Dellaira v. Farmers Ins. Exchange

• Decision Date: 05 October 2004
• Docket Number: No. 23,383.,23,383.
• Citation: 102 P.3d 111,136 N.M. 552
• Parties: Tom DELLAIRA and Mary Carnes, husband and wife, Plaintiffs-Appellants, v. FARMERS INSURANCE EXCHANGE, a foreign corporation, Defendant-Appellee, and Farmers Insurance Company of Arizona, a foreign corporation, Defendant.
• Court: Court of Appeals of New Mexico

102 P.3d 111

136 N.M. 552

Tom DELLAIRA and Mary Carnes, husband and wife, Plaintiffs-Appellants, v. FARMERS INSURANCE EXCHANGE, a foreign corporation, Defendant-Appellee, and Farmers Insurance Company of Arizona, a foreign corporation, Defendant.

No. 23,383.

Court of Appeals of New Mexico.

October 5, 2004.

Steven L. Tucker, Tucker Law Firm, P.C., Santa Fe, NM, Stephen C. Ryan, Stephen C. Ryan, PC, Scottsdale, AZ, Steven Vogel, Albuquerque, NM, for Appellants.

Daniel J. O'Brien, Richard J. Valle, O'Brien & Houliston, Albuquerque, NM, for Appellee.

OPINION

SUTIN, Judge.

{1} Defendant Farmers Insurance Company of Arizona (FICA) issued an automobile insurance policy to Plaintiffs. Under the facts assumed to be true, Defendant Farmers Insurance Exchange (FIE) directed, handled, administered, and adjusted all claims submitted by FICA's policy holders. Plaintiffs sued FICA, FIE, and others with respect to the handling of their claim. The district court entered a Rule 1-012(B)(6) NMRA dismissal on Plaintiffs' insurance bad faith, breach of contract, New Mexico Insurance Code, and New Mexico Unfair Practices Act claims against FIE. Plaintiffs appealed. We reverse the district court's dismissal of Plaintiffs' bad faith, Insurance Code, and Unfair Practices Act claims against FIE. We affirm the dismissal of Plaintiffs' breach of contract claim against FIE.

BACKGROUND

{2} Plaintiffs filed a claim for vehicle damage with their insurer, FICA. Dissatisfied with the way the claim was handled, Plaintiffs sued FICA, FIE, Farmers Group, Inc., and branch claims manager, Michael Idehara, for breach of contract, insurance bad faith, breach of fiduciary duties, violation of the Trade Practices and Frauds Act, NMSA 1978, §§ 59A-16-1 to -30 (1984, as amended through 2003), contained in the New Mexico Insurance Code (the Insurance Code), and violation of the Unfair Practices Act, NMSA 1978, §§ 57-12-1 to -24 (1967, as amended through 2003) (the UPA). Early in the proceedings, the claims against Farmers Group, Inc. and Idehara were dismissed by stipulation.

{3} FIE moved for dismissal of Plaintiffs' claims against it pursuant to Rule 1-012(B)(6). Although it admittedly adjusted claims submitted by FICA policyholders, FIE argued that it could not be liable to Plaintiffs because it was not a party to Plaintiffs' insurance contract. Plaintiffs asserted that they needed the opportunity to conduct discovery to determine the details of the relationship between FICA and FIE.

{4} The district court dismissed all of Plaintiffs' original claims against FIE, but it allowed Plaintiffs to file an amended complaint adding claims against FIE and FICA under theories of joint venture, civil conspiracy, and aiding and abetting. In its order dismissing the original claims, the court stated that "[i]n New Mexico, under Chave[z] v. Chenoweth, 89 N.M. 423, 553 P.2d 703 (Ct.App.1976), there can be no claim for bad faith in the absence of a contract between an insured and an insurer." The court certified its order as final pursuant to Rule 1-054(B) NMRA. In Plaintiffs' amended complaint, allegations were added concerning the relationship between FICA and FIE, claiming that FIE through "agreements, contracts, pattern and practice between FICA and FIE ... directs, handles, administers and adjusts insurance claims submitted by policyholders of [FICA]" and that FIE was liable for all misconduct alleged in the complaint under theories of "agency, contracts, agreements, common law and statute."

{5} Plaintiffs appealed from the order of dismissal. While this appeal was pending, the remaining claims against FIE asserted in the amended complaint, namely, joint venture, civil conspiracy, and aiding and abetting, along with all claims against FICA, were tried to a jury. Although we have no record of what occurred in the district court after Plaintiffs filed this appeal, the parties tell us that the jury returned verdicts in favor of FICA. Plaintiffs have not appealed from the verdicts.

DISCUSSION

Mootness and Collateral Estoppel Issues

{6} FIE argues that because certain remaining claims against FIE and FICA were tried to a jury with no result adverse to FIE and FICA, Plaintiffs' appeal is moot and also that Plaintiffs cannot pursue this appeal because various rulings at trial barred their claims under the doctrine of collateral estoppel. Without a record of what occurred in the district court after dismissal of Plaintiffs' original claims against FIE, we will not attempt to resolve these questions. However, because we reverse the district court's dismissals of certain of Plaintiffs' claims against FIE, as discussed later in this opinion, FIE on remand may renew its defenses of collateral estoppel and mootness, and the district court may then rule on the viability of those defenses. See State v. Bishop, 113 N.M. 732, 734, 832 P.2d 793, 795 (Ct.App.1992)

("[I]t is the district court that is in the best position to decide whether the party against whom the doctrine [of collateral estoppel] is used has had a full and fair opportunity to litigate.").

Standard of Review and Treatment as a Rule 1-012(B)(6) Dismissal

{7} FIE's motion to dismiss relied solely on Rule 1-012(B)(6) and the district court presumably determined that Plaintiffs failed to state a claim upon which relief could be granted without considering facts outside the complaint. There is nothing in the record indicating that the district court relied on exhibits submitted by Plaintiffs in opposition to FIE's motion to dismiss. We therefore review the district court's decision under the standard applicable to Rule 1-012(B)(6) dismissals. See Electro-Jet Tool & Mfg. Co. v. City of Albuquerque, 114 N.M. 676, 678-79, 845 P.2d 770, 772-73 (1992)

(reviewing summary judgment pursuant to the standard of review applicable to Rule 1-012(B)(6) dismissals where the movant "essentially sought, and the court's order granted, dismissal ... for failure to state a claim upon which relief could be granted"). Whether the district court properly dismissed the claims against FIE is a question of law, which this Court reviews de novo. Valles v. Silverman, 2004-NMCA-019, ¶ 6, 135 N.M. 91, 84 P.3d 1056.

{8} We accept as true "[a]ll well-pleaded factual allegations" and we resolve all doubts "in favor of the sufficiency of the complaint." Id. (internal quotation marks and citation omitted). Disregarding Plaintiffs' exhibits and looking only at Plaintiffs' allegations, we determine "whether the plaintiff[s] might prevail under any state of facts provable under the claim." N.M. Life Ins. Guar. Ass'n v. Quinn & Co., 111 N.M. 750, 753, 809 P.2d 1278, 1281 (1991). In this case, we will consider the allegations in both the original and amended complaints regarding the relationship between FIE and FICA. The allegations in the amended complaint had to do with "the conduct, transaction or occurrence set forth" in the original complaint. Rule 1-015(C) NMRA. They therefore relate back to the date of the original complaint. Id.

Claim Against FIE for Bad Faith

{9} Plaintiffs alleged that FIE through agency, contract, or agreement with FICA "directs, handles, administers and adjusts insurance claims submitted by policyholders of [FICA]," and that FIE and FICA were "obligated to promptly, timely, thoroughly investigate, evaluate and pay and/or indemnify Plaintiffs for their rental vehicle and for the actual cash value of Plaintiffs' total loss vehicle." Plaintiffs further contended that FIE and/or FICA "continually refused" to resolve the claim fairly and timely, and thereby breached the duty of good faith and fair dealing.

{10} FIE argues that Chavez v. Chenoweth, 89 N.M. 423, 429, 553 P.2d 703, 709 (Ct.App.1976), precludes recognition of a claim for bad faith against anyone other than a party to the insurance contract, which in this case was FICA. We disagree. In Chavez, the plaintiff was involved in a car accident with State Farm's insured. The plaintiff sued State Farm, claiming that, through its agent, it had assured the plaintiff that State Farm would compensate her fully for all her damages. Id. In affirming the district court's dismissal of the claim, this Court said that "[t]he `bad faith dealing' rule applies between an insurer and insured." Id. Thus, Chavez addressed only the relationship between an insurer and the injured party suing the insured. The Court in Chavez was not faced with a bad faith claim as is asserted in this case. See Fernandez v. Farmers Ins. Co. of Ariz., 115 N.M. 622, 627, 857 P.2d 22, 27 (1993)

("[C]ases are not authority for propositions not considered.") (internal quotation marks and citation omitted). Here the issue is whether the bad faith dealing rule applies between an insured and an entity that handles the insurance function of claim determination, a function inherent in the insurance transaction.

{11} An insurance contract is not always treated as an ordinary contract. See Cary v. United of Omaha Life Ins. Co., 68 P.3d 462, 466 (Colo.2003) (en banc)

("[I]nsurance contracts are not ordinary commercial contracts."). The relationship between insurer and insured is a special relationship under New Mexico law. See Bourgeous v. Horizon Healthcare Corp., 117 N.M. 434, 439, 872 P.2d 852, 857 (1994). An insurer owes a duty of good faith and fair dealing to its insured. Id. at 438-39, 872 P.2d at 856-57. This duty is non-delegable. Jessen v. Nat'l Excess Ins. Co., 108 N.M. 625, 629, 776 P.2d 1244, 1248 (1989); see Cary, 68 P.3d at 466. It follows that an insurer cannot avoid or dissolve this duty by delegating to third parties its essential function of making sure that claims for policy benefits are handled and determined fairly, promptly, and honestly. See id.

{12} In Cary, an entity that did not issue the insurance policy "fulfilled virtually all of the functions normally performed by an insurance company in processing claims and determining whether to deliver insurance benefits." Id. at...