                 FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

ALLSTATE INSURANCE COMPANY,                 No. 09-35203
                Plaintiff-Appellee,
               v.                              D.C. No.
                                          3:04-cv-00043-TMB
CHARLES HERRON,
                                               OPINION
             Defendant-Appellant.
                                      
        Appeal from the United States District Court
                 for the District of Alaska
       Timothy M. Burgess, District Judge, Presiding

                  Argued and Submitted
            July 30, 2010—Anchorage, Alaska

                   Filed March 10, 2011

 Before: Mary M. Schroeder, Diarmuid F. O’Scannlain and
            Richard R. Clifton, Circuit Judges.

              Opinion by Judge O’Scannlain




                           3379
                ALLSTATE INSURANCE v. HERRON             3383




                         COUNSEL

Mark A. Sandberg, Sandberg, Wuestenfeld & Corey, Anchor-
age, Alaska, argued the cause for the appellants and filed the
briefs.

Gary A. Zipkin, Guess & Rudd, Anchorage, Alaska, argued
the cause for the appellee. Mark Wilkerson, Wilkerson Hozu-
bin, Anchorage, Alaska filed the brief.


                         OPINION

O’SCANNLAIN, Circuit Judge:

  We must decide, among other issues, whether an insurance
company’s failure to settle a claim against its insured by a
3384                ALLSTATE INSURANCE v. HERRON
claimant’s stated settlement deadline constitutes a breach of
the insurer’s duty of good faith and fair dealing under Alaska
law.

                                      I

                                     A

   On September 14, 2002, Charles Herron was involved in a
single-car accident, in which his passenger Angelina Trailov
was severely injured.1 At the time, Allstate Insurance Com-
pany (“Allstate”) provided car insurance to Herron under a
policy obtained by Herron’s parents, which provided a maxi-
mum of $100,000 bodily injury coverage for each person
injured.

   Allstate learned of Herron’s accident two days after it
occurred and began its investigation that same day. Allstate
contacted Herron’s mother and discussed the scope of Her-
ron’s insurance but unsuccessfully attempted to contact
Trailov at the hospital to which she had been airlifted. A week
later, Allstate sent a letter to Herron’s parents, advising them
that it was working on the claim. Herron’s father faxed a copy
of the letter to Herron’s attorney, who in turn faxed a copy of
the letter to Trailov’s attorney, Michele Power.

   Shortly thereafter, Allstate sent a letter to Power requesting
a complete description of Trailov’s injuries, information
regarding Trailov’s treating physicians and any ongoing treat-
ment she was receiving, and access to Trailov’s medical
records or bills as Power received them. Allstate received the
medical release form signed by Trailov’s mother, Mary Ken-
ick, as well as a letter requesting a copy of Herron’s insurance
policy.
  1
   We take the facts of this case as stipulated by the parties in the district
court.
                 ALLSTATE INSURANCE v. HERRON                 3385
   In February of 2003, Power sent Allstate a letter demanding
that it pay its full policy limits for Trailov’s injury. The letter
did not specify a deadline for Allstate’s response. Allstate
acknowledged receipt of Power’s letter, and forwarded Her-
ron a copy of the letter, informing him that his policy does not
cover punitive damages. Herron’s attorney responded insist-
ing that Allstate accept Power’s policy-limits offer and stating
that if it refused to do so, Herron would look to Allstate for
all damages awarded, including punitive damages.

   In April, Power again wrote to Allstate, stating that
Power’s offer to settle at policy limits would be revoked on
May 16, 2003 and that Power would file a lawsuit on
Trailov’s behalf “unless there is some discussion regarding
pre-filing resolution.” On May 9, Allstate acknowledged
receipt of Power’s letter, and stated that Allstate anticipated
responding by May 16. On May 12, Allstate paid Trailov
$25,000 to compensate a portion of her medical expenses. On
May 16, Allstate faxed a letter to Power indicating that it had
not yet completed its investigation, but that it would do so and
respond to her settlement offer by the end of the month. True
to its word, Allstate faxed Power a letter offering to settle at
Herron’s $100,000 policy limit in addition to $12,500 in attor-
neys’ fees on May 30. That same day, Allstate received a let-
ter from attorney Douglas Johnson indicating that Allstate had
failed to meet Power’s deadline and that Johnson had been
retained by Trailov as co-counsel to file suit against Allstate.

                                B

   Allstate filed a complaint against Herron in the U.S. Dis-
trict Court for the District of Alaska, seeking declaratory
relief. Allstate sought a declaration that “its good faith attempt
to settle Trailov and Kenick’s claims satisfied its obligation to
its insured,” and that it “is not obligated to pay any portion of
the confessed judgment that exceeds the limit of the bodily
injury coverage afforded Herron under the Policy.” But before
he was served with the complaint in the federal lawsuit, Her-
3386                 ALLSTATE INSURANCE v. HERRON
ron confessed to judgment in the amount of $1,937,500
against himself in favor of Kenick and Trailov in Alaska
Superior Court and assigned all of his rights against Allstate
to Kenick and Trailov. In exchange, Kenick and Trailov
entered into a covenant not to execute the judgment against
Herron’s personal assets. Kenick and Trailov then initiated a
lawsuit in Alaska state court against Allstate, attempting to
collect under Herron’s assigned rights.

   In light of Herron’s actions, Allstate amended its com-
plaint, seeking additional declarations that (1) Herron
breached the cooperation clause of the insurance contract by
consenting to entry of judgment and assigning his rights with-
out Allstate’s permission;2 (2) Herron’s breach was not
excused by any prior material breach by Allstate; (3) Herron’s
breach voided the insurance contract; and (4) either Allstate’s
liability is limited to the amount of bodily injury coverage or,
in the alternative, Herron’s breach voided the contract and all
liability coverage.

   Herron responded with a motion requesting that the district
court decline jurisdiction over Allstate’s suit or, in the alterna-
tive, stay proceedings. Herron argued that, because he had
assigned any claims he may have had against Allstate to Ken-
ick and Trailov, Herron was no longer a real party in interest
to the controversy and Allstate’s action should therefore be
prosecuted in state court along with Kenick and Trailov’s
  2
   The insurance agreement’s cooperation clause states:
      When [Allstate] ask[s], an insured person must cooperate with
      [Allstate] in the investigation, settlement and defense of any
      claim or lawsuit. If [Allstate] ask[s], that person must also help
      [Allstate] obtain payment from anyone who may be jointly
      responsible. [Allstate] can’t be obligated if an insured person vol-
      untarily takes any action or makes any payments except as speci-
      fied in this policy.
This provision effectively bars Herron from settling any covered claims
against him without Allstate’s authorization.
                   ALLSTATE INSURANCE v. HERRON                   3387
nonremovable tort claims. The district court denied the
motion and retained jurisdiction over Allstate’s request for
declaratory relief, concluding that jurisdiction was proper
because the suit did not involve any unsettled areas of state
law, nor did it risk duplicative litigation. Herron then filed a
motion to dismiss Allstate’s suit as moot or, in the alternative,
to substitute Kenick and Trailov for himself as party defen-
dants. The district court again denied Herron’s motion,
although it suggested that Allstate consider adding Kenick
and Trailov as defendants.

   Allstate and Herron each filed motions for summary judg-
ment, both of which the district court denied.3 Before trial,
Allstate filed a motion in limine seeking to exclude evidence
of various instances of purported bad-faith behavior. The dis-
trict court had previously concluded that Herron suffered no
harm as a result of these purported transgressions, and granted
Allstate’s motion.

   After a six-day trial, the court submitted a single question
to the jury: “Considering all the facts and circumstances con-
tained in the evidence submitted to you, did Allstate act rea-
sonably by offering policy limits on May 30, 2003?” The jury
answered, “Yes.” After the jury delivered its verdict, All-
state’s counsel indicated that he would submit a proposed
judgment to the court, and the judge replied, “Okay.” But the
next day, before Allstate filed its proposed judgment, the dis-
trict court entered a judgment indicating only that “Allstate
did act reasonably by offering policy limits on May 30,
2003.” Less than a week later, Allstate filed a motion to
amend the judgment to reflect several additional declarations
that Allstate sought in its complaint. Namely, Allstate sought
to amend the judgment to state:
  3
    The order denying Allstate’s motion for summary judgment was pub-
lished. See Allstate Ins. Cos. v. Herron, 393 F. Supp. 2d 948 (D. Alaska
2005).
3388            ALLSTATE INSURANCE v. HERRON
    1.   The jury returned a verdict in favor of Allstate
         on June 11, 2008, finding that under all the facts
         and circumstances Allstate acted reasonably by
         offering policy limits on May 30, 2003.

    2.   It is undisputed that Herron breached the insur-
         ance contract by consenting to entry of judgment
         and assigning his rights without Allstate’s con-
         sent.

    3.   Pursuant to the jury’s verdict, Herron’s breach
         was not excused by any prior breach by Allstate.

    4.   Herron’s breach voided the insurance policy’s
         liability coverage.

    5.   Herron’s assignment of rights to Trailov and
         Kenick is null and void because Herron had no
         rights to assign as of the date of assignment.

The district court granted Allstate’s motion, and filed the
amended judgment as requested.

  Herron timely appeals.

                              II

   Herron first claims that the district court improperly exer-
cised jurisdiction over Allstate’s suit for declaratory relief.
Under the Declaratory Judgment Act, a district court may “de-
clare the rights and other legal relations of any interested
party seeking such declaration.” 28 U.S.C. § 2201(a); Gov’t
Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1222 (9th Cir. 1998)
(en banc). So long as the court’s exercise of jurisdiction over
the suit “passes constitutional and statutory muster,” the dis-
trict court has discretion to determine whether maintaining
jurisdiction over the declaratory action would be appropriate.
Dizol, 133 F.3d at 1223. In making such a determination, a
                    ALLSTATE INSURANCE v. HERRON                      3389
district court is to consider a variety of factors, including
whether retaining jurisdiction would: (1) involve the needless
determination of state law issues; (2) encourage the filing of
declaratory actions as a means of forum shopping; (3) risk
duplicative litigation; (4) resolve all aspects of the contro-
versy in a single proceeding; (5) serve a useful purpose in
clarifying the legal relations at issue; (6) permit one party to
obtain an unjust res judicata advantage; (7) risk entangling
federal and state court systems; or (8) jeopardize the conve-
nience of the parties. Id. at 1225 & n.5. Because the district
court “is in the best position to assess how judicial economy,
comity and federalism are affected in a given case,” id. at
1226, we review the district court’s decision to retain jurisdic-
tion over a declaratory judgment action for abuse of discre-
tion, id. at 1223.

    [1] Here, the district court did not abuse its discretion by
maintaining jurisdiction over Allstate’s declaratory judgment
action. This case presents a straightforward contract dispute
between Allstate and Herron, over which the district court has
jurisdiction based on the parties’ diversity.4 28 U.S.C. § 1332.
Allstate’s complaint seeks a declaration merely that Herron
breached the insurance contract and voided its coverage by
consenting to the entry of judgment against him and by
assigning his contractual rights against Allstate. The district
court decided no issues of Alaska law outside of that defining
Herron and Allstate’s contractual relationship. There is thus
little concern that Allstate’s declaratory judgment action
entangled federal and state court systems or that the district
court allowed Allstate unfairly to select a favorable or incon-
venient forum for determining its rights under the contract.
Moreover, Herron never initiated his own action against All-
state that would risk duplicative litigation of these same con-
tractual rights. In short, we see no concern that would have
  4
    Herron is a resident of Alaska and Allstate is incorporated in and main-
tains its principal place of business in Illinois.
3390             ALLSTATE INSURANCE v. HERRON
required the district court to refuse to exercise jurisdiction
over Allstate’s action.

   Herron counters that, under the guise of a contract suit, All-
state has in fact sought a declaration of its defense to the tort
suit filed by Kenick and Trailov in Alaska state court. In par-
ticular, he contends that the jury’s finding that under “all facts
and circumstances, . . . Allstate act[ed] reasonably by offering
policy limits on May 30, 2003,” is simply a statement of All-
state’s nonliability to Kenick and Trailov’s tort claims. Her-
ron argues that the district court therefore erred by allowing
Allstate to use this declaratory judgment action to handpick
its preferred forum for litigating the merits of Kenick and
Trailov’s state tort action. Cf. Cunningham Bros., Inc. v. Bail,
407 F.2d 1165, 1167-68 (7th Cir. 1969) (“[T]o compel poten-
tial personal injury plaintiffs to litigate their claims at a time
and in a forum chosen by the alleged tort-feasor would be a
perversion of the Declaratory Judgment Act.”).

   [2] But Herron misunderstands the connection between the
action here and Kenick and Trailov’s tort suit against Allstate.
The issues in this suit and the tort suit overlap solely because
Kenick and Trailov’s rights against Allstate are entirely deriv-
ative of Herron’s rights under his insurance agreement. The
jury’s declaration of Allstate’s reasonableness pertains to
Alaska law defining an insurer’s contractual obligations to its
insured, not tort law. See Continental Ins. Co. v. Bayless &
Roberts, Inc., 608 P.2d 281, 293 (Alaska 1980). That declara-
tion may well be fatal to Kenick and Trailov’s tort claims
against Allstate, but only because an unexcused breach of the
contract by Herron may have thus prevented him from assign-
ing any rights against Allstate to Kenick and Trailov in the
first place. At bottom, Allstate’s suit sounds in contract, not
tort, regardless whether the merits of this action have become
entwined with a defense Allstate may potentially raise to Ken-
ick and Trailov’s derivative tort action. Accordingly, we are
satisfied that the district court did not abuse its discretion by
                 ALLSTATE INSURANCE v. HERRON                3391
maintaining jurisdiction over Allstate’s declaratory judgment
action.

                               III

   Herron next contends that the district court erred by refus-
ing to direct a verdict that Allstate materially breached the
insurance contract when it failed to accept Power’s offer to
settle at policy limits by May 16, 2003. We review the district
court’s denial of a motion for directed verdict de novo.
Oglesby v. S. Pac. Transp. Co., 6 F.3d 603, 605 (9th Cir.
1993). To succeed on his claim, Herron must demonstrate that
the evidence, when viewed in the light most favorable to All-
state, requires a rational juror to conclude that Allstate materi-
ally breached the contract by offering to settle at policy limits
on May 30, 2003. See Maheu v. Hughes Tool Co., 569 F.2d
459, 469 (9th Cir. 1977).

    [3] In Alaska, “[w]hen a plaintiff makes a policy limits
demand, the covenant of good faith and fair dealing places a
duty on an insurer to tender maximum policy limits to settle
a plaintiff’s demand when there is a substantial likelihood of
an excess verdict against the insured.” Jackson v. Am. Equity
Ins. Co., 90 P.3d 136, 142 (Alaska 2004). This obligation
stems from an insurer’s general “duty to act in good faith to
protect the interests of the insured,” id., and it requires the
insurer to “exercise not only good faith, but also ordinary care
and reasonable diligence and caution,” Continental Ins. Co.,
608 P.2d at 293 (internal quotation marks omitted). If an
insurer unreasonably refuses to settle at policy limits, “it has
materially breached its contractual obligation to the insured
. . . and cannot escape liability on the ground that the insured
failed to comply with other terms of the contract subsequent
to [the insurer’s] own breach.” Grace v. Ins. Co. of N. Am.,
944 P.2d 460, 464 (Alaska 1997) (ellipsis in original) (inter-
nal quotation marks omitted). Thus, if Allstate breached its
obligation to tender policy limits in response to Power’s set-
tlement offer, Herron would be entitled to coverage, even in
3392             ALLSTATE INSURANCE v. HERRON
excess of his policy, for his liability to Trailov and Kenick,
regardless of any subsequent breach on his part. See Jackson,
90 P.3d at 142; Grace, 944 P.2d 464-65.

   Because the parties stipulated that Allstate could have
determined that Herron’s liability exceeded the limits of his
insurance policy by May 16, 2003, Herron contends that, as
a matter of law, Allstate breached its duty to settle at policy
limits by failing to meet Power’s May 16 deadline. But the
parties’ stipulation did not preclude a rational jury from find-
ing that Allstate nevertheless acted reasonably by offering to
settle at policy limits only two weeks later. In essence, the
parties’ stipulation did not require a jury to conclude that All-
state should have determined Herron’s liability to exceed the
policy limits and should have offered to settle by May 16.

   [4] Indeed, the jury found that Allstate’s decision to offer
to settle on May 30, 2003 was reasonable, and we have no
cause to question the jury’s conclusion based upon the record
before us. Allstate began its investigation two days after Her-
ron’s accident occurred and was consistently in contact with
Power throughout the process. Although Power placed a May
16 deadline on her offer to settle, her language was not stead-
fast; rather, she merely stated that by the deadline there must
be “some discussion regarding pre-filing resolution.” Allstate
twice responded to this settlement offer by the deadline, and
it even paid a portion of Trailov’s medical bills on May 12.
On May 16, Allstate stated that it would have a final answer
by the end of the month, and on May 30, Allstate in fact
accepted Power’s offer to settle at policy limits.

   [5] Viewing this evidence in the light most favorable to
Allstate, it is not clear that Allstate failed to comply with the
terms of Power’s deadline, let alone that it failed reasonably
to offer to settle at policy limits. A rational jury could find
that Allstate acted reasonably. Because Herron is not entitled
to judgment that Allstate breached its duty of good faith and
                   ALLSTATE INSURANCE v. HERRON                      3393
fair dealing, the district court did not err in refusing to grant
Herron’s motion for a directed verdict.5

                                   IV

   [6] Herron next contends that the district court improperly
excluded evidence at trial relating to alleged contract breaches
by Allstate other than its failure to accept Power’s settlement
offer by May 16, 2003. In particular, Herron contends that the
district court should have permitted him to introduce evidence
that Allstate (1) violated its own procedures and Alaska insur-
ance regulations in investigating Herron’s accident, (2) never
sent Herron a letter notifying him of his potential for excess
liability, (3) failed to investigate properly the claims against
Herron, and (4) failed to advise Herron and his counsel of All-
state’s settlement negotiations. The district court excluded
evidence relating to each of these claims under Federal Rules
of Evidence 401 and 403. We review the district court’s evi-
dentiary decisions for abuse of discretion, and “the appellant
is . . . required to establish that the error was prejudicial.”
Tritchler v. Cnty. of Lake, 358 F.3d 1150, 1155 (9th Cir.
2004).

   [7] Standing alone, none of these additional alleged
breaches would entitle Herron to prevail on the merits of this
action. Under Alaska law, only a material breach by an
insurer excuses an insured’s subsequent breach. Great Divide
Ins. Co. v. Carpenter ex rel. Reed, 79 P.3d 599, 608-10
(Alaska 2003). “[A] material breach is one that will or may
  5
    Herron also claims that the district court erred by not granting sum-
mary judgment in his favor on this issue. But “this court will not engage
in the pointless academic exercise of deciding whether a factual issue was
disputed after it has been decided.” Banuelos v. Constr. Laborers’ Tr.
Funds for S. Cal., 382 F.3d 897, 903 (9th Cir. 2004). Whether an insurer
acted in good faith is normally a factual issue for the jury to decide, see
Jackson, 90 P.3d at 141-44, and the jury’s finding that Allstate “act[ed]
reasonably by offering policy limits on May 30, 2003” thus defeats Her-
ron’s claim.
3394                ALLSTATE INSURANCE v. HERRON
result in the other party not receiving substantially what [that
party] bargained for.” Machado v. State, 797 P.2d 677, 683
(Alaska Ct. App. 1990) (internal quotation marks omitted)
(second alteration in original). The breach must have an
adverse impact on the relationship between the parties. Great
Divide, 79 P.3d at 610. Herron does not argue that any of
these additional breaches adversely impacted him or his rela-
tionship with Allstate. Herron argues instead that any breach
by an insurer excuses an insured’s subsequent breach. But
Herron glosses over the materiality requirement, and his argu-
ment finds no support in Alaska law. Without a showing of
prejudice, none of these additional breaches could have been
“material,” and thus, under Alaska law, none of these addi-
tional breaches could have excused Herron’s subsequent
breach.6

   [8] Second, even if they occurred, these alleged breaches
shed little light on whether Allstate materially breached the
contract by failing to accept Power’s settlement offer by May
16, 2003. In assessing that claim, the only relevant consider-
ations are when Allstate should have known that Herron’s lia-
bility was likely to exceed policy limits and, correspondingly,
when Allstate reasonably should have offered to settle at such
limits. Whether Allstate followed its internal procedures or
provided adequate information to Herron is hardly relevant to
  6
    On these same grounds, we reject Herron’s argument that the district
court should have granted summary judgment or a directed verdict in his
favor on his claim that Allstate breached its duty to notify him of his
potential for excess liability, see Jackson, 90 P.3d at 142. Without consid-
ering whether Allstate was required, as Herron claims, to send him a letter
expressly informing him of his potential for excess liability, we conclude
that any breach of such duty is irrelevant to the present case. Herron does
not argue that he suffered any harm as a result of Allstate’s purported
breach, and thus, any breach could not have been material. The district
court did not err by refusing to grant summary judgment or a directed ver-
dict on this point, as it would not have affected the conclusion that Her-
ron’s breach of the contract was not excused by a prior material breach by
Allstate.
                    ALLSTATE INSURANCE v. HERRON                      3395
such considerations. At most, these assorted breaches may
suggest that Allstate’s handling of Trailov’s claim was some-
what out of the ordinary. But Herron was allowed to present
ample evidence regarding Allstate’s handling of the claim.7
Whatever minimal probative value that evidence of these
additional allegations would have with respect to the reason-
ableness of Allstate’s settlement decision is greatly out-
weighed by the misleading and potentially prejudicial effect
that discussion of other “breaches” may have on a jury. See
Fed. R. Evid. 403. The district court thus did not abuse its dis-
cretion in excluding evidence of these purported breaches.

                                    V

   [9] Finally, we consider whether the district court abused
its discretion by granting Allstate’s motion to amend the judg-
ment. Under Federal Rule of Civil Procedure 59(e), a party
may move to have the court amend its judgment within
twenty-eight days after entry of the judgment. “Since specific
grounds for a motion to amend or alter are not listed in the
rule, the district court enjoys considerable discretion in grant-
ing or denying the motion.” McDowell v. Calderon, 197 F.3d
1253, 1255 n.1 (9th Cir. 1999) (en banc) (per curiam) (inter-
nal quotation marks omitted). But amending a judgment after
its entry remains “an extraordinary remedy which should be
used sparingly.” Id. (internal quotation marks omitted). In
general, there are four basic grounds upon which a Rule 59(e)
motion may be granted: (1) if such motion is necessary to cor-
rect manifest errors of law or fact upon which the judgment
rests; (2) if such motion is necessary to present newly discov-
ered or previously unavailable evidence; (3) if such motion is
necessary to prevent manifest injustice; or (4) if the amend-
ment is justified by an intervening change in controlling law.
Id.
  7
   For example, Herron was allowed to present evidence regarding rele-
vant industry standards for handling a claim, various internal Allstate pro-
cedures, documents related to Allstate’s investigation and evaluation, and
even expert testimony assessing Allstate’s actions.
3396             ALLSTATE INSURANCE v. HERRON
                               A

   [10] A court considering a Rule 59(e) motion is not limited
merely to these four situations, however. See id. at 1255 (stat-
ing that under unusual circumstances an amendment outside
the listed situations may be appropriate). For instance, Rule
59(e) amendment may be particularly appropriate where, as
here, the amendment reflects the purely clerical task of incor-
porating undisputed facts into the judgment. See Molnar v.
United Techs. Otis Elevator, 37 F.3d 335, 337-38 (7th Cir.
1994) (holding that the district court did not abuse its discre-
tion by amending a judgment to reflect the jury’s conclusion
that the defendant’s conduct was willful). Such an amendment
does not raise the concern that a party has abused Rule 59(e)
to “raise arguments or present evidence for the first time when
they could reasonably have been raised earlier in the litiga-
tion.” Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877,
890 (9th Cir. 2000). This is particularly true in this case, as
Allstate sought to amend the judgment specifically to reflect
the relief sought in its complaint, and the district court previ-
ously stated on the record that it would allow Allstate to sub-
mit a proposed form of judgment.

   [11] Accordingly, the district court did not abuse its discre-
tion by adding paragraphs (2) and (3) of the amended judg-
ment. Paragraph (2) adds only the undisputed fact that Herron
breached the insurance contract by consenting to entry of
judgment against him and assigning his rights without All-
state’s consent. Herron readily admits that this action was a
material breach of the contract’s cooperation clause, and at
trial, the only question regarding this breach was whether it
was excused by a prior material breach by Allstate. Paragraph
(3) adds that Herron’s breach indeed was not excused by any
prior material breach. This addition flows directly from the
jury’s finding that Allstate acted reasonably in offering to set-
tle on May 30, 2003. Because Allstate acted reasonably, it did
not breach its duty of good faith and fair dealing to Herron,
                 ALLSTATE INSURANCE v. HERRON                 3397
and Herron alleges no other material breaches which would
have excused his own breach.

                                B

   [12] Paragraph (4) of the amended judgment, however,
adds more than undisputed facts. Paragraph (4) states, “Her-
ron’s breach [of the cooperation clause] voided the insurance
policy’s liability coverage.” Under Alaska law, “ ‘an insured’s
breach of [a] cooperation clause relieves a prejudiced insurer
of liability under the policy.’ ” Grace, 944 P.2d at 464 (quot-
ing Ariz. Prop. & Cas. Ins. Guar. Fund v. Helme, 735 P.2d
451, 458-59 (Ariz. 1987)) (alteration in original) (emphasis
added). In order to “satisfy the consumer’s reasonable expec-
tation that [insurance] coverage will not be defeated on arbi-
trary procedural grounds,” an 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. Estes v. Alaska Ins.
Guar. Ass’n, 774 P.2d 1315, 1318 (Alaska 1989). The insurer
bears the burden of proving such prejudice. Weaver Bros.,
Inc. v. Chappel, 684 P.2d 123, 126 (Alaska 1984).

   [13] Here, Allstate did not show that it suffered prejudice
as a result of Herron’s breach, and the jury did not consider
the issue of prejudice to Allstate. Indeed, there is good reason
to believe that Allstate was not prejudiced by Herron’s con-
fession of judgment, given that Allstate determined Herron’s
liability to be easily in excess of its policy and in fact tendered
a policy limits settlement to Kenick and Trailov. Regardless,
the narrow verdict issued by the jury did not reach the issue
of Allstate’s nonliability under its policy to Herron.

   Allstate contends that a jury need not consider whether
Herron’s breach prejudiced Allstate, because such prejudice
has been stipulated by Herron. Namely, Allstate argues that
Herron’s stipulation that his consent to the entry of judgment
in Trailov’s favor “was a material breach of the cooperation
3398             ALLSTATE INSURANCE v. HERRON
clause in his insurance contract,” presumes that such breach
caused prejudice to Allstate. As discussed, supra Part IV, a
material breach is one that has an “adverse impact on the rela-
tionship between the insurer and the insured.” Great Divide,
79 P.3d at 610 (internal quotation marks omitted). Allstate
argues that Herron’s stipulation therefore includes the fact
that Allstate suffered prejudice, and thus that the court may
presume such prejudice occurred even without submitting the
issue to a jury.

   [14] We are not persuaded by Allstate’s argument. The
prejudice required to relieve an insurer of its liability under
the contract following a breach of a cooperation clause is not
the same as the prejudice required to show that a particular
contract breach was “material.” “[C]ooperation clauses should
. . . be reviewed on the basis of whether their application in
a particular case advances the purpose for which they were
included in the policy.” Estes, 774 P.2d at 1318. To relieve its
liability, Allstate “must establish that it suffered as a result of
[Herron’s breach] such prejudice as the [cooperation clause]
was intended to avoid,” id., not simply that the breach had an
“adverse impact” on their relationship. Indeed, without such
a showing, Herron’s stipulation that his action “was a material
breach of the cooperation clause,” does not necessarily
include an admission that such breach was a material breach
of the insurance contract itself. This distinction is pivotal, and
finding a material breach of the contract itself is fundamental
to concluding that Allstate was fully relieved of its liability
under the insurance policy. Cf. id. (stating that to allow a non-
prejudiced insurer to escape liability simply because the
insured breached a cooperation clause would be to void cov-
erage “on arbitrary procedural grounds”). Because the issue of
prejudice to Allstate was neither stipulated nor considered by
the jury, the district court abused its discretion by amending
the judgment in paragraph (4) to state that “Herron’s breach
voided the insurance policy’s liability coverage.”
                ALLSTATE INSURANCE v. HERRON               3399
                               C

   [15] Paragraph (5) of the amended judgment, which states
that Herron’s assignment of rights to Kenick and Trailov is
“null and void because [he] had no rights to assign as of the
date of the assignment,” is derivative of paragraph (4)’s state-
ment that Herron’s actions voided his insurance policy. But
because Allstate remains liable to Herron within the insurance
policy’s limits, Herron retained assignable rights against All-
state to the extent of that liability. Accordingly, the addition
of paragraph (5) was erroneous as well.

                              VI

  The judgment of the district court is

 AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.

  Each party shall bear its own costs.
