An Alaska politician once said of the folks she grew up with, “We grow good people in our small towns, with honesty and sincerity and dignity.” But those virtues don’t exactly leap out of the story behind Williams v. Geico Cas. Co., No. S–14089 (Alaska Jan. 25, 2013), which mostly has to do with alcohol, selfishness and stupidity. At the climax of this sordid tale, a party to the lawsuit argued that an insurer’s refusal to offer policy limits for a release of only one of two insured co-defendants–even though the insurer had reserved its rights against the second insured–constituted bad faith. The Supreme Court of Alaska, in a nod to the mores of our rural heritage, said that argument is wrong.
The court’s opinion explained the origin of the case with the following Kafka-meets-King narrative:
On the morning of September 3, 2000, Alya Landt and Innocent Dushkin were in a rented truck. Both were heavily intoxicated, Landt with a blood alcohol content in the range of .16 to .27 percent and Dushkin with a .17 percent blood alcohol content. Landt was driving the truck. Robert Shapsnikoff [who was an acquaintance of the couple in the truck] was also intoxicated and was lying in the middle of the road. The vehicle ran him over.
Things didn’t get better after that. Mr. Dushkin got out of the truck and determined that Mr. Shapsnikoff was still alive, but “was making noises ‘like no normal person makes.’” (The medical examiner would later attribute this to “agonal breathing.”) Ms. Landt said she “didn’t need to be in any trouble with the cops,” so she and Mr. Dushkin picked Shapsnikoff up, put him in the truck and drove him home. When they arrived at Shapsnikiff’s apartment complex, they attempted to revive him with CPR, but they failed. Shapsnikoff was later pronounced dead, and his estate sued.
Ms. Landt had an auto policy from GEICO that provided liability coverage (up to $50,000 per “occurrence”) for her, and for other individuals with respect to “liability because of acts or omissions of an insured.” GEICO defended Ms. Landt, and it also provided a defense to Mr. Dushkin, but it did so under a reservation of rights, and it brought a declaratory judgment action to clear things up.
For its part, the Estate insisted there had been two “occurrences” – one when the decedent was struck and injured, and another when his mangled (but still agonally breathing) body was taken for a ride in the defendants’ truck. GEICO disagreed (the medical examiner found that Shapsnikoff died within minutes of the accident, and would have died had he been allowed to remain at the scene). It offered to settle the underlying case for the single-occurrence policy limit, in consideration of releases for both defendants. The Estate rejected that offer, and countered by making repeated $50,000 demands to each of the defendants separately.
Then the insureds turned on GEICO. They cut a deal with the Estate, under which Ms. Landt and Mr. Dushkin confessed judgment for $4,678,177.42 and assigned their rights against the insurer. In the declaratory judgment action, however, the superior court found that the insureds had breached the policy by confessing judgment, thereby voiding any coverage, and it granted summary judgment to the insurer.
The Estate (as the insureds’ assignee) raised several issues on appeal, one of which was the question of whether GEICO, having failed to achieve a global settlement, had a duty to pursue a settlement on behalf of Ms. Landt alone, leaving Mr. Dushkin liable. The Estate argued that GEICO should have shown Dushkin the kind of consideration he gave to his own friends–and thrown him under the proverbial rented truck. According to the Estate, GEICO’s failure to do so constituted bad faith.
The Supreme Court of Alaska found that decisions from other jurisdictions break both ways: Some courts hold that an insurer who cannot settle on behalf of all its insureds should make a deal for as many as possible; in other courts, an insurer in that position should bring a declaratory judgment action to determine what coverage is owed. The Alaskan court opted for the latter approach:
An insurer has a duty to defend its insureds; seeking a settlement to the benefit of one insured while leaving others open to liability could cause unfairness. Further, the latter approach avoids a potential bad faith claim by an insured who was unprotected and efficiently adjudicates the rights and duties of the insurer and the insured.
The court therefore found that “GEICO acted properly throughout this case,” and that Landt and Dushkin, by confessing judgment, breached the cooperation clause, voiding coverage. It also affirmed an award of attorneys fees to GEICO as the prevailing party in a declaratory action under Alaska’s declaratory judgment statute.