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National American Insurance Co. v. ABC Concrete Mfg. Co., Inc.

United States District Court, D. New Mexico

February 27, 2019

NATIONAL AMERICAN INSURANCE COMPANY, Plaintiff,
v.
ABC CONCRETE MFG. CO., INC.; ABC CONCRETE MFG. CO., INC. d/b/a ABC SEPTIC SYSTEMS, INC.; NICHOLAS MONTANO; and NATIONAL CASUALTY COMPANY, Defendants, and NATIONAL CASUALTY COMPANY, Counter Claimant,
v.
NATIONAL AMERICAN INSURANCE COMPANY, Counter Defendant.

          MEMORANDUM OPINION AND ORDER

         This matter comes before the Court on Plaintiff National American Insurance Company's (NAICO) Motion for Summary Judgment, filed December 19, 2017, seeking summary judgment on its claim for reformation of an insurance contract, and Defendant National Casualty Company's (NCC) Motion for Summary Judgment, filed January 16, 2018, seeking dismissal of NAICO's reformation claim and summary judgment on NCC's counterclaim for subrogation. (Docs. 68 and 74). NCC filed its response to NAICO's Motion on February 7, 2018, and its reply in support of its own Motion on March 7, 2018. (Docs. 80 and 90). NAICO filed its response to NCC's Motion on February 21, 2018, and its reply in support of its own Motion on March 7, 2018. (Docs. 82 and 88). Although served, Defendant Nicholas Montano (Montano) never appeared in this case. Defendants ABC Concrete Mfg. Co., Inc. (Concrete), and ABC Concrete Mfg. Co., Inc. d/b/a ABC Septic Systems, Inc., take no position on the motions. (Docs. 68 and 74). The Court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332.

         After considering the submissions and arguments of the parties, the record, and the applicable law, the Court denies NAICO's Motion for Summary Judgment (Doc. 68) on its reformation claim and grants-in-part NCC's Motion for Summary Judgment (Doc. 74). NAICO's reformation claim fails and NCC is entitled to subrogation as explained below.

         I. Procedural History

         This declaratory judgment action arises out of the August 7, 2014, accident between Montano, who was driving a 2007 Freightliner tractor-trailer (VIN #1FUJA6CKX7LW28215) owned by Concrete and leased to ABC Septic Systems, Inc. (Septic), and non-parties Alan and Nina Nelson (collectively, “the Nelsons”). (Doc. 5) at ¶¶ 14-15. The accident occurred in California. Id. Montano kept logs at the time of the accident under the Septic name because he was engaged in the for-hire transportation of property. The Nelsons filed suit against Septic and Montano in California on February 5, 2015 (Underlying Lawsuit). (Doc. 5) at ¶ 14.

         Doug Murray (Murray), owner of Concrete and Septic, which he believed to be separate legal entities, contacted NCC, the insurance carrier for Septic, regarding the Underlying Lawsuit. NCC timely provided a defense to Septic and Montano.

         On April 17, 2015, underlying defense counsel, retained by NCC, sent a tender of defense letter to NAICO demanding that NAICO defend and indemnify Septic in the Underlying Lawsuit. (Doc. 74) at ¶ 10; (Doc. 82) at 3. NAICO received that letter on April 20, 2015. (Doc. 74-1) at 18 (May 11, 2015 letter from NAICO to underlying defense counsel). NAICO rejected the tender of defense on May 11, 2015, on the basis that NAICO's policy was never intended to cover the Freightliner and NCC's policy was primary. Id. at 18-22.

         Nevertheless, NAICO and NCC participated in a mediation of the Underlying Lawsuit on January 6, 2015, and resolved that case for $850, 000.00. (Doc. 74) at ¶ 49; (Doc. 82) at 3. Each insurer contributed fifty percent (50%) of the settlement monies. Each insurer reserved all rights vis-à-vis the settlement and any declaratory judgment action. Id.

         NAICO filed its Amended Complaint for Declaratory Judgment, Equitable Indemnification, Subrogation and Reimbursement for Recovery of Damages on March 10, 2016. (Doc. 5). Count I seeks reformation of the insurance contract between NAICO and Concrete based on mutual mistake. Counts II and III seek complete equitable indemnification and subrogation, respectively, as well as reimbursement from NCC of the $425, 000.00 that NAICO contributed to settle the Underlying Lawsuit.

         NCC filed its Answer and Counterclaim on April 13, 2016. (Doc. 12). NCC seeks equitable contribution from NAICO of the cost of defense and property damage settlement in the Underlying Lawsuit. NCC also seeks the cost of defense and settlement arising from a July 8, 2014, accident (July 2014 Accident) that involved a tractor-trailer owned by Concrete, leased to Septic, and operated under the Septic name. Murray notified NCC of the July 2014 Accident. NCC timely defended Septic and settled the case. (Doc. 74) at ¶ 45; (Doc. 82) at 3. NAICO was not notified of the July 2014 Accident, however, until after the case settled. On January 3, 2018, NCC stipulated that it did not seek reimbursement for the physical damage payment made following the July 2014 Accident. (Doc. 70).

         NAICO now moves for summary judgment on its reformation and reimbursement claims, while NCC moves for summary judgment on all of NAICO's claims and on NCC's equitable contribution counterclaim.

         II. Standard of Review

         Summary judgment is appropriate if there is no genuine dispute as to a material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). “When applying this standard, [the Court] view[s] the evidence and draw[s] reasonable inferences therefrom in the light most favorable to the nonmoving party.” Scull v. New Mexico, 236 F.3d 588, 595 (10th Cir. 2000) (internal quotation marks omitted). The movant bears the initial burden of showing the absence of a genuine issue of material fact, then the burden shifts to the non-movant to provide evidence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir. 1991). A fact is “material” if, under the governing law, it could influence the outcome of the lawsuit, and “genuine” if a reasonable jury could return a verdict for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Hardy v. S.F. Phosphates Ltd. Co., 185 F.3d 1076, 1079 (10th Cir. 1999); Kaul v. Stephan, 83 F.3d 1208, 1212 (10th Cir. 1996) (citation omitted). A party cannot avoid summary judgment simply by resting upon the mere allegations or denials of his pleadings. Bacchus Indus., Inc., 939 F.2d at 891.

         III. Material Facts and Reasonable Inferences Viewed in the Light Most Favorable to the Nonmovants[1]

         A. The Companies

         At all relevant times, Murray and his wife owned and operated Concrete in Farmington, New Mexico. (Doc. 68) at ¶ 12; (Doc. 80) at ¶ 12. Concrete has been in business for over thirty years fabricating concrete barriers and other materials. (Doc. 68) at 66 (Concrete Commercial Insurance Application). Concrete had and maintains “private” authority from the Federal Motor Carrier Safety Administration (FMCSA) to ship its own goods on semis (26, 000 gross pounds) across state lines. (Doc. 68) at 41-42 (Dep. D. Murray, 133:19-134:1); (Doc. 80-1) at 26 (Dep. D. Murray, 73:7-22); see also (Doc. 80-1) at 33 (FMCSA Information on Concrete as of October 23, 2016). Murray also owned Septic, which he considered a separate, distinct company from Concrete. (Doc. 68) at 42 (Dep. D. Murray, 134:2-17) (Murray stating his belief that Concrete and Septic were separate entities and only Septic could haul for-hire). Septic was authorized by FMCSA to conduct “for-hire” interstate trucking to haul products other than its own for a fee. See (Doc. 80-1) at 39 (SAFER Snapshot of Septic showing “Auth. For Hire” and “Interstate”).

         Concrete leased its vehicles to Septic. (Doc. 68) at 96-99 (Truck lease and service agreement); see also (Doc. 80-1) at 28 (Dep. D. Murray, 100:9-22) (Murray stating that Concrete leased all vehicles to Septic). All of the drivers for Septic received W-2s from Concrete. (Doc. 68) at 40 (Dep. D. Murray, 110:1-5) (Murray stating same). Concrete used the same vehicles to haul its own products under its private authority. (Doc. 80-1) at 29 (Dep. D. Murray, 117:10-19) (Murray stating that all vehicles hauled for both companies and used appropriate logs depending on for-hire status). During the relevant period, any time Concrete's product was delivered and Murray did not procure a back-haul load (a for-hire shipment back to the Farmington area), the trucking was conducted under Concrete's private authority and the drivers logged their time on Concrete log sheets. (Doc. 68) at 36 (Dep. D. Murray, 72:22-73:6) (Murray stating that Concrete only hauled its own product under its private authority). Any time a for-hire load was hauled during the outbound or return trip, the trucking was done under Septic's for-hire authority, using Septic log sheets. Id. (Murray stating that Septic hauled all loads involving for-hire trucking). Again, the trucks were the same.

         Concrete and Septic had two separate federal tax numbers and two separate registration numbers with the United States Department of Transportation, Septic was a “dba” name of Concrete. Id. at 27 (Dep. D. Murray, 28:16-22) (Murray stating that he understood Concrete and Septic to be separate legal entities), 29 (Dep. D. Murray, 36:25-37:5) (Murray stating that Septic and Concrete had different tax ID numbers), 38 (Dep. D. Murray at 79:9-16) (Murray stating that he has come to know that Concrete and Septic are not legally separate entities). However, the ownership, management, and the physical location of Concrete and Septic were the same, and Murray filed only one tax return. Id. at 29 (Dep. D. Murray, 36:22-24) (Murray stating he filed one tax return for Concrete and Septic).

         Murray testified that, based on his understanding of Concrete and Septic as separate legal entities, he procured two separate insurance policies. (Doc. 68) at 26 (Dep. D. Murray, 24:23-25:1). Murray stated he intended NAICO's policy to insure all of Concrete's activities, and NCC's policy to insure all of Septic's activities. Id. at 44 (Dep. D. Murray, 146:17-25).

         B. The Policies

         In November 2012 Murray contacted Woods Insurance Services, Inc. (Woods) to procure a commercial auto policy and commercial general liability policy for Concrete. Id. at ¶ 1; (Doc. 74) at ¶ 31. Commercial lines agent Nichole Cottington, an employee of Woods, began making inquiries on Concrete's behalf. Cottington emailed EMC Insurance on November 8, 2012, requesting a quote for Concrete and describing the business as follows:

         (Image Omitted)

         (Doc. 74-1) at 43 (highlighting in original) (email from N. Cottington to A. Gill). The EMC Insurance underwriter responded to Cottington on November 10, 2012, declining the auto coverage and indicating that Septic and Concrete may be the same entity. Id. at 45 (email from A. Gill to N. Cottington).

         Cottington sent a version of the same email to Linda Scott, an underwriter with NAICO, on November 26, 2012. (Doc. 68) at 47 (email from N. Cottington to L. Scott). Cottington did not refer Scott to the FMCSA website or provide any additional information. Id. On its insurance application to NAICO, Concrete listed its mailing address as “ABC Septic Systems, Inc.” Id. at 45 (Concrete Commercial Insurance Application).

         At all relevant times, NAICO and Woods operated under an “Agency/Company Agreement” by which Woods had “the authority to solicit, receive and transmit applications for insurance contracts for which a commission is specified, ” and under which Woods agreed to “[b]ind and execute insurance contracts subject to the underwriting rules and regulations of [NAICO].” (Doc. 74-1) at 35-37 (NAICO/Woods agency agreement).

         NAICO agreed to write the Concrete policy and issued policy number MP10570030 as a Symbol 1, all autos, policy effective February 9, 2013, through February 9, 2014. NAICO renewed that policy as policy number MP10570130, effective February 9, 2014, through February 9, 2015.[2] (Doc. 74-1) at 28 (NAICO Business Auto Declarations for Concrete). For the commercial auto portion of the policy, NAICO received a premium of $10, 501.00. (Doc. 74-1) at 27 (NAICO Common Policy Declarations for Concrete).

         NAICO admits that it did not run Concrete through the FMCSA SAFER[3] system, which would have disclosed that Concrete and Septic were the same company. (Doc. 74-1) at 48 (NAICO Answers to Requests for Admission). Glaetta Ray, NAICO's underwriting supervisor, admits that NAICO failed to follow internal protocols during the underwriting and renewal process. (Doc. 74-1) at 51 (Dep. G. Ray, 32:8-12 (Ray stating NAICO should have pulled SAFER report because underwriter aware Concrete operated in interstate commerce)).

         Anita Marshall, the NAICO underwriter on the Concrete account, admits that she was aware Concrete was operating as a motor carrier in interstate commerce when Concrete applied for insurance. (Doc. 74-1) at 56 (Dep. A. Marshall, 25:6-22 (Marshall stating she understood Concrete had five semis delivering its product throughout the United States and intended to insure this risk)), 54 (Dep. G. Ray, 95:25-96:6 (Ray stating NAICO aware it was insuring Concrete for interstate trucking based on Concrete's location in the Four Corners area)). Marshall further admits that NAICO intended to insure Concrete for “any interstate operations that it may engage upon or in.” (Doc. 68) at 51 (Dep. A. Marshall, 53:11-19) (Marshall stating NAICO intended to insure Concrete for interstate operations).

         In March 2013 NAICO conducted a Loss Control Survey to determine Concrete's risk profile. (Doc. 80-1) at 11 (Mar. 11, 2013, Loss Control Survey). The Loss Control Survey makes abundantly clear that Concrete operated in interstate commerce, crossing into at least four different states. Id.

         In the policy issued to Concrete, NAICO included a description of the different ...


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