Court Opinion

ID: 9600053
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:23:48.090525+00
Date Added: 2024-06-11T18:01:49.505011
License: Public Domain

COMPTON, Justice,
with whom BRYNER, Justice, pro tem, joins, dissenting in part.
I. Introduction
In Drickersen v. Drickersen, 604 P.2d 1082 (Alaska 1979), Justice Dimond advocated that:
In a suit against a mother brought by a child, the insurance company is the real party in interest. I submit that this fact should be honestly faced and that the presence or absence of liability insurance should be divulged to the jury in cases such as this one. It is time to remove from the law the fiction that a child suing her mother for vast sums of money really intends to burden her mother with a resulting judgment, and to collect on the judgment from whatever assets the mother might have.
Id. at 1089 (Dimond, J., concurring). Fifteen years later this court adopts Justice Dimond’s view as the law of this jurisdiction. I agree with the court that when the presence of liability insurance creates irreconcilable conflicts of interest between the insurer and insured, the fact of liability insurance coverage should be disclosed to the jury. However, Justice Dimond’s view, considered in conjunction with intervening decisions of this court, mandates a broader holding. In the case before us, it also requires a different result. The trial court defined the Robert-sons’ interests for them and dictated their attorney’s strategy. As a result, the Robert-sons were denied representation by an attorney independent in fact, and also were prevented from expressing untainted views in the adjudication of their own interests. Had the Robertsons been represented by the CHI counsel,1 to which they were entitled, the jury’s verdict probably would have been different. Hence, substantial error exists. Furthermore, substantial error also exists simply because of the failure by the trial court even to disclose the conflicting interests to the jury.
II. The Trial Court Denied the Robertsons ' Counsel Who Was Independent in Fact, Which Resulted in Their Interests Going Unrepresented.
In CHI of Alaska, Inc. v. Employer’s Reinsurance Corp., 844 P.2d 1113 (Alaska 1993), this court held that when there is an irreconcilable conflict between the insured *210and the insurer, “the insured should have the unilateral right to select ... counsel.” Id. at 1121. The court noted that this view is in accord with that of most states. Id. at 1117. In making this observation, the court cited cases from a number of jurisdictions and the remarks of commentators. “ ‘The prevailing view is that the presence of a [conflict] issue enables the insured to reject appointed counsel, select his own lawyer and control the defense at the expense of the insurer.’ ” Id. at 1117 n. 8 (quoting Ronald E. Mallen, A New Definition of Insurance Defense Council, Ins.Couns.J., Jan. 1986, at 108, 113) (emphasis added). “ ‘[T]he attorney who represents the insured owes him an undeviating allegiance whether compensated by the insurer or the insured....’” Id. at 1116 (quoting Farmers Ins. Co. of Ariz. v. Vagnozzi, 138 Ariz. 443, 675 P.2d 703, 708 (1983)) (emphasis added). The rationale compelling the result in CHI was the recognition that the interests of the insurer may not be coextensive with those of the insured. Therefore, the insured is entitled to an attorney who is independent of the insurer’s interests in fact. Inherent in the notion of CHI counsel is the premise that the attorney owes undeviating allegiance to the client. Yet in this case the court reneges on its promise in CHI. The Robertsons were deprived of an attorney with undeviating allegiance to their cause, and the independent-in-fact representation that CHI counsel is to provide. The necessity of undeviating allegiance is a special concern in this case, which is a paradigm of conflicting interests that inevitably undermine independent counsel’s undeviating allegiance.
This court has noted previously the legitimate problem often present in intra-family tort litigation: the interests of the insured tort-feasor and the insurer may be in conflict. Aydlett v. Haynes, 511 P.2d 1311, 1315 n. 8 (Alaska 1973). Accordingly, we have stated that in such a case “the trial judge must take care to assure that the actual interests of all parties are fairly represented.” Id. at 1315 n. 8. This ease demands this special precaution. The “fiction” that troubled Justice Dimond in Drickersen was that one family member was suing another with the intent of collecting a judgment from that relative. In reality it is the insurer that will pay the judgment, and the family unit or a member of the family unit that will collect it. Therefore, in a case of intra-family litigation, there are typically three sets of conflicting interests: (1) those of the injured person, here the Estate, that wants to establish liability in order to obtain a judgment, (2) those of the insurer, who wants to escape the imposition of some or all of this liability, and (3) those of the insured family member.
The insured family member may have purchased the insurance policy for a variety of reasons, just as insurance is marketed on a variety of bases. One reason, and basis, may have been to ensure that the family will be able to compensate adequately a victim of a family member’s tortious conduct. This motivation may be particularly strong where the insured has a close personal relationship with the victim. Therefore, as in the case of the Robertsons, it may be in the interest of the insured family member to be found liable.2
Despite the Robertsons’ desire to pursue such a goal, the trial court prevented the Robertsons’ independent counsel from so doing. Instead, the trial court directed Allstate to retain independent counsel for the Robert-sons. The trial court then ordered independent counsel to present “a classic [insurance] defense” designed to avoid Allstate’s liability. This goal was in keeping with the interests of Allstate, but not necessarily those of the Robertsons.3 While the trial judge recog*211nized the unusual alignment of parties often present in intra-family tort litigation, she distinguished between the Robertsons’ independent counsel representing his clients as plaintiffs versus defendants. The judge stated that the Robertsons were not their independent counsel’s “clients as plaintiffs. They’re his clients as defendants.... [I]f that defense were not being provided [by the Robertsons’ independent counsel] there could be concern with regard to adversity to the extent that his clients wanted this lawsuit to proceed.”4 (Emphasis added.) These conflicting interests were so strong that throughout the entire case the Robertsons retained personal counsel to advise them in dealings with independent counsel, who was representing them in the proceedings. Otherwise stated, the Robertsons were compelled to retain an attorney to advise them on how to deal with the attorney who ostensibly was advocating their interests!
In its motion to intervene in the proceedings, Allstate itself implicitly recognized this conflict, acknowledging that “this suit [by the Estate] is advancing the real interests of the Robertsons.” (Emphasis added.) However, in the same motion Allstate also argued that “[t]he lawyer representing the Robertsons as defendants clearly cannot represent the Rob-ertsons’ interests as plaintiffs.”5 The trial court, in ordering independent counsel for the Robertsons and directing him to conduct “a classic [insurance] defense,” did so
because of the ... inherent potential for conflict given ... the participation of the Robertson[s] in their defense, that ... counsel who reported directly to Allstate could be in a position of on one hand representing the Robertson[s] and on the other hand establishing some kind of policy defense based on non-cooperation.
It further did so in order to ensure that Allstate did not have access to information that it could later use against the Robert-sons. But these are only two facets of the potential harm this court attempted to guard against in CHI. We also recognized that the insured’s attorney “should have full access to the client so that the defense may be effectively conducted.” CHI, 844 P.2d at 1119. The CHI court concluded that the ability of the insured’s attorney to control the litigation, independently of the insurer’s desires, was critical. See id. 1117-18.
In the instant case, the trial court could have pursued an alternate approach that would have acknowledged the obvious adversity, and ensured that all interests were represented without the conflict. Under such a scheme, three attorneys would independently advocate the interests of the plaintiff, the *212insurer and the insured.6 Based on this court’s decision in CHI, it would have been permissible for the Robertsons, through CHI counsel, to pursue their own interests. They were required only to comply with their contractual obligation to cooperate with their insurer, and not breach any implied covenant of good faith and fair dealing.
In this case, however, the trial court directed the Robertsons’ independent counsel to present a case that advocated the interests of Allstate. This approach resulted in substantial error. As this court repeatedly notes, in the course of following these instructions the Robertsons’ independent counsel was forced to intentionally impeach his own clients’ testimony, testimony that indicated that they took responsibility for negligently causing their son’s death. This impeachment was intended to destroy the Rob-ertsons’ credibility with the jury. In a case where the testimony of the Robertsons was critical, the effect of this taint cannot be underestimated. Because of the trial court’s instructions, the Robertsons were denied CHI’s mandate of an attorney independent-in-fact and its inherent promise: the undeviating allegiance of one’s own attorney and the ability to control the defense. In spite of this court’s previous admonition that care must be taken “to assure that the actual interests of all the parties are fairly represented,” the Robertsons’ perspective was not heard. Had the Robertsons’ testimony not been impeached by their attorney, it is not difficult to see that the jury’s verdict probably would have been different. Therefore, substantial error exists. See Loof v. Sanders, 686 P.2d 1205, 1209 (Alaska 1984) (In order to assess if an error is substantial, “ ‘the members of this court must necessarily put themselves ... in the position of the jury to determine whether, as reasonable men, the error committed probably affected their verdict.’” (quoting Love v. State, 457 P.2d 622, 631 n. 15 (Alaska 1969)).
This court’s opinion also has troublesome implications, beyond the instant case. The failure to hold that CHI counsel should have been retained to pursue the Robertsons’ interests permits a continuation of the “fiction” that Justice Dimond warned against in Drickersen. See Drickersen, 604 P.2d at 1088-89 (Dimond, J., concurring). If separate counsel is not available to represent each set of conflicting interests, our warning to “take care to assure that the actual interests of all parties are fairly represented,” Aydlett v. Haynes, 511 P.2d 1311, 1315 n. 8 (Alaska 1973) (emphasis added), will have gone unheeded.7 Yet despite these two separate, significant concerns regarding the Rob-ertsons’ lack of CHI counsel, the court is content to dismiss these problems summarily in a footnote.8 Op. at 208-09 n. 12.
*213III. Failure to Disclose to the Jury the Insurer’s Interests Also Constitutes Substantial Error.
A basis for finding substantial error, however, goes beyond the representation issue since Allstate’s interests and role in the litigation were not divulged to the jury. Allstate’s covert participation undermines the foundation for the acceptance of intra-family tort liability in this state. This court first recognized this cause of action in Hebel v. Hebel, 435 P.2d 8 (Alaska 1967). In Hebel the court addressed the argument that family harmony would be destroyed by permitting one family member to bring an action against another for damages. The court, as did Justice Dimond in Drickersen, 604 P.2d at 1089 (Dimond, J., concurring), concluded that because most families carry insurance that will pay the damage award, the concern over the degradation of the familial relationship was not a determinative complication that barred the cause of action. Hebel, 435 P.2d at 12 (“[Ajlthough the existence of liability insurance does not create liability its presence is of considerable significance_”). As this court notes, Op. at 204, the Hebel court observed,
“Since the insurer is the real defendant, it has been said that there is a danger of fraud and collusion between the parent and child. One may not, of course, deny the hazard, but such a danger, being present in all liability insurance cases, furnishes the reason not for denial of a cause of action, but for added caution on the part of court and jury in examining and assessing the facts.”
Id. (quoting Badigian v. Badigian, 9 N.Y.2d 472, 215 N.Y.S.2d 35, 42, 174 N.E.2d 718, 723 (1961) (Fuld, J., dissenting)) (emphasis added). The jury in this case, in spite of this need for “added caution,” was left to speculate on the existence or non-existence of liability insurance. As a result, it may have been concerned that the Robertsons did not carry liability insurance and that a damage award could potentially disrupt the family unit. See Drickersen, 604 P.2d at 1085. Furthermore, it seems indisputable that the jury did not know of, much less understand, the active role of a second attorney who also was representing Allstate: he was concealed from view. Instead, the jury was left with the image of an attorney who impeached the credibility of his own clients. If the jury had been informed of the conflicting interests at stake; their verdict probably would have been different. This too provides a basis for finding substantial error.
IV. Conclusion
The court concludes that the Estate has not proved prejudice by the trial court’s failure to disclose Allstate’s interest. It “recognize[s] the trial court’s substantial efforts to preserve the integrity of the trial,” and suggests that the “record indicates that, over the course of the trial, the jury heard abundant evidence to support the conclusion that Sidney, Jr. intentionally attempted to move the car.” Op. at 208. The court is not convinced *214that “the evidence would have been interpreted substantially differently if Allstate’s presence had been disclosed.”9 Op. at 208. What the court declines to do is engage in any debate regarding the issue of the “abundant evidence” presented by independent counsel in accordance with the trial court’s instructions. This “abundant evidence” entailed impeaching the credibility of the Rob-ertsons, offering an instruction which did not advance their interests, and generally presenting “a classic [insurance] defense” case. This court claims that the Estate has no standing to “assert the Robertsons’ rights” regarding Allstate’s shell game, which left Allstate with one attorney at bar and another behind th¿ door, and yet it cites not one jot or tittle of authority for the proposition. In this particular way the trial court erred in its order regarding independent counsel, its instructions to independent counsel, and its definition of the Robertsons’ interests. Were this court to undertake such debate, I suggest it could not reach the same result.
I would remand the case to superior court for re-trial with (1) the Robertsons represented by an attorney of their choice, subject to the CHI qualification, whose undeviating allegiance would be to the Robertsons and pursuit of their interests, (2) the existence of liability insurance disclosed to the jury and (3) the open participation of Allstate’s attorney.

. In order to differentiate clearly between the different types of legal representation implicated in this case, the following terms will be used.
CHI counsel. An attorney who is selected by the insured and who controls the defense litigation when there is an irreconcilable conflict of interest between the insured and the insurer. This attorney is "independent in fact.” This type of representation was both recognized and required by this court in CHI of Alaska, Inc. v. Employer’s Reinsurance Corp., 844 P.2d 1113 (Alaska 1993).
Independent counsel. The attorney who was selected and paid for by the insurer, Allstate, to represent the insureds, the Robertsons. This attorney did not report to Allstate. At trial this attorney, in accordance with the instructions of the trial court, presented "a classic [insurance] defense” that was designed to avoid liability.
Personal counsel. An attorney who was retained and paid for by the Robertsons to advise them during the proceedings; he had no active role in the litigation.

. As we indicated in our opinion in Hebel v. Hebel, 435 P.2d 8 (Alaska 1967), in a lawsuit among family members there is a danger of fraud and collusion of which the jury must be aware. Id. at 12. In the instant case, this danger is present. Ultimately, it could be the insureds that stand to gain monetarily from the Estate’s collection of any award. Therefore, I also concur in the court’s conclusion that negligent tort-feasors should be prevented from sharing in any award that results from their conduct.

. It should be noted that the proceedings leading to the trial court’s instructions to independent counsel occurred before our decision in CHI of Alaska, Inc. v. Employer’s Reinsurance Corp., 844 P.2d 1113 (Alaska 1993). Hence the trial judge and the Robertsons’ independent counsel were acting without the guidance of that opinion. Therefore, although the trial court's instructions were in apparent accordance with the law as it existed at that time, later case law demands a *211different approach to the difficulties encountered and a different result.

. Despite the conflicts of interest in this case and the trial court's recognition of the unusual alignment of parties, the approach utilized fails to consider the correspondingly unique interests that are frequently pursued in insurance litigation. For example, when insureds threaten an insurer with a bad faith refusal to settle a plaintiff’s claim, it may be in the best interests of the insureds to confess judgment, assign the bad faith claim to the plaintiff, and permit the plaintiff to bring the bad faith claim against the insurer. In suth a situation, the insureds require CHI counsel to advise and represent them. Clearly such representation would involve decisions that are not compatible with the interests of the insurer. Nevertheless, the proceedings would involve the adversity necessary for the trial court to have jurisdiction.

. The court makes a statement which, in context, is startling. In the section of the opinion entitled Disclosure of Allstate’s Interest, the court remarks on Justice Dimond’s concurrence in Drickersen:
Justice Dimond’s point is well taken, and we now adopt it as the rule in intra-family lawsuits such as the one at issue here. That is, regardless of whether Allstate had intervened in this action, we believe its interest should have been disclosed to the jury. Without explaining the basic alignment of the parties, and the Robertsons’ role as purely nominal defendants, there was a risk of confusing the jurors and unfairly prejudicing them against the plaintiff.
Op. at 208 (emphasis added).
If the Robertsons were purely nominal defendants, a characterization with which I agree, then Allstate was the real defendant. Thus Allstate’s argument about adversity, or lack of adversity, borders on frivolous. Worse, the trial court’s attempt to protect the Robertsons' interest by ordering Allstate to appoint independent counsel for them lacks any substance. Independent counsel’s very competent representation of the nominal defendants was in fact representation of the real defendant, Allstate, which was engaged in a shell game to keep its identity hidden from the juiy.

. See infra note 7 and accompanying text.

. The open, honest and independent advocacy on behalf of each set of conflicting interests would result in more informed jury deliberations. The critical evidence is more likely to be identified when attorneys, representing separable interests, individually advocate these positions.
The situation before the court also leads me to reiterate the position that I expressed in dissent in CHI of Alaska, Inc. v. Employer's Reinsurance Corp., 844 P.2d 1113, 1129-31 (Alaska 1993) (Compton, J., dissenting). The scheme that I advocated there, with individual counsel for the plaintiff, the insured and the insurer, permits each set of conflicting interests to be advocated. CHI's approved method does not permit the insurer to have its interests separately advanced by its own counsel; hence, the concerns of the insurer may go unrepresented.

. The court’s rationale for its summaiy rejection of this argument is the Estate’s alleged failure to substantiate a basis for standing to assert these claims; the court reasons that if any harm has been suffered, it is the Robertsons’ and not the Estate’s. Op. at 208-09 n. 12. Yet the court recognizes the existence of the adversity necessary to permit the Estate to bring a claim against the Robertsons. Op. at 204. At the same time, the court also cites, Op. at 203-04, Trustees for Alaska v. State, Department of Natural Resources, 736 P.2d 324 (Alaska 1987) cert, denied, 486 U.S. 1032, 108 S.Ct. 2013, 100 L.Ed.2d 601 (1988), for the proposition that adversity is “[t]he basic requirement for standing in Alaska.” Id. at 327. Trustees also provides that for a plaintiff to have standing, the degree of injury "need not be great; ’ " '[t]he basic idea ... is that an identifiable trifle is enough for standing to fight out a question of principle; the trifle is the basis for standing and the principle supplies the motivation.' ” ’ ” Id. at 327 (quoting Wagstaff v. Superior Court, Family Court Div., 535 P.2d 1220, 1225 n. 7 (Alaska 1975)).
The Estate has demonstrated more than the mere "trifle” that is sufficient to confer standing. As the court agrees, the Estate has suffered a *213harm of sufficient proportion to bring suit against the Robertsons. The Robertsons’ lack of CHI counsel prejudiced the Estate's case, because the jury witnessed the Robertsons’ own attorney impeach his clients’ testimony, thereby devaluing evidence that was crucial to the Estate's case. Furthermore, at the direction of the trial court, the Robertsons’ attorney presented the case in a manner that emphasized the interests of Allstate, not those of the Robertsons. The jury’s apparent confusion surely obstructed them in their fact-finding role; this also prejudiced the Estate’s case. Therefore, the prejudice to the Estate seems sufficient to confer standing to raise the issue of Robertsons’ lack of CHI counsel.
The unique context of intra-family tort litiga-, tion also presents another basis for finding that the Estate had standing to pursue this issue of appeal. The Robertsons believed themselves legally responsible for their son’s death, which belief, if accepted by the jury, would have resulted in a judgment that would have been paid by Allstate. The trial court prevented them from advocating that position, by instructing independent counsel to present "a classic [insurance] defense.” The Robertsons have never received the CHI counsel their insurer is obligated to provide. As a result, the Estate now appeals based upon prejudice to its case. This situation was caused by the trial court, which defined the Robertsons’ interests for them. Since the Rob-ertsons “prevailed” based on the trial court’s perception of their interests, they are unable to appeal the decision. Who would raise the issue on their behalf? Surely not the attorney who was ordered to present "a classic [insurance] defense." If the Estate cannot raise the issue, the Robertsons’ interests in having CHI counsel will have gone entirely unrepresented throughout the proceedings.

. Allstate apparently felt differently. Not surprisingly, in its motion to intervene as a party defendant, Allstate, immediately after "respectfully request[ing] that it be permitted to intervene as a party defendant,” explicitly refused to "concede that it must necessarily be present at the trial of this case or that the jury must necessarily be told about the presence of insurance.”