Coughlin v. Government Employees Insurance Co.

69 P.3d 986, 2003 Alas. LEXIS 30, 2003 WL 1901126

• Court: Alaska Supreme Court
• Decided: April 18, 2003
• Docket: S-10072
• Status: Published

Opinions

OPINION

FABE, Chief Justice.

I. INTRODUCTION

Colleen Coughlin received a $10,000 payment for medical expenses for injuries she sustained in a two-car accident. Her insurance company, by terms of the insurance policy, acquired a lien on any recovery Coughlin obtained from the other driver. Coughlin settled with the other driver's insurance company for $40,000 and assumption of responsibility for payment of the $10,000 for medical coverage. Coughlin asserted she had exhausted the $50,000 facial limit of the other driver's policy and that she could therefore draw upon her own underinsured motorist coverage. Coughlin's insurance company claims that she failed to exhaust the policy limits of the other driver's insurance. We conclude that Coughlin did exhaust the policy limits of the other driver's insurance policy and therefore reverse the superior court's grant of summary judgment in favor of Coughlin's insurance company.

II. FACTS AND PROCEEDINGS

Colleen Coughlin was injured in an automobile accident in August 1998. She was insured by Government Employees Insurance Company (GEICO), and the driver of the other car, Kevin Babosky, was insured by Colonial Insurance. Babosky's policy had a facial limit of $50,000 per person. Coughlin's policy covered $10,000 in medical payments and $50,000 in underinsured motorist coverage (UIM). GEICO paid Coughlin $10,000 for medical expenses, resulting in a medical lien against any recovery Coughlin made.

Coughlin filed suit against Babosky and offered in April 1996 to settle the case for the policy limits of $50,000, plus attorney's fees and prejudgment interest. Babosky rejected the offer and the parties settled on different terms later that year. Under the terms of the settlement, Coughlin released Babosky and Colonial from all liability in exchange for $40,000 "and the assumption of responsibility for the subrogation claim of Geico Insurance Company, in the amount of TEN THOUSAND DOLLARS." Before signing the settlement agreement, Coughlin's attorney faxed a letter to a GEICO claims adjuster, Colrain Ingersoll, on July 3, 1996 asking for GEICO's consent to Coughlin's settlement with Colonial. The letter stated that Cough-lin was "receiving policy limits from Colonial [of] $50,000." Ingersoll signed the consent request from Coughlin and faxed it back to Coughlin's counsel on July 10, 1996. Cough-lin then signed the settlement agreement with Colonial on July 12, 1996.

GEICO settled its subrogated claim for Coughlin's medical expenses with Colonial for $5,000. It is unclear from the record on what date this claim was settled, though the claims representative for GEICO stated she believed the claim was settled "several months" before Coughlin settled with Colonial. However, a letter from counsel for Colonial dated July 5, 1996 implies that the matter was as of that time unresolved by stating that "Colonial has agreed to address the Geico lien directly."

Coughlin sent a letter to GEICO in March 1998 requesting that it pay $50,000 under Coughlin's underinsured motorist coverage. The letter asserted that Colonial had paid its policy limits of $50,000 and requested attorney's fees and interest from GEICO. GEI-CO denied any underinsured motorist payment, claiming that Coughlin did not receive policy limits from Colonial because she settled for $40,000 and GEICO settled for $5,000 for the medical lien, totalling only $45,000 on a facial limit of $50,000. GEICO responded that even if Colonial had paid $50,000, Coughlin still would not have received policy limits because she did not receive attorney's fees or interest. GEICO maintained that Coughlin should have known that Alaska law defined policy limits to include attorney's fees and interest because Coughlin requested those add-ons in her letter to GEICO requesting the underinsured motorist payment.

Coughlin filed suit against GEICO in August 1999, alleging bad faith and fraud and seeking damages under the underinsured motorist provision of her policy. In September 2000 both sides moved for summary judgment. Coughlin argued that Ingersoll's consent letter established that Coughlin received policy limits from Colonial. Coughlin further argued that GEICO could not then avoid underinsured motorist liability by settling its subrogated claim for less than the face value of the medical lien and that if GEICO settled for less just to avoid underin-sured motorist payment, it acted in bad faith. GEICO opposed Coughlin's motion.

GEICO argued in its motion for summary judgment that Coughlin did not settle for policy limits with Colonial because she only received $45,000 on a liability limit of $50,000. GEICO further argued that Coughlin did not settle for policy limits because she did not receive prejudgment interest or attorney's fees. GEICO asserted that counsel for Coughlin knew from experience that the sub-rogated $10,000 medical lien would settle for less than that amount. Coughlin responded that she was not told of GEICO's settlement with Colonial, that the settlement of the medical lien occurred after Coughlin's settlement with Colonial, and that the settlement she reached with Colonial-for $40,000 plus responsibility for GEICO's $10,000 medical lien-constituted policy limits.

The superior court, Judge Charles R. Pen-gilly presiding, granted GEICO's motion for summary judgment. The court held that even if Coughlin had received $50,000 from Colonial, she did not settle for policy limits because this amount did not include the attorney's fees that Colonial otherwise would have had to pay. The court advised that if Coughlin was confused about what the policy limit would be she should have pursued a declaratory action. The court posited that it was "common knowledge" that insurance companies do not resolve claims based on medical liens for the face value of the lien and that Coughlin should have known that she was settling for much less than $50,000. The court also concluded that Ingersoll's signature on the consent letter was not an acceptance of Coughlin's agreement with Colonial as one for policy limits. Rather, the court held that her signature only allowed Coughlin to pursue excess coverage; It was not a commitment to provide such coverage. Finally, the court stated that such commitment, even if it were found to exist, was based on misrepresentations by Coughlin because she never actually received policy limits from Colonial As a result, the court refused to allow her to characterize the settlement in such a way as to be eligible for additional recovery. Coughlin appeals the grant of summary judgment.

III. DISCUSSION

A. Standard of Review

We review a grant of summary judgment de novo.¹ We apply our independent judgment to questions of statutory interpretation,² adopting the rule of law "that is most persuasive in light of precedent, reason, and policy."³ When reviewing statutory interpretation, we apply a sliding scale in which "[the plainer the meaning of the language of the statute, the more convincing any contrary legislative history must be.⁴

B. Coughlin Settled for the Full Policy Limits.

The parties do not dispute that AS 28.20 445(e)(1)⁵ requires a claimant to exhaust the underlying liability policy limits before pursuing underinsured motorist benefits.⁶ What is in dispute is whether Coughlin received policy limits from Colonial. Repeating its argument before the superior court, GEICO asserts that Coughlin did not exhaust Babosky's policy limits because Colonial only paid out $45,000. GEICO argues alternately that Colonial's "actual" policy limit exceeded $50,000 because Colonial was required to pay costs, interest, and attorney's fees and Coughlin received none of these. We reject both of these arguments. We hold both that Coughlin exhausted Colonial's policy limits when she received $40,000 in cash plus Colonial's agreement to assume responsibility for her $10,000 medical lien and that costs, interest, and attorney's fees are not to be included in determining whether policy limits have been exhausted for the purpose of drawing upon underinsured motorist coverage.

1. The subrogated medical lien

In exchange for signing a settlement releasing Babosky and Colonial from future legal lability, Coughlin received $40,000 in cash from Colonial and Colonial agreed to assume responsibility for GEICO's subrogat-ed $10,000 medical lien. GEICO at some point settled this medical lien with Colonial for $5,000. As a result, Colonial in actuality only paid out $45,000 on Coughlin's claim against Babosky.

According to AS 28.20.445(e)(1), uninsured and underinsured motorist coverage cannot be drawn upon "until the limits of liability of all bodily injury and property damage liability bonds and policies that apply have been used up by payments, judgments or settlements." In Curran v. Progressive Northwestern Insurance Co., we interpreted this statute to mean that the insured must " 'exhaust' or 'use up' all underlying lability coverage before recovering under [an underin-sured motorist] policy."⁷ GEICO argues that Curran defeats Coughlin's claim because Coughlin did not exhaust her underlying liability coverage and thus cannot draw on her underinsured motorist policy.

But neither fact pattern in Curran, a consolidation of two cases, resembles the present case. In the first fact pattern in Curran, the injured party, who suffered serious injuries in a single-vehicle accident while riding as a passenger with her husband, offered to give both her own insurance company and that of her husband a $50,000 "credit" against her claims prior to seeking underin-sured motorist coverage.⁸ But because this proposed "credit" was not a settlement, judgment, or payment from her husband's insurer, we held that the injured party had not satisfied the requirements of AS 28.20.445(e)(1).⁹ In the second fact pattern addressed in Curran, the injured party in a two-vehicle accident was offered a $60,746.03 settlement for a $50,000 insurance policy ¹⁰ by the insurance company for the driver of the other car.¹¹ The injured party refused this settlement offer but eventually settled for $25,000.¹² This amount was far less than the policy limits and consequently precluded the applicability of underinsured motorist coverage.¹³ Curran, therefore, is of little assistance in resolving the present issue other than to affirm that policy limits must be exhausted before underinsured motorist coverage can be drawn upon.

The present case does not involve Coughlin offering GEICO a credit against her underin-sured motorist coverage, whereby she would be able to draw upon her underinsured motorist coverage but reduce her recovery by the amount necessary to exhaust her other claims. We held in Curran that this would defeat the purpose of AS 28.20.445(e)(1) because it would "allow a UIM claimant like Curran to bypass the liability insurer altogether and effectively use UIM coverage as primary insurance.¹⁴ Coughlin, however, is making no such attempt here. Coughlin settled her claim for what to her was worth $50,000-a $40,000 payment plus payment of the $10,000 medical lien. GEICO claims that the $10,000 medical lien was only worth $5,000 because that is what GEICO settled for with Colonial. However, Coughlin cannot be held responsible for what GEICO ultimately does with the claim. GEICO was under no obligation to settle the claim for $5,000 and could have chosen to pursue the fall amount in litigation if necessary.

Furthermore, it is unlikely that Coughlin could have settled for more than the combined $40,000 payment and $10,000 medical lien. The facial limit of the Colonial policy was $50,000. The superior court concluded that Coughlin, through her legal counsel, should have known that the medical lien would settle for less than face value because this is common knowledge. But even if true, there is no reason to believe that Colonial would have offered to settle for a $45,000 payment and assumption of responsibility for payment of the $10,000 medical lien, which according to GEICO's reasoning would have resulted in a final payout of $50,000. In effect, the reasoning of the superior court would discourage settlements, a result we wish to avoid,¹⁵ by preventing the assumption of liens as part of a settlement agreement. The ultimate value of the lien cannot be known definitively beforehand, and insurance companies are unlikely to settle claims for potentially more than the face value of the policy limits in the hope that they will be able to settle the assumed lien for less than its stated amount.

While it is true that Coughlin could have settled with Colonial for a single payment of $50,000 and then herself paid GEICO the $10,000 reimbursement for the medical payments GEICO made through its policy with her, there is nothing legally requiring Cough-lin to do this. The parties reaching the agreement cannot be expected to settle for what would be more than the face value of the policy if the terms of the settlement were fully enforced and collected. The value of the settlement to both Coughlin and Colonial was $50,000 at the time the settlement agreement was reached; that is the measure by which to determine whether Coughlin has exhausted the face value of the Colonial policy.

2. Policy limits do not include prejudgment interest and attorney's fees for the purpose of drawing upon underinsured motorist coverage.

GEICO argues that even if Coughlin did settle for $50,000, this is less than her full policy limits because it does not include attorney's fees and prejudgment interest which, GEICO contends, would raise Cough-lin's actual policy limits well above $50,000. In support of this argument, GEICO relies on cases in which we have held that insurers who contract to pay all litigation costs are required therefore to pay Alaska Civil Rule 82 attorney's fees and prejudgment interest.¹⁶ While the cases that GEICO cites do support this proposition,¹⁷ they are not dis-positive of the present case. The cases cited by GEICO and the dissent do not purport to interpret the statutory meaning of "policy limits"; they simply consider what meaning the term should be given in a particular contractual setting-that is, for purposes of determining the amount that an insurer must tender to satisfy an insured's unqualified demand for "policy limits."

We have considered items such as attorney's fees and prejudgment interest to be in addition to the face amount of policy limits.¹⁸ They can be considered incorporated into overall policy limits to the extent that insurance companies are legally obligated to pay them, but they do not necessarily bear on the question of whether "limits of lability ... have been used up" for purposes of AS 28.20.

We conclude that the term "limits of liability" as used in the statute refers to facial coverage, and not extras. In reaching this conclusion we look to the purpose of the statute: to ensure that UIM coverage is secondary rather than primary coverage while at the same time making the benefit of UIM coverage broadly available.¹⁹

Given the dual purposes of AS 28.20. 445(e)(1), it is difficult to believe that the legislature would use the term "limits" in a sense that would engender litigation and uncertainty in many cases. In such cases as Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin, "policy limits" is a concept that describes the maximum amount that an insurance company would have to pay under a policy if it went to trial and received an adverse verdict.²⁰ But the amount of policy limits under this definition is sometimes a guess-as where attorney's fees are a percentage of the expected verdiet rather than a percentage of the facial coverage-and it would be unlikely that the legislature in enacting AS 28.20.445(e)(1) would have intended to incorporate such an uncertain concept in a context where the purpose is not maximization of coverage but the establishment of a definite and readily ascertainable threshold.²¹

Indeed, there are strong policy reasons for not including attorney's fees and prejudgment interest in the determination of whether policy limits have been satisfied for the purpose of invoking underinsured motorist coverage. As with the ultimate value of liens, the monetary value of attorney's fees and prejudgment interest is quite speculative. Until the matter is concluded, it may be difficult if not impossible to determine what attorney's fees and prejudgment interest will be. We are wary of starting a new litigation industry centered on disputing attorney's fees for settlement agreements and making sure that no dime is left on the table. This would unjustifiably hinder settlement negotiations by virtually eliminating the possibility of certainty that one has settled for the full face value of one's policy limits. We therefore hold that a policy limit is exhausted for the purposes of invoking underinsured motorist coverage when the full face value of the policy is paid through "payments, judgments or settlements,"²² regardless of how payment of attorney's fees and prejudgment interest is resolved. The dissent believes that this ruling will "burden the wrong people" by transferring to the UIM insurer the expenses of defending the alleged tortfeasor and challenging the plaintiffs damages claims.²³ Consequently, according to the dissent, UIM coverage will become more expensive.²⁴ We do not anticipate this result. If the plaintiff sustained injuries in excess of the face value of the tortfeasor's policy, that excess remains regardless of whether the plaintiff received attorney's fees and prejudgment interest.

Thus, we hold that the policy limits are exhausted when the face value of the policy is paid to the insured; any payment or nonpayment of attorney's fees and prejudgment interest is independent of this determination.

IV. CONCLUSION

In summary, as a matter of statutory construction, "limits of liability of all bodily injury ... policies," as that phrase is used in AS 28.20. refers only to the face amount of coverage. Moreover, Colonial, when it agreed to pay Coughlin $40,000 in addition to assuming responsibility for the $10,000 GEI-CO medical lien, used up the $50,000 face amount of the policy. Accordingly, we REVERSE the grant of summary judgment and REMAND for proceedings consistent with this opinion.

EASTAUGH, Justice, dissenting.

1 . Cabana v. Kenai Peninsula Borough, 50 P.3d 798, 801 (Alaska 2002).

2 . Tesoro Petroleum Corp. v. State, 42 P.3d 531, 535 (Alaska 2002); Progressive Ins. Co. v. Simmons, 953 P.2d 510, 512 (Alaska 1998).

3 . Progressive, 953 P.2d at 512 (quoting Guin v. Ha, 591 P.2d 1281, 1284 n. 6 (Alaska 1979).

4 . Curran v. Progressive Northwestern Ins. Co., 29 P.3d 829, 831-32 (Alaska 2001).

5 . AS 28.20.445(e)(1) provides:

(e) Uninsured and underinsured motorists coverage

(1) may not apply to bodily injury, disease, or death of an insured or damage to or destruction of property of an insured until the limits of Liability of all bodily injury and property damage liability bonds and policies that apply have been used up by payments, judgments or settlements.

6 . Curran, 29 P.3d at 833.

7 . Id.

8 . Id. at 830.

9 . Id. at 834-38.

10 . The settlement amount included a base payment of $40,000 and an additional $20,746.03 for prejudgment interest and attorney's fees. Id. at 831 n. 3.

11 . Id. at 831.

¹²

13 . Id. at 835.

¹⁴

15 . Anchorage Sch. Dist. v. Anchorage Daily News, 779 P.2d 1191, 1193 (Alaska 1989) ("'We recognize the important public policy served by those measures which encourage settlement."); Interior Credit Bureau, Inc. v. Bussing, 559 P.2d 104, 106 (Alaska 1977) ("Stipulations and settlements are favored in law because they simplify, shorten and settle litigation without taking up valuable court resources.").

16 . It should be noted that it is unclear from the record and from the trial proceedings below if payment of prejudgment interest was included in Colonial's insurance contract with Babosky, that being the insurance contract which Coughlin would need to exhaust before she could draw upon her underinsured motorist coverage from GEICO. As we held in Farquhar v. Alaska National Insurance Co., the inclusion of prejudgment interest in policy limits is dependent upon the contractual terms of the insurance policy. 20 P.3d 577, 580-81 (Alaska 2001); see also Schultz v. Travelers Indem. Co., 754 P.2d 265, 267 (Alaska 1988) ("In determining what constitutes the maximum limits of insurance coverage, i.e., policy limits, it is necessary for the court to review the contractual obligations undertaken by the insurer in the insurance policy in question in light of the applicable statutes, regulations and court opinions which have addressed this issue."). Because we hold that prejudgment interest is not included in the policy limits for the purpose of determining if policy limits had been exhausted, this issue is moot and need not be addressed upon remand.

17 . See Safety Nat'l Cas. Corp. v. Pacific Employers Ins. Co., 927 P.2d 748, 751 (Alaska 1996) ("'Under Alaska law it is established that primary policy limits include, among other things, facial limits and attorney's fees taxed under Rule 82, to the extent of coverage."); Bohna v. Hughes, Thorsness, Gantz, Powell & Brundin, 828 P.2d 745, 768 n. 58 (Alaska 1992) ("[The term 'policy limits' is self-explanatory even without any prior cases. Policy limits necessarily are what an insurance company would have to pay under its policy if it went to trial and received an adverse verdict."); Schultz, 754 P.2d at 267 ("[Plolicy limits ... include{ ] the amount of attorney's fees which would have been awarded had this case gone to trial.").

18 . In describing a settlement offer in Curran, we stated that "a $20,746.03 additional payment for prejudgment interest and attorney's fees would not have counted against the policy limit." 29 P.3d at 831 n. 3.

19 . The dissent argues that no relevant conceptual difference exists between UIM and excess coverage. Dissent at 995. However, the statute's concern with making UIM coverage widely available distinguishes it significantly from excess coverage. Excess coverage insures against "catastrophic loss." Safety Nat'l Cas. Corp. v. Pacific Employers Ins. Co., 927 P.2d 748, 750 n. 1 (Alaska 1996). UIM coverage, unlike excess coverage, does not contemplate extreme or unusual circumstances, but rather exists to compensate an injured insured "to the extent that the tortfea-sor's liability insurance coverage is insufficient to compensate the injured person fully for his or her loss."" Curran v. Progressive Northwestern Ins. Co., 29 P.3d 829, 832 (Alaska 2001).

20 . 828 P.2d 745, 755 n. 20 (Alaska 1992) (citation omitted).

21 . The dissent contends that language in the Motor Vehicle Safety Responsibility Act supports its argument that extras must be exhausted to trigger UIM coverage. Dissent at 993-995. Specifically, the dissent looks to AS 28.20.070(a) and AS 28.20.440(b)(2). These sections prescribe the required amount of insurance that each driver in Alaska must carry. We recognize that both sections contain the language "exclusive of interest and costs" in imposing Alaska's mandatory minimum limits. But we do not agree that the absence of such qualifying language in AS 28.20.445(e)(1) compels the conclusion that the phrase "limits of liability" means all "amounts potentially payable under all the liability coverages of any underlying liability policy." Dissent at 993. Alaska Statutes 28.20.440(b)(2) and 28.20.070(a) define the bare limits of mandatory coverage. Both statutes state explicitly that the mandatory minimum policy limits are "exclusive of interest and costs." In similarly plain language, AS 28.20.445(e)(1) refers to "bodily injury" and "property damage" limits but not to the extras that can constitute elements of policy limits in other contexts.

22 . AS 28.20.445(e)(1).

23 . Dissent at 998.

24 . Dissent at 999.