Afcan v. Mutual Fire, Marine and Inland Ins. Co., 3174
| Decision Date | 25 May 1979 |
| Docket Number | No. 3174,3174 |
| Citation | 595 P.2d 638 |
| Parties | Paschal L. AFCAN and Mary Afcan, Appellants, v. The MUTUAL FIRE, MARINE AND INLAND INSURANCE CO., Appellee. |
| Court | Alaska Supreme Court |
Before BOOCHEVER, C.J., and RABINOWITZ, CONNOR and BURKE, JJ.
This appeal arises out of a third-party suit brought against an insurance company for breach of its contractual duty to defend its insured. The superior court granted the insurance company's motion for summary judgment. We find that the company failed to fulfill its contractual duty to defend. We therefore reverse the decision of the superior court and remand the case for entry of judgment in favor of appellants.
The events giving rise to this litigation began in 1971. At that time Robert Barclay owned a sole proprietorship in Fairbanks known as "Economic Services." In rendering these "services" Barclay acted primarily as an investment counselor, an insurance broker, and a real estate agent. In the fall of 1971 Mary Afcan contacted Barclay to inquire about obtaining some insurance. This initial contact eventually led to the establishment of a trust agreement between Barclay and Mr. and Mrs. Afcan. Pursuant to this agreement the Afcans, as trustors, transferred a number of stock certificates and municipal bonds to Barclay, as trustee to form the basis of the trust corpus.
The trust agreement, entitled "Investment Trust Agreement No. 20," was dated January 14, 1972. The relevant portions of that agreement state:
2. The Trustee shall hold, manage, invest and reinvest the trust corpus, increments thereto, and additions to said trust corpus hereafter made by the Trustors, if any, in such manner as the Trustee, his successors and assigns, shall deem appropriate and necessary to the profitable investment and management of this trust estate; provided, however, that such investments shall be limited to acquisitions of real estate and fractional interests therein, to real mortgages and deeds of trust (including such encumbrances of a subordinate nature), mutual funds, stocks and bonds (listed or over the counter securities), time and demand deposits.
3. The Trustee shall have the power to sell, transfer and convey, to lease, to lend (with security) and to mortgage, pledge or otherwise encumber, any portion of the trust estate, and generally to do all such acts as may be deemed necessary or expedient to the profitable investment and management of the trust estate.
5. The Trustee shall pay from the trust estate, all costs, expenses and disbursements to which the Trustee may be put by reason of the trust hereby created, including any federal, state or local taxes falling upon the trust, if such there shall be. The Trustee shall receive no compensation directly from this trust for his services, but shall be entitled to charge a reasonable consulting fee for his services, the same to be periodically billed to and directly paid by the Trustor. In any sale of estate property, however, the Trustee may receive an agent's or broker's commission on the sale, payable out of sale proceeds, at a rate not to exceed that commonly charged in the Fairbanks, Alaska area, if he is otherwise licensed or qualified under pertinent laws to charge the same, but shall be responsible for accounting to the Trustors therefor, and the same shall not result in a double commission being charged on the transaction. (Emphasis added.)
This agreement was later supplemented by two other written agreements, dated February 8 and April 25, 1972, providing for the transfer of additional property to the trust corpus. Apart from these supplemental agreements, another trust agreement was entered into between the parties which established the Enep'ut Foundation, a charitable foundation whose purpose was "to devote and apply the property (of the trust) for educational purposes . . . ." This agreement, executed on March 1, 1972, provided that the trust corpus was to comprise the same property which was initially designated as the trust corpus of Investment Trust Agreement No. 20.
Between January 14, 1972, and May 19, 1972, Barclay purchased various parcels of real property in behalf of the trust. This property was acquired in his name as trustee.
Some months later, in August of 1972, Barclay contacted the Shand, Morahan Agency, underwriters for appellee Mutual Fire, Marine and Inland Insurance Company, to inquire about real estate agents' errors and omissions insurance. This contact eventually led to the issuance of a policy to Barclay which extended coverage up to one million dollars for any liability he might incur for breach of duty as an insurance agent, notary public or real estate agent. The policy, which was issued on September 20, 1972, stated in part:
The policy also included an "Intentional Acts" endorsement which extended liability coverage to include claims arising from dishonest, fraudulent, or criminal or malicious conduct by an employee of the named insured. This coverage, however, was applicable only to claims against the insured based on conduct in his capacity as an "insurance agent broker." In addition, Barclay requested the deletion of the "Retroactive Exclusion Clause" to extend his coverage to include acts or omissions which occurred prior to the issuance of the policy. For this he paid an additional premium of $284.63 and warranted that there were no known claims or circumstances which might develop into claims. The clause was thereafter deleted from the policy on November 7, 1972.
On December 1, 1972, the Afcans commenced an action against Barclay alleging, in essence, that he had committed various willful and negligent acts in breach of his duties as trustee under their trust agreement. There was no specific reference in the complaint to any such acts committed by Barclay in his capacity as real estate agent. Barclay took the complaint to an attorney in Fairbanks who advised him to send a copy to Mutual Fire. This was done, and shortly thereafter the New York firm representing Mutual Fire sent one of its attorneys, Ramon Held, to Fairbanks to look into the matter. On December 13, 1972, Held and Barclay entered into a "Non-Waiver Agreement" which stated in pertinent part:
IT IS NOW AGREED, between the parties undersigned that MUTUAL FIRE will afford a defense to Barclay in the outstanding lawsuit by AFCAN, subject to any additional information which MUTUAL FIRE may determine that there is no coverage under the policy aforementioned.
In the event that MUTUAL FIRE determines that there is no coverage to Barclay under the policy as heretofore indicated, it specifically reserves the right to deny coverage and a continuing defense to Barclay upon reasonable notice.
Pursuant to this agreement Held contacted the law firm of Merdes, Schaible, Staley and DeLisio in Fairbanks and arranged for that firm to represent Barclay at the expense of Mutual Fire. Thereafter an attorney from that firm filed an answer to the complaint on behalf of Barclay, denying the allegations made against Barclay.
During the following nine months the case developed as the Afcans sought to have a court-appointed accountant review the records of the trust. In addition, they moved for a court-appointed receiver to take possession and custody of the assets of the trust.
On September 26, 1973, Held wrote to Barclay, informing him that pursuant to the terms of the "Non-Waiver Agreement" Mutual Fire was withdrawing from the defense of Barclay. The basis for this decision was Mutual Fire's conclusion, following an investigation, that Barclay's alleged liability was not within the coverage of the policy. 1 Held sent a copy of this letter to the law firm engaged by Mutual Fire to represent Barclay, instructing it to terminate the defense after allowing Barclay reasonable time to obtain his own counsel. The firm, however, continued to represent Barclay for some months thereafter, apparently because Barclay was...
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