Miller v. TRIAD

• Decision Date: 06 February 2003
• Docket Number: No. 22,696.,22,696.
• Parties: Steve MILLER and Diane Miller, Plaintiffs, v. TRIAD ADOPTION AND COUNSELING SERVICES, INC., Choices Adoption and Counseling Services, Inc., and Vonda Cheshire, individually, Defendants/Third-Party Plaintiffs-Appellants, v. The Reciprocal Alliance (Risk Retention Group), Third-Party Defendant-Appellee.
• Court: Court of Appeals of New Mexico

65 P.3d 1099

133 N.M. 544

Steve MILLER and Diane Miller, Plaintiffs, v. TRIAD ADOPTION AND COUNSELING SERVICES, INC., Choices Adoption and Counseling Services, Inc., and Vonda Cheshire, individually, Defendants/Third-Party Plaintiffs-Appellants, v. The Reciprocal Alliance (Risk Retention Group), Third-Party Defendant-Appellee.

No. 22,696.

Court of Appeals of New Mexico.

February 6, 2003.

R. Alfred Walker Albuquerque, NM, for Appellants.

John M. Brant, Susan B. Fox, Nelse T. Schreck, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, for Appellee.

OPINION

PICKARD, Judge.

{1} This is an appeal of a summary judgment granted to The Reciprocal Alliance Group (TRA), the third-party defendant-appellee, and against Triad Adoption and Counseling Services (Triad) and Choices Adoption and Counseling Services (Choices), the defendants/third-party plaintiffs-appellants. The trial court held that the language of the insurance policy at issue did not require either coverage or a duty to defend. We affirm.

FACTS

{2} The history of this case is best described by starting with a chronology of events. On November 27, 1996, Steve and Diane Miller (not parties to this appeal) asserted claims against Triad alleging negligence because of a failed adoption attempt. Although there may have been insurance coverage for the Millers' damages, such coverage was provided to the professional staff of Triad, and not Triad itself. Although apparently aware of this fact, the Millers' attorney did not amend the original suit to include the professional staff.

{3} TRA issued a Professional Liability Occurrence Insurance Policy to Triad with an effective date of February 1, 2000. On February 17, 2000, the trial court found for the Millers in the 1996 claim, and ordered a judgment against Triad. The trial court also determined that the Millers were entitled to costs and reasonable attorney fees, which were awarded later. On February 28, 2000, the Triad board of directors met to discuss the judgment against it. At that meeting, they decided to form a new corporation called Choices Adoption and Counseling Services and leave Triad sitting, inactive, with a judgment against it. On March 6, 2000, TRA issued a Change Endorsement, transferring the policy from Triad to Choices. On July 28, 2000, the Millers filed a complaint against Triad, Choices, and the CEO of both corporations, Vonda Cheshire, to enable them to recover the judgment and awards that Triad had not yet paid, which the Millers calculated to be $63,755.18. The complaint alleged that Triad fraudulently transferred its assets to Choices with the intent to hinder, delay, or defraud the Millers of their judgment, contrary to NMSA 1978, §§ 56-10-18 and -19(A) (1989). The complaint also alleged successor corporate liability and civil conspiracy. {4} Pursuant to the policy issued in February 2000, Triad/Choices sought a defense and indemnity from TRA regarding the Millers' July 28, 2000, complaint. TRA Senior Claims Consultant James Kochuk denied both the defense and indemnity, stating that the professional liability policy was an occurrence policy, and the acts in the original lawsuit occurred prior to the inception of the current policy, and were not covered. The factual basis for the claims in the complaint filed on July 28, 2000, did occur during the policy period, but coverage was denied for those claims because the facts alleged by the Millers did not come within the definition of "incident" as defined in the policy, and the damages alleged in the complaint did not arise out of the "`rendering of or failure to render professional services'" as required by the policy. Therefore, TRA denied a defense in the July 28, 2000, action because the policy provided that TRA had "`no duty to defend the Insured against any Claim or Suit for Damages to which this Policy does not apply.' " In response to this letter, Triad/Choices' counsel sent a detailed letter to TRA outlining additional facts and law in another request for a defense and for indemnity. The request was again denied, this time in a letter from TRA's counsel. Triad/Choices then filed a third-party complaint against TRA alleging breach of contract, bad faith, and violation of New Mexico Unfair Claims Practices Act for TRA's failure to defend and indemnify Triad/Choices in the Millers' July 28, 2000, lawsuit.

{5} TRA later filed a motion for summary judgment, arguing that it had no duty to defend or indemnify Triad/Choices. Triad/Choices filed a cross-motion for summary judgment seeking a declaration that TRA had a duty to defend and alleging that the issue of indemnification was premature. The trial court granted TRA's motion for summary judgment and denied Triad/Choices' motion for summary judgment. Triad/Choices now appeals the grant of TRA's summary judgment motion and the denial of its summary judgment motion.

{6} Triad/Choices argues that the facts in the July 28, 2000, complaint bring the claims within the coverage of the policy, invoking TRA's duty to defend; that the exclusionary clause cannot be invoked at this point in the proceedings; and that TRA did not make an adequate investigation before refusing to defend and indemnify Triad/Choices against this complaint. We disagree with these arguments and affirm.

STANDARD AND SCOPE OF REVIEW

{7} Summary judgment is appropriate when there are no issues of material fact and the movant is entitled to judgment as a matter of law. Gonzales v. Allstate Ins. Co., 1996-NMSC-041, 122 N.M. 137, 139, 921 P.2d 944, 946. Since the facts in this case are not disputed, our task is to determine whether the trial court correctly applied the law to the facts. Id. We review de novo whether the trial court correctly applied the law to those facts. Computer Corner, Inc. v. Fireman's Fund Ins. Co., 2002-NMCA-054, ¶ 8, 132 N.M. 264, 46 P.3d 1264.

{8} The decision of the trial court was based on its interpretation of the obligations of the insurer as defined in the insurance policy at issue. The obligation of an insurer is a matter of contract law and must be determined by the terms of the insurance policy. Knowles v. United Servs. Auto. Ass'n, 113 N.M. 703, 705, 832 P.2d 394, 396 (1992). "An insurance contract should be construed as a complete and harmonious instrument designed to accomplish a reasonable end." Id. (internal quotations marks and citation omitted). Unambiguous insurance contracts must be construed in their usual and ordinary sense. W. Commerce Bank v. Reliance Ins. Co., 105 N.M. 346, 348, 732 P.2d 873, 875 (1987). A clause is ambiguous if it is "reasonably and fairly susceptible of different constructions." Knowles, 113 N.M. at 705, 832 P.2d at 396 (internal quotation marks and citation omitted). When a clause is ambiguous, it must be construed against the insurance company as the drafter of the policy. Id. However, when the language in the policy is unambiguous, "we will not strain the words to encompass meanings they do not clearly express." Gonzales, 122 N.M. at 140-41, 921 P.2d at 947-48.

DISCUSSION

Duty to Defend

{9} The trial court, in granting summary judgment, found that TRA had no duty to defend Triad/Choices in the Millers' lawsuit filed July 28, 2000. An insurer's duty to defend arises out of the nature of the allegations in the complaint. Bernalillo County Deputy Sheriffs Ass'n v. County of Bernalillo, 114 N.M. 695, 697, 845 P.2d 789, 791 (1992). The duty to defend is distinct from the duty to indemnify. Found. Reserve Ins. Co. v. Mullenix, 97 N.M. 618, 619, 642 P.2d 604, 605 (1982). If the allegations of the complaint or the alleged facts tend to show that an occurrence comes within the coverage of the policy, the insurer has a duty to defend regardless of the ultimate liability of the insured. Id. Known but unpleaded facts may bring a claim within the coverage of the policy at the beginning of the litigation or at a later stage. See Am. Gen. Fire & Cas. Co. v. Progressive Cas. Co., 110 N.M. 741, 744, 799 P.2d 1113, 1116 (1990)

. Accordingly, we must determine whether the allegations in the Millers' complaint combined with the known facts bring the case within the coverage of TRA's insurance policy issued to Triad/Choices.

{10} The Millers' complaint makes three detailed claims against Triad, Choices, and Vonda Cheshire. The first claim, fraudulent transfer, alleges that Triad transferred its assets without receiving value in exchange for the transfer, that the transfer made it insolvent, and that the Millers will therefore be unable to collect their judgment and awards against Triad. The complaint alleges that the fraudulent transfer is a violation of Sections 56-10-18 and -19(A). The second claim, successor corporate liability, alleges that the asset transfer from Triad to Choices was undertaken with the intent and purpose of enabling Triad to avoid its liability to the Millers. Under the fraudulent conveyances doctrine of successor corporate liability or under the "continuation" doctrine of successor corporate liability, the claim is that Choices is liable to the Millers on their judgment and awards against Triad. The complaint alleges that Choices is operated by the same officers, directors, management policies, and administrative procedures as Triad; occupies the same office location with the same staff, equipment, and client files as Triad; filed for a new license with the Children, Youth and Families Department under the procedure for a corporate name change; and holds itself out to the public as a continuation of Triad. The third claim, civil conspiracy, alleges that Ms. Cheshire conspired with Triad and Choices to accomplish the fraudulent transfer. The complaint alleges that her actions were undertaken with deliberate intent to fraudulently delay, prevent, or hinder the Millers from collecting their judgment and awards from Triad. The complaint alleges that the Millers have suffered financial injury and harm to the extent that they are...