from the Superior Court No. 4BE-04-00103 CI of the State of
Alaska, Fourth Judicial District, Bethel, Charles W. Ray Jr.
and Bethany S. Harbison, Judges.
A. Zipkin and Kristin E. Bryant, Guess & Rudd, P.C.,
Anchorage; Rebecca J. Hozubin, Hozubin Moberly Lynch &
Associates, Anchorage; and Peter H. Klee, Sheppard, Mullin,
Richter & Hampton, LLP, San Diego, California, for
Appellant Allstate Insurance Company.
Clayton, Jr., Clayton & Diemer, LLC, Anchorage, for
Appellant Kathy Berry. Mark A. Sandberg, Law Office of Mark
A. Sandberg, Anchorage; Dennis Mestas, Law Office of Dennis
Mestas, Anchorage; and Myron E. Angstman, Angstman Law
Office, Bethel, for Appellees Mary Kenick and Angelina
Before: Stowers, Chief Justice, Winfree, Maassen, Bolger, and
asked to determine the preclusive effect of a declaratory
judgment in favor of an insurance company against its insured
in federal court in a subsequent state court proceeding. The
superior court concluded that the declaratory judgment had no
preclusive effect on a negligent adjustment action brought in
state court by the insured's assignees against the
insurance company and its claims adjuster. The state action
proceeded to an 11-day jury trial ending with a multi-million
dollar verdict against the insurance company and its claims
insurance company and the adjuster raise a number of issues
on appeal, but it is necessary for us to decide only one: the
preclusive effect of the federal declaratory judgment. The
declaratory judgment determined that the insurance company
and the adjuster acted reasonably when they offered policy
limits to settle the underlying claim against the insured.
Because the insurance company's and adjustor's
reasonableness in adjusting the insurance claim is a
necessary element of a negligent adjustment tort, we hold
that the assignees of the insured were precluded from
relitigating this issue. The superior court therefore erred
in denying the insurance company's and claims
adjuster's motions for summary judgment, and we vacate
the judgment against them.
FACTS AND PROCEEDINGS
mid-September 2002 Charles Herron, who was under the
influence of alcohol and not old enough to legally possess or
consume it, was involved in a single-vehicle accident in
Bethel. A 15-year-old passenger in Herron's vehicle,
Angelina Trailov, was injured.
was insured by Allstate Insurance Company. The policy
provided liability coverage of up to $100, 000 per
person/$300, 000 per occurrence, medical payments coverage of
$25, 000 per person, and underinsured motorist (UIM) coverage
of up to $100, 000 per person/$3 00, 000 per occurrence.
after the accident Allstate was notified of Trailov's
injuries and her liability claim against Herron. By the end
of September Allstate received notice that attorney Michele
Power represented Trailov in the matter. Allstate assigned
Trailov's bodily injury claim to its in-house claims
adjuster, Kathy Berry. Over the next few months Berry and
Power corresponded regarding Trailov's claim; much of
their communication related to obtaining medical records
documenting Trailov's injuries.
made a "policy limits demand plus attorney's fees,
costs and interest" for Trailov's claim in a
February 14, 2003, letter to Berry. In the same letter Power
also for the first time asserted a separate negligent
infliction of emotional distress (NIED) claim on behalf of
Mary Kenick, Trailov's mother. Power made "a policy
limits demand plus attorney's fees, costs and
interest" for Kenick's NIED claim.
March Berry responded to Power's February demand letter.
Berry requested additional information about any treatment
Trailov had received since the accident. She also asked for
information about Kenick's NIED claim.
responded in April that Kenick had taken a new job because of
her emotional distress from the accident (and had taken a
substantial pay cut); however, Power noted that Kenick had
not sought counseling. Power asserted that Trailov had been
absent-minded and forgetful since the accident and disclosed
for the first time that Trailov was suffering back pain from
the accident. In closing Power wrote: "While the offer
dated February 14, 200, remains open, it will be revoked
on May 16, 2003, and a complaint will be filed, unless there
is some discussion regarding pre-filing resolution."
9 Berry responded to Power that "[w]e are in the process
of completing our evaluation of Angelina Trailov's claim
and anticipate responding to your demand by your May 16, 2003
deadline." Berry stated she needed additional support
for Kenick's NIED claim.
15 Power sent Berry two pay stubs for Kenick as proof of her
NIED claim; there was no mention of the May 16 deadline in
the letter. On May 16 Berry sent another letter to Power
requesting additional information about Kenick's job
change and its relationship to the NIED claim. Berry also
advised that Allstate's evaluation of Trailov's claim
was not complete: "Our evaluation will be completed by
the end of the month, and I am hoping to respond to your
demand sooner than that."
referred the entire claim to a higher-ranking claims adjuster
for evaluation. That adjuster directed Berry to open a UIM
claim for Trailov because, based upon her knowledge of
similar claims in the Bethel area, Trailov would likely
receive the $100, 000 policy limit on the UIM claim as well
as the underlying liability limit of $100, 000. But the
second adjuster suggested offering $10, 000 for the NIED
claim because she did not believe there was sufficient
information to determine its value.
29, 2003, an attorney from the Law Office of Dennis Mestas
wrote to Berry that he had been retained as co-counsel to
file suit on behalf of Kenick and Trailov. The letter stated
that the policy limits offer had lapsed on May 16 and that no
further policy limits offers would be made or accepted. The
following day Berry wrote to Power offering to settle
Trailov's bodily injury claim for $112, 500, encompassing
policy limits plus attorneys' fees. Berry also offered to
settle Kenick's NIED claim for $10, 000 in an effort to
resolve the matter expeditiously, but she advised that if the
offer was not accepted she would need additional
documentation for the claim.
pleadings, and the proceedings related to them, define the
current appeal. The first pleading is Kenick's and
Trailov's personal injury and NIED complaint against
Herron filed in June 2003 in the superior court in Bethel.
The second is Allstate's March 2004 federal complaint
against Herron for declaratory relief. And the third pleading
is the complaint filed by Kenick and Trailov as Herron's
assignees against Allstate in April 2004 in the superior
court in Bethel.
their June 2003 personal injury complaint against Herron,
Kenick and Trailov sought both compensatory and punitive
damages for injuries and distress resulting from the
September 2002 accident. Herron resolved Kenick and
Trailov's personal injury action against him in early
April 2004 by signing a consent to entry of judgment. Herron
consented to judgment in favor of Kenick, on behalf of her
minor daughter Trailov, for $1, 750, 000 on Trailov's
liability claims and attorneys' fees and consented to
judgment in favor of Kenick for $187, 500 on her NIED claim
and attorneys' fees. The total judgment entered against
Herron was $1, 937, 500. He also assigned to Kenick and
Trailov any and all legal claims he possessed against
Allstate. Herron and Kenick, individually and on behalf of
Trailov, also entered into a covenant not to execute on any
of Herron's assets other than the potential proceeds from
the assigned claims against Allstate.
in early March 2004 Allstate filed a complaint for
declaratory relief in the U.S. District Court for the
District of Alaska in anticipation of Herron confessing
judgment in the accident-related personal injury suit.
Allstate requested a declaration that "its good faith
attempt to settle Trailov and Kenick's claims satisfied
its obligation to its insured, and a further declaration that
Allstate [wa]s not obligated to pay any portion of the
confessed judgment that exceed[ed] the limit of the bodily
injury coverage afforded Herron under the [p]olicy." In
late May, due to Herron's April confession of judgment
and assignment of claims, Allstate amended its federal
complaint for declaratory relief. The only material addition
was the statement that Herron had confessed judgment and
assigned his rights against Allstate.
April 2004, shortly after Herron's confession of
judgment, Kenick and Trailov, as his assignees, filed a
complaint against Allstate and Berry in the Bethel superior
court. Kenick and Trailov asserted that Allstate and Berry
had negligently and recklessly adjusted the claims arising
from the accident and by doing so they had exposed Herron to
a large nondischargeable liability. Kenick and Trailov argued
that as Herron's assignees they were entitled to
compensatory damages in the amounts agreed to in the
confessed judgments and to punitive damages in an amount to
be determined by a jury. The superior court action was stayed
during the pendency of the federal declaratory action.
June 2004 Herron answered Allstate's declaratory
complaint; Kenick and Trailov were not parties to that
action. Herron asserted a number of affirmative defenses,
including an allegation that "the plaintiffs damages, if
any, are the result, in whole or in part, of its negligence,
or that of others for whom the defendant is not
responsible." He also alleged that Allstate had breached
the insurance contract.
early December 2004 Allstate filed a second amended complaint
for declaratory relief, seeking declarations that Herron
breached the insurance contract when he confessed judgment
and assigned his rights and that his "breach was not
excused by any prior material breach by Allstate" and
thus "voided the insurance contract." Later that
month Allstate filed a notice ratifying Berry's conduct
and actions as an Allstate employee.
was Allstate's first witness in the federal trial, held
in June 2008. After describing her employment in 2002-03, she
discussed her evaluation of Kenick's and Trailov's
claims. She was cross-examined about actions she took
relating to her determination of the claims' reserves,
company standards and legal requirements for documenting her
file, and the language of her communications with Power from
February to May 2003. Berry was also questioned about alleged
delays in obtaining medical records relevant to evaluating
Trailov's claim; her delay in responding to Power's
communications; the lack of documentation about when she
evaluated Trailov's claim; and the lack of an apparent
reason why Trailov's claim could not have been evaluated
by May 16, Power's purported deadline to avoid a lawsuit.
In response to questioning about the meaning of Power's
April letter, Berry testified that she believed it required
either that Allstate agree to settle for policy limits or
that it engage in settlement discussions. Berry testified
that she believed that discussion of settlement in her May 9
and May 16 letters satisfied the terms of the April letter.
called Charles Bean as an expert in handling insurance
claims. Bean testified that Allstate's claims handling
from February 14 to May 31, 2003, met industry standards.
Bean also testified to his understanding of the
communications between Berry and Power, including the meaning
of Power's April letter. Bean opined that Berry's
evaluation of Trailov's claim was of a high quality and
that Berry's documentation in the claims log was
acceptable. Bean also believed Allstate had acted
appropriately to protect Herron's interests. On
cross-examination Bean agreed that Allstate had a duty to
protect Herron and conduct an investigation. He conceded that
it was unclear when Berry performed her evaluation of
Trailov's claim and that Allstate "could" have
done the evaluation prior to May 16.
also called Power as a witness. Power conceded that her April
letter was too imprecise for Berry to rely on and that the
letter's meaning was unclear.
close of evidence, after instructing the jury that Allstate
had the burden of proof in the matter, the court further
An insurer is bound to exercise that degree of care which an
insurer of ordinary prudence would exercise. Insurance is a
profession with skill in the investigation and settlement of
liability claims. It is not an extraordinary degree of care,
but the care that a ...