Allstate Insurance Co. v. Kenick, 012519 AKSC, S-16509

Docket Nº:S-16509
Opinion Judge:CARNEY, Justice.
Party Name:ALLSTATE INSURANCE COMPANY and KATHY BERRY, Appellants, v. MARY KENICK and ANGELINA TRAILOV, Appellees.
Attorney:Gary A. Zipkin and Kristin E. Bryant, Guess & Rudd, P.C., Anchorage; Rebecca J. Hozubin, Hozubin Moberly Lynch & Associates, Anchorage; and Peter H. Klee, Sheppard, Mullin, Richter & Hampton, LLP, San Diego, California, for Appellant Allstate Insurance Company. Alfred Clayton, Jr., Clayton & Diem...
Judge Panel:Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.
Case Date:January 25, 2019
Court:Supreme Court of Alaska
 
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ALLSTATE INSURANCE COMPANY and KATHY BERRY, Appellants,

v.

MARY KENICK and ANGELINA TRAILOV, Appellees.

No. S-16509

Supreme Court of Alaska

January 25, 2019

Appeal from the Superior Court No. 4BE-04-00103 CI of the State of Alaska, Fourth Judicial District, Bethel, Charles W. Ray Jr. and Bethany S. Harbison, Judges.

Gary A. Zipkin and Kristin E. Bryant, Guess & Rudd, P.C., Anchorage; Rebecca J. Hozubin, Hozubin Moberly Lynch & Associates, Anchorage; and Peter H. Klee, Sheppard, Mullin, Richter & Hampton, LLP, San Diego, California, for Appellant Allstate Insurance Company.

Alfred Clayton, Jr., Clayton & Diemer, LLC, Anchorage, for Appellant Kathy Berry. Mark A. Sandberg, Law Office of Mark A. Sandberg, Anchorage; Dennis Mestas, Law Office of Dennis Mestas, Anchorage; and Myron E. Angstman, Angstman Law Office, Bethel, for Appellees Mary Kenick and Angelina Trailov.

Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and Carney, Justices.

OPINION

CARNEY, Justice.

I.

INTRODUCTION

We are asked to determine the preclusive effect of a declaratory judgment in favor of an insurance company against its insured in federal court in a subsequent state court proceeding. The superior court concluded that the declaratory judgment had no preclusive effect on a negligent adjustment action brought in state court by the insured's assignees against the insurance company and its claims adjuster. The state action proceeded to an 11-day jury trial ending with a multi-million dollar verdict against the insurance company and its claims adjuster.

The insurance company and the adjuster raise a number of issues on appeal, but it is necessary for us to decide only one: the preclusive effect of the federal declaratory judgment. The declaratory judgment determined that the insurance company and the adjuster acted reasonably when they offered policy limits to settle the underlying claim against the insured. Because the insurance company's and adjustor's reasonableness in adjusting the insurance claim is a necessary element of a negligent adjustment tort, we hold that the assignees of the insured were precluded from relitigating this issue. The superior court therefore erred in denying the insurance company's and claims adjuster's motions for summary judgment, and we vacate the judgment against them.

II.

FACTS AND PROCEEDINGS

A. Facts

In mid-September 2002 Charles Herron, who was under the influence of alcohol and not old enough to legally possess or consume it, was involved in a single-vehicle accident in Bethel. A 15-year-old passenger in Herron's vehicle, Angelina Trailov, was injured.

Herron was insured by Allstate Insurance Company. The policy provided liability coverage of up to $100, 000 per person/$300, 000 per occurrence, medical payments coverage of $25, 000 per person, and underinsured motorist (UIM) coverage of up to $100, 000 per person/$3 00, 000 per occurrence.

Shortly after the accident Allstate was notified of Trailov's injuries and her liability claim against Herron. By the end of September Allstate received notice that attorney Michele Power represented Trailov in the matter. Allstate assigned Trailov's bodily injury claim to its in-house claims adjuster, Kathy Berry. Over the next few months Berry and Power corresponded regarding Trailov's claim; much of their communication related to obtaining medical records documenting Trailov's injuries.

Power made a "policy limits demand plus attorney's fees, costs and interest" for Trailov's claim in a February 14, 2003, letter to Berry. In the same letter Power also for the first time asserted a separate negligent infliction of emotional distress (NIED) claim on behalf of Mary Kenick, Trailov's mother. Power made "a policy limits demand plus attorney's fees, costs and interest" for Kenick's NIED claim.

In March Berry responded to Power's February demand letter. Berry requested additional information about any treatment Trailov had received since the accident. She also asked for information about Kenick's NIED claim.

Power responded in April that Kenick had taken a new job because of her emotional distress from the accident (and had taken a substantial pay cut); however, Power noted that Kenick had not sought counseling. Power asserted that Trailov had been absent-minded and forgetful since the accident and disclosed for the first time that Trailov was suffering back pain from the accident. In closing Power wrote: "While the offer dated February 14, 200[3], remains open, it will be revoked on May 16, 2003, and a complaint will be filed, unless there is some discussion regarding pre-filing resolution."

On May 9 Berry responded to Power that "[w]e are in the process of completing our evaluation of Angelina Trailov's claim and anticipate responding to your demand by your May 16, 2003 deadline." Berry stated she needed additional support for Kenick's NIED claim.

On May 15 Power sent Berry two pay stubs for Kenick as proof of her NIED claim; there was no mention of the May 16 deadline in the letter. On May 16 Berry sent another letter to Power requesting additional information about Kenick's job change and its relationship to the NIED claim. Berry also advised that Allstate's evaluation of Trailov's claim was not complete: "Our evaluation will be completed by the end of the month, and I am hoping to respond to your demand sooner than that."

Berry referred the entire claim to a higher-ranking claims adjuster for evaluation. That adjuster directed Berry to open a UIM claim for Trailov because, based upon her knowledge of similar claims in the Bethel area, Trailov would likely receive the $100, 000 policy limit on the UIM claim as well as the underlying liability limit of $100, 000. But the second adjuster suggested offering $10, 000 for the NIED claim because she did not believe there was sufficient information to determine its value.

On May 29, 2003, an attorney from the Law Office of Dennis Mestas wrote to Berry that he had been retained as co-counsel to file suit on behalf of Kenick and Trailov. The letter stated that the policy limits offer had lapsed on May 16 and that no further policy limits offers would be made or accepted. The following day Berry wrote to Power offering to settle Trailov's bodily injury claim for $112, 500, encompassing policy limits plus attorneys' fees. Berry also offered to settle Kenick's NIED claim for $10, 000 in an effort to resolve the matter expeditiously, but she advised that if the offer was not accepted she would need additional documentation for the claim.

B. Proceedings

Three pleadings, and the proceedings related to them, define the current appeal. The first pleading is Kenick's and Trailov's personal injury and NIED complaint against Herron filed in June 2003 in the superior court in Bethel. The second is Allstate's March 2004 federal complaint against Herron for declaratory relief. And the third pleading is the complaint filed by Kenick and Trailov as Herron's assignees against Allstate in April 2004 in the superior court in Bethel.

In their June 2003 personal injury complaint against Herron, Kenick and Trailov sought both compensatory and punitive damages for injuries and distress resulting from the September 2002 accident. Herron resolved Kenick and Trailov's personal injury action against him in early April 2004 by signing a consent to entry of judgment. Herron consented to judgment in favor of Kenick, on behalf of her minor daughter Trailov, for $1, 750, 000 on Trailov's liability claims and attorneys' fees and consented to judgment in favor of Kenick for $187, 500 on her NIED claim and attorneys' fees. The total judgment entered against Herron was $1, 937, 500. He also assigned to Kenick and Trailov any and all legal claims he possessed against Allstate. Herron and Kenick, individually and on behalf of Trailov, also entered into a covenant not to execute on any of Herron's assets other than the potential proceeds from the assigned claims against Allstate.

Meanwhile in early March 2004 Allstate filed a complaint for declaratory relief in the U.S. District Court for the District of Alaska in anticipation of Herron confessing judgment in the accident-related personal injury suit. Allstate requested a declaration that "its good faith attempt to settle Trailov and Kenick's claims satisfied its obligation to its insured, and a further declaration that Allstate [wa]s not obligated to pay any portion of the confessed judgment that exceed[ed] the limit of the bodily injury coverage afforded Herron under the [p]olicy." In late May, due to Herron's April confession of judgment and assignment of claims, Allstate amended its...

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