Or&L Const. v. Mountain States Mut. Cas. Co.

The slip opinion is the first version of an opinion released by the Chief Clerk of the
Supreme Court. Once an opinion is selected for publication by the Court, it is
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IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: _____________
Filing Date: April 25, 2022
No. A-1-CA-38977
OR&L CONSTRUCTION, L.P.,
Plaintiff-Appellant,
v.
MOUNTAIN STATES MUTUAL
CASUALTY COMPANY,
Defendant-Appellee.
APPEAL FROM THE DISTRICT COURT OF DOÑA ANA COUNTY
Jarod K. Hofacket, District Judge
The Furth Law Firm, P.A.
Ben Furth
Paul Hibner
Las Cruces, NM
for Appellant
Modrall, Sperling, Roehl, Harris & Sisk, P.A.
Tim L. Fields
Jeremy K. Harrison
Albuquerque, NM
for Appellee
OPINION
MEDINA, Judge.
{1} Plaintiff OR&L Construction, L.P. (OR&L) appeals the district court’s grant
of summary judgment in favor of Defendant Mountain States Mutual Casualty
Insurance Company (Mountain States). OR&L contends that the district court erred
by entering summary judgment in Mountain States’ favor and should have granted
summary judgment in OR&L’s favor; the district court should have applied the
“mend the hold” doctrine to prevent Mountain States from changing its reason for
denying OR&L’s claim for coverage; the district court erred in dismissing OR&L’s
claims for breach of the implied covenant of good faith and fair dealing and
violations of the Unfair Practices Act (UPA), NMSA 1978, § 57-12-2 (2009,
amended 2019), and the Unfair Insurance Practices Act (UIPA), NMSA 1978,
§ 59A-16-20 (1997); the district court erred by holding OR&L had notice of its
policy’s exclusions as a matter of law; and the district court erred by holding OR&L
suffered no damages as a matter of law. OR&L also argues that the district court
erred in awarding attorney fees and costs to Mountain States.
{2} We affirm and clarify two aspects of the implied covenant of good faith and
fair dealing. First, we hold that the reasonable expectations doctrine is a judicial
doctrine, and an insurer does not violate the implied covenant if it does not consider
an insured’s reasonable expectations of coverage when processing claims. Second,
we hold that an insurer’s good faith duty to investigate ends after it determines a
claim is not covered under the terms of an insured’s policy, and thus a failure to
investigate beyond the terms of the policy does not violate the implied covenant.
BACKGROUND
{3} OR&L is a construction business that conducts, among other things, roof
repair, including “torch-down” roofing—a technique which uses a flaming torch to
heat and seal tar paper onto a roof. OR&L sought a general commercial liability
policy through insurance broker Pat Campbell Insurance, LLC (Pat Campbell) that
would cover all its operations, including torch-down roofing. Mountain States does
not sell insurance directly to the public, and instead authorizes brokers, like Pat
Campbell, to sell its insurance products. Through Pat Campbell, OR&L obtained a
Mountain States general commercial liability insurance policy.
{4} In February 2016, Mountain States transmitted a complete copy of OR&L’s
policy to Pat Campbell. The complete policy contained two exclusions, “Designated
Work” and “Designated Ongoing Operations,” which specifically precluded
coverage for damage caused by torch-down roofing. Pat Campbell then sent a ten-
page “Commercial Package Policy” document to OR&L. The ten-page document
contained a two-page forms list which identified several forms included in OR&L’s
policy, including several exclusions. Pat Campbell did not read the complete policy
and failed to discover the torch-down roofing exclusion. OR&L reviewed the ten-
2
page policy document and the list of forms identifying the exclusions, but believed
it acquired coverage for torch-down roofing based on Pat Campbell’s
representations.
{5} In March 2016, a fire occurred at a home while OR&L was performing torch-
down roofing. OR&L submitted a claim for coverage to Mountain States, believing
that its policy covered damage caused by such an incident. Shortly after, OR&L
participated in two phone calls with Mountain States claims adjuster Kimberly
Kroner to discuss the fire. During the first call, OR&L informed Ms. Kroner that the
fire occurred while OR&L was performing torch-down roofing, and Ms. Kroner
replied that OR&L’s policy contained a torch-down roofing exclusion. OR&L
informed Ms. Kroner it was unaware the policy excluded torch-down roofing and
that it had only received a ten-page policy document from Pat Campbell. Ms. Kroner
ended the first call and discussed the exclusion with Mountain States’ chief
underwriting officer, who informed her the exclusion was valid. Ms. Kroner then
made a second call to inform OR&L that the policy exclusion was valid and that
OR&L had no coverage for a fire caused by torch-down roofing. A week later, Ms.
Kroner sent OR&L a letter officially denying coverage due to the torch-down
roofing exclusion. Mountain States did not investigate whether Pat Campbell had
provided OR&L with a complete copy of the policy and believed that OR&L did not
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have the complete policy. OR&L subsequently sued Mountain States and Pat
Campbell in May 2016.
{6} In August 2016, OR&L received a demand for payment from the
homeowner’s insurance company. Pat Campbell purchased the homeowner’s
demand through a July 2017 settlement agreement. In July 2018, OR&L and Pat
Campbell entered into a second settlement agreement in which Pat Campbell agreed
in part to pay OR&L’s attorney fees related to litigation between Pat Campbell and
OR&L, and extinguish the homeowner’s demand in exchange for OR&L releasing
all its claims against Pat Campbell. In exchange, OR&L agreed not to pursue further
legal action against Pat Campbell for any cause of action arising from the fire.
{7} After settling with Pat Campbell, OR&L filed a third amended complaint
which solely asserted claims against Mountain States. OR&L sought relief for
alleged violations of the UPA, breach of contract and breach of the implied covenant
of good faith and fair dealing, and violations of the UIPA. OR&L also sought
reformation of OR&L’s policy to strike the torch-down roofing exclusion and
damages.
{8} Mountain States answered the complaint and asserted a counterclaim against
OR&L, requesting a declaratory judgment due to the policy’s exclusion of losses
arising from torch-down roofing. In support of its counterclaim, Mountain States
alleged that OR&L had actual or constructive notice of the exclusion because the
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complete policy had been provided to Pat Campbell, and inquiry notice of the torch-
down roofing exclusion from the ten-page policy document Pat Campbell provided
to OR&L. OR&L subsequently filed a motion in limine asserting that Mountain
States mended its hold because Mountain States had initially denied OR&L’s
coverage claim due to the torch-down roofing exclusion, not OR&L’s notice of the
exclusion.
{9} The parties filed and briefed several motions for summary judgment. In a
detailed order, the district court granted summary judgment to Mountain States,
finding that Mountain States had disclosed the torch-down roofing exclusion to
OR&L. The district court found that the ten-page policy document OR&L received
reasonably informed OR&L of its rights and obligations and that there were
exclusions in the policy. Thus, per Young v. Seven Bar Flying Service, Inc., 1984-
NMSC-069, 101 N.M. 545, 685 P.2d 953, OR&L had notice of the exclusions as a
matter of law, and the documents supplied to OR&L would allow Mountain States
to rely on the torch-down roofing exclusion.
{10} The district court also found that OR&L’s release of Pat Campbell was an
alternate basis for granting summary judgment to Mountain States. OR&L’s
expectation of coverage was directly attributable to Pat Campbell, not Mountain
States, and Mountain States could only be held vicariously liable for Pat Campbell’s
acts and omissions. The district court found that because Pat Campbell was acting
5
as an agent for Mountain States when it delivered the policy to OR&L and OR&L
released Pat Campbell, no liability could be imputed to Mountain States for Pat
Campbell’s acts or omissions.
{11} The district court also dismissed OR&L’s claims for breach of the implied
covenant of good faith and fair dealing and violations of the UPA and UIPA.
Regarding OR&L’s expectations of coverage, the district court found that the
reasonable expectations doctrine is a judicial remedy, and that Mountain States
therefore had no duty to consider OR&L’s reasonable expectations of coverage. The
district court also found that Mountain States did not breach the implied covenant or
violate its duty to investigate the cause of the fire because the scope of an insurer’s
investigation is limited to the facts and circumstances of the loss and does not
encompass the insured’s expectations of coverage. Additionally, the district court
found Mountain States had no obligation to attempt to settle due to its good faith
belief that OR&L’s policy did not cover its loss from the fire.
{12} Regarding OR&L’s motion in limine, the district court found that Mountain
States did not mend its hold. The district court found that the doctrine did not
preclude Mountain States from further explaining the basis of its claims decision or
responding to legal arguments and that explaining how a policy exclusion was
enforceable was not mending the hold.
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{13} Because Pat Campbell had purchased the homeowner’s claim against OR&L,
the district court found that OR&L was in the position it expected to be when it
sought coverage for torch-down roofing and suffered no damages. Finally, the
district court found that OR&L either chose not to do available work due to the
litigation, which would be a failure to mitigate, or there was no work available
meaning there could be no lost profits. Because the availability of work and whether
that work was declined was in dispute, the district court denied summary judgment
on the issue of mitigation, but noted that its other rulings fully resolved the case and
no issues were preserved for trial.
{14} In a separate order, the district court found that Mountain States was entitled
to its fees and costs and overruled all of OR&L’s objections to Mountain States’ cost
bill, awarding Mountain States $53,465.82 in fees and costs. This appeal followed.
DISCUSSION
I. Summary Judgment
{15} “Our review on a grant of summary judgment is de novo.” Salas v. Mountain
States Mut. Cas. Co. (Salas II), 2009-NMSC-005, ¶ 12, 145 N.M. 542, 202 P.3d 801(internal quotation marks and citation omitted). “Summary judgment is only
appropriate where there are no genuine issues of material fact and the movant is
entitled to judgment as a matter of law.” Id. (internal quotation marks and citation
omitted). “Moreover, the existence of a duty is a question of law, which we review
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de novo.” Id.; see Azar v. Prudential Ins. Co. of Am., 2003-NMCA-062, ¶ 43, 133
N.M. 669, 68 P.3d 909.
A. The Torch-Down Roofing Exclusion
{16} Much of this case hinges on whether the torch-down roofing exclusion in
OR&L’s policy is enforceable. OR&L contends that the exclusion is not enforceable
because OR&L applied for torch-down roofing coverage; OR&L was informed that
the policy covered all its operations; Pat Campbell testified that it never would have
thought the policy contained an exclusion for coverage it had applied for; the policy
document identified itself as the policy and contained material terms; and the ten-
page policy document it received represented it covered OR&L’s business
operations. OR&L also contends that the district court erred in determining it had
notice of the exclusion as a matter of law because no reasonable person would know
that OR&L’s policy contained a torch-down roofing exclusion, OR&L applied for
and expected it would receive torch-down roofing coverage, and Pat Campbell did
not believe that there would be an exclusion for coverage it had applied for. Based
on the foregoing, OR&L claims it had reasonable expectations of coverage and the
policy should be reformed to eliminate the torch-down roofing exclusion. We
disagree and explain.
{17} “In New Mexico, if an insured is supplied with a copy of his policy or a
memorandum of insurance, then he may rely on the document so supplied to inform
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him of all his rights and duties under the insurance contract.” Young, 1984-NMSC-
069, ¶ 10. “If an insurer gives the impression that all of the material provisions of an
insurance contract are contained in a document furnished to the insured by the
insurer, then the insurer cannot invoke provisions in the original which were not
included in the copy given to the insured.” Id. “However, failure of an insurer to
provide an individual with a copy of an applicable insurance policy will not, in every
case, release the individual from the . . . provisions in the policy.” Id.{18} New Mexico courts have examined many situations similar to the present case
to determine whether a policy exclusion may be enforced. Two cases are particularly
helpful in guiding our analysis, with the first being Stock v. ADCO General Corp.,
1981-NMCA-075, ¶ 2, 96 N.M. 544, 632 P.2d 1182. In Stock, the plaintiff purchased
insurance through a broker to cover his tractor-trailer fleet. The policy, as issued,
was not what the plaintiff requested and was not what was quoted to the broker. Id.
¶ 3. The policy contained a “named driver endorsement” that had not been requested
or discussed and was not on the application. Id. The insurance company knew this
limitation was unusual and provided the broker with special stickers to attach to the
policy to warn the insured of the endorsement and its limited coverage, but the broker
failed to attach the stickers to the plaintiff’s policy. Id.
{19} Neither the broker nor the plaintiff read the policy. Id. ¶ 4. Therefore, neither
broker nor plaintiff were aware of the named driver endorsement limitation, and that
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one of the plaintiff’s drivers was not on that list. Id. The driver who was not on the
list was later involved in a tractor accident, and the plaintiff sued after he was denied
coverage for the accident. Id. ¶¶ 4-5. The plaintiff admitted he had not read the
policy, but argued that the limitation did not apply because he was never made aware
of the limitation and he had reason to expect the policy would provide coverage
based on similar policies he had received. Id. ¶ 7. This Court held that the plaintiff’s
failure to read the policy was not contributory negligence; it was reasonable for the
plaintiff to expect the policy would contain the coverage he requested; the plaintiff
was not advised by the broker that the policy was different; and the plaintiff was not
bound to read the policy word for word. Id. ¶¶ 10-11. This Court ultimately did not
reform the policy, but only declined to do so because the policy had already expired.
See id. ¶ 25.
{20} The second guiding case is Young. In Young, the plaintiff purchased an aircraft
that he leased to Seven Bar Flying Service (Seven Bar). 1984-NMSC-069, ¶ 1. Seven
Bar insured the aircraft on its master insurance policy with National Union (the
insurance company). Id. The plaintiff was supplied with a certificate of insurance
informing him that the insurance company had insured the aircraft. Id. ¶ 11. The
aircraft was subsequently stolen and the plaintiff sued Seven Bar for negligence and
breach of the lease agreement, as well as the insurance company for wrongful refusal
to pay his claim on the stolen aircraft. Id. ¶ 1. The plaintiff contended that the
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insurance company should be estopped from asserting the time-to-sue limitation in
Seven Bar’s master policy because the plaintiff was never provided with a copy of
the policy. Id. ¶ 8.
{21} The New Mexico Supreme Court disagreed, holding that the insurance
company could assert the time-to-sue limitation. Id. ¶ 12. The Court stated that “[i]f
an insurer gives the impression that all of the material provisions of an insurance
contract are contained in a document furnished to the insured by the insurer, then the
insurer cannot invoke provisions in the original that were not included in the copy
given to the insured.” Id. ¶ 10. However, the plaintiff had been provided with a
certificate of insurance, which stated “[f]or particulars concerning the limitations,
conditions and terms of the coverage you are referred to the original [p]olicy or
[p]olicies in the possession of the [a]ssured.” Id. ¶ 11. Therefore, the insurance
company was not estopped from asserting the time-to-sue limitation. Id. ¶ 12.
{22} “[T]he critical difference appears to be whether the document supplied to the
insured may have suggested that all the restrictions of the policy were set forth in
the document.” Willey v. United Mercantile Life Ins. Co., 1999-NMCA-137, ¶ 18,
128 N.M. 98, 990 P.2d 211. For that reason, we conclude that this case is more like
Young than Stock. The forms schedule in the ten-page policy document OR&L
received states that there are several terms and conditions, not just policy exclusions
to OR&L’s coverage, not contained within the ten-page document. The “Additional
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Property Coverage” and “Additional General Liability Coverages” forms also direct
the insured to “[r]efer to captioned endorsements for applicable limits and
deductibles” that are not listed in the ten-page document itself. Thus, the ten-page
policy document notifies the insured that there are limits and restrictions to OR&L’s
coverage that are fully explained within the complete policy.
{23} To the extent OR&L contends that Salas II, 2009-NMSC-005, and Salas v.
Mountain States Mutual Casualty Co. (Salas I), 2007-NMCA-161, 143 N.M. 113,
173 P.3d 35, prevent the exclusion from being enforceable, we disagree. It is true
that, under both Salas cases, insurers have a primary responsibility to provide
insureds with reasonable notice of the contents of their policy by providing a copy
of the policy or some other documentation of its terms and that a failure to do so
precludes the insurer from relying on an undisclosed provision to limit coverage.
Salas II, 2009-NMSC-005, ¶ 13; Salas I, 2007-NMCA-161, ¶ 38. But Mountain
States did not fail to provide OR&L with reasonable notice of the contents of its
policy because the ten-page policy document indicates that it does not contain the
policy’s complete terms and conditions. We, therefore, affirm the district court’s
grant of summary judgment in Mountain States’ favor because OR&L had notice of
the torch-down roofing exclusion as a matter of law and Mountain States may rely
on the exclusion to deny OR&L’s claim. Compare Young, 1984-NMSC-069, ¶ 11
(holding that the policy limitation was enforceable because the insured received a
12
“Certificate of Insurance” that directed him to refer to the original policy for the
complete terms and conditions of coverage (internal quotation marks omitted)), with
Willey, 1999-NMCA-137, ¶ 18 (holding that the policy limitation was not
enforceable because the document the insured received did not mention any policy
restrictions).
B. The Release of Pat Campbell
{24} “New Mexico law permits an insured to sue an agent for failing to obtain a
requested policy.” Wilson v. Berger Briggs Real Est. & Ins., Inc., 2021-NMCA-054,
¶ 9, 497 P.3d 654. “Liability may be predicated either upon the theory that the
defendant is the agent of the insured and has breached a contract to procure a policy
or insurance, or that he owes a duty to his principal to exercise reasonable skill, care,
and diligence in securing the insurance requested and negligently failed to do so.”
Id. (alterations, internal quotation marks, and citation omitted).
{25} Mountain States argues that OR&L and Pat Campbell’s settlement agreement
is an alternative basis for affirming summary judgment in its favor. Mountain States
asserts that Pat Campbell was acting as an insurance broker for OR&L when it
delivered the policy to OR&L, and thus was acting as OR&L’s agent at that time.
Because any liability of Mountain States for Pat Campbell’s failures is vicarious
liability, Mountain States argues that OR&L’s release of Pat Campbell releases all
claims against Mountain States derived from Pat Campbell’s actions. OR&L
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disagrees, arguing that the settlement does not release or involve Mountain States
and only provides for payment of attorney fees incurred in pursuing claims against
Pat Campbell, extinguishes the homeowner’s claims, and amends OR&L’s
complaint to remove Pat Campbell. OR&L also argues that its claims against
Mountain States are not based on vicarious liability.
{26} While we agree that some of OR&L’s claims against Mountain States are
based on direct liability, we determine that its release of Pat Campbell releases any
claims against Mountain States derived from Pat Campbell’s actions or omissions.
“The rule under general principles of insurance law is that an insurance broker
represents the insured.” Barth v. Coleman, 1994-NMSC-067, ¶ 23, 118 N.M. 1, 878
P.2d 319. Some cases have held the opposite, which illustrates the challenge of
applying general agency principles to cases in which insurance is sold through
brokers. See id.{27} But regardless of Pat Campbell’s agency relationship to either Mountain
States or OR&L, Pat Campbell has been discharged from this lawsuit. Thus, if we
assume without deciding that Pat Campbell was acting as an agent of OR&L, OR&L
has no recourse against Pat Campbell due to the settlement agreement. In contrast,
if we assume without deciding that Pat Campbell was acting as an agent of Mountain
States, OR&L has no recourse against Mountain States for Pat Campbell’s actions
that can be imputed to Mountain States because “with the release of an agent, the
14
means by which liability can be imputed to the principal is destroyed.” Valdez v. R-
Way, LLC, 2010-NMCA-068, ¶ 4, 148 N.M. 477, 237 P.3d 1289. Thus, Mountain
States cannot be held vicariously liable for the acts and omissions of Pat Campbell.
See Kinetics, Inc. v. El Paso Prods. Co., 1982-NMCA-160, ¶ 29, 99 N.M. 22, 653
P.2d 522 (“Vicarious liability is based on a relationship between the parties . . . under
which it has been determined as a matter of policy that one person should be liable
for the act of the other.” (internal quotation marks and citation omitted)).
{28} We therefore hold that OR&L’s release of Pat Campbell is alternative basis
for affirming the district court’s grant of summary judgment to Mountain States
regarding any actions of Pat Campbell that could be imputed to Mountain States. We
now address OR&L’s claims for direct liability.
C. The Implied Covenant of Good Faith and Fair Dealing
{29} “Under the common law, all insurance contracts include an implied covenant
of good faith and fair dealing that the insurer will not injure its policyholder’s right
to receive the full benefits of the contract.” Sherrill v. Farmers Ins. Exch., 2016-
NMCA-056, ¶ 34, 374 P.3d 723 (internal quotation marks and citation omitted).
“[T]he implied covenant of good faith and fair dealing cannot be used to override
express provisions in a written contract.” Smoot v. Physicians Life Ins. Co., 2004-
NMCA-027, ¶ 10, 135 N.M. 265, 87 P.3d 545. “Thus, it is breached only when a
15
party seeks to prevent the contract’s performance or to withhold its benefits from the
other party.” Azar, 2003-NMCA-062, ¶ 51.
{30} OR&L argues that Mountain States breached the implied covenant of good
faith and fair dealing in three ways. First, OR&L argues that, per Barth, 1994-
NMSC-067, insurers have a nondelegable duty to ensure the insured’s reasonable
expectations of coverage when denying coverage due to a policy exclusion and that
Mountain States’ failure to consider its reasonable expectations violates the UIPA.
Second, OR&L argues that Mountain States violated both the UIPA and its
nondelegable duty to investigate by not investigating the cause of the fire, or whether
OR&L had notice of the torch-down roofing exclusion. Third, OR&L argues that
Mountain States did not attempt to resolve OR&L’s claims in good faith in violation
of the UIPA. We disagree, and we explain.
1. The Reasonable Expectations Doctrine
{31} In Barth, the New Mexico Supreme Court held that “[w]hen deciding whether
an exclusionary clause is effective to nullify coverage under an insurance policy, we
give consideration to the reasonable expectations of the insured.” 1994-NMSC-067,
¶ 14. Nothing in Barth requires the insurer to consider the insured’s reasonable
expectations. Rather, the “reasonable expectations” doctrine is a judicial doctrine
applied by the courts when interpreting an insurance policy. See Rummel v.
Lexington Ins. Co., 1997-NMSC-041, ¶ 22, 123 N.M. 752, 945 P.2d 970 (“The
16
court’s construction of an insurance policy will be guided by the reasonable
expectations of the insured.”). OR&L identifies no authority, and we are aware of
none, that requires an insurer to consider the reasonable expectations of the insured
when determining whether coverage applies to a particular claim. Stated differently,
the doctrine guides construction of a policy in circumstances where such is at issue
or where given provisions require a court to ascertain their meaning. But to reiterate,
it is not a doctrine applicable to insurers themselves, nor does it govern what insurers
must cover in an insurance policy.
{32} As such, the “reasonable expectations” doctrine is not applicable in this case.
The doctrine may be invoked when (1) “the language of an insurance policy or
representations of [an] insurance company lead [the] insured to reasonably expect
coverage”; (2) the language of the policy is ambiguous; or (3) “when the dynamics
of the insurance transaction make way for its application.” Rehders v. Allstate Ins.
Co., 2006-NMCA-058, ¶ 33, 139 N.M. 536, 135 P.3d 237 (internal quotation marks
and citation omitted). However, “[u]nambiguous insurance policy exclusions are to
be enforced unless they are contrary to law or public policy.” Berlangieri v. Running
Elk Corp., 2002-NMCA-046, ¶ 15, 132 N.M. 92, 44 P.3d 538. The torch-down
roofing exclusion is not ambiguous, nor is it contrary to law or public policy. It is
true that the doctrine of reasonable expectations is not limited to disputed policy
language and that the dynamics of the insurance transaction often affect the insured’s
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reasonable expectations. Barth, 1994-NMSC-067, ¶ 15. However, unlike the
defendant in Barth, OR&L had notice of the torch-down roofing exclusion from the
ten-page policy document, and therefore Mountain States could rely on the exclusion
to deny OR&L’s claim. See id. ¶¶ 18-20 (holding that the defendant had a reasonable
expectation of coverage because the insured was (1) uninformed about the nature of
what he purchased, (2) did not receive the policy before the incident leading to a
claim for coverage arose, and (3) had no notice the policy contained an exclusion
precluding coverage for the incident).
{33} We therefore affirm the district court’s dismissal of OR&L’s claims for
violation of the implied covenant of good faith and fair dealing regarding the
reasonable expectations doctrine. We also affirm the dismissal of OR&L’s UIPA
claims regarding its reasonable expectations because the UIPA does not obligate
insurers to consider an insured’s reasonable expectations of coverage. See generally
§ 59A-16-20.
2. The Duty to Investigate
{34} Insurers are required to promptly investigate and process an insured’s claim
for coverage. See § 59A-16-20(C). “In this context, insurer conduct is measured by
basic standards of competency and the insurer is charged with knowledge of the duty
owed to its insured.” Sherrill, 2016-NMCA-056, ¶ 39 (omission, internal quotation
marks, and citation omitted).
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{35} There is no evidence in the record that Mountain States violated its duty to
investigate or otherwise sought to prevent the policy’s performance or withhold its
benefits. OR&L’s policy is clear that there is no coverage for torch-down roofing.
After OR&L submitted its claim for coverage, Mountain States inquired as to the
cause of the fire, informed OR&L that its policy did not cover torch-down roofing,
and confirmed that the policy exclusion still precluded coverage after OR&L
expressed that it was unaware of the exclusion. Thus, once Mountain States
performed its investigation and determined OR&L lacked coverage for the fire, there
was no other performance due under the contract.
{36} To the extent OR&L argues that Mountain States violated a nondelegable duty
to investigate whether OR&L had notice of the torch-down roofing exclusion under
the Salas cases, we disagree. As we have explained, neither Salas case imposes such
a duty on insurers. The Salas cases only require insurers to give reasonable notice of
the contents of their policy, and Mountain States met that requirement. See Salas I,
2007-NMCA-161, ¶ 38; Salas II, 2009-NMSC-005, ¶ 13. Mountain States had no
duty to consider OR&L’s reasonable expectations of coverage when processing its
claim, had no duty to investigate the fire once it determined OR&L’s claim was
excluded from coverage, and had no duty to investigate whether OR&L had notice
of the torch-down roofing exclusion.
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{37} We therefore affirm the district court’s dismissal of OR&L’s claims for
violation of the implied covenant of good faith and fair dealing regarding the duty
to investigate. Based on the forgoing, we also affirm the dismissal of OR&L’s UIPA
claims related to its reasonable expectations and Mountain States’ duty to
investigate. The UIPA does not require insurers to investigate the cause of an
incident leading to a claim when there is no coverage. See generally § 59A-16-20.
3. Resolution of OR&L’s Claims
{38} Finally, we briefly address OR&L’s assertion that Mountain States failed to
attempt in good faith to resolve OR&L’s claims and the claims against it. The UIPA
requires insurers to attempt “in good faith to effectuate prompt, fair and equitable
settlements of an insured’s claims in which liability has become reasonably clear.”
Section 59A-16-20(E). However, an insured cannot raise a claim of bad faith based
on an insurer’s failure to pay a covered claim unless the insured can establish that
coverage exists. Haygood v. United Servs. Auto. Ass’n, 2019-NMCA-074, ¶ 21, 453
P.3d 1235. OR&L has failed to establish coverage for claims regarding torch-down
roofing; therefore, OR&L’s argument that Mountain States did not attempt to resolve
its claim or any other claims in good faith is unavailing. Accordingly, we affirm the
dismissal of OR&L’s claims that Mountain States violated the implied covenant of
good faith and fair dealing or the UIPA by failing to promptly effectuate claims
resolution.
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D. Mountain States’ Alleged Misrepresentations
{39} Under the UPA, an unfair or deceptive practice is “a false or misleading oral
or written statement, visual description or other representation of any kind
knowingly made in connection with the sale, lease, rental or loan of goods or services
or in the extension of credit or in the collection of debts by a person in the regular
course of the person’s trade or commerce, that may, tends to or does deceive or
mislead any person.” Section 57-12-2(D). To establish a UPA violation, a plaintiff
must show four elements: “(1) the defendant made a false statement, (2) the
defendant made the statement in connection with the sale of services and knew that
the statement was false, (3) the defendant made the statement in the regular course
of trade or commerce, and (4) the statement was one which may, tends to, or does
deceive or mislead any person.” Dellaira v. Farmers Ins. Exch., 2004-NMCA-132,
¶ 20, 136 N.M. 552, 102 P.3d 111 (alteration, omission, internal quotation marks,
and citation omitted). “The ‘knowingly made’ requirement is met if a party was
actually aware that the statement was false or misleading when made, or in the
exercise of reasonable diligence should have been aware that the statement was false
or misleading.” Stevenson v. Louis Dreyfus Corp., 1991-NMSC-051, ¶ 17, 112 N.M.
97, 811 P.2d 1308.
{40} OR&L argues that Mountain States made several material misrepresentations
that merit reversal on different grounds. OR&L appears to contend that Mountain
21
States violated the UPA by (1) making material misrepresentations in its denial
letter, and (2) that the ten-page policy document deceived both Pat Campbell and
OR&L. OR&L similarly argues that Mountain States violated the UIPA by
misrepresenting OR&L’s policy provisions in its denial letter based on the torch-
down roofing exclusion, and that the denial letter failed to address OR&L’s
constructive notice of the exclusion in violation of the UIPA, which parallels
OR&L’s argument that Mountain States mended its hold by asserting OR&L’s
actual and constructive notice of the torch-down roofing exclusion in defending this
litigation.
{41} We disagree. OR&L fails to point us to any record evidence demonstrating
that Mountain States made any false statements or material misrepresentations. As
we have determined, Mountain States is entitled to rely on the torch-down roofing
exclusion because the ten-page document OR&L received contained notice of that
exclusion. Mountain States cited the exclusion when denying OR&L’s claim and did
not make a false statement or misrepresent any policy provisions when denying
coverage. Thus, OR&L’s UPA claims must fail because it cannot show the first
element required to establish a violation of the UPA. See § 57-12-2(D). We similarly
affirm the dismissal of OR&L’s UIPA claims related to Mountain States’ alleged
material misrepresentations, because OR&L has failed to establish that Mountain
22
States misrepresented facts or policy provisions in violation of the UIPA. See § 59A-
16-20(A).
{42} Finally, based on the forgoing, we conclude that the mend the hold doctrine
is not applicable to Mountain States’ conduct in defending this case. The mend the
hold doctrine precludes an insurer from asserting one reason to deny coverage of a
claim and then raising a different reason for denial as a defense once litigation
occurs. See Irwin v. Sovereign Camp of Woodmen of the World, 1910-NMSC-023,
¶ 4, 15 N.M. 365, 110 P. 550. Mountain States has consistently asserted its belief
that the torch-down roofing exclusion precludes coverage, both before and
throughout the duration of this lawsuit. Ms. Kroner expressed that the exclusion
precluded coverage for the fire when she spoke to OR&L, Mountain States’ denial
letter relies on the torch-down roofing exclusion, and Mountain States asserted the
exclusion as a counterclaim. While Mountain States explains its reliance on the
exclusion in more detail in defending this lawsuit, we are aware of no authority, and
OR&L cites none, that precludes an insurer from explaining the basis of its claims
decision and asserting the insured’s notice of that exclusion in response to litigation.
{43} As expressed above, whether an insured has notice is a factual and legal
question to be decided by the courts, not a claims denial question an insurer must
consider when denying a claim for coverage. We therefore determine that Mountain
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States did not mend its hold and affirm the district court’s order denying OR&L’s
motion in limine regarding the mend the hold doctrine.
E. Damages and Mitigation
{44} “In an ordinary lawsuit, denial of a motion for summary judgment is not
appealable.” Doe v. Leach, 1999-NMCA-117, ¶ 12, 128 N.M. 28, 988 P.2d 1252.
“Where a motion for summary judgment is based solely on a purely legal issue which
cannot be submitted to the trier of fact, and the resolution of which is not dependent
on evidence submitted to the trier of fact . . . the issue should be reviewable on appeal
from the judgment.” Gallegos v. State Bd. of Educ., 1997-NMCA-040, ¶ 10, 123
N.M. 362, 940 P.2d 468.
{45} Here, the district court found that OR&L suffered no damages in its order
denying Mountain States’ motion for summary judgment based on OR&L’s failure
to mitigate. OR&L challenges the district court’s finding that it suffered no damages
as a matter of law. However, because Mountain States’ motion for summary
judgment depended on an issue that needed resolution by the trier of fact—the
availability of work and whether such work was declined—there is no appealable
finding regarding damages.
{46} Regardless, it is unnecessary for us to review the issue of damages to resolve
this appeal. Because we have determined that Mountain States was legally entitled
to rely on the torch-down roofing exclusion to deny OR&L’s claims, whether OR&L
24
has suffered a monetary loss arising from the fire is irrelevant because Mountain
States is not liable for that loss. It is not our practice to address issues unnecessary
for the disposition of an appeal. See, e.g., Sandoval v. Cortez, 1975-NMCA-088,
¶ 16, 88 N.M. 170, 538 P.2d 1192 (“Since we are affirming this case on points
regarding liability it will be unnecessary for us to review the point regarding
damages.”).
{47} It is true that a plaintiff may seek recovery under the UPA without proof of
actual damages. See NMSA 1978, § 57-12-10(B) (2005) (authorizing recovery of
“actual damages or the sum of one hundred dollars ($100), whichever is greater”).
But because OR&L’s UPA claims fail, we similarly need not address OR&L’s claim
for damages under the UPA. We therefore decline to further address the issue of
damages.
II. Mountain States’ Cost Bill
{48} “In all civil actions or proceedings of any kind, the party prevailing shall
recover his costs against the other party unless the court orders otherwise for good
cause shown.” NMSA 1978, § 39-3-30 (1966). Similarly, our rules state “[u]nless
expressly stated either in a statute or in these rules, costs . . . shall be allowed to the
prevailing party unless the court otherwise directs.” Rule 1-054(D)(1) NMRA. As
the prevailing party, Mountain States is “entitled to a presumption that it should be
awarded costs.” Key v. Chrysler Motors Co., 2000-NMSC-010, ¶ 6, 128 N.M. 739,
25
998 P.2d 575. The burden is on the losing party to demonstrate that an award of costs
would be unjust or that other circumstances justify a denial or reductions of costs.
Apodaca v. AAA Gas. Co., 2003-NMCA-085, ¶ 103, 134 N.M. 77, 73 P.3d 215. “The
trial court has discretion in assessing costs, and its ruling will not be disturbed on
appeal unless it was an abuse of discretion.” Key, 2000-NMSC-010, ¶ 7 (internal
quotation marks and citation omitted).
{49} OR&L argues that the district court abused its discretion in awarding costs in
two ways. First, it asserts the district court erred in awarding costs for an expedited
deposition transcript of OR&L’s expert because the district court did not cite the
opinions in that transcript in its summary judgment order. Second, OR&L argues the
district court should not have awarded expert costs for Mountain States’ expert
because Mountain States sought non-recoverable costs, the expert’s rates were not
reasonable rates for Southern New Mexico, the bill included block billing, and the
district court likewise did not cite that expert’s opinion in its summary judgment
order.
{50} We disagree. The district court entered a detailed twelve-page order awarding
fees and costs to Mountain States. Specifically, the district court found that both
experts were necessary to litigation, OR&L did not support its argument that
Defendants’ expert fees or block billing was unreasonable, and that staff expenses
26
and document production fees are not unrecoverable costs if those fees are assessed
in preparation for the creation of an expert’s opinion.
{51} The district court affirmatively explained its reasons for awarding fees and
costs in a manner that is not contrary to logic or reason. See Stansell v. New Mexico
Lottery, 2009-NMCA-062, ¶ 14, 146 N.M. 417, 211 P.3d 214 (“A trial court abuses
its discretion when its decision is contrary to logic and reason.” (internal quotation
marks and citation omitted)). Further, OR&L does not point us to any authority or
evidence in the record demonstrating that the district court’s award of Mountain
States’ costs was in error. We therefore cannot say the district court abused its
discretion in awarding costs for the expedited deposition transcript and Mountain
States’ expert.
{52} Finally, OR&L argues that the district court failed to consider the chilling
effect that Mountain States’ cost bill would have on future UPA/UIPA claimants.
This assertion is contrary to the plain language of the UPA and UIPA. The UPA
explicitly directs the district court to award fees and costs to a party charged with a
violation of the act if it determines the claim is groundless. Section 57-12-10(C).
Similarly, under the UIPA, “[c]osts shall be allowed to the prevailing party unless
the court otherwise directs.” NMSA 1978, § 59A-16-30 (1990); see H-B-S P’ship v.
AIRCOA Hosp. Servs., Inc., 2008-NMCA-013, ¶ 28, 143 N.M. 404, 176 P.3d 113627
(recognizing that staff expenses and document-production costs incurred in
connection with the creation of an expert’s opinion are allowable).
{53} Therefore, there is no chilling effect implicated in an award of costs to UPA
or UIPA defendants, and OR&L’s argument is without merit. See, e.g., Key, 2000-
NMSC-010, ¶ 16 (concluding that the Legislature did not intend to limit costs to
prevailing defendants based on a theoretical chilling effect based on the language of
the Motor Vehicle Dealers Franchising Act).
CONCLUSION
{54} For the above reasons, we affirm the district court’s order granting summary
judgment in favor of Mountain States and dismissing OR&L’s claims for violations
of the implied covenant of good faith and fair dealing, the UPA, and the UIPA. We
also affirm the district court’s order awarding costs to Mountain States.
{55} IT IS SO ORDERED.
_______________________________
JACQUELINE R. MEDINA, Judge
I CONCUR:
______________________________
J. MILES HANISEE, Chief Judge
KRISTINA BOGARDUS, Judge (specially concurring).
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BOGARDUS, Judge (specially concurring).
{56} I concur in the result reached by the majority, except for the section addressing
the implied covenant of good faith and fair dealing. Because OR&L in this instance
received the coverage contracted for, it is my view that the Court need not reach any
arguments related to this issue. As the majority states “the implied covenant of good
faith and fair dealing cannot be used to override express provisions in a written
contract,” Smoot, 2004-NMCA-027, ¶ 10, and therefore this implied covenant is
only breached “when a party seeks to prevent the contract’s performance or to
withhold its benefits from the other party.” Azar, 2003-NMCA-062, ¶ 51. It is clear
that the coverage purchased by OR&L in this case included express provisions that
limited coverage. And there are no facts to support a contention that Mountain States
unreasonably withheld its coverage decision or failed to properly investigate the
claim, which might support a claim for lack of good faith and fair dealing even in
light of the policy exclusions. See Haygood, 2019-NMCA-074, ¶¶ 22-23 (noting that
a bad faith claim need not depend on the existence of coverage but may also arise
where the insurer failed to deal fairly in claims handling). Because it is unnecessary
to discuss the implied covenant of good faith and fair dealing to reach this Court’s
decision here, I do not concur in this portion of the opinion.
______________________________
KRISTINA BOGARDUS, Judge
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