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Lloyd's & Institute of London Underwriting Companies v. Fulton5/12/2000
to Lloyds, evidence from independent sources was sufficient to prove the Clarks were not covered. Lloyds maintains that in these circumstances we should apply an "independent source" rule comparable to the exception that criminal courts apply to avoid suppression of evidence under the exclusionary rule.
To support its position, Lloyds cites an Indiana appellate decision, Snodgrass v. Baize. Analogizing insurance cases to criminal cases, Snodgrass found exclusion, not estoppel, to be the correct remedy when an insurer improperly obtains evidence against its clients. But we find the analogy to criminal cases unwarranted. In our view, rules governing suppression of evidence in criminal cases are inapposite in the context of insurance disputes because suppression of evidence in the criminal-law context implicates public-welfare concerns that have little relevance in the unique contractual setting of insurance law. Moreover, police deal with criminals at arm's length, whereas insurers have a special fiduciary relationship with their clients -- a relationship in which the "adhesionary aspects of insurance contracts make the insured particularly reliant on the insurer's good conduct." In this setting, public policy strongly favors rules providing "needed incentive to insurers to honor their implied covenant [of good faith] to their insureds."
While some form of sanction more lenient than estoppel might be desirable for breaches involving equally situated parties engaged in arms-length business transactions, given the size and pervasiveness of the insurance industry, its economic strength, and the fiduciary duty of loyalty it owes to its clients, we conclude that an insurer's breach of the duty to defend must be considered a material breach that estops denial of coverage unless the breach clearly has no adverse impact on the relationship between the insurer and the insured. Here, although the consequences of PacMar's breach were not outcome-determinative, they did adversely affect the Clarks and were therefore prejudicial.
In sum, the superior court did not err in concluding that PacMar's conduct estopped it from denying coverage. Under our prior decision in Fulton, the court correctly determined that PacMar's estoppel runs against Lloyds. Accordingly, we affirm the superior court's entry of judgment against Lloyds.
B. Fulton's Cross-Appeal
1. Standard of review
Fulton argues in his cross-appeal that the superior court erred in calculating prejudgment interest on his award against Lloyds. He advances a twofold argument. The first part is based on AS 09.30.070(b), which governs accrual of prejudgment interest in personal injury cases; the second is based on Alaska Civil Rule 68(b)(2), which governs offers of judgment. These issues present questions of law, which we review de novo.
2. Prejudgment interest should have begun to accrue upon Lloyds's receipt of PacMar's May 10, 1990 letter, rather than beginning April 22, 1992.
Fulton argues that the superior court erred in determining that prejudgment interest should accrue from April 22, 1992, the day that the defendants received formal notice of Fulton's suit. In fixing the starting date for its award of prejudgment interest, the court cited AS 09.30.070, which governs accrual in cases involving personal injury , death, or property damage. This statute provides, in relevant part:
Except when the court finds that the parties have agreed otherwise, prejudgment interest accrues from the day process is served on the defendant or the day the defendant received written notification that an injury has occurred and that a claim may be brought against the def
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