Windham v. LCI2 Inc. ( 2011 )

1 This memorandum opinion was not selected for publication in the New Mexico Reports. Please see
2 Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please
3 also note that this electronic memorandum opinion may contain computer-generated errors or other
4 deviations from the official paper version filed by the Court of Appeals and does not include the
5 filing date.
6 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
7 BOBBY WINDHAM and
8 VICKIE K. WINDHAM,
9 Plaintiffs,
10 v. NO. 29,609
11 L.C.I.2, INC., a New Mexico
12 corporation,
13 Defendant-Appellee,
14 and
15 NATIONWIDE MUTUAL
16 INSURANCE COMPANY,
17 Intervenor-Appellant.
18 APPEAL FROM THE DISTRICT COURT OF TAOS COUNTY
19 Michael E. Vigil, District Judge
20 Law Office of Paul S. Grand, P.A.
21 Paul S. Grand
22 Santa Fe, NM
23 for Appellee
24 Montgomery & Andrews, P.A.
25 Kevin M. Sexton
26 Shannon A. Parden
27 Albuquerque, NM
1 Beall & Beihler
2 Josh A. Harris
3 Albuquerque, NM
4 for Appellant
5 Will Ferguson & Associates
6 David M. Houliston
7 Albuquerque, NM
8 Sanders And Westbrook, PC
9 Maureen Sanders
10 Albuquerque, NM
11 for Plaintiffs
12 Calvert Menicucci, P.C.
13 Sean R. Calvert
14 Albuquerque, NM
15 for Amicus Curiae
16 MEMORANDUM OPINION
17 VIGIL, Judge.
18 The City of Taos hired L.C.I.2, Inc. (L.C.I.2), to construct a structure
19 surrounding a pre-existing recreation area, which included a swimming pool, and
20 L.C.I.2 in turn subcontracted with Plaintiff’s employer, Newt & Butch’s Sheet Metal,
21 Inc. (Newt & Butch) to install the roof on the structure. Under the subcontract, Newt
22 & Butch agreed to indemnify L.C.I.2 against and save it harmless from any and all
23 claims, suits or liability for injuries to persons “on account of any act or omission of
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1 [Newt & Butch], or any of [its] officers, agents, employees or servants[.]” Pursuant
2 to this provision in the subcontract, L.C.I.2 was named as an “additional insured”
3 under a commercial general liability policy issued to Newt & Butch by Nationwide
4 Mutual Insurance Company (Nationwide). In pertinent part, the policy provides that
5 L.C.I.2 “is an additional insured only with respect to liability arising out of [Newt &
6 Butch’s] ongoing operations performed for [L.C.I.2].”
7 While in the scope of his employment with Newt & Butch in installing the roof,
8 Plaintiff, Bobby Windham, fell through the cutout for a skylight, and landed in the
9 empty swimming pool. Plaintiff sued the general contractor, L.C.I.2, alleging that
10 L.C.I.2 was negligent in failing to provide coverings of the cutouts for the skylights
11 and in failing to implement, communicate, monitor, and enforce safety rules which
12 would have prevented the accident. On the same basis, Plaintiff’s wife sought
13 damages for loss of consortium. L.C.I.2 denied liability, asserted that the work
14 referred to in the complaint was being performed by the subcontractor, Newt & Butch,
15 and that Plaintiff’s injuries and damages were the result of Plaintiff’s negligence, or
16 the negligence of a third party, “thereby barring the relief requested or reducing it
17 some percentage extent depending upon the degree of fault apportioned to Plaintiff or
18 other third parties pursuant to the rules of pure comparative negligence adopted by the
19 State of New Mexico.”
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1 L.C.I.2 demanded a defense and indemnification from Nationwide as an
2 additional insured under the policy. Nationwide accepted the defense under a
3 reservation of rights. In pertinent part, Nationwide stated that under the policy,
4 L.C.I.2 is an additional insured for damages arising out of Newt & Butch’s ongoing
5 operations performed for L.C.I.2. Accordingly, Nationwide said, it was reserving its
6 rights, “because at this time, it is uncertain whether this incident arose out of
7 [Plaintiff’s] work for Newt & Butch’s or whether [Plaintiff’s] injuries arose out of
8 L.C.I.2’s individual negligence. Nationwide reserves its right to not defend or
9 indemnify L.C.I.2 for any damages arising out of its individual negligence.”
10 Addressing Newt & Butch’s contractual agreement to indemnify L.C.I.2, Nationwide
11 reserved its rights “to not defend or indemnify L.C.I.2 for this matter in the event it
12 is determined that [Plaintiff’s] injuries arose out of the individual negligence of
13 L.C.I.2” Nationwide then intervened in Plaintiffs’ suit against L.C.I.2, and filed a
14 complaint seeking a declaratory judgment that it had no duty to defend or indemnify
15 L.C.I.2 from any claims asserted by Plaintiffs against L.C.I.2. Nationwide asserted
16 that Plaintiffs made no claims against Newt & Butch, and under the express terms and
17 conditions of the insurance policy and subcontract, it had no duty to defend or
18 indemnify L.C.I.2. In addition, Nationwide asserted that pursuant to NMSA 1978,
19 Section 56-7-1 (2003), any claim by L.C.I.2 for indemnity under the subcontract or
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1 insurance policy is void, unenforceable, and against public policy. L.C.I.2 denied that
2 Nationwide was entitled to the declaratory judgment.
3 Nationwide and L.C.I.2 filed motions for summary judgment in support of their
4 respective positions. Nationwide argued that Plaintiffs only alleged that L.C.I.2 was
5 negligent, and that an agreement by Newt & Butch in the subcontract or by its
6 insurance to provide L.C.I.2 with a defense and indemnification for L.C.I.2’s own
7 negligence violates Section 56-7-1. L.C.I.2 argued that as an additional insured, it is
8 entitled to a defense and indemnification under terms of the policy. Moreover, L.C.I.2
9 argued, Section 56-7-1 is not a bar because L.C.I.2 does not seek indemnification for
10 its own negligence, but a defense to Plaintiffs’ suit to the extent Plaintiffs’ claim
11 against L.C.I.2 “arises out of” Newt & Butch’s acts or omissions. Following a
12 hearing, the district court granted L.C.I.2’s motion for summary judgment and denied
13 Nationwide’s motion for summary judgment. Nationwide appeals. We affirm.
14 STANDARD OF REVIEW
15 The material facts are undisputed. Thus, our review of the order granting
16 L.C.I.2 summary judgment is de novo. City of Albuquerque v. BPLW Architects &
17 Eng’rs, Inc., 2009-NMCA-081, ¶ 7, 146 N.M. 717, 213 P.3d 1146 (“[I]f no material
18 issues of fact are in dispute and an appeal presents only a question of law, we apply
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1 de novo review and are not required to view the appeal in the light most favorable to
2 the party opposing summary judgment.”).
3 DISCUSSION
4 Preliminary Matters
5 Before addressing the merits, we note three preliminary matters. First, in a
6 separate order, the district court granted summary judgment to L.C.I.2 on Plaintiffs’
7 claims of negligence against L.C.I.2. In Windham v. L.C.I.2, Inc., No. 29,212 (N.M.
8 Ct. App. July 8, 2011), we filed a memorandum opinion reversing the summary
9 judgment and remanded the case to the district court. Thus, any arguments premised
10 on that summary judgment are no longer viable.
11 Second, we note that Section 56-7-1 was amended in 2005. 2005 N.M. Laws,
12 ch. 148, § 1. However, the subcontract between L.C.I.2 and Newt & Butch was
13 signed while the 2003 version of the statute was in effect. Thus, the parties do not
14 dispute, and we agree, that the 2003 version of Section 56-7-1 applies, and all
15 references herein are to the 2003 version of the statute.
16 Finally, Nationwide clarified in oral argument that while it acknowledges a duty
17 to provide L.C.I.2 a defense as an “additional insured” under the commercial liability
18 policy issued to Newt & Butch, its contention on appeal is that providing a defense in
19 this case violates Section 56-7-1 and the duty is void. Thus, there is no
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1 issue before us concerning coverage of a duty to defend. We also observe that we are
2 not presented with any question concerning a duty to indemnify in the present posture
3 of the case.
4 Analysis
5 We begin our analysis with the statute. Section 56-7-1 in pertinent part states:
6 A. A provision in a construction contract that requires one
7 party to the contract to indemnify, hold harmless, insure or defend the
8 other party to the contract, including the other party’s employees or
9 agents, against liability, claims, damages, losses or expenses, including
10 attorney fees, arising out of bodily injury to persons or damage to
11 property caused by or resulting from, in whole or in part, the negligence,
12 act or omission of the indemnitee, its officers, employees or agents, is
13 void, unenforceable and against the public policy of the state.
14 B. A construction contract may contain a provision that, or
15 shall be enforced only to the extent that, it:
16 (1) requires one party to the contract to indemnify, hold
17 harmless or insure the other party to the contract, including its officers,
18 employees or agents, against liability, claims, damages, losses or
19 expenses, including attorney fees, only to the extent that the liability,
20 damages, losses or costs are caused by, or arise out of, the acts or
21 omissions of the indemnitor or its officers, employees or agents; or
22 (2) requires a party to the contract to purchase a
23 project-specific insurance policy, including an owner’s or contractor’s
24 protective insurance, project management protective liability insurance
25 or builder’s risk insurance.
26 ....
27 E. As used in this section, “indemnify” or “hold harmless”
28 includes any requirement to name the indemnified party as an additional
29 insured in the indemnitor’s insurance coverage for the purpose of
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1 providing indemnification for any liability not otherwise allowed in this
2 section.
3 Nationwide argues: (1) Section 56-7-1 voids any duty to provide L.C.I.2 a
4 defense because the complaint only alleges that L.C.I.2’s acts or omissions caused
5 Plaintiffs’ injuries, Newt & Butch is not a party to the suit, the complaint makes no
6 allegation of negligence against Newt & Butch, and there has been no finding that
7 Newt & Butch was negligent; and (2) Section 56-7-1(B) and (E) only allow for a
8 recovery of attorney fees after a determination that any losses of L.C.I.2 were caused
9 by Newt & Butch, and only to the extent that such losses were caused by Newt &
10 Butch.
11 Nationwide’s first argument is premised on its assertion that Section 56-7-1 on
12 its face voids a provision in a construction contract which requires an indemnitor
13 (Newt & Butch) to provide a defense to an indemnitee (L.C.I.2) for injuries caused by,
14 or resulting from, in whole or in part, the negligence, act or omission of the
15 indemnitee (L.C.I.2).
16 Our decision in City of Albuquerque is dispositive of Nationwide’s arguments.
17 In City of Albuquerque, BPLW designed and oversaw the construction of a rental car
18 facility at the airport pursuant to a contract with the City. 2009-NMCA-081, ¶ 2. In
19 pertinent part, the contract provided that BPLW agreed to defend the City for all suits
20 brought against the City because of injury received or sustained by any person
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1 “arising out of or resulting from any negligent act, error, or omission of
2 [BPLW] . . . arising out of the performance” of the contract. Id. ¶ 14 (alterations in
3 original) (internal quotation marks and citation omitted). After the facility opened, a
4 customer fell off a curb while exiting one of the buildings at the facility, and filed suit
5 against the City, and subsequently amended the complaint to add BPLW as a
6 defendant. Id. ¶ 2. When it received the complaint, the City requested BPLW to
7 honor its contractual obligation to defend the City, and BPLW refused. Id. ¶ 4.
8 Accordingly, the City filed a cross-claim against BPLW, alleging that BPLW had a
9 contractual duty to defend the City for any cause of action arising out of BPLW’s
10 performance of the contract. Id. The City filed a motion for partial summary
11 judgment asserting that BPLW had a legal duty to defend the City, and the district
12 court granted the City’s motion. Id. ¶ 5. On appeal, we affirmed the district court.
13 Id. ¶ 32.
14 Since neither party disputed that the allegations against the City were that the
15 City itself was negligent, the initial question posed was whether the contract required
16 BPLW to provide the City with a defense. Id. ¶ 13. Aside from very specific and
17 limited exceptions that are not applicable here, we held that the plain language of the
18 contract required BPLW to defend all suits brought against the City arising out of a
19 negligent act, error, or omission of BPLW in performing the contract. Id. ¶¶ 15-16.
20 This specifically included causes of action alleging that the City itself was negligent,
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1 as long as the cause of action arose from BPLW’s performance of the agreement. Id.
2 BPLW argued, as Nationwide does here, that enforcing the contractual obligation
3 would violate Section 56-7-1. Id. ¶ 19. We disagreed and said:
4 Here, requiring BPLW to fulfill its contractual obligation to defend the
5 City against any suit against the City arising out of BPLW’s alleged
6 negligence in the performance of the contract does not violate Section
7 56-7-1 or the policy behind it. Instead, this interpretation of the contract
8 is fully consistent with the requirements of the statute. It promotes
9 safety in the construction project because it ensures that BPLW will be
10 accountable for any harm caused by its performance of the agreement.
11 Id. ¶ 20.
12 We recently reiterated our conclusion in City of Albuquerque that “requiring the
13 contractor to indemnify and defend the City for the contractor’s alleged negligence
14 does not violate the construction anti-indemnity statute [Section 56-7-1] or the policy
15 behind it.” Holguin v. Fulco Oil Servs. L.L.C., 2010-NMCA-091, ¶ 43, 149 N.M. 98,
16 245 P.3d 42, cert. granted, 2010-NMCERT-010, 149 N.M. 65, 243 P.3d 1147. We
17 therefore conclude that Section 56-7-1 does not void Nationwide’s obligation to
18 provide L.C.I.2 a defense.
19 Nationwide’s second argument is premised on its attempt to distinguish City of
20 Albuquerque. Nationwide argues that City of Albuquerque is distinguishable because
21 it relied on exclusionary language that was eliminated in the 2003 amendment and
22 because the new exclusionary language that was added does not refer to a duty to
23 defend. Specifically, Nationwide argues, Section 56-7-1(A) is a general prohibition
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1 against agreements that allow an indemnitor (Newt & Butch) to indemnify an
2 indemnitee (L.C.1.2) for the indemnitee’s own negligence, and this general
3 prohibition specifically refers to agreements to defend. Nationwide asserts that
4 Section 56-7-1(B), which establishes when agreements generally prohibited by
5 Section 56-7-1(A) will be permitted, specifically refers to many of the types of
6 agreements listed in Section 56-7-1(A), but does not specifically refer to a duty to
7 defend. In line with this reasoning, Nationwide asserts that even if Section 56-7-1(A)
8 does not void the agreement, Section 56-7-1(B) and (E) only allow for a recovery of
9 attorney fees after a determination that any losses of L.C.I.2 were caused by Newt &
10 Butch, and only to the extent that such losses were caused by Newt & Butch. We
11 disagree for two reasons.
12 First, we specifically noted the 2003 amendments to Section 56-7-1 in City of
13 Albuquerque, and we concluded that the amendments did not void the contractual duty
14 to defend in that case. 2009-NMCA-081, ¶¶ 19-20. We fail to see any material
15 difference in the duty to defend in City of Albuquerque and the case before us now.
16 Secondly, Nationwide in effect asks us to treat its duty to defend as a claim for
17 indemnification. However, as we stated in City of Albuquerque, the duty to indemnify
18 is distinct from the duty to defend, and resolution of whether there is a duty to defend
19 does not necessarily depend on there being a duty to indemnify. Id. ¶ 31. The general
20 rule giving rise to the duty to defend is well settled:
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1 If the allegations of the injured third party’s complaint show that an
2 accident or occurrence comes within the coverage of the policy, the
3 insurer is obligated to defend, regardless of the ultimate liability of the
4 insured. The question presented to the insurer in each case is whether
5 the injured party’s complaint states facts which bring the case within the
6 coverage of the policy, not whether he can prove an action against the
7 insured for damages. The insurer must also fulfill its promise to defend
8 even though the complaint fails to state facts with sufficient clarity so
9 that it may be determined from its face whether or not the action is
10 within the coverage of the policy, provided the alleged facts tend to show
11 an occurrence within the coverage.
12 Am. Emp’rs Ins. Co. v. Cont’l Cas. Co., 85 N.M. 346, 348, 512 P.2d 674, 676 (1973)
13 (quoting 1 Long, The Law of Liability Insurance § 5.02 (1973)).
14 In the case before us, L.C.I.2 is an “additional insured” under the policy issued
15 to Newt & Butch by Nationwide “with respect to liability arising out of [Newt &
16 Butch’s] ongoing operations performed for [L.C.I.2].” (Emphasis added.). City of
17 Albuquerque addressed how the phrase “arising out of” is to be construed: “The
18 phrase ‘arising out of’ is given a broad interpretation by our courts and is generally
19 understood to mean originating from, having its origin in, growing out of, or flowing
20 from.” 2009-NMCA-081, ¶ 22 (alteration omitted) (internal quotation marks and
21 citation omitted). Applying City of Albuquerque, Plaintiffs’ allegations against
22 L.C.I.2 “arise out of” Newt & Butch’s installation of the roof on the structure.
23 Therefore, under our settled precedent, Nationwide has a duty to defend L.C.I.2
24 regardless of L.C.I.2’s ultimate liability to Plaintiffs.
25 CONCLUSION
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1 The order of the district court is affirmed.
2 IT IS SO ORDERED.
3 _______________________________
4 MICHAEL E. VIGIL, Judge
5 WE CONCUR:
6 _________________________________
7 MICHAEL D. BUSTAMANTE, Judge
8 _________________________________
9 CYNTHIA A. FRY, Judge
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