N.M. Pub. School Auth. v. Gallagher & Co.

• Decision Date: 26 November 2008
• Docket Number: No. 30,643.,30,643.
• Citation: 198 P.3d 342,2008 NMSC 067
• Parties: NEW MEXICO PUBLIC SCHOOLS INSURANCE AUTHORITY, Plaintiff-Petitioner, v. ARTHUR J. GALLAGHER & CO., Arthur J. Gallagher & Co. U.K. Limited, and International Special Risk Services, Inc., Defendants-Respondents.
• Court: New Mexico Supreme Court

198 P.3d 342

2008 NMSC 067

NEW MEXICO PUBLIC SCHOOLS INSURANCE AUTHORITY, Plaintiff-Petitioner, v. ARTHUR J. GALLAGHER & CO., Arthur J. Gallagher & Co. U.K. Limited, and International Special Risk Services, Inc., Defendants-Respondents.

No. 30,643.

Supreme Court of New Mexico.

November 26, 2008.

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

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Douglas Arthur Baker, Zachary L. McCormick, Martha G. Brown, Albuquerque, NM, for Respondent.

OPINION

CHÁVEZ, Chief Justice.

{1} The issues we resolve in this case are whether the plaintiff stated a cause of action for professional negligence¹ or indemnity and when that action, however characterized, accrued for the purpose of commencing the applicable statute of limitation. Plaintiff New Mexico Public Schools Insurance Authority (the Authority) contends that its cause of action against Defendants Arthur J. Gallagher & Co., Arthur J. Gallagher & Co. (U.K.) Limited, and International Special Risk Services, Inc. (collectively "Gallagher") was one for indemnification because its claim against Gallagher was derivative of an underlying lawsuit against it. The Authority also asserts that because the underlying lawsuit established the amount of the Authority's loss, as well as facts demonstrating that Gallagher was allegedly the cause of its loss, it did not have an actionable claim against Gallagher until the underlying lawsuit was resolved. Gallagher contends that the Authority has not successfully pled a cause of action for indemnification and that no matter how the Authority's claim is characterized, it is barred by the statute of limitation. We hold that the Authority's cause of action was one for professional negligence (i.e., malpractice) and that it did not accrue for the purpose of commencing the statute of limitation, as a matter of law, until the Authority suffered an adverse arbitration judgment in the underlying lawsuit.

I. BACKGROUND

{2} The Authority is a state agency that operates under the Public School Insurance Authority Act (the Act), NMSA 1978, Sections 22-29-1 to -12 (1986, as amended through 2008). Part of the Authority's responsibility under the Act is to provide risk-related insurance coverage to participating public schools. Section 22-29-4. It does so by self-insuring the schools to a certain extent and also by procuring additional coverage from private insurance companies. See § 22-29-7. The Authority accordingly provided risk-related insurance coverage to Moriarty Municipal Schools (Moriarty).

{3} Between 1986 and 1991 the Authority insured Moriarty pursuant to policies written and brokered by Gallagher and underwritten by Lloyd's of London (the London policies). According to an agreement between Gallagher and the Authority, Gallagher was required to draft the London policies according to agreed-upon terms. The London policies set forth the conditions under which the Authority was required to provide coverage to Moriarty, as well as the extent of the Authority's obligations.

{4} In 1994 (approximately three years after the London policies expired), Moriarty discovered that one of its employees had embezzled approximately $610,453 from the school district between 1986 and 1994. Moriarty sought indemnity from the Authority for the crime losses that occurred between 1986 and 1991, the years the London policies were in effect.² Believing that the terms of the London policies did not require coverage, the Authority did not pay Moriarty anything for the crime losses it suffered from 1986 to 1991. A dispute subsequently arose between Moriarty and the Authority, and Moriarty sued the Authority in 1996 to recover those losses (the Moriarty arbitration). The parties in the Moriarty arbitration disputed whether the London policies provided coverage only for claims made within twelve months of the expiration of those policies or if they provided coverage for crimes that occurred while the policies were in effect, no matter when they were discovered. Gallagher was never a party to the Moriarty arbitration.

{5} The Moriarty arbitration was ultimately resolved in February 2004 in a written decision by an arbitrator who ruled in Moriarty's favor. The arbitrator found that although the policies did include a twelve-month "claims made" limitation for crime losses, an addendum to the policy did not incorporate, and therefore negated, the "claims made" limitation and subjected the Authority to liability. The Authority was therefore required to pay Moriarty for the crime losses it suffered due to the employee's embezzlement while the London policies were in effect, as well as for Moriarty's attorneys' fees and prejudgment interest, an amount totaling over $900,000.

{6} In January 2005—almost nine years after the commencement of the Moriarty arbitration but less than one year after its resolution—the Authority brought suit against Gallagher, alleging professional negligence and seeking reimbursement for the entire amount it was required to pay Moriarty. The district court dismissed the Authority's professional negligence claim as barred by the statute of limitation. However, it granted the Authority leave to amend its complaint to state another claim against Gallagher. The Authority amended its complaint, again seeking reimbursement from Gallagher, but this time on indemnity theories. Both the original and amended complaints alleged that Gallagher was liable to the Authority for the amounts it paid Moriarty on essentially the same facts: that as an insurance broker, Gallagher erroneously drafted and sold the London policies to the Authority, contrary to their agreement, thereby causing the adverse arbitration award against it in the Moriarty arbitration. In effect, the Authority alleged that Gallagher failed to provide the coverage that the Authority, Lloyds, and Gallagher had agreed upon, and as a result, claimed that Gallagher should reimburse the Authority for the amount it paid Moriarty under the London policies.

{7} Gallagher moved to dismiss the Authority's amended complaint pursuant to Rule 1-012(B)(6) NMRA, arguing that the Authority failed to allege facts that would support a claim for indemnity, that the Authority's amended complaint simply reiterated a claim for professional negligence against Gallagher, and that it was therefore barred by the four-year statute of limitation under NMSA 1978, Section 37-1-4 (1880). The district court agreed with Gallagher, treated the Authority's claim as one for professional negligence, and dismissed the case as barred by the statute of limitation. The Authority appealed, and the Court of Appeals affirmed the district court's dismissal. N.M. Pub. Sch. Ins. Auth. v. Arthur J. Gallagher & Co., 2007-NMCA-142, ¶ 1, 142 N.M. 760, 170 P.3d 998.

{8} The focus of the Court of Appeals' opinion was whether the Authority stated a claim for indemnification or professional negligence. Id. ¶ 9. After an analysis of indemnification principles, the Court of Appeals held that the Authority's claim could not be considered a claim for indemnification. Id. ¶¶ 10-17. Therefore, as a claim for professional negligence, it was barred by the statute of limitation. Id. ¶ 18. The Authority petitioned this Court for a writ of certiorari, which we granted to determine (1) whether the Authority stated a claim for professional negligence or indemnification, and (2) when that claim, however characterized, accrued for the purpose of commencing the applicable statute of limitation. N.M. Pub. Sch. Ins. Auth. v. Arthur J. Gallagher & Co., 2007-NMCERT-010, 143 N.M. 74, 172 P.3d 1286.

{9} We agree with the Court of Appeals' conclusion that the Authority's claim does not fit within indemnification principles and that its amended complaint stated a claim for professional negligence. However, we hold that the Authority's action for professional negligence against Gallagher accrued when the arbitrator determined that the Authority was liable to Moriarty under the terms of the London policies as drafted by Gallagher. We therefore reverse the Court of Appeals and remand the case to the district court.

II. DISCUSSION

{10} Although the Authority raised five separate issues in its petition for writ of certiorari, it essentially raises the following three questions for our consideration:

1. Has the Authority alleged a cause of action for professional negligence or indemnification?

2. When did the Authority's cause of action—whether for professional negligence or indemnification—accrue for the purpose of commencing the applicable statute of limitation?

3. Is a Rule 1-014(A) NMRA motion to implead a third-party defendant for indemnification compulsory or permissive?

Because we hold that the Authority's claim is one for professional negligence, we do not address the Rule 14 impleader issue. Therefore, we consider only whether the Authority stated a claim for professional negligence or indemnification and when that claim accrued.

A. STANDARD OF REVIEW

{11} "A district court's decision to dismiss a case for failure to state a claim under Rule 1-012(B)(6) is reviewed de novo." Valdez v. State, 2002-NMSC-028, ¶ 4, 132 N.M. 667, 54 P.3d 71. In reviewing the district court's decision to dismiss for failure to state a claim, we accept as true all well-pleaded factual allegations in the complaint and resolve all doubts in favor of the complaint's sufficiency. Id. "A Rule 12(B)(6) motion is only proper when it appears that plaintiff can neither recover nor obtain relief under any state of facts provable under the claim." Id. (quotation marks and citation omitted). We treat the district court's characterization of the Authority's claim as one for professional negligence as a dismissal of the Authority's indemnity action for failure to state a claim upon which relief can be granted, and we review that dismissal de novo.

{12} In cases where the facts relevant to a statute of limitation...