Estes v. Alaska Ins. Guar. Ass'n

• Decision Date: 26 May 1989
• Docket Number: No. S-2408,S-2408
• Citation: 774 P.2d 1315
• Parties: Jack ESTES, d/b/a Estes Music Studio, and Mavis Estes, Appellants, v. ALASKA INSURANCE GUARANTY ASSOCIATION, Appellee.
• Court: Alaska Supreme Court

Page 1315

774 P.2d 1315

57 USLW 2714

Jack ESTES, d/b/a Estes Music Studio, and Mavis Estes, Appellants, v. ALASKA INSURANCE GUARANTY ASSOCIATION, Appellee.

No. S-2408.

Supreme Court of Alaska.

May 26, 1989.

Rehearing Denied June 30, 1989.

Meredith A. Ahearn, Hagans, Brown, Gibbs & Moran, Anchorage, for appellants.

Timothy M. Lynch, Lynch, Crosby & Sisson, Anchorage, for appellee.

Before MATTHEWS, C.J., and RABINOWITZ, BURKE, COMPTON and MOORE, JJ.

OPINION

COMPTON, Justice.

After fire destroyed his music store, Jack Estes filed a claim with his insurer, Union Indemnity Insurance Company of New York (Union Indemnity). Ten months later, Union Indemnity denied Estes' claim on a number of grounds. One year and seven days after Union Indemnity's denial of his claim, Estes filed suit against it.

When Union Indemnity became insolvent, the Alaska Insurance Guaranty Association (AIGA) assumed Union Indemnity's obligations on its policies. AIGA moved for summary judgment against Estes on the ground that Estes had failed to comply with a policy provision requiring any suit to be filed "within one year after the loss occurs." The trial court granted summary judgment. We reverse.

I. FACTS AND PROCEEDINGS

Jack Estes operated a music store, Estes Music Studio, in Kenai, Alaska. On August 14, 1983, the store and its inventory were destroyed by fire. Soon after the fire, Estes submitted proof of loss to his insurer, Union Indemnity.

Union Indemnity completed its investigation of the loss in January 1984. On June 4, Union Indemnity denied Estes' claim on the grounds that Estes had concealed facts related to the loss, had failed to provide certain documents, and had caused the loss or increased the risk of loss.

Estes did not communicate further with Union Indemnity until March 25, 1985, when Estes' trial attorney, not of the firm that represented Estes during the investigation, wrote to Union Indemnity's attorney asking to be advised of Union Indemnity's position on the claim. There was no response to this letter, and on June 11, 1985, Estes filed a complaint against Union Indemnity. Default judgment was entered against Union Indemnity on October 24, 1985.

In July 1986 litigation in New York resulted in liquidation of Union Indemnity. Pursuant to the Alaska Insurance Guaranty Association Act, AS 21.80.010-.190, AIGA intervened and assumed Union Indemnity's obligations under the policy. The action was amended to substitute AIGA in place of Union Indemnity as the defendant. The default judgment was set aside, and Union Indemnity was dismissed from the action.

AIGA moved for summary judgment on the ground that Estes had failed to comply with a policy provision requiring any suit on the policy to be commenced "within one year after the loss occurs." The trial court granted the motion. Estes appeals.

II. DISCUSSION

On appeal Estes contends that in order to bar his claim for failure to comply with the one-year limit on commencement of suit clause, AIGA must show that it or Union Indemnity was prejudiced by his failure to comply. He also contends that Union Indemnity's delay in processing his claim constitutes a waiver of the one-year time limit and, alternatively, that AIGA should be estopped from asserting the one-year time limit.

AIGA argues that waiver or estoppel arising from Union Indemnity's actions cannot be asserted against AIGA.

When reviewing a grant of summary judgment this court must determine whether there exists a genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. Zeman v. Lufthansa German Air Lines, 699 P.2d 1274, 1280 (Alaska 1985). The party moving for summary judgment has the burden of proving the absence of issues of material fact. McGee Steel Co. v. State, 723 P.2d 611, 615 (Alaska 1986). "The party opposing summary judgment is not required to show it will prevail at trial. But if the movant establishes prima facie that it is entitled to judgment as a matter of law, the party opposing summary judgment must demonstrate that there exists a genuine issue of material fact to be litigated." Wassink v. Hawkins, 763 P.2d 971, 973 (Alaska 1988).

A. AN INSURANCE COMPANY SEEKING TO ENFORCE A CONTRACTUAL MODIFICATION OF THE STATUTE OF LIMITATIONS MUST DEMONSTRATE THAT IT HAS SUFFERED PREJUDICE AS A RESULT OF THE CLAIMANT'S DELAY IN BRINGING SUIT.

The multi-peril policy issued to Estes by Union Indemnity includes a five-page list of conditions and definitions. At the bottom of the list's second page, under the heading "Conditions Applicable to Section I," there appears the following provision:

15. Suit. No suit shall be brought on this policy unless the insured has complied with all the policy provisions and has commenced the suit within one year after the loss occurs.

Estes concedes that his suit was not commenced within one year after the loss occurred. But he contends that the limitation provision should be enforced only upon proof by AIGA that AIGA has suffered prejudice as a result of his failure to file suit within the period. Though we have not held heretofore that such proof is required, Estes argues that the reasoning of prior cases supports such a requirement.

AIGA argued successfully before the trial court that the court should enforce the contractual modification of the statute of limitations without regard to any question of prejudice.

This court and others have recognized that insurance policies differ from traditional private contracts. See Weaver Bros. v. Chappel, 684 P.2d 123, 125 (Alaska 1984); Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193, 196 (1977). "An insurance contract is not a negotiated agreement; rather its conditions are by and large dictated by the insurance company to the insured." Id. An insured is charged with knowledge of these conditions not because he has read or understood them, but because business utility so demands. Cooper v. Government Employees Ins. Co., 51 N.J. 86, 237 A.2d 870, 873 (1968).

One commentator aptly characterizes conditions to an insurance policy as an exercise of "private lawmaking" by the insurance company. Oldfather, Toward a Usable Method of Judicial Review of the Adhesion Contractor's Lawmaking, 16 U.Kan.L.Rev. 303 (1968). Oldfather argues that to enforce such provisions uncritically is, in effect, to sanction arbitrary lawmaking. He suggests that courts should adopt some uniform method for reviewing such provisions.

In Weaver Bros. v. Chappel, 684 P.2d 123 (Alaska 1984), we reviewed a policy provision requiring prompt notice of loss. We stated:

In short, the notice requirement is designed to protect the insurer from prejudice. In the absence of prejudice, regardless of the reasons for the delayed notice, there is no justification for excusing the insurer from its obligations under the policy. We recognize the strong societal interest in preserving insurance coverage for accident victims so long as the preservation is equitable for all parties involved.

Id. at 125 (emphasis added).

In Weaver Bros., we reviewed the notice provision under the following standard: Does the application of the notice provision in this case advance the purpose for which it was included in the policy? The question we must now consider is whether the standard adopted in Weaver Bros. should be applied to policy clauses that are similar to notice provisions.

A number of courts have adopted the Weaver Bros. approach to notice provisions. Of these, some have extended that approach to other policy clauses. See Zuckerman v. Transamerica Ins. Co., 133 Ariz. 139, 650 P.2d 441 (1982); ACF Produce v. Chubb/Pacific Indem. Group, 451 F.Supp. 1095 (E.D.Pa.1978) (applying Pennsylvania law). Others have chosen not to do so. See Simms v. Allstate Ins. Co., 27 Wash.App. 872, 621 P.2d 155 (1980); Donahue v. Hartford Fire Ins. Co., 110 R.I. 603, 295 A.2d 693 (1972).

The Washington Court of Appeals held in Washington Insurance Guaranty Association v. Hill, 19 Wash.App. 195, 574 P.2d 405 (1978), that a showing of prejudice is required before an insurance company may enforce a provision requiring prompt notice of loss. In Simms v. Allstate, the same court held that a showing of prejudice is not required for enforcement of a one-year time limit on a commencement of suit clause. The court compared notice provisions with time limit on commencement of suit clauses: "The purpose of the former is to avoid prejudice; the latter is simply a contractual modification of the statute of limitations." 621 P.2d at 158. Though the court apparently considered this distinction significant, it is not clear that there is any distinction at all. The primary purpose of contractual modifications of the statute of limitations is to avoid prejudice, specifically, to avoid the extra danger of fraud and mistake associated with stale claims. See Fireman's Fund Ins. Co. v. Sand Lake Lounge, Inc., 514 P.2d 223, 226 (Alaska 1973). Further, prejudice resulting from delay in filing suit seems no more difficult to prove than prejudice resulting from delay in providing notice. If the insurance company could show, for example, that witnesses had died or their memories faded during the insured's delay in filing suit, or that other evidence had been lost, enforcement of the contractual time limit on commencement of suit might be appropriate. ¹

The court in Simms also opined that to apply the prejudice requirement to limits on action would be "to permit an insured, once he has purchased his policy, to file it away and forget it, and then defend his neglect to commence suit within the stipulated period on the ground that the insurer was not prejudiced thereby." 621 P.2d at 158 (quoting Donahue, 295 A.2d at 694). This opinion is defensible, but is not relevant to the enforceability of a clause not bargained for. The court's use of the term "stipulated period" is misleading. The contractual modification of the statute of limitations is not bargained for, nor...