Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Eric A. Aarseth, Judge.
Gregory R. Henrikson, Walker & Eakes, Anchorage, for Appellant and Cross-Appellee.
Michael W. Flanigan, Walther & Flanigan, Anchorage, for Appellee and Cross-Appellant.
Before: Carpeneti, Chief Justice, Fabe, Winfree, and Stowers, Justices. [Christen, Justice, not participating.]
A driver caused injury to the passenger of another car in a two-car accident. The passenger brought suit for damages, including her insurer's subrogated claim for medical expenses. The driver made an early offer of judgment, which the passenger did not accept. The driver's insurer then made a direct payment to the subrogated insurer, thereby removing that amount from the passenger's potential recovery. The driver then made a second offer of judgment, which the passenger did not accept. After trial both parties claimed prevailing party status; the driver sought attorney's fees under Alaska Civil Rule 68. The superior court ruled that the first offer of judgment did not entitle the driver to Rule 68 fees, but the second offer did. Both parties appeal, arguing the superior court improperly considered the subrogation claim payment in its Rule 68 rulings. We conclude that the subrogation claim payment had to be taken into account when evaluating the first offer of judgment and affirm the decision that the driver was not the prevailing party based on the first offer of judgment. But because the nature of the payment on the subrogation claim is not clear, we vacate the decision that the second offer of judgment entitled the driver to Rule 68 fees and remand for further proceedings on this issue.
II. FACTS AND PROCEEDINGS
This case arises from a two-car collision — Karen Dearlove was driving one vehicle and Patricia Campbell was a passenger in the other. Campbell sued Dearlove for damages, alleging the accident was caused by Dearlove's negligence; Dearlove denied liability and suggested the accident might be due to malfunctioning brakes on her vehicle. Each party was insured by a State Farm insurance company: Campbell by a company licensed in Minnesota and Dearlove by a company licensed in Alaska. Campbell's insurer paid the first $20, 000 of Campbell's medical expenses under her policy's Personal Injury Protection (PIP) coverage. Campbell's insurer therefore had a subrogated claim against Dearlove.
Campbell's insurer never directed her not to pursue its subrogation claim as part of her lawsuit against Dearlove.  To the contrary, Campbell's insurer repeatedly called Campbell's attorney for progress reports. Campbell's counsel stated that the insurer "expected [him] to protect [its] subrogation interest in PIP benefits paid."
Dearlove made an early Rule 68 offer of judgment for $18, 000, inclusive of prejudgment interest, Rule 82(b)(1) attorney's fees, and Rule 79 costs; the offer required Campbell to satisfy her insurer's outstanding subrogation claim. Campbell did not accept this offer of judgment.
When Dearlove was deposed, she accepted full responsibility for the accident. Dearlove later formally stipulated to liability, leaving damages the only issue for trial.
After Dearlove's deposition her insurer paid $20, 000 directly to Campbell's insurer. Dearlove then sought a ruling that Campbell could not recover the $20, 000 in medical expenses originally paid by Campbell's insurer. Campbell did not oppose the motion, except to request recovery of attorney's fees and costs on the $20, 000 payment. The superior court ruled Campbell could not include the medical expenses in her claim for damages at trial, but reserved the question whether Campbell could recover fees and costs on the $20, 000 payment.
Dearlove subsequently made a Rule 68 offer of judgment for $5, 000 plus prejudgment interest, Rule 82(b)(1) attorney's fees, and Rule 79 costs. The offer provided that Campbell would be "responsible for satisfying any and all accident-related liens and expenses with the exception of the [PIP] Lien of $20, 000.00 which ...