Satterwhite v. Stolz

Decision Date07 June 1968
Docket NumberNo. 118,118
Citation442 P.2d 810,79 N.M. 320,1968 NMCA 39
PartiesH. H. SATTERWHITE, Plaintiff, v. L. W. STOLZ, Jr., Defendant-Appellant, v. The WESTERN CASUALTY & SURETY COMPANY, a corporation, Third-Party Defendant-Appellee.
CourtCourt of Appeals of New Mexico

WOOD, Judge.

The questions presented concern a 'comprehensive personal liability policy' issued by third-party defendant to Stolz (defendant-third party plaintiff). They are: (1) Duty to defend; (2) Conflict of interest in defending; (3) The 'no-action' clause; and (4) Duty to pay.

Plaintiff sought damages for personal injuries allegedly inflicted by Stolz. Third-party defendant refused to defend Stolz.

Stolz filed his third-party complaint alleging that third-party defendant; (a) 'is or may be' liable to Stolz for all or part of plaintiff's claim; (b) is obligated to defend against plaintiff's claim; and (c) is obligated to pay any judgment that plaintiff obtained against Stolz. The third-party complaint asked that third-party defendant: (a) pay any and all sums adjudged against Stolz, and (b) reimburse Stolz for sums reasonably incurred in defending against plaintiff's claim.

Third-party defendant moved to dismiss the third-party complaint on the basis that there was no coverage, that it was not obligated to defend and that by the terms of the policy Stolz was precluded from bringing an action against third-party defendant. By stipulation, the motion was considered a motion for summary judgment. The trial court determined there was no genuine issue of fact and entered its order sustaining the motion for summary judgment and dismissing the third-party complaint. Stolz appeals.

The appeal involves the application of law to the undisputed facts; our concern is 'whether a genuine cause of action * * * exists.' Agnew v. Libby, 53 N.M. 56, 201 P.2d 775 (1949). No issue is raised as to, and we are not concerned with: (a) whether the claim for reimbursement is proper under § 21--1--1(14), N.M.S.A.1953, and (b) if the third party complaint is reinstated, whether there should be a separated trial of the third-party issues. See § 21--1--1(42)(b), N.M.S.A.1953.

A contract is made 'at the time when the last act necessary for its formation is done, and at the place where the final act is done.' Merriman v. Harter, 59 N.M. 154, 280 P.2d 1045 (1955). The place where the final act is done determines the applicable law for the interpretation of the contract. See Miller v. Mutual Benefit Health & Acc. Ass'n, 76 N.M. 455, 415 P.2d 841 (1966); Merriman v. Harter, supra; Spiess v. United Services Life Ins. Co., 348 F.2d 275 (10th Cir.1965).

The policy declarations show that Stolz's address was La Grange, Texas. The policy was countersigned at La Grange, Texas. On this basis, Stolz asserts that the last act necessary for a contract occurred in Texas and that the policy should be construed under Texas law. Third-party defendant does not dispute these contentions. Accordingly, we apply Texas law in interpreting the insurance policy.

1. The Duty to Defend.

The policy provides:

'I. Coverage L.--Personal Liability. To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage, and the company shall defend any suit against the insured alleging such bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; but the company may make such investigation and settlement of any claim or suit as it deems expedient.

'This policy does not apply:

'(c) under coverages L and M, to bodily injury or property damage caused intentionally or at the direction of the insured;'

Thus, under the policy, third-party defendant is obligated to defend suits for bodily injury seeking damages 'which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent; * * *' Under such policy provisions, Texas holds that the duty to defend is determined by the allegations of the petition filed by a claimant against the insured. Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387 S.W.2d 22 (Tex.1965); Sewer Constructors, Inc. v. Employers Casualty Co., 388 S.W.2d 20 (Tex.Civ.App.1965); Superior Insurance Co. v. Jenkins, 358 S.W.2d 243 (Tex.Civ.App.1962); Maryland Casualty Co. v. Moritz, 138 S.W.2d 1095 (Tex.Civ.App.1940). See Cook v. Ohio Casualty Ins. Co., 418 S.W.2d 712 (Tex.Civ.App.1967).

Third-party defendant agrees that under Texas law the duty of the insurer to defend is determined by the allegations of the complaint filed by a claimant against the insured. It contends that a corollary to this rule applies here--that if the allegations show a state of facts to which the policy coverage does not apply then the insurer is not required to defend. Travelers Insurance Co. v. Newsom, 352 S.W.2d 888 (Tex.Civ.App.1961); United States Fidelity & Guaranty Co. v. Baldwin Motor Co., 34 S.W.2d 815 (Tex.Com.App.1931).

What are the allegations of plaintiff's complaint? Two claims are asserted. First, plaintiff alleges that Stolz committed various intentional, wilful and malicious acts which caused plaintiff's alleged injuries. No contention is made that this first claim is within the policy coverage.

Second, plaintiff asserts that Stolz committed various negligent acts which caused plaintiff's alleged injuries. Stolz asserts that the allegations as to negligent acts require third-party defendant to defend. Third-party defendant contends that although the acts are characterized as negligent, '* * * the allegations that Stolz struck, lifted, dropped and fell upon the plaintiff * * *' describe intentional acts; that '* * * adding the word 'negligently' certainly does not make the acts any less intentional.'

Thus, third-party defendant would have us determine whether the allegations of negligence are true or false. The policy obligates the insurance company to defend even if the allegations are 'groundless, false or fraudulent.' In determining the duty to defend, the issue is whether the allegations are sufficient to state a claim within the terms of the policy. Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., supra, states:

'* * * the allegations of the complainant should be considered in the light of the policy provisions without reference to the truth or falsity of such allegations and without reference to what the parties know or believe the true facts to be, or without reference to a legal determination thereof. * * *'

Further in the opinion: '* * * in considering such allegations a liberal interpretation of their meaning should be indulged. * * *'

The claim of negligent acts was sufficient to require third-party defendant to defend against that claim. Superior Insurance Co. v. Jenkins, supra. See Annot., 2 A.L.R.3d § 7, p. 1250 (1965); compare § 6, p. 1249 (1965).

Even if the allegations of negligence were construed to be allegations of intentional acts, Stolz asserts that third-party defendant had a duty to defend because plaintiff's complaint did not allege intentional harm. The distinction sought to be made is a distinction between intentional conduct resulting in harm and intent to cause harm. See Annot., 2 A.L.R.3d §§ 4a and 4b, pp. 1243--1245 (1965); Compare Alm v. Hartford Fire Insurance Co., 369 P.2d 216 (Wyo.1962) and Pendergraft v. Commercial Standard Fire & Marine Co., 342 F.2d 427 (10th Cir.1965).

We have held that under Texas law the allegations of negligence were sufficient to require third-party defendant to defend the negligence claim. Accordingly, it is not necessary to decide whether the asserted distinction should be made.

2. Conflict of Interest in Defending.

Plaintiff makes two claims--intentional assault and battery and negligence. If plaintiff's alleged injuries resulted from an intentional tort, the policy exclusion applies and third-party defendant is not liable for payment of a judgment entered against Stolz. If the alleged injuries resulted from negligence, the policy exclusion is not applicable and third-party defendant would be liable to pay a judgment against Stolz. This situation raises a conflict of interest. While distinguishable on its facts, the conflict is well-stated in Harbin v. Assurance Company of America, 308 F.2d 748 (10th Cir.1962):

'The type of situation presented here places an insurer in a dilemma of conflicting interests. It cannot possibly defend * * * and protect both its own interests and the interests of its insureds. If it tries to exculpate itself by showing an intentional injury, it exposes the insured to a greater liability and a possible award of exemplary damages. If it urges an unintentional injury, it foregoes the exclusionary provision of the policy. In such circumstances the control of the defense by the insurer carries with it the potential of prejudice to the insureds and the assumption of such control without a reservation of the right to deny liability would have obligated the insurer to pay within the policy limits if the plaintiff should succeed.'

Because of this conflict of interest, third-party defendant contends that it should be relieved of its duty to defend. It relies on Harbin v. Assurance Company of America, supra; Farm Bureau Mut. Automobile Ins. Co. v. Hammer, 177 F.2d 793 (4th Cir.1949) and Williams v. Farmers Mutual of Enumclaw, 245 Or. 577, 423 P.2d 518 (1967). See McKee v. Allstate Ins. Co., Or., 426 P.2d 456 (1967). In each of these cases it was held that the insurer had no duty to defend. In each case the conflict of interest between insurer and insured was a reason given for reaching such result. We express no opinion concerning the correctness of the holding in these...

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