Guaranty Nat. Ins. Co. v. Valdez

• Decision Date: 30 November 1988
• Docket Number: No. 17745,17745
• Citation: 1988 NMSC 90,764 P.2d 1322,107 N.M. 764
• Parties: GUARANTY NATIONAL INSURANCE COMPANY, Plaintiff-Appellant, v. Sean VALDEZ, Defendant-Appellee.
• Court: New Mexico Supreme Court

Page 1322

764 P.2d 1322

107 N.M. 764

GUARANTY NATIONAL INSURANCE COMPANY, Plaintiff-Appellant, v. Sean VALDEZ, Defendant-Appellee.

No. 17745.

Supreme Court of New Mexico.

Nov. 30, 1988.

[107 NM 765] Bradley & McCulloch, Sarah Bradley, Katherine E. Tourek, Luis Quintana, Albuquerque, for plaintiff-appellant.

Randi McGinn, Albuquerque, for defendant-appellee.

OPINION

SOSA, Senior Justice.

APPELLANT'S COMPLAINT FOR DECLARATORY JUDGMENT

The sole issue before us is whether the district court erred in granting Valdez' motion to dismiss Guaranty's complaint for declaratory judgment. Guaranty's complaint sought the following relief:

(1) A declaration that Valdez was covered by only one of two automobile insurance policies issued to Valdez' grandfather. It is undisputed that Valdez was driving one of the grandfather's automobiles with the latter's consent when a driver in another car, the tortfeasor, caused an accident that killed three people in the grandfather's vehicle and injured Valdez. At the time of the accident, the grandfather had in force two insurance policies issued by Guaranty--one insuring the vehicle driven by Valdez, and another insuring a vehicle which the grandfather owned but which was not involved in the accident. Guaranty sought a declaration from the court that only the former policy covered any damages arising out of the accident.

(2) A declaration that the limits of liability under the policy covering the grandfather's wrecked vehicle were the same as the limits of liability under a policy provided by another insurance company to the tortfeasor. It is undisputed that the total damages claimed by all injured persons in the accident were of a greater amount than the limits of coverage provided by the tortfeasor's policy.

(3) A declaration that Valdez was not entitled to recover against the underinsured motorist provision of the grandfather's policy with Guaranty. In his motion to dismiss, Valdez had alleged that the tortfeasor was an underinsured driver, and thus contended that Guaranty was liable for any damages which exceeded the limits of liability set by the tortfeasor's policy.

(4) A declaration that Guaranty owed Valdez nothing, either under the provisions of the policy covering the grandfather's wrecked vehicle, or under the provisions of the policy covering the other vehicle owned by the grandfather. Guaranty alleged in its complaint that Valdez' attorney had demanded that the two policies be "stacked" so that Valdez would be covered by both policies.

ARBITRATION PROVISIONS OF THE INSURANCE POLICY

Valdez' motion to dismiss was premised on the arbitration provisions found on Page 13 of the policy:

Determination as to whether an insured person is legally entitled to recover damages or the amount of damages shall be made by agreement between the insured person and us. If no agreement is reached, the decision will be made by arbitration.

Valdez thus requested that the court "dismiss the [c]omplaint and require that this matter go through arbitration, pursuant to the terms of the contract."

On appeal, Guaranty refers us to other language in the policy that reads as follows If an insured person and we do not agree (1) that the person is legally entitled to recover damages from the owner or operator of an uninsured motor vehicle, or (2) as to the amount of payment under this Part, then upon written demand of either, the issue shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The insured person and we each agree to consider ourselves bound and to be bound by any award made by the arbitrators pursuant to this coverage.

Guaranty contends that the quoted language "only affords arbitration on the issue of liability of the uninsured driver and damages suffered by the insured." Guaranty argues that the issues raised by Valdez are coverage questions and not arbitrable under the policy. Thus, Guaranty concludes, the district court should have granted Guaranty's motion for declaratory judgment.

In response, Valdez contends that Guaranty is reading the second quoted paragraph out of context and out of relationship to the first quoted paragraph. As Valdez reads the policy, the questions of "stacking" and "offset of benefits" are subject to arbitration.

OUR HOLDING ON APPEAL

The issue raised on appeal concerns the relationship between NMSA 1978, Sections 44-7-1 to -22 (the "Uniform Arbitration Act"), and NMSA 1978, Sections 44-6-1 to -15 (the "Declaratory Judgment Act"). As we have previously held, a trial court's exercise of discretion to grant or refuse declaratory relief under NMSA 1978, Section 44-6-7, must be based on good reason. Sunwest Bank of Clovis v. Clovis IV, 106 N.M. 149, 154, 740 P.2d 699, 704 (1987). We hold that the trial court did not exercise good reason in refusing to consider Guaranty's complaint for declaratory judgment. We thus reverse the court's judgment of dismissal, and remand with instructions for the court to consider the legal issues raised in the complaint before it rules on the question of whether arbitration is mandated by the contract of insurance.

Where, as here, a complaint for declaratory judgment raises questions of law arising from the disputed interpretation of an arbitration contract, the proper forum for resolution of such questions is the trial court. Gonzales v. United Southwest Nat'l Bank, 93 N.M. 522, 602 P.2d 619 (1979); Allstate Ins. Co. v. Elkins, 63 Ill.App.3d 62, 21 Ill.Dec. 66, 381 N.E.2d 1 (1978), aff'd, 77 Ill.2d 384, 33 Ill.Dec. 139, 396 N.E.2d 528 (1979); Doyle and Russell, Inc. v. Roanoke Hosp. Ass'n, 213 Va. 489, 193 S.E.2d 662 (1973); Cf. Bell v. Associated Indeps. Inc., 143 So.2d 904 (Fla.Dist.Ct.App.1962).

All four of the prayers for relief in Guaranty's complaint for declaratory judgment involve the resolution of legal disputes which Guaranty claims are not arbitrable under the contract. For example, the...