Ennen v. Integon Indem. Corp.

• Decision Date: 20 January 2012
• Docket Number: No. S–13832.,S–13832.
• Citation: 268 P.3d 277
• Parties: Jacob ENNEN, Appellant, v. INTEGON INDEMNITY CORPORATION, GMAC Insurance Management Corporation, Craig Allen, and Allen Law Group, Appellees.Integon Indemnity Corporation and GMAC Insurance Management Corporation, Cross–Appellants, v. Jacob Ennen, Craig Allen, And Allen Law Group, Cross–Appellees.
• Court: Alaska Supreme Court

268 P.3d 277

Jacob ENNEN, Appellant,

v.INTEGON INDEMNITY CORPORATION, GMAC Insurance Management Corporation, Craig Allen, and Allen Law Group, Appellees.Integon Indemnity Corporation and GMAC Insurance Management Corporation, Cross–Appellants,

v.Jacob Ennen, Craig Allen, And Allen Law Group, Cross–Appellees.

No. S–13832.

Supreme Court of Alaska.

Jan. 20, 2012.

W. Michael Moody, Atkinson, Conway & Gagnon, and Dennis M. Mestas, Law Office of Dennis M. Mestas, P.C., Anchorage, for Appellant/Cross–Appellee Ennen.

Daniel T. Quinn and Marc G. Wilhelm, Richmond & Quinn, P.C., Anchorage, and John A. Bennett and Stuart D. Jones, Bullivant Houser Bailey P.C., Portland, Oregon, for Appellees/Cross–Appellants Integon Indemnity Corp. and GMAC Insurance Management Corp.

Thomas A. Matthews and Kenneth G. Schoolcraft, Jr., Matthews & Zahare, P.C., Anchorage, for Appellees/Cross–Appellees Craig Allen and Allen Law Group.

Before: CARPENETI, Chief Justice, FABE, WINFREE, and CHRISTEN, Justices.

OPINION

FABE, Justice.I. INTRODUCTION

Jacob Ennen was seriously injured while he was a passenger in Gordon Shanigan's car. Shanigan's insurer, Integon Indemnity Corporation (Integon), paid $50,000 to cover Shanigan's possible liability to Ennen. Under Alaska insurance statutes, Ennen would also likely have been entitled to underinsured motorist benefits under Shanigan's policy. However, Integon's policy was inconsistent with these statutes, and Integon told Ennen that he was not entitled to any additional money. Six years later, some time after Integon learned that its underinsured motorist provision violated Alaska insurance statutes, Integon paid Ennen underinsured motorist benefits plus interest and fees. Ennen sued Integon for bad faith. Integon filed a third-party complaint against Ennen's attorney, Craig Allen.

Before trial, the superior court dismissed Integon's claims against Allen on the ground that allowing Integon to implead Ennen's attorney would violate public policy. The superior court held that because Ennen did not own the insurance policy, Integon did not owe him a duty of good faith and fair dealing. Accordingly, the superior court concluded that Ennen had no cause of action for bad faith. But, in the event this ruling were to be reversed on appeal, the superior court made an alternate finding that while Integon had committed the tort of bad faith, Ennen had suffered no damages as a result. We reverse on both counts. The superior court was justifiably cautious about extending the bad faith cause of action to a new class of plaintiffs, but we conclude that Ennen, as an insured, is eligible under our existing case law to bring a cause of action for bad faith. We also conclude that Ennen established facts that would entitle him to damages. We affirm the dismissal of Integon's third-party claim against Allen on the alternative ground that Allen was not a proximate cause of Ennen's harm.

II. FACTS AND PROCEEDINGS

On November 7, 2000, Gordon Shanigan drove his car off of the Seward Highway, seriously injuring his passenger, Jacob Ennen. Shanigan was killed in the accident. Ennen was 18 years old and resided in Wasilla. Shanigan and Ennen had left a party earlier that evening, but only after overcoming attempts by other partygoers to prevent Shanigan from driving. A blood test documented that Shanigan had consumed alcohol and marijuana was found in the vehicle. Ennen required multiple intensive surgeries, including brain surgery, and physical and cognitive therapy.

Shanigan had an automobile insurance policy with Integon Indemnity Corporation, a subsidiary of GMAC Insurance Management Corporation (GMAC). This policy provided liability coverage “for bodily injury or property damage for which any insured becomes legally responsible because of an auto accident.” Believing that Shanigan would be liable to Ennen, Integon paid Ennen the $50,000 limit for bodily injury liability. In exchange, Ennen released Integon from any claims against it or Shanigan's estate.

Integon's policy also had a provision for underinsured motorist (UIM) benefits. The policy provided that Integon would pay damages to an “insured [,] caused by an accident[,] which such insured is legally entitled to recover from the owner or operator of an ... underinsured motor vehicle.” The policy defined “insured” as including “[a]ny person occupying your covered auto with the permission of the named insured.” As Shanigan's passenger, Ennen was thus an “insured” under the policy. The policy also provided that “[u]nderinsured motor vehicle means a land motor vehicle or trailer of any type to which a liability bond or policy applies at the time of the accident but the limits of that bond or policy are ... [l]ess than the limit of liability for this coverage.” Though this policy had been approved by Alaska's insurance regulators, it violated two Alaska statutes. Alaska Statute 28.22.101(e) and AS 28.20.440(b)(3) both require that automobile insurance policies issued in Alaska provide for uninsured and underinsured motorist coverage in the amount of $50,000 per person and $100,000 per accident. Integon's policy violated AS 28.22.101(e) and AS 28.20.440(b)(3) because the policy would only pay UIM benefits if the underinsured vehicle had liability coverage that was less than the UIM coverage in an insurance policy (here, $50,000 per person and $100,000 per accident). Both Integon and Ennen now agree that this limitation was unlawful. In this case, because Shanigan's liability coverage (provided by Integon) was exactly the same as the UIM coverage available to Ennen pursuant to Alaska statute, under the policy's language Ennen was not entitled to UIM benefits. Though the policy was legally incorrect, Ennen's attorney, Craig Allen, concluded that Ennen did not have a claim to any benefits beyond $50,000 in liability coverage based on the policy's language.

Integon later learned that it had been improperly handling Alaska UIM claims. In 2007 Integon paid Ennen's UIM benefits plus prejudgement interest. On January 11, 2008, Ennen filed a complaint in superior court against Integon, GMAC, and Integra Insurance Services, alleging bad faith. On April 14, 2008, Integon filed a third-party complaint against Allen and his law firm, arguing that he was responsible for some of any damages suffered by Ennen. On March 20, 2009, Integon made an offer of judgment of $300,000. Ennen declined. On April 1, 2009, the superior court dismissed Integon's complaint against Allen, holding that it would violate public policy to allow a defendant to implead the plaintiff's attorney for malpractice.

The case was tried without a jury for eight days in June and July 2009. During the trial, Integon filed two motions for a directed verdict under Alaska Rule of Civil Procedure 50. On February 2, 2010, the superior court issued an “Order and Decision on Defendants' Motions for Directed Verdict and Findings of Fact and Conclusions of Law.” The superior court concluded that because Ennen was not a “first-party insured” on Shanigan's policy, he had no cause of action for bad faith against Shanigan's insurer. But the superior court made alternate factual findings to apply in the event this ruling were to be reversed on appeal. The superior court found that Integon had recklessly, though not willfully, disregarded its obligations under Alaska law. However, the superior court found that Ennen had not suffered any damages and accordingly awarded neither compensatory nor punitive damages. The superior court awarded Integon $10,000 in Rule 68 attorney's fees.

Ennen appeals the ruling that he has no cause of action and also argues that he was entitled to damages. Integon appeals, arguing that it did not act in bad faith and that it deserved additional attorney's fees.

III. STANDARD OF REVIEW

We apply our independent judgment when reviewing a superior court's interpretation of statutes.¹ We review rulings on questions of fact under the clearly erroneous standard.² “We may affirm the superior court on any basis appearing in the record.” ³

IV. DISCUSSIONA. Ennen, As An Additional Insured, Has A Cause Of Action For Bad Faith Against Integon.

In State Farm v. Nicholson, we held that an insured's action against its insurer for breach of the implied covenant of good faith and fair dealing sounded in tort.⁴ David and Noreen Nicholson had a homeowner's insurance policy with State Farm and made a claim after a water main broke. ⁵ State Farm initially denied coverage but eventually agreed to cover the loss, although at a level less than satisfactory to the Nicholsons.⁶ The Nicholsons sued for bad faith, arguing that “bad faith handling of insurance claims should ... be recognized” as a tort. ⁷ We noted that courts in other jurisdictions had previously recognized such bad faith tort claims in two contexts. First, some courts had recognized a tort of bad faith when an insurer mishandled a claim made by the insured after a third party had sued the insured (a liability or third-party claim).⁸ Second, some courts, starting with the California Supreme Court in 1973, had recognized a tort of bad faith when an insurer mishandled a claim made by parties like the Nicholsons, where the insureds sought coverage for damage to themselves or their property (an indemnity or first-party claim). ⁹ In Nicholson, we recognized the latter cause of action. ¹⁰ We held that while not every breach of a contract could give rise to a tort claim, the “special relationship between the insured and insurer in the insurance context” justified the existence of a tort cause of action. ¹¹ We also stated that the “tort of bad faith in the insurance context can be traced to the covenant of good faith and fair dealing, a contractual duty implied in all insurance policies.” ¹²

But in O.K. Lumber Co. v. Providence Washington Insurance Co., we held that a tort victim could not sue the tortfeasor's insurer for bad faith.¹³ O.K. Lumber, a company...