1998 -NMCA- 161, Adams v. Para-Chem Southern, Inc.

• Decision Date: 20 October 1998
• Docket Number: PARA-CHEM,No. 18663,18663
• Citation: 126 N.M. 189,967 P.2d 864,1998 NMCA 161
• Parties: , 1998 -NMCA- 161 Linda K. ADAMS, Plaintiff-Appellant, v.SOUTHERN, INC., a foreign corporation, Defendant-Appellee.
• Court: Court of Appeals of New Mexico

Page 864

967 P.2d 864

126 N.M. 189, 1998 -NMCA- 161

Linda K. ADAMS, Plaintiff-Appellant, v. PARA-CHEM SOUTHERN, INC., a foreign corporation, Defendant-Appellee.

No. 18663.

Court of Appeals of New Mexico.

Oct. 20, 1998.

Steven L. Tucker, Tucker Law Firm, P.C., Santa Fe, Leof T. Strand, Leof T. Strand, Attorney at Law, P.C., Albuquerque, for Appellant.

Wayne C. Wolf, Wayne C. Wolf, Law Offices, Albuquerque, Roderick A. Dorr, Albuquerque, for Appellee.

OPINION

BUSTAMANTE, J.

¶1 This is a personal injury action in which default judgment for a substantial sum was entered against Para-Chem Southern, Inc. (Defendant). Linda K. Adams (Plaintiff) appeals from an order vacating the default judgment. Plaintiff asserts that the trial court erred when it failed or refused to consider the conduct of the Defendant's insurer in deciding whether the standard for relief under Rule 1-060(B)(1) NMRA 1998 had been met. Plaintiff also argues that the trial court erred in finding that the Defendant's own conduct met the standard of Rule 1-060(B)(1). We reverse and remand for reinstatement of the judgment.

PROCEEDINGS

¶2 Plaintiff filed her complaint on March 28, 1994, against Defendant and Graff Flooring Contractor, Inc. (Graff). The complaint stated a products liability claim against Defendant as the manufacturer of a carpet adhesive which allegedly caused Plaintiff to suffer serious health problems. Graff was alleged to have installed the carpet using the defective adhesive. Defendant was served through its agent at its offices in South Carolina on August 30, 1994. Defendant does not argue that service was in any way inadequate or improper. Defendant did not enter an appearance, file an answer, or otherwise respond to the complaint until December 4, 1996, when it filed its Motion to Vacate Default Judgment and Motion to Stay Execution of Judgment.

¶3 Plaintiff filed her application for default judgment on May 18, 1995, and the trial court entered a default judgment the same day. The form of order entered on May 18 did not provide for the amount of the judgment. The final form of judgment, including the amount, was entered on September 3, 1996.

¶4 Graff was dismissed from the suit on March 21, 1996, after entry of default against Defendant, but prior to entry of the final judgment. The record does not reveal the reason for Graff's dismissal. Graff's initial pleading requesting dismissal, which it filed on October 24, 1995, was entitled "Motion to Enforce Agreement" and generally asserted an oral agreement to dismiss between the parties. This motion was never heard. Graff's dismissal was eventually accomplished by an unopposed motion and order.

¶5 In its motion to vacate default judgment, Defendant blamed its failure to defend on its insurer. According to the affidavit of Roger Wilson (the person through whom Defendant was served in 1994), Defendant forwarded the claim to its insurance broker on September 1, 1994. Defendant's insurance broker in turn forwarded the claim to The Home Insurance Company (Home), Defendant's liability insurance carrier, on the same day. The claim was initially sent to Home's claim office in Denver, Colorado. Thereafter the claim was transferred to Home's San Francisco office, "within thirty (30) days after receiving the claim." It was then transferred to Home's New York office "on or before January 22, 1995 for handling." Apparently, the New York office lost the claim file and the "claim and lawsuit was [sic] re-faxed to the Home's New York claim office on January 22, 1995."

¶6 Thus, Home did not enter an appearance, file an answer, contact Plaintiff's counsel, or otherwise respond or react to the claim on behalf of its insured for a period in excess of two years. Defendant did not submit an affidavit from anyone internal to Home explaining Home's conduct or failure to act.

¶7 Defendant itself did not receive any communication from Home after January 22, 1995, until it received a denial of coverage letter dated November 4, 1996. Wilson's affidavit acknowledges that Defendant did not inquire of its insurer concerning the status of the case in the interim. Assuming it was Defendant who re-faxed the claim to Home on January 22, 1995, Defendant thus failed to inquire as to the status of the claim for a period of at least twenty-two months. Wilson's affidavit explains Defendant's failure to inquire as follows:

8. It has been my experience in my five (5) years as Vice President and Chief Financial Officer of Para-Chem Southern, Inc., that once a claim or lawsuit is forwarded

to our insurance carrier, the carrier will commence a prompt investigation or will promptly retain defense counsel to file a timely answer on behalf of our company and will otherwise protect our company's interests. Moreover, it is not at all unusual for our insurance company not to contact us regarding the status of a pending claim or suit for months or even a year or more during the pendency of a claim or suit while the matter is being handled. Therefore, I was not alarmed at not hearing anything from The Home after notice was given.

ANALYSIS

¶8 In district court, Defendant sought relief from the default judgment pursuant to Rule 1-060(B)(1), though it also relied on cases decided under Rule 1-060(B)(6). Under Rule 1-060(B)(1), Defendant has the burden of demonstrating that its failure to timely respond to the complaint was the result of "mistake, inadvertence, surprise or excusable neglect." Plaintiff argued below and argues here that the conduct of both Defendant and its insurer must be taken into account in deciding whether the standard has been met. In short, Plaintiff argues that the "admittedly inexcusable conduct" of Home should be imputed to Defendant. Defendant counters that New Mexico law does not, and should not, impute an insurer's negligence to its defendant insureds. In support of its position, Defendant relies on a trio of cases: Wakely v. Tyler, 78 N.M. 168, 429 P.2d 366 (1967); Weisberg v. Garcia, 75 N.M. 367, 404 P.2d 565 (1965); and Dyer v. Pacheco, 98 N.M. 670, 651 P.2d 1314 (Ct.App.1982).

¶9 Believing Plaintiff's position represents the better rule, supported by the weight of authority, we hold that the conduct of a defendant's insurer in failing to respond timely to a complaint should be imputed to the defendant. Thus, the insurer's conduct should be considered along with the defendant's acts in determining whether there has been excusable neglect warranting relief from the default. In so holding, we acknowledge that we are arguably fashioning a new rule in New Mexico. However, we believe the rule we state here is amply supported, if not compelled, by more recent case law than Wakely, Weisberg, and Dyer. We will first examine the development of the supporting New Mexico case law and will then examine the development of the issue in other jurisdictions.

¶10 The parties argue earnestly and at length over similarities and distinctions between the factual and procedural posture of this case and that of Wakely, Weisberg, and Dyer. Perhaps the most telling of the differences is that Dyer was decided under a predecessor to Rule 1-060(B)(6). See Dyer, 98 N.M. at 673, 651 P.2d at 1317. We could therefore hold that the district court erred to the extent it relied on a standard applicable to Rule 1-060(B)(6), rather than Rule 1-060(B)(1). However, we do not believe the distinctions drawn by the parties are determinative or crucial to our decision. We prefer to base our decision on a more fundamental ground. As such, for purposes of the argument, we will accept Defendant's characterization of the holdings in these cases.

¶11 Wakely and Weisberg can be read expansively to stand for the proposition that the reasons for an insurance company's delay in responding to the complaint are irrelevant for Rule 1-060(B)(1) purposes because the insured is the real party in interest. See Weisberg, 75 N.M. at 370, 404 P.2d at 566. In addition, Dyer can be interpreted to indicate obliquely that a defendant will not be held responsible for its insurer's failures. This interpretation flows from language in Dyer apparently absolving insureds of any responsibility to inquire as to the status of their case once it is submitted to the insurance company for handling. See 98 N.M. at 674, 651 P.2d at 1318.

¶12 More recent New Mexico case law casts doubt on the continuing vitality of these propositions. For example, in Padilla v. Estate of Griego, 113 N.M. 660, 664, 830 P.2d 1348, 1352 (Ct.App.1992), summary judgment was entered against a defendant at least in part because of defense counsel's "extreme" negligence in failing to respond in any way to a motion for summary judgment. Defendants filed a motion for relief from the summary judgment pursuant to Rules 1-060(B)(1) and 1-060(B)(6), asserting that ¶13 Padilla was followed by our Supreme Court's decision in Resolution Trust Corp. v. Ferri, 120 N.M. 320, 901 P.2d 738 (1995). In Ferri, a default judgment had been entered against the defendant. Nineteen months after entry of the judgment, the defendant filed a motion under Rule 1-060(B)(6) to set the judgment aside, asserting as her grounds a mistake of law by the trial court and her attorney's failure to act. The trial court denied the motion. Affirming, our Supreme Court cited Padilla with approval and agreed that parties "are deemed bound by the acts and failures of their lawyers." Ferri, 120 N.M. at 325, 901 P.2d at 743.

                they should not be bound for the failures of their attorneys.  We rejected this contention as "contrary to settled law."  Id. at 665, 830 P.2d at 1353.  Padilla relied in part on agency theory, noting that clients should be bound by their attorney representative's actions in the same way they would be bound by the conduct of others acting for them.  See id.;   cf. Marinchek v. Paige, 108 N.M. 349, 352, 772 P.2d 879, 882 (1989) (counsel's actual notice of risk of default was charged to the defendant).  We

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