Nilson v. Peerless Indem. Ins. Co.

484 F.Supp.3d 1050

Kurt NILSON and Reginaldo Carizoza Guzman, d/b/a King Kong Custom Audio and Accessories, LLC, Plaintiffs,

v.PEERLESS INDEMNITY INSURANCE COMPANY, Defendant.

No. CIV 19-0203 JB\SCY

United States District Court, D. New Mexico.

Filed September 8, 2020

David L. Dotson, Law Office of David L. Dotson, Socorro, New Mexico, Attorney for the Plaintiff.

Kerri Lee Allensworth, Meena H. Allen, Allen Law Firm, LLC, Albuquerque, New Mexico, Attorneys for the Defendant.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, UNITED STATES DISTRICT JUDGE

THIS MATTER comes before the Court on the Motion for Summary Judgment on Count I of the Complaint, filed March 6, 2020 (Doc. 46)("First MSJ"), and the Opposed Motion for Summary Judgment on Counts II through VI of the Complaint, filed March 6, 2020 (Doc. 47)("Second MSJ"). The primary issues are whether the Court should grant the First MSJ and the Second MSJ, because: (i) Peerless Indemnity breached its insurance policy ("Policy") with Plaintiffs Kurt Nilson and Reginaldo Carizoza Guzman, doing business together as King Kong Custom Audio and Accessories, LLC (collectively, "King Kong"), in violation of N.M. Stat. Ann. § 59A-16, the New Mexico Unfair Insurance Practices Act ("UIPA"); (ii) whether Peerless Indemnity's actions have violated the UIPA; (iii) whether Peerless Indemnity violated N.M. Stat. Ann. § 57-12-3, the Unfair Practices Act ("UPA"); (iv) whether Peerless Indemnity breached the covenant of good faith and fair dealing; (v) whether Peerless Indemnity has violated its fiduciary duty to King Kong, and (vi) whether Peerless Indemnity committed constructive fraud, because it did not disclose specific knowledge to King Kong during the adjustment process. The Court concludes that: (i) Peerless Indemnity has demonstrated that it did not breach its contract with King Kong in violation of UIPA; (ii) Peerless Indemnity has not demonstrated that it did not violate the UIPA by delaying payment of the business income claim; (iii) Peerless Indemnity has demonstrated that it did not violate the UPA; (iv) Peerless Indemnity has not demonstrated that it did not breach the covenant of good faith and fair dealing; (v) Peerless Indemnity does not have a fiduciary duty to King Kong; and (vi) King Kong has not shown that Peerless Indemnity committed constructive fraud.

FACTUAL BACKGROUND

The Court draws its factual background from First MSJ, the Second MSJ, the Plaintiff's D[sic] Response in Opposition to Defendant's Motion for Summary Judgment, filed March 24, 2020 (Doc. 52)("First MSJ Response"); the Plaintiff's Response in Opposition to the Defendant's Second Motion for Summary Judgment, filed March 24, 2020 (Doc. 53)("Second MSJ Response"); the Defendant's Reply Brief in Support of Its First Motion For Summary Judgment on Count I of the Complaint, filed April 7, 2020 (Doc. 56)("First MSJ Reply"); the Defendant's Reply Brief in Support of Its Second Motion for Summary Judgment, filed April 7, 2020 (Doc. 57)("Second MSJ Reply").

On March 8, 2014 Peerless issued an Insurance Policy to King Kong, Businessowners’ Policy No. BOP1037231, for February 24, 2014, through February 24, 2015. See First MSJ ¶ 1, at 4 (asserting that Peerless issued an Insurance Policy to King Kong, Businessowners’ Policy No. BOP1037231, for February 24, 2014, through February 24, 2015)(citing Relevant Excerpts of Businessowners’ Policy No. BOP1037231, filed March 6, 2020 (Doc. 46-1))("Policy Excerpts");¹ First MSJ Response ¶ 1, at 1 (asserting that Peerless Indemnity issued an Insurance Policy to King Kong, Businessowners’ Policy No. BOP1037231 on March 8, 2014); Policy Excerpts at 1 (confirming both of those statements).

The applicable Commercial Protector Coverage Form Declarations and Businessowners Coverage Form Declarations (collectively, "the Declarations"), which were issued April 10, 2014, provided coverage for business personal protection up to $202,800.00. See First MSJ ¶ 2, at 4 (citing Policy Excerpts at 1-3)(noting that the business personal protection coverage is the date of the June 20, 2014 fire). See First MSJ Response at 1 (not controverting this fact).² The Declarations stated that " ‘Business Income is included as an Additional Coverage not subject to [the Business Personal Property] limits below." First MSJ ¶ 3, at 4 (citing Policy Excerpts at 1-3)³ ; Policy Excerpts at 1; First MSJ Response at 1 (not controverting this fact). The Policy states

SECTION I – PROPERTY

A. Coverage

We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

1. Covered Property

Covered Property includes Buildings as described under Paragraph a. below, Business Personal Property as described under Paragraph b. below, or both, depending on whether a Limit of Insurance is shown in the Declarations for that type of property.

....

b . Business Personal Property located in or on the buildings at the described premises or in the open (or in a vehicle) within 1,000 feet of the described premises, including:

(1) Property you own that is used in your business;

(2) Property of others that is in your care, custody or control, except as otherwise provided in Loss Payment Property Loss Condition Paragraph E.6.d.(3)(b) ;

(3) Tenant's improvements and betterments. Improvements and betterments are fixtures,

(a) Made a part of the building or structure you occupy but do not own; and

(b) You acquired or made at your expense but cannot legally remove[.]

....

5. Additional Coverages

a. Debris Removal

(1) Subject to Paragraphs (3) and (4) , we will pay your expense to remove debris of Covered Property caused by or resulting from a Covered Cause of Loss that occurs during the policy period. The expenses will be paid only if they are reported to us in writing within 180 days of the date of direct physical loss or damage.

....

f. Business Income

(1) Business Income

(a) We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your "operations" during the "period of restoration". The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or damage to personal property in the open or personal property in a vehicle, the described premises include the area within 1,000 feet of the site at which the described premises are located.

....

(b) We will only pay for loss of Business Income that you sustain during the "period of restoration" and that occurs within 12 consecutive months after the date of direct physical loss or damage. We will only pay for ordinary payroll expenses for 60 days following the date of direct physical loss or damage, unless a greater number of days is shown in the Declarations.

(c) Business Income means the:

(i) Net Income (Net Profit or Loss before income taxes) that would have been earned or incurred if no physical loss or damage had occurred, but not including any Net Income that would likely have been earned as a result of an increase in the volume of business due to favorable business conditions caused by the impact of the Covered Cause of Loss on customers or on other businesses; and

(ii) Continuing normal operating expenses incurred, including payroll.

(d) Ordinary payroll expenses[.]

g. Extra Expense

(1) We will pay necessary Extra Expense you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss or damage to property at the described premises. The loss or damage must be caused by or result from a Covered Cause of Loss. With respect to loss of or damage to personal property in the open or personal property in a vehicle, the described premises include the area within 1,000 feet of the site at which the described premises are located.

....

(2) Extra Expense means expense incurred:

(a) To avoid or minimize the suspension of business and to continue "operations":

(i) At the described premises; or

(ii) At replacement premises or at temporary locations, including relocation expenses and costs to equip and operate the replacement or temporary locations.

(b) To minimize the suspension of business if you cannot continue "operations".

(c) To:

(i) Repair or replace any property[.]

....

(3) With respect to the coverage provided in this Additional Coverage, suspension means:

(a) The partial slowdown or complete cessation of your business activities; and

(b) That a part or all of the described premises is rendered untenantable, if coverage for Business Income applies.

(4) We will only pay for Extra Expense that occurs within 12 consecutive months after the date of direct physical loss or damage. This Additional Coverage is not subject to the Limits of Insurance of

SECTION I - PROPERTY.

....

6. Coverage Extensions

In addition to the Limits of Insurance of SECTION I – PROPERTY , you may extend the insurance provided by this policy as provided below.

....

d. Personal Effects

You may extend the insurance that applies to Business Personal Property to apply to personal effects owned by you, your officers, your partners or "members", your "managers" or your employees. This extension does not apply to:

(1) Tools or equipment used in your business; or

(2) Loss or damage by theft.

The most we will pay for loss or damage under this Extension is $2,500 at each described premises.

....

f. Accounts Receivable

(1) You may extend the insurance that applies to Business Personal Property to apply to accounts receivable. We will pay:

(a) All amounts due from your customers that you are unable to collect [...],

that result from direct physical loss or damage by any Covered Cause of Loss to your records of accounts receivable.

C. Limits Of Insurance

....

4. Automatic Increase

b. Business Personal Property Limit

(1) The Limit of Insurance for Business Personal Property will automatically increase by the annual percentage shown in the

...