Aisha Tinker Bray and Gary Zipkin, Guess & Rudd, P.C., Fairbanks, for Appellant.
Michele L. Power, Power & Brown, L.L.C., Bethel, for Appellees Sarah Skin and Joe Skin.
Dennis M. Mestas, Law Offices of Dennis Mestas, Anchorage, for Appellees Eva Nageak, Benjamin Nageak, and Bonnie Nageak.
Rebecca J. Hozubin, Wilkerson Hozubin, Anchorage, for Amicus Curiae Property Casualty Insurers Association of America.
Before : FABE, Chief Justice, MATTHEWS, EASTAUGH, CARPENETI, and WINFREE, Justices.
FABE, Chief Justice.
Progressive Casualty Insurance Company appeals the superior court's ruling that it issued an ambiguous insurance policy and acted improperly in handling its insured's claim. Specifically, Progressive challenges the superior court's conclusions that (1) the Progressive policy failed to meet the requirements for a " personal motor vehicle liability" policy under AS 28.22.101(c); (2) the Progressive policy's definition of " vehicle" must be reformed to include liability coverage for the operation of non-owned all-terrain vehicles (ATVs); (3) the Progressive policy's definition of " insured person" for the purpose of
medical payments coverage, which relied on the common usage definition of " motor vehicle," was ambiguous and thus construed in favor of the insured; (4) Progressive waived its right to assert a defense based on the named driver exclusion in the policy; (5) Progressive is estopped from asserting a defense based on the named driver exclusion in the policy; and (6) Progressive breached its fiduciary duty to Sarah Skin, its insured, thus warranting coverage by estoppel for all of the parties' claims arising out of an accident involving Skin's minor son.
Because Progressive's policy meets the requirements for an " owner's motor vehicle liability" insurance policy under AS 28.22.101(a), and because the policy does not provide liability coverage for accidents arising out of the insured's operation of an ATV, we reverse the superior court's rulings to the contrary. We affirm, however, the superior court's decision to hold Progressive liable for medical payments coverage because that section of the Progressive policy employs the term " vehicle" in an ambiguous manner, requiring us to construe coverage in favor of the insured.
II. FACTS AND PROCEEDINGS
On May 17, 2002, Sarah Skin purchased a motor vehicle insurance policy from Progressive to cover a Chevrolet Prizm automobile, which she intended to drive in Barrow. A resident of Barrow, Skin bought the policy over the phone from an InsuranceMart agent in Anchorage. The agent faxed her insurance application forms with instructions to sign or initial her consent to various clauses, including a " Named Driver Exclusion" that listed her two sons, including then fifteen-year-old son Joseph Skin. Skin signed and initialed as instructed and sent the forms back.
Less than a month later, on June 13, 2002, Joseph ran a stop sign at an intersection in Barrow while driving a four-wheel Honda ATV owned by Bonnie and Benjamin Nageak. The Nageaks' daughter, Eva Nageak, was riding as Joseph's passenger on the ATV. A pickup truck collided with them, seriously injuring both Joseph and Eva. The Barrow police investigated the accident and assigned fault to Joseph.
Neither the Skins nor the Nageaks notified Progressive of the accident. The owner of the pickup truck, however, held a Progressive insurance policy, and he contacted Progressive on June 24, 2002, to report the accident. Based on that report, Progressive cross-referenced Skin's policy. A Progressive adjuster, Kelly Ford, telephoned Skin later that day to interview her and to acquire a recorded confirmation that Skin had excluded Joseph from her policy coverage.
On June 29, 2002, Progressive sent a letter to Skin notifying her of the company's determination that Joseph did not meet the requirements for medical coverage under her policy. The " Medical Payments Coverage" section of Skin's policy binds Progressive to provide coverage for " bodily injury: 1. sustained by an insured person; 2. caused by accident; and 3. arising out of the ownership, maintenance or use of a motor vehicle." The section goes on to define " insured person" as:
a. you while occupying any vehicle or rental vehicle, other than a vehicle owned by you which is not a covered vehicle;
b. a relative while occupying a covered vehicle or non-owned vehicle;
c. you or any relative when struck by a motor vehicle or trailer while not occupying a motor vehicle; and
d. any other person while occupying a covered vehicle.
Progressive's letter to Skin explains that because " the ATV is not a private passenger, pickup or sedan, it would not be considered a vehicle."  As a result, Joseph did not qualify as an " insured person," defined by " sub-definition b" of the policy as " a relative while occupying a covered vehicle or non-owned vehicle." At the same time, Joseph failed to qualify under " sub-definition c" as a " relative when struck by a motor vehicle or trailer while not occupying a motor vehicle." According to the letter, " [w]hile the policy does not define a motor vehicle, Alaska Statute 28.40.100 defines a motor vehicle as self propelled except a vehicle moved by human or animal power." Therefore, the letter concludes, even though Joseph was not occupying a " vehicle" as defined in the policy, " Joseph Skin was occupying a motor vehicle," and therefore " he would not have been deemed an insured person under sub-definition ‘ c’ " of the " Medical Payments Coverage" section of the policy.
Four days later, on July 3, 2002, Progressive sent another letter denying third-party liability coverage for the accident. " Part I" of Skin's policy, entitled " Liability to Others," explains that Progressive " will pay damages, other than punitive or exemplary damages, for bodily injury for which an insured person becomes legally responsible because of an accident arising out of ownership, maintenance, or use of a vehicle or a rental vehicle." Within the " Additional Definitions" of Part I, Progressive defines " non-owned vehicle," as " any vehicle, and any rental vehicle, that is not owned by you, a relative, or the named insured's non-resident spouse." Progressive's July letter notified Skin that " there is no coverage for Bodily Injury or Property Damage for the use of the ATV being operated by Joseph Skin." The company once again explained that the ATV did not meet the definition of " vehicle" under the policy.
On August 9, 2002, the Nageaks' attorney contacted Progressive, and the company sent the attorney a copy of the letter shortly thereafter. No further communication between Progressive and the parties took place until this litigation began.
On October 21, 2003, Bonnie, Benjamin, and Eva Nageak brought suit against Joseph for damages arising out of the accident. They did not notify Progressive of the suit. Acting on behalf of her minor son, Skin entered into a settlement with the Nageaks, assigning to them the proceeds of her claims against Progressive and agreeing to jointly prosecute those claims. On October 8, 2004, at the parties' request, Superior Court Judge Michael I. Jeffery entered a consent judgment against Joseph in favor of the Nageaks for a total amount of $1,582,632.
On January 3, 2005, Skin and her assignees, the Nageaks, jointly filed an action against Progressive and the individual adjusters assigned to the claim. Their complaint alleged that the Progressive agents " conspired and engaged in a wrongful and bad faith scheme" that " culminated in the wrongful denial of the Progressive policy's liability coverage, denial of defense, and denial of medical payments coverage to Joe Skin." Progressive filed its answer to the complaint on April 26, 2005. At about the same time, on April 29, 2005, Progressive sent Skin a " followup" to its earlier " Medical Payments Coverage denial," explaining that " [i]f the ATV involved in this accident is determined to be a ‘ vehicle,’ then that determination would trigger the Named Driver Exclusion Election pertaining to Joseph Skin, which was in effect at the time of the
loss."  Progressive sent a similarly worded letter on May 3, 2005 to explain the company's " alternative basis for denial of Bodily Injury and Property Damage coverage."
On September 26, 2005, Progressive filed two motions for partial summary judgment on the Nageaks' third-party liability coverage claims and Skin's medical payments coverage claim, respectively. The Nageaks and Skin filed oppositions and cross-motions for summary judgment. Superior Court Judge Richard H. Erlich consolidated the motions for decision.
On November 28, 2006, the superior court issued its decision, ruling against Progressive on all of the issues Before it. The court determined that Skin had purchased a " personal motor vehicle policy," as defined by AS 28.22.101(c), and that such a policy required " non-owned vehicle" coverage. The Progressive definition of " non-owned vehicle" in Skin's policy did not meet the minimum coverage mandated by the statute, according to the superior court, because " only the broad statutory definition of ‘ motor vehicles' will meet the legislative intent to close gaps in motor vehicle liability coverage." The superior court reasoned that " [a]n insured who does not desire liability coverage for non-owned vehicles [including ATVs] may purchase an ‘ owner's policy’ to provide liability coverage for designated vehicles." The purchaser of a " personal motor vehicle liability policy," by contrast, " bargains for the greater coverage." Consistent with this theory, the superior court undertook a reformation of Progressive's definition of " non-owned vehicle," substituting the term " motor vehicle" as defined by the statute, and thus qualifying Joseph as an " insured person."
The superior court went on to find that the Nageaks had properly asserted their claims for breach of contract based on Progressive's denial of third-party liability coverage. Similarly, the court held that Joseph qualified for medical payments coverage under the policy, " subject to applicability of the named driver exclusion defense." The superior court proceeded to determine that Progressive had waived the named driver exclusion defense because it initially relied on the policy's definition of " vehicle" alone as the grounds for denying coverage for the accident. In addition to waiver, the superior court held that because the " plaintiffs reasonably relied on Progressive's sole defense to coverage and were prejudiced as a result.... Progressive is estopped from asserting the [named driver exclusion] defense."
Finally, relying on Lloyd's & Institute of London Underwriting Cos. v. Fulton,  the superior court imposed coverage by estoppel based on Progressive's breach of its fiduciary duties to Skin. Noting that a Progressive agent initially called Skin to ask her to confirm that she had requested the named driver exclusion for Joseph, the court cited the transcript of that conversation as evidence of " misconduct by Progressive." The court also held that Progressive's " failure to give timely notice of its intent to reserve its right to assert the [named driver exclusion] defense" also violated the company's fiduciary duty to Skin.
Progressive filed a motion for reconsideration on December 8, 2006. Among other arguments, the company advanced the contention that the superior court failed to give deference to the Division of Insurance's approval of its policy. In its order denying Progressive's motion, the superior court noted that Progressive declined to heed the Division's express recommendation that it revise " confusing and potentially misleading" language in its policy. On January 8, 2007, the superior court entered final judgment pursuant to Alaska Civil Rule 54(b). Progressive appeals.
III. STANDARD OF REVIEW
We review a grant of summary judgment de novo and will uphold the lower court's ruling if the record presents no genuine issues of material fact and the movant is entitled to judgment as a matter of law. We draw all reasonable inferences of fact against the moving party.
A. The Progressive Policy Meets Minimum Statutory Requirements.
Alaska Statute 28.22.311 defines a " motor vehicle liability policy" as " an owner's policy, an operator's policy, or a personal policy that ... meets the requirements of AS 28.22.101." According to AS 28.22.101(a), an owner's policy " must designate ... the motor vehicles that it covers and insure the person named against loss" arising out of " the ownership, maintenance, or use of a designated motor vehicle." By comparison, a personal motor vehicle liability policy offers broader coverage, insuring " the person named as insured against loss" arising out of " the ownership, maintenance, or use by the named person of a motor vehicle whether owned or not owned by the person."  The superior court found that Progressive issued a " personal" motor vehicle liability policy. Progressive argues that it issued an " owner's" policy and that offering limited additional coverage should not bind it to the statutory requirements for a " personal" policy. We agree with Progressive's interpretation of the statute.
It was error to conclude that Progressive had to insert " explicit language" in the policy " identifying it as an ‘ owner's' policy." The superior court's holding relied on findings that the Progressive policy " expressly provides non-owned vehicle coverage" and that the title of the " Personal Auto Policy Declarations Page" signed by Skin " does not identify the policy as an ‘ owner's policy’ or an ‘ operator's policy.’ " As a result, the superior court concluded, the policy had to meet the requirements of " a personal motor vehicle policy as described in AS 28.22.101(c)." But nothing in the statutes or our case law requires an insurer to explicitly label a motor vehicle liability policy as either an " owner's" policy or a " personal" policy.
Moreover, the policy declarations page signed by Skin hardly implicates the broad coverage that the superior court read a " personal" policy to require. First, the declarations page specifies the make, model, and VIN number of the Chevrolet Prizm that Skin planned to purchase. In other words, it " designate[s] ... the motor vehicle that it covers,"  as an owner's policy must do. Moreover, the declarations page contains a box labeled " Personal Auto Liability," which lists categories of " automobile liability" coverage, including coverage for " any auto," " scheduled autos," and " non-owned autos." Skin's policy declarations page indicates that she purchased coverage only for " scheduled autos." A purchaser of a " personal" policy, however, would presumably expect to see a checkmark by the " any auto" or " non-owned autos" box as well, since under AS 28.22.101(c) " personal" policy coverage extends to " a motor vehicle whether owned or not owned by the person."
The Nageaks argue that by offering some non-owned vehicle coverage, Progressive committed itself to meet the statutory requirements of a " personal" motor vehicle liability policy. But they marshal little support for this proposition. In contrast, Progressive points out that we have characterized, in dicta, an identical Progressive policy as an " owner's" policy. And Progressive cites persuasive precedent from the Idaho Supreme Court, upholding the validity of the
Progressive insurance policy and rejecting an argument similar to the Nageaks'.
The Nageaks argue that a legislative intent to close gaps in insurance coverage supports their claim. They leave us unconvinced, however, that the legislature intended to cabin insurance policy coverage into narrow statutorily defined categories unless explicitly labeled otherwise. The plain language of AS 28.22.311 makes clear that the Progressive policy need only meet the requirements of an owner's policy under AS 28.22.101(a). We therefore turn to the question of whether the policy, by its own terms, provides coverage for Joseph's accident.
B. The Progressive Policy Reasonably and Unambiguously Excludes Liability Coverage for Accidents Arising Out of the Operation of ATVs.
The Nageaks argue that regardless of how we characterize it, the Progressive policy covers the operation of an ATV by an insured. They reason that the Progressive policy's coverage for " non-owned vehicles" extends to ATVs because the policy's liability coverage section defines " non-owned vehicle" as " any vehicle ... that is not owned by you." They further contend that " vehicle" must include ATVs because AS 28.90.990(15) defines " motor vehicle" as " a vehicle which is self-propelled except a vehicle moved by human or animal power," and AS 28.90.990(28) defines " vehicle" even more broadly as " a device in, upon, or by which a person or property may be transported." For its part, Progressive maintains that the definition of " vehicle" at the outset of the Progressive policy, contained in the " General Definitions" section, excludes coverage for ATVs.
The doctrine of reasonable expectations guides our review of the terms of an insurance policy. In applying that doctrine, we held in Hillman v. Nationwide Mutual Fire Insurance Co. that an insurance policy's " definitional section is distinct from the coverage provisions, and cannot logically be read as providing any substantive additions to the coverage section."  Progressive's definition of " vehicle" in its policy's " General Definitions" section effectively provides a substantive limitation to its policy's liability coverage section. The Nageaks therefore argue that just as the definitional section cannot add substantive protections, it cannot delete them.
The substantive provision for third-party liability coverage in the Progressive policy appears as follows:
Part I-Liability to Others
Insuring Agreement-Bodily Injury
Subject to the Limits of Liability, if you pay a premium for bodily injury liability coverage, we will pay damages, other than punitive or exemplary damages, for bodily injury for which an insured person becomes legally responsible because of an accident arising out of ...