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Insurance Coverage Dispute Under the Declaratory Judgment Act To Continue in New Mexico Federal Court

On Behalf of | Dec 14, 2018 | Insurance Bad Faith

A New Mexico federal Magistrate Judge recently recommended denial of a construction company’s motion to dismiss or stay a suit by the construction company’s insurer.  The insurance company had sued in New Mexico federal court seeking a declaration that it was not obligated to cover a lawsuit against the construction company in New Mexico state court for personal injuries and property damage.

The state court lawsuit was based on the construction company using the services of an insulation and fireproofing contractor to install Icynene SPF in a custom built home.  After the Icynene SPF was installed and homeowners moved in, the homeowners complained that the product was causing noxious and harmful fumes, gases and odors to fill the house.  The homeowners submitted a demand letter to the construction company, and its insurance company retained counsel to represent the construction company.  The homeowners then sued the Icynene SPF manufacturer, the insulation and fireproofing contractor that had installed it and the construction company in the Thirteenth Judicial District of New Mexico.

A few months later the construction company’s insurer filed a complaint in federal court pursuant to the Declaratory Judgment Act.  The insurance company sought a declaration that the allegations in the complaint brought in state court by the homeowners against the construction company were not covered by the construction company’s insurance policy.  The homeowners answered the complaint and the construction company moved to dismiss or, in the alternative, to stay proceedings.

The federal court was called upon to determine whether to allow the insurance company’s federal case to proceed. The court explained that, while the Declaratory Judgment Act vests federal courts with the power and competence to issue a declaration of rights, whether a court should exercise jurisdiction in a particular case is within the court’s discretion.  The concern of the construction company was that the federal court would make determinations in the context of the coverage dispute brought by the insurance company in federal court that should be heard in the primary lawsuit brought by the homeowners in state court.  The federal court concluded that it needed only to analyze the insurance policy and did not need to make any underlying factual determinations that would conflict with the state court action.  The federal court was unable to determine if the insurance policy provided coverage to the construction company because, according to the court, the insurer omitted pages from the policy when attaching it to the complaint.  The court did determine, however, that it was appropriate to exercise jurisdiction over the case and adjudicate the coverage available to the construction company under the insurance policy.  Accordingly, it recommended that the construction company’s motion to dismiss or stay proceedings be denied.

If you or a loved one has been physically injured or suffered property damage, there may be grounds for a recovery from those responsible.  In some cases, punitive damages are available in addition to compensatory damages.  Sometimes the responsible parties will have insurance policies, which may provide a source of recovery.  To help you understand more about your case and make an informed decision about options for proceeding, call New Mexico insurance personal injury lawyer Matthew Vance at the Law Office of Matthew Vance, P.C.  We provide a free consultation and can be reached at 505-445-1604 or online.

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