CP ex rel. ML v. Allstate Ins. Co., No. S-8606

CourtSupreme Court of Alaska (US)
Writing for the CourtEASTAUGH, Justice.
Citation996 P.2d 1216
PartiesC.P. By and Through her next friend, M.L., M.L., individually, and D.B., Plaintiffs, v. ALLSTATE INSURANCE COMPANY and Sheryl Norton, Defendants.
Decision Date03 March 2000
Docket Number No. 5245., No. S-8606

996 P.2d 1216

C.P. By and Through her next friend, M.L., M.L., individually, and D.B., Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY and Sheryl Norton, Defendants

Nos. S-8606, 5245.

Supreme Court of Alaska.

March 3, 2000.

Rehearing Denied April 28, 2000.


996 P.2d 1218
Steven Lewis Hempel, Juneau, for Plaintiffs

Gregory W. Lessmeier, Lessmeier & Winters, Juneau, and Peter J. Valeta and Jeffrey A. Berman, Ross & Hardies, Chicago, Illinois, for Defendants.

Bruce P. Babbitt, Jameson, Babbitt, Stites & Lombard, P.L.L.C., for Amicus Curiae J.D. Glass & Door, Inc.

Before MATTHEWS, Chief Justice, EASTAUGH, FABE, BRYNER, and CARPENETI, Justices.

OPINION

EASTAUGH, Justice.

I. INTRODUCTION

The adult son of homeowners assaulted a child visiting their home. The child and her parents sued the homeowners, claiming they negligently caused her injuries. Invoking exclusions for intentional and criminal acts, the homeowners' liability insurer refused to defend. The homeowners settled with the claimants and assigned their rights against their insurer, and the child's family then sued the insurer and its adjuster. The United States District Court for the District of Alaska, where that suit is pending, has asked us to answer certified questions of state law: (1) does the insurer's salaried claims adjuster owe tort duties to the insureds; (2) does the insurance policy cover claims that the homeowners negligently failed to do things that would have protected the child; and (3) does a declaration of no coverage affect the insurer's liability under the policy? Applying our existing case law, we answer "yes" to the first question. We also answer "yes" to the second question, because the insurance policy did not unambiguously withhold coverage for claims alleging that the homeowners acted negligently, and that their own conduct, not derivative of their adult son's, was a legal cause of injury. Having found coverage, we do not reach the third question.

II. FACTS AND PROCEEDINGS

Dolan and Eleanor Lancaster were homeowners who resided in their home with their adult son, Harold Lancaster, and Harold's daughter, C.L.1 C.P., an eleven-year-old friend of C.L., spent the night of November 11, 1995, with C.L. in the Lancaster home. C.P.'s parents did not know that Dolan and Eleanor were out of town that night and that Harold Lancaster was staying at the house. While C.P. was at the Lancasters' home,

996 P.2d 1219
Harold Lancaster physically and sexually assaulted her

Allstate Insurance Company had issued a homeowner's insurance policy to Dolan and Eleanor Lancaster. The policy covered liability for bodily injury "arising from an accident," and required Allstate to defend the insureds against covered claims. It excluded coverage for injury resulting from intentional or criminal acts. It also contained a "joint obligations" clause.

In December 1995 C.P. and her parents sued Harold, Dolan, and Eleanor for personal injury. The complaint alleged that Harold assaulted C.P., causing injury to her. It also alleged that the elder Lancasters were negligent (in failing to disclose Harold's presence or his alleged propensity to assault children and in failing to watch over C.P.), and that "[a]s a direct and proximate result" of the elder Lancasters' negligence, the plaintiffs suffered damages.2 The claims against the elder Lancasters were based on their alleged negligence, and did not attempt to attribute Harold's acts to them.

The elder Lancasters tendered to Allstate the defense of C.P.'s claims against the elder Lancasters. Allstate assigned Sheryl Norton, a salaried Allstate employee, to investigate C.P.'s claims. Norton in turn consulted attorney Mark Wilkerson. Wilkerson raised doubts about coverage which Norton relayed to her superiors. Allstate then denied coverage and notified all three Lancasters that it would not defend them against C.P.'s claims.

In April 1996 Dolan and Eleanor Lancaster entered into a settlement agreement with C.P. Per the agreement, Dolan and Eleanor confessed judgment to C.P. and agreed that the amount of C.P.'s damages would be arbitrated. Dolan and Eleanor also assigned to C.P. the right to assert the elder Lancasters' claims against Allstate and permitted C.P. to continue to pursue claims against Harold. C.P. agreed not to collect damages from Dolan and Eleanor except as necessary to prosecute the assigned claims. The claims went to arbitration; the Lancasters did not appear and offered no evidence. The arbitrator found Dolan and Eleanor's liability to be $474,330.

C.P. sued Allstate on the elder Lancasters' assignment. After proceedings not relevant here, Chief Judge James K. Singleton of the United States District Court for the District of Alaska issued a certification order asking us to answer three questions of state law. We quote the questions below. Summarized, they concern the potential tort duties of Allstate's adjuster, Allstate's coverage obligations, and the effect of a declaration of no coverage.

We accepted certification of these three questions.3

III. DISCUSSION

A. Standard of Review

The certified questions are questions of law. To answer them, we adopt the rule of law that is most persuasive in light of precedent, reason, and policy.4

B. Does an Insurer's Salaried Adjuster Owe the Insureds a Tort Duty of Reasonable Care?

The district court first poses this certified question:

Does a salaried employee in the claims department of an insurance company owe
996 P.2d 1220
those who are insured by the company a duty enforceable in a tort action against the employee personally to exercise reasonable care in connection with claims by the insureds that are assigned to the employee for investigation, evaluation and adjustment, to avoid interfering with the insureds' rights under the policy of liability insurance to receive a defense and indemnity against tort claims made against them by third-parties?

C.P. argues that Alaska law already recognizes a cause of action against liability insurers' adjusters for negligent adjustment (including investigation and evaluation) of a claim. C.P. relies on two cases — Continental Insurance Co. v. Bayless & Roberts, Inc.5 and Sauer v. Home Indemnity Co.6 — to support her contention. Amicus J.D. Glass & Door, Inc. supports C.P.'s contention.

Allstate contends that an insured's claims for negligent adjustment are contract claims which can only be made against Allstate itself. (Allstate also contends that the settlement agreement permitted C.P. to sue only Allstate, and that the Lancasters' assignment does not cover suits against Norton. We do not consider this contention because it is not part of the certified question.)

The Continental line of cases answers the broad question posed. The Continental Insurance Company discovered midway through its defense of its insured, Bayless & Roberts (B & R), that B & R had changed its story as to the facts of the third-party liability claim being litigated.7 When Continental refused to defend B & R further, B & R sued it and its claims adjuster, Arthur Stanford.8

Stanford held the title of branch manager at the Underwriters Adjusting Company.9 But we recognized that Underwriters Adjusting was a subsidiary of Continental Corporation and functioned as the claims department of Continental Insurance Company, another subsidiary.10 We also concluded that Stanford was "Continental's claims adjuster"11 and that "Continental assigned the adjustment of the ... claim against B & R to Stanford."12

B & R's suit against Stanford alleged that "Stanford breached his fiduciary duty in failing to adequately investigate" the claim in question, and in failing to fully inform B & R, Continental, and Continental's attorney of the facts of the case.13 Stanford contended that "he had no duty to B & R under his contract with Continental that would subject him to personal liability."14 We concluded that "Stanford could not be held liable for a breach of the fiduciary duty of good faith arising out of the insurance contract, but he could be held liable for negligence arising out of a breach of the general tort duty of ordinary care."15

Allstate argues that Continental is "legally and factually inapplicable here" because it concerned a "third party adjuster," not an "employee" of the insurer, and it concerned defense of a claim, not negligent "investigation." But we treated Stanford as though he were the insurer's employee,16 and the suit dealt directly with Stanford's allegedly negligent investigation.17

Allstate alternatively contends that two cases we decided after Continental—O.K. Lumber Co. v. Providence Washington Insurance Co.18 and Alaska Pacific Assurance

996 P.2d 1221
Co. v. Collins19 — "clearly dictate a finding that the employee is not personally liable." C.P. asserts that Sauer dictates the opposite result

Both cases Allstate cites are inapposite, and each undercuts Allstate's argument. In O.K. Lumber, Providence Washington insured two companies that caused property damage to O.K. Lumber.20 When O.K. Lumber sued the two companies, Providence Washington defended them. In one suit, O.K. Lumber recovered a substantial judgment that exceeded what Providence Washington had unsuccessfully offered to pay. In the other, Providence Washington eventually paid O.K. Lumber's entire claim. O.K. Lumber then sued Providence Washington for bad faith.21 We held that third parties cannot maintain a cause of action against insurers for bad faith: "An insurer could hardly have a fiduciary relationship both with the insured and a claimant because the interests of the two are often conflicting."22

O.K. Lumber is distinguishable because Providence Washington's insureds had not assigned their rights to O.K. Lumber. But we recognized there that "[t]he insured's cause of action for breach of the implied covenant is assignable to the injured third party claimant."23 Because C.P. is the assignee of the insureds' rights against their insurer, she...

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45 practice notes
  • Allstate Ins. Co. v. Morgan, No. 3:14–cv–00113–AC.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Oregon)
    • August 18, 2015
    ...Criminal Acts Exclusion Clause in the present case is similarly unambiguous.Similarly distinguishable is C.P. v. Allstate Ins. Co., 996 P.2d 1216 (Alaska 2000). There, an adult son living with and insured under his parents' homeowners policy, assaulted an adolescent girl in his parents' hou......
  • Safeco Ins. Co. of Am. v. White, No. 2008-0304.
    • United States
    • United States State Supreme Court of Ohio
    • August 4, 2009
    ...exclusions) to preclude coverage for negligent acts related to intentional torts. See, e.g., C.P. v. Allstate Ins. Co. (Alaska 2000), 996 P.2d 1216, 1225-1226 ("From the perspective of insureds whose acts are alleged to have negligently, but not criminally or intentionally, been a cause of ......
  • Capitol Indem. Corp. v. Wright, No. CV-S-1602LRHLRL.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Nevada
    • September 29, 2004
    ...supervision claim against co-owner of daycare center where other co-owner molested children); C.P. ex rel. M.L. v. Allstate Ins. Co., 996 P.2d 1216, 1223 (Alaska 2000) (claim that insured negligently failed to prevent claimant from being harmed by intentional act satisfied the "accident" re......
  • Am. Family Mut. Ins. Co. v. Bower, Cause No. 1:07 CV 254.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • November 5, 2010
    ...Co. v. Schrum, 149 F.3d 878 (8th Cir.1998); Doe v. Shaffer, 90 Ohio St.3d 388, 738 N.E.2d 1243 (2000), C.P. v. Allstate Ins. Co., 996 P.2d 1216, 1225–1226 (Alaska 2000) (“From the perspective of insureds whose acts are alleged to have negligently, but not criminally or intentionally, been a......
  • Request a trial to view additional results
45 cases
  • Allstate Ins. Co. v. Morgan, No. 3:14–cv–00113–AC.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Oregon)
    • August 18, 2015
    ...Criminal Acts Exclusion Clause in the present case is similarly unambiguous.Similarly distinguishable is C.P. v. Allstate Ins. Co., 996 P.2d 1216 (Alaska 2000). There, an adult son living with and insured under his parents' homeowners policy, assaulted an adolescent girl in his parents' hou......
  • Safeco Ins. Co. of Am. v. White, No. 2008-0304.
    • United States
    • United States State Supreme Court of Ohio
    • August 4, 2009
    ...exclusions) to preclude coverage for negligent acts related to intentional torts. See, e.g., C.P. v. Allstate Ins. Co. (Alaska 2000), 996 P.2d 1216, 1225-1226 ("From the perspective of insureds whose acts are alleged to have negligently, but not criminally or intentionally, been a cause of ......
  • Capitol Indem. Corp. v. Wright, No. CV-S-1602LRHLRL.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Nevada
    • September 29, 2004
    ...supervision claim against co-owner of daycare center where other co-owner molested children); C.P. ex rel. M.L. v. Allstate Ins. Co., 996 P.2d 1216, 1223 (Alaska 2000) (claim that insured negligently failed to prevent claimant from being harmed by intentional act satisfied the "accident" re......
  • Am. Family Mut. Ins. Co. v. Bower, Cause No. 1:07 CV 254.
    • United States
    • United States District Courts. 7th Circuit. United States District Court of Northern District of Indiana
    • November 5, 2010
    ...Co. v. Schrum, 149 F.3d 878 (8th Cir.1998); Doe v. Shaffer, 90 Ohio St.3d 388, 738 N.E.2d 1243 (2000), C.P. v. Allstate Ins. Co., 996 P.2d 1216, 1225–1226 (Alaska 2000) (“From the perspective of insureds whose acts are alleged to have negligently, but not criminally or intentionally, been a......
  • Request a trial to view additional results

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