American General Fire and Cas. Co. v. Progressive Cas. Co., 18835

• Decision Date: 16 October 1990
• Docket Number: No. 18835,18835
• Citation: 799 P.2d 1113,110 N.M. 741,1990 NMSC 94
• Parties: AMERICAN GENERAL FIRE AND CASUALTY COMPANY, Plaintiff-Appellant, v. PROGRESSIVE CASUALTY COMPANY, Defendant-Appellee.
• Court: New Mexico Supreme Court

Page 1113

799 P.2d 1113

110 N.M. 741

AMERICAN GENERAL FIRE AND CASUALTY COMPANY, Plaintiff-Appellant, v. PROGRESSIVE CASUALTY COMPANY, Defendant-Appellee.

No. 18835.

Supreme Court of New Mexico.

Oct. 16, 1990.

[110 N.M. 742] Sager, Curran, Sturges & Tepper, P.C., Christopher P. Bauman, Matthew P. Holt, Albuquerque, for plaintiff-appellant.

Gallagher, Casados & Mann, P.C., J.E. Casados, M. Clea Gutterson, Albuquerque, for defendant-appellee.

OPINION

BACA, Justice.

American General Fire and Casualty Company (American General) brought suit against Progressive Casualty Company (Progressive) alleging breach of contract, violation of statute, and bad faith. At the conclusion of American General's case in chief, the district court granted Progressive's motion to dismiss, finding that Progressive had no duty to defend the insured. We reverse the judgment of the district court and remand for disposition in accordance with this opinion.

James Wade suffered from multiple sclerosis that confined him to a wheelchair. Both parties to this suit provided him insurance coverage. American General had issued a homeowner's insurance policy to Wade. The policy excluded coverage for injuries arising out of "ownership, maintenance, or use" of a motor vehicle. Progressive provided automobile insurance coverage. Wade owned a van equipped with a ramp, which allowed him to be loaded into and unloaded from the van. He was, however, unable to operate the ramp and enter or exit the vehicle without assistance. In March 1986, Jody Michael, an employee of James Wade, filed suit alleging Wade was liable for injuries suffered by Michael when she attempted to move Wade in his wheelchair onto a ramp.

American General proceeded to defend Wade in the suit based on the allegations in the complaint, which did not indicate that the injuries were incurred while Wade was disembarking from the van. During its defense, it learned that Michael's alleged injuries had been incurred while she was unloading Wade from the van. At that point, American General requested Wade to notify his automobile insurance carrier of the suit because its coverage specifically excluded injury incurred in an accident related to a motor vehicle, and Wade notified Progressive.

Progressive refused to defend Wade, despite American General's subsequent formal demand for Progressive to defend and to reimburse American General for its expenses incurred in defense. Progressive claimed that it provided no coverage for Wade in this matter, claiming general policy exclusions and relying on the policy defense that the injury did not arise out of "ownership, maintenance, or use" of the insured vehicle. The Michael law suit was subsequently settled by American General for $16,000, and the suit was dismissed. American General incurred costs in defending Wade of over $5,000. American General then brought this suit, which was dismissed based on a finding that Progressive had no duty to defend Wade because the alleged negligence did not arise out of the "ownership, maintenance, or use" of the vehicle.

Progressive's insurance policy agreement states in part:

We will pay, on behalf of any insured person, damages, other than punitive damages, for which an insured person is legally liable because of bodily injury and property damage caused by accident and arising out of the ownership, maintenance or use of your insured car or utility trailer.

We will defend any suit or settle any claim for these damages, as we think appropriate.

Several issues are raised on appeal regarding whether the negligence arose out of the "ownership, maintenance, or use" of the vehicle, making Progressive responsible, and whether and to what extent Progressive had a duty to defend.

I. THE INJURIES AROSE OUT OF USE OF THE VAN.

The injuries arose when Michael was trying to unload Wade in his wheelchair from the van. She was using a hydraulic lift, but apparently the brake on the chair was set, and she was unable to push Wade over the edge created by the ramp on the side of the van. She tried to lift the wheelchair over the edge and allegedly sustained a back injury.

Sanchez v. Herrera, 109 N.M. 155, 783 P.2d 465 (1989), is controlling on the issue before us. Progressive refers us to the law of other jurisdictions, but in the face of New Mexico precedent directly on point, we find it unnecessary to go beyond our borders to determine the applicable law.¹

In Sanchez we determined that the unloading of guns in the cab of a pickup truck was "foreseeably incident to use of that vehicle." Id. at 157, 783 P.2d at 467. In that case we adopted the following rule to determine coverage: "whether the use made of the vehicle at the time of the accident logically flows from and is consistent with the foreseeable uses of that vehicle." Id. We found coverage because the use of the vehicle for hunting was foreseeable, transportation of weapons in the cab was incident to that foreseeable use, the use of the vehicle as shelter was foreseeable and incident to its use while hunting, and the loading and unloading of weapons in the vehicle, however, unwise, was foreseeable. Id.

Application of the principles articulated in Sanchez is straightforward. The immediate cause of Michael's alleged injuries was Wade's negligence in setting the brake on the wheelchair that made its normal movement difficult and caused her to attempt to lift him onto the ramp. This occurred while Michael was assisting Wade out of the van. It is foreseeable, and in fact a necessary condition, that, in using the van, Wade would have to enter into and exit from the vehicle.² Because Wade was confined to a wheelchair, loading and unloading him with the use of the hydraulic lift was reasonably foreseeable. Incidental to this foreseeable use was that he would need assistance--he was physically unable to do this task alone. The injury to Michael occurred while assisting Wade to disembark. The cause of the accident was reasonably connected to a use of the vehicle, and this accident was within the scope of Progressive's coverage.

II. PROGRESSIVE'S INDEPENDENT DUTY TO DEFEND.

The duty of an insurer to defend arises from the allegations on the face of the complaint or from the known but unpleaded factual basis of the claim that brings it arguably within the scope of coverage. Albuquerque Gravel Prods. Co. v. American Employers Ins. Co., 282 F.2d 218 (10th Cir.1960). The duty may arise at the beginning of litigation or at some later stage if the issues are changed so as to bring the dispute within the scope of policy coverage. Pendleton v. Pan Am. Fire & Casualty Co., 317 F.2d 96 (10th Cir.), cert. denied, 375 U.S. 905, 84 S.Ct. 196, 11 L.Ed.2d 145 (1963). It appears, therefore, that at some point in the litigation, because the alleged injuries to Michael fell within the scope of Wade's automobile insurance coverage, Progressive was obligated to defend the suit. Progressive, however, presents several alternative grounds upon which it argues that the district court's ruling should be upheld.

A. American General was not a "Mere Volunteer" and is

Entitled to Subrogation.

An insurer's duty to defend arises out of the nature of the allegations in the complaint. See Foundation Reserve Ins. Co. v. Mullenix, 97 N.M. 618, 642 P.2d 604 (1982). On its face, the Michael's complaint appeared to implicate the American General homeowner's coverage, and American General was obligated to defend. Progressive contends that, once American General discovered the true nature of the underlying allegations, it knew that it was not obligated to defend and continued in this matter as a volunteer. See Fireman's Fund Am. Ins. Cos. v. Phillips, Carter, Reister and Assocs., 89 N.M. 7, 546 P.2d 72 (Ct.App.) (subrogation generally not allowed when another's debts officiously paid), cert. denied, 89 N.M. 5, 546 P.2d 70 (1976). However, American General was obligated to deal with Wade as a fiduciary and was under a duty to pursue the case or settle in good faith. See Chavez v. Chenoweth, 89 N.M. 423, 553 P.2d 703 (Ct.App.1976); Allstate Ins. Co. v. Auto Driveaway Co., 87 N.M. 77, 529 P.2d 303 (Ct.App.1974). Even if American General had developed a belief that the injury was beyond the scope of its coverage, its duty to Wade and its status as already having begun representation precludes classification of the insurer as a volunteer. See Mullenix, 97 N.M. at 620, 642 P.2d at 606; Auto Driveaway, 87 N.M. at 78, 529 P.2d at 304; see also State Farm Fire & Casualty Co. v. Cooperative of Am. Physicians, Inc., 163 Cal.App.3d 199, 209 Cal.Rptr. 251 (1984) (defending insurer claiming noncoverage not a volunteer in settling because under duty to defend and settle based on allegations on face of complaint); Rooney v. Township of W. Orange, 200 N.J.Super. 201, 491 A.2d 23 (1985) (once demand made, insurer had duty to defend and was not volunteer). Progressive's own inaction in failing to provide a defense forced American General to continue its representation, and it cannot now hide behind its own misdeeds to force American General to bear the burden of the defense.

We hold that American General was not acting as a volunteer. Its defense was required by law and its fiduciary obligations to the insured, and it is entitled to subrogation for the costs of defense and good faith, reasonable settlement.

B. American General's Failure to Reserve its Rights against

Wade does not Preclude Subrogation Against

Progressive.

Progressive maintains that American General failed to obtain a reservation of rights that would have notified Wade that the insurer was undertaking the defense yet reserving the right to deny coverage. This omission, Progressive maintains, is fatal to American General's subsequent attempt to deny coverage.

It is true that a liability insurance carrier that assumes the defense in an action against its insured with knowledge of possible grounds for noncoverage and that does not reserve its right to...