Estes v. Alaska Insurance Guaranty Ass'n , 774 P.2d 1315 ( 1989 )

OPINION

COMPTON, Justice.

After fire destroyed his music store, Jack Estes filed a claim with his insurer, Union Indemnity Insurance Company of New York (Union Indemnity). Ten months later, Union Indemnity denied Estes’ claim on a number of grounds. One year and seven days after Union Indemnity’s denial of his claim, Estes filed suit against it.

When Union Indemnity became insolvent, the Alaska Insurance Guaranty Association (AIGA) assumed Union Indemnity’s obligations on its policies. AIGA moved for summary judgment against Estes on the ground that Estes had failed to comply with a policy provision requiring any suit to be filed “within one year after the loss occurs.” The trial court granted summary judgment. We reverse.

I. FACTS AND PROCEEDINGS

Jack Estes operated a music store, Estes Music Studio, in Kenai, Alaska. On August 14, 1983, the store and its inventory were destroyed by fire. Soon after the fire, Estes submitted proof of loss to his insurer, Union Indemnity.

Union Indemnity completed its investigation of the loss in January 1984. On June 4, Union Indemnity denied Estes’ claim on the grounds that Estes had concealed facts related to the loss, had failed to provide certain documents, and had caused the loss or increased the risk of loss.

Estes did not communicate further with Union Indemnity until March 25, 1985, when Estes’ trial attorney, not of the firm that represented Estes during the investigation, wrote to Union Indemnity’s attorney asking to be advised of Union Indemnity’s position on the claim. There was no response to this letter, and on June 11, 1985, Estes filed a complaint against Union Indemnity. Default judgment was entered against Union Indemnity on October 24, 1985.

In July 1986 litigation in New York resulted in liquidation of Union Indemnity. Pursuant to the Alaska Insurance Guaranty Association Act, AS 21.80.010-.190, AIGA intervened and assumed Union Indemnity’s obligations under the policy. The action was amended to substitute AIGA in place of Union Indemnity as the defendant. The default judgment was set aside, and Union Indemnity was dismissed from the action.

AIGA moved for summary judgment on the ground that Estes had failed to comply with a policy provision requiring any suit on the policy to be commenced “within one year after the loss occurs.” The trial court granted the motion. Estes appeals.

II. DISCUSSION

On appeal Estes contends that in order to bar his claim for failure to comply with the one-year limit on commencement of suit clause, AIGA must show that it or Union Indemnity was prejudiced by his failure to comply. He also contends that Union Indemnity’s delay in processing his claim constitutes a waiver of the one-year time limit and, alternatively, that AIGA should be estopped from asserting the one-year time limit.

AIGA argues that waiver or estoppel arising from Union Indemnity’s actions cannot be asserted against AIGA.

When reviewing a grant of summary judgment this court must determine whether there exists a genuine issue of material fact and whether the moving party is entitled to judgment as a matter of law. Zeman v. Lufthansa German Air Lines, 699 P.2d 1274, 1280 (Alaska 1985). The party moving for summary judgment has the burden of proving the absence of issues of material fact. McGee Steel Co. v. State, 723 P.2d 611, 615 (Alaska 1986). “The party opposing summary judgment is not required to show it will prevail at trial. But if the movant establishes prima facie that it is entitled to judgment as a matter of law, the party opposing summary judgment must demonstrate that there exists a genuine issue of material fact to be litigated.” Wassink v. Hawkins, 763 P.2d 971, 973 (Alaska 1988).

A. AN INSURANCE COMPANY SEEKING TO ENFORCE A CONTRACTUAL MODIFICATION OF THE STATUTE OF LIMITATIONS MUST DEMONSTRATE THAT IT HAS SUFFERED PREJUDICE AS A RESULT OF THE CLAIMANT’S DELAY IN BRINGING SUIT.

The multi-peril policy issued to Estes by Union Indemnity includes a five-page list of conditions and definitions. At the bottom of the list’s second page, under the heading “Conditions Applicable to Section I,” there appears the following provision:

15. Suit. No suit shall be brought on this policy unless the insured has complied with all the policy provisions and has commenced the suit within one year after the loss occurs.

Estes concedes that his suit was not commenced within one year after the loss occurred. But he contends that the limitation provision should be enforced only upon proof by AIGA that AIGA has suffered prejudice as a result of his failure to file suit within the period. Though we have not held heretofore that such proof is required, Estes argues that the reasoning of prior cases supports such a requirement.

AIGA argued successfully before the trial court that the court should enforce the contractual modification of the statute of limitations without regard to any question of prejudice.

This court and others have recognized that insurance policies differ from traditional private contracts. See Weaver Bros, v. Chappel, 684 P.2d 123, 125 (Alaska 1984); Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193, 196 (1977). “An insurance contract is not a negotiated agreement; rather its conditions are by and large dictated by the insurance company to the insured.” Id. An insured is charged with knowledge of these conditions not because he has read or understood them, but because business utility so demands. Cooper v. Government Employees Ins. Co., 51 N.J. 86, 237 A.2d 870, 873 (1968).

One commentator aptly characterizes conditions to an insurance policy as an exercise of “private lawmaking” by the insurance company. Oldfather, Toward a Usable Method of Judicial Review of the Adhesion Contractor’s Lawmaking, 16 U.Kan.L.Rev. 303 (1968). Oldfather argues that to enforce such provisions uncritically is, in effect, to sanction arbitrary lawmaking. He suggests that courts should adopt some uniform method for reviewing such provisions.

In Weaver Bros. v. Chappel, 684 P.2d 123 (Alaska 1984), we reviewed a policy provision requiring prompt notice of loss. We stated:

In short, the notice requirement is designed to protect the insurer from prejudice. In the absence of prejudice, regardless of the reasons for the delayed notice, there is no justification for excusing the insurer from its obligations under the policy. We recognize the strong societal interest in preserving insurance coverage for accident victims so long as the preservation is equitable for all parties involved.

Id. at 125 (emphasis added).

In Weaver Bros., we reviewed the notice provision under the following standard: Does the application of the notice provision in this case advance the purpose for which it was included in the policy? The question we must now consider is whether the standard adopted in Weaver Bros, should be applied to policy clauses that are similar to notice provisions.

A number of courts have adopted the Weaver Bros, approach to notice provisions. Of these, some have extended that approach to other policy clauses. See Zuckerman v. Transamerica Ins. Co., 133 Ariz. 139, 650 P.2d 441 (1982); ACF Produce v. Chubb/Pacific Indem. Group, 451 F.Supp. 1095 (E.D.Pa.1978) (applying Pennsylvania law). Others have chosen not to do so. See Simms v. Allstate Ins. Co., 27 Wash.App. 872, 621 P.2d 155 (1980); Donahue v. Hartford Fire Ins. Co., 110 R.I. 603, 295 A.2d 693 (1972).

The Washington Court of Appeals held in Washington Insurance Guaranty Association v. Hill, 19 Wash.App. 195, 574 P.2d 405 (1978), that a showing of prejudice is required before an insurance company may enforce a provision requiring prompt notice of loss. In Simms v. Allstate, the same court held that a showing of prejudice is not required for enforcement of a one-year time limit on a commencement of suit clause. The court compared notice provisions with time limit on commencement of suit clauses: “The purpose of the former is to avoid prejudice; the latter is simply a contractual modification of the statute of limitations.” 621 P.2d at 158. Though the court apparently considered this distinction significant, it is not clear that there is any distinction at all. The primary purpose of contractual modifications of the statute of limitations is to avoid prejudice, specifically, to avoid the extra danger of fraud and mistake associated with stale claims. See Fireman’s Fund Ins. Co. v. Sand Lake Lounge, Inc., 514 P.2d 223, 226 (Alaska 1973). Further, prejudice resulting from delay in filing suit seems no more difficult to prove than prejudice resulting from delay in providing notice. If the insurance company could show, for example, that witnesses had died or their memories faded during the insured’s delay in filing suit, or that other evidence had been lost, enforcement of the contractual time limit on commencement of suit might be appropriate.¹

The court in Simms also opined that to apply the prejudice requirement to limits on action would be “to permit an insured, once he has purchased his policy, to file it away and forget it, and then defend his neglect to commence suit within the stipulated period on the ground that the insurer was not prejudiced thereby.” 621 P.2d at 158 (quoting Donahue, 295 A.2d at 694). This opinion is defensible, but is not relevant to the enforceability of a clause not bargained for. The court’s use of the term “stipulated period” is misleading. The contractual modification of the statute of limitations is not bargained for, nor is it knowingly agreed to by the insured. Courts have hesitated to enforce policy conditions not because the conditions are difficult to discover, but because the conditions are not the result of a bargain. See Weaver Bros., 684 P.2d at 125; Zuckerman, 650 P.2d at 448. It is the element of bargain which justifies a court in uncritically enforcing the terms of a contract provision; when the element of bargain is not present, the authority of the “stipulated” provision becomes problematic. The mere fact that a provision may be discovered after the fact does not make the authority unproblematic.

In Zuckerman v. Transamerica Insurance Co., 650 P.2d at 448, the Arizona Supreme Court held that a contractual modification of the statute of limitations should be enforced only “when the reasons for its existence are thereby served.” When enforcement does not serve the reasons for the provision’s inclusion in the policy, the insured’s reasonable expectation that coverage will not be arbitrarily denied must be given effect. Id. In short, the authority of the provision is limited by the reality of the way insurance policies are bought and sold; the effect of the provision is limited by the reasonable expectations of the insured.

We hold that time limit on commencement of suit clauses, notice of loss clauses, proof of loss clauses, and cooperation clauses should all be reviewed on the basis of whether their application in a particular case advances the purpose for which they were included in the policy. Only by so reviewing these clauses can courts satisfy the consumer’s reasonable expectation that coverage will not be defeated on arbitrary procedural grounds.² Thus, in order to bar Estes’ claim for failure to comply with the one-year time limit, AIGA must establish that it suffered as a result of his delay such prejudice as the limit was intended to avoid.³ Hence, summary judgment was improper, and the judgment of the superior court must be reversed.

B. ESTES DID NOT RAISE A GENUINE ISSUE OF MATERIAL FACT WITH RESPECT TO THE ISSUES OF WAIVER AND ESTOPPEL.

In response to AIGA’s motion for summary judgment, Estes argued that: (a) Union Indemnity had waived the policy’s one-year time limit by its failure to act on Estes’ claim within 30 days,⁴ or by its ten-month delay in denying his claim; (b) Union Indemnity’s failure to act on Estes’ claim within 30 days constituted a breach of contract, relieving Estes of any obligations to file suit within one year; and (c) Union Indemnity’s ten-month delay in denying his claim estopped it from asserting the one-year time limit.

At the outset we note that the 30-day provision found in section 1.13 does not delimit the time within which Union Indemnity must accept or reject a claim. Rather, on its face it specifies only the time within which it must pay an accepted claim. Estes has cited no authority suggesting a different construction of this provision, nor do we perceive any. Thus we conclude that Estes’ arguments based upon Union Indemnity’s failure to act on his claim within 30 days are without merit.

The trial court rejected the application of waiver and estoppel to the case, relying on this court’s decision in Fireman’s Fund v. Sand Lake Lounge, Inc., 514 P.2d 223 (Alaska 1973). In Fireman’s Fund, this court interpreted a policy provision similar to the one here at issue; we held that the policy’s one-year period began to run only after the claim was denied. Id. at 226.

The trial court reasoned that the limitation period in this case began to run only after the claim was denied, and therefore delay prior to denial of the claim could not give rise to a claim of waiver or estoppel. Estes accepts the decision in Fireman’s Fund as identifying the date from which the one-year period commences to run.

In order to prevail at trial on the issue of waiver, Estes would have to establish that Union Indemnity’s conduct was inconsistent with an intent to insist on compliance with the one-year limit on commencement of suit clause. See Milne v. Anderson, 576 P.2d 109, 112 (Alaska 1978)⁵; Village of Lake in the Hills v. Illinois Emcasco Ins. Co., 153 Ill.App.3d 815, 106 Ill.Dec. 881, 506 N.E.2d 681 (1987). In order to prevail at trial on the issue of estoppel, Estes would have to establish that (1) Union Indemnity asserted by conduct or words that it would not insist on compliance with the clause, and (2) Estes relied to his detriment on that assertion. See Merdes v. Underwood, 742 P.2d 245, 248 (Alaska 1987).

This court’s decision in Fireman’s Fund is dispositive of the issue of when the one-year period began to run. The clause in Estes’ policy provides: “No suit shall be brought on this policy unless the insured ... has commenced suit within one year after the loss occurs.” Thus, the one-year period began to run on the day Union Indemnity denied the claim. Estes had a full year thereafter to file suit. The mere delay caused by investigation of the claim is not conduct suggesting that Union Indemnity would not insist on compliance with the one-year limit on commencement of suit clause. Further, no statement of genuine issue asserting detrimental reliance special to Estes was filed. Estes’ estoppel defense was correctly rejected.

In addition to Union Indemnity’s failure to deny the claim for a period of ten months, its attorney acknowledged the unusual nature of the delay in a letter written five months after the fire: “It is my understanding that our time for responding to your client’s Proof of Loss continues to be held in abeyance until we have had a chance to complete the work with the accountant and Mr. Parker and a brief and reasonable time to analyze the same.” Further, the attorney for Union Indemnity failed to respond to an inquiry from Estes’ trial attorney after he had advised Estes' prior attorney that the claim was rejected and denied. Estes argues that these actions, taken together, show that Union Indemnity was acting in a manner inconsistent with an intent to insist on compliance with the one-year limit on commencement of suit clause, thereby waiving it.

We conclude that this argument does not raise a triable issue of waiver. It would be unreasonable to say that Union Indemnity’s conduct was inconsistent with an intent to insist on compliance with the one-year limit clause.

Estes has not raised triable issues with respect to waiver and estoppel.⁶ The trial court correctly rejected these proffered defenses to Union Indemnity’s motion for summary judgment.

II. CONCLUSION

Like a notice of loss provision, a limitation on commencement of suit clause should be enforced only when its application in a particular case serves the primary purpose for which it was included in the policy: to avoid prejudice. To avail itself of the contractual one-year limit on commencement of suit clause, AIGA must establish that it was prejudiced by Estes’ delay in filing suit.

The judgment of the superior court rejecting Estes’ claims of waiver and estoppel is AFFIRMED. Its grant of summary judgment is REVERSED and the case REMANDED for proceedings consistent with this opinion.

MOORE, J., dissents.

1 . We also note that insurance companies are not forced to stand by helplessly as memories fade and physical evidence is lost. They are entitled to bring declaratory judgment actions to determine coverage at their own convenience. See AS 22.10.020.

2 . The dissent urges the court to declare a public policy in favor of a one-year period of limitation. The task of declaring public policy rests first with the legislature. AS 9.10.050 provides in part: "No person may bring an action ... upon a contract or liability, express or implied, ... unless commenced within six years.” Presumably if a one-year period of limitation was in the public interest, the legislature would enact a one-year statute of limitations.

3 . The dissent observes that the rule we adopt today has been rejected by an “overwhelming majority” of those courts on which it has been urged. Six of the eight decisions included by the dissent in this majority arose in jurisdictions in which the limitation clause had been legislatively or administratively approved. See Zieba v. Middlesex Mut. Assur. Co., 549 F.Supp. 1318, 1322 (D.Conn.1982) (Conn.Gen.Stat. § 38-98, -99); Schreiber v. Pennsylvania Lumberman’s Mut. Ins. Co., 498 Pa. 21, 444 A.2d 647 (1982) (Pa.Stat.Ann. tit. 40 § 636); Petraglia v. American Motorists Ins. Co., 284 Pa.Super. 1, 424 A.2d 1360 (1981) (Pa.Stat.Ann. tit. 40 § 636); Sanchez v. Kemper Ins. Companies, 96 N.M. 466, 632 P.2d 343 (1981) (N.M.Stat.Ann. § 59-16-16); Donahue v. Hartford Fire Ins. Co., 110 R.I. 603, 295 A.2d 693 (1972) (R.I.Gen.Laws § 27-5-3); Simms v. Allstate Ins. Co., 27 Wash.App. 872, 621 P.2d 155 (1980) (WAC 284-20-010). Another of the decisions rejected application of Zuck-erman only on the ground that the insured in the case was not “an unwary customer." Ameritrust Co. Nat'l Ass’n v. West American Ins. Co., 37 Ohio App.3d 182, 525 N.E.2d 491, 494 (1987).

4 . Under "Conditions Applicable to Section I” of Estes’ insurance policy, § 13 provides: "Payment of Loss. The company will pay all adjusted claims within thirty (30) days after presentation and acceptance of the proof of loss.”

5 . In Milne we stated:

Waiver is generally defined as “the intentional relinquishment of a known right.” However, waiver is:

a flexible word, with no definite, and rigid meaning in the law.... While the term has various meanings dependent upon the context, it is, nevertheless, capable of taking on a very definite meaning from the context in which it appears, and each case must be decided on the facts peculiar to it.

A waiver can be accomplished either expressly or implicitly. An implied waiver arises where the course of conduct pursued evidences an intention to waive a right, or is inconsistent with any other intention than a waiver, or where neglect to insist upon the right results in prejudice to another party. To prove an implied waiver of a legal right, there must be direct, unequivocal conduct indicating a purpose to abandon or waive the legal right, or acts amounting to an estoppel by the party whose conduct is to be construed as a waiver.

576 P.2d at 112 (citations and footnotes omitted).

6 . We do not reach AIGA’s argument that it may not be held liable where an insurance claim against an insolvent insurer depends for its validity on theories of estoppel or waiver. Also, we find AIGA’s "covered claims" argument without merit.