Garcia v. Underwriters at Lloyd's, London

• Citation: 2008 NMSC 018,182 P.3d 113
• Decision Date: 13 March 2008
• Docket Number: No. 30,245.,30,245.
• Parties: Victoria GARCIA, Individually and as Personal Representative of The Estate of Patrick Garcia, Deceased, and as next Friend of Patrick G. and Diego G., minors, Plaintiff-Respondent, v. UNDERWRITERS AT LLOYD'S, LONDON, and Burns & Wilcox, Ltd., Defendants-Petitioners.
• Court: Supreme Court of New Mexico

182 P.3d 113

2008 NMSC 018

Victoria GARCIA, Individually and as Personal Representative of The Estate of Patrick Garcia, Deceased, and as next Friend of Patrick G. and Diego G., minors, Plaintiff-Respondent, v. UNDERWRITERS AT LLOYD'S, LONDON, and Burns & Wilcox, Ltd., Defendants-Petitioners.

No. 30,245.

Supreme Court of New Mexico.

March 13, 2008.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Kenneth L. Harrigan, Zachary L. McCormick, Albuquerque, NM, for Petitioners.

Robert D. Gorman, P.A., Robert D. Gorman, Robert J. Maguire, P.C., Robert Joseph Maguire, Cheryl Thompson, Albuquerque, NM, for Respondent.

OPINION

BOSSON, Justice.

{1} This insurance case raises issues about when a liability insurer's duty to defend is triggered. Over twenty years ago, in State Farm Fire & Casualty Co. v. Price, our Court of Appeals stated that "before the duty to defend arises there must be a demand." 101 N.M. 438, 443, 684 P.2d 524, 529 (Ct.App. 1984), overruled on other grounds by Ellingwood v. N.N. Investors Life Ins. Co., 111 N.M. 301, 307, 805 P.2d 70, 76 (1991). The Court of Appeals in this case announced a different rule that "actual notice presumptively triggers a duty to defend," unless "the insured knowingly declined a defense." Garcia v. Underwriters at Lloyd's London, 2007-NMCA-042, ¶ 25, 141 N.M. 421, 156 P.3d 712. Defendant Underwriters at Lloyd's, London (Lloyd's) claims that this rule is in conflict with New Mexico law as articulated in Price. We now expressly adopt the Court of Appeals' analysis, and hold that actual notice is sufficient to trigger the duty to defend unless the insured affirmatively declines a defense.

BACKGROUND

{2} The facts are set forth in their entirety in the Court of Appeals' opinion and we relate only those facts pertinent to the issue before us on certiorari.

{3} This case arises out of the death of Patrick Garcia, the husband of Plaintiff Victoria Garcia. Mr. Garcia was killed on April 23, 1999, when his vehicle was struck by a vehicle driven by Sally Padilla as she was leaving the Red Carpet Bar in Belen, allegedly in an intoxicated condition. On November 14, 1999, the owner of the Red Carpet Bar, Anthony Perfetti, died in a different car accident. Later that same month, Ballerie Schuessler, as Personal Representative of the Perfetti Estate, filed a formal probate proceeding in the Thirteenth Judicial District Court. In that same probate proceeding, Plaintiff made a timely wrongful death claim against the Perfetti Estate pursuant to NMSA 1978, Section 45-3-804 (1983). Plaintiff alleged that Mr. Garcia's death was caused in part by the negligence of the Red Carpet Bar in serving Ms. Padilla alcohol until she left in an intoxicated state, and failing to maintain its parking lot in a manner which would have prevented Ms. Padilla from improperly and illegally gaining access to the state highway, thereby causing Mr. Garcia's death.

{4} The Personal Representative of the Perfetti Estate "failed to respond or otherwise take any action with regard to Plaintiff's claim" and "failed to file an inventory or otherwise account for the assets of the [Perfetti Estate] or to take any significant action to administer the Estate." Garcia, 2007-NMCA-042, ¶ 4. Thus, on April 18, 2001, the district court removed the Personal Representative and appointed a Special Administrator with limited powers to administer the Perfetti Estate pending the appointment of a successor Personal Representative. In May 2001, the Special Administrator notified Plaintiff's counsel of a liability insurance policy for the Red Carpet Bar and directed Plaintiff to obtain any further information about insurance from Insurance Exchange in Albuquerque, the insurance agent for the Red Carpet Bar.

{5} Plaintiff's counsel then wrote a letter to Insurance Exchange requesting a copy of the policy for the Red Carpet Bar. The letter summarized the April 23, 1999, accident and included a copy of Plaintiff's claim filed in the probate proceedings against the Perfetti Estate. Plaintiff's counsel requested that Insurance Exchange treat the letter as a claim under the policy and notify the insurer. Insurance Exchange forwarded the claim to Burns & Wilcox, the agent for Lloyd's, which in turn advised the attorneys for Lloyd's of the claim. Thus, Lloyd's received actual notice of the claim on June 14, 2001.

{6} On June 29, 2001, New York counsel for Lloyd's wrote a letter to the attorney for the Special Administrator advising that Lloyd's accepted notice of the claim and was proceeding under a reservation of rights because notice appeared to be late under the terms of the policy, which required that the insured notify Lloyd's in writing of any claim made under the policy "as soon as practicable." Apparently, Lloyd's took the position that, because the accident resulting in the claim had occurred more than two years prior to Lloyd's receiving notice, it was not notified "as soon as practicable." No other reservation of rights was asserted. New York counsel informed the Perfetti Estate that the claim was under investigation and recommended that the Special Administrator disallow the claim.

{7} In a telephone conversation on September 21, 2001, the Special Administrator's attorney informed Lloyd's that the Special Administrator did not have the statutory authority that a Personal Representative does to deny claims, and that only the court had the authority to determine the validity of the claim in the formal probate proceeding.¹ In a follow-up letter dated September 28, 2001, the Special Administrator's attorney summarized the earlier phone conversation; urged Lloyd's to intervene in the probate proceedings as an interested party, and recommended that Lloyd's pursue a motion for the court to deny the wrongful death claim.

{8} On September 25, 2001 New York counsel wrote to Lloyd's to report on the status of the matter. The letter stated that no action needed to be taken by Lloyd's in the probate proceedings because, under New Mexico probate statutes and case law, the probate court did not have jurisdiction to entertain tort claims and any determination by the probate court had "no bearing on the merits of [Plaintiff's] claim." Thus, New York counsel concluded that Plaintiff had to file a lawsuit against the Red Carpet Bar or the Perfetti Estate before Underwriter's duty to defend would be triggered. As discussed in the Court of Appeals opinion, these conclusions proved to be incorrect. Garcia, 2007-NMCA-042, ¶¶ 13-23.

{9} "The Perfetti Estate was thereafter administered under the direction of the district court for the assets to be collected and claims paid." Id. ¶ 12. On September 16, 2002, the district court entered an order in the probate case allowing Plaintiff's claim in the amount of $3,000,000. The court also filed a "Stipulated Order Approving Assignment of Insurance Policies and Claims," in which the Special Administrator assigned to Plaintiff the rights of the Perfetti Estate under the insurance policy so that Plaintiff could pursue the claim directed against Lloyd's.

{10} Under the assignment of rights, Plaintiff filed a lawsuit against Lloyd's for breach of contract, bad faith, and violation of the Insurance Code and Unfair Practices Act. The district court granted summary judgment in favor of Lloyd's based on the arguments advanced by Lloyd's that (1) Plaintiff's claim for damages against the Perfetti Estate was not cognizable in the probate proceeding, but rather, exclusive jurisdiction over such a claim "resided with a district court hearing a properly filed tort suit," and (2) the Perfetti Estate waived any duty to defend because "the insured never made any demand for defense or tendered the defense of the wrongful death notice of claim to [Lloyd's], either personally before he died or through his Estate."

{11} Plaintiff appealed and the Court of Appeals reversed, holding that: (1) a wrongful death claim may properly be filed against the estate of a decedent in formal probate proceedings before the district court sitting in probate; (2) the liquor liability insurance policy issued by Lloyd's provided coverage for such a claim; (3) there are material issues of fact regarding whether the Perfetti Estate made a sufficient demand for a defense under the policy; and (4) policy defenses are not available to the insurer if the finder of fact determines that the Perfetti Estate made a demand for a defense under the policy. Garcia, 2007-NMCA-042, ¶ 1. Judge Wechsler wrote a special concurrence agreeing that there were issues of material fact precluding summary judgment, but stating his belief that the majority unnecessarily deviated from Price in creating a presumption that actual notice triggers the duty to defend. Instead, Judge Wechsler wrote that "[t]he question should be `whether there was a sufficient demand to defend.'" Id. ¶¶ 41, 44. We granted certiorari to decide a single issue: whether a liability insurer's duty to defend is presumptively triggered by actual notice of a claim under the policy.

STANDARD OF REVIEW

{12} Our review on a grant of summary judgment is de novo. See Juneau v. Intel Corp., 2005-NMSC-002, ¶ 8, 139 N.M. 12, 127 P.3d 548. Summary judgment is only appropriate "where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law." Self v. United Parcel Serv., Inc., 1998-NMSC-046, ¶ 6, 126 N.M. 396, 970 P.2d 582. All reasonable inferences from the record are construed in favor of the non-moving party. Celaya v. Hall, 2004-NMSC-005, ¶ 7, 135 N.M. 115, 85 P.3d 239.

DISCUSSION

Actual Notice Presumptively Triggers the Insurer's Duty to Defend

{13} The Court of Appeals correctly noted a split among jurisdictions over the issue of when the duty to defend is triggered. Garcia, 2007-NMCA-042, ¶ 25. Some courts require a specific event, such as a written demand or transmission of the complaint from the insured, while others hold that the duty to defend...