Winters v. Transamerica Ins. ( 1999 )


Menu:
  •                                                                         F I L E D
    United States Court of Appeals
    Tenth Circuit
    SEP 9 1999
    UNITED STATES COURT OF APPEALS
    FOR THE TENTH CIRCUIT                    PATRICK FISHER
    Clerk
    WILLARD WESLEY WINTERS, JR.,
    also known as Wes Winters, Jr.;
    KAY PAULETTE WINTERS, also
    known as Kay Winters Goffena, doing
    business as Wes Winters Resort Park,              No. 98-2000
    individually and as debtors in         (D.C. No. CIV. 96-1604-RLP/WWD)
    possession of the Wes Winters Resort               (D. N.M.)
    Park; JAMES E. BURKE,
    Plaintiffs-Appellants,
    v.
    TRANSAMERICA INSURANCE
    COMPANY, a foreign insurance
    corporation,
    Defendant-Appellee.
    ORDER AND JUDGMENT           *
    Before BRORBY, McKAY, and BRISCOE , Circuit Judges.
    *
    This order and judgment is not binding precedent, except under the
    doctrines of law of the case, res judicata, and collateral estoppel. The court
    generally disfavors the citation of orders and judgments; nevertheless, an order
    and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
    After examining the briefs and appellate record, this panel has determined
    unanimously that oral argument would not materially assist the determination of
    this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1.9(G). The case is
    therefore ordered submitted without oral argument.
    Plaintiffs appeal from the district court’s grant of summary judgment in
    favor of defendant Transamerica Insurance Company (Transamerica); denial of
    their motion for partial summary judgment; and denial of their motion to alter,
    amend, or reconsider. Because we conclude Transamerica breached its duty to
    defend its insured in the underlying action, but did not violate state statute or the
    duty of good faith, we affirm in part and reverse in part the summary judgment
    granted in the insurer’s favor, affirm the denial of plaintiff’s motions, and remand
    the case for further proceedings.
    I. Background
    Plaintiffs Willard Wesley Winters, Jr. and Kay Paulette Winters owned and
    operated the Wes Winters Resort Park (Resort Park), a mobile home park insured
    by Transamerica. The Resort Park opened in January 1987, advertised as an
    “adult” residential community. Resort Park tenants Judy and Clyde Mercer, and
    Susan and Steven Anderson, purchased mobile homes from plaintiffs in 1987 and
    1988, respectively. After the Fair Housing Amendments Act of 1988 was
    -2-
    enacted, plaintiffs began advertising the Resort Park as a “retirement community.”
    Thereafter, when the Mercers and Andersons attempted to sell their mobile
    homes, Mr. Winters informed them that he would not approve rental of the lot to
    persons under the age of 55 or to anyone with small children. He also made
    statements indicating a preference for tenants who were not Hispanic or Jewish.
    The Mercers and the Andersons filed complaints with the Department of
    Housing and Urban Development (HUD), alleging violations of the Fair Housing
    Act. In retaliation, Mr. Winters and his agents began a campaign of harassment
    against the Mercers and Andersons. This harassment included entering the
    tenants’ homes without their consent; shining spotlights and headlights into their
    homes late at night; slamming car doors in front of their homes at night;
    tampering with their mail; sitting in cars outside their homes for extended
    periods; following them around the park; throwing newspapers on their roofs;
    agitating their dogs with silent whistles; and refusing to maintain their lots.
    HUD brought an administrative action against Mr. Winters, alleging
    housing discrimination and retaliation. When he tendered the administrative
    complaint to Transamerica, however, the insurer advised him that the charge did
    not create a duty to defend or indemnify under the policy. HUD then brought a
    successful federal action against Mr. Winters, obtaining a judgment for
    $142,397.63 in compensatory and punitive damages. Plaintiffs, as owners of the
    -3-
    Resort Park, have filed bankruptcy. Plaintiff James Burke is the Chapter 7 trustee
    in the bankruptcy proceeding.
    On October 16, 1990, plaintiffs brought this action against Transamerica,
    seeking more than two million dollars in damages caused by the insurer’s alleged
    breach of contract, breach of its duty of good faith and fair dealing, and violations
    of the New Mexico Unfair Practices Act and the New Mexico Unfair Insurance
    Practices Act. The district court granted summary judgment in favor of
    Transamerica, finding the insurer had no duty to defend or indemnify Winters
    because the HUD allegations clearly fell outside the policy’s coverage. This
    appeal followed.
    Plaintiffs argue the district court erred in granting summary judgment in
    favor of Transamerica because HUD’s allegations implicated both the advertising
    injury (disparagement, right to privacy, infringement of title) and personal injury
    (right of private occupancy) policy coverages. They argue further that the court
    erred in denying their motion for partial summary judgment, because they were
    entitled to judgment as a matter of law on their claims that the insurer breached
    the contract, breached its duty of good faith and fair dealing, and violated the
    New Mexico Unfair Insurance Practices Act and the Unfair Practices Act.
    -4-
    II. Analysis
    We review summary judgment rulings de novo, applying the same standard
    as the district court. See Kidd v. Taos Ski Valley, Inc., 
    88 F.3d 848
    , 851 (10th
    Cir. 1996). Summary judgment is proper when “the pleadings, depositions,
    answers to interrogatories, and admissions on file, together with the affidavits, if
    any, show that there is no genuine issue as to any material fact and that the
    moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c).
    We view the evidence and all reasonable inferences therefrom in the light most
    favorable to the nonmoving party.
    A. Duty to Defend and Indemnify
    Because this is a diversity case, we apply the substantive law of the forum
    state. See Novell, Inc. v. Federal Ins. Co.    , 
    141 F.3d 983
    , 985 (10th Cir. 1998).
    Under New Mexico law, an insurer’s duty to defend arises when the allegations in
    the complaint, together with any other factual information known to the insurer,
    bring the claim within the arguable or potential coverage of the policy.      See
    Bernalillo County Deputy Sheriffs Ass’n v. County of Bernalillo        , 
    845 P.2d 789
    ,
    791 (N.M. 1992); Marshall v. Providence Wash. Ins. Co.        , 
    951 P.2d 76
    , 78 (N.M.
    Ct. App. 1997). This duty arises even if the complaint “fails to state facts with
    sufficient clarity so that it may be determined from its face whether or not the
    action is within the coverage of the policy, provided the alleged facts tend to
    -5-
    show an occurrence within the coverage.”      Foundation Reserve Ins. Co. v.
    Mullenix , 
    642 P.2d 604
    , 605-06 (N.M. 1982) (quotation omitted).
    An insurer may justifiably refuse to defend only when the allegations take
    the claim completely outside the policy,    see Marshall , 
    951 P.2d at 78
    , and “any
    doubt about whether the allegations are within the policy coverage is resolved in
    the insured’s favor,” State Farm Fire & Cas. Co. v. Price   , 
    684 P.2d 524
    , 528
    (N.M. Ct. App. 1984), overruled on other grounds , Ellingwood v. N.N. Investors
    Life Ins. Co. , 
    805 P.2d 70
    , 76 (N.M. 1991). If there is a question regarding
    coverage, the insurer must tender a defense until relieved of this duty by the court
    in which the action is proceeding.    See Lopez v. New Mexico Pub. Sch. Ins.
    Auth. , 
    870 P.2d 745
    , 749 (N.M. 1994);     Mullenix , 642 P.2d at 606.
    Here, the HUD charge alleged the following conduct: (1) discrimination
    against the public in the provision of housing; (2) discrimination against the
    tenants in the terms and conditions of their lot rental; (3) discrimination against
    the tenants by restricting the sale of their mobile homes; and (4) retaliation
    against the tenants for filing the discrimination claims. The retaliation claim
    alleged that Winters “harassed complainants in various ways,” and that these acts
    of “unlawfully harassing complainants” violated the Fair Housing Act by
    “coercing, intimidating, threatening or interfering with the exercise or enjoyment
    of rights,” and that such conduct caused the tenants to suffer “emotional distress.”
    -6-
    Appellant’s App. at 98-99. Because we conclude this claim implicated the
    policy’s coverage for invasions of the right of private occupancy, there is no
    reason to discuss in detail whether the charge also raised claims under the
    advertising injury coverage.   1
    Section I(B) of the policy provides coverage for “personal injury” liability,
    which is defined in section V(10)(c) to include injuries arising from the
    “wrongful eviction from, wrongful entry into, or invasion of the right of private
    occupancy of a room, dwelling or premises that a person occupies by or on behalf
    of its owner, landlord or lessor.”   2
    Id. at 148. We note that the scope of coverage
    1
    Although we do not discuss this issue in detail, we agree with the district
    court that HUD’s allegations did not implicate the advertising coverages for
    violating a person’s privacy, disparaging a person’s goods, or infringing a title.
    Although we agree that plaintiffs’ advertisement of the Resort Park as a
    retirement community was a “publication,” it did not disparage tenants’ goods or
    infringe their title, as those terms are reasonably construed. There are no other
    facts alleged showing a publication.    See Western Commerce Bank v. Reliance
    Ins. Co. , 
    732 P.2d 873
    , 875-76 (N.M. 1987) (holding allegations did not state
    claim within policy coverage absent claim of “publication” and court would not
    imply claim from facts alleged). In addition, the facts alleged do not support
    plaintiffs’ inferences regarding the tenants’ right to privacy. Therefore,
    Transamerica’s denial of a defense and indemnity under these coverages neither
    breached the contract nor violated the insurer’s duty of good faith and fair
    dealing.
    2
    When plaintiffs first purchased insurance in January 1987, the commercial
    liability policy did not contain this language. However, the policy was amended
    in 1988 to include coverage for invasions of the right of private occupancy. As
    the alleged discrimination and retaliation took place in 1989, see Appellant’s
    App. at 98, 349, we conclude this provision was in effect when the underlying
    events occurred.
    -7-
    provided by this section is unclear, as the qualifier “by or on behalf of its owner,
    landlord or lessor” could modify either the term “invasion” or the term “room,
    dwelling or premises.” Several courts have disagreed whether this lack of clarity
    renders the phrase ambiguous.     Compare United States Fidelity & Guar. Co. v.
    Goodwin , 
    950 F. Supp. 24
    , 27 (D. Me. 1996) (holding policy unambiguously
    required that wrongful acts be committed by or on behalf of property’s owner,
    landlord or lessor) and TerraMatrix, Inc. v. United States Fire Ins. Co.   , 
    939 P.2d 483
    , 489 (Colo. Ct. App. 1997) (same)      with Blackhawk-Central City Sanitation
    Dist. v. American Guar. & Liab. Ins. Co.    , 
    856 F. Supp. 584
    , 590 (D. Colo. 1994)
    (finding ambiguity in whether phrase modified “premises” or “invasion” and
    construing policy in favor of coverage). We need not determine whether the
    provision is ambiguous, as we conclude the only reasonable construction of its
    coverage includes acts taken by plaintiffs, as the Resort Park’s owners, landlords,
    or lessors, against their tenants’ occupancy rights.
    Here, HUD alleged acts taken by Mr. Winters, as a landlord, against his
    tenants, which harassed, coerced, intimidated and threatened the tenants, causing
    them emotional distress. We think these allegations potentially raise a claim that
    the tenants’ right to private occupancy was invaded, or at a minimum, that such
    coverage was not definitively precluded.     See Price , 
    684 P.2d at 528
     (“Only where
    the allegations are completely outside policy coverage may the insurer justifiably
    -8-
    refuse to defend[, and] any doubt about whether the allegations are within policy
    coverage is resolved in the insured's favor.”). This is especially so given the
    broad range of interpretations given to the term “right of private occupancy.”
    Compare Lime Tree Village Community Club Ass’n v. State Farm Gen. Ins. Co.            ,
    
    980 F.2d 1402
    , 1403-05, 1407 (11th Cir. 1993) (holding, under similar facts, that
    insurer had duty to defend potential invasion of right to occupancy);    Titan
    Holdings Syndicate, Inc. v. City of Keene    , 
    898 F.2d 265
    , 273 (1st Cir. 1990)
    (holding invasions of the right of private occupancy included interference with
    use and enjoyment of property by noxious odors, light, and noise);      with Columbia
    Nat’l Ins. v. Pacesetter Homes, Inc.   , 
    532 N.W.2d 1
    , 9 (Neb. 1995) (holding “the
    right of private occupancy is the legal right to occupy premises, not the right to
    enjoy occupying those premises”). Transamerica, therefore, was required to
    defend plaintiffs until it took the appropriate steps to be relieved of that duty.
    See, e.g. , Valley Improvement Ass’n v. United States Fidelity & Guar. Corp.       , 
    129 F.3d 1108
    , 1116 (10th Cir. 1997) (finding insurer breached duty to defend when
    complaint did not definitively foreclose coverage).
    Under New Mexico law, an insurer who breaches the duty to defend is
    liable not only for defense costs, but also for indemnification of the insured, even
    if such liability would otherwise have been excluded by the policy.      See 
    id. at 1125-26
     (holding, under New Mexico law, an insurer who unjustifiably fails to
    -9-
    defend is liable for the resulting judgment or settlement, regardless of any
    coverage defenses); American Gen. Fire & Cas. Co v. Progressive Cas. Co.         , 
    799 P.2d 1113
    , 1117 (N.M. 1990) (“An insurer suffers serious consequences upon its
    unjustified failure to defend after demand, including . . . liability for a judgment
    entered against the insured.”);   Price , 
    684 P.2d at 531
     (holding even though
    underlying claim was outside of policy coverage, insurer who breached duty to
    defend was liable on the judgment, and noting that one consequence to an insurer
    who unjustifiably fails to defend is that “it becomes liable for a judgment entered
    against the insured”). Because we conclude that Transamerica breached its duty
    to defend Mr. Winters, the insurer is liable for both his legal defense costs and
    indemnification on the judgment.
    B. Bad Faith
    We conclude, however, that Transamerica is not liable for tort damages,
    because its decision did not amount to a bad faith refusal to defend as a matter of
    law. An insurer’s incorrect decision regarding coverage, without more, does not
    establish bad faith.   See United Nuclear Corp. v. Allendale Mut. Ins. Co.   , 
    709 P.2d 649
    , 654 (N.M. 1985) (reversing bad faith finding when, although insurer
    wrongly withheld payment, there were legitimate reasons to question amount of
    damages); Price , 
    684 P.2d at 532
     (implying failure to defend alone does not show
    bad faith). To show bad faith, there must be no reasonable basis for denying the
    -10-
    claim. See United Nuclear Corp. , 709 P.2d at 654; Mitchell v. Intermountain Cas.
    Co. , 
    364 P.2d 856
    , 858-59 (N.M. 1961);      see also Jessen v. National Excess Ins.
    Co. , 
    776 P.2d 1244
    , 1246 (N.M. 1989) (noting jury instruction defining bad faith
    as refusal to pay or delay in paying claim for frivolous or unfounded reasons),
    overruled on other grounds by      Paiz v. State Farm Fire & Cas. Co.     , 
    880 P.2d 300
    ,
    307-08 (N.M. 1994). Bad faith may also be shown when an insurer acts to injure
    its insured’s right to receive the benefit of the contract by placing its interests
    over those of the insured.    See Dairyland Ins. Co. v. Herman , 
    954 P.2d 56
    , 60-61
    (N.M. 1997); Lujan v. Gonzales , 
    501 P.2d 673
    , 680-81 (N.M. Ct. App. 1972).
    Here, the coverage issues were difficult and debatable. The HUD
    complaint alleged primarily discrimination claims, which are not covered by the
    policy. See, e.g. , United States v. Security Management Co.      , 
    96 F.3d 260
    , 264-66
    (7th Cir. 1996) (holding discrimination against potential tenants not covered by
    policy because they had no enforceable “right” of occupancy);           Bernstein v.
    North E. Ins. Co. , 
    19 F.3d 1456
    , 1458 (D.C. Cir. 1994) (same);         Boston Hous.
    Auth. v. Atlanta Int’l Ins. Co.   , 
    781 F. Supp. 80
    , 84 (D. Mass. 1992) (holding
    discrimination claim did not allege invasion of the tenants’ right of private
    occupancy because it was not a trespassory act).
    The only claim implicating the policy--that Mr. Winters retaliated against
    the tenants by harassing them--did not contain facts placing the claim squarely
    -11-
    within the policy’s coverage. Nor did Transamerica’s recorded interview with
    Mr. Winters elicit these facts. After carefully considering the HUD allegations,
    the district court agreed with the insurer that there was no coverage. Although we
    reach a different conclusion, finding that HUD’s allegations raise an inference
    that Mr. Winters’ harassment of his tenants potentially invaded their right to
    private occupancy, the issue is certainly debatable.     See TPLC, Inc. v. United
    Nat’l Ins. Co. , 
    44 F.3d 1484
    , 1496 (10th Cir. 1995) (affirming summary judgment
    in favor of insurer on bad faith claim because law unsettled, and authority from
    other jurisdictions supported insurer’s position);     Suggs v. State Farm Fire & Cas.
    Co. , 
    833 F.2d 883
    , 890-91 (10th Cir. 1987) (reversing denial of insurer’s motion
    for judgment as a matter of law when insurer had a good faith basis for
    withholding payment).
    In their motion for summary judgment, plaintiffs relied on the insurer’s
    failure to investigate the HUD allegations to show bad faith. Transamerica had
    no duty to investigate, however, because this is a third-party insurance case.      See
    Valley Improvement Assoc. , 
    129 F.3d at 1121-23
     (holding New Mexico does not
    impose a duty to investigate in third-party claims). Instead, the duty to defend
    must be determined simply by comparing the complaint to the policy, without
    regard to what an independent investigation would show.         See 
    id.
     ; Mullenix , 642
    P.2d at 606 (holding duty to defend arose from ambiguous allegations in
    -12-
    complaint, even though insurer’s investigation revealed there was no coverage).
    For these reasons, we affirm the summary judgment in favor of Transamerica on
    the claim that it violated its duty of good faith and fair dealing.
    C. Statutory Claims
    We also affirm the judgment in favor of Transamerica on the claims that it
    violated New Mexico statute. Given that coverage was debatable, plaintiffs have
    not shown a triable issue whether the insurer’s denial of coverage was a knowing
    misrepresentation, as required by New Mexico statute § 59A-16-20, and the
    insurer’s request to be notified if a lawsuit were to be filed did not misrepresent
    whether the HUD administrative charge was a suit. Further, the insurer’s denial
    letter, denying coverage based on several identified sections, was sufficiently
    prompt and reasonable to satisfy the statute. For the same reasons, the insurer’s
    alleged misrepresentations did not raise a triable issue regarding the use of unfair,
    deceptive, or unconscionable trade practices under New Mexico statute
    §§ 57-12-2(D) & (E).
    The judgment of the district court is AFFIRMED in part and REVERSED
    in part, and the case is REMANDED for further proceedings to calculate the
    damages caused by Transamerica’s breach of its duty to defend.
    Entered for the Court
    -13-
    Mary Beck Briscoe
    Circuit Judge
    -14-
    No. 98-2000, Winters v. Transamerica Insurance Company
    BRORBY , Circuit Judge, dissenting.
    I agree with the majority Transamerica had no duty to defend or indemnify
    claims under the advertising injury coverage, Transamerica did not refuse to
    defend in bad faith, and Transamerica did not violate New Mexico statute. I
    disagree, however, with the majority’s conclusion the retaliation claim against
    Mr. Winters implicated policy coverage for invasions of the right of private
    occupancy. Accordingly, I dissent from that portion of the majority opinion.
    The policy at issue provided “personal injury” liability coverage for injuries
    arising from “wrongful eviction from, wrongful entry into, or invasion of the right
    of private occupancy of a room, dwelling or premises that a person occupies by or
    on behalf of its owner, landlord or lessor.” While I agree it is reasonable to
    construe the “personal injury” provision to cover those acts taken by the Winters,
    as owners, landlords or lessors, against their tenants, I strongly disagree that
    HUD’s allegations raised the possibility of liability coverage for invasion of right
    of private occupancy under that provision. New Mexico law states, “an insurer’s
    duty to defend ... is determined ... by the allegations of the injured party’s
    complaint.” State Farm Fire & Cas. Co. v. Mhoon, 
    31 F.3d 979
    , 985 (10th Cir.
    1994). The facts need not be so clear as to determine from the face of the
    complaint whether the action is within the policy’s coverage; however, “abstract
    and completely unsubstantiated allegations will not do.” 
    Id.
     (citing Foundation
    Reserve Ins. Co. v. Mullenix, 
    642 P.2d 604
    , 605 (N.M. 1982)). Our examination
    is thus limited to the four corners of the complaint, which must state facts tending
    to show an occurrence within the policy’s coverage. Stated differently, we must
    determine whether an insurer has a duty to defend “by comparing the factual
    allegations in the complaint with the insurance policy.” Lopez v. New Mexico
    Pub. Schls. Ins. Auth., 
    870 P.2d 745
    , 747 (N.M. 1994).
    As the majority acknowledges, the HUD complaint alleged primarily
    discrimination claims, which undisputably lie outside policy coverage. With
    regard to retaliation, the only facts alleged were that Mr. Winters “harassed
    complainants in various ways,” and that this act of “unlawfully harassing
    complainants” violated the Fair Housing Act by “coercing, intimidating,
    threatening or interfering with the exercise or enjoyment of rights ... granted
    under the Act,” causing the tenants emotional distress. Comparing the language
    of the “personal injury” provision to the complaint, I simply cannot conclude
    HUD’s general allegations of harassment in violation of the Fair Housing Act
    raise an inference or tend to show that Mr. Winters invaded his tenants’ right to
    private occupancy, thus implicating coverage under the Transamerica policy. I
    therefore would affirm the district court as to all issues.
    -2-