Gowdy. Nonetheless, the fact that the allegations of the complaint explicitly negate coverage serves to explain Anson's quick judgment and negative mindset on the coverage issue. I believe that his conduct concerning the duty to seek out coverage, at worst, can only reasonably be characterized as negligent.
b. McKay
McKay conceived of his role in defending Dan Gowdy as limited to providing a defense to the Carpenter complaint. He testified "I was there to do the liability. I wasn't there to do the coverage."
The trial court did not instruct the jury that an attorney appointed by an insurance company to defend an insured must seek out coverage for the insured, although Partlow, a non-lawyer, testified that he thought attorneys had this duty. In CHI we discussed the role of counsel appointed by an insurer, noting a split of authority as to whether appointed counsel should report information that might give rise to a policy defense to the insurer. Both sides of this debate seemed to agree that it would be appropriate for appointed counsel "to be involved only in the defense of the liability claim, not in coverage issues," if this is made clear at the outset of the engagement.7 Although it is unclear whether McKay told Dan Gowdy that he would not be involved in coverage issues, his failure to become involved in coverage issues seems to have been within the expectations of Dan Gowdy and Bradley. I do not believe that it can reasonably be regarded as outrageous.
3. McKay's Deposition Questions and Reports to Great Divide
At trial Carpenter claimed that deposition questions asked by McKay were intended to negate coverage. The questions generally sought information that might show that Rick Ostman was neither employed nor being supervised by Dan Gowdy at the time of the accident. McKay explained that if he *617could establish those facts Dan Gowdy would be exonerated. The deposition was taken before Elmer Gowdy or Gowdy & Son were added as defendants. Both McKay and Carpenter are right as to the impact of the questions. If it could be established that Ostman was not working for or being supervised by Dan, Dan would have no liability. He would also have no coverage, but that would be irrelevant if he was not liable. I believe that the questions are reasonably viewed as embodying a plausible litigation strategy, and that the evidence is lacking that McKay asked them because of a misplaced loyalty to Great Divide.8
McKay also wrote two reports to the insurance company that were cited as examples of improper communication to Great Divide. The court instructed the jury that an attorney who represents an insured cannot supply information detrimental to the insured to the insurance company. As we noted in CHT with respect to insurer appointed counsel, there is a split of authority as to the nature of the obligation of appointed counsel to report information that may give rise to a policy defense.9 But assuming the correctness of the instruction, the duty not to supply detrimental information cannot be met simply by refusing to report at all to the insurance company. The statute that was enacted to flesh out CHI obligations, AS 21.89.100, requires that even CHI counsel consult with the insurer "on all matters relating to the civil action" and to "disclose to the insurer in a timely manner all information relevant to the civil action, except information that is privileged and relevant to disputed coverage." 10
The reports that McKay submitted to Great Divide are mainly summaries of non-privileged deposition testimony. Some of the testimony that is reported is relevant to both liability and coverage as described above. But the reports never mention the topic of coverage. They only discuss various strate-gles concerning the defense of Dan Gowdy in the Carpenter case. In my view the reports are consistent with the reporting requirements expressed in AS 21.89.100 and I do not believe that they can be reasonably read as showing that McKay in writing them was intent on bolstering Great Divide's coverage defense.
In summary, Great Divide did not correctly advise Dan Gowdy of his CHI rights and did not investigate coverage with an open-minded attitude. But Great Divide did appoint counsel who provided an acceptable and ultimately successful defense of Dan Gowdy in cooperation with CHI counsel for Elmer Gowdy. And Great Divide's early negative attitude toward coverage is understandable, though not excusable, because the allegations of Carpenter's complaint themselves negated coverage. Under these circumstances while Great Divide's failures may have been material breaches of its defense duties, they cannot reasonably be characterized as outrageous. I thus have a definite and firm conviction "based on the record as a whole that the trial court erred and we must intervene to prevent a miscarriage of justice." 11 On this ground as well as on lack of fair notice grounds, I conclude that the award of punitive damages must be vacated.

. 831 P.2d 1264, 1266 (Alaska 1992).

. Id. at 1266 (footnote omitted).

. Op. at 610-611.

. Weiford, 831 P.2d at 1266.

. Afcan v. Mutual Fire, Marine & Inland Ins. Co., 595 P.2d 638, 645 (Alaska 1979).

. Fejes v. Alaska Ins. Co., 984 P.2d 519, 522 (Alaska 1999).

. CHI of Alaska, Inc. v. Employers Reinsurance Corp., 844 P.2d 1113, 1116 (Alaska 1993).

. McKay clearly was not seeking to protect Great Divide when he recommended to Dan Gowdy that he accept the covenant settlement agreement. His role at that point was correctly described by Great Divide's expert Geraghty as protective of Gowdy "to the prejudice of the insurance company."

. 844 P.2d at 1116.

. AS 21.89.100(e).

. Alaskan Village, Inc. v. Smalley, 720 P.2d 945, 948 (Alaska 1986).