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Hahn v. Geico Choice Insurance Co.

Supreme Court of Alaska

May 11, 2018

CHAD HAHN, Appellant,
v.
GEICO CHOICE INSURANCE COMPANY, FRANKLIN TOWNSEND and BLUE CROSS BLUE SHIELD, Appellees.

          Appeal from the Superior Court of the State of Alaska, No. 3AN-15-11102 CI Third Judicial District, Anchorage, Andrew Guidi, Judge.

          Yale H. Metzger, Law Offices of Yale H. Metzger, Anchorage, for Appellant. Michael J. Hanson, Call & Hanson, P.C., and Barry J. Kell, Kell & Associates, P.C., Anchorage, for Appellee

          GEICO Choice Insurance Company. No appearance by Appellee Franklin Townsend or Blue Cross Blue Shield.

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

          OPINION

          STOWERS, CHIEF JUSTICE.

         I. INTRODUCTION

         While sitting on his motorcycle at a stop light, Chad Hahn was thrown backwards when Franklin Townsend's car failed to stop in time and struck the motorcycle. During settlement negotiations in the tort suit that followed, Hahn sought payment under Townsend's underinsured motorist (UIM) insurance policy. Hahn argued that he was an insured occupant of Townsend's car because he landed on the car after the impact and that Townsend's liability insurance would not cover the full extent of his damages, rendering Townsend underinsured. Townsend's insurer, GEICO Choice Insurance Company (GEICO), sued for a declaratory judgment that no UIM coverage was available. Hahn answered, raising a number of affirmative defenses including that GEICO's declaratory judgment action was not ripe and that the court therefore lacked subject matter jurisdiction. Hahn also filed a counterclaim for a declaratory judgment that UIM coverage was available to him, and asserted third-party claims against Townsend, seeking to join him as a necessary party and a real party in interest. The superior court concluded that it had subject matter jurisdiction, granted summary judgment and a declaratory judgment in GEICO's favor, and dismissed the third-party claims against Townsend. Hahn appeals; we affirm.

         II. BACKGROUND

         A. Facts

         In April 2015 Franklin Townsend rear-ended Chad Hahn with his car while Hahn was stopped on his motorcycle at a red light. The impact threw Hahn from his motorcycle. According to Hahn, he landed momentarily on the hood, windshield, and roof of Townsend's vehicle before coming to rest on the street. Hahn and Townsend had no relationship prior to the accident. Hahn's medical bills totaled around $ 160, 000 and Hahn claimed, through his attorney, that Townsend faced personal liability "in the neighborhood of $500, 000 to $1, 000, 000."[1]

          Townsend was insured under an Alaska Family Automobile Insurance Policy issued by GEICO. Townsend's policy provides up to $50, 000 of property damage liability per person and $50, 000 for bodily injury liability per person. In addition, it includes UIM benefits, extending up to $50, 000 of coverage for "damages for bodily injury [and property damage], caused by an accident, which the insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle, an underinsured motor vehicle, or a hit and run motor vehicle arising out of the ownership, maintenance or use of that vehicle."[2] The GEICO policy defines "insured" as follows:

(a) you;
(b) your relatives if residents of your household;
(c) any other person while occupying an insured auto;
(d) any person who is entitled to recover damages because of bodily injury sustained by an insured under (a), (b), and (c) above. [Emphasis added.]

         The GEICO policy then defines "occupying" to mean "in, upon, getting into or getting out of." The UIM coverage is not available "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."[3]

         Hahn sued Townsend for negligence and intentional torts arising out of the accident. GEICO, as Townsend's insurer, offered to pay Hahn "full per person limits of liability bodily injury coverage and the full amount of the liability property damage coverage" in exchange for a full release of all claims against Townsend. Hahn's attorney communicated to Townsend's attorney that if the UIM limits were offered in addition to the property damage and bodily injury limits, he would advise Hahn to release all claims against Townsend. Townsend's attorney communicated this request to GEICO, and under increasing pressure from Hahn's attorney, repeatedly requested that GEICO pay UIM limits as Hahn suggested in light of the excess exposure Townsend faced as well as increasing litigation costs. GEICO repeatedly reiterated that it was willing to pay Hahn full bodily injury and property damage limits under Townsend's policy in exchange for a full release of all claims against Townsend. But GEICO refused to pay UIM benefits to Hahn, believing a UIM claim was without factual or legal support.

         B. Proceedings

         GEICO filed suit against Hahn seeking a declaratory judgment that "there is no coverage available to Chad Hahn under the UIM coverage of Townsend's GEICO policy with respect to the April 18, 2015 accident, and that [GEICO] has no obligation to pay any damages Hahn seeks to recover under that coverage as a result of that accident." GEICO argued that Hahn was not "occupying" Townsend's vehicle under the policy and therefore was not an insured. Hahn asserted a counterclaim for a declaratory judgment that "there is underinsured motorist coverage available to Chad Hahn under the GEICO . . . policy issued to Franklin Townsend" because Hahn was occupying Townsend's vehicle when he landed on it. Hahn also sought to join Townsend and Hahn's medical insurance provider Blue Cross Blue Shield (Blue Cross) as "third-party defendants", arguing that they were real parties in interest and necessary parties under Alaska Civil Rules 17 and 19, respectively. Hahn also asserted as third-party claims against Townsend the same negligence and intentional tort claims as those included in Hahn's separate personal injury action.

         GEICO filed a summary judgment motion seeking a ruling that Hahn was not covered under the UIM coverage of Townsend's policy because he was not "occupying" Townsend's vehicle at the time of the collision as defined by the GEICO policy. GEICO also filed a motion to dismiss Hahn's third-party claims, arguing that the only interested parties with respect to the insurance coverage question were GEICO and Hahn. Townsend filed a motion seeking to dismiss the third-party claims against him, arguing that he was not a necessary party and that the duplicative claims were meant to pressure Townsend and GEICO to settle in the personal injury action.[4] Hahn opposed GEICO's and Townsend's motions.

         The superior court heard arguments on GEICO's motion for summary judgment, motion to dismiss, and other pending motions. At the hearing and in a "Suggestion of Lack of Subject Matter Jurisdiction" filed after the hearing Hahn argued that GEICO's declaratory judgment action was not ripe because he had not made a formal claim for UIM benefits, and because the bodily injury and property damage liability limits had not been "used up, " a pre-condition for UIM benefits under the policy. GEICO filed a response to Hahn's Suggestion, arguing that because Hahn had demanded UIM benefits in settlement negotiations there was an actual controversy turning on a purely legal issue that the court had jurisdiction to decide under the provision for declaratory judgments in AS 22.10.020(g).[5]

         The superior court issued a written order concluding (1) it had jurisdiction over the coverage dispute and the dispute was ripe for decision; (2) Blue Cross and Townsend could not be joined as "third-party defendants", the procedure for which is governed by Alaska Civil Rule 14 because neither party could be liable to Hahn for GEICO's claims against him; (3) Blue Cross was properly joined as a real party in interest, but Townsend was neither a real party in interest nor a necessary party, and Hahn's duplicative claims against Townsend should therefore be dismissed; and (4) Hahn was not entitled to UIM coverage under Townsend's GEICO policy and GEICO was therefore entitled to summary judgment.

         With respect to jurisdiction, the superior court determined that "Townsend's liability to Hahn will most likely exceed the personal injury policy limits" based on various representations and arguments by the parties. The court also noted that despite not making a formal claim, Hahn repeatedly rejected GEICO's offer of bodily injury and property damage limits but indicated he would drop his tort claims if GEICO also offered UIM coverage. Accordingly, the court reasoned that UIM coverage had become crucial to ongoing settlement negotiations in the personal injury lawsuit, withholding judgment on the availability of such coverage would inhibit ongoing settlement negotiations and cause the parties substantial hardship, and the case was therefore ripe for decision.

         With respect to joinder under Rules 17 and 19, the superior court reasoned that "[u]nlike GEICO or Hahn, Townsend's interest [was] in disputing and minimizing his personal liability for Hahn's injuries" and that the declaratory judgment action would have no effect on this underlying liability. The court emphasized that the contractual relationship at issue in the declaratory judgment action was between Hahn, as a potential insured, and GEICO. The court also noted that allowing the third-party claims to go forward might lead to multiple and inconsistent legal obligations for Townsend because they duplicated the claims in the personal injury action. It therefore dismissed the third-party claims against Townsend because he was neither a real party in interest nor a necessary party. Because it concluded that Blue Cross was partially subrogated to any UIM benefits accruing to Hahn, the court did not dismiss Blue Cross.

         Lastly, with regard to the availability of coverage, the court construed the policy's use of the word "upon" together with the word "occupying." The court determined that "occupying, " along with "getting in" and "getting out of, " implied a prior relationship with the insured vehicle, thereby limiting the meaning of "upon" and excluding Hahn from coverage. Moreover, it concluded that a "reasonable insured would read all terms of the policy in context" and "not assign undue weight to a single term." The court supported its interpretation with out-of-state case law interpreting similar policy provisions to require "some degree of connection between the claimant, the injury, and the insured vehicle" beyond incidental contact. And it noted that interpreting "upon" in the manner Hahn advocated would yield absurd results, favoring those who happened to land on a car rather than the ground.

         The court entered judgment in favor of GEICO and against Hahn and Blue Cross. Hahn appeals. Blue Cross does not.

         III. STANDARD OF REVIEW

         Alaska's declaratory judgment statute provides in relevant part that "[i]n case of an actual controversy ... the superior court, upon the filing of an appropriate pleading, may declare the rights and legal relations of an interested party seeking the declaration."[6] Thus, where an actual controversy exists, we review the superior court's prudential decision to issue a declaratory judgment for abuse of discretion.[7] However, because "[w]hether the superior court had subject matter jurisdiction... is a question of law, "[8] we review the superior court's ripeness determination de novo.[9]

         "The question of whether to permit or require joinder of a real party in interest 'rests in the sound discretion of the superior court.' "[10] "We review decisions granting or denying motions to dismiss de novo."[11]

         "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.' "[12] "Whether the evidence presented a genuine issue of material fact is a question of law that we independently review."[13] "Contract interpretation is a question of law subject to de novo review. When applying the de novo standard of review, we apply our 'independent judgment to questions of law, adopting the rule of law most persuasive in light of precedent, reason, and policy.' "[14]

         IV. DISCUSSION

         Hahn argues on appeal that the superior court (1) erred in concluding it had subject matter jurisdiction to resolve this dispute under the declaratory judgment provision because Hahn had not made a formal claim to UIM coverage and the preconditions under the policy for UIM coverage were not yet met; (2) erred in dismissing the third-party claims against Townsend because Townsend was a real party in interest who stood to have his personal liability reduced if the court ruled that UIM coverage was available to Hahn; (3) erred in concluding Hahn was not "occupying" Townsend's vehicle within the meaning of the policy because the court's contractual interpretation conflicted with what a reasonable insured would expect, was contrary to out-of-state case law, and violated public policy; and (4) erred in concluding that no genuine issue of material fact existed and that GEICO was entitled to judgment as a matter of law. Hahn does not appeal the court's determination that Townsend could not properly be joined under Civil Rules 14 or 19.

         A. The Declaratory Judgment Action Was Ripe, The Superior Court Had Subject Matter Jurisdiction To Decide It, And The Court Did Not Abuse Its Discretion In Issuing A Declaratory Judgment.

         Hahn argues that the superior court had no subject matter jurisdiction over this case because (1) Hahn never formally made a claim for UIM benefits, so any declaratory judgment that GEICO is not obligated to pay UIM benefits to him under Townsend's policy is an impermissible advisory opinion; (2) Hahn never intended to make a UIM claim under Townsend's policy and was instead more likely to have obtained an excess judgment against Townsend and let Townsend seek recovery from GEICO for any excess judgment Hahn might have obtained against him; (3) Hahn had not exhausted the bodily injury and property damage liability limits in Townsend's policy as is required to trigger UIM coverage; and (4) any real dispute is between Townsend and GEICO because - Hahn claims - GEICO likely filed the declaratory judgment action to avoid a bad faith claim brought by Townsend for its failure to tender UIM benefits to Hahn during settlement negotiations.[15]

         Alaska Statute 22.10.020(g) grants the superior court the power to issue declaratory judgments in cases of "actual controversy." This statute provides that "[i]n case of an actual controversy... the superior court... may declare the rights and legal relations of an interested party seeking the declaration, whether or not further relief is or could be sought."[16] The "actual controversy" language "reflects a general limitation on the power of courts to entertain cases ... [and] encompasses a number of more specific reasons for not deciding cases, including lack of standing, mootness, and lack of ripeness."[17]

         "A ripe suit for declaratory judgment will present 'a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality.' "[18] "[T]here is 'no set formula' for determining whether a case is ripe for adjudication. Instead, '[w]e examine the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration' in an effort to 'balance[] the need for decision against the risks of decision.' "[19]

         The superior court likened Townsend's UIM coverage to "excess coverage" - to be paid out after primary coverage has been exhausted - and determined that while we have not yet decided the issue when an action for excess coverage becomes ripe for adjudication, most jurisdictions deem a declaratory judgment appropriate when "it is reasonably likely that a potential claim for excess coverage will mature." The court then determined, based on the parties' representations and arguments, that "Townsend's liability to Hahn will most likely exceed the personal injury policy, " making available any applicable excess coverage.

         The court also noted that despite not making a formal claim, Hahn repeatedly rejected GEICO's offer of bodily injury and property damage limits but indicated he would drop his tort claims if GEICO also offered UIM coverage. The court observed that Townsend repeatedly asked GEICO to offer Hahn UIM coverage to secure a release of all claims to protect him from a "very large verdict." Accordingly, the court reasoned that UIM coverage had become crucial to ongoing settlement negotiations in the personal injury action and that withholding judgment on the availability of such coverage would inhibit ongoing settlement negotiations and cause the parties substantial hardship. Because of the importance of UIM benefits to the stalled negotiations and because Townsend's liability to Hahn would likely exceed the limits of Townsend's liability policy, the court determined that the case was ripe for decision.

         We find no error in the superior court's conclusion. We have not previously directly answered the question of when a declaratory judgment action in the insurance coverage context becomes ripe, [20] but cases from other jurisdictions hold that a declaratory judgment regarding liability for excess insurance coverage is appropriate as soon as it becomes reasonably likely that a claim for excess coverage will mature.[21]The facts here tend to demonstrate that a UIM claim was reasonably likely to mature.

         First, while Hahn may be correct that he had not made a formal claim for UIM benefits, that assertion only goes so far. Hahn made clear through his negotiations with Townsend that if GEICO offered UIM limits he would drop his tort suit. While Hahn characterizes this behavior as an "invitation to offer, " we are not here dealing with a question of contract formation. The practical effect of making a settlement contingent on GEICO proffering UIM benefits was to make a demand for UIM benefits. After GEICO filed for declaratory judgment against Hahn, Hahn continued to insist on UIM benefits in exchange for a release of claims against Townsend; and, significantly, Hahn counterclaimed against GEICO for an order declaring that UIM coverage was available.

         Second, as GEICO argues, Hahn's assertions that he never intended to make a future claim for UIM benefits are likewise unconvincing. Hahn raised the issue of UIM coverage in negotiations, filed a counterclaim seeking a determination that UIM coverage would be available to him, contested summary judgment motions on the issue, and filed this appeal. And while Hahn argues that he was just as likely to obtain an excess judgment from Townsend and let Townsend seek recovery from GEICO, this, too, is unconvincing. At oral argument to the superior court Hahn's attorney conceded ...


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