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Burnett v. Government Employees Insurance Co.

Supreme Court of Alaska

January 27, 2017


         Appeal from the Superior Court No. 4FA-12-023 65 CI of the State of Alaska, Fourth Judicial District, Fairbanks, Michael P. McConahy, Judge.

          Kenneth P. Jacobus, Kenneth P. Jacobus, P.C., Anchorage, for Appellant.

          Michael J. Hanson, Call & Hanson, P.C., and Barry J. Kell, Kell & Associates, P.C., Anchorage for Appellee.

          Before: Stowers, Chief Justice, Fabe, Winfree, Maassen, and Bolger, Justices.


          WINFREE, Justice.


         A driver lost control of his truck and crashed into a cabin, causing property damage-including a heating fuel spill-and personal injuries to the cabin owner. The cabin owner brought suit against both the driver and the driver's insurance company, alleging in part that the insurance company subsequently took charge of and negligently handled the fuel spill cleanup on the cabin owner's property. The superior court granted the insurer summary judgment, concluding as a matter of law that the insurer could not owe the cabin owner an actionable duty. The cabin owner appeals, arguing that our case law does not preclude a duty in this context. We agree with the cabin owner and therefore reverse the superior court's grant of summary judgment.


         A. Facts

         In November 2011 a driver lost control of his truck and crashed into Charles Burnett's cabin in North Pole.[1] An attached heating oil tank was damaged and fuel spilled onto and under the cabin. Burnett suffered bodily injuries, including lung problems from breathing fuel fumes.

         Government Employees Insurance Company (GEICO), the driver's insurer, hired a contractor to perform an environmental site assessment under Alaska Department of Environmental Conservation (DEC) standards "and to coordinate the necessary cleanup of the spill." The contractor prepared a cleanup plan, but DEC initially did not approve it. Burnett then asked GEICO representative Katie Johns for money to allow him to arrange the cleanup, but Johns told him GEICO would handle the spill cleanup. Burnett made this request at least one more time, but GEICO again denied it. Johns told Burnett that she had to protect her insured from potential liability to the State of Alaska and that Burnett should not attempt to clean up the fuel spill because GEICO would do so. No cleanup work was done in 2012. Over time the fuel migrated under Burnett's cabin, making it uninhabitable and complicating Burnett's respiratory health issues. GEICO's contractor cleaned up the fuel spill sometime in October 2013, nearly two years after the accident.

         B. Proceedings

         While the fuel cleanup was pending Burnett sued both the driver and GEICO. Burnett alleged that GEICO had prevented him from cleaning up the fuel, had stated it would take care of the cleanup, and then had not done so in a timely manner. After the fuel cleanup was complete, GEICO made a payment to Burnett under the driver's policy in exchange for Burnett dismissing his claim against the driver; Burnett's claim against GEICO remained open. GEICO then moved for summary judgment on Burnett's claim against it - relying on O.K. Lumber Co. v. Providence Washington Insurance Co. to argue "that a liability insurer owes no duty of good faith and fair dealing to a third-party claimant"[2] - contending that as a matter of law it owed Burnett no duty to act reasonably in handling the property cleanup.

         The superior court granted GEICO summary judgment because - based on O.K. Lumber-"as ... [the driver's] liability insurer, GEICO owe[d] no actionable duty to Burnett" and "[i]n the absence of a duty, GEICO can have no liability to Burnett." Burnett appeals, arguing that O.K. Lumber does not preclude a duty by GEICO in this context and that genuine issues of material fact exist regarding whether GEICO undertook a duty to handle the property cleanup reasonably.


         "We review rulings on motions for summary judgment de novo, 'reading the record in the light most favorable to the non-moving party and making all reasonable inferences in its favor.' "[3] The existence of a duty is a question of law which we review de novo.[4]


         A. O.K. Lumber And The Parties' Arguments

         In O.K. Lumber a third party claimant sued a liability insurer for failing to promptly settle two claims against its insureds.[5] The third party claimant argued that it could sue the insurer for breaching the contractually based fiduciary duty between the insurer and its insureds "either because it is a third party beneficiary of the [duty] or because public policy so dictates."[6] We held that neither theory supported allowing the third party claimant to bring a cause of action against the liability insurer and expressed concern with placing the insurer in "a fiduciary relationship both with the insured and a claimant because the interests of the two are often conflicting."[7]

         GEICO argues that O.K. Lumber holds "broadly and without limitation" that a third party claimant may not bring any claim against an insurer "for allegedly wrongful claims handling practices." GEICO would have us interpret O.K. Lumber to hold that there never can be a legal duty between an insurer and a third party claimant for any action taken in the insurer's claims settlement role. But the issue in O.K. Lumber was "whether the insurer's duty of good faith and fair dealing [arising from the insurance contract] benefits anyone other than the named insured, " and the claimant there did not bring its claim based on a tort independent of that contractual relationship.[8] We did not decide whether the insurer's claims handling practices were actionable under independent tort theories. Burnett therefore argues that even though GEICO did not owe him the same contractual duty it owed its insured, GEICO could - and did - voluntarily undertake a separate legal duty to Burnett that was not inconsistent with its duty to its insured.

         B. An Insurer's Potential Tort Duty To A Third Party Claimant

         Because O.K. Lumber did not resolve this issue, we face the question whether an insurer's duty to its insured prevents it from having - or taking on - any tort duty to a third party claimant during the claims handling process. GEICO contends that it cannot owe Burnett any duty because "a liability insurer cannot owe simultaneous duties of good faith and fair dealing to both its insured and a third-party claimant." GEICO urges that any damages Burnett incurred as a result of GEICO's actions must be attributable to its insured, and therefore any cognizable claim Burnett has must be against its insured, not GEICO. Burnett argues that GEICO undertook an independent duty to Burnett to reasonably perform the cleanup - a duty that did not conflict with GEICO's duty to its insured because proper cleanup "would have benefitted both... Burnett and [its insured]" - and Burnett's claim is therefore actionable against GEICO.

         As a general matter we see no reason an insurer's contractual duties to an insured necessarily should negate completely different common law tort duties it may have to a third party claimant. It would be odd to provide common law immunity for an insurer's tortious acts against a third party claimant simply because they occurred during the claims handling process.[9] But we also see no reason an insurer should be protected from the consequences of affirmatively undertaking a new and independent duty to a third party claimant as a part of its claims handling process - and then wrongfully repudiating or improperly performing that independent duty - or be allowed to foist onto its insured the entire legal responsibility for its actions when the liability does not stem from the insured's acts.[10]

         We are not alone in adopting this latter view. Howton v. State Farm Mutual Automobile Insurance Co. involved an insurer's express agreement with third party claimants to pay for the repair of the claimants' vehicle at the insurer's expense without prejudice to the claimants' right to claim personal injury damages.[11] After the claimants had the car repaired the insurer refused to pay the full amount and conditioned partial payment on the claimants releasing all accident-related claims.[12] The Alabama Supreme Court acknowledged a general rule that a third party to a liability insurance contract cannot bring a direct action against an insurer, but clarified that no Alabama case supporting that rule involved an insurer "independent of its insured and its obligation to pay its insured's liability, alleged to have contracted directly with the third party or to have committed a tort directly against the third party."[13] To apply the general rule under the case's circumstances would "permit the insurer to commit otherwise actionable wrongs with impunity."[14] The court held that the general rule prohibiting direct action against an insurer did not apply if the insurer undertakes a new and independent obligation to the injured third party in efforts to settle the third party's claim.[15]

         This compelling reasoning supports our decision today: A liability insurer can owe a tort duty to a third party claimant when the insurer's claims handling actions affirmatively create a new and independent duty to the claimant.

         C. Summary Judgment Analysis In This Case

         To survive GEICO's summary judgment motion - based on lack of duty -Burnett must raise a genuine factual dispute whether GEICO affirmatively undertook an independent duty to clean up Burnett's property.[16] Before considering Burnett's argument, it is useful to consider GEICO's contractual duties to its insured and its practical choices with respect to the fuel oil spill. Under the relevant policy GEICO had agreed to "pay damages which an insured becomes obligated to pay" due to property damage. GEICO also had agreed to defend "any suit for damages payable under the terms of the policy" and had reserved the right to "settle any claim or suit." The property damage policy limit was $50, 000.

         An insurer's duty to its insured generally is determined by the policy language.[17] But the insurance contract also creates an implied duty of good faith and fair dealing, which we have characterized as a requirement "that neither party will do anything which will injure the right of the other to receive the benefits of the agreement."[18] The duty of good faith and fair dealing may require an insurer to attempt to settle a claim if there is a great risk of recovery beyond the policy limit.[ ...

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