Guin v. Ha
| Decision Date | 16 March 1979 |
| Docket Number | No. 3742,3742 |
| Citation | 591 P.2d 1281 |
| Parties | Melba GUIN, Appellant, v. Young H. HA, M.D., Appellee. |
| Court | Alaska Supreme Court |
Before RABINOWITZ, C. J., and CONNOR, BOOCHEVER, BURKE and MATTHEWS, JJ.
This case arises out of a medical malpractice suit brought by Melba Guin, appellant, against Young H. Ha, M.D., appellee. The principal issue raised on appeal requires us to determine if an insurer is liable for prejudgment interest which, when added to liability damages, exceeds the limitation on liability under the applicable insurance contract. This narrow issue is one of first impression in Alaska. A subsidiary question involves the determination of the proper rate of interest under Alaska's general interest statute. We have concluded that the insurer is not liable for prejudgment interest in excess of policy limits, and we do not reach the subsidiary issue.
Dr. Young H. Ha performed surgery upon Melba Guin on or about July 8, 1974. In the course of the surgery, Dr. Ha accidentally severed the radial nerve in Guin's right arm, partially paralyzing her right hand. In June of 1975, Guin brought suit against Ha to recover damages for the injuries she sustained as a result of the operation. Dr. Ha's answer denied liability. After partial discovery and pretrial skirmishing, the parties entered into settlement negotiations and reached a tentative settlement agreement which fixed damages at $150,000.00.
Dr. Ha carried three insurance policies protecting him against malpractice liability. The first layer of protection, issued by Manufacturers and Wholesalers Indemnity Exchange, provided $25,000.00 coverage. The second layer provided coverage between $25,000.00 and $100,000.00 and the third layer provided coverage above $100,000.00. The present appeal involves only the first layer of coverage. Manufacturers and Wholesalers Indemnity Exchange is represented by Alaska Guaranty Association (hereinafter "Alaska Guaranty" or "insurer"). 1 Alaska Guaranty denied liability, responsibility, or coverage for prejudgment interest, contending that its liability was limited to $25,000.00, exclusive of costs and attorney's fees.
Complications involving the second and third layer insurance carriers delayed final settlement, but an acceptable settlement agreement was ultimately concluded between Guin and Ha on July 13, 1977, some three years after the date of the operation. Under the terms of the agreement, Alaska Guaranty agreed to pay to Guin a total sum of $28,519.54, representing the limits of liability ($25,000.00), costs ($919.54), and attorney's fees ($2,600.00). In consideration of this sum, Guin released Ha and Alaska Guaranty of further liability for injuries arising out of the operation, expressly reserving, however, the issue as to the insurer's liability for prejudgment interest in excess of policy limits. The parties agreed to submit that issue to the superior court for declaratory judgment on stipulated facts. 2
On July 26, 1977, the parties filed with the superior court a stipulation of facts and request for declaratory relief. The stipulation recited the terms of the settlement and requested the court to resolve two points of contention between the parties, to wit: the insurer's liability for prejudgment interest and the rate of such interest, if the insurer was found liable. 3
Based upon the stipulated facts, memoranda submitted by the parties, and oral argument before Judge Gerald Van Hoomissen, the superior court denied Guin's motion for declaratory judgment and granted declaratory judgment in favor of Alaska Guaranty. Finding that prejudgment interest is an element of damages under Alaska law, the court concluded that the insurer was not obligated to pay such interest in excess of the policy's damage limits.
From this order denying her motion for declaratory judgment, appellant Guin appeals.
Alaska's general interest statute, AS 45.45.010, provides in subsection (a) that the rate of interest in the state is eight per cent per year on money after it is "due." In prior Alaska cases, 4 we have held that money becomes "due" within the meaning of AS 45.45.010(a) when the cause of action accrues. Thus, AS 45.45.010(a) imposes on defendants in tort actions the obligation to pay prejudgment interest computed from the date of injury.
In this appeal, the central issue is whether the obligation to pay prejudgment interest exceeding policy limits should be shifted from an insured defendant, who is concededly liable for such interest, to an insurer with whom the defendant holds a policy. 5 An obligation to pay such interest does not arise by virtue of the mere fact that the parties have entered into an insurance contract. In order to hold the insurer liable for such prejudgment interest, the insurer must have assumed such an obligation in the contract or, alternatively, public policy must intervene and impose the obligation despite the terms of the insurance contract. 6
Guin argues that since a tort defendant is liable for prejudgment interest, public policy requires that the defendant's insurance carrier should be liable for such interest, regardless of policy language, because the insurance company has the use and benefit of the money between the date of injury and the date of judgment.
On the other hand, Alaska Guaranty argues that the obligations owed by the insurance carrier to its insured are defined exclusively by the insurance contract. Relying on prior decisions of this court which have characterized prejudgment interest as damages, the insurer argues that it is not liable for such interest to the extent that it exceeds the limitation on damages contained in the policy.
We shall first examine the insurance contract to determine if it imposes upon the insurer an obligation to pay prejudgment interest in excess of policy limits. We shall then turn to an analysis of the public policy arguments advanced by Guin to determine if they require insurers to assume liability for prejudgment interest exceeding policy limits regardless of the terms of the insurance contract.
Judicial tribunals are particularly sensitive to the rights of both the insured and third parties when disputes arise concerning the coverage afforded by insurance contracts. In the past, we have carefully avoided strict adherence to traditional contractual principles in insurance cases, preferring to adopt a more flexible approach when insurance policies are involved:
The purpose of contract interpretation is to ascertain and effectuate the reasonable expectations of the parties. We have noted, however, that interpretation of insurance contracts is controlled by somewhat different standards. This is due, in part, to the inequality in bargaining power and to the fact that certainty is required to ascertain rates. An insurance policy may be considered a contract of adhesion, and as such, should be construed to provide the coverage which a layperson would have reasonably expected, given a lay interpretation of the policy language. It is not required that ambiguities be found in the policy language as a condition precedent for such construction.
Stordahl v. Government Employees Insurance Co., 564 P.2d 63, 65-66 (Alaska 1977) (footnotes omitted). This approach, however, is not to be used as an instrument for ignoring or rewriting insurance contracts. An insurance policy is essentially contractual in nature. Thus, "the liability of an insurer and the extent of the loss under a policy of liability or indemnity insurance must be determined, measured, and limited by the terms of the contract." 15 G. Couch, Cyclopedia of Insurance Law § 56:1 (2d ed. 1966). Against the background of these principles, we turn to an examination of the insurance contract in this case.
The provisions of the insurance policy, insofar as they are relevant to the issue of prejudgment interest, provide:
3. As respects the coverage afforded by this Insurance, the Underwriters will defend any claim or suit in the name of and on behalf of the Assured and will pay the costs and expenses incurred in such defence. . . .
4. Irrespective of the number of persons or entities named as Assured in the Schedule or added by endorsement, the liability of the Underwriters hereunder for damages shall not exceed the limit of liability set out in the Schedule in respect of any one patient, nor the limit of liability set out in the Schedule in respect of all claims made against the Assured during the currency of this Insurance . . ., except that, subject to the provisions contained in Paragraph 3, the Underwriters will pay the costs and expenses incurred in the defence of any claim or suit.
Under paragraph 2, the insurer has agreed to pay "all sums which the Assured shall by law be held liable to pay for damages." Pursuant to paragraph 4, the damage liability clause is subject to an amount limitation of $25,000.00. Under paragraph 3, the insurer has agreed to defend the insured and to pay the "costs and expenses incurred in such defence." This supplemental payment clause is not subject to any amount limitation. Furthermore, under paragraph 4, costs and expenses are made payable by the insurer in addition to the otherwise applicable limit on damage liability....
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