The slip opinion is the first version of an opinion released by the Clerk of the Court of Appeals. Once an opinion is selected for publication by the Court, it is assigned a vendor-neutral citation by the Clerk of the Court for compliance with Rule 23- 112 NMRA, authenticated and formally published. The slip opinion may contain deviations from the formal authenticated opinion.
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: _____________
Filing Date: December 18, 2023
No. A-1-CA-39929
D.R. HORTON, INC. and DRH SOUTHWEST CONSTRUCTION, INC.,
Plaintiffs-Appellants,
v.
TRINITY UNIVERSAL INSURANCE COMPANY; KEMPER CORPORATION; MERASTAR INSURANCE COMPANY; and AMTRUST INSURANCE COMPANY OF KANSAS, INC. f/k/a TRINITY UNIVERSAL INSURANCE COMPANY OF KANSAS, INC.,
Defendants-Appellees.
APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY Francis J. Mathew, District Court Judge
Landry & Ludewig, L.L.P. Stephanie Landry Glenn R. Smith Albuquerque, NM
Stalter Law LLC Kenneth H. Stalter Albuquerque, NM for Appellants
Modrall, Sperling, Roehl, Harris & Sisk, P.A. Jennifer A. Noya Jeremy K. Harrison Albuquerque, NM
for Appellees
Stiff, Garcia & Associates, LLC John S. Stiff Edward F. Snow Albuquerque, NM
for Appellee Amtrust Insurance Company of Kansas OPINION
WRAY, Judge.
{1} This case involves the intersection of an insurer’s well-established duty to
defend and an insured’s contractual duties under an insurance policy. In the district
court, Appellants D.R. Horton, Inc. and DRH Southwest Construction, Inc.
(collectively, Horton) alleged, in addition to many other claims, that the insurers,
Appellees Trinity Universal Insurance Company (Trinity Universal), Trinity
Universal Insurance Company of Kansas (Trinity Kansas), and Amtrust Insurance
Company of Kansas, Inc. (Amtrust) (collectively, Defendants), had a duty to defend
a series of claims relating to construction defects. We refer to Trinity Kansas and
Trinity Universal collectively as “Trinity.” The district court concluded that
Defendants suffered substantial prejudice from Horton’s multi-year delay in
providing notice of the claims to Defendants and granted summary judgment in Defendants’ favor. Horton appeals the dismissal of its claims as well as a series of
other summary judgment denials and discovery rulings. Despite evidence that
Horton intentionally delayed notifying Defendants of the claims, contrary to the
requirements of the insurance policies at issue, Trinity did not defend Horton when
it received actual notice of a claim that was arguably covered. See Garcia v.
Underwriters at Lloyd’s, London, 2008-NMSC-018, ¶ 16, 143 N.M. 732, 182 P.3d
113. As a policy matter, New Mexico law prioritizes the duty to defend over
potential contract defenses—like the failure to give notice. See id. ¶¶ 18-19; Dove v.
State Farm Fire & Cas. Co., 2017-NMCA-051, ¶ 15, 399 P.3d 400; State Farm Fire
& Cas. Co. v. Price, 1984-NMCA-036, ¶¶ 30, 33, 101 N.M. 438, 684 P.2d 524,
overruled on other grounds by Ellingwood v. N.N. Invs. Life Ins. Co., 1991-NMSC-
006, ¶ 17, 111 N.M. 301, 805 P.2d 70. Thus, if a jury determines that the insurer
breached the duty to defend, the insurer “suffers serious consequences,” including
the loss of certain contract-based defenses—like the insured’s failure to give notice.
Price, 1984-NMCA-036, ¶¶ 32-33. As a result, under New Mexico law, when the
duty to defend remains in dispute, summary judgment may not be granted on
defenses that implicate the insured’s breach of the insurance contract provisions. Id.
We therefore reverse the district court’s grant of summary judgment in Defendants’
favor based on notice to the insurer. Otherwise, we affirm.
BACKGROUND
2 {2} Horton began the development of subdivisions in 2005, and Vinyard &
Associates, Inc. (Vinyard) provided Horton with geotechnical consulting services as
a subcontractor. Horton and Vinyard entered into multiple contracts for this work,
and under each contract, Vinyard was required to obtain a commercial general
liability policy that included Horton as an additional insured. Using an insurance
agency, Berger Briggs Real Estate & Insurance, Inc. (Berger Briggs), Vinyard
obtained a commercial general liability policy from Trinity Kansas (the CGL Policy)
and an umbrella policy from Trinity Universal (the Umbrella Policy), with both
policies (collectively, the Trinity Policies) covering the period between October 28,
2006 to October 28, 2007. The Trinity Policies include both (1) an obligation for the
insured to notify the insurer of occurrences, offenses, claims, or suits; and (2) “the
right and duty” for the insurer to defend the insured against any suit for damages to
which the insurance applied.
{3} In 2008, Horton received notice that some subdivision homes could be
experiencing construction defects. Horton and Vinyard communicated about the
defects and claims by the homeowners, and Horton involved other subcontractor
insurers, including Acadia Insurance Company (Acadia) and BITCO General
Insurance Corporation (BITCO). The homeowner complaints began to be filed in
November 2009 and a large number were eventually made part of a “consolidated
arbitration.” See Lyndoe v. D.R. Horton, Inc., 2012-NMCA-103, ¶¶ 2-3, 5, 287 P.3d
3 357 (describing the homeowner complaint litigation at issue in the present case).
Communications continued between Horton and Berger Briggs, Horton and
Vinyard, and Vinyard and Berger Briggs. Beginning in 2012, two individual
arbitrators in the homeowner cases determined that Horton did not heed Vinyard’s
advice. On March 5, 2014, a few months before the first consolidated arbitration
hearing, the consolidated arbitrator determined that “certain liability findings” from
the prior two arbitrations, including Horton’s failure to follow Vinyard’s advice,
would have preclusive effect—though for future claims, Horton would be permitted
to question the relevancy of the specific findings.
{4} After the March 2014 collateral estoppel ruling from the consolidated
arbitrator and consolidated arbitration hearings held in early June 2014, Acadia
wrote to Trinity regarding the CGL and Umbrella policies. In letters dated June 23,
2014, Acadia requested that Trinity contribute to Horton’s defense. Trinity formally
responded on August 25, 2014, and indicated that Trinity had not previously
received notice of the claims but an investigation had commenced. Trinity explained
that Horton did not appear to have been added to the policies as an additional
insured—which had been required under the original contracts between Horton and
Vinyard—and additionally noted that the homeowner complaints that Acadia had
provided did not allege fault on Vinyard’s part—only fault by Horton for not heeding
Vinyard’s recommendations. Trinity requested that Acadia provide information to
4 assist the investigation and coverage analysis—specifically, information that would
demonstrate that Horton was an additional insured or that Vinyard was at fault.
Trinity wrote to Acadia again on October 1, 2014, November 17, 2014, and on
February 4, 2015. Having received no response from Acadia, in the February 2015
letter, Trinity advised Acadia that “Trinity formally denies your request on behalf of
Acadia Insurance to participate with Acadia in the defense of Horton in the” two
identified proceedings. Trinity did not contact Vinyard, Berger Briggs, or Horton
before sending the February 2015 letter denying Horton a defense.
{5} On December 18, 2015, BITCO wrote to Trinity and requested that Trinity
provide a defense for Horton. Trinity responded on January 6, 2016, and observed
that it had previously requested information from Acadia that was not provided,
asked BITCO to provide the same information to further a renewed investigation,
and raised the same concerns about coverage. It appears from the record that, like
Acadia, BICTO did not respond to Trinity’s requests for more information.
{6} On February 1, 2018—two years removed from the most recent
correspondence relating to the presence or absence of coverage for Horton under
Trinity policies and eight years removed from Horton’s first expression of concern
regarding the claims of homeowners—Horton wrote directly to Trinity’s counsel for
the first time. In that letter, Horton referenced the 2014 and 2015 letters from Acadia
and BITCO and argued that Trinity had failed to legitimately respond to those
5 demands for a defense. Trinity responded on June 7, 2018, and though the entire
letter does not appear to be in the record, the reviewable pages reiterate Trinity’s
objections to coverage.
{7} On July 26, 2018, Horton filed suit against Trinity, other insurers who had
issued policies for different periods of time during the Horton-Vinyard contractual
relationship (collectively, the Vinyard insurers), and Amtrust, which, as a result of
an asset purchase, had acquired the policies of Trinity Kansas. This complaint marks
the start of the litigation currently before this Court. Horton brought multiple claims
directly against Trinity and Amtrust as well as a claim for judgment on an arbitration
award that Horton had secured against Vinyard for breach of contract. In the claim
for a judgment, Horton alleged that Defendants must pay what Vinyard owed for the
breach of contract, because Horton was an additional insured or Vinyard’s
indemnitee.
{8} Between October 2020 and May 2021, Horton, Trinity, and Amtrust filed
twenty motions for summary judgment. In Trinity’s motion for summary judgment
on Horton’s claim to coverage under the Umbrella Policy (the Umbrella Motion),
which Amtrust joined, and Trinity’s motion for summary judgment on all claims
based on Horton’s failure to give timely notice of the homeowner claims as required
by the Trinity Policies (the Notice Motion), Trinity set forth additional evidence that
Horton had intentionally not demanded a defense from Trinity.
6 {9} This information, together with Horton’s explicit requests for a defense from
Acadia and BITCO, led Trinity to assert in the present case that the only reasonable
inference to draw was that Horton strategically chose not to pursue a defense from
Trinity in the early years of the homeowner litigation and therefore failed to give the
required notice under the Trinity Policies. In relevant part, Horton responded that
the reasons for not pursuing a defense from Trinity before 2014 were immaterial. At
the hearings related to Horton’s summary judgment on Trinity’s breach of the duty
to defend (the DTD Motion), Horton additionally argued, again in relevant part, that
(1) Trinity could not assert Horton’s failure to cooperate as a defense if Trinity had
breached the duty to defend; and (2) Horton’s reasons for not requesting a defense
sooner were irrelevant because Horton sought no damages for the period before the
2014 notice was provided. Horton did not, however, deny that the decision to delay
pursing a defense from Trinity was strategic.
{10} Of the twenty motions filed (between these parties), the district court granted
only a portion of the Umbrella Motion and the Notice Motion. The remainder, with
the exception of four defense motions that were apparently unresolved, were denied.
Importantly, the district court denied Horton’s DTD Motion for summary judgment
based on the existence of disputed material facts, and Trinity had not filed a
competing motion for summary judgment on the duty to defend. In granting Trinity’s
Umbrella Motion, the district court ruled that “summary judgment should be entered
7 on any [of Horton’s] claim[s] that [it is] entitled to coverage as an additional insured
under the” Umbrella Policy—but did not grant summary judgment on “extra-
contractual claims related to the” Umbrella Policy. Regarding the Notice Motion,
the district court stated that Trinity had made a prima facie showing that it was
entitled to judgment as a matter of law and ruled that Horton’s response did not meet
the burden to demonstrate that disputed issues of fact would prevent summary
judgment on notice. Specifically, the district court determined as a matter of law that
Horton’s delay over a period of years in giving notice to [Trinity and Amtrust] of homeowner claims while engaging in litigation and/or arbitration proceedings and settling with homeowners or otherwise resolving claims created substantial prejudice to them. . . . Such delay relieved [Trinity and Amtrust] of both the duty to defend and the duty to indemnify.
Based on this conclusion, the district court dismissed Plaintiffs’ claims against
Defendants with prejudice. This appeal followed.
DISCUSSION
{11} On appeal, Horton challenges nine of the district court’s summary judgment
orders and two discovery-related orders. We review only the district court’s grant of
summary judgment on the Notice Motion and the discovery rulings.
I. The Insured’s Failure to Give Notice as Required by the Insurance Contract Is Not an Available Defense to a Claim That the Insurer Breached the Duty to Defend
8 {12} We review the “grant of summary judgment de novo.” Dove, 2017-NMCA-
051, ¶ 10. As we have often explained, “[s]ummary judgment is appropriate where
there are no genuine issues of material fact and the movant is entitled to judgment
as a matter of law[,]” with “[a]ll reasonable inferences . . . construed in favor of the
non-moving party.” Id. (internal quotation marks and citations omitted). Should
there be “any question as to any issue of material fact, summary judgment is
inappropriate.” Allsup’s Convenience Stores, Inc. v. N. River Ins. Co., 1999-NMSC-
006, ¶ 43, 127 N.M. 1, 976 P.2d 1 (internal quotation marks and citation omitted).
While Horton contests the district court’s grant of partial summary judgment on the
Umbrella Motion and denial of several other motions, its primary challenge is to the
district court’s dismissal of its claims based on the grant of Trinity’s Notice Motion
and the corresponding denial of Horton’s DTD Motion. The parties’ arguments
implicate two seemingly separate lines of authority—the law regarding the duty to
defend and the law regarding the duty of the insured to give notice, which we pause
our analysis to review.
A. The Duty of Insurers: The Duty to Defend
{13} In New Mexico, “[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., 1990-NMSC-094, ¶ 11, 110 N.M. 741, 799 P.2d 1113.
9 An insurer must defend (1) if a complaint filed “alleges facts potentially within the
coverage of the policy”; (2) if the facts in the complaint do not clearly assert the facts
so that the insurer can determine the action does not fall within the coverage of the
policy (because doubts about coverage are “resolved in the insured’s favor”); or (3)
“if the insurer is notified of factual contentions or if the insurer could have
discovered facts, through reasonable investigation, implicating a duty to defend.”
Dove, 2017-NMCA-051, ¶ 11 (internal quotation marks and citations omitted). As
this Court has explained, “[t]he upshot of our case law in this realm is this: an insurer
who refuses to defend a covered insured without seeking a judicial determination
that the alleged insured is not covered under the policy or without a voluntary waiver
from the insured does so at its peril.” Id. ¶ 14 (citations omitted). We described the
insurer’s peril as follows: “[A]n insurer who unilaterally refuses to defend
effectively waives its ability to later challenge the underlying merits as to coverage
because the ultimate question of coverage is to be properly resolved in the primary
action in order to protect the interests of the insured and for judicial efficiency.” Id.
¶ 15. The duty to defend “may arise at the beginning of litigation or at some later
stage if the issues are changed so as to bring the dispute within the scope of policy
coverage.” Am. Gen. Fire & Cas. Co., 1990-NMSC-094, ¶ 11.
{14} In Garcia, our Supreme Court held that “actual notice is sufficient to trigger
the duty to defend unless the insured affirmatively declines a defense,” 2008-NMSC-
10 018, ¶ 1, and that “for the purposes of determining when an insurer’s duty to defend
arises, actual notice means notice from any source sufficient to permit the insurer to
locate and defend its insured.” Id. ¶ 25 (alteration, quotation marks, and citations
omitted). The Court cautioned, however, that the duty to defend need not be
automatic and stated instead that on receiving actual notice, “the insurer may protect
its interests simply by contacting the insured to ascertain whether the insurer’s
assistance is desired[, and i]f the insured indicates that it does not want the insurer’s
assistance, or is unresponsive or uncooperative, the insurer is relieved of its duty to
defend.” Id. ¶ 19 (internal quotation marks and citation omitted). While the notice
received by the Garcia insurer satisfied the new standard for actual notice in the
context of the duty to defend, the case was nevertheless remanded. Id. ¶¶ 25, 27.
Fact questions remained about whether the insured “was foregoing a defense from”
the insurer, id. ¶ 26, because the insurer did not advise the insured that no demand
had been made and the record contained “ambiguous communications” between the
insurer and the estate representative, id. ¶¶ 22-23. Our Supreme Court, in remanding,
determined that “the key inquiry in this case is whether under all the circumstances,
including the correspondence exchanged between the [estate] and [the insurer], the
[estate] was foregoing a defense from [the insurer].” Id. ¶ 26 (alterations, quotation
marks, and citation omitted). Because the inquiry was “fact-driven” and required
interpretation of “an ambiguous letter,” summary judgment was inappropriate. Id.
11 ¶ 26. “Thus, while actual notice presumptively triggers a duty to defend, a jury may
nevertheless find, when warranted by the facts, that the insured knowingly declined
a defense, and the duty to defend was therefore not breached.” Id. ¶ 16 (internal
quotation marks and citation omitted). With this as context, we turn to the insured’s
contractual obligation to give notice to the insurer.
B. The Duty of an Insured: The Obligation to Give Notice in the Context of the Duty to Defend
{15} The Trinity Policies each contain a notice provision, which requires the
insured to notify the insurer “as soon as practicable” of an occurrence, claim, or suit,
and the purpose of such a provision “is to enable the insurer to prepare to defend or
make settlement as it sees fit.” State Farm Mut. Auto. Ins. Co. v. Found. Rsrv. Ins.
Co., 1967-NMSC-197, ¶ 13, 78 N.M. 359, 431 P.2d 737. The principle is long-
established that “[w]hen an insurance company seeks to avoid its obligations under
a policy by claiming that the insured materially breached policy provisions, it must
demonstrate substantial prejudice as a result of the breach.” Price, 1984-NMCA-
036, ¶ 30. Generally, “substantial prejudice and whether the insurance company and
the insured acted fairly are . . . questions for a jury.” Id.
{16} In Price, this Court considered intertwined “issues concerning coverage, the
duty of the insurance company to defend, and cooperation of the insured.” Id. ¶ 1.
The Price insured was involved in a car crash and notified his own insurer. Id.
¶¶ 2, 4. In the lawsuit that followed, the parties reached a settlement. Id. ¶ 9. The
12 insurer was not a party and did not “participate in or consent to this settlement.” Id.
The insurer filed a declaratory judgment action against the insured, and the district
court ruled that the insurer had no duty to defend the insured in the car-crash suit
because the insured did not notify the insurer of the claim or demand a defense. Id.
¶¶ 10, 17. This Court reversed, holding that “[a] jury should decide whether there
was a sufficient demand to defend and whether [the insurer] failed to defend” as well
as “issues concerning [the insured]’s failure to cooperate, whether [the insurer] was
prejudiced by [the insured]’s failure to cooperate, whether the settlement was made
in good faith and whether it was reasonable in amount.” Id. ¶ 51. Specifically, this
Court determined that
[t]here is evidence in the record to support an inference that [the insurer] knew a suit had been filed, or knew of facts which imposed a duty upon it to find out whether litigation involving its insured was pending, and that it consciously disregarded the facts and failed to defend its insured. The record also contains evidence which, if believed by a jury, supports [the insurer]’s contention that [the insured] failed to cooperate, causing substantial prejudice to the insurer.
Id. ¶ 31. While our Supreme Court in Garcia broadened the acceptable form of
notice of a claim from what Price required—from a demand by the insured to actual
notice from any source—Garcia and Price uniformly determine that the “policy of
encouraging insurers to perform their contractual obligations outweighs any
requirement that allows insurers to default on their obligation to defend simply
because the insured did not formally ask the insurer to do what the insurance contract
13 already requires.” Garcia, 2008-NMSC-018, ¶ 20 (internal quotation marks and
citation omitted); Price, 1984-NMCA-036, ¶¶ 31-32, 51 (same).
{17} Price and Dove require that if disputed issues of fact exist regarding the
insurer’s breach of the duty to defend, the question must be submitted to the jury.
Price, 1984-NMCA-036, ¶ 51. Where the duty to defend and the duty to give notice
are both at issue, disputes of fact involving the duty to defend must be resolved as a
threshold matter by the fact-finder, because notice-type defenses are unavailable to
the insurer if the insurer breached the duty to defend. See id. ¶¶ 32-33, 53
(recommending the use of special verdict forms on the duty to defend issue); Dove,
2017-NMCA-051, ¶ 15 (outlining the peril of wrongfully denying the duty to
defend). If the insurer is determined to have “unjustifiably fail[ed] to defend,” the
insurer “suffers serious consequences” and “becomes liable for a judgment entered
against the insured and for any settlement entered into by the insured in good faith.”
Price, 1984-NMCA-036, ¶¶ 32-33. If, however, the fact-finder finds no breach of
the duty to defend, the insurer may argue notice as a defense—that the insured
breached the contract by failing to give the insurer timely notice and that the breach
substantially prejudiced the insurer—to any remaining claims raised by the insured
that are not contingent on the duty to defend findings. Id. ¶ 30; see also State Farm
Mut. Auto. Ins. Co. v. Fennema, 2005-NMSC-010, ¶ 17, 137 N.M. 275, 110 P.3d
491 (holding that the insurer must demonstrate substantial prejudice resulting from
14 an insured’s breach of a consent to settle provision). Regardless, an insurer is not
defenseless when facing allegations that it has breached the duty to defend. The
insurer may assert that the claim is not arguably covered by the policy, the insurer
did not receive actual notice of the claim, the insurer conducted a reasonable
investigation, or that the insured declined a defense. Garcia, 2008-NMSC-018,
¶¶ 16, 19; Dove, 2017-NMCA-051, ¶ 11.
C. The Impact of the Duty to Defend on the Present Case
{18} We return now from the abstract to the present case, which like Price, involves
the duty to defend and the duty to notify, and like Price and Dove, the possibility
that the insurer, Trinity, waived some defenses if it breached the duty to defend.
And, as in Price and Garcia, we conclude that because factual disputes remain
regarding the duty to defend, we must reverse the grant of summary judgment on
Trinity’s Notice Motion. The district court granted the Notice Motion despite its
determination that factual issues remained regarding the duty to defend. Pursuant to
Price, however, any failure by Horton to give notice or to cooperate would be
defenses lost to Trinity in the event that Trinity breached the duty to defend. See
Price, 1984-NMCA-036, ¶¶ 31-33. As a result, the district court’s determination that
disputed facts exist about Trinity’s breach of the duty to defend precluded summary
judgment on the Notice Motion.
15 {19} Nevertheless, Trinity argues that the district court’s final order on the Notice
Motion was correct because Trinity had no duty to defend—that the duty to defend
was not triggered for two reasons. Trinity maintains that the duty to defend was not
triggered because Horton’s breach of the contractual notice obligation happened first
in time and it is only “[a]fter an insurer declines to defend, [that] it ‘loses the right’
to point to post-denial actions by the insured that would otherwise be a breach of
policy conditions.” As we have explained, however, New Mexico law requires that
the duty to defend question be resolved before contract defenses (like compliance
with contractual notice requirements) can be applied—even though the insured’s
actions in delaying notice happened before the insured has an opportunity to defend.
The resulting chronological disconnect is resolved by the insurer’s ability to argue
in the context of the duty to defend that the insurer did not receive actual notice or
the insured’s actions demonstrated that the insured intended to decline a defense.
See Garcia, 2008-NMSC-018, ¶ 1. If the insurer never received actual notice from
any source that is “sufficient to permit the insurer to locate and defend its insured,”
the insurer did not breach the duty to defend. See id. ¶ 25 (internal quotation marks
and citation omitted). If the insured is found to have declined a defense by its actions
before a defense is denied, there is no breach of the duty to defend. See id. ¶¶ 1, 26.
We therefore need not strictly limit the analysis to the timing of the parties’ actions,
but instead leave for the fact-finder to consider the reasonable inferences to be
16 gleaned from those actions in the context of the duty to defend. See id. ¶ 26; Price,
1984-NMCA-036, ¶ 31.
{20} Trinity also contends that the duty to defend was not triggered because notice
under the Trinity Policies was a condition precedent to Trinity performing its
contractual duties—including providing a defense. A condition precedent, however,
“is generally understood as an event occurring after the formation of a valid contract,
an event that must occur before there is a right to an immediate performance, before
there is breach of a contractual duty, and before the usual judicial remedies are
available.” Rodriguez v. Sanchez, 2023-NMCA-076, ¶ 10, 536 P.3d 543 (alteration,
internal quotation marks, and citation omitted). If “a contract contains a condition
precedent to performance, the right to enforce the contract does not arise until the
condition precedent has been fulfilled.” Id. ¶ 12. Other jurisdictions have held as
Trinity argues, that notice is a condition precedent to coverage. See Philadelphia
Indem. Ins. Co. v. Genesee Valley Improvement Corp., 834 N.Y.S.2d 802, 803-04
(App. Div. 2007); E&L Chipping Co. v. Hanover Ins. Co., 962 S.W.2d 272, 278
(Tex. App. 1998). A dispute of authority remains, see generally 14A Jordan R. Plitt
et al., Couch on Insurance, § 202:13, Westlaw (database updated Nov. 2023),
however, and New Mexico has rejected the view that the failure of a party to an
insurance contract to perform a condition excuses the other party from performance.
As to this issue, we must adhere to our Supreme Court’s view.
17 {21} Our Supreme Court characterizes insurance contracts as “aleatory,” meaning
that “one or both parties’ performance is conditional on the happening of a fortuitous
event.” Jackson Nat’l Life Ins. Co. v. Receconi, 1992-NMSC-019, ¶ 21, 113 N.M.
403, 827 P.2d 118. A key aspect of an aleatory contract is that the promise of each
party “is not given in exchange for the prospect of performance of the other party’s
promise, and actual or prospective nonperformance by one party to the contract does
not discharge the other.” Id. In Jackson, the policy included an “express condition”
that the insured’s “health remain, at the time of delivery of the policy, as represented
in the application.” Id. ¶ 20. Because of the aleatory nature of the contract, however,
the insured’s failure to perform the promise—to notify the insurer if his health
changed before delivery of the policy—did not discharge the insurer from
performing “its aleatory promise to pay [the insured]’s beneficiary the face amount
of the policy in the event of his death.” Id. ¶ 21. That principle applied to the present
case dictates that any failure by Horton to give timely notice did not, on its own, act
as a condition precedent that discharged Trinity’s duty to defend before the duty to
defend was triggered.
{22} For its part, Horton maintains on appeal that the district court should have
granted summary judgment in its favor on the DTD Motion and Trinity contends
that disputed material facts prevented summary judgment on the duty to defend
because Horton was not arguably covered under the policy. This creates an unusual
18 posture for our review. The denial of summary judgment to Horton—based on
disputed issues of fact—is not final and generally not reviewable. See Jones v. City
of Albuquerque Police Dep’t, 2020-NMSC-013, ¶ 23, 470 P.3d 252 (noting that an
order denying summary judgment is interlocutory, not final, and “generally not
immediately appealable”). As we have noted, Trinity filed no cross-motion in the
district court on the duty to defend and the district court had no opportunity to grant
such a motion. Thus, the question of factual disputes on the duty to defend, which
the district court decided warranted a trial, is out of our reach on appeal.1
1 We note that the district court’s order partially granting Trinity’s Umbrella Motion for summary judgment determined that Horton was not covered as an additional insured under the Umbrella Policy. It is not clear whether the district court denied Horton’s DTD Motion because Horton was not covered by the Umbrella Policy and there was therefore no duty to defend, or whether the district court simply granted the Umbrella Motion that there was no coverage without any corresponding intent to rule on the duty to defend under the Umbrella Policy. The former ruling would be reversible, because the duty to defend can exist even in light of a subsequent determination of no coverage, see Price, 1984-NMCA-036, ¶¶ 16-17 (affirming a directed verdict of no coverage but separately considering the duty to defend), and the coverage inquiry for the duty to defend is whether the insured was arguably or potentially covered. Dove, 2017-NMCA-051, ¶ 16. The latter ruling would stand, for the same reason—there may ultimately be no coverage even if there was a duty to defend at the time the insurer received notice. We presume the ruling simply determined that the Umbrella Policy did not cover Horton as an additional insured. See Bounds v. Hamlett, 2011-NMCA-078, ¶ 32, 150 N.M. 389, 258 P.3d 1181 (“Generally, district court judgments are presumptively correct.”). We therefore do not reverse the grant of summary judgment on coverage under the Umbrella Policy and do not disturb the district court’s ruling that questions of fact precluded summary judgment on the duty to defend.
19 {23} If the jury finds Trinity breached the duty to defend, Trinity “suffers serious
consequences,” including the “loss of the right to claim that the insured breached the
policy provisions . . . and the right to claim that the insured did not cooperate.” See
Price, 1984-NMCA-036, ¶¶ 32-33. In that scenario, any breach of the contractual
notice requirement becomes irrelevant. If, however, the jury finds that Trinity did
not breach the duty to defend, Trinity’s notice defense would become relevant to any
other claims Horton may have that are separate from the duty to defend. On appeal,
Horton argues that its claims were not limited to those “as an insured,” but also
included judgment-creditor claims relating to the Vinyard Judgment—the arbitration
award that Horton obtained against Vinyard. Trinity responds that Horton failed to
preserve the question of whether the grant of the duty to defend motion resolved all
of the pending claims, and alternatively argues that judgment on all claims was
appropriate based on Horton’s failure to give notice and the nature of the Vinyard
Judgment. We conclude that Horton’s argument was sufficiently preserved—the
district court denied both parties’ separate summary judgment motions related to the
Vinyard Judgment, which indicates disputes of material fact on the subject. In
dismissing Horton’s complaint completely, the district court relied on its finding that
“as a matter of law, Horton’s delay over a period of years in giving notice to [Trinity]
of homeowner claims while engaging in litigation and/or arbitration proceedings and
settling with homeowners or otherwise resolving claims created substantial
20 prejudice to them” and that the “delay relieved defendants of both the duty to defend
and the duty to indemnify.” Thus, the district court determined that summary
judgment on the notice question also resolved the Vinyard Judgment, despite
disputed questions of fact on the substance of the claim. Because claims unrelated
to the duty to defend and the Vinyard judgment claim could survive a fact-finder’s
determination that Trinity did not breach the duty to defend, we consider Horton’s
argument that summary judgment on the Notice Motion was inappropriate because
the parties disputed material facts related to prejudice.
{24} Horton presented evidence that notice was timely for the homeowner claims
that were added after Acadia’s 2014 notice to Trinity, the post-2014 homeowner
claims were not the same as the earlier homeowner claims, and the consolidated
arbitrator’s findings did not predetermine later cases. Trinity responds that (1)
Horton’s intentional failure to tender a defense earlier was inherently prejudicial;
and (2) Trinity was excluded from any control over or strategy regarding the initial
homeowner arbitrations, bound by the arbitrators’ findings on the homeowner claims
such that “Horton’s negligence could no longer be contested,” and would have been
able to do nothing more than pay fees and judgments. From the evidence presented
on summary judgment, a reasonable fact-finder could conclude either that Trinity
was prejudiced by the inability to participate in the early proceedings to shape and
direct strategy and avoid preclusive findings, as Trinity maintains, or that as Horton
21 argues, the ongoing future homeowner proceedings were not predetermined by the
results from the consolidated arbitrations, and Trinity was not prejudiced. See Price,
1984-NMCA-036, ¶ 51 (recognizing the “jury issues” regarding the insured’s
cooperation). As a result, the district court’s grant of summary judgment on notice
must be reversed on this basis as well.
D. The Parties’ Remaining Summary Judgment Arguments
{25} Horton also challenges the district court’s denial of summary judgment related
to Amtrust’s joinder. The district court denied cross-motions on this issue based on
disputed questions of fact. We need not address this issue because we remand for
further proceedings as a result of our ruling on the Notice Motion. On remand, it is
for the fact-finder to resolve these remaining issues of disputed material fact.
II. We Affirm the District Court’s Discovery Rulings
{26} Because we remand for further proceedings, we address Horton’s challenges
to the district court’s discovery rulings that occurred close in time to the grant of
summary judgment. Horton contends that the district court improperly (1) compelled
Horton to reveal privileged communications regarding Horton’s reasoning for
allegedly delaying a request for Trinity to defend (the Tender Communications); and
(2) refused to compel Trinity to reveal information regarding the “claims
investigation” conducted by Trinity’s outside counsel (the OC Documents). We
review discovery rulings for abuse of discretion and “[t]o the extent a discretionary
22 decision is premised on a construction of a privilege, it presents a question of law,
subject to de novo review.” See Pina v. Espinoza, 2001-NMCA-055, ¶ 12, 130 N.M.
661, 29 P.3d 1062.
{27} “A client may claim attorney-client privilege to refuse to disclose confidential
communications between certain persons if the communications were made for the
purpose of acquiring legal advice for the client.” Santa Fe Pac. Gold Corp. v. United
Nuclear Corp., 2007-NMCA-133, ¶ 13, 143 N.M. 215, 175 P.3d 309 (citing Rule
11-503(B) NMRA). Attorney-client privilege has four elements: “(1) a
communication (2) made in confidence (3) between privileged persons (4) for the
purpose of facilitating the attorney’s rendition of professional legal services to the
client.” Id. ¶ 14. The party claiming the privilege has the burden to establish “a
communication is protected as an exception to the ordinary rule” that “the public has
a right to every man’s evidence.” Id. ¶ 13 (internal quotation marks and citation
omitted). With these principles in mind, we consider the Tender Communications
followed by the OC Documents.
A. Horton Did Not Carry Its Burden to Demonstrate That the Tender Communications Were Privileged
{28} In order to investigate Horton’s motives for waiting to request a defense from
Trinity, Trinity sought discovery and eventually filed a motion to compel. The
district court granted Trinity’s motion, and on appeal, Horton argues that the district
court improperly compelled production because (1) Trinity’s request was
23 insufficiently specific; (2) the requested information was not relevant; (3) the
information was privileged legal—and not business—advice; and (4) Horton did not
waive the privilege. Because we conclude that Horton did not meet the burden to
establish that the documents were privileged, we do not address waiver.
{29} We disagree with Horton’s first contention that Trinity’s motion did not
“identif[y] the request at issue or the specific documents sought” and did not attach
the discovery request in contention as required by Rule 1-037 NMRA. See
Albuquerque J. v. Bd. of Educ. of Albuquerque Pub. Schs., 2019-NMCA-012, ¶ 15,
436 P.3d 1 (“An abuse of discretion occurs when a ruling is clearly contrary to the
logical conclusions demanded by the facts and circumstances of the case.” (internal
quotation marks and citation omitted)). Trinity attached the requests for production
to the motion, as well as portions of Horton’s privilege log, and sought to compel
Horton to produce a witness to answer questions “that relate[] discretely to the tender
of defense issues.” The district court noted that Trinity’s requests were “very broad”
and exercised its discretion to narrow and specify the information sought because
some of the documents “may be legitimate privileges as asserted.” Because the
district court narrowed the request, Horton demonstrates no prejudice from any
failure by Trinity to sufficiently identify the requested information in the motion to
compel, and the district court did not abuse its discretion in compelling production.
See Doe v. Roman Cath. Diocese of Boise, Inc., 1996-NMCA-057, ¶ 21, 121 N.M.
24 738, 918 P.2d 17 (explaining that Rule 1-026(C) NMRA “invests the trial court with
the authority to reasonably limit discovery; therefore, it is incumbent upon [the
objecting party] to demonstrate that the limitation constituted an abuse of discretion
so as to prejudice [the party’s] case”).
{30} As to Horton’s second contention, that the Tender Communications are not
relevant to the subject matter of the case, we have already determined that disputed
material facts prevented summary judgment on Trinity’s claim based on Horton’s
alleged breach of the duty to provide notice, including whether Horton declined a
defense. Even though the fact-finder might determine that Trinity breached the duty
to defend, which would put the notice defense out of Trinity’s reach, the information
“appears reasonably calculated to lead to the discovery of admissible evidence” and
therefore falls within the “scope of discovery”—provided that the information is
“not privileged.” See Rule 1-026(B)(1).
{31} Turning to privilege, Horton’s arguments relate to two types of Tender
Communications: those between Horton’s in-house counsel and outside counsel
(Counsel Communications) and those between outside counsel and other entities
(Entity Communications). Horton’s argument regarding Counsel Communications
relates to Bhandari v. Artesia General Hospital, in which we explained that “[t]he
privilege protects communications generated or received by an attorney giving legal
advice but does not protect communications derived from an attorney giving
25 business advice or acting in some other capacity.” 2014-NMCA-018, ¶ 12, 317 P.3d
856 (internal quotation marks and citation omitted). Horton points to evidence that
the Counsel Communications were solely legal. Horton, however, also produced an
affidavit from in-house counsel stating that “the decisions regarding the tenders of
the defense of the Underlying Litigations and Arbitrations were a combination of
business and legal considerations, and the business considerations were integrally
intertwined with the legal considerations and therefore cannot be discussed without
disclosing attorney-client privileged information.” Horton argues that any legal
purpose should shield the communication, but Bhandari forecloses that approach.
{32} This Court in Bhandari concluded that “a court faced with a situation where
the primary purpose of a communication is not clearly legal or business advice
should conclude the communication is for a business purpose, unless evidence
clearly shows that the legal purpose outweighs the business purpose.” Id. ¶ 18. The
evidence presented established an admittedly mixed purpose. Horton points to no
evidence to demonstrate that the legal purpose “clearly” outweighs the business
purpose. The district court applied the correct legal standard to decide the privilege
question, and the evidence presented supported the district court’s conclusion that
Horton did not meet the burden to establish the privilege. Under these circumstances,
we discern no abuse of discretion. See id. ¶ 9 (reviewing de novo whether the
appropriate standard for privilege was applied and concluding that the evidence
26 supported the district court’s determination as to whether the communications were
business or legal advice).
{33} Horton additionally argues that the Entity Communications were protected by
the common interest privilege. 2 Attorney-client privilege “may be established by
demonstrating that the communication occurred ‘between the client or client’s
lawyer and another lawyer representing another in a matter of common interest.’”
Albuquerque J., 2019-NMCA-012, ¶ 19 (alteration omitted) (quoting Rule 11-
503(B)(3)). Horton points to affidavits that it argues demonstrate an agreement
between Horton, Acadia, and BITCO regarding “a cooperative and common
enterprise towards an identical legal strategy” for the homeowner claims. The party
asserting the common interest privilege, however, must establish a factual basis for
two additional elements, in addition to an agreement. Id. Assuming that Horton’s
affidavits establish a preexisting or contemporaneous agreement of the parties,
Horton does not demonstrate that the agreement reflected a “shared identical legal
interest” or that the protected communications were each “made during the course
of a joint defense effort between the resisting party and the third party and in
furtherance of that effort.” See id. (internal quotation marks and citation omitted).
2 Horton refers also to the work product doctrine and the mediation privilege— two separate protections from discovery with separate analyses and controlling facts. We decline to address either as these protections are raised in two sentences without application of the cited law, Rule 11-503(B)(3) and NMSA 1978, Section 44-7B-4 (2007), to the facts of the present case.
27 As a result, Horton did not meet “the burden of proving all elements of the privilege
as to each communication claimed to be privileged.” See id.
B. Horton Did Not Meet the Burden to Compel Production of the OC Documents
{34} Last, Horton argues that the district court should have compelled Trinity to
identify the documents that Trinity sent to outside counsel in order to facilitate
investigation of Acadia’s 2014 notice of claim and to produce unredacted
communications between Trinity’s adjustors and outside counsel. Horton does not
appear to contend the OC Documents were not privileged. As a result, Horton once
again bore the burden to show that either the documents should have been compelled
or the communications unredacted. See Santa Fe Pac. Gold Corp., 2007-NMCA-
133, ¶ 25 (placing the burden on the party seeking the documents after a prima facie
case for privilege is made).
{35} As to the request to identify documents, Trinity notes that it had no list of the
documents that were provided to outside counsel and the entire claims file was
produced to Horton. In reply, Horton asserted that the district court should have
compelled Trinity to “confirm” outside counsel’s testimony that he delivered his file
to Trinity. We see no prejudice, and therefore no abuse of discretion, in the district
court’s denial of Horton’s motion to “confirm” outside counsel’s testimony about
which documents were reviewed. See Doe, 1996-NMCA-057, ¶ 21.
28 {36} As to the redaction of documents, Horton argues that (1) any privilege
associated with the communications between Trinity’s adjustors and outside counsel
was waived because Trinity seeks to rely in good faith on outside counsel’s advice;
(2) attorney-client privilege does not shield communications that are relevant to the
insurer’s bad faith; and (3) Horton nevertheless has “substantial need” for the
material. Trinity, however, has stipulated that it does not intend to assert a reliance-
on-counsel defense and instead points to retaining counsel only as a step performed
to investigate. Horton contends that this distinction makes no difference, but because
Trinity does not intend to justify its decision not to defend by relying on counsel’s
advice, Trinity has not waived the privilege in this respect. See Pub. Serv. Co. of
N.M. v. Lyons, 2000-NMCA-077, ¶ 23, 129 N.M. 487, 10 P.3d 166 (requiring
“offensive or direct use of privileged materials before the party will be deemed to
have waived its attorney-client privileges”). We are further unpersuaded by the out-
of-state authority that Horton cites for the proposition that attorney-client privilege
should not prevent discovery in bad faith cases. See, e.g., Boone v. Vanliner Ins. Co.,
744 N.E.2d 154, 211-12 (Ohio 2001) (“The issue before us is whether, in an action
alleging bad faith denial of insurance coverage, the insured is entitled to obtain,
through discovery, claims file documents containing attorney-client
communications and work product that may cast light on whether the denial was
made in bad faith.”). An insurer’s good faith beliefs regarding coverage have no
29 bearing on the duty to defend analysis. See Dove, 2017-NMCA-051, ¶ 13 (explaining
that “a good faith belief” that the insured is not covered “is not a defense to the
breach of the duty to defend” (internal quotation marks and citation omitted)). We
conversely cannot justify invading the privilege when evidence of the insurer’s good
or bad faith is not at issue. And truly last, Horton’s reference to a “substantial need”
invokes an exception to the work product doctrine and not attorney-client
privilege—the two are distinct and separate. See Santa Fe Pac. Gold Corp., 2007-
NMCA-133, ¶ 38. Horton has not contested that the OC Documents are privileged
and therefore, we need not consider the separate work product doctrine and its
exceptions.
{37} Under the facts of the present case and based on the arguments raised on
appeal, we cannot conclude that the district court abused its discretion by denying
Horton’s motion to compel the OC Documents.
CONCLUSION
{38} For the reasons stated herein, we affirm in part, reverse in part, and remand
for further proceedings.
{39} IT IS SO ORDERED.
__________________________________ KATHERINE A. WRAY, Judge
WE CONCUR:
30 _________________________________ J. MILES HANISEE, Judge
_________________________________ GERALD E. BACA, Judge