McDonnell v. State Farm Mutual Automobile Insurance Company

Notice: This opinion is subject to correction before publication in the P ACIFIC R EPORTER .
Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
corrections@appellate.courts.state.ak.us.

THE SUPREME COURT OF THE STATE OF ALASKA

LORI McDONNELL, individually, )
*
and on behalf of her minor son , LUK E , ) Supreme Court Nos. S-14378/14407
)
Appellants and ) Superior Court No. 3AN-09-09375 CI
Cross-Appellees, )
) OPINION
v. )
) No. 6776 – April 26, 2013
STATE FARM MUTUAL )
AUTOMOBILE INSURANCE )
COMPANY, )
)

Appellee and )

Cross-Appellant. )

)

Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, Sen K. Tan, Judge.

Appearances: Michael J. Schneider, Law Offices of Michael
J. Schneider, P.C., Anchorage, for Appellants and Cross-
Appellees. Kimberlee A. Colbo, Hughes Gorski Seedorf
Odsen & Tervooren, LLC, Anchorage, for Appellee and
Cross-Appellant.

Before: Carpeneti, Chief Justice, Fabe, Winfree, and
Stowers, Justices, and Eastaugh, Senior Justice pro tem.**

STOWERS, Justice.

*
We do not use Luke’s last name to protect his privacy.
**
Sitting by assignment made under article IV, section 11 of the Alaska
Constitution and Alaska Administrative Rule 23(a).
I. INTRODUCTION
Following a car accident with an uninsured motorist, Lori McDonnell filed
suit against her insurer State Farm Mutual Automobile Insurance Company on behalf of
herself and her minor son, Luke. McDonnell sought a declaratory judgment that: (1) she
was entitled to have her personal injury claims settled by appraisal under the mandatory
appraisal statute, AS 21.96.035; and (2) a provision in her State Farm insurance policies
requiring her to file suit against the insurance company within two years of the accident
was void as against public policy. The superior court ruled that the mandatory appraisal
statute did not apply to personal injury claims. The court further ruled that the
contractual two-year limitations provision was enforceable, but only if State Farm could
show that it was prejudiced by an insured’s delay in bringing suit, and that the
appropriate accrual date for the limitations period was the date State Farm denied an
insured’s claim, rather than the date of the accident.
McDonnell and State Farm both appeal. McDonnell argues the mandatory
appraisal statute applies to her personal injury claims and the two-year limitation
provision is wholly void as against public policy. State Farm argues the two-year
limitation provision is wholly enforceable. For the reasons explained below, we affirm
the superior court’s rulings.
II. FACTS AND PROCEEDINGS
On August 7, 2007, McDonnell and her son were involved in a car accident.
The driver of the other vehicle fled the scene and was never identified.
McDonnell had two State Farm insurance policies that both provided
uninsured motorist (UM) and underinsured motorist (UIM) coverage. McDonnell
claimed that the accident had caused her and her son Luke to suffer back injuries. State
Farm agreed that McDonnell and her son were entitled to UM coverage but disputed that

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the accident had caused all of their asserted injuries. The parties were unable to settle
McDonnell’s claims.
McDonnell’s insurance policies required her to bring suit against State
Farm within two years of the accident if the parties could not agree on the amount of her
damages. On August 7, 2009, McDonnell filed a complaint against State Farm on behalf
of herself and Luke.1 She sought a declaratory judgment that the two-year limitation
provision was unenforceable and that she was entitled to resolve her claims by appraisal
under AS 21.96.035.2 State Farm argued the two-year limitations period was a fully
enforceable contract provision and the mandatory appraisal statute did not apply to
McDonnell’s personal injury claims. McDonnell and State Farm filed cross-motions for
summary judgment on the mandatory appraisal issue. McDonnell also filed a motion for
judgment on the pleadings on the enforceability of the two-year limitation provision.
Superior Court Judge Sen K. Tan granted State Farm’s summary judgment
motion, ruling that under the plain language of AS 21.96.035 the mandatory appraisal
procedure did not apply to McDonnell’s personal injury claims. The superior court also
granted in part McDonnell’s motion for judgment on the pleadings, ruling that even
though the issue was technically moot it should nevertheless be reviewed under the
public interest exception to the mootness doctrine. Relying on Estes v. Alaska Insurance

1
Another son, Landon, was also in the car at the time of the accident, and
McDonnell’s complaint asserted claims on his behalf as well. Landon’s claims have
been settled with State Farm, and he is not a party to this appeal. We refer to
McDonnell’s and Luke’s claims collectively as McDonnell’s claims in this opinion.
2
Throughout the trial proceedings, the parties cited to the former mandatory
appraisal statute, AS 21.89.035. The statute was renumbered to AS 21.96.035 in 2010.
See AS 21.96.035 (revisor’s notes). For clarity and consistency, we cite to AS 21.96.035
throughout this opinion.

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Guaranty Association,3 the court then ruled that the contractual two-year limitations
period was enforceable, but only if State Farm could show it had suffered prejudice from
an insured’s delay in filing suit. The court also ruled that the appropriate accrual date for
the limitations period was the date when State Farm denied an insured’s claim, not the
date of the accident.
Both parties appeal, reiterating their arguments whether AS 21.96.035
applies to McDonnell’s UM personal injury claims, whether McDonnell’s challenge to
the two-year limitations provision was moot, and whether that provision is void as
against public policy.
III. STANDARD OF REVIEW
We review a judgment on the pleadings under Alaska Civil Rule 12(c) and
a summary judgment under Alaska Civil Rule 56 de novo.4 Both judgments are
appropriate where there are no genuine issues of material fact and the moving party is
entitled to judgment as a matter of law.5 A judgment on the pleadings must be based
solely on the pleadings, however, while a summary judgment may be supported by
evidence outside the pleadings, such as affidavits and depositions.6

3
774 P.2d 1315, 1317-18 (Alaska 1989).
4
Allstate Ins. Co. v. Teel, 100 P.3d 2, 4 (Alaska 2004) (judgment on the
pleadings); State Farm Mut. Auto. Ins. Co. v. Lestenkof, 155 P.3d 313, 316
(Alaska 2007) (summary judgment).
5
In re Life Ins. Co. of Alaska, 76 P.3d 366, 368 (Alaska 2003); Hebert v.
Honest Bingo, 18 P.3d 43, 46-47 (Alaska 2001).
6
See Alaska R. Civ. P. 12(c) (“If, on a motion for judgment on the pleadings,
matters outside the pleadings are presented to and not excluded by the court, the motion
shall be treated as one for summary judgment . . . .”); Alaska R. Civ. P. 56(c) (providing
summary judgment motions may be supported by “the pleadings, depositions, answers
(continued...)

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 Whether State Farm is entitled to summary judgment on the mandatory
appraisal issue turns on the interpretation of AS 21.96.035. We apply our independent
judgment to questions of statutory interpretation, adopting the rule of law that is “most
persuasive in light of precedent, reason, and policy.”7 Whether McDonnell is entitled to
a judgment on the pleadings on the two-year limitation issue turns on the enforceability
of that contract provision, a question of law that we review de novo.8
IV. DISCUSSION
A. Mandatory Appraisal Under AS 21.96.035 Does Not Apply To
McDonnell’s Personal Injury Claims.
Alaska regulates insurance through a comprehensive insurance code.9
Alaska Statute 21.96.035 provides that certain types of insurance policies must include
an appraisal clause for resolving disputes over the value of a covered loss:
A motor vehicle or similar policy, a policy providing
property coverage, or any other policy providing first party
property, casualty, or inland marine coverage, issued or
delivered in this state, must include an appraisal clause
providing a contractual means to resolve a dispute between

6
(...continued)
to interrogatories, and admissions on file, together with the affidavits . . . .”); see also
Hebert, 18 P.3d at 46 (“The purpose of a Rule 12(c) motion is to provide a means of
disposing of cases when the material facts are not in dispute and a judgment on the merits
can be achieved by focusing on the content of the pleadings and any facts of which the
court will take judicial notice.”) (internal quotation marks omitted).
7
Life Ins. Co. of Alaska, 76 P.3d at 368 (quoting Jerue v. Millett, 66 P.3d
736, 740 (Alaska 2003)).
8
See State Farm Mut. Auto. Ins. Co. v. Dowdy, 192 P.3d 994, 998 (Alaska
2008); Teel, 100 P.3d at 4.
9
See AS 21.03.010(a) (“All persons transacting a business of insurance in
this state . . . shall comply with the applicable provisions of [Alaska’s insurance code].”).

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 the insured and the insurer over the value of a covered first
party loss for real property, personal property, business
property, or similar risks.[10]
The statute also describes in detail the appraisal process that the insurer and insured must
follow:
If the insured and the insurer fail to agree on the amount of a
covered first party loss, either may make written demand
upon the other to submit the dispute for appraisal. Within 10
days of the written demand, the insured and insurer must
notify the other of the competent appraiser each has selected.
The two appraisers will promptly choose a competent and
impartial umpire. Not later than 15 days after the umpire has
been chosen, unless the time period is extended by the
umpire, each appraiser will separately state in writing the
amount of the loss. If the appraisers submit a written report
of agreement on the amount of the loss, the agreed amount
will be binding upon the insured and insurer. If the
appraisers fail to agree, the appraisers will promptly submit
their differences to the umpire. A decision agreed to by one
of the appraisers and the umpire will be binding upon the
insured and insurer.[11]
McDonnell describes AS 21.96.035 as mandating an “appraisal-arbitration
process” and argues that she has a right to resolve her UM dispute with State Farm by
way of this process. She argues that under the plain language of the statute, the appraisal
process applies to personal injury claims because the statute applies to disputes over the
value of “a covered first party’s loss for real property, personal property, business
property, or similar risks.”12 Although the insurance code does not define “personal

10
AS 21.96.035.
11
Id.
12
Id. (emphasis added).

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property,”13 the general statutory definition under AS 01.10.060 provides, “In the laws
of the state, unless the context otherwise requires, . . . ‘personal property’ includes
money, goods, chattels, things in action, and evidences of debt.”14 A “thing in action,”
also called a “chose in action,” includes claims for damages, such as a personal injury
claim.15 We have recognized that “a chose in action, such as [a plaintiff’s] claim for
personal injuries, is a form of property.”16 McDonnell argues that we must presume the
legislature knew the term “personal property” included personal injury claims,17 therefore
this term should be given its plain meaning under the general statutory definition of
“personal property.”
State Farm counters that the general definition of “personal property” under
AS 01.10.060 is not conclusive because the statute requires consideration of the context

13
See AS 21.97.900.
14
AS 01.10.060(a)(9) (emphasis added).
15
See Bergen v. F/V St. Patrick, 686 F. Supp. 786, 787 (D. Alaska 1988) (“A
‘thing in action’ is a chose in action . . . .”); B LACK ’S LAW D ICTIONARY 258, 1617
(9th ed. 2009) (defining “chose in action” as synonymous with “thing in action” and as
including “a claim for damages in tort” or “[t]he right to bring an action to recover a
debt, money, or thing”).
16
Bush v. Reid, 516 P.2d 1215, 1219 (Alaska 1973) (“We begin with the
understanding that a chose in action, such as Bush’s claim for personal injuries, is a form
of property.”).
17
See Young v. Embley, 143 P.3d 936, 945 n.51 (Alaska 2006) (The
legislature is “presumed to be aware of common-law terms of art.”).

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in which the term is used,18 and McDonnell’s interpretation is inconsistent with the
ordinary meaning of the term “appraisal.”
The superior court rejected McDonnell’s interpretation of AS 21.96.035,
ruling that the context and structure of the statute show the mandatory appraisal
procedure is limited to disputes over the value of tangible property. The court reasoned
that: (1) the statute’s expedited timeline suggests the legislature did not intend for the
process to apply to complex medical disputes; (2) the legislature specifically used the
term “appraisal,” which is not synonymous with “arbitration”; and (3) McDonnell’s
interpretation would require the “appraisal” of essentially all claims, thereby rendering
superfluous the statute’s limitation to certain types of property loss. The court also noted
a “conceptual issue” with McDonnell’s argument that a chose in action is personal
property subject to mandatory appraisal, reasoning “the right to sue is the property right,
not the injury on which the right to sue is based”; therefore McDonnell and her son
“should not be able to arbitrate their right to sue when what they want is to arbitrate the
value of the injury itself.”19
We interpret statutes “according to reason, practicality, and common sense,
considering the meaning of the statute’s language, its legislative history, and its

18
AS 01.10.060(a)(9) (“In the laws of the state, unless the context otherwise
requires, . . . ‘personal property’ includes money, goods, chattels, things in action, and
evidences of debt.”) (emphasis added).
19
Judge Tan also noted that Superior Court Judge John Suddock had recently
considered this issue in another case and reached the same conclusion. See Widby v.
State Farm Mut. Auto. Ins. Co., No. 3AN-08-7866 CI (Alaska Super., Sept. 15, 2009).
Judge Suddock ruled that the mandatory appraisal statute does not apply to personal
injury claims, reasoning “just because bodily injury claims are ‘choses in action’
characterizable as personal property, the injured human body cannot itself be reasonably
categorized as a personal property risk subject to appraisal by experts on a fifteen-day
schedule.” Id.

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purpose.”20 We have rejected a mechanical application of the plain meaning rule in favor
of a sliding scale approach to statutory interpretation.21 Thus, “[t]he plainer the statutory
language is, the more convincing the evidence of contrary legislative purpose or intent
must be.”22
1. Plain language of the statute
We conclude that the superior court’s interpretation of AS 21.96.035 is
more consistent with the plain language of the statute than McDonnell’s interpretation.
McDonnell is correct that under a very narrow and literal interpretation of the statute,
AS 21.96.035 applies to disputes over the value of “personal property,” which is
generally defined under AS 01.10.060(a)(9) as including “things in action,” such as a
personal injury claim. But, as State Farm argues, the general statutory definition of
“personal property” does not apply if “the context [of the statute] otherwise requires.”23
McDonnell’s plain language argument is unpersuasive when the text, context, and
structure of the statute are considered as a whole.
First, AS 21.96.035 states that it applies to disputes over the value of a “loss
for real property, personal property, and business property, or other similar risks.”
Interpreting a “loss for . . . personal property” as a “loss for . . . a personal injury claim”
as McDonnell advocates does not make sense, grammatically or conceptually. As the

20
Nelson v. Municipality of Anchorage, 267 P.3d 636, 639 (Alaska 2011).
21
Peninsula Mktg. Ass’n v. State, 817 P.2d 917, 922 (Alaska 1991).
22
Gov’t Emps. Ins. Co. v. Graham-Gonzalez, 107 P.3d 279, 284
(Alaska 2005) (quoting Muller v. BP Exploration (Alaska) Inc., 923 P.2d 783, 787-88
(Alaska 1996)).
23
AS 01.10.060(a)(9).

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superior court observed, McDonnell is not seeking an appraisal of a loss to her claim, but
an appraisal of the underlying injury itself.
Second, if the legislature intended for “personal property” to include all
“choses in action,” then essentially all insurance claims would be subject to mandatory
appraisal. This would render the statute’s language limiting the appraisal process to “real
property, . . . business property, and other similar risks” superfluous.24 When engaging
in statutory interpretation, “[w]e must presume ‘that the legislature intended every word,
sentence, or provision of a statute to have some purpose, force, and effect, and that no
words or provisions are superfluous,’ ” and “we must, whenever possible, interpret each
part or section of a statute with every other part or section, so as to create a harmonious
whole.”25 Application of these principles convinces us that the legislature did not intend
the phrase “personal property” to include all choses in action.
Third, AS 21.96.035 mandates an “appraisal” clause, which is not
synonymous with “arbitration,” despite McDonnell’s characterizations to the contrary.26
As the Alabama Supreme Court has observed, “An agreement for arbitration ordinarily
encompasses the disposition of the entire controversy between the parties . . . , whereas
an agreement for appraisal extends merely to the resolution of the specific issues of

24
AS 21.96.035.
25
State, Dep’t of Commerce, Cmty., & Econ. Dev., Div. of Ins. v. Progressive
Cas. Ins. Co., 165 P.3d 624, 629 (Alaska 2007) (quoting Kodiak Island Borough v.
Exxon Corp., 991 P.2d 757, 761 (Alaska 1999)).
26
An insured made a similar argument in Merrimack Mutual Fire Insurance
Co. v. Batts, and the Tennessee Court of Appeals observed, “[The insured’s] argument
that the appraisal clause in her insurance policy is an arbitration agreement overlooks the
fact that arbitration proceedings and appraisal proceedings are not the same thing.”
59 S.W.3d 142, 149-50 (Tenn. App. 2001).

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actual cash value and the amount of loss.”27 Questions of coverage, causation, or liability
are not resolved by appraisal.28 The Fifth Circuit has also explained the differences
between appraisal and arbitration:
Insurance appraisals are generally distinguished from
arbitrations. While both procedures aim to submit a dispute
to a third party for speedy and efficient resolution without
recourse to the courts, there are significant differences
between them. For example, an arbitration agreement may
encompass the entire controversy between parties or it may
be tailored to particular legal or factual disputes. In contrast,
an appraisal determines only the amount of loss, without
resolving issues such as whether the insurer is liable under
the policy. Additionally, an arbitration is a quasi-judicial
proceeding, complete with formal hearings, notice to parties,
and testimony of witnesses. Appraisals are informal.
Appraisers typically conduct independent investigations and
base their decisions on their own knowledge, without holding
formal hearings.[29]

27
Rogers v. State Farm Fire & Cas. Co., 984 So. 2d 382, 388-89 (Ala. 2007)
(quoting Cas. Indem. Exch. v. Yother, 439 So. 2d 77, 80 (Ala. 1983)). The Rogers court
also noted that this distinction between appraisal and arbitration is consistent with case
law from other jurisdictions. Id.
28
See id. at 389-92.
29
Hartford Lloyd’s Ins. Co. v. Teachworth, 898 F.2d 1058, 1061-62
(5th Cir. 1990) (internal citations omitted); see also Minot Town & Country v. Fireman’s
Fund Ins. Co., 587 N.W.2d 189, 190 (N.D. 1998) (observing that there are “significant
differences” between appraisal and arbitration); Miller v. USAA Cas. Ins. Co., 44 P.3d
663, 673 (Utah 2002) (“Although appraisal may be used as another form of alternative
dispute resolution, it is not arbitration.”); LEE R. RUSS & THOMAS F. SEGALLA , 15 COUCH
ON INSURANCE § 209:8, at 209-16 to 209-17 (3d ed. 2005) (explaining that “appraisal is
distinguished [from arbitration] by its more limited role” and that “[i]n the insurance
context, appraisal is often sought to fix the amount of the loss, or replacement cost of real
property,” which must “be distinguished from the insured’s right, if any, to recover on
(continued...)

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 Alaska’s statutory scheme recognizes the distinction between appraisal and
arbitration. The mandatory appraisal process for insurance disputes is codified under
AS 21.96.035, while arbitration procedures are separately codified under Alaska’s
Uniform Arbitration Act.30 As the superior court here and courts in other jurisdictions
have observed, there are key distinctions between the appraisal process and the
arbitration process: Appraisal follows an expedited timeline and is resolved by a panel
of independent appraisers, while arbitration is a quasi-judicial proceeding that is
governed by a much more detailed statutory scheme and includes formal evidentiary
hearings with depositions and witness testimony.31 Given these distinctions, interpreting
the term “personal property” to include personal injury claims appropriate for appraisal
under AS 21.96.035 would be problematic because the valuation of a personal injury
claim would not be limited to valuation of the underlying injury. The valuation would
necessarily take into account issues such as coverage, liability, causation, and attorney’s
fees — in short, issues properly resolved by arbitration rather than appraisal.
For all of these reasons, we hold that the plain language of AS 21.96.035
does not support interpreting “personal property” to include personal injury claims for
the purposes of that statute.

29
(...continued)
the policy”).
30
AS 09.43.010–.595.
31
Compare AS 21.96.035 (mandatory appraisal process) with AS 09.43.050
(right to present evidence and cross-examine witnesses at arbitration hearing),
AS 09.43.420 (arbitration process), and AS 09.43.440 (procedures for witnesses,
subpoenas, depositions, and discovery).

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 2. Legislative history
Both parties argue that legislative history supports their respective
interpretations of the mandatory appraisal statute. The superior court did not discuss or
expressly rely on legislative history in interpreting AS 21.96.035. The legislative history
that the parties cite sheds little additional light on the meaning of AS 21.96.035 — it
shows that the legislature consistently described the appraisal clause as a mechanism for
resolving disputes over the value of a first-party property loss,32 but never defined the
term “property,” which is precisely the issue we are faced with here. At best, the
legislative history that the parties rely on shows that the legislature never expressly
contemplated applying the appraisal provision to personal injury claims, and it does not
contradict our plain-language interpretation of the statute.
3. Rules of policy considerations and interpretation
McDonnell also cites several policy considerations and general rules of
interpretation in support of her argument that the plain language of AS 21.96.035
mandates the appraisal of her personal injury claims. She first cites the general rule of
contract interpretation that arbitration clauses should be given the “broadest possible
interpretation,”33 though she acknowledges that this rule specifically refers to a

32
For example, AS 21.96.035 is initially described in the Bill Summary to
House Bill (H.B.) 425 as “[a] new section requir[ing] that all automobile, homeowner,
or dwelling policies include an appraisal clause to resolve a dispute between the insured
and the insurer over the value of first party property loss. . . . Without an appraisal
clause, such disputes may have required costly litigation.” The Comment to the
Sectional Analysis also states that AS 21.96.035 “[a]dds [a] section to require that all
automobile, homeowner, or dwelling policies include an appraisal clause for resolving
a dispute of property value and details for the clause how the appraisal clause will
operate.”
33
See 4 A M . JUR . 2D Alternative Dispute Resolution § 50 (2007) (“Arbitration
(continued...)

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contractual arbitration clause, not a statutorily mandated appraisal clause. She also cites
our strong public policy favoring arbitration,34 the rule that remedial statutes should be
broadly interpreted,35 and the rule that statutes regulating the relationship between an
insurer and insured should be interpreted strictly against the insurance company and
liberally in favor of the insured.36 Finally, she argues that her interpretation is consistent
with the industry practice of arbitrating UM and UIM coverage disputes.
As State Farm argues, most of these policy considerations and rules of
interpretation apply to arbitration clauses, not appraisal clauses, and are only relevant if
we first determine that AS 21.96.035 could reasonably be interpreted to require appraisal
of a loss to a personal injury claim. Because the text and context of the statute show the
legislature did not intend for the mandatory appraisal process to apply to a chose in
action — such as a personal injury claim — general rules of interpretation, policy
considerations, and industry practice cannot stretch the statute beyond its plain meaning

33
(...continued)
clauses are to be given the broadest possible interpretation in order to accomplish the
purpose of resolving controversies out of court.”).
34
See State v. Pub. Safety Emps. Ass’n, 257 P.3d 151, 155 (Alaska 2011)
(quoting State v. Pub. Safety Emps. Ass’n, 235 P.3d 197, 201 (Alaska 2010)) (“Both the
common law and Alaska statutes evince a strong public policy in favor of arbitration.”).
35
See State for Use of Smith v. Tyonek Timber, Inc., 680 P.2d 1148, 1157
(Alaska 1984) (“There is no question that a remedial statute is to be liberally construed
to effectuate its purposes.”).
36
See Makarka ex rel. Makarka v. Great Am. Ins. Co., 14 P.3d 964, 966
(Alaska 2000) (“We . . . resolve ambiguities in the meaning of insurance contracts
against the insurer.”).

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to create such a requirement.37 Accordingly, we affirm the superior court’s ruling that
the plain language of AS 21.96.035 demonstrates that the legislature intended for the
mandatory appraisal statute to apply to disputes over the value of a loss to tangible
property and not to the value of “choses in action” such as McDonnell’s personal injury
claims.
B. State Farm’s Contractual Two-Year Limitation Provision Is
Enforceable Upon A Showing Of Prejudice, And Is Triggered By A
Breach Of The Insurance Contract.
The parties next dispute the enforceability of the two-year limitation
provision in State Farm’s insurance policies. Because McDonnell filed a motion for
judgment on the pleadings on this issue, the superior court’s ruling was based solely on
the facts alleged in the pleadings.38
In her complaint, McDonnell alleged that “[t]he only reason for this
litigation is the purported inclusion in the policies described below of State Farm
Endorsement 6127BN,” which “by its terms, demands that suit be filed against State
Farm and the uninsured driver on or before the second anniversary of the crash . . . .”
McDonnell requested a declaratory judgment that this provision was “void and
unenforceable as a violation of Alaska’s motor vehicle insurance scheme.” In its answer,
State Farm quoted the disputed provision in part and asserted that the provision was
enforceable. The disputed provision provides:

37
See Curran v. Progressive Nw. Ins. Co., 29 P.3d 829, 833 (Alaska 2001)
(“[P]ublic policy can guide statutory construction but cannot override a clear and
unequivocal statutory requirement.”).
38
See Alaska R. Civ. P. 12(c); Hebert v. Honest Bingo, 18 P.3d 43, 46
(Alaska 2001).

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 b. If there is no agreement on the answer to either question in
1.a above,[39] then the Insured shall: (1) within two years
immediately following the date of the accident file a lawsuit
in a state or federal court that has jurisdiction against: (a) us;
(b) the owner or driver of the uninsured motor vehicle . . . .
1. Mootness
State Farm first argues, as it did before the superior court, that McDonnell’s
challenge to the enforceability of the two-year limitation provision as applied to UM
claims is moot because she filed a lawsuit within two years of her accident, as the
provision requires. The superior court agreed that McDonnell’s claim was technically
moot for this reason, but concluded review was appropriate under the public interest
exception to the mootness doctrine. We disagree that the claim is moot.
A justiciable controversy is one that is not hypothetical, abstract, academic,
or moot.40 “A claim is moot if it is no longer a present, live controversy, and the party
bringing the action would not be entitled to relief, even if it prevails.”41 McDonnell’s
claim presents a live controversy and, if she prevails, she would be entitled to the relief
she seeks. As McDonnell argues, she filed this declaratory judgment action for the very
purpose of challenging the two-year limitation provision, not for the purpose of

39
Neither party quoted the contested provision in full or attached
McDonnell’s insurance policies to their pleadings. McDonnell attached her insurance
policies to her motion for summary judgment on the mandatory appraisal issue, however.
The policies show that the questions the insurer and insured must agree on are whether
the insured is legally entitled to collect damages from the UM motorist and the amount
of those damages.
40
Jefferson v. Asplund, 458 P.2d 995, 998-99 (Alaska 1969) (quoting Aetna
Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41 (1937)).
41
Fairbanks Fire Fighters Ass’n v. City of Fairbanks, 48 P.3d 1165, 1167
(Alaska 2002).

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complying with the provision and litigating the value of her UM claims. An insured
should not be forced to purposefully violate a contractual limitation provision and risk
losing her insurance benefits in order to bring a justiciable action challenging the
enforceability of the provision. Furthermore, if McDonnell prevails on this issue, she
will be entitled to the relief she seeks — a declaratory judgment that the two-year
limitation provision is unenforceable. She would then have additional time to assess her
injuries and continue settlement negotiations with State Farm before she is required to
file suit under the generally applicable statute of limitations.42 Because McDonnell’s
claim is not moot, we need not consider whether it falls within the public interest
exception to the mootness doctrine.43
2. Ripeness
State Farm also argues that McDonnell cannot challenge the enforceability
of the two-year limitation provision as applied to UIM claims because her claims are
only for UM coverage. The superior court characterized this as a ripeness issue and
ruled that it could consider arguments related to both UM and UIM coverage, reasoning
that the statutes and case law generally do not distinguish between the two. On appeal,
State Farm argues that we should decline to consider any arguments pertaining to UIM
claims. McDonnell argues that distinguishing between the two would unduly
fragmentize our analysis of the enforceability of the two-year limitation provision.

42
The parties dispute whether the two-year tort statute of limitations or the
three-year contract statute of limitations applies to UM claims. They also dispute
whether the proper accrual date is the date of the accident or a breach of the insurance
contract. These issues are addressed infra, in Part IV.B.4.
43
See Mullins v. Local Boundary Comm’n, 226 P.3d 1012, 1018 (Alaska
2010) (“Even if claims are moot, a court may still hear them if they fall within the public
interest exception to the mootness doctrine.”).

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 The precise issue before us is whether State Farm’s contractual limitation
provision is enforceable against McDonnell’s UM claims. Therefore, arguments that
pertain only to UIM coverage would be hypothetical on the facts of this case. At least
one other court has distinguished between UM and UIM claims when addressing statute
of limitations issues, reasoning that there are important differences between the two types
of coverage that may warrant different treatment for limitations purposes.44 We agree
with State Farm that there may be practical distinctions between UM and UIM claims for
purposes of accrual of statutory or contractual periods of limitations, and we therefore
analyze the enforceability of State Farm’s contractual limitation provision without
reference to arguments that pertain solely to UIM claims.
3. Overview of the parties’ arguments
Turning to the merits of the parties’ arguments, State Farm argues that we
should hold the two-year tort statute of limitations45 generally applies to UM claims and
that the cause of action accrues on the date of the accident; it argues that if we so hold,
the two-year limitation provision in State Farm’s policies simply mirrors the generally
applicable limitations period and accrual date. State Farm also argues that the two-year
limitation provision is a fully enforceable contract provision because it is reasonable and
unambiguous. McDonnell argues that the three-year contract statute of limitations46
generally applies to UM claims and the cause of action does not accrue until the insurer

44
Oganov v. Am. Family Ins. Grp., 767 N.W.2d 21, 26 (Minn. 2009) (“We
recognized that differences exist between UIM and UM claims that may have a bearing
on the appropriate accrual rule. For example, a UM claimant does not have to recover
first from the uninsured tortfeasor; rather, the claimant merely must show that the
tortfeasor was uninsured.”) (internal citations omitted).
45
See AS 09.10.070.
46
See AS 09.10.053.

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breaches the insurance contract; she argues that State Farm’s contractual limitation
provision attempts to alter the statutory limitations period and accrual date that would
generally apply to UM claims. She further argues that State Farm’s attempt to
contractually modify the generally applicable limitations period and accrual date for UM
claims is wholly void as against public policy.
As previously discussed, the superior court ruled that: (1) the three-year
statute of limitations for contract claims generally applies to insurance disputes; (2) this
limitations period generally begins to run on the date the insurer denies an insured’s
claim; (3) under Estes v. Alaska Insurance Guaranty Association,47 State Farm may
enforce a shorter contractual limitations period only if it first demonstrates it has suffered
prejudice as a result of the insured’s delay in filing suit; and (4) the contractual
limitations period does not commence until State Farm denies an insured’s claim.
We first address what limitations period and accrual date would generally
apply to McDonnell’s UM claims if State Farm’s insurance policies did not require her
to file suit within two years of the date of the accident. We next consider whether State
Farm’s contractual provision is enforceable.
4. Generally applicable limitations period and accrual date
a. Limitations period
We have previously held that the statute of limitations for contracts
generally applies to insurance disputes.48 Under AS 09.10.053, the statute of limitations

47
774 P.2d 1315, 1316-17 (Alaska 1989).
48
See Brannon v. Cont’l Cas. Co., 137 P.3d 280, 284 (Alaska 2006) (applying
the contract statute of limitations to a dispute over an insurer’s contractual duty to defend
the insured); Howarth v. First Nat. Bank of Anchorage, 540 P.2d 486, 490-91
(Alaska 1975) (applying the contract statute of limitations to a dispute over an insurer’s
(continued...)

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for contract claims is three years.49 We have not specifically addressed the applicable
statute of limitations for UM claims.
Other jurisdictions almost uniformly hold that the contract statute of
limitations applies to UM claims.50 These courts generally reason that because an
insurer’s duty to compensate an insured arises out of its insurance contract, not the mere
occurrence of the underlying accident, the contract statute of limitations applies. For
example, the Mississippi Supreme Court held: “A cause of action against an insurer for

48
(...continued)

denial of coverage for the insured’s loss).

49
Alaska Statute 09.10.053 provides:
Unless the action is commenced within three years, a person
may not bring an action upon a contract or liability, express
or implied, except as provided in AS 09.10.040, or as
otherwise provided by law, or, except if the provisions of this
section are waived by contract.
50
See A LAN I. W IDISS & JEFFREY E. THOMAS , U NINSURED AND
U NDERINSURED M OTORIST INSURANCE § 7.7, at 388-95 (3d ed. 2005) (“Appellate court
decisions almost uniformly hold that . . . a claim for uninsured motorist insurance
benefits is a contractual right and, therefore, the contract statute of limitations applies.”)
(collecting cases); Jeffrey A. Kelso & Matthew K. Drevlow, When Does the Clock Start
Ticking? A Primer on Statutory and Contractual Time Limitation Issues Involved in
Uninsured and Underinsured Motorist Claims, 47 D RAKE L. REV . 689, 691 (1999) (“The
statutory limitation of actions period applicable to UM/UIM motorist claims was once
a highly litigated question. In recent years, however, the courts seem to have come to
a consensus regarding which limitation period should apply. . . . Almost all jurisdictions
now hold that the statute of limitations for actions based on contract is the limitation
period that is to apply to UM/UIM cases.”); see also Transnational Ins. Co. v. Simmons,
507 P.2d 693, 695 (Ariz. App. 1973) (“States such as Arizona which have no specific
statute of limitations dealing with uninsured motorist claims have uniformly held . . . that
the statute of limitations pertaining to written contracts governs a claim by insureds
under the uninsured motorist coverage.”) (collecting cases).

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uninsured motorist benefits is an action on a contract. As such, a three year statute of
limitations period applies.”51 The Ohio Supreme Court held: “An insurance policy is a
contract, and the relationship and rights of the insurer and insured are contractual in
nature; therefore, a claim for UM/UIM coverage sounds in contract, not in tort.”52 And
the Arizona Court of Appeals recently explained: “An action sounds in contract when
the duty breached is created by the contractual relationship and would not exist but for
the contract. . . . But for the insurance contract, State Farm would have no duty to
compensate [the insured] for damages caused by the uninsured driver.”53
State Farm cites cases from North Carolina and Georgia holding that the
tort statute of limitations applies to UM claims.54 One commentator has observed that
the insurance industry argued forcefully for this position for years, but North Carolina
and Georgia are among the few courts that have adopted this reasoning.55 Because
applying the contract statute of limitations is consistent with our case law and the
majority of other jurisdictions, we hold the three-year contract statute of limitations
generally applies to UM claims.

51
Mitchell v. Progressive Ins. Co., 965 So. 2d 679, 683 (Miss. 2007) (internal
citations omitted).
52
Sarmiento v. Grange Mut. Cas. Co., 835 N.E.2d 692, 695 (Ohio 2005).
53
Assyia v. State Farm Mut. Auto. Ins. Co., 273 P.3d 668, 672-73 (Ariz. App.
2012) (internal quotations omitted).
54
Vaughn v. Collum, 224 S.E.2d 416, 582 (Ga. 1976); Brown v. Lumbermens
Mut. Cas. Co., 204 S.E.2d 829, 832-33 (N.C. 1974).
55
Kelso, supra note 51, at 691-92.

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 b. Accrual date
Similarly, we have not yet specifically addressed when a UM claim accrues.
But we have held that an insured’s cause of action against her insurer generally accrues,
and the statute of limitations begins to run, “at the time of the breach of the agreement,”
therefore “[a] cause of action for denial of coverage under an insurance policy accrues
when coverage is disclaimed and the insured is notified.”56
Other jurisdictions are divided regarding the proper accrual date for UM
claims.57 Overall, however, the “most commonly held rule in UM/UIM cases is that the
cause of action, because it is contractual in nature, accrues on the date the contract is
breached,” which is generally the “denial of a claim for benefits.”58 For example, the
Delaware Supreme Court held that the appropriate accrual date for a UM claim is
determined by the contractual nature of the claim: “We think the answer to the
remaining question — when a cause of action for uninsured motorist benefits accrues and

56
Brannon v. Cont’l Cas. Co., 137 P.3d 280, 284 (Alaska 2006) (quoting
K & K Recycling, Inc. v. Alaska Gold Co., 80 P.3d 702, 725 (Alaska 2003)) (internal
quotation marks omitted); see also Bauman v. Day, 892 P.2d 817, 827 (Alaska 1995)
(“Generally, the statute of limitations for an action in contract starts to run at the time of
the breach.”); Howarth v. First Nat. Bank of Anchorage, 540 P.2d 486, 490-91 (Alaska
1975) (“The statute of limitations begins to run in contract causes of action from the time
the right of action accrues. This is usually the time of the breach of the agreement . . . .”)
(internal citations omitted); Fireman’s Fund Ins. Co. v. Sand Lake Lounge, Inc.,
514 P.2d 223, 227 (Alaska 1973) (holding an insured’s cause of action accrued and
limitations period began to run when the insurance company denied coverage).
57
See Kelso, supra note 51, at 692 (“Although there now seems to be some
consensus on which statutory limitation period applies, the issue of accrual remains hotly
contested. . . . [C]ourts have been inconsistent in their determination of the accrual
time.”).
58
Id. at 694.

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the three-year limitation . . . begins to run — logically follows from the contract nature
of the action.”59 The court reasoned:
Under general principles of contract law, the time limitation
of a contract claim limitation statute begins to run from the
date of breach of contract. . . . Established contract case law
thus recognizes that until a breach occurs, there is no
justiciable controversy under the contract (here a policy)
upon which a party may sue. So long as the parties to a
contract perform in accordance with the bargained-for
obligations, no party has a cause to complain. It is only when
one party contends the other party has ceased to perform in
violation of the contract that a justiciable controversy
exists.[60]
State Farm argues that it would be illogical to use breach of contract as the
accrual date for UM claims in a case like this because a factfinder must first determine
the amount of damages that McDonnell and her son are legally entitled to collect, and
there will be no breach of the insurance contract unless and until State Farm then refuses
to pay the damages owed. State Farm takes a narrow view of when an insurance contract
is breached. Under similar circumstances, the Supreme Judicial Court of Maine
concluded that it was not necessary for an insurer to deny all liability in order to breach
an insurance contract; rather, the insurer’s clear refusal to pay for certain medical bills
after the insured had requested payment was sufficient to constitute an alleged beach of
the contract and trigger the applicable limitations period.61 The Iowa Supreme Court also
observed that “[u]nder general contract principles, the insured’s claim typically accrues

59
Allstate Ins. Co. v Spinelli, 443 A.2d 1286, 1292 (Del. 1982).

60
Id.

61
Whitten v. Concord Gen. Mut. Ins. Co., 647 A.2d 808, 810-11 (Me. 1994).

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and the statue of limitations begins to run upon the insurer’s denial of coverage or
refusal to pay.”62
We agree with this reasoning. As we have previously held, a breach of the
insurance contract occurs “when coverage is disclaimed and the insured is notified.”63
We take this opportunity to clarify that it is not necessary for an insurer to disclaim all
coverage or liability in order to trigger the statute of limitations — a clear refusal to pay
under the contract may be sufficient to constitute an alleged breach of the contract. If the
parties disagree over when the contract was allegedly breached and the statute of
limitations began to run, the superior court will resolve this factual issue.
State Farm also argues that if a UM claim accrues when the contract is
allegedly breached, then the insured could delay triggering the statute of limitations by
waiting “years, if not decades” to present a UM claim to her insurance company. This
argument is unpersuasive. An insurance company can require the insured to make a
claim or notice of potential claim within a certain period of time without requiring the
insured to file suit against the insurer.64 And, as we have previously observed, once
insurance companies have received notice of a claim, they “are not forced to stand by

62
Nicodemus v. Milwaukee Mut. Ins. Co., 612 N.W.2d 785, 788-89
(Iowa 2000) (emphasis added).
63
Brannon v. Cont’l Cas. Co., 137 P.3d 280, 284 (Alaska 2006) (internal
footnote omitted).
64
See, e.g., Weaver Bros v. Chappel, 684 P.2d 123, 124-25 (Alaska 1984)
(interpreting a notice of claim provision in an insurance policy that required the insured
to “promptly give to the [insurer] written notice, with all available particulars, of any
accident involving loss or damages to person or property in which he, or any motor-
vehicle owned or driven by him, has been involved, and of any claim made on account
of any such accident . . . ,” and holding this provision was enforceable subject to a
showing that the insurer had been prejudiced by untimely notice of a claim).

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helplessly as memories fade and physical evidence is lost,” but are “entitled to bring
declaratory judgment actions to determine coverage at their own convenience.”65
Because an alleged breach of contract accrual date is more consistent with
Alaska case law, the contractual nature of UM claims, and a majority of other
jurisdictions, we hold that UM claims accrue when the contract is allegedly breached,
which occurs when the insurer denies a claim or clearly refuses a demand for payment
under the insurance contract.
In sum, we hold that the three-year statute of limitations for contract claims
generally applies to UM claims, and that the limitations period is triggered by an alleged
breach of the insurance contract. Because State Farm’s contractual limitations provision
attempts to modify (shorten) the limitations period and accrual date that would generally
apply to McDonnell’s UM claims, we must consider whether the provision is enforceable
or void as against public policy.
5. Contractual modification of the limitations period
A contractual provision may be unenforceable if the provision is
unreasonable, unconscionable, or void as against public policy.66 Courts have generally
held that parties may contractually agree to a shorter limitations period if the contractual

65
Estes v. Alaska Ins. Guar. Ass’n, 774 P.2d 1315, 1318 n.1 (Alaska 1989).
66
See Curran v. Progressive Nw. Ins. Co., 29 P.3d 829, 837 (Alaska 2001)
(“[C]ontract provisions may be void as against public policy . . . .”); Moore v. Hartley
Motors, Inc., 36 P.3d 628, 631 (Alaska 2001) (discussing Municipality of Anchorage v.
Locker, 723 P.2d 1261, 1264-67 (Alaska 1986)) (“In Locker, we concluded that a limited
liability clause in a contract . . . was unconscionable and void as against public policy.”);
Inman v. Clyde Hall Drilling Co., 369 P.2d 498, 500 (Alaska 1962) (considering whether
a notice provision in an employment contract is void as against public policy, and
reasoning “[t]he facts of this case do not persuade us that the contractual provision in
question is unfair or unreasonable,” or that the provision “is offensive to justice”).

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limitations provision is unambiguous, reasonable, and does not violate statutes or public
policy: “The general rule of contracts is that a contractual provision fixing limitation
periods which differ from the time fixed by general statutes of limitations are binding on
the contracting parties . . . unless they are precluded by statute or public policy, or are
unreasonable or unreasonably short.”67
In Fireman’s Fund Insurance Co. v. Sand Lake Lounge, Inc., we observed
that it is not against the public interest for parties to a contract to agree to a shorter
limitations period “if the time agreed upon is not so short as to be unreasonable in the
light of the provisions of the contract and the circumstances of its performance and
enforcement.”68 And in Estes v. Alaska Insurance Guaranty Ass’n, we recognized the
validity of a contractual limitation provision but held that, due to the nature of insurance

67
LEE R. RUSS & THOMAS F. SEGALLA , 15 COUCH ON INSURANCE § 235:1, at
235-39 (3d ed. 2005); see also Voris v. Middlesex Mut. Assurance Co., 999 A.2d 741,
748 (Conn. 2010) (“In short, we affirm the general principle that ‘[c]ontracting parties
are free to adopt an unambiguous contract provision’ limiting the time in which an
insurance claim must be filed . . . .”); Faeth v. State Farm Mut. Auto. Ins. Co., 707
N.W.2d 328, 334 (Iowa 2005) (“We have recognized the validity of contractual
limitations on the time for bringing suit against an insurer. . . . In order to be enforced,
such provisions must be reasonable.”); Taranto v. La. Citizens Prop. Ins. Corp., 62 So.
3d 721, 728 (La. 2011) (“In the absence of a statutory prohibition, a clause in an
insurance policy fixing a reasonable time to institute suit is valid.”) (emphasis omitted);
Angel v. Reed, 891 N.E.2d 1179, 1181 (Ohio 2008) (“[T]he parties to a contract may
validly limit the time for bringing an action on a contract to a period that is shorter than
the general statute of limitations for a written contact, as long as the shorter period is a
reasonable one. A contract provision that reduces the time provided in the statute of
limitations must be in words that are clear and unambiguous to the policy holder.”);
Progressive N. Ins. Co. v. Lyden, 986 A.2d 231, 235 (R.I. 2010) (“[A] limitations period
in an insurance policy is a term to which the parties are specifically bound.”) (internal
quotation marks omitted).
68
514 P.2d 223, 226 (Alaska 1973) (quoting 1A CORBIN ON CONTRACTS
§ 218, at 311-12 (1963)).

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contracts, such provisions are enforceable only when the insurer can demonstrate that it
has been prejudiced by the insured’s delay in filing suit.69
The insurance provision at issue in Estes required the insured to commence
any suit on the policy within one year of the insured’s loss.70 We first observed that
insurance policies differ from traditional, private contracts because “[a]n insurance
contract is not a negotiated agreement; rather its conditions are by and large dictated by
the insurance company to the insured.”71 Therefore, we reasoned that “time limit[s] on
commencement of suit clauses, notice of loss clauses, proof of loss clauses, and
cooperation clauses shall 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.” 72
Concluding that 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,”73 we held:
a limitation on commencement of suit clause should be
enforced only when the 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, [the insurer] must

69
774 P.2d 1315, 1318, 1320 (Alaska 1989).

70
Id. at 1316.

71

Id. at 1317 (quoting Brakeman v. Potomac Ins. Co., 371 A.2d 193, 196
(Pa. 1977)).
72
Id. at 1318.
73
Id. (citing Sand Lake Lounge, 514 P.2d at 226).

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 establish that it was prejudiced by [the insured’s] delay in
filing suit.[74]
Thus, we have recognized the enforceability of shortening contractual
limitations provisions in insurance policies, subject to a showing of prejudice by the
insurer.75 We have not, however, considered whether a contractual provision shortening
the applicable statutory limitations period for UM claims violates public policy.
Some courts have held that contractual provisions that modify the statutory
limitations period for UM claims are wholly enforceable and do not violate public
policy.76 Other courts have held that provisions shortening the limitations period for UM
claims are wholly void as against public policy.77 McDonnell essentially argues that we
should adopt the reasoning of those courts that hold such limitation provisions are wholly
void as against public policy, while State Farm argues that we should adopt the reasoning
of those courts that hold unambiguous contractual limitation provisions must be enforced
as written.

74
Id. at 1320. We noted an insurance company could establish prejudice by
showing “that witnesses had died or their memories faded during the insured’s delay in
filing suit, or that other evidence had been lost.” Id. at 1318.
75
Id. at 1318, 1320.
76
See Rory v. Cont’l Ins. Co., 703 N.W.2d 23, 31-34 (Mich. 2005) (holding
a provision requiring the insured to bring a claim or suit for UM coverage within one
year of the accident was enforceable because it did not violate law or public policy);
Sarmiento v. Grange Mut. Cas. Co., 835 N.E.2d 692, 695-96 (Ohio 2005) (“A
contractual limitation period of two years does not violate the underlying purpose of
UM/UIM coverage, because the limitation period does not eliminate or reduce the
UM/UIM coverage required by [the Ohio statute mandating such coverage].”).
77
See Burgo v. Ill. Farmers Ins. Co., 290 N.E.2d 371, 373-74
(Ill. App. 1972); State Farm Mut. Auto. Ins. Co. v. Fitts, 99 P.3d 1160, 1162 (Nev.
2004).

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 McDonnell makes several arguments in support of her position that a
shortening contractual limitation provision for UM claims violates public policy. She
first argues that we have already recognized a “mirror rule” similar to the rule adopted
by the Illinois Court of Appeals in Burgo v. Illinois Farmer’s Insurance Co.78 The
Burgo court addressed the enforceability of a policy provision requiring an insured to
commence a lawsuit or arbitration proceedings on a UM claim within one year of the
accident.79 The court held that the one-year limitation diminished the statutorily
mandated UM coverage and was therefore contrary to public policy and superceded by
statute, reasoning: “The contractual limitation may not place an insured in a substantially
different position than he would have been had the tort-feasor carried the required
insurance coverage.”80
Most of the Alaska case law that McDonnell relies on merely recognizes
the general rule that an insurance policy provision is unenforceable if void as against
public policy.81 She also relies on State Farm Mutual Automobile Insurance Co. v.
Harrington, where we held that under former AS 21.89.020(c)(1), the policy limits for
UM/UIM coverage must be equal to the liability coverage that the insured has voluntarily

78
Burgo, 290 N.E.2d at 373.
79
Id. at 371.
80
Id. at 373-74.
81
See Curran v. Progressive Nw. Ins. Co., 29 P.3d 829, 833-34 (Alaska
2001); McKnight v. Rice, Hoppner, Brown & Brunner, 678 P.2d 1330, 1334 n.4 (Alaska
1984); Alaska Ins. Co. v. RCA Alaska Comm’cns, Inc., 623 P.2d 1216 (Alaska 1981).

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purchased.82 We have since referred to this as the “mirror rule”83 or the “mirror-image­
offer requirement”84 of AS 21.89.020(c)(1). This rule was derived from a statutory
mandate, however, and there is no corresponding statutory provision governing the
limitations period for UM claims. Thus, our “mirror rule” does not apply here.
McDonnell next argues that the two-year contractual limitation provision
violates AS 21.09.150(b)(4), which instructs the Director of the Division of Insurance
to suspend or revoke an insurer’s license if the insurer refuses to pay claims or forces
insureds to litigate claims “without just cause” as a general business practice.85 She
argues the two-year limitation provision violates this statute by forcing an insured to
bring suit against her insurance company to settle her claim. As discussed above,
contractual limitation provisions are generally enforceable, and the two-year contractual
limitation provision here requires the insured to file suit only if the insurer and insured
are unable to settle the claim. The provision does not automatically require an insured
to file suit in order to recover insurance benefits, and an insurance company does not act
“without just cause” when it relies on the unambiguous terms of the insurance contract.

82
918 P.2d 1022, 1025-26 (Alaska 1996). Alaska Statute 21.89.020(c)(1)
was renumbered as AS 21.96.020(c)(1).
83
See Wing v. GEICO Ins. Co., 17 P.3d 783, 787 (Alaska 2001).
84
See Ayers v. United Servs. Auto. Ass’n, 160 P.3d 128, 133 (Alaska 2007).
85
AS 21.09.150(b)(4) (“The director shall, after a hearing, suspend or revoke
an insurer’s certificate of authority if the director finds that the insurer . . . with a
frequency that indicates its general business practice in this state, has without just cause
refused to pay proper claims arising under its policies, . . . or without just cause delays
adjustment of claims, or compels the insured or claimant to accept less than the amount
due them or to employ attorneys or to bring suit against the insurer or an insured to
secure full payment or settlement of claims.”).

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 McDonnell also argues that the two-year contractual limitation provision
violates several provisions of the Alaska Unfair Claims Settlement Practices Act “if not
in letter, at least in spirit.”86 As McDonnell acknowledges, the two-year contractual
limitation provision does not directly violate any of the statutory provisions she relies on.
We see no direct or “in-spirit” violation of the Unfair Claims Settlement Practices Act
in State Farm’s contractual limitations period.
Finally, McDonnell argues that the two-year contractual limitation
provision conflicts with Alaska’s UM and UIM statutes, specifically the statutes
requiring an insured to exhaust available remedies before filing a UM or UIM claim with
the insurer.87 As discussed above, this potential conflict is not an issue here because

86
She specifically argues that the two-year contractual limitation provision
violates AS 21.36.125(a)(1) (which prohibits “misrepresent[ing] facts or policy
provisions relating to coverage of an insurance policy”), AS 21.36.125(a)(8) (which
prohibits “compel[ing] an insured . . . in a case in which liability is clear to litigate
recovery of an amount due under an insurance policy by offering an amount that does
not have an objectively reasonable basis in law and fact”), AS 21.36.125(a)(12) (which
prohibits insurers from informing their insureds of “a policy of appealing from an
arbitration award in favor of an insured . . . for the purpose of compelling the insured . . .
to accept a settlement”), and AS 21.36.125(a)(15) (which prohibits “fail[ing] to promptly
provide a reasonable explanation of the basis in the insurance policy in relation to the
facts or applicable law for denial of a claim”).
87
See AS 28.20.445(e)(1) (“Uninsured and underinsured motorist
coverage . . . may not apply to bodily injury, sickness, disease, or death of an insured or
damage to or destruction of property of an insured until the limits of liability of all bodily
injury and property damage liability bonds and policies that apply have been used up by
payments, judgments, or settlements.”); AS 28.22.201(a)(1) (“The uninsured and
underinsured motorist coverage required under this chapter . . . does not apply to bodily
injury, sickness, disease, or death of an insured or damage to or destruction of property
of an insured until the limits of liability bonds and policies that apply have been used up
by payments or judgments or settlements.”).

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there was no other available coverage that McDonnell was required to exhaust before
filing her UM claims.
In contrast, State Farm argues that we should hold the two-year contractual
limitation provision to be wholly enforceable. But we have already held in Estes that
contractual limitation provisions are subject to a showing of prejudice.88 State Farm
argues that Estes is “distinguishable and not controlling here,” but State Farm does not
explain why Estes, which directly addressed the enforceability of a contractual limitation
provision in an insurance contract, is not controlling precedent. We note that the Estes
principle — requiring insurers to demonstrate prejudice when seeking to enforce a
shortening contractual limitation provision — has been reaffirmed by this court,89
recognized as the prevailing law in Alaska by the Ninth Circuit,90 and adopted as

88
See Estes v. Alaska Ins. Guar. Ass’n, 774 P.2d 1315, 1318, 1320
(Alaska 1989).
89
Long v. Holland Am. Line Westours, Inc., 26 P.3d 430, 435 (Alaska 2001)
(citing Estes, 774 P.2d at 1318) (“[T]his court has addressed clauses setting time limits
on the commencement of suit in the context of insurance policies . . . [and] observed that
it would be inequitable to enforce these clauses unless prejudice could be
demonstrated.”); Alaska Energy Auth. v. Fairmont Ins. Co., 845 P.2d 420, 422-23
(Alaska 1993) (citing Estes, 774 P.2d at 1318) (“[O]ur prior decisions have held
contractual time limitations to bring suit will not be enforced without some showing of
prejudice.”).
90
Allstate Ins. Co. v. Herron, 634 F.3d 1101, 1112 (9th Cir. 2011) (citing
Estes, 774 P.2d at 1318) (“[A]n insurance company must establish that it suffered the
prejudice that a cooperation clause was intended to avoid in order to escape liability
based on the insured’s breach of the clause.”).

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persuasive authority by the New Mexico Supreme Court.91 We see no reason to abandon
this principle for UM claims.
State Farm also argues that we should defer to the Division of Insurance’s
approval of Endorsement 6127BN, which contains the contested two-year contractual
limitation provision. We have held that the Division’s approval of insurance policies is
entitled to “some weight,”92 but we have also recognized that the Division’s approval is
merely a “screening mechanism, meant to catch unlawful insurance policies” and “cannot
make an unlawful policy lawful.”93 Thus, the Division’s approval of the policy here is
not dispositive of the issue before us and cannot overrule our holding in Estes requiring
insurers to demonstrate prejudice before enforcing a contractual limitations provision.
In short, given that we have previously recognized (subject to the prejudice
principle) the validity of contractual limitation provisions in Sand Lake Lounge and
Estes, a shorter limitations period for UM claims does not directly violate the statutes
governing UM coverage. The Estes prejudice principle establishes a reasonable balance
between protecting the insured from a shortened limitations period and protecting the
insurer from stale claims; subject to this principle, we hold that State Farm’s contractual
two-year limitations provision is not void as against public policy. Accordingly, we
affirm the superior court’s ruling that State Farm’s contractual two-year limitation
provision is enforceable, subject to a showing of prejudice as required by Estes.

91
Roberts Oil Co. v. Transamerica Ins. Co., 833 P.2d 222, 228-29 (N.M.
1992) (adopting the Estes rule and reasoning).
92
Nelson v. Progressive Cas. Ins. Co., 162 P.3d 1228, 1238 (Alaska 2007).
93
Ennen v. Integon Indem. Corp., 268 P.3d 277, 287-88 (Alaska 2012).

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 6. Contractual modification of the accrual date
As to when the contractual limitations period begins running, we have
previously held in Estes and Sand Lake Lounge that an insurance policy’s one-year
limitation period “began to run only after the claim was denied.”94 However, in those
cases we were interpreting a contractual limitation provision that required the insured to
file suit within one year of “the inception of the loss.”95 We interpreted this phrase to
mean “the date on which the insurance company denies coverage, that is, the date on
which the cause of action accrues,” concluding it would be unreasonable to interpret the
phrase to mean the date of the underlying accident (in those cases, a fire rather than a car
accident).96 We reasoned that our holding was supported by an important practical
consideration — “[i]n insurance loss cases, adequate preparation of a proof of loss
requires a substantial amount of time.”97 We also observed that if we were to interpret
the contractual limitation provision as commencing on the date of the underlying
accident, “the operational effect of that decision would be to reduce the limitation period
to considerably less than one year from the date the cause of action accrued.”98
Thus, we have previously interpreted an ambiguous contractual limitation
provision as commencing on the date the insured’s claim against her insurer accrued,
meaning the date the insurer allegedly breached the insurance contract. But we have not

94
Estes, 774 P.2d at 1319 (citing Fireman’s Fund Ins. Co. v. Sand Lake
Lounge, Inc., 514 P.2d 223, 226 (Alaska 1973)).
95
Sand Lake Lounge, 514 P.2d at 224.
96
Id. at 226-27.
97
Id. at 227.

98
Id.

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considered whether a contractual limitation provision that unambiguously modifies the
accrual date is enforceable.
McDonnell argues that the two-year limitation provision is unenforceable
because it purports to start the limitations period before the insured’s cause of action has
accrued. Some courts have enforced contractual provisions that modify the accrual date
for UM claims.99 Other courts have held that such provisions are unreasonable and,
therefore, unenforceable.100 We agree with the latter view.
We start with the premise that, as discussed above, a UM claim arises out
of the parties’ insurance contract, therefore the cause of action generally accrues when
the contract is breached. As the Delaware Supreme Court explained, “there is no
justiciable controversy under the contract (here a policy) upon which a party may sue”
until the contract is breached, because as long as the parties perform in accordance with
the contract, no party has cause to complain.101 It is only when one party contends that
the other has violated the contract that a justiciable controversy exists.102
By shortening the accrual date for UM claims, State Farm’s contractual
limitation provision attempts to shorten the limitations period before an insured like

99
See Hamm v. Allied Mut. Ins. Co., 612 N.W.2d 775, 779 n.1, 784
(Iowa 2000) (stating the court would only apply the traditional accrual date for contract
claims “[a]bsent specific language in the . . . policy concerning when the limitations
period begins to run”); Angel v. Reed, 891 N.E.2d 1179, 1181-82 (Ohio 2008) (holding
an unambiguous policy provision requiring the insured to bring suit within two years of
the date of the accident must be enforced).
100
See Nicodemus v. Milwaukee Mut. Ins. Co., 612 N.W.2d 785, 786
(Iowa 2000); State Farm Mut. Auto. Ins. Co. v. Fitts, 99 P.3d 1160, 1162-63
(Nev. 2004); Kraly v. Vannewkirk, 635 N.E.2d 323, 329 (Ohio 1994).
101
Allstate Ins. Co. v. Spinelli, 443 A.2d 1286, 1292 (Del. 1982).
102
Id.

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McDonnell has a justiciable cause of action against her insurer. Other courts have found
such provisions unreasonable and invalid for this reason. In Nicodemus v. Milwaukee
Mutual Insurance Co., the Iowa Supreme Court considered the validity of a contractual
limitation provision that attempted to shorten the date of the commencement of the
limitations period for UM claims to the date of the accident.103 The Nicodemus court
held that “the contractual limitations provision in the [insurance policy], which
commences the limitations period before the insured’s claim accrues, is unreasonable
and, therefore, unenforceable,” reasoning that “[a] contractual limitation provision that
would require a plaintiff ‘to bring his action before his loss or damage can be
ascertained’ is per se unreasonable.”104 Similarly, in Kraly v. Vannewkirk, the Ohio
Supreme Court held that “the validity of a contractual period of limitations governing a
civil action brought pursuant to the contract is contingent upon the commencement of
the limitations period on the date that the right of action arising from the contractual
obligation accrues.”105 And in State Farm Mutual Automobile Insurance Co. v. Fitts, the
Nevada Supreme Court declined to enforce a policy provision that commenced the
limitations period for UM and UIM claims on the date of the accident and instead
reaffirmed the proposition that an insured’s claim against an insurer does not accrue until
the insurer breaches the contract.106
We agree that it is illogical and unreasonable to contractually require
commencement of the limitations period for a UM claim before the insured has a

103
Nicodemus, 612 N.W.2d at 787.

104
Id. at 786, 788-89 (quoting Douglass v. Am. Family Mut. Ins. Co., 508

N.W.2d 665, 666 (Iowa 1993)).
105
Kraly, 635 N.E.2d at 329.
106
Fitts, 99 P.3d at1162-63.

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justiciable cause of action against her insurer. If the limitations period for a UM claim
commenced on the date of the accident, the insurer could potentially deny an insured’s
claim or refuse payment shortly before the limitations period ends, leaving the insured
with insufficient time to file suit. Similarly, the insurer could deny the insured’s claim
shortly after the limitations period ends, thereby barring the insured from filing suit at
all. Given these practical considerations, we hold that to the extent State Farm’s
contractual two-year limitation provision purports to trigger the commencement of the
limitations period before an insured’s cause of action against the insurance company has
accrued, the policy provision is unreasonable and unenforceable. Our holding is
consistent with Sand Lake Lounge, where we held that it would be unreasonable to
interpret a contractual limitation provision as commencing on the date of the insured’s
loss, because such an interpretation would considerably reduce the insured’s time to file
suit once the cause of action actually accrued.107 Accordingly, we affirm the superior
court’s ruling that State Farm’s contractual limitations provision does not commence
until the insured’s UM claim accrues, which occurs when the insurer has allegedly
breached the insurance contract, such as by refusing the insured’s request for payment
or denying the insured’s claim.
V. CONCLUSION
We AFFIRM the superior court’s ruling that the mandatory appraisal
statute, AS 21.96.035, does not apply to McDonnell’s UM personal injury claims. We
also AFFIRM the superior court’s rulings that the two-year limitation provision in
State Farm’s insurance policies is enforceable against McDonnell’s UM claims, subject

107
Fireman’s Fund Ins. Co. v. Sand Lake Lounge, Inc., 514 P.2d 223, 226-27
(Alaska 1973).

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to a showing of prejudice, and that the limitations period does not commence until the
insurer allegedly breaches the insurance contract.

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