Alaska Supreme Court Rejects Bad Faith Claim and Upholds Award of Attorney’s Fees and Costs to Insurer

February 28, 2013 | Insurance Coverage

The Alaska Supreme Court has affirmed a decision rejecting a bad faith claim against an insurer and awarding the insurer attorney’s fees and costs.  

The Case

On the morning of September 3, 2000, Alya Landt and Innocent Dushkin ? both of whom were intoxicated ? were in a rented truck that Landt was driving. The truck ran over Robert Shapsnikoff, who also was intoxicated and who was lying in the middle of the road. Landt stopped the truck and Dushkin got out to check on Shapsnikoff. They picked Shapsnikoff up, put him in the truck, drove him to his apartment complex, and ultimately called for assistance.

Shapsnikoff died and his estate and survivors (the “Shapsnikoffs”) sued Landt and Dushkin. They confessed judgment for $4,678,177.42 each and assigned their rights against Landt’s automobile insurer to the Shapsnikoffs.

Throughout the pre-lawsuit period and the underlying tort proceedings, Landt’s automobile insurer had made several attempts to settle the case for the $50,000 policy limit. The insurer subsequently filed a declaratory action seeking a declaration of its rights and duties. The trial court ruled in favor of the insurer, and the dispute reached the Alaska Supreme Court.

The Alaska Supreme Court’s Decision

The court affirmed.

The court rejected the Shapsnikoffs’ argument that there had been a second occurrence when Shapsnikoff had been loaded into the truck and moved from the scene and that this second occurrence triggered the insurer’s duty to offer a second $50,000 policy limit settlement. As the court pointed out, the trial court had found that Shapsnikoff had been mortally wounded when run over by the truck, that he was likely dead within seconds, and that he was not loaded into the truck within seconds. The court also pointed out that the trial court had further found that even if Shapsnikoff had been alive at the time he was loaded into the truck, he had not been conscious and therefore had not been harmed by the actions. These findings were “not clearly erroneous” but were based on ample evidence presented at trial, the Alaska Supreme Court ruled.

The court then decided that, based on the facts of this case, it was reasonable for the insurer to have offered the single policy limits settlement and to have rejected any offer not within the single policy limits settlement.

The court also upheld the trial court’s decision thatLandt and Dushkin had materially breached the policy when they confessed judgment, rejecting the Shapsnikoffs’ argument that the breach was excused because the insurer had acted in bad faith. The court explained that because it had acted properly throughout this case, Landt and Dushkin were in material breach when they confessed judgment. The insurer was not in breach, the court held, but Landt and Dushkin, by confessing judgment, had breached the cooperation clause and thus there was “no coverage.”

Finally, the Alaska Supreme Court upheld the trial court’s decision to award the insurer $112,390 in attorney’s fees and costs as the prevailing party. The court found that the actions of the insureds (or their assignees) precipitated this “protracted and complex litigation” and that the insurer had “consistently offered a settlement at the policy limits as it understood them to be,” but that offers had been “consistently rejected, even though these offers were proper under the policy.”

The court emphasized that the Shapsnikoffs had continued to demand “two policy limits” and had counterclaimed against the insurer, alleging bad faith in an effort to collect from it an amount in excess of policy limits that they had achieved “by negotiating a confession of judgment for over $8 million.” On these facts, the court concluded, it was not an abuse of discretion for the trial court to award attorney’s fees to the insurer.

The case is Williams v. GEICO Cas. Co., No. S-14089, No. 6746 (Alaska Jan. 25, 2013).

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  • Alan S. Rutkin





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