D.R. Horton v. Trinity Universal Ins. Co.

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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.

No. A-1-CA-39929

Court of Appeals of New Mexico

February 12, 2024

Corrections to this opinion/decision not affecting the outcome, at the Court's discretion, can occur up to the time of publication with NM Compilation Commission. The Court will ensure that the electronic version of this opinion/decision is updated accordingly in Odyssey.

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

KATHERINE A. WRAY, JUDGE

{¶1} Having granted the motion for rehearing and considered the response, we withdraw the opinion filed December 18, 2023, and substitute the following in its place. 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} 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 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 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 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, 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...