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Lloyd's & Institute of London Underwriting Companies v. Fulton5/12/2000
O P I N I O N
[No. 5271 - May 12, 2000]
Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Dana Fabe, Judge, Pro Tem.
EASTAUGH, Justice, dissenting.
I. INTRODUCTION
An accident aboard a fishing vessel in the Bering Sea provoked a decade-long dispute between the vessel's owner and its insurers. The case raises two significant questions concerning an insurer's duties toward its insured: Upon discovering potential reasons to deny coverage, must an insurer promptly inform its insured of the problems? And does the insurer estop itself from denying coverage if it breaches this duty by withholding notice to its insured while it investigates its coverage defenses? The superior court answered "yes" to both questions. Because we agree that the insurer in this case had a duty to give prompt notice and because the record supports the court's findings of breach, prejudice, and resulting estoppel, we affirm.
II. FACTS AND PROCEEDINGS
When we first considered this case four years ago, we detailed the events and proceedings that brought it before us. We summarize that history here and then update it.
In March 1986 Christopher Fulton fell and injured himself on board the fishing vessel JAMIE LYNN in the Bering Sea southeast of the Pribilof Islands. Christopher Clark was in command of the JAMIE LYNN when the accident occurred. Christopher Clark's father, Walter Clark, owned the JAMIE LYNN and had a $500,000 protection and indemnity insurance policy on the vessel. Under the policy, Pacific Marine Insurance Company (PacMar) would cover the first $200,000 of any loss, and Lloyd's & Institute of London Underwriting Companies (Lloyds) would cover any additional loss up to the $500,000 limit. The policy's coverage was "confined to waters of Bristol Bay and waters surrounding the Alaska Peninsula, and connecting waters to Cordova."
Walter Clark notified his insurance agent of Fulton's injury in July 1986. PacMar received notice on August 4 and immediately recognized potential coverage problems, including the possibility that the vessel's location at the time of the accident was in an area of the Bering Sea that was beyond the imprecisely defined geographical coverage of the policy. By late August, PacMar decided to hire attorney Paul Daigle to handle all coverage defenses.
In early September, Daigle hired marine investigator George Barnum to investigate the claim. Meanwhile, the Clarks consulted attorney Michael Schneider about Fulton's potential claim against them. Also, in September, after Fulton had filed a complaint and moved to arrest the JAMIE LYNN, PacMar, at Walter Clark's request, hired attorney Robert Richmond to represent the Clarks in defending against Fulton's actions.
At about the same time -- mid-September -- Barnum carried out his coverage investigation. In the course of his investigation, Barnum interviewed both Walter and Christopher Clark, obtaining specific information from Christopher suggesting that the JAMIE LYNN had been outside the policy's geographical limits at the time of Fulton's accident. Barnum did not notify either of the Clarks' attorneys of these interviews; nor did he explain his purpose to the Clarks. Barnum reported the results of his investigation to PacMar, recommending that it defend the Clarks under a reservation of rights and challenge coverage in a federal declaratory judgment action. PacMar agreed and, on September 22, notified the Clarks by letter of its intent to reserve the right to dispute coverage. Until then, PacMar had given no notice to the Clarks or their attorneys of its coverage investigatio
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