Magallanes v. Farmers Ins. Co. of Ariz.

VICTOR MAGALLANES, Plaintiff/Counterdefendant-Appellant, v. FARMERS INSURANCE COMPANY OF ARIZONA,a/k/a FARMERS' INSURANCE GROUP OF COMPANIES,and ADJUSTER BRANDEN MARSHALL, Defendants-Appellees,and J.E.N.M., INC., d/b/a AMERICAN RESTORATION, Defendant/Counterclaimant.

NO. 34,135

COURT OF APPEALS OF THE STATE OF NEW MEXICO

April 12, 2016

This memorandum opinion was not selected for publication in the New Mexico Appellate Reports. Please see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions. Please also note that this electronic memorandum opinion may contain computer-generated errors or other deviations from the official paper version filed by the Court of Appeals and does not include the filing date.

APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY

C. Shannon Bacon, District Judge

Johnson Barnhouse & Keegan LLP

Kelli J. Keegan

Justin J. Solimon

Los Ranchos de Albuquerque, NM

for Appellant

O'Brien & Padilla, P.C.

Daniel J. O'Brien

Erica R. Neff

Albuquerque, NM

for Appellees

MEMORANDUM OPINION

WECHSLER, Judge.

{1} Plaintiff Victor Magallanes appeals the district court's grant of summary judgment in favor of Farmers Insurance Company of Arizona (Farmers) and Adjuster Branden Marshall (collectively, Defendants).¹ While numerous tangentially related issues are raised, Plaintiff's appeal is essentially comprised of four arguments. The first argument asserts that the policy's "earth movement" provision is ambiguous as a matter of law. Plaintiff's second argument asserts that New Mexico should apply the efficient proximate cause doctrine to the facts of this case. Plaintiff's third argument asserts that, even if the "earth movement" provision is not ambiguous, the district court improperly granted summary judgment because the record evidence contains genuine disputes of material fact as to whether all claimed damages fall within the scope of the "earth movement" exclusion. Finally, Plaintiff asserts that, even ifsummary judgment was properly granted as to coverage, the district court's grant of summary judgment on Plaintiff's associated common law and statutory claims was error.

{2} Because we agree that the record contains evidence creating a genuine issue of material fact as to whether all of Plaintiff's claimed damages fall within the scope of the policy's "earth movement" exclusion, we reverse the district court's grant of summary judgment on all claims and remand for additional proceedings consistent with this opinion. As such, we do not reach the issue of whether Plaintiff's statutory and common law claims survive a no-coverage determination. As a consequence of our reversal and remand, other issues decided, or tacitly decided, by the district court's partial summary judgment order remain preliminary rulings and are not subject to appellate review.²

BACKGROUND

{3} Plaintiff lives in Albuquerque's South Valley with his partner, Lisa Ruiz, and her two grandchildren. Plaintiff's house sits upon concrete footings, which provide structural support, rather than a concrete slab foundation. These footings, as well as the house's plumbing infrastructure, are located in an enclosed crawl space under the house. On August 22, 2012, Plaintiff heard the sound of running water under the house and went outside to investigate. Plaintiff opened an access point to the crawl space and could hear, but not see, water leaking in the crawl space. While outside, Plaintiff noticed a crack in the stucco. Plaintiff turned off the water to his house, and the leak stopped. After turning off the water, Plaintiff called Farmers to report the incident. Plaintiff was instructed by Farmers to contact a certified plumber and have the leak fixed.

{4} On August 25, 2012, a plumber came to Plaintiff's house to fix the leak. The plumber took several photographs of the leak and surrounding area both prior to and after making necessary repairs. In his report, the plumber noted that a water leak caused substantial damage to the property, including to the ductwork and foundation. Once the leak was repaired, the water was turned back on to the property. The plumber's report and the photographs of the leak were not provided to Farmers prior to the filing of this lawsuit.

{5} On August 29, 2012, Marshall arrived at Plaintiff's house to inspect the damage and to adjust the claim. Marshall observed and photographed interior cracking, exterior cracking, and other structural defects. Marshall did not enter the crawl space to look for compensable damage, but he did take a photograph from the access point and noted that the dirt under the house was moist.³ Marshall did not observe, nor did Plaintiff point out, any damage caused by direct exposure to water. That same day, Marshall notified Plaintiff that the cause of claimed damages was excluded under his insurance policy and that coverage would not be provided. On August 30, 2012, Marshall sent a letter confirming the denial of coverage under the policy's "earth movement" exclusion.

{6} After his claim was denied by Farmers, Plaintiff contacted American Restoration, a company that specializes in the remediation of water damage. On or about September 12, 2012, Mark Valencia, who operates American Restoration, conducted an inspection of Plaintiff's house and provided a series of estimates for (1) general construction, (2) debris removal, (3) alternate housing, and (4) storage of furnishings. On October 15, 2012, Plaintiff signed a contract with AmericanRestoration to perform the work outlined in the estimates. The contract expressly limited Plaintiff's responsibilities to the amount recovered under his insurance policy.

{7} On November 15, 2012, Plaintiff filed this lawsuit against Farmers, Marshall, and American Restoration. As relief, Plaintiff requested that the district court enter a declaratory judgment that Plaintiff's "water damage, structural damage, interior and exterior damage and other damages and claims, are covered [under the policy]." Plaintiff's complaint additionally alleged that Defendants were liable for breach of contract, insurance bad faith, breach of fiduciary duty, and statutory violations under the New Mexico Insurance Code and Unfair Practices Act.

{8} After Defendants answered the complaint, Plaintiff, on March 5, 2013, filed a memorandum supporting his motion for declaratory judgment. The memorandum addressed the terms of Plaintiff's insurance policy—specifically the terms tending to provide coverage for damages resulting from a plumbing leak.

{9} On March 6, 2013, American Restoration answered the complaint, filed a counterclaim against Plaintiff for breach of contract, and filed a cross-claim against Defendants for unjust enrichment and violation of the New Mexico Insurance Code.⁴ Notably, American Restoration's answer to the complaint requested relief in the formof a declaratory judgment that Plaintiff's insurance policy provides coverage for the "plumbing system leak and water damage" to Plaintiff's home.

{10} Defendants filed a response to Plaintiff's motion, as well as their own motion for summary judgment, on March 27, 2013. In both their motion for summary judgment and their response to Plaintiff's motion for declaratory judgment, Defendants advanced the same argument—that damages related to "earth movement" are excluded under the policy and that "[t]he [p]roperty did not sustain any damage from water discharge alone."

{11} Over the next several months, responses and replies were filed to both motions. On June 12, 2013, the district court held a hearing on both motions. Plaintiff primarily argued that the policy was ambiguous inasmuch as it provided coverage for damages resulting from plumbing system leaks but then revoked that coverage with respect to "earth movement."

{12} The district court denied Plaintiff's motion for declaratory judgment. While discussing the procedural posture of the case moving forward, Defendants stated,

maybe what we could get accomplished here is the status of the enforceability or the nonenforceability of the earth movement clause, and if there is a disputed issue of fact, we can do discovery on that. If [Plaintiff] can prove that there is damage not caused by earth movement, then there would be coverage. But it would assist the parties . . . to get a ruling on whether [the earth movement exclusion is enforceable.]

Plaintiff responded by stating,

as long as the parties have an opportunity to continue to explore whether or not there was direct damage caused by the water underneath the house[.] . . . I don't believe that the investigation into the extent of the damage and the final—you know, the ultimate or any additional cause of the damage has even been completed, much less to the extent of this coverage, so I would concur with [Defendants] on that matter [of additional discovery.]

The district court affirmed the enforceability of the "earth movement" exclusion, but granted Plaintiff additional discovery, stating,

earth movement caused by water leak is not covered by the policy, but I don't think that's the end . . . of the inquiry. . . . I will take [P]laintiff's request, pursuant to Rule [1-056(F) NMRA], to engage in discovery so that everyone[] can . . . carve out their positions with respect to what really happened with the water, what it touched, and what it moved.

This determination was formalized by an order filed July 8, 2013 (1) denying Plaintiff's motion for declaratory judgment, (2) affirming the enforceability of the policy's "earth movement" exclusion, and (3) holding in abeyance an ultimate determination as to Defendants' motion for summary judgment until additional discovery could be conducted.

{13} Unfortunately, from this point onward, the pre-trial and discovery processes were derailed—largely by Plaintiff's failure to make valid expert witness declarations under Rule 1-026(B)(6) NMRA. During the protracted discovery period, Farmers reopened its investigation of Plaintiff's claim. In a letter dated November 26, 2013, Farmers...