Southwest Steel Coil v. Redwood Fire & Cas.

• Decision Date: 02 November 2006
• Docket Number: No. 25,598.,25,598.
• Citation: 148 P.3d 806,2006 NMCA 151
• Parties: SOUTHWEST STEEL COIL, INC., a New Mexico corporation, and Calstrip Industries, Inc., a California corporation, Plaintiffs-Appellants, v. REDWOOD FIRE & CASUALTY INSURANCE COMPANY, a Nebraska corporation, Gary Keenan, and Keenan & Associates, a New Mexico corporation, Defendants-Appellees.
• Court: Court of Appeals of New Mexico

148 P.3d 806

2006 NMCA 151

SOUTHWEST STEEL COIL, INC., a New Mexico corporation, and Calstrip Industries, Inc., a California corporation, Plaintiffs-Appellants, v. REDWOOD FIRE & CASUALTY INSURANCE COMPANY, a Nebraska corporation, Gary Keenan, and Keenan & Associates, a New Mexico corporation, Defendants-Appellees.

No. 25,598.

Court of Appeals of New Mexico.

November 2, 2006.

COPYRIGHT MATERIAL OMITTED

Kelley, Streubel & Mortimer, LLC, Cody Kelley, Albuquerque, NM, L. Helen Bennett, P.C., L. Helen Bennett, Albuquerque, NM, for Appellants.

Kutak Rock LLP, Tory M. Bishop, Omaha, NE, Montgomery & Andrews, P.A., Andrew S. Montgomery, Victor R. Ortega, Santa Fe, NM, for Appellee Redwood Fire & Casualty Insurance Company.

Butt Thornton & Baehr PC, Emily A. Franke, Monica R. Garcia, Albuquerque, NM, for Appellees Gary Keenan and Keenan & Associates.

OPINION

CASTILLO, Judge.

{1} Plaintiffs Southwest Steel Coil, Inc., and Calstrip Industries, Inc., (together, Southwest Steel) appeal from the district court's summary judgment order that dismisses Southwest Steel's complaint against Defendants, Redwood Fire & Casualty Insurance Company (Redwood) and Gary Keenan and Keenan & Associates (Keenan) (together, Defendants), for lack of both standing and damages. This case addresses whether potential equitable subrogation rights of an insurer preclude as a matter of law any claims that the insured has against another insurer for failure to defend and indemnify. We hold that questions of fact exist regarding whether the insured has potential damages independent of the insurer's subrogation rights and, for this reason, reverse.

I. BACKGROUND

{2} This case arises out of an underlying suit brought against Southwest Steel by the estate of an individual who died while working at Southwest Steel's plant. At the time of the accident, Southwest Steel was insured by both Redwood (for workers' compensation and employer liability) and Fireman's Fund Insurance Company (Fireman's Fund) (for general liability and umbrella coverage). Both Redwood and Fireman's Fund initially declined to defend and indemnify Southwest Steel, resulting in Southwest Steel's suit against both insurers and Keenan, an independent adjuster engaged by Redwood to process workers' compensation claims. Southwest Steel dismissed its suit against Fireman's Fund when Fireman's Fund defended and indemnified Southwest Steel in a settlement with decedent's estate for $2,125,000.

{3} In Southwest Steel's second amended complaint against Defendants, Southwest Steel pursued its claims for declaratory judgment, breach of contract, bad faith, negligence, and violations of New Mexico's Unfair Practices Act (UPA), NMSA 1978, §§ 57-12-1 to -24 (1967, as amended through 2005), and Unfair Insurance Practices Act, NMSA 1978, §§ 59A-16-1 to -30 (1984, as amended through 2006). The parties moved for summary judgment, disputing generally whether Southwest Steel provided adequate notice to Redwood of decedent's accident and whether decedent was Southwest Steel's employee for purposes of triggering Redwood's policy obligation to defend Southwest Steel and to provide coverage. Apart from the underlying merits, Defendants argued that Southwest Steel suffered no damages because Fireman's Fund defended and indemnified Southwest Steel in decedent's settlement, that Fireman's Fund was the real party in interest, and that consequently, Southwest Steel had no standing to sue.

{4} Southwest Steel appeals the order entered by the district court granting summary judgment in favor of Defendants. Although the district court ruled that two questions of fact existed regarding the employment status of the decedent and the adequacy of the notice to Redwood, the two questions became immaterial in this case because the district court determined that Fireman's Fund, which ultimately defended and indemnified Southwest Steel, was the real party in interest to pursue any claims based on Redwood's alleged wrongful failure to defend and indemnify. The district court based its grant of summary judgment in Defendants' favor on the conclusion that Southwest Steel lacked standing and did not suffer any damages. Accordingly, the court dismissed Southwest Steel's second amended complaint with prejudice.

II. STANDARD OF REVIEW

{5} We review the granting of summary judgment de novo, Celaya v. Hall, 2004-NMSC-005, ¶ 7, 135 N.M. 115, 85 P.3d 239, construing the facts in the light most favorable to the party opposing summary judgment and drawing all reasonable inferences in support of a trial on the merits. Handmaker v. Henney, 1999-NMSC-043, ¶ 18, 128 N.M. 328, 992 P.2d 879. Summary judgment is proper when there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Hagen v. Faherty, 2003-NMCA-060, ¶ 6, 133 N.M. 605, 66 P.3d 974. Because summary judgment is a drastic remedy, it is used with great caution, see Zengerle v. Commonwealth Ins. Co. of N.Y., 60 N.M. 379, 384, 291 P.2d 1099, 1102 (1955), and is improper if there is the slightest doubt as to the existence of material factual issues. Las Cruces Country Club, Inc. v. City of Las Cruces, 81 N.M. 387, 387, 467 P.2d 403, 403 (1970).

III. DISCUSSION

{6} We address the parties' arguments in four parts. First, we discuss the real party in interest and the subrogation right of Fireman's Fund. Second, we clarify the distinction between Southwest Steel's potential damages for the causes of action in this case and damages related to the underlying case. Third, we consider Redwood's additional arguments, in regard to its duty to defend, adequate notice, and judicial estoppel. Finally, we address the parties' arguments regarding the collateral source doctrine.

A. Real Party in Interest

{7} The district court's ruling that Fireman's Fund is the real party in interest correctly acknowledges that Fireman's Fund, as a subrogee, may be entitled to exercise equitable subrogation rights against Redwood in the event that Redwood wrongfully denied coverage. Subrogation encompasses the right of an insurance company, who has paid an insured's claim, to step into the shoes of its insured and pursue recovery from the party who is legally responsible for the insured's losses. See White v. Sutherland, 92 N.M. 187, 190, 585 P.2d 331, 334 (Ct.App. 1978); Health Plus of N.M., Inc. v. Harrell, 1998-NMCA-064, ¶ 12, 125 N.M. 189, 958 P.2d 1239 (stating that "[w]hen an insurance company pays the claim of its insured, it is considered subrogated to recovery of its money against the person who caused the injury"). A right to subrogation also exists if an insurance company pays a claim that should have been paid by another insurer. See Am. Gen. Fire & Cas. Co. v. Progressive Cas. Co., 110 N.M. 741, 745, 799 P.2d 1113, 1117 (1990) (holding that the plaintiff insurer had a subrogation right against the defendant insurer because the plaintiff insurer was required by law and fiduciary obligations to defend); id. at 748, 799 P.2d at 1120 (Montgomery, J., specially concurring) (noting that the insurer's claim for subrogation did "not fit the classical model of the remedy" because the liabilities of the insurers were mutually exclusive; concluding nonetheless that extending the remedy to the insurer was consistent with the equitable principles underlying the doctrine of subrogation); State Farm Mut. Auto. Ins. Co. v. Found. Reserve Ins. Co., 78 N.M. 359, 364, 431 P.2d 737, 742 (1967) (holding that the plaintiff insurer, who paid the entire loss stemming from an automobile accident, was entitled to exercise its equitable subrogation rights against the defendant insurer for reimbursement of payments made after the defendant insurer wrongfully denied coverage); see also Maryland Cas. Co. v. Nationwide Mut. Ins. Co., 81 Cal.App.4th 1082, 97 Cal.Rptr.2d 374, 377 (2000) (holding that "[e]quitable subrogation allows an insurer that paid coverage or defense costs to be placed in the insured's position to pursue a full recovery from another insurer who was primarily responsible for the loss"). Principles of equitable subrogation between insurance companies encourage insurers to act promptly to protect their insured's interest and to resolve disputes among themselves afterwards. Nat'l Union Fire Ins. Co. v. Am. Motorists Ins. Co., 269 Ga. 768, 504 S.E.2d 673, 675 (1998).

{8} We conclude that Fireman's Fund, as the equitable subrogee, is the only real party in interest to pursue any claims against Redwood for monies paid by Fireman's Fund in the underlying claim. See State Farm, 78 N.M. at 364, 431 P.2d at 742 (holding that when a subrogee has paid an entire loss suffered by an insured, it is the only real party in interest and must sue in its own name); Quality Chiropractic, PC v. Farmers Ins. Co. of Ariz., 2002-NMCA-080, ¶ 23, 132 N.M. 518, 51 P.3d 1172 (limiting subrogation rights to the amounts paid by the insurer); Poteet v. Sauter, 136 Md.App. 383, 766 A.2d 150, 160 (2001) (stating that when the subrogee has obtained complete subrogation rights, it is the sole real party in interest). Such rights, however, do not extinguish losses that Southwest Steel may have outside of the subrogated amounts.

B. Damages and Standing

{9} At issue in this case are two separate sources of potential harm to Southwest Steel arising from the alleged wrongful denial of coverage by insurer Redwood: (1) the litigation expenses and settlement money paid in the underlying case, which Southwest Steel argues should have been paid by Redwood but instead were paid by Fireman's Fund, and (2) those damages that Southwest Steel may have suffered independent of any amount that Fireman's Fund paid in the underlying case.

{10} The district court's finding that Southwest Steel suffered no damages relates to the first source of potential harm, as the court's ruling is premised on its determination that Fireman's Fund "paid the expenses of litigation and the settlement proceeds" stemming...