Recently, the New Mexico Court of Appeals addressed whether an insurance company had breached its duty by refusing a request for legal representation in a personal injury lawsuit. That lawsuit, brought by a Public Service Company of New Mexico employee, alleged negligence, negligence per se, and premises liability following an incident in which the employee was attacked by the defendant’s 150-lb Bullmastiff. The defendant in that case was a tenant, leasing a studio unit from the co-defendant, the property owner.
The property owner, who lived out of state, hired third parties to manage and maintain the premises in her absence. The property had a common yard, and the owner had asked the tenant living in the studio unit in back to care for the yard and make sure “things stayed alive.” This tenant owned the Bullmastiff dog and, at the time of the incident, had been in the common yard, watering the area.
The insurance company at issue in the lawsuit tendered its defense to the property owner, since she was the named insured on the policy. After the property owner was granted summary judgment in the case, the tenant requested that the insurance company tender her defense. It denied this request, stating she was not the named insured under the policy.
Eventually, the tenant and the employee entered a settlement, and the employee’s damages were $107,056.03. The tenant assigned the plaintiff employee all of the rights and proceeds that the tenant had against the insurance company for failing to defend or indemnify her (the tenant) in the lawsuit.
Then, the tenant and the employee filed a third-party complaint against the insurance company. They sought a declaratory judgment that the insurer breached its duty to defend the tenant in the underlying action. The insurer argued the tenant was excluded from coverage.
On appeal, the court stated that a grant of summary judgment is reviewed with all reasonable inferences made in favor of the non-moving party.
According to New Mexico law, insurance obligations are set forth in an insurance contract, which triggers an obligation to defend according to certain circumstances. Insurance companies are obligated to defend when a legal complaint alleges facts that are covered under the policy. A duty to defend also occurs when the facts are unclear, and there may be coverage under the policy.
Third, even if the duty to defend is not clear on the face of the complaint, if the insurer has been notified of facts or could discover facts that imply a duty to defend, the duty may exist.
In this case, the defendant did not seek a ruling that would have relieved it of a duty to defend. Instead, the appellate court stated, it “unilaterally” determined that the tenant was not covered, and it refused to tender her a legal defense. The court here also stated that it was unclear if the insurer undertook an investigation in reaching its conclusion that the tenant was not an insured.
The court stated it is not enough for an insurer to have a good-faith belief that an individual is not insured. Instead, an insurance company bears the burden of proving that all of the claims that arose were not covered. Therefore, the insurer has a duty to defend until this burden has been met. In essence, the court stated that when an insurance company refuses to defend a covered insured but has not sought a judicial determination that the alleged insured is not covered by the policy, it does so at its own peril.
On review, the court stated that their task was to determine whether there was a possibility that the claim in the primary action was covered by insurance, or if it clearly was not covered by the policy. When there is a doubt as to coverage, and the insurer refuses to defend, it has breached its duty. The question in a breach of duty to defend case is not whether there is coverage but whether there was a duty to defend.
The appellate court stated that the district court here had addressed the merits of the issue of coverage but not whether there was a duty to defend. The lower court asked whether the tenant was covered by the policy, rather than whether she was “potentially” covered. Their duty, according to the court, depended on this possibility of being covered.
Turning to whether the district court was correct, the court first looked at the term “real estate manager” in the policy, and then it sought to determine whether the tenant came within the meaning of that term. If she was possibly acting as a real estate manager for the property owner when the employee was injured, the lower court’s order must be reversed.
Relying on principles of contract interpretation, the court stated that the insurance contract defined an “insured” as any person acting as a real estate manager for the property owner. The term “real estate manager” was not defined, and again, the court stated the issue was whether coverage possibly extended to the tenant, as a real estate manager.
Contracts are interpreted from the standpoint of a hypothetical reasonable insured. In this case, there were two potential insureds: the property owner and the tenant. While the property owner lived in another state and entrusted care of the property to others, the tenant agreed to take on responsibilities for the benefit of the owner. The question was whether either would be covered by the policy.
At the time of the incident, the tenant had been watering plants in the front yard. The insurer, according to the court, should have been alerted to the possibility that the tenant was covered by the policy because she was performing functions commonly associated with “real estate management.” The court stated that the insurer should have investigated whether the tenant’s activity placed her within the coverage of the policy, particularly since the tenant rented the back unit and was watering the front yard. The court here stated that the facts should have suggested that the tenant was acting as a covered “insured” when the incident took place.
The court acknowledged that simply watering plants does not transform a tenant into a real estate manager, but there remained the possibility that the tenant could have been a real estate manager, based on the particulars of this case.
The court stated there was a duty to defend the tenant until the dispute was resolved as a matter of law. The court rejected the insurer’s argument that there was already a real estate manager, since there could be more than one. The court also stated that if the insurer had intended to limit policy coverage by defining “real estate manager” more narrowly, it could have done so.
In conclusion, the appellate court stated the district court erred in granting summary judgment to the defendant. The court reversed the judgment and remanded to the district court.
At the Law Office of Matthew Vance, accident victims in Albuquerque and elsewhere in New Mexico receive dedicated legal advocacy as they pursue their right to compensation from at-fault parties. As a New Mexico personal injury lawyer, Matt Vance helps injured individuals and their families. Contact our office for a complimentary, no-obligation consultation by calling 505-445-1604 or using our online form.
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New Mexico Appellate Court Holds Statute of Limitations Bars Plaintiff’s Claim Against Unlicensed Builder for Injuries Suffered in Fall from Vacation Home Deck, New Mexico Injury Lawyer Blog, January 19, 2017
New Mexico Court Dismisses Plaintiff’s Damages Claim for Injuries Caused by Allegedly Defective Work Boots, New Mexico Injury Lawyer Blog, January 26, 2017