Aztec Well Servicing Co., Inc. v. Property & Cas. Ins. Guar. Ass'n of State

Decision Date10 May 1993
Docket NumberNo. 20569,20569
Citation853 P.2d 726,115 N.M. 475,1993 NMSC 23
PartiesAZTEC WELL SERVICING CO., INC., Gary Dean Cole, Stanley S. Brooks, Max Larson, and Andrew K. Brashear, Plaintiffs-Appellees, v. PROPERTY & CASUALTY INSURANCE, GUARANTY ASSOCIATION OF the STATE of New Mexico, Defendant-Appellant.
CourtNew Mexico Supreme Court
OPINION

FROST, Justice.

Aztec Well Servicing Company, Inc. ("Aztec") filed a declaratory judgment action against the New Mexico Property and Casualty Insurance Guaranty Association (the "Association") in the District Court of Santa Fe County on behalf of four claimants: Gary Dean Cole, Stanley S. Brooks, Max Larson, and Andrew K. Brashear ("the claimants").1 From the District Court's decision on the merits in favor of Aztec, the Association appeals. As to the issues in sections I and II of this opinion, the Court is unanimous. As to the issue in section III regarding prejudgment interest, the special concurrence authored by Justice Montgomery represents the majority opinion.

FACTS

Each of the claimants was injured in an oil well fire, and they sued Aztec and other defendants in a personal injury action. In a jury trial on liability only, the jury found Aztec 25% at fault for the injuries to Brooks and Larson and 23% liable for the injuries to Cole. After the jury trial on liability, Aztec stipulated to the claimants' damages as follows: Cole--$2.6 million of which Aztec's 23% liability share equalled $598,000; Brooks--$800,000 of which Aztec's 25% share was $200,000; and Larson--$600,000 of which Aztec's 25% share was $150,000.

Aztec's primary insurance carrier was Home Insurance Company with which Aztec had liability insurance with policy limits of $300,000. Aztec carried excess insurance coverage with Mission National Insurance Company ("Mission"), which provided coverage for losses in excess of $300,000 up to $10 million. Mission became insolvent, however, during the settlement negotiations with the claimants in which its attorneys participated. Aztec then entered into settlement agreements with each of the claimants.

Under the settlement agreements that Aztec negotiated, Home Insurance paid Cole $300,000, which constituted its policy limits and Aztec's entire insurance proceeds. Aztec itself paid $67,500 to Brooks and $20,000 to Larson. Each claimant released Aztec from further claims, and Aztec agreed to pursue an action against the Association on their behalf.

After Mission's insolvency, Aztec received notice that Mission was being liquidated and later received a claim form from the Department of Insurance for the State of California (the "Conservator"). The Conservator had partially filled out the form. Aztec completed the form, stating that multiple personal injury claims were outstanding and unliquidated. In the claim form, Aztec also made reference to the claimants' pleadings and settlement documents that it already had provided to Mission. There was no dispute that Aztec's proof of claim was timely filed.

PROCEDURAL HISTORY

After its claims were denied, Aztec filed this action against the Association, seeking the maximum statutory recovery of $100,000 per claimant under the Property and Casualty Insurance Guaranty Law, NMSA 1978, Sections 59A-43-1 to -18 (Repl.Pamp.1992) (the "Act"). Eventually, the Association moved for summary judgment in the District Court. The parties agreed that affidavits and answers to discovery were dispositive on summary judgment and provided all of the information necessary for a decision on the merits of the case.

The District Court found that prior to its insolvency, Mission retained attorneys to represent its interests, that they recommended settlement of the claims, and that accordingly Mission had actual notice of the claims which the Court imputed to the Association. The District Court also found that the proof of claim which Aztec filed was timely and sufficient to place the Association on notice of the claims. In addition, the Court concluded that the Association, by law, stood in the shoes of Mission and assumed all rights, duties, and obligations of Mission. The Court also found that the actual damages of the claimants exceeded the amounts received from Aztec and that their unpaid claims were covered under the Act. The District Court held, therefore, that the claimants were entitled to receive $100,000 each from the Association, plus prejudgment interest at the statutory rate from the filing of the complaint to the date of judgment, and costs.

ISSUES
I. Interpretation of the Act

The Association is a statutory entity, which consists of all property and casualty insurers doing business in New Mexico, that administers a fund comprised of assessments upon member insurers to pay claims made upon insolvent insurers. See NMSA 1978, Sec. 59A-43-2 (Repl.Pamp.1992); In re Mission Ins. Co., 112 N.M. 433, 435, 816 P.2d 502, 504 (1991); see also 2A Couch on Ins.2d, Sec. 22:27 at 599 (Rev. ed. 1984); 19A Appleman, Ins. Law & Practice, Sec. 10801-02 at 364 (Rev.Vol.1982). The stated purpose of the Act is "to provide a mechanism for payment of covered claims under certain insurance policies to avoid ... financial loss to claimants or policyholders because of insolvency of an insurer...." Section 59A-43-2. Under the Act, the Association is obligated to the policyholder or claimant for a "covered claim" that exists before insolvency of the insurer and for claims arising within 30 days after the determination of insolvency. Section 59A-43-7(A)(1). Thus, the Association's liability is triggered by the insolvency of the insurer, and it is for all practical purposes deemed to be the insurer just as if the insurer were solvent. Section 59A-43-7(A)(2).

A. Cole

On appeal, the Association argues that the District Court erred in holding that Cole's claim was a "covered claim" under Subsection 59A-43-4(C), which reads:

"covered claims" means an unpaid claim of an insured or of a liability claimant ... that arises out of and within the coverage and not in excess of the applicable limits of an insurance policy ... issued by an insurer authorized to transact insurance in this state, if such insurer becomes an insolvent insurer.... (Emphasis added)

The Subsection also limits individual covered claims to $100,000. The Association essentially asserts that Cole did not have an unpaid claim. The Association denies that Cole was entitled to recover any amount under the Act because his recovery from Home Insurance should offset the entire liability of the Association. The Association contends that under Section 59A-43-11(A), entitled "Nonduplication of recovery," any amount payable on a covered claim must be reduced by any amount recovered from any other insurance policy. It follows, according to the Association, that because Cole recovered more than $100,000 from another insurance policy, he should receive no recovery under the Act. Aztec asserts that such an interpretation is absurd, and we agree.

The relevant part of Section 59A-43-11(A) states: "Any amount payable on a covered claim under this article shall be reduced by the amount of any recovery available under such insurance policy." (Emphasis added). The emphasized language refers to the policy described in the first sentence of Section 59A-43-11(A), which states that any "person having a claim against any insurer under any provision in an insurance policy ... other than a policy of an insolvent insurer which is also a covered claim, shall be required to exhaust first his rights under the policy."

The Association urges upon us a strict interpretation of the Act because it was enacted in derogation of the common law, but this ignores the fact that the Legislature provided for liberal construction of the Act to implement its purposes. See 1984 N.M.Laws, ch. 127, Sec. 785, p. 1259. Our interpretation of the statute must be consistent with legislative intent, and our construction must not render the statute's application absurd, unreasonable, or unjust. City of Las Cruces v. Garcia, 102 N.M. 25, 26-27, 690 P.2d 1019, 1020-21 (1984).

Although our statute is not a model of lucidity,2 we read Section 59A-43-11(A) to apply to situations in which the insured is entitled to proceeds from two collateral policies insuring against the same risk, one of which becomes unavailable due to insolvency. In such situations, the Act requires the insured to exhaust first its available insurance coverage before seeking recovery from the Association. For example, if Aztec had another excess insurance policy, the proceeds of which were available in this situation, then the Act would require the application of such proceeds to offset the claimants' damages before seeking recovery from the Association under the Act.

Unlike the construction given by the Association, therefore, the reasonable interpretation of Section 59A-43-11(A) is that it requires an offset of proceeds available to the claimant from another insurance policy that is not insolvent and does not constitute a "covered claim" under the Act. In addition, the offset is applied against the insured's liability, or against the claimant's damages as the case may be, not against the statutory amount of liability of the Association. See International Collection Serv. v. Vermont Property & Casualty Ins. Guar. Ass'n, 150 Vt. 630, 555 A.2d 978, 980 (1988); Arizona Property & Casualty Ins. Guar. Fund v. Herder, 156 Ariz. 203, 751 P.2d 519, 523 (1988) (reaching same result).

To require an offset, as the Association urges, of the amount recovered from the primary insurance carrier against the Association's liability would be absurd because it was that recovery which triggered the application of Mission's excess insurance policy in the first place.3...

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