O'Neill Investigations, Inc. v. Illinois Emp. Ins. of Wausau, 4429

CourtSupreme Court of Alaska (US)
Citation636 P.2d 1170
Docket NumberNo. 4429,4429
Decision Date27 November 1981

James D. Rhodes and Spencer C. Sneed, Cole, Hartig, Rhodes, Norman & Mahoney, Anchorage, for appellant.

Paul Waggoner, Anchorage, for appellee.



CONNOR, Justice.

This appeal involves the scope of an insurance company's duty to defend under a debt collector's professional liability insurance policy against an action brought by the state under the Alaska Unfair Trade Practices and Consumer Protection Act. AS 45.50.471-AS 45.50.561. Also at issue is whether, in the event no duty is found, the insurance company is estopped from denying coverage.

The facts are undisputed. On March 17, 1977, the attorney general issued a complaint against O'Neill Investigations, Inc., a debt collection agency, alleging numerous violations of the Consumer Protection Act and seeking injunctive relief, civil penalties, and an order "for restoration to individuals of monies or property acquired by defendants as the result of conduct complained of." 1 O'Neill promptly referred the complaint to Illinois Employers Insurance of Wausau (hereinafter Employers), with whom it was covered under a professional liability insurance policy, and requested that the law firm of Hartig, Rhodes, Norman & Mahoney be retained to defend it. By letter dated April 7, 1977, Employers "expressly denie(d) any obligation to defend in regard to the demand for injunctive relief," but authorized O'Neill to retain its choice of counsel and agreed to pay fifty percent of fees and costs along with "any civil damages that arise from the case." O'Neill responded on August 4, 1977, refuting Employers' assertion of limited coverage and demanding payment of its total defense costs. The following month, Employers' newly-retained attorneys informed O'Neill that their review of the policy and complaint indicated that there may be no coverage for the claims brought by the state, but requested that O'Neill provide it with "any information not included in the complaint" which would indicate otherwise. In December of 1977, Employers made a final settlement offer to pay half of O'Neill's defense costs. O'Neill rejected the offer on February 9, 1978. Employers commenced an action for declaratory judgment in the superior court on March 23, 1978, seeking an adjudication of the scope of its duty to defend O'Neill. The superior court held by summary judgment that Employers is under no obligation to defend the state's suit against O'Neill. O'Neill appeals from this judgment contending that Employers has a contractual duty to pay its defense costs and, alternatively, that Employers should be estopped from denying coverage under the insurance contract.

Initially O'Neill contends that the trial court improperly resolved material issues of fact in granting summary judgment in favor of Employers. There is no merit to this contention. The construction of an insurance contract is a matter for the court, unless its interpretation is dependent upon the resolution of controverted facts. Tsakres v. Owens, 561 P.2d 1218, 1222 (Alaska 1977); Day v. A&G Construction Co., Inc., 528 P.2d 440, 443 (Alaska 1974). O'Neill has failed to set forth any specific facts showing that it could produce admissible evidence reasonably tending to dispute or contradict the facts as presented by Employers, and thus has failed to demonstrate the existence of a material issue of fact. See Jennings v. State, 566 P.2d 1304, 1309 (Alaska 1977), Howarth v. First National Bank of Anchorage, 540 P.2d 486, 489-90 (Alaska 1970). Rather, O'Neill in opposition to summary judgment simply made generalized assertions that factual issues exist regarding the parties' expectations of coverage under the insurance contract and Employers' alleged acts of bad faith. Once the party seeking summary judgment has satisfied its burden of showing the absence of genuine issues of material fact and its right to judgment as a matter of law, generalized allegations of factual issues in pleadings and memoranda will not suffice to prevent entry of summary judgment. 2 E.g., Brock v. Rogers & Babler, Inc., 536 P.2d 778, 783 (Alaska 1975). Since there was no showing of any triable issues of material fact, this was an appropriate case for summary judgment.


O'Neill's main objection on appeal is with the trial court's interpretation of the insurance contract as providing no coverage, and thus no duty to defend in the state's suit against O'Neill. An insurer is obligated to provide a defense whenever the allegations in the complaint state facts which create an action within, or potentially within, the ambit of protection promised the policyholder. Afcan v. Mutual Fire, Marine & Inland Insurance Co., 595 P.2d 638, 645 (Alaska 1979); Theodore v. Zurich General Accident & Liability Insurance Co., 364 P.2d 51, 55 (Alaska 1961). Thus, the scope of an insurer's duty to defend is determined by construing the terms of the insurance contract in reference to the allegations in the complaint. Id.; 7C J. Appleman, Insurance Law and Practice § 4683, at 50 (1979). The defense provision of the liability insurance policy purchased by O'Neill from Employers provides in relevant part:

"As respects such insurance as is afforded by this policy, the Company shall:

(1) defend any suit against the Insured Member alleging negligent act, error or omission, and seeking damages on account thereof, even if such suit is groundless, false or fraudulent ..."

The state's complaint charges O'Neill with engaging in a course of unfair and deceptive trade practices designed to collect payments from alleged debtors. The proscribed acts pleaded include the making of various misrepresentations to alleged debtors, threatening alleged debtors with exposing their debts to employers and business associates, telephoning employers of alleged debtors before entry of judgment, and impersonating law enforcement officers. In its complaint, the state seeks an injunction against the alleged unlawful practices, 3 civil penalties, 4 and "such orders pursuant to AS 45.50.501(b) as (the court) deems appropriate for restoration to individuals of monies or property acquired by the defendants as the result of conduct complained of herein." 5

Employers has consistently argued, both before the superior court and this court, that it has no duty under the policy to defend O'Neill against the state's suit since the complaint does not allege a "negligent act, error, or omission" or "seek damages."

O'Neill does not argue that the policy covers claims for injunctive relief or civil penalties, but contends that the state's prayer for restoration of monies to injured individuals brings the action within the coverage of the policy. Relying heavily on the oft-stated principle that ambiguities in an insurance contract must be construed in favor of coverage, 6 O'Neill maintains that there is an ambiguity as to whether restitutionary relief such as that sought by the state constitutes "damages" within the intended coverage of the policy. The mere disagreement by the parties as to the interpretation of a contract does not necessarily create an ambiguity. United States Fire Insurance Co. v. Colver, 600 P.2d 1, 3 (Alaska 1979); Modern Construction Inc. v. Barce, Inc., 556 P.2d 528, 529 (Alaska 1976). An ambiguity exists "only when the contract, taken as a whole, is reasonably subject to differing interpretations." Id. Thus, we must determine whether the language of the defense provision is reasonably susceptible to an interpretation which would provide coverage for the state's restitutionary claim.

This is the first case in Alaska concerning the scope of an insurance company's duty to defend under a professional liability insurance policy against a suit brought by the state under the Consumer Protection Act. Two courts in other jurisdictions which have addressed this or a closely related question have found no coverage to exist under similar defense provisions. The Washington Supreme Court held that an insurer was not obliged to defend against a suit brought by the attorney general against an automobile dealer for violations of Washington's Consumer Protection Act under a policy which provided that the insurer would defend any suit "seeking damages for (unfair competition), even if such suit is groundless, false or fraudulent." Seaboard Surety Co. v. Ralph Williams' Northwest Chrysler Plymouth, Inc., 81 Wash.2d 740, 504 P.2d 1139, 1140 (1973). The court concluded that the state's complaint for injunctive relief, civil penalties and "such additional orders or judgments as may be necessary to restore to any person in interest any monies or property" acquired by violations of the Act, was not a suit "seeking damages" within the coverage of the policy. In Haines v. St. Paul Fire & Marine Insurance Co., 428 F.Supp. 435 (D.C.Md.1977) , the insureds, who were attorneys, sought a declaratory judgment that the insurer was required to defend them against a Security and Exchange Commission (SEC) action seeking injunctive relief and "such other and further relief as the Court may deem just and equitable." The United States District Court granted summary judgment in favor of the insurer, holding that there was no coverage under a professional liability insurance policy which obligated the insurer to defend any suit "alleging damages" since the court was limited in SEC actions to granting restitutionary and other equitable relief. In response to the plaintiffs' argument that the potential of a money judgment, in the form of either restitution or disgorgement, brought the SEC action within the scope of the policy, the court stated:

"Acceptance of plaintiffs' theory would require the court to find that all money judgments equal damages. This theory emanates not from the...

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