Moriarty v. PUBLIC SCHOOLS INS. AUTHORITY

Decision Date21 August 2001
Docket NumberNo. 20,969.,20,969.
CourtCourt of Appeals of New Mexico
PartiesMORIARTY MUNICIPAL SCHOOLS, Plaintiff-Appellant, v. New Mexico PUBLIC SCHOOLS INSURANCE AUTHORITY, Defendant-Appellee, and Arlene Fischer; Richard N. Fischer; Ronny Fouts, CPA; William A. Olmstead, CPA; Norwest New Mexico, N.A.; The Travelers Indemnity Company of Illinois; Underwriters at Lloyd's, London; Sphere Drake Insurance Co., PLC; and CNA Reinsurance of London, Ltd., Defendants.

John W. Boyd, Joseph Goldberg, Freedman Boyd Daniels Hollander Goldberg & Cline, P.A., Albuquerque, NM, for Appellant.

Paul D. Mannick, Coppler & Mannick, P.C., Santa Fe, NM, for Appellee.

OPINION

SUTIN, Judge.

{1} Moriarty Municipal Schools (Moriarty) appeals the dismissal of its complaint against New Mexico Public Schools Insurance Authority (the Authority). The complaint alleged that the Authority breached a contract by failing to fully indemnify Moriarty for loss from embezzlement. The issue is whether a member school can sue the Authority in contract in district court. We agree with Moriarty that it can and reverse.

BACKGROUND

{2} A statutory function of the Authority is to provide risk insurance to public schools under the Public School Insurance Authority Act (the Act), NMSA 1978, §§ 22-2-6.1 to -6.10 (1986, as amended through 1999). As a participating school, Moriarty received insurance through the Authority covering embezzlement loss. Insurance policies were issued by private insurance companies. The insurance consists of a layer of self-insured retained coverage for which the Authority is responsible and a layer of excess coverage for which the private insurers issuing the policies are responsible.

{3} Moriarty sought indemnity from the Authority and the private insurers for over $600,000 in embezzlement loss. Based on its determination of covered loss payable by it to Moriarty, the Authority paid Moriarty $250,000. Moriarty and the Authority disagree on the amount of loss covered under the insurance policies. The significant dollar amount of the loss, the long period of time over which the loss occurred (1985 to 1994), and the involvement of several different and overlapping policies, apparently will require a fairly complicated analysis to ultimately determine what amounts the Authority and the private insurers may each be obligated to pay. Moriarty seeks district court adjudication of these obligations in order to avert inadequate or inconsistent determinations that could unfairly limit Moriarty's rightful indemnity recovery. This appeal involves solely Moriarty's claims against the Authority.

{4} Moriarty sued the Authority claiming breaches of contract, the implied covenant of good faith and fair dealing, and fiduciary duty. Moriarty also claimed violations by the Authority of the Insurance Code, NMSA 1978, §§ 59A-16-1 to -30 (1984, as amended through 1999), and the Unfair Practices Act (UPA), NMSA 1978, §§ 57-12-1 to -16 (1967, as amended through 1999). The Authority moved to dismiss under Rule 1-012(B)(1) and (6) NMRA 2001, asserting several reasons for dismissal. The district court granted the Authority's motion to dismiss without stating a basis for its ruling.

{5} Because this appeal is based on threshold dismissals of Moriarty's claims against the Authority for lack of subject matter jurisdiction under Rule 1-012(B)(1) and failure to state a claim under Rule 1-012(B)(6), we do not address specific policy coverage issues or the specific obligations of the Authority or the private insurers under the policies.

DISCUSSION
A. The Public School Insurance Authority Act

{6} The purpose of the Act "is to provide comprehensive core insurance programs for all participating public schools ... by expanding the pool of subscribers to maximize cost containment opportunities for required insurance coverage." Section 22-2-6.2. The Legislature created the Authority "to provide for ... risk-related coverage." Section 22-2-6.4. The Legislature also created a "`public school insurance fund'" for the Authority "to carry out the provisions of the ... Act." Section 22-2-6.6(A). In order to procure insurance coverage the Authority collects premiums from participating school districts "sufficient to provide the required insurance coverage," deposits the premiums in the insurance fund, and disburses money from the fund. Sections 22-2-6.6(D), (F), -6.7(C), -6.8(A). A school district must participate in the Authority unless the school district's financial status justifies a waiver granted by the Authority's board of directors. Section 22-2-6.9(A). The Authority has the authority to "negotiate new insurance policies covering additional or lesser benefits," and "maintain all coverage levels required by federal and state law for each participating member." Section 22-2-6.7(F). The Authority may "procure lines of insurance coverage" as well as "self-insure a particular line of coverage." Section 22-2-6.7(F), (G). The Authority is given the power to "promulgate necessary rules, regulations and procedures for implementation of the ... Act." Section 22-2-6.7(E).

{7} By its regulations, the Authority has the power to negotiate, obtain, and modify basic and excess policies, self-insure, and establish pooling arrangements in order to provide risk-related coverages for "entities authorized to participate in the Authority's Coverage"; establish self-insured retention levels and deductibles; offer risk-related coverages to school districts; and issue a Notice of Coverage for each offering to each participating school district. See 6 NMAC 50.3.8, 3.9, 6.8. In this litigation the Authority says it has by regulation defined its statutory duty to distribute money from its retained pool by the language in successive insurance policies it purchased from co-defendants Lloyd's and Travelers1 on behalf of its members. The Authority chose to conform its retained-pool self-insurance duties to terms of the insurance contracts and to "determine[] and disburse[] benefit limits to Moriarty from the insurance pool."

B. Overview of Contentions

{8} Moriarty's complaint alleges the Authority provided coverage through contractual insurance documents insuring Moriarty against the risk of the loss in question after having accepted premiums from Moriarty, and that the Authority breached its insurance obligations by failing to indemnify Moriarty in full for covered losses. Stating that its claims sound in contract, Moriarty argues the averments in its complaint are not susceptible to a Rule 1-012(B)(6) defense and that the district court has jurisdiction to entertain a civil action alleging common law breach of contract under N.M. Const. art. VI, §§ 1, 13.

{9} The Authority's first of two primary lines of attack against Moriarty's non-statutory claims is that the claims are barred by sovereign immunity. Being purely a creature of statute and not a private insurer, the Authority argues its obligations to participating schools are solely statutory and it can violate only statutory obligations. It argues further that, not only does it not enter into insurance contracts with participating schools, it has no statutory authority to do so. The Authority concludes that, since Moriarty sought relief outside of the Act through a civil action in contract or tort against the Authority, Moriarty's action is foreclosed by the doctrine of sovereign immunity. See NMSA 1978, § 37-1-23(A) (1976) (immunity in contract unless valid written contract); NMSA 1978, § 41-4-17(A) (1982) (immunity in tort unless waived).

{10} The Authority's second major line of attack is that a determination by the district court of the Authority's coverage obligation would be unconstitutional under the separation of powers doctrine. See N.M. Const. art. III, § 1. The court would be exercising a core function of an administrative agency created by the Legislature. See Fellows v. Shultz, 81 N.M. 496, 499-500, 469 P.2d 141, 144-45 (1970)

; Cont'l Oil Co. v. Oil Conservation Comm'n, 70 N.M. 310, 325, 373 P.2d 809, 819 (1962). If not unconstitutional, the Authority continues, the district court action should be rejected under the doctrine of judicial prudential restraint in order "to preserve the delicate balance of power between our political institutions," in reliance on N.M. Right to Choose/NARAL v. Johnson, 1999-NMSC-005, ¶¶ 12-13, 126 N.M. 788, 975 P.2d 841 (stating the exercise of discretion to confer standing on claimants who seek to assert claims on behalf of third parties "should be guided by prudential considerations"). Therefore, the Authority asserts, if Moriarty was entitled to any district court judicial scrutiny of the Authority's actions, that scrutiny could only be under the scope of review for administrative decisions under a constitutional writ of certiorari issued by the district court. See N.M. Const. art. VI, § 13; Coe v. City of Albuquerque, 76 N.M. 771, 774, 418 P.2d 545, 547-48 (1966) (restricting extent of certiorari review restricted to questions of law, including whether administrative body acted fraudulently, arbitrarily, or capriciously, whether the order was supported by substantial evidence, and whether the action was within the scope of authority). The Authority's coup de grace, however, is that Moriarty nevertheless lost any right to seek certiorari because it failed to timely file a petition for issuance of a writ.

{11} Moriarty's ultimate goal is to recover full indemnity based on the policy obligations of both the Authority and the private insurers. Moriarty's view is that it should be up to the Authority and the insurers to iron out the extent to which their respective levels of coverage are obligated. Moriarty is concerned that if the Authority is dismissed and the action proceeds only against the private insurers, the ultimate finding regarding those insurers' excess coverage obligations may leave Moriarty short of full indemnity, without any ability to...

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