Sauer v. Home Indem. Co.
| Decision Date | 13 November 1992 |
| Docket Number | No. S-4522,S-4522 |
| Citation | 841 P.2d 176 |
| Parties | John SAUER, as personal representative of the estate of Delores Gross, and Max Rush, as Court Appointed Trustee of the Bankruptcy Estate of Delores Gross, Appellants, v. The HOME INDEMNITY COMPANY, d/b/a the Home Insurance Company; Northern Adjusters; Larry Larson, Leroy Darling, Edward Helmic, Phillip Park, Ursula Park, Jane Martin, Carol Guillory, Charles Guillory, and Frances Scott, Appellees. |
| Court | Alaska Supreme Court |
Michael W. Flanigan, Clark, Walther & Flanigan, Anchorage, for appellants.
Laurence Keyes, Crosby & Sisson, Anchorage, for appellees Home Indem. Co., Northern Adjusters and Larry Larson.
Before RABINOWITZ, C.J., and BURKE, MATTHEWS, COMPTON and MOORE, JJ.
Delores Gross and Max Rush, the trustee of Gross' bankruptcy estate, sued Gross' insurer, the Home Indemnity Company. The bases of the suit were Home Indemnity Company's refusal to defend or indemnify Gross against claims of residents of her trailer park arising from a sewage leak and Home Indemnity Company's failure to communicate to Gross its denial of a defense or coverage. The trial court denied Gross' motions for summary judgment and granted summary judgment in favor of Home Indemnity Company and the insurance adjusters. John Sauer, the personal representative of the estate of Delores Gross, and Rush appeal.
In January 1983, sewage backed up at a trailer park owned by Delores Gross. 1 The sewage accumulated and froze to a depth of several inches over a portion of the park. Some residents of the park suffered significant hardship and property damage as a result of the spill.
After a complaint from a resident of the park on January 17, 1983, a health official for the Municipality of Anchorage (MOA) investigated the matter and found sewage pouring from pipes in the ground. On January 25, the MOA brought a public nuisance action to enjoin violations of local health ordinances and seeking civil penalties. Residents Carol Guillory, Charles Guillory, and Frances Scott intervened in the action six days later. Residents Leroy Darling, Edward Helmic, Phillip Park, Ursula Park, Kevin Scott and Jane Martin intervened on December 14, 1983. The MOA eventually dismissed its complaint, leaving the residents as plaintiffs. 2
At the time of the incident, the trailer park was insured under a comprehensive general liability policy issued by the Home Indemnity Company. 3 After the spill, Gross notified her insurance agent of the sewage problem at the trailer park. The agent in turn notified Home Indemnity of the claim on February 4. On the same day, Home Indemnity contacted Larry Larson, an adjuster with Northern Adjusters, and asked him to investigate the cause and extent of the loss and to obtain a non-waiver agreement from Gross. Home Indemnity did not ask Larson to provide an opinion as to coverage.
During his investigation Larson spoke with Gross 4 and her attorney and took photographs of the scene. He did not speak with any of the residents or with MOA officials who inspected the scene, nor did he seek Home Indemnity's approval to enlist outside help to determine the cause of the spill. From his investigation, Larson was unable to determine the cause of the sewage spill, but was also unable to rule out frozen pipes as a possible cause. On February 25, Larson prepared and sent a report to Home Indemnity. The report included copies of MOA's complaint, the temporary restraining order, and the first complaint in intervention (hereinafter, the Guillory complaint). On March 22, Home Indemnity ordered Larson to close the file on Gross' case. Larson did so two weeks later and had no further involvement with Gross' claim.
Before concluding his investigation, Larson proffered a non-waiver agreement to Gross through her attorney, but it was never signed. The non-waiver agreement did not indicate any possible basis for the denial of coverage. Home Indemnity did not assume the defense of Gross in the residents' suit. Although a routine audit of the file by Home Indemnity in August 1983 indicated that a reservation of rights letter should be sent to Gross, no such letter was ever sent. Home Indemnity did not communicate to Gross a decision to deny coverage until nearly five years later, when it filed its counterclaim for declaratory relief in the present action.
The residents' suit was tried on April 10, 1986. Neither Gross nor her attorney were present for the trial. 5 A jury awarded the residents compensatory and punitive damages, and judgment was entered against Gross. The amount of the judgment, including costs, fees and prejudgment interest, exceeded $600,000.
In May 1987, letters of inquiry from Gross' attorney to Home Indemnity prompted Home to review the Gross file. Home Indemnity's review indicated that Gross "submitted property damage claim and liability claim to Home Indemnity under policy" and that Home Indemnity The review also stated Still no denial of coverage or any other information was communicated to Gross or her attorney.
On April 29, 1988, after filing for bankruptcy, Gross and her bankruptcy trustee brought the instant action against Home Indemnity, Northern Adjusters and Larry Larson. The complaint alleged negligent failure to investigate, adjust, resolve or defend against the claims of the affected residents, and breach of contractual obligations owed to Gross either directly or as an intended third-party beneficiary. Home Indemnity answered and counterclaimed for declaratory relief on the issues of its duties to defend and indemnify Gross.
Gross moved for summary judgment seeking a determination that Home Indemnity was estopped from denying coverage because it failed to defend Gross or notify her of a coverage dispute. Home Indemnity countered with a cross-motion on the estoppel issue. Gross and Home Indemnity also filed cross-motions for summary judgment on the issue of whether the policy afforded coverage for the residents' claims. The trial court denied Gross' motions and granted summary judgment for Home Indemnity, concluding that Home Indemnity was not estopped from denying coverage and that coverage did not lie. Final judgment was entered in favor of Home Indemnity, Larson and Northern Adjusters.
Gross appeals, challenging the denial of her motion for summary judgment and the grant of summary judgment for the defendants. 6
Gross argues that Home Indemnity breached its duty to defend against the residents' claims and that Home Indemnity's failure to timely advise Gross of coverage questions should estop Home Indemnity from denying coverage in the present action. Thus, Gross argues, the superior court erred in denying her summary judgment motion and in granting Home's motion.
A party is entitled to summary judgment when there is no genuine issue of material fact and the party is entitled to judgment as a matter of law. Alaska R.Civ.Pro. 56(c). Here, the record developed on the parties' cross-motions for summary judgment reveals that no genuine issues of material fact exist as to Home Indemnity's liability. Thus we need only review the trial court's decision that Home Indemnity, Larson and Northern Adjusters, rather than Gross, were entitled to judgment as a matter of law. In reviewing the lower court's resolution of a question of law, we must adopt the rule of law which is most persuasive in light of precedent, reason and policy. CTA v. Active Erectors, 781 P.2d 1364 (Alaska 1989).
An insurer's duty to defend and its obligation to indemnify are separate and distinct contractual elements. Afcan v. Mutual Fire, Marine and Inland Ins. Co., 595 P.2d 638, 645 (Alaska 1979). As we stated in Afcan,
Depending upon the nature of the claim against the insured, the insurer may have an obligation to defend although it has no ultimate liability under the policy. We believe that the language of the standard duty to defend clause creates a reasonable expectation on the part of the insured whenever a complaint states a cause of action within, or potentially within, the policy coverage.... Thus, even though facts extrinsic to the pleadings may show that there will be no ultimate liability under the policy, if the complaint on its face alleges facts which, standing alone, give rise to a possible finding of liability covered by the policy, the insured has the contractual right to a proper defense at the expense of the insurer.
There can be little doubt that Home Indemnity breached its duty to defend Gross in the residents' action. The allegations contained in the Guillory complaint, filed before Home Indemnity began its investigation, clearly alleged facts potentially within the policy coverage. The policy obligated Home Indemnity to pay "all sums which [Gross] shall become legally obligated to pay as damages ... caused by an occurrence." The policy defines an occurrence as "an accident ... which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." The Guillory complaint alleged "gross negligence" and that the sewage leak was caused by "clogged or frozen pipes." 7 Such allegations, if proven, would have supported recovery under a negligence theory, which clearly falls within the coverage afforded by the policy. The presence of other allegations in the complaint which are not within policy coverage does not relieve Home Indemnity of its duty to defend. See Ferguson v. Birmingham Fire Ins. Co., 254 Or. 496, 460 P.2d 342, 347 (1969) ().
Home Indemnity argues that the...
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