Windham v. L.C.I.2, Inc.

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New Mexico Compilation
Commission, Santa Fe, NM
'00'05- 09:02:00 2012.01.06
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: 2012-NMCA-001
Filing Date: November 8, 2011
Docket No. 29,609
BOBBY WINDHAM and
VICKIE K. WINDHAM,
Plaintiffs,
v.
L.C.I.2, INC., a New Mexico
corporation,
Defendant-Appellee,
and
NATIONWIDE MUTUAL
INSURANCE COMPANY,
Intervenor-Appellant.
APPEAL FROM THE DISTRICT COURT OF TAOS COUNTY
Michael E. Vigil, District Judge
Law Office of Paul S. Grand, P.A.
Paul S. Grand
Santa Fe, NM
for Appellee
Montgomery & Andrews, P.A.
Kevin M. Sexton
Shannon A. Parden
Albuquerque, NM
Beall & Beihler
Josh A. Harris
Albuquerque, NM
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for Appellant
Will Ferguson & Associates
David M. Houliston
Albuquerque, NM
Sanders And Westbrook, PC
Maureen Sanders
Albuquerque, NM
for Plaintiffs
Calvert Menicucci, P.C.
Sean R. Calvert
Albuquerque, NM
for Amicus Curiae
OPINION
VIGIL, Judge.
{1} The memorandum opinion filed in this case on September 28, 2011, is hereby
withdrawn, and this opinion is substituted in its place.
{2} The City of Taos hired L.C.I.2, Inc. (L.C.I.2), to construct a structure surrounding
a pre-existing recreation area, which included a swimming pool, and L.C.I.2 in turn
subcontracted with Plaintiff’s employer, Newt & Butch’s Sheet Metal, Inc. (Newt & Butch)
to install the roof on the structure. Under the subcontract, Newt & Butch agreed to
indemnify L.C.I.2 against and save it harmless from any and all claims, suits or liability for
injuries to persons “on account of any act or omission of [Newt & Butch], or any of [its]
officers, agents, employees or servants[.]” Pursuant to this provision in the subcontract,
L.C.I.2 was named as an “additional insured” under a commercial general liability policy
issued to Newt & Butch by Nationwide Mutual Insurance Company (Nationwide). In
pertinent part, the policy provides that L.C.I.2 “is an additional insured only with respect to
liability arising out of [Newt & Butch’s] ongoing operations performed for [L.C.I.2].”
{3} While in the scope of his employment with Newt & Butch in installing the roof,
Plaintiff, Bobby Windham, fell through the cutout for a skylight, and landed in the empty
swimming pool. Plaintiff sued the general contractor, L.C.I.2, alleging that L.C.I.2 was
negligent in failing to provide coverings of the cutouts for the skylights and in failing to
implement, communicate, monitor, and enforce safety rules which would have prevented the
accident. On the same basis, Plaintiff’s wife sought damages for loss of consortium. L.C.I.2
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denied liability, asserted that the work referred to in the complaint was being performed by
the subcontractor, Newt & Butch, and that Plaintiff’s injuries and damages were the result
of Plaintiff’s negligence, or the negligence of a third party, “thereby barring the relief
requested or reducing it some percentage extent depending upon the degree of fault
apportioned to Plaintiff or other third parties pursuant to the rules of pure comparative
negligence adopted by the State of New Mexico.”
{4} L.C.I.2 demanded a defense and indemnification from Nationwide as an additional
insured under the policy. Nationwide accepted the defense under a reservation of rights. In
pertinent part, Nationwide stated that under the policy, L.C.I.2 is an additional insured for
damages arising out of Newt & Butch’s ongoing operations performed for L.C.I.2.
Accordingly, Nationwide said, it was reserving its rights, “because at this time, it is uncertain
whether this incident arose out of [Plaintiff’s] work for Newt & Butch’s or whether
[Plaintiff’s] injuries arose out of L.C.I.2’s individual negligence. Nationwide reserves its
right to not defend or indemnify L.C.I.2 for any damages arising out of its individual
negligence.” Addressing Newt & Butch’s contractual agreement to indemnify L.C.I.2,
Nationwide reserved its rights “to not defend or indemnify L.C.I.2 for this matter in the
event it is determined that [Plaintiff’s] injuries arose out of the individual negligence of
L.C.I.2.” Nationwide then intervened in Plaintiffs’ suit against L.C.I.2, and filed a complaint
seeking a declaratory judgment that it had no duty to defend or indemnify L.C.I.2 from any
claims asserted by Plaintiffs against L.C.I.2. Nationwide asserted that Plaintiffs made no
claims against Newt & Butch; and under the express terms and conditions of the insurance
policy and subcontract, it had no duty to defend or indemnify L.C.I.2. In addition,
Nationwide asserted that pursuant to NMSA 1978, Section 56-7-1 (2003), any claim by
L.C.I.2 for indemnity under the subcontract or insurance policy is void, unenforceable, and
against public policy. L.C.I.2 denied that Nationwide was entitled to the declaratory
judgment.
{5} Nationwide and L.C.I.2 filed motions for summary judgment in support of their
respective positions. Nationwide argued that Plaintiffs only alleged that L.C.I.2 was
negligent, and that an agreement by Newt & Butch in the subcontract or by its insurance to
provide L.C.I.2 with a defense and indemnification for L.C.I.2’s own negligence violates
Section 56-7-1. L.C.I.2 argued that as an additional insured, it is entitled to a defense and
indemnification under terms of the policy. Moreover, L.C.I.2 argued, Section 56-7-1 is not
a bar because L.C.I.2 does not seek indemnification for its own negligence, but a defense to
Plaintiffs’ suit to the extent Plaintiffs’ claim against L.C.I.2 “arises out of” Newt & Butch’s
acts or omissions. Following a hearing, the district court granted L.C.I.2’s motion for
summary judgment and denied Nationwide’s motion for summary judgment. Nationwide
appeals. We affirm.
STANDARD OF REVIEW
{6} The material facts are undisputed. Thus, our review of the order granting L.C.I.2
summary judgment is de novo. City of Albuquerque v. BPLW Architects & Eng’rs, Inc.,
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2009-NMCA-081, ¶ 7, 146 N.M. 717, 213 P.3d 1146 (“[I]f no material issues of fact are in
dispute and an appeal presents only a question of law, we apply de novo review and are not
required to view the appeal in the light most favorable to the party opposing summary
judgment.”).
DISCUSSION
Preliminary Matters
{7} Before addressing the merits, we note three preliminary matters. First, in a separate
order, the district court granted summary judgment to L.C.I.2 on Plaintiffs’ claims of
negligence against L.C.I.2. In Windham v. L.C.I.2, Inc., No. 29,212 (N.M. Ct. App. July 8,
2011), we filed a memorandum opinion reversing the summary judgment and remanded the
case to the district court. Thus, any arguments premised on that summary judgment are no
longer viable.
{8} Second, we note that Section 56-7-1 was amended in 2005. 2005 N.M. Laws, ch.
148, § 1. However, the subcontract between L.C.I.2 and Newt & Butch was signed while
the 2003 version of the statute was in effect. Thus, the parties do not dispute, and we agree,
that the 2003 version of Section 56-7-1 applies, and all references herein are to the 2003
version of the statute.
{9} Finally, Nationwide clarified in oral argument that while it acknowledges a duty to
provide L.C.I.2 a defense as an “additional insured” under the commercial liability policy
issued to Newt & Butch, its contention on appeal is that providing a defense in this case
violates Section 56-7-1; and the duty is void. Thus, there is no
issue before us concerning coverage of a duty to defend. We also observe that we are not
presented with any question concerning a duty to indemnify in the present posture of the
case.
Analysis
{10} We begin our analysis with the statute. Section 56-7-1 in pertinent part states:
A. 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, including the other party’s employees or agents, against
liability, claims, damages, losses or expenses, including attorney fees, arising
out of bodily injury to persons or damage to property caused by or resulting
from, in whole or in part, the negligence, act or omission of the indemnitee,
its officers, employees or agents, is void, unenforceable and against the
public policy of the state.
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B. A construction contract may contain a provision that, or shall
be enforced only to the extent that, it:
(1) requires one party to the contract to indemnify, hold
harmless or insure the other party to the contract, including its officers,
employees or agents, against liability, claims, damages, losses or expenses,
including attorney fees, only to the extent that the liability, damages, losses
or costs are caused by, or arise out of, the acts or omissions of the indemnitor
or its officers, employees or agents; or
(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.
....
E. As used in this section, “indemnify” or “hold harmless”
includes 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.
{11} Nationwide argues: (1) Section 56-7-1 voids any duty to provide L.C.I.2 a defense
because the complaint only alleges that L.C.I.2’s acts or omissions caused Plaintiffs’
injuries, Newt & Butch is not a party to the suit, the complaint makes no allegation of
negligence against Newt & Butch, and there has been no finding that Newt & Butch was
negligent; and (2) Section 56-7-1(B) and (E) only allow for a recovery of attorney fees after
a determination that any losses of L.C.I.2 were caused by Newt & Butch, and only to the
extent that such losses were caused by Newt & Butch.
{12} Nationwide’s first argument is premised on its assertion that Section 56-7-1 on its
face voids a provision in a construction contract which requires an indemnitor (Newt &
Butch) to provide a defense to an indemnitee (L.C.I.2) for injuries caused by, or resulting
from, in whole or in part, the negligence, act, or omission of the indemnitee (L.C.I.2).
{13} Our decision in City of Albuquerque is dispositive of Nationwide’s arguments. In
City of Albuquerque, BPLW designed and oversaw the construction of a rental car facility
at the airport pursuant to a contract with the City. 2009-NMCA-081, ¶ 2. In pertinent part,
the contract provided that BPLW agreed to defend the City for all suits brought against the
City because of injury received or sustained by any person “arising out of or resulting from
any negligent act, error, or omission of [BPLW] . . . arising out of the performance” of the
contract. Id. ¶ 14 (alterations in original) (internal quotation marks and citation omitted).
After the facility opened, a customer fell off a curb while exiting one of the buildings at the
facility, filed suit against the City, and subsequently amended the complaint to add BPLW
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as a defendant. Id. ¶ 2. When it received the complaint, the City requested BPLW to honor
its contractual obligation to defend the City, and BPLW refused. Id. ¶ 4. Accordingly, the
City filed a cross-claim against BPLW, alleging that BPLW had a contractual duty to defend
the City for any cause of action arising out of BPLW’s performance of the contract. Id. The
City filed a motion for partial summary judgment asserting that BPLW had a legal duty to
defend the City, and the district court granted the City’s motion. Id. ¶ 5. On appeal, we
affirmed the district court. Id. ¶ 32.
{14} Since neither party disputed that the allegations against the City were that the City
itself was negligent, the initial question posed was whether the contract required BPLW to
provide the City with a defense. Id. ¶ 13. Aside from very specific and limited exceptions
that are not applicable here, we held that the plain language of the contract required BPLW
to defend all suits brought against the City arising out of a negligent act, error, or omission
of BPLW in performing the contract. Id. ¶¶ 15-16. This specifically included causes of
action alleging that the City itself was negligent, as long as the cause of action arose from
BPLW’s performance of the agreement. Id. BPLW argued, as Nationwide does here, that
enforcing the contractual obligation would violate Section 56-7-1. Id. ¶ 19. We disagreed
and said:
Here, requiring BPLW to fulfill its contractual obligation to defend the City
against any suit against the City arising out of BPLW’s alleged negligence
in the performance of the contract does not violate Section 56-7-1 or the
policy behind it. Instead, this interpretation of the contract is fully consistent
with the requirements of the statute. It promotes safety in the construction
project because it ensures that BPLW will be accountable for any harm
caused by its performance of the agreement.
Id. ¶ 20. We recently reiterated our conclusion in City of Albuquerque that “requiring the
contractor to indemnify and defend the City for the contractor’s alleged negligence does not
violate the construction anti-indemnity statute [Section 56-7-1] or the policy behind it.”
Holguin v. Fulco Oil Servs. L.L.C., 2010-NMCA-091, ¶ 43, 149 N.M. 98, 245 P.3d 42, cert.
granted, 2010-NMCERT-010, 149 N.M. 65, 243 P.3d 1147. We therefore conclude that
Section 56-7-1 does not void Nationwide’s obligation to provide L.C.I.2 a defense.
{15} Nationwide’s second argument is premised on its attempt to distinguish City of
Albuquerque. Nationwide argues that City of Albuquerque is distinguishable because it
relied on exclusionary language that was eliminated in the 2003 amendment and because the
new exclusionary language that was added does not refer to a duty to defend. Specifically,
Nationwide argues, Section 56-7-1(A) is a general prohibition against agreements that allow
an indemnitor (Newt & Butch) to indemnify an indemnitee (L.C.1.2) for the indemnitee’s
own negligence, and this general prohibition specifically refers to agreements to defend.
Nationwide asserts that Section 56-7-1(B), which establishes when agreements generally
prohibited by Section 56-7-1(A) will be permitted, specifically refers to many of the types
of agreements listed in Section 56-7-1(A), but does not specifically refer to a duty to defend.
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In line with this reasoning, Nationwide asserts that even if Section 56-7-1(A) does not void
the agreement, Section 56-7-1(B) and (E) only allow for a recovery of attorney fees after a
determination that any losses of L.C.I.2 were caused by Newt & Butch, and only to the
extent that such losses were caused by Newt & Butch. We disagree for two reasons.
{16} First, we specifically noted the 2003 amendments to Section 56-7-1 in City of
Albuquerque, and we concluded that the amendments did not void the contractual duty to
defend in that case. 2009-NMCA-081, ¶¶ 19-20. We fail to see any material difference in
the duty to defend in City of Albuquerque and the case before us now.
{17} Secondly, Nationwide in effect asks us to treat its duty to defend as a claim for
indemnification. However, as we stated in City of Albuquerque, the duty to indemnify is
distinct from the duty to defend, and resolution of whether there is a duty to defend does not
necessarily depend on there being a duty to indemnify. Id. ¶ 31. The general rule giving rise
to the duty to defend is well settled:
If the allegations of the injured third party’s complaint show that an accident
or occurrence comes within the coverage of the policy, the insurer is
obligated to defend, regardless of the ultimate liability of the insured. The
question presented to the insurer in each case is whether the injured party’s
complaint states facts which bring the case within the coverage of the policy,
not whether he can prove an action against the insured for damages. The
insurer must also fulfill its promise to defend even though 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 show an occurrence within the coverage.
Am. Emp’rs Ins. Co. v. Cont’l Cas. Co., 85 N.M. 346, 348, 512 P.2d 674, 676 (1973)
(quoting 1 Long, The Law of Liability Insurance § 5.02 (1973)).
{18} In the case before us, L.C.I.2 is an “additional insured” under the policy issued to
Newt & Butch by Nationwide “with respect to liability arising out of [Newt & Butch’s]
ongoing operations performed for [L.C.I.2].” (Emphasis added.). City of Albuquerque
addressed how the phrase “arising out of” is to be construed: “The phrase ‘arising out of’
is given a broad interpretation by our courts and is generally understood to mean originating
from, having its origin in, growing out of, or flowing from.” 2009-NMCA-081, ¶ 22
(alteration omitted) (internal quotation marks and citation omitted). Applying City of
Albuquerque, Plaintiffs’ allegations against L.C.I.2 “arise out of” Newt & Butch’s
installation of the roof on the structure. Therefore, under our settled precedent, Nationwide
has a duty to defend L.C.I.2 regardless of L.C.I.2’s ultimate liability to Plaintiffs.
CONCLUSION
{19} The order of the district court is affirmed.
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{20} IT IS SO ORDERED.
____________________________________
MICHAEL E. VIGIL, Judge
WE CONCUR:
____________________________________
MICHAEL D. BUSTAMANTE, Judge
____________________________________
CYNTHIA A. FRY, Judge
Topic Index for Windham v. LCI2, Inc., No. 29,609
AE APPEAL AND ERROR
AE-SR Standard of Review
CM COMMERCIAL LAW
CM-CT Contractors and Subcontractors
CN CONTRACTS
CN-DD Duty to Defend
CN-ID Indemnification Agreement
CP CIVIL PROCEDURE
CP-SJ Summary Judgment
JM JUDGMENT
JM-DJ Declaratory Judgment
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