Attorneys Liability Protection v. Ingaldson Fitzgerald, P.C.

Filing

Filed Order for PUBLICATION (JEROME FARRIS, DOROTHY W. NELSON and JACQUELINE H. NGUYEN) for certification to Alaska State Supreme Court. (SEE ORDER FOR FULL TEXT) This matter is stayed pending proceedings in the Alaska Supreme Court, and this case is hereby withdrawn from submission. The parties shall notify this court whether the Alaska Supreme Court accepts the certified questions in a joint report within 30 days of that court s decision. If the questions are accepted, the parties shall file a joint status report with this court six months after the date of acceptance and every six months thereafter. The Clerk of Court shall provide a signed copy of this order under the official seal of the United States Court of Appeals for the Ninth Circuit. The Clerk of Court shall also provide a copy of the record in this case, in whole or in part, to the Alaska Supreme Court upon request. IT IS SO ORDERED. [9234540] [13-35115, 13-35172]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

ATTORNEYS LIABILITY
PROTECTION SOCIETY, INC., a
Risk Retention Group,
Plaintiff-Appellant,

No. 13-35115
D.C. No.
3:11-CV-00187-SLG

v.
INGALDSON FITZGERALD, P.C.,
FKA Ingaldson, Maassen &
Fitzgerald, P.C.,
Defendant-Appellee.

ATTORNEYS LIABILITY
PROTECTION SOCIETY, INC., a
Risk Retention Group,
Plaintiff-Appellee,

No. 13-35172
D.C. No.
3:11-CV-00187-SLG

v.
INGALDSON FITZGERALD, P.C.,
FKA Ingaldson, Maassen &
Fitzgerald, P.C.,
Defendant-Appellant.

ORDER
CERTIFYING
QUESTIONS TO
THE SUPREME
COURT OF ALASKA

Filed September 10, 2014

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ALPS V. INGALDSON FITZGERALD
Before: Jerome Farris, Dorothy W. Nelson,
and Jacqueline H. Nguyen, Circuit Judges.
Order

SUMMARY*

Certification to Alaska Supreme Court
The panel certified two questions to the Alaska Supreme
Court.
1. Does Alaska law prohibit enforcement of
a policy provision entitling an insurer to
reimbursement of fees and costs incurred by
the insurer defending claims under a
reservation of rights, where (1) the insurer
explicitly reserved the right to seek such
reimbursement in its offer to tender a defense
provided by independent counsel, (2) the
insured accepted the defense subject to the
reservation of rights, and (3) the claims are
later determined to be excluded from coverage
under the policy?
2. If the answer to Question 1 is “Yes,” does
Alaska law prohibit enforcement of a policy
provision entitling an insurer to
reimbursement of fees and costs incurred by
*

This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

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the insurer defending claims under a
reservation of rights, where (1) the insurer
explicitly reserved the right to seek such
reimbursement in its offer to tender a defense
provided by independent counsel, (2) the
insured accepted the defense subject to the
reservation of rights, and (3) it is later
determined that the duty to defend never arose
under the policy because there was no
possibility of coverage?

COUNSEL
Kevin Hartzell and Angela Probasco, Kutak Rock, Omaha,
NE, for petitioner/cross-respondent.
Jim M. Boardman and William H. Ingaldson, Ingaldson
Fitzgerald, P.C., Anchorage, AK, for respondent/crosspetitioner.
Rick A. Cigel and Michael B. Kadish, The Cigel Law Group,
P.C., Los Angeles, CA, for amicus curiae National Risk
Retention Association.

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ALPS V. INGALDSON FITZGERALD
ORDER

Pursuant to Alaska Rule of Appellate Procedure 407(a),
we respectfully ask the Alaska Supreme Court to answer the
following certified questions of Alaska law as set forth
below:
1. Does Alaska law prohibit enforcement of
a policy provision entitling an insurer to
reimbursement of fees and costs incurred
by the insurer defending claims under a
reservation of rights, where (1) the insurer
explicitly reserved the right to seek such
reimbursement in its offer to tender a
defense provided by independent counsel,
(2) the insured accepted the defense
subject to the reservation of rights, and
(3) the claims are later determined to be
excluded from coverage under the policy?
2. If the answer to Question 1 is “Yes,” does
Alaska law prohibit enforcement of a
policy provision entitling an insurer to
reimbursement of fees and costs incurred
by the insurer defending claims under a
reservation of rights, where (1) the insurer
explicitly reserved the right to seek such
reimbursement in its offer to tender a
defense provided by independent counsel,
(2) the insured accepted the defense
subject to the reservation of rights, and
(3) it is later determined that the duty to
defend never arose under the policy

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because there was no possibility of
coverage?
The Alaska Supreme Court’s answer to these questions
may be determinative of this appeal, and we are unable to
find controlling precedent from the Alaska Supreme Court.
We are also cognizant of the states’ role as the primary
regulators of “the business of insurance.” Grp. Life & Health
Ins. Co. v. Royal Drug Co., 440 U.S. 205, 211 (1979);
15 U.S.C. § 1012. Additionally, we note that two federal
district courts in Alaska reached conflicting interpretations of
Alaska law on reimbursement of defense costs incurred
pursuant to a reservation of rights. Unionamerica Ins. Co. v.
Gen. Star Indem. Co., No. A01–0317–CV (HRH), 2005 WL
757386, *8 (D. Alaska Mar. 7, 2005); Attorneys Liab. Prot.
Soc’y, Inc. v. Ingaldson & Fitzgerald, P.C., No.
3:11–cv–00187–SLG, 2012 WL 6675167, *4 (D. Alaska Dec.
21, 2012). We do not presume to bind the Alaska Supreme
Court to our framing of these questions of state law, and we
recognize that the Alaska Supreme Court may, in its
discretion, answer these questions in any form that it chooses.
I
The facts underlying this litigation are not disputed.
Attorneys Liability Protection Society, Inc. (“ALPS”) is a
Risk Retention Group (“RRG”) chartered in Montana.
Ingaldson Fitzgerald, P.C. (“Ingaldson”) is a professional
corporation located in Alaska. ALPS provided Ingaldson’s
malpractice insurance coverage from April 29, 2007 to April
29, 2008.
This coverage dispute arises from Ingaldson’s
representation of Robert Kane in a criminal proceeding and

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ALPS V. INGALDSON FITZGERALD

representation of Mark Avery and Security Aviation in
litigation involving the May Smith Trust, for which Avery
was a trustee. On April 13, 2006, Ingaldson received
$150,000 as a retainer for its representation of Kane.
Ingaldson drew down the $150,000 to pay its fees and
returned a portion of the retainer to Kane, leaving a $0
balance in its trust account by April 10, 2007.
Security Aviation filed for bankruptcy on December 21,
2006. Through the course of the bankruptcy, the bankruptcy
trustee successfully brought suit against Ingaldson, and
obtained a judgment in the total amount of $115,297.44,
inclusive of fees and costs. The bankruptcy court awarded
judgment after finding that (1) the conveyance of funds from
Ingaldson’s trust account to Kane was a conversion of funds
owned by Security Aviation, (2) Ingaldson converted Security
Aviation’s funds when it used the retainer to pay its legal
fees, and (3) Ingaldson conveyed funds from its trust account
in violation of 11 U.S.C. §§ 364, 327, and 362(a)(4).
Through the course of the bankruptcy’s litigation against
Ingaldson, Ingaldson was represented by self-selected
independent counsel paid for by ALPS. When ALPS agreed
to bear the costs of Ingaldson’s defense, it did so reserving its
right to deny coverage later and to seek reimbursement of
defense costs if the policy did not cover the claims against
Ingaldson. On September 23, 2011, ALPS filed an action in
federal district court seeking a declaration that the ALPS
policy did not cover the claims against Ingaldson and that
ALPS had no obligation under the policy to provide an appeal
bond in the underlying suit against Ingaldson. ALPS also
sought to recover the expenses it incurred providing a defense
to Ingaldson. The district court held that Alaska Statute
§ 21.96.100(d) precluded reimbursement of ALPS’s expenses

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because the expenses were incurred subject to a reservation
of rights. ALPS appealed.
II
Alaska Statute § 21.96.100(d) states, “In providing
independent counsel, the insurer is not responsible for the
fees and costs of defending an allegation for which coverage
is properly denied and shall be responsible only for the fees
and costs to defend those allegations for which the insurer
either reserves its position as to coverage or accepts
coverage.” The statute plainly requires the insurer to cover
defense costs if it either covers the claims against its insured,
or defends pursuant to a reservation of rights. We note that
if § 21.96.100(d) were the only authority, reimbursement
would not be available in light of the statute’s mandatory
language. In this case, however, the parties agreed to a policy
that allows reimbursement, and the insurer reiterated the
possibility it would seek reimbursement in its reservation of
rights letter. The statute does not squarely address whether
the insurer can later seek reimbursement of fees assumed
under a reservation of rights in this situation.
Passage of Alaska Statute § 21.96.100(d) in 1995
followed CHI of Alaska, Inc. v. Emp’rs Reinsurance Corp.,
844 P.2d 1113 (Alaska 1993). In CHI, the Alaska Supreme
Court recognized an insured’s right to independent counsel
where an insurer accepted defense of a claim pursuant to a
reservation of its right to disclaim coverage later. Id. at 1115.
The Alaska Supreme Court also determined that the insurer
has the unilateral right to select independent counsel, subject
to the covenant of good faith and fair dealing. Id. at 1121.
Like § 21.96.100(d), the CHI holding does not reach the
precise issue presented in the present case. CHI did not

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address the insurer’s rights in the event that noncoverage is
later found, especially where, as here, the insurance policy
and reservation of rights letter clearly permit the insurer to
seek reimbursement of defense costs.
If § 21.96.100(d) prohibits reimbursement in the event of
noncoverage, the second question is whether reimbursement
is precluded even where the duty to defend never arose.
Under Alaska law, an insurer has a duty to defend its insured
where “vagaries of law and fact are sufficient to create the
potential that an insured will incur covered liability . . . .”
Makarka ex rel. Makarka v. Great Am. Ins. Co., 14 P.3d 964,
969 (Alaska 2000) (quotation omitted). The duty to defend
is a distinct obligation of the insurance contract, and can arise
even where the insurer ultimately faces no liability. Sauer v.
Home Indem. Co., 841 P.2d 176, 180 (Alaska 1992) (citing
Afcan v. Mut. Fire, Marine & Inland Ins. Co., 595 P.2d 638,
645 (Alaska 1979)). In the present case, the claims against
Ingaldson involved funds held in the firm’s trust account.
The ALPS policy excluded coverage for disputes concerning
trust account funds and client fees. Thus, it may be that the
duty to defend never arose, and reimbursement of ALPS’
defense costs may not violate any prohibition on
reimbursement created by § 21.96.100(d) in this
circumstance.1

1

We do not reach the merits of the parties’ arguments, and our
description of the controversies presented by the parties shall not be
construed as a comment on the merits of either party’s position in this
appeal.

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III
This matter is stayed pending proceedings in the Alaska
Supreme Court, and this case is hereby withdrawn from
submission. The parties shall notify this court whether the
Alaska Supreme Court accepts the certified questions in a
joint report within 30 days of that court’s decision. If the
questions are accepted, the parties shall file a joint status
report with this court six months after the date of acceptance
and every six months thereafter.
The Clerk of Court shall provide a signed copy of this
order under the official seal of the United States Court of
Appeals for the Ninth Circuit. The Clerk of Court shall also
provide a copy of the record in this case, in whole or in part,
to the Alaska Supreme Court upon request.
IT IS SO ORDERED.

____________________________
Judge Jacqueline H. Nguyen
Presiding Judge