First Mercury Insurance v. Cincinnati Insurance

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS February 26, 2018
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
FIRST MERCURY INSURANCE
COMPANY,
Plaintiff - Counter/Defendant -
Appellant/Cross - Appellee, Nos. 17-2006
and 17-2010
v.
CINCINNATI INSURANCE COMPANY,
Defendant - Counter/Plaintiff -
Appellee/Cross - Appellant.
_________________________________
Appeal from the United States District Court
for the District of New Mexico
(D.C. No. 1:14-CV-01052-WJ-LAM)
_________________________________
Gregory D. Steinman, Madison, Mroz, Steinman & Dekleva, P.A., Albuquerque, New
Mexico, for First Mercury Insurance Company.
Timothy L. Fields (Nathan T. Nieman and Elizabeth A. Martinez with him on the briefs),
Modrall Sperling Roehl Harris & Sisk, P.A., Albuquerque, New Mexico, for Cincinnati
Insurance Company.
_________________________________
Before BACHARACH, MURPHY, and McHUGH, Circuit Judges.
_________________________________
McHUGH, Circuit Judge.
_________________________________
This appeal asks us to settle a dispute between insurers over coverage for the
defense and indemnification of a wrongful death action brought in a separate lawsuit.
First Mercury Insurance Company (“First Mercury”) assumed the duty to defend the
wrongful death suit against Bingham Construction Company (“Bingham”), with a
reservation of rights. First Mercury then filed a complaint for declaratory judgment in
federal district court for the District of New Mexico against Cincinnati Insurance
Company (“Cincinnati”), seeking a declaration that it had no obligation to indemnify
Bingham, and that Cincinnati had an obligation to reimburse First Mercury for the
costs of defense. First Mercury argued, among other things, that the underlying
contract between Bingham and High Desert Roofing, Inc. (“High Desert”), the
subcontractor, was void under New Mexico Stat. Ann. § 56-7-1, and that even if
valid, the policy did not cover the wrongful death action.
The parties eventually filed cross-motions for summary judgment. The district
court ruled that First Mercury had a duty to defend and indemnify Bingham and that
Cincinnati had no obligation to reimburse any part of the settlement amount or the
defense costs. First Mercury now appeals, and Cincinnati has filed a conditional
cross-appeal. We affirm the district court’s order, although we do so on different
grounds. We therefore do not address the issues raised in Cincinnati’s conditional
cross-appeal.
2
I. BACKGROUND
A. Factual History
1. The Subcontract Agreement
In July 2012, Bingham entered into a construction agreement (“subcontract
agreement”) with High Desert for roofing services to be performed by High Desert at
a tractor supply store in Farmington, New Mexico. The subcontract agreement
requires High Desert to procure and maintain an insurance policy relating to its work
on the tractor supply store and to add Bingham as an additional insured on that
policy. These conditions are set forth in the following provisions of the subcontract
agreement:
ARTICLE 12. INSURANCE AND INDEMNITY
(a) Before commencing any of its work under this Subcontract, and
until completion and final acceptance thereof by Contractor [Bingham]
and Owner, Subcontractor [High Desert] shall maintain at its expense
such insurance as will protect it from the claims arising out of its
operations and the expiration of the period described below in this
subparagraph (a) under this Subcontract . . . .
The insurance coverage required under this article shall be of
sufficient type, scope, and duration to ensure coverage for the
Contractor [Bingham] or Owner for liability related to any manifestation
date within the applicable statute of limitations which pertain to any
work performed by or on behalf of the Contractor [Bingham] or Owner
in relation to the work under this Subcontract. Subcontractor [High
Desert] agrees to maintain the above insurance for the benefit of
Contractor [Bingham] and Owner for a period of five years or the
expiration of the applicable statute of limitation under Texas Civil
Practice and Remedies code, chapter 16, whichever is longer.
....
3
(d) The insurance policies . . . shall be endorsed to add the
Contractor [Bingham], the Owner and their parent companies,
subsidiaries and affiliated companies as additional insureds on a
primary and non-contributory basis and shall be endorsed to provide
notice to the Contractor [Bingham], in writing, by registered mail, at
least thirty (30) days prior to the termination and before any changes are
made in any policy which change restricts or reduces the insurance
provided. The insurance carried by Subcontractor [High Desert] naming
Contactor [Bingham] and the Owner as additional insureds shall be
primary over any insurance policies carried by Contractor [Bingham]
and the Owner. The Additional Insured endorsement on the
Subcontractor’s General Liability policy shall include coverage for
“products and completed operations” of the Additional Insureds
(Contractor [Bingham], the Owner and their parent companies,
subsidiaries and affiliated companies).
. . . It is the intent of this Agreement that Additional Insured status
shall include coverage for completed operations, ongoing operations and
for the concurrent or sole negligence of Contractor [Bingham], the
Owner, and their respective parent companies, subsidiaries, and
affiliated companies.
App. III at 250–51.
In addition to the foregoing provisions, the subcontract agreement contains a
number of indemnity clauses, including the following:
(k) SUBCONTRACTOR [HIGH DESERT] SHALL ALSO DEFEND,
INDEMNIFY, AND HOLD HARMLESS CONTRACTOR [BINGHAM ], OWNER,
AND CONTRACTOR [BINGHAM]’S OTHER INDEMNITEES (AND THEIR
OFFICERS, DIRECTORS, SHAREHOLDERS, AGENTS AND EMPLOYEES)
(HEREINAFTER COLLECTIVELY REFERRED TO AS “INDEMNIFIED PARTIES”)
FROM AND AGAINST ANY [AND] ALL CLAIMS, CAUSES OF ACTION
(INCLUDING STRICT LIABILITY), LAWSUITS, JUDGMENTS, AND LIABILITY
OF EVERY KIND, INCLUDING ALL EXPENSES OF LITIGATION, COURT
COSTS, AND ATTORNEY’S FEES, FOR INJURY TO OR DEATH OF ANY
PERSON (INCLUDING WITHOUT LIMITATION, SUBCONTRACTOR [HIGH
DESERT]’S EMPLOYEES), AND FOR DAMAGES TO ANY PROPERTY, ARISING
OUT OF, RELATING TO OR IN CONNECTION WITH THE OPERATIONS,
PERFORMANCE, OR ACTS OR OMISSIONS OF SUBCONTRACTOR [HIGH
DESERT] (INCLUDING ALL EMPLOYEES, SUB-SUBCONTRACTORS,
SUPPLIERS AND OTHERS FOR WHOM SUBCONTRACTOR IS RESPONSIBLE ),
4
OR THE WORK PERFORMED OR TO BE PERFORMED BY SUBCONTRACTOR
[HIGH DESERT]. SUBCONTRACTOR [HIGH DESERT]’S ABOVE STATED
DUTY TO INDEMNIFY EXTENDS TO CLAIMS CAUSED OR ALLEGED TO BE
CAUSED, IN WHOLE OR IN PART, BY THE NEGLIGENCE OF AN INDEMNIFIED
PARTY. . . . WITHOUT RELIEVING SUBCONTRACTOR [HIGH DESERT] OF
ITS OBLIGATIONS HEREUNDER, ANY OF THE INDEMNIFIED PARTIES, AT
THEIR ELECTION, MAY DEFEND OR PARTICIPATE IN THE DEFENSE OF ANY
CLAIM TO WHICH SUBCONTRACTOR [HIGH DESERT]’S DUTY TO DEFEND
EXTENDS.
....
(P) NOTE:
THESE INDEMNIFICATION OBLIGATIONS INCLUDE
INDEMNIFYING THE INDEMNITIES [SIC ] FOR THEIR OWN NEGLIGENCE,
WHETHER SOLE OR CONCURRENT.
Id. at 252.
2. The Insurance Policies
In accordance with the subcontract agreement, High Desert obtained an
insurance policy from First Mercury. First Mercury issued High Desert policy
number IL-CGL-0000003261-01 (the “First Mercury Policy”), which, barring
exclusions, provides High Desert commercial general liability coverage. The general
liability provisions cover, among other things, “those sums that the insured becomes
legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’
to which this insurance applies,” and create a “duty [for First Mercury] to defend the
insured against any ‘suit’ seeking those damages.”1 App. I at 94. The First Mercury
1
The First Mercury Policy excludes coverage for “bodily injury” “for which
the insured is obligated to pay damages by reason of the assumption of liability in a
contract or agreement.” App. I at 95. But the policy specifically indicates that this
exclusion does not apply to liability for damages “[a]ssumed in a contract or
agreement that is an ‘insured contract,’” so long as the “bodily injury” occurs
“subsequent to the execution of the contract or agreement.” Id. First Mercury does
5
Policy also includes an endorsement regarding additional insureds (“Additional
Insureds Endorsement”) that provides automatic additional insured status to persons
or organization “[a]s required by written contract signed by both parties prior to
loss.” Id. at 106. That endorsement provides:
ADDITIONAL INSURED – OWNERS, LESSEES OR
CONTRACTORS – SCHEDULED PERSON OR ORGANIZATION
....
A. Section II – Who Is An Insured is amended to include as an
additional insured the person(s) or organization(s) shown in the
Schedule, but only with respect to liability for “bodily injury”,
“property damage” or “personal and advertising injury” caused, in
whole or in part, by:
1. Your [High Desert’s] acts or omissions; or
2. The acts or omissions of those acting on your [High Desert’s]
behalf;
in the performance of your [High Desert’s] ongoing operations for the
additional insured(s) at the location(s) designated above.
Id.
The First Mercury Policy also contains another endorsement, entitled “Primary
and Non-Contributing Insurance,” which provides that the policy is primary over any
other insurance when required by a written contract. In relevant part, the endorsement
provides:
not dispute that the subcontract agreement constitutes an “insured contract” as
defined in the First Mercury Policy.
6
4. Other Insurance
If all of the other insurance permits contribution by equal shares, we
will follow this method unless the insured is required by written
contract signed by both parties, to provide insurance that is primary and
noncontributory, and the “insured contract” is executed prior to any
loss. Where required by a written contract signed by both parties, this
insurance will be primary & non-contributing only when and to the
extent as required by that contract.
However, under the contributory approach each insurer contributes
equal amounts until it has paid its applicable limit of insurance or none
of the loss remains, whichever comes first. If any of the other insurance
does not permit contribution by equal shares, we will contribute by
limits. Under this method, each insurer’s share is based on the ratio of
its applicable limit of insurance to the total applicable limits of
insurance of all insurers.
App. II at 179. Thereafter, First Mercury provided Bingham a certificate of insurance
that describes the coverage purchased by High Desert as follows:
The general liability policy includes a blanket automatic additional
insured endorsement . . . that provides additional insured status to the
certificate holder [Bingham] only when there is a written contract
between the named insured [High Desert] and the certificate holder
[Bingham] that require[s] such status. The general liability policy
includes a blanket automatic waiver of subrogation endorsement . . . that
provides such status to the certificate holder [Bingham] only when there
is a written contract between the named insured [High Desert] and the
certificate holder [Bingham] that requires such status. The general
liability policy includes a blanket automatic additional insured
endorsement . . . that contains the Primary and Non-Contributory
wording.
Id. at 178.
Bingham obtained its own general commercial liability insurance from
Cincinnati in the form of policy number EPP 010 47 24 (the “Cincinnati Policy”).
7
Under the section entitled “Commercial General Liability Coverage Form,” the
Cincinnati Policy states:
5. Other Insurance
If other valid and collectible insurance is available to the insured for
a loss we cover under COVERAGE A. BODILY INJURY AND
PROPERTY DAMAGE LIABILITY or COVERAGE B.
PERSONAL AND ADVERTISING INJURY LIABILITY of this
Coverage Part, our obligations are limited as follows:
....
b. Excess Insurance
This insurance is excess over:
....
(2) Any other primary insurance available to the insured
[Bingham] covering liability for damages arising out of the
premises or operations, or the products and completed operations,
for which the insured [Bingham] has been added as an additional
insured by attachment of an endorsement.
....
When this insurance is excess, we will have no duty under
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE
LIABILITY or COVERAGE B. PERSONAL AND
ADVERTISING INJURY LIABILITY to defend the insured
[Bingham] against any “suit” if any other insurer has a duty to
defend the insured [Bingham] against that “suit”. If no other insurer
defends, we will undertake to do so, but we will be entitled to the
insured’s rights against all those other insurers.
When this insurance is excess over other insurance, we will pay
only our share of the amount of the loss, if any, that exceeds the sum
of:
(1) The total amount that all such other insurance would pay for
the loss in the absence of this insurance . . . .
8
App. I at 91–92.
3. The Wrongful Death Lawsuit
On September 4, 2012, High Desert employee Jose Corona fell through a hole
in the vestibule attic of the tractor supply store, landing on the concrete twenty feet
below. He died shortly thereafter. The hole was allegedly cut into the steel flooring
of the vestibule attic by a Bingham employee and was subsequently covered with two
pieces of ill-fitting plywood. The hole was not marked or otherwise identified. Mr.
Corona was not wearing fall protection at the time of the accident. Additionally, the
president of High Desert confirmed that High Desert knew of the hole in the
vestibule attic floor and that it had requested Mr. Corona to examine the hole,
determine why it was there, and evaluate whether High Desert employees were to use
it as an access point to the attic.
Following Mr. Corona’s death, his personal representative filed a wrongful
death suit in New Mexico state court against Bingham. Bingham was the only
defendant named in the lawsuit and the operative complaint addressed only
Bingham’s alleged negligence. Cincinnati initially defended Bingham in the suit, but
on August 19, 2013, it tendered the defense of Bingham to First Mercury. First
Mercury assumed Bingham’s defense, but did so under a reservation of rights. By
December 17, 2014, First Mercury offered to pay its entire policy limit toward
settlement of the lawsuit and requested that Cincinnati reassume the duty to defend
Bingham. Cincinnati declined. The lawsuit eventually settled for $4.2 million, of
9
which First Mercury paid its policy limit of $1 million and Cincinnati paid the
remaining $3.2 million.2
B. Procedural History
First Mercury filed the instant declaratory judgment action against Cincinnati
and Bingham seeking declarations from the district court that (1) the subcontract
agreement is void under the New Mexico Anti-Indemnity Statute and therefore First
Mercury had no duty to defend or indemnify Bingham; (2) even if Bingham is an
additional insured under the First Mercury Policy, the underlying lawsuit against
Bingham fell outside the scope of the policy’s coverage because it did not allege
bodily injury caused by High Desert; and (3) even if First Mercury had a duty to
defend and/or indemnify Bingham, Cincinnati shared that duty and therefore First
Mercury was only obligated to pay a pro-rata share of the defense and settlement.3
The parties filed cross-motions for summary judgment. After briefing and
argument, the district court granted and denied each motion in part, concluding there
2
The dollar values of each policy’s coverage and the value of the settlement
have been corrected at various times during the proceedings. At the time the district
court issued the final judgment, the court was under the impression that the
settlement amount was $6 million, with First Mercury contributing $1 million and
Cincinnati contributing $5 million. After final judgment was entered, First Mercury
filed a motion to alter or amend the judgment in which it stated the settlement
amount was actually $4.2 million ($1 million paid by First Mercury and $3.2 million
paid by Cincinnati) but reaffirming that its policy limit was $1 million and
Cincinnati’s policy limit was $5 million. First Mercury again corrected the numbers
in its opening brief, stating that its policy limit is $1 million and Cincinnati’s policy
limit is actually $6 million. For purposes of appeal, we need not resolve this
discrepancy.
3
The parties stipulated to dismissal of Bingham from the lawsuit.
10
was no basis for requiring Cincinnati to reimburse First Mercury for any portion of
the $1 million paid toward settlement or the costs incurred in defending Bingham.
The district court reasoned that although the provisions of the subcontract agreement
requiring High Desert to indemnify Bingham for Bingham’s own negligence are void
under New Mexico’s anti-indemnity statute, “other provisions in the [subcontract
agreement] are not contrary to the statute and are therefore enforceable, including the
provisions requiring High Desert to add Bingham . . . as an additional insured on
High Desert’s insurance policy.” First Mercury Ins. Co. v. Cincinnati Ins. Co., No.
1:14-CV-01052 WJ/LAM, 2016 WL 7494286, at *13 (D.N.M. Sept. 27, 2016). It also
held that Bingham is an additional insured under the First Mercury Policy’s
Additional Insureds Endorsement and that the endorsement does not violate New
Mexico’s anti-indemnity statute. Id. The district court further determined that the
coverage provided to Bingham by the First Mercury Policy is limited “to injuries that
were caused [in whole or in part] by High Desert’s acts or omission in performing its
duties for Bingham” and that First Mercury had “no duty to cover Bingham for injury
or damages caused by Bingham’s own negligent acts or omissions.” Id. at *12. But it
also concluded that the First Mercury Policy was primary over the Cincinnati Policy
with respect to the duty to defend and therefore First Mercury was obligated to
defend Bingham because the underlying lawsuit was, at least in part, based on or
implicated by High Desert’s acts or omissions. Id. Finally, the district court held that
First Mercury was the primary insurer with respect to injuries caused in whole or in
part by High Desert’s acts or omissions, but not with respect to claims asserted
11
against Bingham for its own acts or omissions. Id. However, “because fault was
never apportioned in the underlying lawsuit,” the district court concluded there was
no basis to require Cincinnati to reimburse First Mercury for any of the $1 million
First Mercury paid toward settlement. Id. at *13.
After the district court entered final judgment, First Mercury filed a Motion to
Alter or Amend the Judgment pursuant to Rule 59(e) of the Federal Rules of Civil
Procedure. First Mercury argued the district court had mistakenly calculated the total
settlement amount as $6 million—instead of the actual settlement amount of $4.2
million—and that this mistake altered the parties’ financial obligations. Specifically,
First Mercury asserted that under a pro-rata ratio based on the parties’ policy limits,
it should have been required to pay only $700,000 toward the settlement and that
defense costs should have been similarly apportioned. The district court denied First
Mercury’s motion because First Mercury had failed to establish any of the recognized
grounds for altering or amending a judgment under Rule 59, and also held that the
correct settlement amount would not change the analysis of First Mercury’s financial
obligations. See Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir.
2000) (setting forth grounds warranting the grant of a motion to reconsider). This
appeal followed.
II. DISCUSSION
First Mercury argues the district court erred in granting summary judgment in
favor of Cincinnati. Specifically, First Mercury asserts the court incorrectly analyzed
the subcontract agreement in light of New Mexico’s anti-indemnity statute and
12
incorrectly analyzed the insurance policies. “We review summary judgment de novo
and apply the same legal standard as the district court.” Philadelphia Indem. Ins. Co.
v. Lexington Ins. Co., 845 F.3d 1330, 1336 (10th Cir. 2017). Because this is a
diversity action, we apply the substantive law of the forum state and review the
district court’s interpretations of state law de novo. Cornhusker Cas. Co. v. Skaj, 786
F.3d 842, 850 (10th Cir. 2015); see also Philadelphia Indem. Ins. Co., 845 F.3d at
1336–37.
We begin our analysis with First Mercury’s argument that the subcontract
agreement is void under the New Mexico anti-indemnity statute. Concluding that the
subcontract agreement is not void and that Bingham is an additional insured under
the First Mercury policy, we next address First Mercury’s argument that the
underlying lawsuit is not within the coverage provided by its policy. Because we
conclude that the underlying lawsuit is covered, we then consider whether the First
Mercury policy is primary over the Cincinnati policy. Finding that the First Mercury
policy is primary, we examine whether Cincinnati should be ordered to reimburse
any of the defense or indemnity costs associated with the underlying lawsuit and its
settlement. For the reasons set forth below, we conclude that the district court was
correct that Cincinnati is not obligated to reimburse First Mercury.
A. New Mexico’s Anti-Indemnity Statute
First Mercury argues it has no duty to defend or indemnify Bingham in the
underlying lawsuit because New Mexico’s Anti-Indemnity Statute, N.M. Stat. Ann.
§ 56-7-1, invalidates the relevant portions of the Subcontract Agreement. Because the
13
subcontract is void, First Mercury reasons, Bingham is not a named insured under the
First Mercury Policy’s Additional Insureds Endorsement. According to First
Mercury, Bingham could only be considered an additional insured under the terms of
the endorsement if a separate, enforceable written contract signed by High Desert and
Bingham specifically required that Bingham be named as an additional insured on the
High Desert policy. Although the subcontract agreement contains such a requirement,
First Mercury asserts § 56-7-1 renders that provision void and therefore the
agreement cannot serve as the “written contract” required to make Bingham an
additional insured under the First Mercury Policy.
The district court rejected that argument, holding instead that although § 56-7-
1 voids the Subcontract Agreement’s provisions requiring High Desert to indemnify
Bingham for Bingham’s own negligent acts and omissions, it does not invalidate the
subcontract agreement’s provisions requiring High Desert to add Bingham as an
additional insured on a general commercial liability insurance policy. First Mercury,
2016 WL 7494286, at *8–*10. The district court also concluded that § 56-7-1 does
not invalidate the Additional Insureds Endorsement because the endorsement does
not purport to cover or indemnify Bingham for its own acts or omissions. Id. As a
result, the district court determined that notwithstanding § 56-7-1, Bingham was a
named insured under the First Mercury Policy.
Section 56-7-1(A) provides that a
provision in a construction contract that requires one party to the
contract to indemnify, hold harmless, insure or defend the other party to
the contract . . . against liability . . . arising out of bodily injury to
14
persons or damage to property caused by or resulting from, in whole or
in part, the negligence, act or omission of the indemnitee, . . . is void,
unenforceable and against the public policy of the state.
N.M. Stat. Ann. § 56-7-1(A); see also Sierra v. Garcia, 746 P.2d 1105, 1107 (N.M.
1987) (reviewing an earlier, but similar, version of § 56-7-1 and noting it “voids
agreements which attempt to indemnify the indemnitee for liability resulting, in
whole or in part, from the indemnitee’s negligence”). The statute clarifies the terms
“indemnify” and “hold harmless” include “any requirement to name the indemnified
party as an additional insured in the indemnitor’s insurance coverage for the purpose
of providing indemnification for any liability not otherwise allowed in this section.”
N.M. Stat. Ann. § 56-7-1(F).
The parties do not dispute the district court’s assessment that the subcontract
agreement’s provisions requiring High Desert to indemnify Bingham for Bingham’s
own acts and omissions are unenforceable under and voided by § 56-7-1(A).4 But
4
Relying on the well-established New Mexico contract principle that, where a
contract or contract term is unenforceable, a court may refuse to enforce the contract,
enforce the remainder of the contract, or limit the application of the unenforceable
term, Rivera v. Am. Gen. Fin. Servs., Inc., 259 P.3d 803, 819 (N.M. 2011), the
district court determined that other provisions of the subcontract agreement,
including the requirement to make Bingham an additional insured, were enforceable.
The text of the statute supports the district court’s decision to void certain
provisions of the agreement without voiding the entire contract. As stated in § 56-7-
1(A), an offending “provision in a construction contract” is void, as opposed to the
entire contract. But this language and the district court’s order appear somewhat at
odds with at least two New Mexico Supreme Court decisions. See Safeway, Inc. v.
Rooter 2000 Plumbing & Drain SSS, 368 P.3d 389, 400–02 (N.M. 2016) (examining
a contractual agreement in light of a prior version of § 56-7-1 and noting that “Sierra
[v. Garcia, 746 P.2d 1105 (N.M. 1987)] made clear that the anti-indemnity statute
voids the entire contractual agreement, not merely part of it, when the clause requires
the indemnitor to indemnify the indemnitee for the indemnitee’s own negligence”).
15
without any explanation or reference to § 56-7-1(F), which states that “indemnify”
includes “any requirement to name the indemnified party as an additional insured in
the indemnitor’s insurance coverage,” the district court then determined that the
subcontract agreement’s provision “requiring High Desert to add Bingham as an
additional insured is not contrary to” § 56-7-1. First Mercury, 2016 WL 7494286, at
*8. The plain language of the subcontract agreement, however, includes obligations
prohibited by § 56-7-1(A) and (F), as it provides that Additional Insured status shall
include coverage for completed operations, ongoing operations and for the concurrent
or sole negligence of Contractor [Bingham], the Owner, and their respective parent
companies, subsidiaries, and affiliated companies.” App. III at 250–51 (emphasis
added). Accordingly, to the extent that the subcontract provisions requiring High
Desert to name Bingham as an additional insured include an obligation to indemnify
Bingham from its own negligence, the provisions are void, unless one of § 56-7-1’s
exceptions applies.
Cincinnati argues on appeal that the subcontract agreement’s provisions
requiring High Desert to add Bingham as an additional insured, including the
First Mercury did not raise this argument on appeal. This is likely because Safeway
and Sierra were based on the pre-2003 version of § 56-7-1. See Safeway, 368 P.3d at
401. Section 56-7-1 was amended in 2003 to add § 56-7-1(B), which, as discussed
below, provides for exceptions to the voiding of offending provisions. See Holguin v.
Fulco Oil Servs. L.L.C., 245 P.3d 42, 50 (N.M. Ct. App. 2010) (noting that the 1971
version of the statute did not include the language of 56-7-1(B) and that “56-7-1(B)
specifically permits enforcement of an indemnity clause to the extent that it provides
for indemnification from the indemnifying party’s negligence”). Thus, it appears that
the holding in Sierra as reaffirmed in Safeway is limited to the pre-amendment
versions of § 56-7-1 and has been superseded by statute with the amendments to
§ 56-7-1.
16
obligation to insure Bingham from its own negligence, fall under the exception
identified in § 56-7-1(B)(2) and thus does not run afoul of § 56-7-1(A), (F).5 We
agree.
Section 56-7-1(B)(2) provides:
B. A construction contract may contain a provision that, or shall be
enforced only to the extent that, it:
(2) requires a party to the contract to purchase a project-specific
insurance policy, including an owner’s or contractor’s protective
insurance, project management protective liability insurance or
builder’s risk insurance.
N.M. Stat. Ann. § 56-7-1(B) (emphasis added). Cincinnati contends the subcontract
agreement falls within subsection (B)(2) because the agreement plainly requires the
purchase of a “project-specific insurance policy,” as evidenced by the fact that (1) the
subcontract agreement requires procurement of insurance and the naming of Bingham
as an additional insured in relation to the work being performed by High Desert on
construction of the tractor supply store in Farmington, New Mexico, and (2) the First
Mercury Policy procured by High Desert reflects project-specific coverage. We agree
that the subcontract agreement requires High Desert to purchase a project-specific
insurance policy.
5
Cincinnati raised this argument below, but the district court did not address it
in its summary judgment order. However, “[w]e are free to affirm a district court
decision on any grounds for which there is a record sufficient to permit conclusions
of law, even grounds not relied upon by the district court.” Medina v. City & Cty. of
Denver, 960 F.2d 1493, 1495 n.1 (10th Cir. 1992) (citations and internal quotation
marks omitted).
17
Neither § 56-7-1 nor New Mexico case law clarify the meaning of a “project-
specific insurance policy.” As such, its application here presents an issue of first
impression. Under New Mexico law, “when a statute contains language which is
clear and unambiguous, we must give effect to that language and refrain from further
statutory interpretation.” Safeway, Inc. v. Rooter 2000 Plumbing & Drain SSS, 368
P.3d 389, 400 (N.M. 2016). We “also look at the overall structure and function of the
statute, as well as the public policy embodied” therein. Id.The subcontract agreement itself is expressly project-specific. It provides the
terms and conditions for High Desert’s roofing services specific to the construction
of the tractor supply store in Farmington, New Mexico. But it must require High
Desert to procure a “project-specific insurance policy,” as opposed to a more
generalized liability policy. The insurance and indemnity conditions required by the
agreement are set forth in Article 12, which states in relevant part that “[b]efore
commencing any of its work under this [agreement], and until completion and final
acceptance therefore by Contractor and Owner, [High Desert] shall maintain at its
expense such insurance as will protect it from the claims arising out of its operations
and the expiration of the period described below.” App. III at 250. The subcontract
agreement continues, indicating that as “a condition precedent to payment for the
Work [(roofing services on the building)], [High Desert] shall provide a certificate of
insurance evidencing the coverages set forth” in the agreement. Id. The agreement
also provides that “[t]he insurance coverage required under . . . [A]rticle [12] shall be
of sufficient type, scope, and duration to ensure coverage for the Contractor or
18
Owner for liability related to any manifestation date within the applicable statute of
limitations which pertain to any work performed by or on behalf of the Contractor or
Owner in relation to the work under this [agreement].” Id. (emphasis added). Finally,
the agreement’s language regarding indemnification requires High Desert to
indemnify various individuals and organizations for claims resulting or arising from,
or relating to or concerning, High Desert’s performance “of the [agreement] or the
subcontract work.” Id. at 251–52.
Although the subcontract agreement contains language requiring High Desert
to obtain a broad range of insurance coverage, the language of the agreement is most
reasonably read as requiring insurance specific to High Desert’s and Bingham’s work
on the tractor supply building. In particular, the agreement’s requirement that the
coverage obtained by High Desert “be of sufficient type, scope, and duration to
ensure coverage . . . for liability related . . . to any work performed . . . in relation to
the work under this” subcontract agreement suggests that the agreement requires
procurement of a “project-specific insurance policy.” Id. at 250; see PIC Group, Inc.
v. LandCoast Insulation, Inc., 718 F. Supp. 2d 795, 803 (S.D. Miss. 2010)
(examining a similar exception in Georgia’s anti-indemnity statute and holding that a
contractual requirement to procure a policy to cover “the performance of this
Agreement or any Purchase order” was a project-specific insurance requirement). The
requirement that High Desert obtain a policy “before commencing any of its work”
under the agreement and “until completion and final acceptance” of the work
19
supports the conclusion that the insurance policy required by the subcontract
agreement was specific to the work on the tractor supply store. App. III at 250.
First Mercury does not argue otherwise. Instead, it contends that under § 56-7-
1(B)(2) we are required to examine whether the procured policy is a project-specific
policy, as opposed to whether the relevant construction contract requires a project-
specific insurance policy. We disagree. The plain language of § 56-7-1(B)(2) applies
the exception to a “construction contract” that “requires a party to the contract to
purchase a project-specific insurance policy.” Thus, the relevant inquiry is not
whether the procured insurance policy is ultimately project-specific, but whether the
underlying construction contract requires a project-specific policy.
Because the Subcontract Agreement’s provisions requiring High Desert to
name Bingham as an additional insured fall within the exception listed in § 56-7-
1(B)(2) as a construction contract requiring a party to purchase a project-specific
insurance policy, the provisions are valid under New Mexico law. Thus, Bingham is
an additional insured under the First Mercury Policy.
B. First Mercury’s Duties to Defend and Indemnify
First Mercury also contends that its policy does not provide Bingham coverage
for the underlying lawsuit because the complaint alleges only that Bingham was
negligent. First Mercury reasons that its policy covers Bingham only to the extent the
complaint in an underlying lawsuit alleges that Bingham is liable for the acts or
omissions of High Desert or someone acting on behalf of High Desert.
20
The parties do not distinguish between First Mercury’s duty to defend and its
duty to indemnify under the First Mercury Policy, but under New Mexico law those
duties are triggered in different circumstances. See City of Albuquerque v. BPLW
Architects & Eng’rs, Inc., 213 P.3d 1146, 1155 (N.M. App. 2009) (“[T]he duty to
indemnify is distinct from the duty to defend, and resolution of whether a party has a
duty to defend does not necessarily depend on there being a duty to indemnify.”
(internal quotation marks omitted)). The “duty to defend arises out of the nature of
the allegations in the complaint,” Miller v. Triad Adoption & Counseling Servs., Inc.,
65 P.3d 1099, 1103 (N.M. App. 2003), and is ultimately “determined by comparing
the factual allegations in the complaint with the insurance policy,” Lopez v. N. M.
Pub. Sch. Ins. Auth., 870 P.2d 745, 747 (N.M. 1994). “If the allegations of the
complaint or the alleged facts tend to show that an occurrence comes within the
coverage of the policy, the insurer has a duty to defend regardless of the ultimate
liability of the insured.” Miller, 65 P.3d at 1103. In addition to the allegations
contained in the complaint, “[k]nown but unpleaded facts may bring a claim within
the coverage of the policy at the beginning of the litigation or at a later stage.” Id. In
contrast, the duty to indemnify relates to liability actually imposed on the insured—
“[i]f the allegations of the . . . complaint clearly fall outside the provisions of [the
relevant] insurance policies, indemnity by the insurer is not required,” N.M.
Physicians Mut. Liab. Co. v. LaMure, 860 P.2d 734, 737 (N.M. 1993).
The relevant provision of the First Mercury Policy, the Additional Insured
Endorsement, provides in part:
21
A. Section II – Who Is An Insured is amended to include as an
additional insured the person(s) or organization(s) shown in the
Schedule, but only with respect to liability for “bodily injury”,
“property damage” or “personal and advertising injury” caused, in
whole or in part, by:
1. Your [High Desert’s] acts or omissions; or
2. The acts or omissions of those acting on your [High Desert’s]
behalf;
in the performance of your [High Desert’s] ongoing operations for the
additional insured(s) at the location(s) designated above.
App. I at 106 (emphasis added). For purposes of this argument, the parties agree that
“your” refers to High Desert and that the district court was correct in concluding this
language limits First Mercury’s coverage of Bingham to “claims for bodily injury or
property damage [that] are the result of the acts or omissions of High Desert (or those
acting on its behalf), and not for acts or omissions of [Bingham].” First Mercury,
2016 WL 7494286, at *6.
1. Duty to Defend
First Mercury argues that under New Mexico law, its policy covers Bingham
only to the extent the complaint alleges High Desert was negligent and that Bingham
is vicariously liable or jointly and severally liable for High Desert’s negligence. We
disagree. The New Mexico Supreme Court has held that “[t]he duty of an insurer to
defend arises from the allegations on the face of the complaint or from the known but
unpleaded factual basis of the claim that brings it arguably within the scope of
coverage.” Am. Gen. Fire & Cas. Co. v. Progressive Cas. Co., 799 P.2d 1113, 1116
(N.M. 1990) (emphasis added); see also Sw. Steel Coil, Inc. v. Redwood Fire & Cas.
22
Ins. Co., 148 P.3d 806, 812 (N.M. Ct. App. 2006) (“If the duty to defend does not
arise from the complaint on its face, the duty may arise if the insurer is notified of
factual contentions or if the insurer could have discovered facts, through reasonable
investigation, implicating a duty to defend.”); G & G Servs., Inc. v. Agora Syndicate,
Inc. 993 P.2d 751, 757–58 (N.M. Ct. App. 1999) (noting that “facts other than those
set forth in the complaint may also implicate an insurer’s duty to defend” and that an
insurance company “cannot construct a formal fortress of the third party’s pleadings
and retreat behind its walls”).
Furthermore, the First Mercury Policy expressly states that additional insureds
are covered for bodily injury “caused, in whole or in part,” by High Desert’s acts or
omissions or the acts or omissions of someone acting on High Desert’s behalf in the
course of performing its work under the subcontract agreement. App. I at 106. This
language plainly extends coverage beyond underlying lawsuits in which a plaintiff
expressly raises claims against High Desert, requiring only that High Desert’s acts or
omissions have some causal relationship to the injury.
To be sure, the complaint in the underlying lawsuit named only Bingham as a
defendant and claimed Bingham’s negligence alone caused Mr. Corona’s death. But
Bingham argued, as part of its defense, that additional evidence demonstrated Mr.
Corona’s injuries and death were caused, at least in part, by (1) his own negligence—
falling through the hole while lifting the plywood covering, failing to use fall
protection, and failing to use ordinary care while walking on an elevated surface with
knowledge there was a hole in the surface, and (2) High Desert’s negligence—
23
directing Mr. Corona to investigate the hole without requiring him to wear fall
protection. Because these additional facts and the defense raised by Bingham
implicate acts or omissions of High Desert or its employee, the underlying lawsuit
falls within the scope of coverage of the First Mercury Policy. The district court was
therefore correct that Bingham was entitled a defense in the underlying lawsuit
provided by First Mercury.
2. Duty to Indemnify
As noted above, the duty to indemnify relates to liability actually imposed on
the insured. Once liability has been imposed, if the claims fall outside the policy’s
coverage, there is no duty to indemnify. The duty to indemnify can be viewed as an
endpoint of the duty to defend—an “insurance company ha[s] a duty to defend until it
[can] be determined in the primary action” that the lawsuit falls outside of the
protection provided by the insurance policy. Lopez, 870 P.2d at 748. Because the
lawsuit settled, the duty to indemnify must be determined by the facts as established
at the time of settlement and on the basis of the settlement.6
6
In a declaratory judgment action between two insurers, the New Mexico
Supreme Court noted that it “d[id] not have the luxury . . . of analyzing the facts
surrounding the occurrence of the accidents . . . to determine which insurer was
primarily liable, for the[] suits were settled before trial” and it had to resolve the
issue “on the basis of the allegations in the third party complaints.” Am. Emp. Ins.
Co. v. Cont’l Cas. Co., 512 P.2d 674, 677–78 (N.M. 1973). Other courts have
similarly looked to the settlements and the facts established prior to settlement to
determine the duty to indemnify. See, e.g., Bankwest v. Fidelity & Deposit Co. of
Md., 63 F.3d 974, 978 (10th Cir. 1995) (applying Kansas law and noting that “the
duty to indemnify is determined by the facts as they are established at trial or as they
are finally determined by some other means (e.g., summary judgment or
settlement).”); Travelers Ins. Co. v. Waltham Indus. Laboratories Corp., 883 F.2d
24The policy states that it covers liability “caused, in whole or in part, by [High
Desert’s] actions or omissions.” App. I at 106. It is possible that, had the trial in the
wrongful death lawsuit proceeded, the finder of fact would have found that Mr.
Corona’s death was not caused by High Desert’s actions or omissions. In that
situation, any liability imposed on Bingham would not fall within the additional
insured coverage provided by the First Mercury Policy. And in those circumstances
First Mercury would have no duty to indemnify Bingham. But the lawsuit was settled
without apportionment of fault between the parties, extinguishing further liability for
both Bingham and High Desert. Without some finding to the contrary, and based on
the defenses implicating High Desert raised by Bingham, First Mercury had a duty to
indemnify Bingham.
C. The First Mercury Policy is Primary
First Mercury next contends that even if it had a duty to defend and a duty to
indemnify, the district court erred in concluding its policy was primary. In support, it
relies on the policies’ “Other Insurance” provisions, which govern the obligations of
each insurer when multiple policies apply to the underlying lawsuit or occurrence.
According to First Mercury, the provision in the Cincinnati policy irreconcilably
1092, 1099 (1st Cir. 1989) (“[A]n insurer’s obligation to defend is measured by the
allegations of the underlying complaint while the duty to indemnify is determined by
the facts, which are usually established at trial. Here, however, the cases were settled
prior to trial. This means that the duty to indemnify must be determined in the basis
of the settlement. . . .”); Union Ins. Co. v. Delta Casket Co., 2010 WL 11493657, at
*13 (W.D. Tenn. July 30, 2010) (listing cases and noting that “the Court looks to the
potential for liability and the facts as they existed when the claim was settled in
determining whether [the insurer] had a duty to indemnify.”).
25
conflicts with the provision in the First Mercury policy as to which policy is primary
and how financial obligations are apportioned. First Mercury contends that when
such a conflict occurs, New Mexico requires, under CC Housing v. Ryder Truck
Rental, 746 P.2d 1109 (N.M. 1987), the insurers to “contribute on a pro-rata basis
determined by their respective [policy] limit[s].” Appellant Br. 17. By First
Mercury’s calculation, Cincinnati should have paid either 85.7% or 83.3% of the first
$1 million contributed by First Mercury. Id. at 14, 17.7
First Mercury’s argument fails at its inception, however, because the
provisions in the two insurance policies are not in conflict. Each policy makes clear
that First Mercury is the primary insurer and that Cincinnati is an excess insurer. The
Cincinnati Policy states:
b. Excess Insurance
This insurance is excess over:
....
(2) Any other primary insurance available to the insured
[Bingham] covering liability for damages arising out of the premises
or operations, or the products and completed operations, for which
the insured [Bingham] has been added as an additional insured by
attachment of an endorsement.
(3) Any other insurance:
7
First Mercury calculated the percentages by dividing each insurer’s
respective policy limit by the sum of the policy limits in both policies. Using the $6
million limit for Cincinnati, Cincinnati’s pro-rata obligation would be $6 million
divided by $6 million plus $1 million, which equals 85.7%. Using the $5 million
limit for Cincinnati, Cincinnati’s pro-rata obligation would be $5 million divided by
$5 million plus $1 million, which equals 83.3%.
26
(a) Whether primary, excess, contingent or on any other basis,
except when such Insurance is written specifically to be excess
over this insurance . . .
App. I at 91–92 (emphasis added).
First Mercury’s “Primary and Non-Contributing Insurance” endorsement,
which completely replaces the policy’s “Other Insurance” section, does not conflict
with Cincinnati’s excess insurer status. Rather, that endorsement provides it will
follow a contribution-by-equal-share approach if permitted by all other insurance
policies “unless the insured is required by written contract signed by both parties, to
provide insurance that is primary and noncontributory” and “[w]here required by a
written contract signed by both parties, this insurance will be primary & non-
contributing only when and to the extent as required by that contract.” App. II at 179.
The subcontract agreement between High Desert and Bingham provided just such a
requirement, stating: “The insurance policies . . . shall be endorsed to add [Bingham],
the Owner and their parent companies, subsidiaries and affiliated companies as
additional insureds on a primary and non-contributory basis . . . . The insurance
carried by [High Desert] naming [Bingham] and the Owner as additional insureds
shall be primary over any insurance policies carried by [Bingham] and the Owner.”
App. III at 250 (emphasis added). Thus, contrary to First Mercury’s arguments, the
policies do not conflict.
The combination of the First Mercury Policy and the subcontract agreement
make the First Mercury Policy primary over the Cincinnati Policy. The Cincinnati
Policy is expressly excess over any policy in which Bingham is named as an
27
additional insured. Because the subcontract agreement requires the policy procured
by High Desert to be primary and non-contributory, the district court correctly held
that the First Mercury Policy is the primary policy.
D. Cincinnati’s Duties to Defend and Indemnify
First Mercury also contends it is entitled to the apportionment of defense costs
even if it has a duty to defend Bingham and its policy is primary. First Mercury further
argues it is entitled to reimbursement from Cincinnati of all defense costs incurred on or
after December 17, 2014, when it offered its policy limits in settlement. First Mercury’s
arguments are unavailing.
1. Duty to Defend
In support of its first argument, First Mercury asserts that excess insurers like
Cincinnati may still have a duty to defend if their policy so requires, and that under New
Mexico law, when “there are two insurers each with a duty to defend, one of which
refuses to defend, the defending insurer has a right of apportionment of expenses and
outlays with the other insurer in proportion to the insurance carried.” Am. Emp. Ins., 512
P.2d at 679. First Mercury argues the Cincinnati Policy makes no distinction with respect
to its duty to defend based on its position as a primary or excess policy and therefore
Cincinnati is required to reimburse First Mercury for its portion of Bingham’s defense
costs. But contrary to First Mercury’s assertion, the Cincinnati Policy expressly states
that “[w]hen this insurance is excess, we will have no duty . . . to defend the insured
against any ‘suit’ if any other insurer has a duty to defend the insured against that ‘suit.’”
App. I at 92. Under this provision, Cincinnati had no duty to defend Bingham because, as
28
previously established, the First Mercury Policy is primary and the Cincinnati Policy is
excess. Therefore, the district court was correct in holding that Cincinnati has no
obligation to reimburse First Mercury for defense costs from the date Cincinnati tendered
the defense to First Mercury, or otherwise.
First Mercury also contends its duty to defend ceased—and Cincinnati’s began—
when First Mercury offered to pay its $1 million policy limit toward settlement of the
underlying lawsuit. But the language of the First Mercury Policy undermines this
argument. In relevant part, the policy provides that First Mercury’s “right and duty to
defend ends when [it] ha[s] used up the applicable limit of insurance in the payments of
judgments or settlements.” Id. at 94 (emphasis added). First Mercury’s duty to defend
ceases when it has “used up” its limit; its duty is not extinguished merely by offering to
pay its policy limit toward a settlement. Accordingly, First Mercury’s duty to defend did
not terminate until it paid its portion of the settlement and so the district court was correct
that First Mercury has no right to reimbursement or contribution for the cost of defending
Bingham after the offer of settlement.
2. Duty to Indemnify
Under the Cincinnati Policy, Cincinnati’s duty to indemnify Bingham, as an
excess insurer, extends to “the amount of the loss, if any, that exceeds . . . [t]he total
amount that all such other insurance would pay for the loss in the absence of this
insurance.” Id. at 92. In this case, Cincinnati is required to pay the amount of the
settlement that exceeds the coverage limit of the First Mercury Policy. Because the
settlement amount was $4.2 million and the First Mercury Policy limit was $1
29
million, Cincinnati was required to pay $3.2 million. Cincinnati has paid this amount
and thus has no obligation to reimburse First Mercury for any of the indemnification
costs.
Because the First Mercury Policy is primary over the Cincinnati Policy with
respect to the duty to defend and the duty to indemnify, Cincinnati has no obligation
to reimburse First Mercury for any of the defense or settlement costs.
III. CONCLUSION
We AFFIRM the district court’s order granting summary judgment in favor of
Cincinnati. We therefore do not consider Cincinnati’s conditional cross-appeal.
30