Sanchez v. Allstate

1 This memorandum opinion was not selected for publication in the New Mexico Reports. Please
2 see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions.
3 Please also note that this electronic memorandum opinion may contain computer-generated
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6 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
7 W. KENNEY SANCHEZ and
8 DARLENE R. SANCHEZ,
9 individually and as Parents,
10 Guardians and Next Friends of
11 SHERRI SANCHEZ, CHRISTY
12 SANCHEZ, and WILLIAM SANCHEZ,
13 Minors,
14 Plaintiffs-Appellants,
15 v. NO. 28,872
16 ALLSTATE INSURANCE COMPANY,
17 Defendant-Appellee,
18 and
19 AMREP SOUTHWEST, INC., AMREP
20 CONSTRUCTION CORPORATION, and
21 THE BLUE REVIEW INC.,
22 Defendants.
23 APPEAL FROM THE DISTRICT COURT OF SANDOVAL COUNTY
24 Louis P. McDonald, District Judge
25 Dixon, Scholl & Bailey, P. A.
26 A. Brent Bailey
27 David M .Wesner
1 Albuquerque, NM
2 for Appellants
3 Simone, Roberts & Weiss, P.A.
4 Stephen M. Simone
5 Meena H. Allen
6 Albuquerque, NM
7 for Appellee Allstate Insurance Company
8 MEMORANDUM OPINION
9 KENNEDY, Judge.
10 In this case, we determine whether an insurance company, Allstate Insurance
11 Company (Allstate), owes its insureds, Kenny and Darlene Sanchez and their three
12 minor children (Plaintiffs), a fiduciary duty to disclose that toxic mold may be a
13 potential hazard resulting from water intrusion into Plaintiffs’ house under
14 circumstances where it is undisputed that neither the roof leak that brought on the
15 water intrusion nor toxic mold are losses covered by the applicable homeowners
16 insurance policy. We hold that Allstate does not have a fiduciary duty of disclosure
17 under the circumstances of this case. Accordingly, we affirm the district court’s
18 decision to deny Plaintiffs’ motion to reconsider its decision to grant Allstate
19 summary judgment and dismiss it from the case.
20 FACTUAL AND PROCEDURAL BACKGROUND
2
1 The following facts are undisputed. On April 27, 2007, Plaintiffs filed a
2 complaint for damages to their home and health due to defective roof construction,
3 water leakage, and toxic mold exposure. The complaint was filed against the builder
4 of Plaintiffs’ house, Amrep Southwest, Inc. or Amrep Construction Corporation
5 (Amrep); the homeowners’ insurance company, Allstate; and the company that
6 provided the home inspection services in connection with Plaintiffs’ purchase of the
7 house in February 2001, The Blue Review, Inc. (Blue Review). The complaint asserts
8 that the house was defectively built with concrete roof tiles covering the roof and a
9 roof structure insufficient to support the weight of the roof tiles. In addition, the roof
10 membrane underlying the concrete tiles is alleged to have been improperly installed,
11 specified, manufactured, and/or designed. Prior to purchasing the house, Plaintiffs
12 hired Blue Review to conduct a home inspection, and, according to Plaintiffs, the
13 inspection report failed to disclose conditions in the home that posed a risk of personal
14 injury and property damage to Plaintiffs.
15 During an intense rain storm sometime between April and June 2004, an
16 outdoor balcony outside the son’s bedroom collapsed. Plaintiffs moved outdoor
17 furniture and toys from under the collapse and placed a trash can under the hole. On
18 July 4, 2004, Plaintiffs found the first signs of a roof leak inside the house. Plaintiffs
19 called Allstate to report the leak. Allstate visited the home and photographed the
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1 damage. In August 2004, Allstate contacted Doyle Roof Masters, Inc. to inspect the
2 roof, determine the cause of the leaks, and provide an evaluation of the maintenance
3 and preventative maintenance that was necessary. Mr. Doyle, who has been in the
4 roofing business for about thirty years, concluded that water penetration from the roof
5 was the result of normal wear and tear and a lack of regular roof maintenance, not the
6 result of wind-driven rain or storm damage. Besides the damage to their home,
7 Plaintiffs’ complaint asserts that the water intrusion created conditions under which
8 mold grew and spread, and they were exposed to toxic mold, which made them sick.
9 In 2004 and 2005, Plaintiffs made claims under their homeowners insurance
10 policy with Allstate for the alleged property losses and health damages. Allstate
11 denied the claims based on the policy’s exclusions for losses caused by wear and tear,
12 faulty construction or maintenance, and mold, including “loss which, in whole or in
13 part, arises out of, is aggravated by or results from mold.”
14 Plaintiffs sued Allstate under four theories: (1) breach of contract; (2) common
15 law insurance bad faith; (3) violations of the insurance code; and (4) violations of the
16 Unfair Practices Act (UPA). Allstate moved for summary judgment on all counts
17 based on the policy exclusions. The district court granted Allstate’s motion for
18 summary judgment, dismissing Plaintiffs’ complaint against Allstate without
19 prejudice. Noting that Plaintiffs had cited no authority to support the duty theory they
4
1 asserted in their summary judgment response, the district court judge stated that he
2 would entertain a motion to reconsider for that purpose. Plaintiffs filed a motion to
3 reconsider, which the district court denied. This appeal followed.1 We turn now to
4 the merits of the appeal.
5 DISCUSSION
6 A. Standard of Review
7 We review a district court’s grant of summary judgment de novo. Self v. United
8 Parcel Serv., Inc., 1998-NMSC-046, ¶ 6, 126 N.M. 396, 970 P.2d 582. “Summary
9 judgment is appropriate where there are no genuine issues of material fact and the
10 movant is entitled to judgment as a matter of law.” Id. “The movant need only make
11 a prima facie showing that he is entitled to summary judgment. Upon the movant
12 making a prima facie showing, the burden shifts to the party opposing the motion to
13 demonstrate the existence of specific evidentiary facts which would require trial on
14 the merits.” Roth v. Thompson, 113 N.M. 331, 334-35, 825 P.2d 1241, 1244-45
15 (1992) (citation omitted). The existence of a duty is a question of law, which we
1
15 Although the appeal was filed as an interlocutory one, the effect of the order
16 denying Plaintiffs’ motion to reconsider was to grant summary judgment to Allstate
17 and dismiss it from the case. See Rule 1-054(B)(2) NMRA (“When multiple parties
18 are involved, judgment may be entered adjudicating all issues as to one or more, but
19 fewer than all parties. Such judgment shall be a final one unless the court, in its
20 discretion, expressly provides otherwise and a provision to that effect is contained in
21 the judgment.”); Healthsource, Inc. v. X-Ray Assocs. of N.M., 2005-NMCA-097, ¶ 14,
22 138 N.M. 70, 116 P.3d 861.
5
1 review de novo. Azar v. Prudential Ins. Co. of Am., 2003-NMCA-062, ¶ 43, 133 N.M.
2 669, 68 P.3d 909 (“The existence of a duty . . . remains a question of law for the
3 [district] court to determine and is answered by reference to legal precedent, statutes,
4 and other principles comprising the law.”).
5 B. Issue on Appeal
6 We begin our discussion by clarifying what matters are no longer at issue or
7 under consideration on appeal. As mentioned above, Plaintiffs sued Allstate under
8 four theories: (1) breach of contract; (2) common law insurance bad faith; (3)
9 violations of the insurance code; and (4) violations of the UPA. Allstate moved for
10 summary judgment based on the policy exclusions as dispositive of all of Plaintiffs’
11 claims against Allstate in the complaint. Plaintiffs’ response did not contest the facts
12 leading up to the losses. Plaintiffs did not dispute the opinion of Allstate’s expert, Mr.
13 Doyle, as to the cause of the roof leaks. Plaintiffs did not contest that the alleged
14 losses caused by water leaks and toxic mold are exclusions under Plaintiffs’
15 homeowners insurance policy with Allstate. Plaintiffs did not assert that Allstate’s
16 actions in determining that Plaintiffs’ losses were not covered under the policy
17 constituted bad faith, violated the insurance code, or the UPA.
18 Instead, Plaintiffs asserted in their response that Allstate had breached its duty
19 to warn Plaintiffs of toxic mold danger, breached its duty to investigate potential toxic
6
1 mold danger to Plaintiffs, and breached its obligation to provide Plaintiffs with
2 alternate lodging while it investigated the potential toxic mold danger. Plaintiffs
3 provided the affidavit of Plaintiff Darlene Sanchez stating that Allstate had not warned
4 Plaintiffs of toxic mold danger, investigated any such danger to Plaintiffs, or provided
5 Plaintiffs with alternate lodging while it investigated any potential for such danger.
6 Plaintiffs also provided the affidavit of an expert in the insurance field, Mr. Everette
7 Lee Herndon, Jr., who simply asserted that insurers such as Allstate have the duty to
8 warn Plaintiffs of toxic mold danger, investigate the potential for mold danger, and
9 provide Plaintiffs with alternate lodging while investigating the potential danger.
10 Neither Mr. Herndon’s affidavit nor Plaintiffs’ response, however, cited any provision
11 in the insurance contract, case law, statutes, including the UPA or the insurance code,
12 or recognized public policy precedent to support the assertions that, as a matter of law,
13 Allstate had a duty to warn or to disclose to Plaintiffs the possibility of the risk of
14 mold contamination in their home.
15 At the hearing on the motion for summary judgment, the district court noted,
16 and Plaintiffs acknowledged, that they are not contesting the facts leading up to the
17 alleged losses, the opinion of Allstate’s expert, or that the alleged losses were
18 exclusions under the insurance contract. These matters are no longer at issue in this
19 case. While Plaintiffs’ response to the motion asserted Allstate had breached a duty
7
1 to them, at the hearing, the district court noted, and Plaintiffs acknowledged, that they
2 had not provided any authority to support their theory that, as a matter of law, Allstate
3 had some kind of duty to warn or to disclose to Plaintiffs the possibility of the risk of
4 toxic mold in their home following the roof leaks. The district court entertained
5 Plaintiffs’ motion to reconsider for that purpose.
6 In the motion to reconsider and on appeal, Plaintiffs contend that Allstate’s duty
7 to Plaintiffs was a fiduciary one. Plaintiffs rely on cases that, they contend, stand for
8 the proposition that Allstate is a fiduciary of Plaintiffs and, as a fiduciary, Allstate had
9 a duty to disclose material facts to Plaintiffs, including known environmental hazards
10 such as toxic mold. The district court was unconvinced, however, and denied the
11 motion to reconsider. We turn now to consider this issue.
12 C. Whether Allstate had a Fiduciary Duty in Connection with Its
13 Investigation of a Roof Leak to Warn or to Disclose to Plaintiffs Potential
14 for Toxic Mold in Their Home
15 1. Plaintiffs’ Arguments
16 Plaintiffs first contend that Allstate was a fiduciary of Plaintiffs by virtue of the
17 insurance relationship and therefore owed Plaintiffs fiduciary duties. Plaintiffs assert
18 that under New Mexico law, an insurer is a fiduciary of its insureds at all times during
19 the performance of contractual duties, not merely when coverage is present pursuant
20 to the insurer’s evaluation of the policy. Plaintiffs argue that Allstate owed Plaintiffs
8
1 fiduciary duties as soon as Plaintiffs filed their 2004 claim because that filing initiated
2 Allstate’s claim adjustment process. Further, the claim adjustment process is the
3 performance of obligations under the insurance contract, which, in New Mexico, is
4 the condition giving rise to the insurer’s fiduciary duties. According to Plaintiffs, the
5 fact that Allstate determined that there was no coverage for Plaintiffs’ loss is irrelevant
6 because, under New Mexico law, the insurance relationship is inherently a fiduciary
7 one.
8 Second, Plaintiffs contend that, as Plaintiffs’ fiduciary, Allstate owed Plaintiffs
9 the duty to disclose its superior material information about possible mold danger to
10 them. According to Plaintiffs, as a fiduciary, Allstate is held to a different standard
11 of disclosure than a nonfiduciary provider of services. Allstate had a duty to disclose
12 material facts known only to one party to the relationship, and Allstate breached its
13 duty of disclosure by making no effort to determine Plaintiffs’ knowledge of mold
14 danger. Plaintiffs assert, without any evidentiary support, that “Allstate operates
15 nationwide, in all climates and environments, and is therefore experienced with
16 phenomena, such as mold, that are comparatively uncommon in New Mexico.”
17 Plaintiffs assert Allstate was bound to disclose that Plaintiffs could be in danger of
18 potentially debilitating toxic mold exposure because Allstate had superior knowledge,
19 and the information is material and within its exclusive control.
9
1 2. Allstate’s Fiduciary Duty to Plaintiffs to Warn or Disclose the Potential
2 Risks of Toxic Mold Exposure
3 a. Fiduciary Duty in the Insurance Contract Context
4 “A fiduciary relationship exists when special confidence has been placed in one
5 party who in equity and good conscience is bound to act in good faith and with due
6 regard to the interests of the other party.” Azar, 2003-NMCA-062, ¶ 54. “In the
7 insurance context, New Mexico courts have recognized a fiduciary duty because of
8 the fiduciary obligations inhering in insurance relationships and because of concerns
9 arising from the bargaining position typically occupied by the insured and the
10 insurer.” Id. (internal quotation marks and citation omitted). “An insurance
11 relationship alone, however, is not enough to give rise to a fiduciary relationship.” Id.12 “Instead, an insurer assumes a fiduciary obligation toward an insured only in matters
13 pertaining to the performance of obligations in the insurance contract.” Id.14 In New Mexico, the common law duty to disclose may arise from a fiduciary
15 relationship between the parties. See, e.g., Cont’l Potash, Inc. v. Freeport-McMoran,
16 Inc., 115 N.M. 690, 701, 858 P.2d 66, 77 (1993) (discussing that “[i]f there is a
17 confidential or fiduciary relationship between the parties, the failure to disclose
18 material facts or the suppression of material facts when required to disclose them,
19 which induces detrimental reliance, may constitute fraudulent concealment”). As
20 such, where there is a duty to disclose, a claim for fraud may be predicated on
10
1 concealment. See Azar, 2003-NMCA-062, ¶ 60; see also R.A. Peck, Inc. v. Liberty
2 Fed. Sav. Bank, 108 N.M. 84, 88, 766 P.2d 928 (Ct. App. 1988) (recognizing that “a
3 party can only be held liable for nondisclosure when there was a duty to disclose
4 [which] is generally a question of law for the trial court to decide”). We have held
5 that the insurer/insured fiduciary relationship does not impose a duty on the insurer
6 to disclose modal premiums that are clearly set forth in the policy. Azar, 2003-
7 NMCA-062, ¶ 55.
8 b. Allstate Does Not Have a Fiduciary Duty to Plaintiffs to Warn or Disclose
9 Potential Risks of Mold Growth and Toxic Mold Exposure After Water
10 Leak
11 First, because Plaintiffs failed to establish that Allstate had a fiduciary duty to
12 Plaintiffs to disclose to them the potential risks of mold growth and toxic mold
13 exposure, Plaintiffs have failed to show there are any issues of material fact requiring
14 a trial. Mr. Herndon’s and Plaintiff Darlene Sanchez’s affidavits assert that Allstate
15 did not warn Plaintiffs of the dangers of toxic mold exposure, did not investigate the
16 possibility of Plaintiffs’ exposure to toxic mold in their home, and did not provide
17 Plaintiffs with alternate lodging while investigating the possibility of toxic mold
18 exposure to Plaintiffs at their home. Mr. Herndon’s affidavit further states that, if
19 Allstate “knew or had reason to know” that toxic mold was present in Plaintiffs’
20 house, then Allstate had the duty to warn or disclose the potential risks of toxic mold
11
1 exposure to Plaintiffs. Plaintiffs contend that these affidavits were sufficient to
2 establish Allstate’s duty to Plaintiffs and create material issues of fact for trial with
3 regard to breach, causation, and damages. We disagree.
4 Mr. Herndon’s and Plaintiff Darlene Sanchez’s affidavits assert that Allstate
5 breached its duty to Plaintiffs without first establishing that a duty existed. See Solon
6 v. WEK Drilling Co., 113 N.M. 566, 571, 829 P.2d 645, 650 (1992) (“It is thoroughly
7 settled in New Mexico, of course, that whether the defendant owes a duty to the
8 plaintiff is a question of law.”); Schear v. Bd. of County Comm’rs, 101 N.M. 671, 672,
9 687 P.2d 728, 729 (1984) (“Whether a duty exists is a question of law for the courts
10 to decide.”); Beal v. S. Union Gas Co., 66 N.M. 424, 436-37, 349 P.2d 337, 346
11 (1960) (holding that neither expert nor non-expert witnesses are permitted to give
12 opinions on questions of law). In addition, as the district court recognized, Mr.
13 Herndon’s affidavit does not explain any basis or authority for its legal conclusions.
14 See Shamalon Bird Farm, Ltd. v. U.S. Fid. & Guar. Co., 111 N.M. 713, 715, 809 P.2d
15 627, 629 (1991) (holding that “an expert witness must satisfactorily explain steps
16 followed in reaching [a] conclusion and give reasons for his opinion”). Finally,
17 although the district court recognized the lack of support for Mr. Herndon’s assertions,
18 Plaintiffs did not provide any additional arguments or materials from Mr. Herndon in
19 support of the motion to reconsider. Similarly, on appeal, Plaintiffs do not further
12
1 rely on Mr. Herndon’s affidavit to establish Allstate’s alleged fiduciary duty. Under
2 the circumstances, we agree with the district court that Mr. Herndon’s affidavit is not
3 sufficient to establish that, as a matter of law, Allstate had a fiduciary duty to warn or
4 disclose to Plaintiffs the potential risk of mold exposure in a situation where it is
5 undisputed that neither the alleged losses arising from the water leak nor the alleged
6 losses resulting from mold growth or exposure are covered by the insurance contract.
7 Second, as we have discussed, New Mexico case law is clear that “an insurer
8 assumes a fiduciary obligation toward an insured only in matters pertaining to the
9 performance of obligations in the insurance contract.” Azar, 2003-NMCA-062, ¶ 54.
10 Thus, while the insurer has a fiduciary duty to deal in good faith with its insured, this
11 duty arises from the express terms, obligations, and conditions of the insurance policy.
12 Id. ¶ 58 (“The implied covenant of good faith and fair dealing is a more limited
13 concept in that it requires the existence of an underlying contract and may not be used
14 to override the express provisions of an integrated, written contract.”). The insurance
15 policy terms expressly set forth the obligations of the parties and the losses that are
16 covered and those that are excluded. The homeowners insurance policy at issue in this
17 case does not require Allstate to investigate for toxic mold nor to warn Plaintiffs of
18 the potential risks of toxic mold exposure after a water leak. Plaintiffs have not
19 directed this Court to any language contained in the policy suggesting that Allstate has
13
1 such an obligation under the circumstances of this case, and without such an
2 obligation, Allstate cannot be held to have breached its duty or caused Plaintiffs’
3 alleged damages.
4 Third, Plaintiffs argue that once the fiduciary duty is established, fiduciaries
5 have a general duty of disclosure. In making that argument, they cite to out-of-state
6 authorities that discuss an alleged duty to disclose the danger of using silicone in the
7 human body, Dow Chemical Co. v. Mahlum, 970 P.2d 98 (Nev. 1998), overruled in
8 part on other grounds by GES, Inc. v. Corbitt, 21 P.3d 11 (Nev. 2001), and the
9 presence of asbestos in a building being sold, Appletree Square I Ltd. v. Investmark,
10 Inc., 494 N.W.2d 889 (Minn. Ct. App. 1993). These two cases merely recognize what
11 our case law in New Mexico provides—that when a fiduciary relationship exists, there
12 is a general duty of disclosure. In Dow Chemical, the court determined that there was
13 no fiduciary duty of disclosure on the part of Dow Chemical because there was no
14 relationship of any kind between Dow Chemical and the plaintiffs. 970 P.2d at 110-
15 11. In Appletree Square, the court held that the parties, the buyer and the seller of the
16 property, had a fiduciary relationship as partners, and, as such, the seller should have
17 disclosed its knowledge of asbestos in the building being sold. 494 N.W.2d at 892-93.
18 These cases do not persuade us that Allstate had a fiduciary duty to Plaintiffs under
19 the circumstances of this case.
14
1 Finally, with regard to adjusting the claim in this case, after Allstate performed
2 its investigation and determined that the roof leaks were not covered claims, there was
3 no other performance due under the contract. Allstate had no further obligation, nor
4 any exclusive control over the situation, to serve as an adviser or as an expert to
5 Plaintiffs to caution them that there was a potential for mold growth after a water leak.
6 In this regard, Plaintiffs have presented no evidence whatsoever that Allstate should
7 have or does have superior knowledge regarding mold growth and exposure in New
8 Mexico. Plaintiffs’ mere assertions that Allstate does business in other states does not
9 mean that Allstate has superior knowledge about mold in New Mexico. See, e.g., V.P.
10 Clarence Co. v. Colgate, 115 N.M. 471, 472, 853 P.2d 722, 723 (1993) (“[T]he briefs
11 and arguments of counsel are not evidence upon which a [district] court can rely in a
12 summary judgment proceeding.”). Even assuming that Allstate did have any such
13 superior knowledge about mold, as a matter of law, no fiduciary duty to Plaintiffs on
14 this matter existed, and Allstate was not, therefore, under a duty of disclosure to them.
15 See, e.g., Cont’l Potash, Inc., 115 N.M. at 701, 858 P.2d at 77 (recognizing that,
16 “[w]ithout a fiduciary duty, no duty to disclose or speak exist[s],” and “[a]bsent a
17 fiduciary duty to speak[,] . . . silence, nondisclosure, or denials . . . are insufficient to
18 constitute fraudulent concealment”).
19 CONCLUSION
15
1 We deny Plaintiffs’ request for oral argument. We affirm the district court’s
2 order granting summary judgment to Allstate.
3 IT IS SO ORDERED.
4 ___________________________________
5 RODERICK T. KENNEDY, Judge
6 WE CONCUR:
7 ___________________________
8 JONATHAN B. SUTIN, Judge
9 ___________________________
10 ROBERT E. ROBLES, Judge
16