1997 -NMSC- 41, Rummel v. Lexington Ins. Co.
| Decision Date | 08 August 1997 |
| Docket Number | No. 22910,22910 |
| Parties | , 1997 -NMSC- 41 Kenneth RUMMEL, individually and as Assignee of Circle K, Inc., a Texas corporation, and as Assignee of ISLIC, Inc., an Illinois corporation, Plaintiff-Appellant, v. LEXINGTON INSURANCE COMPANY, a foreign corporation, Defendant-Appellee. |
| Court | New Mexico Supreme Court |
¶1 Kenneth Rummel sued Circle K Corporation for personal injuries and received a judgment for over $11 million in compensatory and punitive damages. Circle K held several insurance policies that provided personal injury coverage. Subsequently, Circle K and International Surplus Lines Insurance Company (ISLIC), one of its insurers, agreed to a settlement in which they were obliged to pay only a portion of their contractual liability and which allocated the compensatory and punitive damages among several of Circle K's insurers. Under the settlement, Lexington Insurance Company, which was not a party to the settlement, was expected to pay a portion of the compensatory damages. Rummel, as assignee of Circle K, sued Lexington, urging payment and alleging bad faith. Lexington moved for summary judgment, stating the settlement violated its contract with Circle K and alleging that the settlement negotiations were secretive, devious, and collusive. The trial court granted summary judgment in favor of Lexington.
¶2 We conclude, based upon principles of contract construction, that Lexington's insurance policy did not, as a matter of law, preclude the settlement. We also conclude that there are issues of material fact regarding the settlement negotiations. We remand so that Rummel and Lexington can present their respective bad faith allegations.
¶3 Kenneth Rummel was a clerk at a Circle K convenience store in Albuquerque. On May 6, 1987, acting in accordance with Circle K's policy of confronting shoplifters, he attempted to prevent three men from stealing a frozen pizza. The men beat him savagely, kicking him repeatedly in the face and head. Rummel suffered numerous broken facial bones and permanent brain damage. Rummel filed a lawsuit against Circle K, Inc. on July 11, 1989, seeking compensatory and punitive damages for his injuries.
¶4 In May 1990 Circle K and its affiliated companies filed petitions before the U.S. Bankruptcy Court in Arizona seeking reorganization under Chapter 11 of the Bankruptcy Code. In January of 1992, the bankruptcy court allowed Rummel to litigate his claims against Circle K by lifting the automatic stay that would otherwise have prevented him from pursuing his lawsuit.
¶5 A jury trial was held in October 1992. On October 30 the jury entered a verdict in Rummel's favor and awarded him $1,042,844.28 in compensatory damages and $10,700,000 in punitive damages. On November 20, 1992, the court entered its judgment, awarding to Rummel a total of $11,742,844.28 plus costs and interest. Circle K appealed. In the ensuing months, Rummel made several offers to settle.
¶6 At the time of the judgment, Circle K held numerous insurance policies, at least six of which covered damages for personal injury. The personal injury policies were "stacked," with each "layer" providing coverage after "lower" layers of coverage were expended. These policies were interrelated as follows:
Circle K's SIR: Circle K held a Self-Insured Retention (SIR) in which it personally assumed the risk of any claim from $1 through $250,000. This SIR was required by both Columbia Casualty Company and ISLIC, both of which provided insurance for amounts above $250,000.
Columbia Casualty Company agreed to indemnify Circle K for up to $750,000 of losses over and above the $250,000 SIR. The Columbia policy covered both compensatory and punitive damages.
ISLIC: International Surplus Lines Insurance Company agreed "to pay on behalf of" Circle K up to $5,000,000 of losses in excess of the $250,000 SIR. 1 This policy also covered both compensatory and punitive damages and included an agreement to defend Circle K against claims such as Rummel's. The company did, however, reserve the right to negotiate and settle any claim as it deemed expedient.
Lexington: Lexington agreed to pay up to $10,000,000 for losses that exceeded the $6,000,000 covered by the underlying insurance policies. Lexington's policy described the underlying insurance as being comprised of the $250,000 SIR, Columbia's $750,000, and ISLIC's $5,000,000. Punitive damages were expressly excluded from Lexington's coverage. Lexington was not "obliged to assume charge of the settlement or defense of any claim or suit" brought against Circle K, though it did reserve the right to participate in any such proceeding. 2
Company provided coverage for amounts that exceeded the limits of the previous four policies. These layers of coverage are not implicated in this appeal.
¶7 In November, shortly after the trial, Circle K gave notice of the Rummel verdict to all its personal liability insurers and requested that they pay the judgment, settle with Rummel, or take over the appeal of the judgment. In January 1993, the insurers were notified that Circle K had "agreed to satisfy $250,000 of the judgment by granting plaintiff status as a pre[-bankruptcy]-petition creditor." Circle K also demanded "that the excess carriers settle this claim within their limits." A meeting to discuss a settlement was proposed for early February. 3
¶8 In a letter dated February 9, 1993, ISLIC informed Circle K that it would take over the appeal of the Rummel judgment and that it would assume "coverage for the Rummel claim, subject only to its limits of liability, and the requirements for the underlying insurance, and/or SIR[s] or deductibles." 4 All the other personal injury insurers, including Lexington, expressly refused Circle K's insistence that they pay, settle, or defend. The companies, in their responses to Circle K's demands, also prohibited Circle K from engaging in any unilateral settlement with Rummel.
¶9 By May 1993, it was apparent that Rummel, Circle K, and ISLIC had been negotiating a settlement. The other insurance companies did not participate in these discussions. Lexington alleges that the discussions were secretive, collusive, and devious, and that the three participants deliberately prevented the participation of the other insurers. Rummel claims, on the other hand, that Lexington acted in bad faith by never contributing to Circle K's defense on appeal, never rescinding its denial of coverage, and never offering to participate in settlement negotiations.
¶10 Around March of 1994, Rummel, Circle K, and ISLIC reached a final settlement agreement, contingent upon the approval of the bankruptcy court that was overseeing Circle K's Chapter 11 reorganization. This approval was granted on March 3, 1994. See In re Circle K Corp., Nos. 90-5052 PHX-GBN to 90-5075 PHX-GBN, slip op. pp 1, 2, 6 (Bankr.D.Ariz. Mar. 3, 1994). The settlement included the following terms:
A. The SIR was satisfied with a $500,000 unsecured general creditor claim under Circle K's bankruptcy reorganization. 5 The bankruptcy court, in approving the settlement, required that this claim be used for compensatory and not punitive damages. In re Circle K Corp., slip op. pp 1, 2, 6.
B. ISLIC agreed to reimburse most of Circle K's workers' compensation payments and to pay Rummel "the sum of $1.625 million for punitive damages." 6 The parties agreed that, with these payments, ISLIC's $5,000,000 in coverage was fully satisfied. 7
C. Circle K assigned to Rummel any of its potential "actions for bad faith, unfair insurance or trade practices, breach of contract, enforcement of contractual rights or any other action" against the insurance companies that had refused Circle K's demands that they pay, settle, or defend. 8
D. The parties agreed that, "the appeal of the RUMMEL judgment shall be dismissed with prejudice, and without costs." 9
E. Rummel agreed that, except as provided by the settlement agreement, he would relinquish any claims, proceedings, or rights he might be able to enforce against Circle K and ISLIC. Included was a covenant not to execute against Circle K and ISLIC on the $11,742,844.28 judgment. 10
¶11 The same date the settlement was formalized, Rummel, individually and as assignee of Circle K, filed a lawsuit against Lexington and the other insurers who failed to help resolve the Rummel judgment. His claims against Lexington included bad faith, breach of contract, and violations of the "Unfair Practices Act," NMSA 1978, §§ 57-12-1 to -22 (1967, as amended through 1995), and the Unfair Insurance Practices Act, NMSA 1978, §§ 59A-16-1 to -30 (1984, as amended through 1993).
¶12 Rummel's complaint against Lexington was based upon a strategy of allocating the compensatory and punitive damages so as to collect the greatest amount of money from each insurer. Thus, the liabilities of Columbia and ISLIC, totalling $5,750,000, were allocated exclusively to the punitive damages. Circle K's SIR of $250,000 was applied to the compensatory damages. With these allocations, the first $6,000,000 in underlying coverage was exhausted, thus triggering Lexington's liability. Rummel alleged that, though Lexington owed nothing for punitive damages, it was responsible for paying the outstanding compensatory damages not covered by the settlement. The following chart illustrates how Rummel allocated the insurance funds:
Insurer $10,700,000 Punitive $1,042,844.28
Compensatory
Circle K SIR - $250,000 fully satisfied by
...To continue reading
Request your trial
-
Hartford Fire Ins. Co. v. Gandy Dancer, LLC
... ... See Phelps v. Hamilton, 122 F.3d 1309, 1324 (10th Cir.1997). RELEVANT NEW MEXICO LAW REGARDING INSURANCE CONTRACTS ... will be guided by the reasonable expectations of the insured.” Rummel v. Lexington Ins. Co., 1997–NMSC–041, ¶ 22, 123 N.M. 752, 945 P.2d ... ...
-
Qualcomm, Inc. v. Underwriters at Lloyd's
... ... Co. v. Mission Ins. Co. (1967) 251 Cal.App.2d 942, 966, 60 Cal.Rptr. 544 as ... connote the idea of payment in full, in cash." ( Rummel v. Lexington Ins. Co. (1997) 123 N.M. 752, 945 P.2d 970, ... ...
-
Garcia-Montoya v. State Treasurer's Office
... ... Ins. Co. v. Pulis, 2000 NMSC 023, ¶ 6, 129 N.M. 395, 9 P.3d ... 5 (9th Cir.1997) ; see also Jantzen, 188 F.3d at 1256 (discussing ... be determined under the correct principles of law." Rummel v. Lexington Ins. Co., 1997 NMSC 041, ¶ 16, 123 N.M. 752, ... ...
-
Strahin v. Sullivan
... ... Ins". Co ... MAYNARD, Justice ... \xC2" ... L.Rev. 1373 (1997); Douglas R. Richmond, Rights and Responsibilities of ... & Indem. Co. v. Grundy, 531 S.W.2d 493 (Ky.1975); Rummel v. Lexington Ins. Co., 123 N.M. 752, 945 P.2d 970 (1997) ... ...
-
The Wacky World of Collision and Comprehensive Coverages: Intentional Injury and Illegal Activity Exclusions
...must exist in order to apply reasonable expectations doctrine); Farmers Ins. Exch., 832 P.2d at 378-79; Rummel v. Lexington Ins. Co., 945 P.2d 970 (N.M. 1997); Employer Mut. Cas. Co. v. Pires, 723 A.2d 295 (R.I. 1999); State Farm Gen. Ins. Co. v. Emerson, 687 P.2d 1139 (Wash. 1984); Murray ......