ATTORNEYS LIABILITY PROTECTION SOCIETY, INC., a Risk Retention Group, Plaintiff Cross-Appellant/Appellee,
INGALDSON FITZGERALD, P.C., f/k/a Ingaldson, Maassen & Fitzgerald, P.C., Defendant Appellee/Cross-Appellant.
Certified Question from the United States Court of Appeals for the Ninth Circuit on Appeal from the United States District Court for the District of Alaska, Sharon L. Gleason, District Judge.9th Cir. Case Nos. 13-35115/13-35172 U.S. District Court No. 3:11-cv-00187-SLG
Kendra E. Bowman and Scott J. Gerlach, Delaney Wiles, Inc., Anchorage, and Kevin D. Hartzell and Angela Probasco, Kutak Rock LLP, Omaha, Nebraska, for Plaintiff–Cross-Appellant/Appellee.
William H. Ingaldson and Jim M. Boardman, Ingaldson Fitzgerald, P.C., Anchorage, for Defendant–Appellee/Cross-Appellant. Daniel Wilkerson, Assistant Attorney General, Anchorage, and Craig W. Richards, Attorney General, Juneau, for Amicus Curiae State of Alaska.
Before: Stowers, Chief Justice, Fabe and Bolger, Justices, and Matthews and Eastaugh, Senior Justices. [*] [Winfree and Maassen, Justices, not participating.]
Today we resolve two questions certified to us by the United States Court of Appeals for the Ninth Circuit:
1. Does Alaska law prohibit enforcement of a policy provision entitling an insurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) the claims are later determined to be excluded from coverage under the policy?
2. If the answer to Question 1 is "Yes, " does Alaska law prohibitenforcement ofapolicy provisionentitlinganinsurer to reimbursement of fees and costs incurred by the insurer defending claims under a reservation of rights, where (1) the insurer explicitly reserved the right to seek such reimbursement in its offer to tender a defense provided by independent counsel, (2) the insured accepted the defense subject to the reservation of rights, and (3) it is later determined that the duty to defend never arose under the policy because there was no possibility of coverage?
The answer to both questions is "yes."
II. FACTS AND PROCEEDINGS
The facts of this case are not in dispute for the purpose of resolving the certified questions. Ingaldson Fitzgerald is an Alaska law firm. Attorneys Liability Protection Society, Inc. (ALPS) is a Montana insurance company and risk-retention group. From April 29, 2007, to April 29, 2008, ALPS insured Ingaldson Fitzgerald.
Ingaldson Fitzgerald's insurance policy with ALPS insured the firm against claims arising from"an act, error or omission in professional services that were or should have been rendered by [Ingaldson Fitzgerald]." The policy expressly excluded from coverage any claims arising from conversion or disputes over fees. The policy also contained a provision providing that Ingaldson Fitzgerald would reimburse ALPS for fees and costs ALPS incurred in defending non-covered claims.
In 2008 the bankruptcy trustee for the bankrupt estate of a former client of Ingaldson Fitzgerald, in conjunction with a separate former client of the firm, brought a claim against the firm in the U.S. Bankruptcy Court for the District of Alaska. The suit concerned Ingaldson Fitzgerald's actions in disbursing from and withdrawing fees and costs against a retainer. The former client and the trustee sought recovery of that retainer,  and asserted claims against Ingaldson Fitzgerald for, among other things, restitution, disgorgement, and conversion.
Ingaldson Fitzgerald notified ALPS of the underlying suit. ALPS responded by accepting Ingaldson Fitzgerald's tender of the defense in the underlying suit, but with the caveat that ALPS "reserved 'all rights.' " In its reservation of rights letter, ALPS explained that the underlying suit made allegations of activities that "d[id] not appear to implicate the provision of services or activities by [Ingaldson Fitzgerald] as an attorney in an attorney-client relationship, " and thus "d[id] not appear to be professional services within the Policy's coverage." The letter also asserted that the claims in the underlying suit sought restitution that was not within the policy's definition of covered "damages" and that the policy did not cover claims related to disputes over fees, dishonest or criminal acts, or the conversion of trust account funds. ALPS's reservation of rights letter also specifically included the right to be reimbursed for the portion of fees incurred in the defense of claims that were deemed not covered under the policy.
Ingaldson Fitzgerald then retained independent counsel to defend against the former client and the trustee's claim, and ALPS paid the fees incurred by that attorney. During adversary proceedings in the underlying suit, the bankruptcy court in the District of Alaska twice granted partial summary judgment against Ingaldson Fitzgerald. The trustee then dismissed the remaining cause of action, sought entry of final judgment, and moved for attorney's fees and costs.
In September 2011 ALPS filed suit against Ingaldson Fitzgerald in the United States District Court for the District of Alaska. ALPS sought declarations that its policy did not cover the underlying claims and that it was not obligated to furnish an appeal bond, as well as a monetary award reimbursing it for the cost of defending Ingaldson Fitzgerald. The district court determined that Ingaldson Fitzgerald did not meaningfully contest either of the first two requests for declaratory relief and thus granted ALPS its desired declarations on summary judgment. But Ingaldson Fitzgerald did contest ALPS's claim for reimbursement of the cost of ...