1997 -NMSC- 42, Rummel v. St. Paul Surplus Lines Ins. Co.

• Decision Date: 08 August 1997
• Docket Number: No. 23606,23606
• Citation: 1997 NMSC 42,123 N.M. 767,945 P.2d 985
• Parties: , 1997 -NMSC- 42 Kenneth RUMMEL, individually and as assignee of Circle K, Inc., a Texas corporation, and as the assignee of ISLIC, Inc., an Illinois corporation, Plaintiff-Appellant, v. ST. PAUL SURPLUS LINES INSURANCE COMPANY, a Delaware corporation, and Harbor Insurance Company, a California corporation, Defendants-Appellees.
• Court: New Mexico Supreme Court

Page 985

945 P.2d 985

123 N.M. 767, 1997 -NMSC- 42

Kenneth RUMMEL, individually and as assignee of Circle K Inc., a Texas corporation, and as the assignee of ISLIC, Inc., an Illinois corporation Plaintiff-Appellant, v. ST. PAUL SURPLUS LINES INSURANCE COMPANY, a Delaware corporation, and Harbor Insurance Company, a California corporation, Defendants-Appellees.

No. 23606.

Supreme Court of New Mexico.

Aug. 8, 1997.

Certiorari Denied Sept. 15, 1997.

[123 N.M. 768] McGinn & Associates, Randi McGinn, Albuquerque, for Plaintiff-Appellant.

Madison, Harbour & Mroz, Robert J. Mroz, Robert E. Hansen, Bradley & McCulloch, P.A., Gordon McCulloch, Albuquerque, for Defendants-Appellees.

OPINION

BACA, Justice.

¶1 Appellant Kenneth Rummel appeals from a district court order granting two motions for partial summary judgment in favor of Appellees, Harbor Insurance Company (Harbor) and St. Paul Surplus Lines Insurance Company (St. Paul). ¹ The district court found that, as a matter of law, neither insurance company was exposed to liability for a judgment entered against their insured, Circle K. On appeal we address whether the district court erred in concluding as a matter of law that neither the Harbor, nor the St. Paul, insurance policies provided coverage for the judgment. We note jurisdiction over this contractual dispute pursuant to Rule 12-102(A)(1) NMRA 1994 (prior to Sept. 1, 1995 amendment) (claims sounding in contract). We affirm the order of summary judgment in favor of Harbor and reverse the order of summary judgment in favor of St. Paul.

I.

¶2 Rummel was severely beaten while attempting to stop a robbery at the Circle K store where he worked. Rummel's efforts to thwart the robbery attempt were made in accordance with a Circle K policy requiring clerks to confront shoplifters. He sustained extensive physical injuries, including permanent brain damage. Rummel filed a lawsuit against his employer, claiming that Circle K was responsible for his injuries, and received a judgment in his favor in the amount of $1,042,844.28 compensatory damages and $10,700,000 punitive damages.

¶3 At the time that the judgment was entered, Circle K was insured under a multi-level insurance package composed of policies issued by five different insurance companies and providing $26,000,000 in coverage. The insurance companies participating in this coverage scheme were Columbia Casualty Company (Columbia), International Surplus Lines Insurance Company (ISLIC), Lexington Insurance Company (Lexington), Harbor, and St. Paul. Circle K was self-insured for the initial $250,000 of liability. The primary insurance carrier, Columbia, issued a policy providing for the next $750,000 of liability. The ISLIC policy offered coverage for $5,000,000 worth of liability and Lexington's policy provided coverage in the amount of $10,000,000, with an express exclusion of coverage for punitive damages. The current controversy involves policies issued by St. Paul and Harbor, each providing $5,000,000 in coverage.

¶4 Rummel unsuccessfully sought payment of his judgment, attempting to enter into settlement negotiations with Circle K's insurers. All of the insurance companies except ISLIC declined to participate in settlement negotiations, contending that they were not responsible for payment of any portion of the judgment. ISLIC entered into a settlement agreement with Rummel. The relevant terms of the settlement agreement included Rummel's receipt of a $500,000 unsecured claim in Circle K's bankruptcy in satisfaction of Circle K's self-insured obligation of $250,000, which was credited as payment towards the compensatory damage claim. ISLIC also paid Rummel $1,625,000. Circle K received over $100,000 in reimbursement from ISLIC for the workers' compensation benefits paid to Rummel. The settlement agreement provided that ISLIC had fully satisfied its policy limits of $5,000,000, and credited that payment against the punitive damages award. The settlement agreement assigned Rummel all of the claims which Circle K was entitled to bring against its insurers. Once the settlement agreement had been finalized, Rummel, both independently and as assignee of Circle K, brought suit against the remaining insurers, including Harbor and St. Paul, to collect the remainder of the judgment.

¶5 Harbor denied liability for any portion of Rummel's judgment, contending that the Harbor policy excluded coverage of punitive damages, allowing Harbor to avoid liability for any unpaid portion of the judgment consisting of punitive damages. The district court agreed and granted Harbor's motion for partial summary judgment.

¶6 St. Paul also denied liability under the judgment. St. Paul's motion for partial summary judgment alleged that the terms of the St. Paul policy incorporated the punitive damages exclusion of the Lexington policy, effectively relieving St. Paul of liability for the punitive damages portion of the judgment sought by Rummel. In addition, St. Paul alleged that the judgment was not large enough to reach the threshold limits of the St. Paul policy. The district court agreed and granted partial summary judgment in favor of St. Paul.

II.

¶7 The question before us is whether the district court erred in concluding that there were no genuine issues of material fact as to whether the Harbor and St. Paul policies provide coverage for the unsatisfied punitive damages portion of the judgment obtained by Rummel against Circle K. The pivotal issue is whether the Harbor and St. Paul policies effectively excluded punitive damages from their coverage. Rummel asserts that St. Paul and Harbor are responsible for approximately $6,697.818 in punitive damages and interest which has accrued on the judgment. Thus, only if the Harbor or St. Paul policy failed to effectively exclude coverage of punitive damages should the district court have evaluated whether the policy imposed some liability for the judgment on the insurer.

¶8 We conclude that the Harbor policy unambiguously excludes punitive damages from coverage and affirm the district court's grant of summary judgment. However, we conclude that the St. Paul policy failed to effectively exclude punitive damages from coverage. Reading the St. Paul policy to provide coverage for punitive damages, we identify an ambiguity in the policy which requires a remand of this case to the trial court for evaluation of the intent of the parties in including language restricting coverage to losses in excess of $15,000,000. In resolving that contract ambiguity, the trial court can also determine whether St. Paul is liable for any portion of Rummel's punitive damages award.

¶9 The extreme remedy of summary judgment must be used with caution. See Pharmaseal Labs., Inc. v. Goffe, 90 N.M. 753, 756, 568 P.2d 589, 592 (1977). In reviewing a grant of summary judgment this Court makes all inferences in favor of the non-movant, interpreting all material facts in favor of requiring a trial on the merits. Id. Where there is a question as to any issue of material fact, summary judgment is inappropriate. Id. In reviewing a grant or denial of summary judgment, this Court considers the undisputed facts, and determines whether under those facts summary judgment was proper as a matter of law. See Fleming v. Phelps-Dodge Corp., 83 N.M. 715, 716, 496 P.2d 1111, 1112 (Ct.App.1972). Where the trial court's grant of summary judgment is founded on a mistake of law, the case should be remanded so that the issues may be resolved through application of correct law. See Rummel v. Lexington Ins. Co., 1997 NMSC 041 p 16, 123 N.M. 752, 945 P.2d 970 (1997).

¶10 This contract dispute requires a determination of whether two insurance contracts are ambiguous. Questions of contract ambiguity are questions of law and are reviewed de novo. See Mark V, Inc. v. Mellekas, 1993 NMSC 001, 114 N.M. 778, 782, 845 P.2d 1232, 1236. Ambiguity is present where a contract can reasonably and fairly be subject toseveral different interpretations. See Knowles v. United Servs. Auto. Ass'n, 1992 NMSC 028, 113 N.M. 703, 705, 832 P.2d 394, 396. In evaluating whether a contract is ambiguous as to coverage we can consider the four corners of the contract, as well as the surrounding circumstances of the contract creation. See C.R. Anthony Co. v. Loretto Mall Partners, 112 N.M. 504, 509, 817 P.2d 238, 243 (1991). This Court's interpretation of an insurance contract will take into consideration the reasonable expectations of the insured. See 2 Lee R. Russ, Couch on Insurance 3d § 22:11 (1996). Where an insurance company fails to clearly exclude coverage of punitive damages and an insured reasonably expects such coverage, the contract will be construed against the insurer responsible for drafting the contract. See Baker v. Armstrong, 106 N.M. 395, 396-97, 744 P.2d 170, 171-72 (1987). Where ambiguities exist as a result of the insurer's unsuccessful attempt to exclude punitive damages, this Court can remand the case to the trier of fact for consideration of the facts and circumstances surrounding the formation of the contract which might enlighten the court as to the true intent of the contracting parties. Mark V, 114 N.M. at 781, 845 P.2d [123 N.M. 771] at 1235 ("Once the agreement is found to be ambiguous, the meaning to be assigned the unclear terms is a question of fact."). In the absence of extrinsic evidence necessitating otherwise, ambiguities will be resolved in favor of the insured.

A.

¶11 We begin by determining whether the Harbor policy unambiguously excludes coverage for punitive damages, protecting Harbor from liability for any portion of Rummel's punitive damages award. The Harbor policy does not contain an express exclusion of coverage for punitive damages. Rummel cites Baker for the proposition that, where an insurance policy fails to expressly exclude punitive damages from coverage, the policy must be construed to include coverage of punitive damages. While Baker does address...