concurring, with whom DIMOND, Justice Pro Tem., joins.

I find that I must file a separate concurrence on an issue which at first glance might appear to be a relatively minor portion of the majority opinion. The court holds that a trial court may exercise its discretion as to whether or not to award attorney’s fees to a plaintiff who has received and rejected an offer of judgment, for the period of time between the filing of the case and the date of the offer. I believe that the majority unnecessarily injects an area of uncertainty into the application of Civil Rule 68 which can hamper attorneys in deciding whether to make an offer of judgment, or to accept *1131such an offer. The holding will also a likely source of additional litigation over the already too frequently contested provisions with reference to allowance of attorney’s fees. be

I do not agree with the dictum that when an offer of judgment is accepted, allowance of attorney’s fees is discretionary. To use the metaphor of Alaska’s glacial streams, the majority opinion adds silt to already murky waters, whereas the combined application of the terms of Civil Rules 68 and 821 should produce clarity.

There are four situations which may arise in the event that an offer of judgment is made under Rule 68: 1) the offer is accepted; 2) the offer is rejected, and the plaintiff recovers more than. the amount of the offer; 3) the offer is rejected, and the plaintiff recovers less than the amount of the offer, but still is the prevailing party; and 4) the offer is rejected, and the plaintiff recovers less than the amount of the offer, but is not the prevailing party.

Under the first situation, the offeree is entitled under the provisions of the rule to costs and attorney’s fees accrued to the date of the offer. The majority inexplicably states that Rule 68 does not require that costs incurred prior to an offer of judgment be awarded. Rule 68 specifies that the offer allow judgment to be taken “with costs then accrued”. In Alaska, under Civil Rule 82, costs include attorney’s fees. The offer therefore must be for a specified sum plus such costs. Attorney’s fees normally will be computed on the amount of the offer under either the “without trial” or “non-contested” schedule of Rule 82.2

Under the example given by the majority in Footnote 12 where it is desired to make a “nuisance” settlement offer of $5,000.00, an attorney should have no difficulty computing the approximate amount of the fee to be allowed. The amount of the offer can quite accurately be gauged so that the party making the offer will know the total amount of liability to be incurred including the allowable costs and attorney’s fee in the event that the offer is accepted.

In the event that the offer is rejected, if the plaintiff recovers more than the amount of the offer, he will be entitled to a normal allowance as a prevailing party for costs and attorney’s fees under the provisions of Civil Rule 82.

If the offer is rejected and the offeree recovers less than the amount of the offer but is still the prevailing party, he should receive a reasonable allowance for his costs and attorney’s fees incurred prior to the date of the offer.3

ATTORNEY’S FEES IN AVERAGE CASES

Without Non-Contested Trial Contested First $ 2,000 25% 20% 15%

Next $ 3,000 20% 15% 12.5%

Next $ 5,000 15% 12.5% 10%

Over $10,000 10% 7.5% 5%

Finally, we have the situation involved in the present litigation where the offeree recovers less than the amount of the offer of judgment and is not the prevailing party. Continental sued Fidelity to recover $250,000.00 that it paid on behalf of Northern Insurance in settlement of a *1132wrongful death case. It also sought its costs and attorney’s fees in defending the wrongful death action. On appeal, we held that Continental was not entitled to recover the $250,000.00 payment made, but that it was entitled to two-seventh’s of its attorney’s fees. The opinion on the present appeal correctly affirms Judge Carlson in his holding that Fidelity was the prevailing party even though Continental recovered $3,670.13. Owen Jones & Sons, Inc. v. C. R. Lewis Co., 497 P.2d 312 (Alaska 1972), is directly in point.

Since Fidelity was the prevailing party, Continental was not entitled to attorney’s fees at all. In the Owen Jones case, we upheld an award of attorney’s fees of $10,000.00 to the defendant despite the plaintiff’s ultimate recovery of $7,363.12 on a claim of $119,663.12. It is only the prevailing party that is entitled to an award of attorney’s fees. If an offer of judgment is made, and the plaintiff recovers less than the amount offered, the plaintiff will normally still be the prevailing party. If, for example, suit is filed for $55,000.00 and an offer of judgment of $50,000.00 rejected, a plaintiff receiving $40,000.00 would still be the prevailing party. If so, in my opinion, he is entitled to costs and a reasonable attorney’s fee to the date of offer. On the other hand,, if there is a defense verdict, or similarly if the main issues are resolved in the favor of the defendant so that he is to be regarded as the prevailing party, the plaintiff is not entitled to any attorney’s fee even for services performed during the portion of time prior to the offer of judgment. To permit the trial court to exercise discretion so as to award an attorney’s fee to a non-prevailing plaintiff who has refused an offer of favorable judgment is to allow the plaintiff to be placed in a better position than if no such offer had been made and rejected. Since the plaintiff is not the prevailing party, in the absence of an offer of judgment, he would not be entitled to any allowance for attorney’s fees. I fail to see why the plaintiff’s rejection of a favorable offer of compromise, which requires the litigation to continue, should make it discretionary for the trial court to award such a plaintiff his attorney’s fee. I do not believe that Civil Rule 68 was intended to cause any such bizarre result.

OPINION

This appeal questions the award of attorney’s fees in a declaratory judgment action between two insurers, United States Fidelity and Guaranty Co. and Continental Insurance Co. The substantive issues at the core of that action concerned which insurer had liability for costs of defense and actual recovery in wrongful death suits. Continental had tendered the defense to Fidelity. Upon Fidelity’s refusal of the tender of defense, Continental settled the wrongful death actions by paying $250,000 on behalf of its insured. Continental sought recovery of $250,000 plus the costs of defense from Fidelity. These issues were answered in Continental Insurance Co. v. United States Fidelity and Guaranty Co., 528 P.2d 430 (Alaska *11241974) ,1 where we held that while Fidelity was not liable to indemnify Continental in the wrongful death actions, it did owe a duty to defend. We stated:

Given the vagaries in both law and fact, the wrongful death actions were at least potentially within the coverage of the U.S.F. & G. policy .... U.S.F. & G. should have undertaken [defendant] Northern’s defense, and the failure to do so was a breach of the duty to defend created by the insurance contract.2

We concluded that Fidelity should bear two-sevenths of Continental’s cost of defending the wrongful death actions. We also held that Fidelity had no liability to pay the damages recovered in the wrongful death actions. Our mandate to the superior court indicated that no costs or attorney’s fees were allowed on appeal.3

Upon remand the superior court awarded Fidelity, as the prevailing party, $18,836.16 attorney’s fees.4 This amount included the full costs claimed by Fidelity. Therefore, against the $18,836.16 award of attorney’s fees, the trial court offset two-sevenths of Continental’s defense costs, resulting in a net recovery of Fidelity of $15,228.43.

The total amount of attorney’s fees awarded, $18,836.16, included the costs claimed by Fidelity both before and after an offer of judgment, which had been tendered by Fidelity5 in the course of the original litigation, and to the costs borne *1125by Fidelity on appeal. In addition, the superior court held that interest on Continental’s costs of defense claims ceased as of the date Fidelity made the offer of judgment. Against the $18,836.16 award of attorney’s fees, the superior court offset two-sevenths of Continental’s defense costs, resulting in a net recovery by Fidelity of $15,228.43.

Continental’s first point on appeal is that the superior court was in error in holding Fidelity to be the “prevailing party” entitled to attorney’s fees within the meaning of Rule 82, Rules of Civil Procedure. Continental argues that since it ultimately was awarded money (two-sevenths of defense costs or $3,670.13), as a result of our determination that Fidelity had a duty to defend, it and not Fidelity was the prevailing party.

The determination of which party is the prevailing party is vested, in the first instance, in the trial judge’s discretion6 and is reviewable on appeal only for abuse.7 Determination of who the prevailing party is does not automatically follow if the party receives an affirmative recovery, but rather is grounded on which party prevails on the main issues.8 Here in the case at bar, where Fidelity’s potential liability for payment of the actual recovery in the wrongful death actions greatly exceeded its potential liability for the cost of defense, the main issue cannot be said to be the cost of defense.9 Thus, in light of the potential indemnification liability to which Fidelity was exposed in this matter, we cannot say that the superior court erred in its conclusion that Fidelity was the prevailing party.

Continental next argues that regardless of whether it was a prevailing party within the meaning of Civil Rule 82, the superior court erred in failing to award it costs and attorney’s fees incurred prior to the Rule 68 offer of judgment tendered by Fidelity. The offer of judgment made by Fidelity was for $8,001, plus interest and costs. Ultimately, Continental’s recovery amounted to less than this offer.

The purpose of Rule 68, Rules of Civil Procedure, is to encourage settle*1126ment of civil litigation and to avoid protracted litigation.10 'When the offer is accepted and the action settled, pursuant to Rule 68, the trial court is then vested with “wide discretion” in determining attorney’s fees, and awards of fees will be set aside only where it is shown discretion is clearly abused.11 Civil Rule 68 further provides that if the action does proceed to judgment, and “ . . . the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.”

In Jakoski v. Holland, 520 P.2d 569, 577-78 (Alaska 1974), the defendant made an offer of judgment which ultimately exceeded plaintiffs’ recovery. The trial judge awarded attorney’s fees incurred by plaintiffs up to the time of the offer of judgment and then awarded to defendant attorney’s fees incurred after that time. Defendant appealed, contending that there was no proper basis for making the award of attorney’s fees (plaintiffs’ attorneys kept inadequate records), and that the award to him was inadequate in view of his attorney’s affidavit to the effect that fees incurred amounted to almost twice as much as were awarded. In dictum we approved of the superior court’s award of pre-offer attorney’s fees stating:

Since the rule provides that the offer allow judgment “with costs then accrued” and since costs under Alaska Civil Rule 82(a) include the allowance of an attorney’s fee, it is clear that the [plaintiffs] were entitled to an award for attorney’s fees incurred to the date of the offer of judgment.

Appellant seeks to elevate Jakoski to the level of a mandatory rule which requires a trial judge to award costs incurred prior to an offer of judgment in all instances. We decline to extend Jakoski that far. There we approved of the trial court’s exercise of discretion in awarding such costs; here we cannot say the trial judge abused his discretion by failing to award them. Just as there are sound reasons for awarding such costs, there are reasons for not doing so. First, Rule 68 itself does not require that costs incurred prior to an offer of judgment be awarded. Thus, it is clear such awards are in the trial court’s discretion. Second, to automatically award such costs encourages offerees to continue pressing suit. Third, appellant’s construction of Civil Rule 68 would act to discourage potential offerors from making offers of judgment in general, and especially as the case progresses and costs mount, because by virtue of the tender of the offer they would be binding themselves to finance the attorney’s fees of their opponents.12 In general we think that appellant’s interpretation would encourage, litigation and discourage settlement, thereby defeating the intent underlying Civil Rule 68.13

*1127Just as automatic awards of attorney’s fees incurred prior to offers of judgment encourage offerees to continue pressing suit, refusals to make such awards simply on the basis that the offeree ultimately fails to recover judgment as large as the offer tendered may act to encourage acceptance of offers which do not fairly compensate the offeree for infringement of its legal rights. The automatic consequences of obtaining a judgment not more favorable than an earlier unaccepted offer are spelled out in our Rule 68. Any additional consequences which a trial court imposes in its discretion normally should be supported by reasons on the record, so that a reviewing court can determine whether discretion has been abused. Here the superior court failed to indicate reasons for not awarding pre-offer attorney’s fees to the offeree beyond the fact that ultimately the offeror was the prevailing party within the meaning of the rule.

However, as we have previously indicated, in no sense could Continental (appellant offeree) be regarded as a “prevailing party” within the meaning of Rule 68 or Rule 82. Unlike the situation in Jakoski v. Holland, where the offeree was a prevailing party within Rule 82 (though not within Rule 68), and consequently had a right to some attorney’s fees under that rule, here it is difficult to conceive of a reason why the offeree is entitled to recover pre-offer attorney’s fees. While the superior court’s reasons for doing so are not clear, the record here does disclose an appropriate instance to accord the trial court’s ruling some presumption of validity. See Albritton v. Estate of Larson, 428 P.2d 379, 383-84 (Alaska 1967). Consequently, we hold that the superior court’s decision on this point was not an abuse of discretion.

Appellant’s third contention in this appeal is that it was error on the superior court’s part to award Fidelity the attorney’s fees it incurred in the earlier appeal to this court. In our opinion on that appeal no mention was made of whether, and if so to whom, costs and attorney’s fees should be awarded. However, in our mandate we directed that neither party was to be awarded costs or attorney’s fees.14 Article IV, Section IS of the Alaska Constitution provides in part that the Supreme Court shall “ . . . make and promulgate rules governing practice and procedure in civil and criminal cases in all courts.” Pursuant to this constitutional grant, this court promulgated Rule 29, Appellate Rules, which vests the' discretion to determine costs and attorney’s fees pertaining to appeals in this court. In short, by rule in general, this court has the authority to award costs in connection with an appeal to the Supreme Court of Alaska. And, by virtue of our mandate in the instant case, we have previously determined that neither Continental nor Fidelity was to be awarded any costs pertaining to the first appeal to this court. Thus, we hold that it was error for the superior court to have awarded Fidelity costs on appeal in contravention of Rule 29, Appellate Rules, and the mandate issued in the case at bar.15

*1128Appellant’s fourth contention in this appeal is that it was an abuse of discretion for the trial judge to award Fidelity the entire amount of its attorney’s fees incurred. Our leading case on the issue of awarding the full amount of attorney’s fees requested is Malvo v. J. C. Penney Co., 512 P.2d 575 (Alaska 1973). In Malvo the superior court awarded the prevailing party its entire documented attorney’s fees. There we held that it was “ . . . ‘manifestly unreasonable’ automatically to award the full amount of attorneys’ fees incurred by the prevailing party.” 512 P.2d at 587. Our holding in Malvo was grounded on considerations of public policy and the underlying purposes of Civil Rule 82. In Malvo we concluded that:

The purpose of Civil Rule 82 is to partially compensate a prevailing party for the costs and fees incurred where such compensation is justified and not to penalize a party for litigating a claim in good faith.

512 P.2d at 588.16 In the instant case it appears that Continental’s claims were litigated in good faith.17

In opposition to Continental’s contentions, Fidelity advances two arguments in support of the superior court’s award of full attorney’s fees. First, it contends that in Malvo the trial judge awarded full costs incurred “as a matter of policy,” 512 P.2d a 578, while here the judge exercised considered discretion in placing full liability for Fidelity’s legal costs on Continental. Thus, Fidelity would have us hold that the trial court may award full costs to be borne by the losing party so long as the award is not made automatically. Second, Fidelity argues that its actual legal costs were far greater than those claimed because their requested attorney’s fees did not include in-house attorney time spent in this case. Thus, Fidelity asserts that it never was awarded its full cost of attorney’s fees.

We hold that the cost of in-house counsel is not an attorney’s fee within the meaning of our rules. Salaries paid to in-house counsel are a cost of doing business which an enterprise will bear regardless of whether a particular suit is brought. The purpose of our rules regarding attorney’s fees is to partially compensate a prevailing party for the costs incurred as a result of a particular litigation, not to pay the salaries of those who are regular employees of an enterprise.18 Thus, we view the award made by the superior court as an award of the full cost of attorney’s fees and as a consequence we are faced squarely with the question whether the award of full attorney’s fees to Fidelity was justified under the criteria of Malvo. Unlike the situation in Malvo, the award here was not “automatic” but was made after the trial judge considered the progress of the case.19 Nevertheless, we are left with the firm conviction that the superior court *1129abused its discretion in awarding full attorney’s fees to Fidelity. Here we think Malvo and Jakoski are controlling. In Jakoski we said:

In ascertaining the amount of attorney’s fee to be allowed a defendant successful in holding a verdict to less than his offer, the trial judge should use the same general criteria as in a case where a defendant is the prevailing party. We recently discussed such criteria in Malvo v. J. C. Penney Co. We there stated that it is “manifestly unreasonable” automatically to award the full amount of attorney’s fees incurred by a prevailing party, although we recognized that there might be situations where such an ¿ward would be justified. We reiterated that the allowance was for the purpose of partially compensating a prevailing party.

Jakoski v. Holland, 520 P.2d 569, 578-79 (Alaska 1974) (footnote omitted). In the case at bar we cannot characterize Continental’s claims in its declaratory judgment suit as frivolous, vexatious, or devoid of good faith. Nor can we find that Continental in any way unreasonably prolonged the litigation in this case.20 Thus, we conclude that the award of full attorney’s fees to Fidelity must be set aside. We think the reasons why the award in Malvo was held to be error are equally applicable here.21

Continental’s final specification of error is that the superior court erred in failing to award pre judgment interest on the costs of the defense recovered by it, pursuant to this court’s earlier opinion, from the date of the offer of judgment by Fidelity to the date of judgment. The superior court held that the running of interest stopped upon Fidelity’s tender of the offer of judgment. In Davis v. Chism, 513 P.2d 475, 481 (Alaska 1973), we held that as a general rule an offer of judgment which specifies only a total amount is to be construed as including prejudgment interest. We likened pre judgment interest to compensatory damages there and asserted that “[m]oney is worth less the later it is received.” Davis clarified and limited our earlier assertion in State v. Phillips, 470 P.2d 266, 274 (Alaska 1970), that

[a] 11 damages . . . should carry interest from the time the cause of action accrues, unless for some reason peculiar to an individual case such an award of interest would do an injustice.

Continental here relies on our discussion in Davis for the proposition that since it has lost the use of the money adjudged owed it, it ought to be compensated up to the time the money is received. The question Continental thus raises now is whether in the case at bar an award of interest after the offered judgment could be held to work an injustice within the meaning of Phillips. We think that a trial judge may properly, as an exercise of discretion, refuse to award an offeree interest on a judgment from the date of the offer through the date of judgment when, as *1130here, the offeree ultimately recovers less than the amount offered. In our view, this conclusion flows from the functions which the procedural device of offers of judgment serve.

When a party makes an offer of judgment, it in effect acknowledges the legitimacy of a claim to the amount offered. If that offer is accepted, the lawsuit ends. If the offeree does not accept the offer and ultimately prevails in an amount which exceeds the offer, the very size of its judgment is testimony of the validity of its refusal to accept. But the failure to accept an offer which ultimately proves to exceed the judgment forces the offeror to continue its defense of the action and retention of money it, by virtue of its offer, was prepared to give the offeree at that time. Again, the judgment ultimately is indicative of the soundness of the of-feror’s evaluation, which the trial court may take into account. By forcing the offeror to retain its money, the offeree defeats the rationale upon which awards of prejudgment interest are based, namely» paying for the use of wrongfully retained money. The offeror in effect has indicated it does not wish to retain that money and the offeror’s retention can hardly be regarded as voluntary.22

Additionally, Civil Rule 68 can be read to support the refusal to award the prejudgment interest claimed by Continental. As noted, supra, Rule 68 provides in part that “ . . .if the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.” The offeror who is ultimately successful under Civil Rule 68 should not be burdened with the cost of paying interest after the offer is refused, for this is a cost of the continuation of the litigation. This is a cost that, under Civil Rule 68, should be borne by the offeree.23

Reversed in part, affirmed in part. Remanded for proceedings not inconsistent with this opinion.