Court: District Court, D. New Mexico; March 28, 2012; Federal District Court
The Court addressed two motions: The Hartford Fire Insurance Company's Motion for Summary Judgment and BNSF Railway Company's Rule 56(f) Motion for Discovery. The core issues included whether claims made by Roy D. Mercer, LLC against Gandy Dancer, LLC and BNSF Railway were covered under Hartford's insurance policies, whether any exclusions applied, and whether Hartford was estopped from denying coverage.
The Court partially granted and partially denied the Summary Judgment (MSJ). It determined that Mercer LLC's claims of property damage and negligent misrepresentation were not covered by the insurance policies. However, claims of trespass and nuisance were found to trigger coverage, and a definitive ruling on coverage duties was deemed premature. The Court also denied the Discovery Motion, concluding that further discovery was unnecessary.
Factual context included the existence of two business liability insurance policies issued by Hartford to Gandy Dancer, covering the period from August 8, 2005, to August 8, 2007. These policies covered "property damage" resulting from an "occurrence," contingent upon specific conditions. Key terms and definitions relevant to coverage were outlined in the policies, which were not disputed by the parties involved.
The Gandy Dancer Policies define "property damage" as either physical injury to tangible property resulting in loss of use, or loss of use of tangible property without physical injury, with the timing of loss deemed to occur at the time of the relevant physical injury or occurrence. "Occurrence" is characterized as an accident or continuous exposure to harmful conditions. The policies also contain exclusions, such as for expected or intended injuries, and damage to property specifically relating to operations performed by the insured or their contractors. The terms "you" and "your" refer to the Named Insured, while "insured" includes any qualifying individuals or organizations. Gandy Dancer is identified as the sole Named Insured, with The Hartford conceding that BNSF Railway may qualify as an additional insured for summary judgment purposes. The underlying action involves BNSF Railway owning and operating railroad facilities adjacent to property owned by Mercer LLC, with various legal filings related to the disputes between these parties.
Mercer LLC's land is situated within the silty basin of the Brown Arroyo, also referred to as the Matanza Arroyo. In 1936, the Middle Rio Grande Conservancy District granted an easement to BNSF Railway's predecessor, allowing the removal of natural materials for constructing ditches and other necessary structures to protect the railroad from floodwaters. Mercer LLC acquired the Brown Arroyo property on December 29, 2003, when a water diversion system was already in place to manage floodwaters. The 1936 Easement permits BNSF to utilize natural materials for flood protection structures. Over the years, Gandy Dancer has acted as a contractor for BNSF Railway, engaging in various projects, including flood response. In August 2006, heavy rainfall resulted in significant flood damage to BNSF's infrastructure, leading to halted freight services. Subsequently, BNSF hired Gandy Dancer to reconstruct the diversion system to mitigate future flood risk.
Defendant Gandy Dancer, LLC, along with other defendants including Roy D. Mercer and BNSF Railway Company, filed their answers to a complaint for declaratory judgment on various dates in 2010. Gandy Dancer engaged in extensive reconstruction work on the Brown Arroyo diversion system, including dikes, berms, and ditches, collaborating with operators from the Middle Rio Grande Conservancy District (MRGCD) and the Bureau of Reclamation. Both Gandy Dancer and BNSF Railway were aware that they were working on the Brown Arroyo property but maintained that they had the legal authority to do so. Gandy Dancer utilized both natural materials from the site and materials provided by the Bureau of Reclamation for the reconstruction efforts.
BNSF Railway confirmed that the 1936 Easement granted Gandy Dancer the right to rebuild railway beds and related structures using available materials. The easement was later provided to Gandy Dancer. Additionally, Mercer LLC's consent was obtained for entering private property to facilitate the reconstruction. Throughout this process, Gandy Dancer consistently did not dispute the facts presented by BNSF and other parties regarding their legal rights and actions taken in the restoration efforts.
Work was performed under emergency conditions, leading to additional rainfall that damaged completed work and diversion system components. Gandy Dancer contests that Mercer LLC suffered any loss of property or water rights due to their work, asserting that Mercer LLC's land had been fallow for over ten years and was heavily overgrown, rendering it unusable for farming or ranching. Gandy Dancer aimed to restore dikes and ditches to protect BNSF Railway’s infrastructure from flooding, without anticipating harm to Mercer LLC's property. They assert that their reconstruction efforts improved floodwater flow away from Mercer LLC's land.
Two legal actions are ongoing in the Seventh Judicial District Court, Socorro County, New Mexico: BNSF Railway Company v. Roy D. Mercer, LLC, initiated by BNSF on June 3, 2008, and Roy D. Mercer, LLC v. Gandy Dancer, LLC. BNSF's lawsuit sought a temporary injunction against Mercer LLC to prevent interference with levee repairs. Mercer LLC responded with an answer and counterclaim on July 8, 2008, and later filed an answer to BNSF's amended complaint on September 15, 2008, incorporating previous allegations and adding claims for declaratory judgment and modification of the easement by estoppel.
On June 24, 2009, Mercer LLC filed a second amended counterclaim against BNSF Railway, alleging that the reconstruction of a water diversion system and use of resources from the Brown Arroyo property resulted in damage to Mercer's property. BNSF acknowledged this claim without dispute. Testimony indicated that the complaint against Gandy Dancer was based on loss of property use and potential forfeiture of water rights, with acknowledgment that Gandy Dancer did not affect certain areas claimed as lost. BNSF Railway contended that Mercer's only legal remedy was inverse condemnation. Mercer further alleged that a poorly constructed berm rendered its property unusable for irrigation and that Gandy Dancer and BNSF constructed a diversion channel without proper assessments or permits, leading to stormwater damage to Mercer's property. BNSF sought coverage under Gandy Dancer's insurance policies for Mercer’s claims, and The Hartford filed a complaint on February 16, 2010. BNSF notified The Hartford in November 2006 of Mercer’s claims and sought defense and indemnification under those policies, pressing The Hartford for a coverage decision while negotiating with Mercer.
BNSF Railway provided The Hartford with comprehensive information regarding a claim and negotiations with Mercer LLC. On October 2, 2007, Donald Kieffer, The Hartford's Claim Consultant, informed BNSF Railway that it was entitled to defense and indemnification under the Gandy Dancer Policies. Kieffer requested contact information for Mercer’s attorney to discuss the claim and confirmed BNSF's coverage, emphasizing the need for immediate notification if BNSF was served with a lawsuit. Before this determination, The Hartford reviewed various documents, including a settlement offer from Mercer’s attorney, property maps, a 1936 Easement, purchase documents, and an appraisal of Mercer’s property.
After asserting BNSF's entitlement to indemnification and defense, The Hartford instructed BNSF to allow its attorneys to assess settlement options and prohibited any settlement with Mercer LLC without its consent. Although The Hartford later attempted to reserve its rights, it did not reference the "Expected or Intended Injury" exclusion in its insurance policy.
Procedurally, on February 16, 2010, The Hartford filed a Complaint seeking a declaratory judgment under the Federal Declaratory Judgment Act, claiming no insurance obligations to indemnify or defend BNSF Railway or Gandy Dancer regarding the rehabilitation work related to Mercer LLC’s lawsuit.
On March 28, 2010, Gandy Dancer filed its Answer to a Complaint for Declaratory Judgment, asserting that various legal doctrines, including waiver, laches, and bad faith, bar claims made by The Hartford. Gandy Dancer requests a declaratory judgment confirming Hartford’s duty to defend and indemnify it in an underlying suit. Similarly, Mercer LLC and BNSF Railway also filed responses asserting that claims from The Hartford are barred by doctrines like laches, estoppel, and comparative fault. BNSF Railway included counterclaims for bad faith, breach of contract, and violations of both the Unfair Insurance Practices Act and the New Mexico Unfair Practices Act. The Hartford responded to BNSF Railway's counterclaims on May 13, 2010, denying most allegations and arguing that the counterclaims should be dismissed due to others’ fault for the injuries and failure to mitigate damages. It also contended that BNSF Railway's punitive damages claim is unconstitutional and that the action under the Unfair Practices Act was groundless. On March 30, 2011, the Court denied motions from BNSF Railway and Gandy Dancer to stay proceedings, affirming that the issues regarding whether their actions were "expected and intended" were distinct from state court tort questions. The Court determined that it would assess The Hartford's duty to defend based on the State Court Complaint and insurance policies. The Hartford subsequently moved for summary judgment, arguing that the Gandy Dancer Policies do not cover the damages claimed by Mercer LLC, as they were not caused by an "occurrence" defined in the policies.
The Hartford argues that two coverage exclusions apply to deny damages: (1) the work on Mercer LLC’s property was "expected or intended" by BNSF Railway, and (2) the alleged property damage occurred on real estate where Gandy Dancer operated under BNSF Railway’s direction. It asserts that, under New Mexico law, an insurer's obligations are governed by the policy terms, referencing *Miller v. Monumental Life Ins. Co.* to emphasize this point. The Hartford claims that the Gandy Dancer Policies do not cover the reconstruction of the water diversion project since it was not "damaged" by an "occurrence" and asserts that there was no accidental injury to the property, implying BNSF Railway and Gandy Dancer have failed to demonstrate a covered event.
The Hartford delineates that New Mexico courts define "accident" based on the insured's intent to act rather than the intent to achieve a specific outcome, citing *Vihstadt v. Travelers Ins. Co.* It argues that the act causing the injury was not accidental and that BNSF Railway and Gandy Dancer intended the reconstruction that allegedly damaged Mercer LLC’s property. Furthermore, it contends that there was no unforeseen event causing the damage and that a misunderstanding of legal rights does not constitute an accident.
The Hartford maintains that BNSF Railway and Gandy Dancer’s actions were "expected or intended," which excludes coverage under the Gandy Dancer Policies, as exclusionary definitions are enforceable if clear and not conflicting with statutory law. It compares this case to *Knowles v. United Servs. Auto. Ass’n*, asserting that while the insured may not have intended harm, they intended the act that caused the damages, thereby excluding indemnification for Mercer’s claims based on the policy's clear and unambiguous language.
The Hartford asserts that exclusion j(5) applies to damages to real property caused by a contractor's work, implying such damages are excluded from coverage. Mercer LLC has not taken a position on The Hartford's Motion for Summary Judgment (MSJ). In contrast, Gandy Dancer challenges this motion by claiming: i) the damage was caused by an "occurrence" as defined in their policies; ii) The Hartford incorrectly categorized Mercer LLC’s damage as solely related to dikes and ditches; iii) Mercer LLC's loss of use claims extend beyond the specific land Gandy Dancer worked on; iv) trespass allegations also invoke coverage under their policies; and v) The Hartford's MSJ was prematurely filed before initial disclosures were made as required by Federal Rule 26(a)(1).
Gandy Dancer further argues that The Hartford mischaracterizes Mercer LLC's property damage, emphasizing that damages extend to the loss of use of a broader 60-acre tract, beyond just the dikes and ditches. They reference testimony from Mechenbier, indicating he has been unable to graze cattle on the property due to concerns about flooding and has never attempted irrigation. Gandy Dancer also points out that the water diversion system rebuilt in 2006 was designed to follow historical flood patterns. They cite a precedent from King v. Travelers Ins. Co., which defines an "accident" as an unexpected event causing property damage, and argue that negligence does not negate the accidental nature of alleged harm. Lastly, they contend that there is a factual dispute regarding whether the harm was unexpected, and challenge The Hartford’s interpretation based on Vihstadt v. Travelers Ins. Co.
Travelers Ins. Co. focused on bodily injury rather than property damage and did not explore the specific legal principles regarding an insurance company’s duty to defend under liability policies. In Vihstadt v. Travelers Ins. Co., the Supreme Court of New Mexico examined whether intentional ingestion of fifty aspirin constituted an “accident” under a health insurance policy, referencing Hayden v. Insurance Co. of North America to clarify that an accident does not occur with deliberate acts unless an unforeseen event arises. The court concluded that, due to the absence of an unforeseen event, no accident occurred, thus denying coverage.
Gandy Dancer contends that Mercer LLC’s alleged losses were not a natural or expected outcome of Gandy Dancer’s work, arguing instead that the unexpected event causing property damage was Mercer’s irrational fear of flooding. Gandy Dancer differentiates its situation from Albuquerque Gravel Products Co. v. American Employers Ins. Co., where defendants’ actions led to flooding. It asserts that its work aimed to improve flood water drainage towards the Rio Grande River, reducing erosion.
Gandy Dancer disputes The Hartford's claim that damages were excluded because BNSF and Gandy Dancer anticipated the project’s reconstruction. It argues that The Hartford mischaracterized the damages as solely related to Gandy Dancer’s work, while evidence shows a complete and permanent loss of use of the sixty-acre tract. Furthermore, Gandy Dancer critiques The Hartford's interpretation of Knowles v. United Services Automobile Ass’n, asserting that the burden is on The Hartford to prove Gandy Dancer intended to cause similar harm to what Mercer alleges. Unlike Knowles, where harm was intentionally inflicted, Gandy Dancer claims it was merely restoring the pre-flood conditions to benefit Mercer’s property.
Finally, Gandy Dancer argues that Mercer’s claims do not fully fall under exclusion j(5), as that exclusion applies only to property damage occurring in the portion of the real property where operations are conducted.
Mercer LLC's claims encompass the entire sixty-acre tract, not just the area where Gandy Dancer operated. Gandy Dancer distinguishes its case from Advantage Home-building, LLC v. Maryland Casualty, Co., arguing that in that case, damages were confined to the specific area of operation, whereas here, the damages are broader. It also differentiates its situation from Interstate Properties v. Prasanna, Inc., asserting that collateral damage resulting from external factors does not equate to poor workmanship. Gandy Dancer posits that allegations of trespass invoke a duty to defend under the "personal and advertising injury" provision of its policy, which does not require an "occurrence" for coverage. Furthermore, Gandy Dancer critiques The Hartford's motion for summary judgment, stating it was premature as initial disclosures under Rule 26(a) had not been made. Citing Rule 56(f), Gandy Dancer argues it needs additional discovery to address unresolved factual issues regarding its knowledge of potential property loss due to flooding. Gandy Dancer has submitted an affidavit to support this assertion. Additionally, Gandy Dancer emphasizes that New Mexico law necessitates an exploration beyond the complaint's allegations when determining an insurer's duty to defend, warranting further fact development. BNSF Railway responds by claiming The Hartford is estopped from denying coverage due to prior acknowledgment of coverage and argues that its attempt to reserve rights regarding coverage constitutes bad faith.
Under New Mexico law, an insurance carrier that assumes and conducts the defense of an action against the insured without disclaiming liability or reserving rights is estopped from later denying coverage, as this unconditional defense constitutes a waiver of policy terms. BNSF Railway contends that the insurer, The Hartford, forfeited its right to assert non-coverage by unconditionally accepting the defense while aware of potential grounds for forfeiture. BNSF Railway argues that it was prejudiced by The Hartford's control over the litigation, which hindered its ability to settle with Mercer LLC and forced delays in resolving the case. The duty to defend is distinct from the duty to indemnify and is broader; it arises whenever a complaint presents facts that suggest coverage, even if the complaint lacks clarity. Any doubts regarding coverage should be resolved in favor of the insured. BNSF Railway asserts that Mercer LLC's damage claims fall under the Gandy Dancer Policies, reinforcing its position on the necessity of The Hartford's defense.
BNSF Railway contends that the mere existence of a purposeful act does not negate insurance coverage, emphasizing that intent to inflict injury must be analyzed. It cites New Mexico case law suggesting that intentional acts committed negligently can still qualify as an "accident" under insurance policies, with negligence forming the basis for liability. BNSF further references a ruling in Sprintcom MOO, which established that if a complaint alleges negligence, there is a duty to defend. BNSF argues that Mercer LLC’s claims primarily hinge on alleged negligence, thus supporting their position for a duty to defend.
BNSF disputes The Hartford's assertion that only the underlying act should be examined, referencing Vihstadt v. Travelers Ins. Co., which looked at both the insured's actions and the natural consequences of those actions. BNSF claims that the flooding resulting from the diversion system rehabilitation was not a foreseeable outcome, aligning with the definition of an accident. Additionally, BNSF cites Albuquerque Gravel Products Co. v. American Employers Ins. Co. to illustrate that an insured's knowledge of the risks associated with their actions is critical.
BNSF highlights that Gandy Dancer's work aimed to repair a damaged water diversion system. It also references cases from Michigan and Hawaii which determined that flooding resulting from insured parties’ landscaping efforts constituted an “accident” under insurance contracts. Finally, BNSF asserts that even if the court focuses solely on the underlying act rather than the resulting injury, Mercer LLC’s claims of negligent design or planning are sufficient to indicate an occurrence under the insurance policy.
BNSF Railway contends that the damages cited by Mercer LLC are not expected or intended, thus falling outside the exclusion in the Gandy Dancer Policies. It references the New Mexico Supreme Court's ruling in Knowles v. United Services Automobile Ass’n, which states that for an exclusionary clause to apply, the insured must possess intent beyond merely committing the act. BNSF maintains that the focus should be on the alleged harm rather than the intent behind actions, noting other cases that support this viewpoint. It argues that the critical inquiry is whether BNSF intended the same harm claimed by Mercer, rather than the intent to rehabilitate a diversion system. BNSF asserts that the New Mexico Supreme Court’s rejection of an underlying-act approach emphasizes the importance of harm intent. BNSF warns that The Hartford’s broad interpretation of the exclusion could eliminate coverage for most property damage, as the underlying acts are typically intended. Furthermore, it argues that the exclusion does not apply because most alleged damages occurred off the real property where work was performed. Mercer LLC claims that Gandy Dancer’s work rendered a significant portion of its property worthless and alleges damages from negligent misrepresentation and water discharge, which BNSF argues are consequential and not covered by the exclusion. BNSF also counters The Hartford’s argument regarding causation by clarifying that the exclusion pertains only to damage to the specific part of real property under ongoing work, not to damage occurring post-completion. Lastly, BNSF asserts that the Gandy Dancer Policies provide coverage for personal and advertising injury, which is not contingent on an "occurrence" and is not subject to the "expected or intended" exclusion.
Wrongful eviction, entry, or invasion of private occupancy refers to actions taken by an owner, landlord, or lessor that interfere with a person's right to occupy a premises. BNSF Railway asserts that this provision provides coverage for claims of trespass or nuisance, supported by case law from other jurisdictions. Specifically, it cites a New Mexico Supreme Court case that interpreted "wrongful eviction" broadly, indicating coverage applies even to intended acts. BNSF contends that Mercer LLC's claims of trespass fall within this coverage under the personal and advertising provision.
BNSF Railway filed a Discovery Motion, requesting the court defer ruling on a Motion for Summary Judgment (MSJ) to allow for essential discovery related to the case. BNSF argues that the court may lack sufficient evidence to determine if Mercer LLC's claims are covered by the policy, emphasizing the subjective and fact-intensive nature of the issues involved. Additionally, BNSF claims that The Hartford has not proven that BNSF or Gandy Dancer intended any improper construction or design flaws regarding a water diversion system.
BNSF further argues that The Hartford should be estopped from denying coverage due to its acceptance of BNSF's defense tender and highlights that The Hartford has not provided initial disclosures. BNSF states that summary judgment is premature because there are unresolved factual disputes concerning the intentions behind the reconstruction project and the expected outcomes of the alleged actions. Finally, BNSF notes that Mercer LLC has also failed to provide its initial disclosures, hindering BNSF's ability to conduct necessary discovery for establishing coverage and The Hartford's potential bad faith.
The Discovery Motion emphasizes the necessity for further discovery to investigate whether The Hartford has provided coverage in similar cases, to uncover internal communications about the acceptance of BNSF Railway's claim, and to explore evidence related to settlement negotiations between Mercer LLC and The Hartford. It argues that, despite extensive discovery in the underlying action, no discovery has addressed policy coverage issues.
On September 2, 2011, The Hartford filed a reply supporting its motion for summary judgment, asserting that the policy terms do not provide coverage for Mercer LLC's claims against BNSF and Gandy Dancer. The Hartford opposes requests for a deferred ruling on the motion, claiming there are no genuine material facts in dispute and that the alleged harm was expected or intended, thus not constituting occurrences under the Gandy Dancer Policies. Citing the case Knowles v. United Services Automobile Ass’n, The Hartford argues that damages requested by Mercer LLC fall within the "expected or intended" exclusion, as the defendants intended to construct the project leading to the claims.
The Hartford contends that the Supreme Court of New Mexico’s ruling in Knowles supports its position, where an exclusion from coverage was determined based on the insured's intent, despite the lack of tortious intent. It references Mechenbier’s deposition, asserting it clarifies any factual dispute regarding the intent of Gandy Dancer and BNSF, highlighting that their objective was to successfully implement the water diversion project, which is central to Mercer LLC's claims.
The Hartford argues that the exclusion clause in the insurance policy clearly denies coverage for the claims in question, referencing the case Knowles v. United Services Automobile Ass’n to support its position that the defendants' belief in their legal right to construct a gate does not influence the coverage determination. The Hartford emphasizes that the construction of the water-diversion system does not qualify as an "occurrence" under the policy because it was not an accident. Citing the Supreme Court of New Mexico's definition of "accident" as an unintended event, the Hartford asserts that the alleged harm from the water diversion project is not covered as it was a natural result of intended actions. The Hartford distinguishes the current case from others cited by the defendants, stating that those cases involved further damages resulting from construction rather than the construction itself. It contends that Mercer LLC's claims pertain to damages from the construction process, not from subsequent property damage, and thus cannot be pursued for future damages that have not yet occurred. The Hartford also argues that general liability policies do not cover damages due to poor workmanship, which further excludes coverage in this instance. Additionally, it asserts that Mercer LLC’s claims fall outside the personal and advertising injury provision of the policy, which is limited to landlord/tenant disputes and does not encompass alleged trespass by the defendants.
The Hartford claims that Mercer LLC owns the land in question and that any intrusion was against Mercer LLC's rights, not on its behalf. The company argues that the Tenth Circuit has only applied New Mexico law on similar provisions in cases involving landlords and tenant occupancy rights. The Hartford asserts that the cases cited by the Defendants are irrelevant, as they do not involve the same policy language, specifically that pertaining to "owner, landlord, or lessor." It highlights that previous cases related to trespass involved pollutants rather than people or machinery, and claims those policies differed from the current case.
Additionally, The Hartford states that the expected or intended injury exclusion applies to both personal and advertising coverage, countering the Defendants' interpretation that it pertains solely to property damage. The Hartford emphasizes that the policies collectively indicate that property damage resulting from expected or intended acts is not covered, and attempts by the Defendants to categorize property damage as personal injuries do not circumvent this exclusion.
Regarding exclusion j(5), The Hartford argues that Mercer cannot claim damages from potential future flood events and contends that the exclusion applies to the work central to Mercer’s claims, such as moving soil and constructing water diversion improvements. It maintains that the exclusion is applicable beyond the specific areas touched by the Defendants' work, as their actions were intended to impact the entire 60-acre property. The Hartford insists that the water diversion system was designed for the entire property, thus invoking exclusion j(5) to deny coverage.
Lastly, The Hartford asserts that it has not waived any policy defenses, claiming it properly reserved its rights in correspondence dated October 2, 2007, which was conditioned on the defenses raised in its motion. The phrase “subject to the terms and conditions of our policy” was intended to preserve its rights under the Gandy Dancer Policies.
The Hartford contends that BNSF Railway has not demonstrated presumptive prejudice, as The Hartford has consistently reserved its rights since assuming the defense. It argues that BNSF has failed to show actual prejudice, which it defines as the inability to prepare a defense due to withdrawal from the action, limited opportunity to negotiate settlements, and insufficient time to gather or preserve evidence. The Hartford maintains that reminding BNSF of its contractual obligation to obtain permission before settlement did not cause prejudice, asserting that BNSF's demand for immediate payment was unwarranted due to policy exclusions.
Regarding the Defendants' claims under Rule 56(f), The Hartford argues that delaying the action serves the Defendants' interests by prolonging its financial responsibility for the defense. It insists that the case is ready for a decision and rebuts BNSF's claims about initial disclosures by stating that both parties agreed to postpone them, anticipating that the court's ruling on the motion for summary judgment (MSJ) could resolve the case.
The Hartford references a prior court ruling indicating that discovery was unnecessary for determining its duty to defend. It argues that BNSF's allegations of bad faith should not obstruct the court’s decision and asserts that allowing such claims to delay proceedings would undermine insurers’ ability to secure declaratory judgments.
During a January 31, 2012, hearing, The Hartford pointed out that the underlying state action is scheduled for trial in June 2012, emphasizing that the core issue is whether the construction of a water diversion system qualifies as an "occurrence" under its commercial general liability policy and if it falls within exclusions of the Gandy Dancer Policies. The Hartford elaborated on the background of the underlying litigation, stating that the Gandy Dancer Policies cover only damages resulting from an accidental occurrence.
The Hartford claimed that Gandy Dancer’s actions, including the construction of berms and water diversion systems, were intentional and not accidental, aligning with the established case law. It argued that terms in the policy, if not defined or ambiguous, should carry their ordinary meaning, and that constructing improvements to real property is inherently intentional. Even if coverage were triggered, Hartford contended that the activities complained about by Mercer LLC fell under an expected or intended exclusion, referencing the case Knowles v. United Services Automobile Ass’n, which rejected arguments for coverage based on unintentional results of intentional conduct.
Hartford further noted that Mercer LLC's pleadings suggested Gandy Dancer's excavation created a diversion channel on Mercer LLC’s property, indicating that these damages arose from construction work and thus were excluded under exclusion j(5). Concerns expressed by Mechenbier about potential future flooding were deemed insufficient for coverage since no actual damage existed at that time.
The Hartford affirmed the clarity of the Gandy Dancer policies, stating that a Mark V hearing was unnecessary due to a lack of factual disputes. It addressed the timing of the Kieffer Email, which acknowledged a duty to defend, and subsequent correspondence, arguing that the one-month gap did not prejudice the Defendants. When questioned about Mercer LLC's claims regarding cattle loss, Hartford maintained that without a flood, there was no reason preventing Mechenbier from using the land for cattle, suggesting that his fears were subjective. The argument concluded with a distinction that even if there were property damage, it did not constitute an "occurrence" under the policy.
BNSF Railway identified that multiple issues existed regarding the nature of the conduct as intentional and indicated the need for further discovery to determine whether Gandy Dancer's actions qualified as an occurrence under the policies.
The Court evaluates the case from the perspective of an impartial third party to assess if there is a reasonable expectation that the actions in question will result in the alleged consequential damages. BNSF Railway referenced the Knowles case to argue that the specific intent of actions leading to harm was overlooked, contrasting it with their case where questions about the nature of harm and intent exist. They acknowledged the Court's need to determine the occurrence of events while also making an objective assessment of the harm involved. The Court queried the value of further discovery, given the necessity to consider facts favoring the non-moving party in summary judgment. BNSF Railway did not contest the Court's points and highlighted Mercer LLC's claims of property value loss due to construction, asserting that Mercer cannot sue for damages that have not occurred. The Court questioned whether such an assumption would negate the need for further discovery. BNSF Railway emphasized that the examination should be limited to the allegations in the complaint, specifically regarding the Defendants' diversion system impacting Mercer’s property. They requested interrogatories to clarify The Hartford's original decision on defense coverage, suggesting that prior investigations might affect coverage implications. The Court noted the unlikelihood of BNSF Railway accessing communications between coverage counsel and The Hartford. BNSF Railway contended that production of such communications would depend on the adjuster's determination of policy coverage, while also asserting that the Kieffer Letter indicates that no reservation of rights was made in the previous Kieffer Email dated October 2, 2007.
BNSF Railway contends that The Hartford's reservation of rights primarily addressed exclusion j(5) and the existence of an occurrence, but failed to consider whether the alleged damage falls under the expected-or-intended exclusion. It notes that The Hartford initially accepted coverage without a reservation of rights or ongoing concerns. BNSF Railway seeks access to The Hartford's original analysis, arguing that Mercer LLC's claims extend beyond the berm's location to issues of poor construction that allegedly damaged Mercer’s sixty acres.
BNSF asserts that standard commercial liability policies exclude damage to the product itself, but in construction cases, consequential damages can constitute an occurrence, as these damages were not intended. It disputes The Hartford's claim that Mercer LLC is not currently seeking damages, maintaining that Mercer is suffering from water diversion, which should be covered.
BNSF insists that the court's analysis on the duty to defend should be based on Mercer LLC's underlying complaint. It references Knowles v. United Services Automobile Ass’n, arguing that blocking a road and causing access issues was foreseeable. The case involves historical flood control systems that were destroyed by a storm and later restored by governmental entities and Gandy Dancer, which BNSF claims benefited local landowners without causing additional flooding.
While BNSF acknowledges its intention to build the berm, it denies intending any flooding. It reiterates the need for further discovery on its estoppel arguments and the reasons behind The Hartford's acceptance of coverage. Gandy Dancer presents aerial photographs to illustrate that it restored the historical flow of the Brown Arroyo and highlights that Mercer LLC claims to have lost access to its entire property around the area, not just where Gandy Dancer worked. The court must determine both the occurrence and if the harm was of the same type intended by Gandy Dancer.
Gandy Dancer argued that Mercer LLC's claim regarding the loss of use of sixty acres was not anticipated and not intended by them. The key issue for the Court is whether there is a duty to defend based on the allegations in the complaint, specifically if any damage claims are covered under Gandy Dancer's insurance policies. Gandy Dancer contended that exclusion j(5) applies only to damage on property they worked on and during ongoing operations. They cited Greystone Construction, Inc. v. National Fire, Marine Ins. Co., suggesting that if defective construction was never covered, the exclusion would be unnecessary. The Tenth Circuit's ruling indicated that allegations of defective construction leading to damage beyond the work done could constitute an occurrence.
Gandy Dancer referenced a previous court order asserting that the Court should not need to look beyond the insurance contract and complaint to determine the duty to defend. They stated that New Mexico law does not adhere to an "eight-corner" rule and requires a reasonable investigation into facts beyond the contract and complaint, necessitating discovery to clarify damages that might fall outside exclusion provisions. Gandy Dancer noted their absence during a relevant deposition, which limited their ability to clarify the duty to defend.
Additionally, they cited G. G Services, Inc. v. Agora Syndicate, Inc. as support for looking beyond the contract and complaint. Gandy Dancer emphasized that despite The Hartford's claims regarding exclusions for damages from construction, Mercer LLC's assertion of trespass falls under a different policy provision related to personal-and-advertising injury, which is not restricted to landlord/tenant situations. They claimed that this provision applies irrespective of whether there was an occurrence and that The Hartford did not adequately justify why the underlying complaint does not invoke this coverage. In response to the Court's inquiry about the contract's ambiguity, Gandy Dancer acknowledged that certain parts may be ambiguous and subject to multiple interpretations, particularly concerning the personal-and-advertising-injury provision.
The term “occurrence” is deemed ambiguous, with contested factual issues regarding intent to cause harm. Gandy Dancer argues that the expected-or-intended exclusion pertains to intentional injury, not merely intentional acts. The Hartford challenges Gandy Dancer's analogy regarding personal-and-advertising-injury provisions, asserting that BNSF Railway is the landlord and Gandy Dancer cannot claim against it. Citing Tenth Circuit cases, The Hartford contends that the personal-and-advertising-injury provision is limited to landlord/tenant scenarios, suggesting no coverage applies. It references Greystone Construction, Inc. v. National Fire & Marine Ins. Co. to support the claim that there is no occurrence. Regarding BNSF Railway’s estoppel argument, The Hartford states that a reservation-of-rights letter was sent months prior to litigation, asserting no prejudice to BNSF Railway. The Court noted Judge Tymkovich's view that property damage from poor workmanship generally triggers a duty to defend, though The Hartford contends that Judge Tymkovich did not reference relevant New Mexico case law and questions whether New Mexico's Supreme Court would align with the Tenth Circuit's broader interpretation. The Hartford seeks clarification on its ultimate liability rather than merely a duty to defend, emphasizing that the case involves fear of damages rather than actual damages. It argues that there is a solid summary judgment record with undisputed material facts, referring to a deposition indicating concerns over potential storm damage to cattle without current property damage. Finally, The Hartford maintains that Gandy Dancer's construction work impacted the entire property, which Gandy Dancer acknowledges by facilitating water runoff through the diversion system.
The Hartford expressed no concern regarding the Court considering disputed facts in favor of the Defendants, arguing that even under such assumptions, New Mexico law does not recognize an "occurrence" and that the alleged harm falls under an expected or intended exclusion. The Hartford acknowledged the importance of comparing the underlying complaint with the insurance contract but requested the Court to resolve the ultimate coverage issue beyond merely determining the duty to defend.
In response to discovery inquiries, The Hartford claimed that BNSF Railway's proposed discovery was relevant only to its counterclaims and unnecessary if the Court finds no coverage. The Hartford argued that any ambiguity in the term "occurrence" is a legal question and would be interpreted against the insurance company, emphasizing that the adjustor’s analysis pertains more to claims handling than to contract interpretation.
BNSF Railway countered that the adjustor’s analysis could indicate ambiguity and contain facts influencing the coverage decision. It cited a Tenth Circuit ruling that determined consequential damages can constitute an occurrence, referencing Mercer LLC's allegations of BNSF Railway's negligence in constructing a water diversion system. BNSF Railway argued for the necessity of conducting discovery first if the Court needs factual findings regarding the underlying case, highlighting the potential inconsistency if the Court finds no coverage while a state court rules on damages.
BNSF Railway maintained that it is entitled to a defense as long as the underlying complaint alleges facts supporting coverage. The legal standard for motions for summary judgment is outlined, stating that the court will grant such motions if there is no genuine dispute over material facts, placing the initial burden on the movant to demonstrate a lack of supporting evidence for the non-moving party’s case.
Once a movant establishes the burden for summary judgment, the non-moving party must provide specific facts indicating a genuine issue for trial, as mandated by Rule 56. This requirement emphasizes that the party opposing summary judgment cannot rely on mere allegations or denials from their pleadings. Instead, they must cite particular parts of the record, such as depositions, documents, and affidavits, to support their assertions about disputed facts.
A party cannot escape summary judgment by relying on ignorance, speculation, or hope that evidence will emerge at trial. Genuine factual issues must exist that can only be resolved by a factfinder. A mere “scintilla” of evidence is insufficient; there must be enough evidence for a reasonable jury to find in favor of the nonmoving party. If the evidence is merely colorable or lacks significant probative value, it does not qualify as evidence for trial.
Summary judgment may be granted if a rational trier of fact cannot find in favor of the non-moving party based on the entire record, indicating no genuine issue for trial. The court's role in reviewing a summary judgment motion is to determine whether there is a genuine issue regarding material facts, without weighing evidence. All reasonable inferences should be made in favor of the non-moving party, and the evidence presented by the non-movant must be accepted as true. The court cannot assess credibility issues.
Rule 56(d) of the Federal Rules of Civil Procedure provides that if a nonmovant cannot present essential facts to oppose a motion, they may request (1) a deferral of the motion, (2) additional time for discovery, or (3) another appropriate order. The Tenth Circuit reviews denials of Rule 56(d) motions for abuse of discretion, requiring an affidavit from the nonmovant as a prerequisite. Such applications should be treated liberally unless they are dilatory or meritless.
Summary judgment should generally be denied if the nonmoving party has not had a chance to discover essential information; however, it is not mandatory that discovery be complete before summary judgment is granted. To invoke Rule 56(d), a party must provide an affidavit detailing unavailable facts, their relevance, efforts to obtain them, reasons for their absence, and specifics on how additional time would help oppose summary judgment. Merely claiming incomplete discovery is insufficient to invoke Rule 56(d).
Contract interpretation in New Mexico aims to ascertain the intentions of the contracting parties, with courts confined to interpreting the agreed terms without altering or fabricating new agreements unless ambiguity exists. Ambiguities arise when mutual assent is unclear, and the question of whether an agreement contains ambiguity is a legal matter for trial courts. Courts may examine extrinsic evidence to assess ambiguity, and if the evidence is straightforward, the court can interpret the meaning as a matter of law. However, if the contract allows for differing interpretations, the ambiguity requires resolution by a fact finder. If no evidence of surrounding circumstances is presented, ambiguities may be resolved by applying standard rules of contract construction and grammar.
Factual ambiguities in contracts must be resolved by a jury or judge through a full evidentiary hearing before determining breach and damages. The fact finder can consider extrinsic evidence regarding the parties' language, conduct, and surrounding circumstances, as well as oral evidence of intent, but cannot use evidence to contradict or modify the contract's terms. A district court may interpret a contract as a matter of law if the evidence clearly supports one interpretation; otherwise, if the contract is reasonably susceptible to multiple interpretations, it is deemed ambiguous.
In insurance law, the terms of the policy govern the insurer's obligations, which must be viewed as a complete and harmonious document. Exclusionary clauses are narrowly construed in favor of the insured's reasonable expectations. The duty to defend is separate from the duty to indemnify; the determination of the duty to defend is based on the allegations in the complaint compared to the insurance policy. If allegations trigger coverage, the duty to defend is activated and persists until the underlying lawsuit concludes or coverage is definitively shown to be absent. This duty continues through multiple claims until all covered claims are resolved.
Known but unpleaded facts can bring a claim within an insurance policy's coverage at any stage of litigation. An insurer has a duty to defend if the allegations or facts in a complaint suggest the occurrence falls within the policy's coverage, regardless of the insured's ultimate liability. Conversely, if allegations clearly fall outside the provisions of a liability insurance policy, the insurer is not required to indemnify. Courts may defer the determination of indemnity until it is established whether the insurer is legally obligated to pay for damages covered by the policy. In New Mexico, the duty to indemnify depends on the actual liability imposed on the insured for claims that fall within coverage.
In the analyzed case, the court determined that Mercer LLC's claims of property damage and negligent misrepresentation do not warrant coverage under the relevant insurance policies. However, claims of trespass and nuisance do trigger coverage, but the ultimate duties of the insurer remain undetermined at this stage. The court found no need for additional discovery to resolve the motion for summary judgment (MSJ). The Hartford argued that Mercer LLC's damages from the water diversion project, directed by BNSF Railway, were not covered by the Gandy Dancer Policies as they did not result from an "occurrence" as defined in the policies. Furthermore, the Hartford cited two exclusions: (1) damages were expected or intended by BNSF Railway, and (2) the property damage occurred to real property where operations were conducted under BNSF Railway’s direction.
Gandy Dancer contends that The Hartford incorrectly defines the "property damage" in Mercer LLC’s claims against it, asserting that the damage involves the permanent loss of use of Mercer’s 60-acre tract for farming and grazing, rather than just the areas affected by the construction of the water diversion system. Gandy Dancer cites Mechenbier’s deposition to support its position, arguing that the alleged loss is not a natural consequence of Gandy Dancer’s work and stems from Mercer’s unfounded fears of flooding.
Gandy Dancer further posits that Mercer LLC’s claims partially fall outside the scope of exclusion J(5) because the exclusion pertains specifically to damage to the part of the property where work was performed, while Mercer’s claims encompass the entire tract.
BNSF Railway supports Gandy Dancer's position, arguing that the existence of a purposeful act does not negate coverage and that the court should assess the intent behind the alleged injuries. BNSF cites New Mexico case law indicating that negligent acts can still be covered as accidents. Additionally, BNSF asserts that exclusion J(5) does not apply since most claimed damages occurred outside the work area. Mercer LLC alleges that Gandy Dancer’s actions rendered its property worthless and caused damages due to negligent misrepresentation, water discharge, and loss of water rights. Relevant background includes Mercer LLC's acquisition of the Brown Arroyo property, which had a water diversion system, and Gandy Dancer's reconstruction of this system after significant rainfall in 2006. The court will consider various Mercer complaints to evaluate the claims.
Mercer LLC claims that the construction work by BNSF Railway and Gandy Dancer transformed a two-foot high berm into a twelve to fifteen-foot high channel, significantly altering the landscape and creating a diversion channel on Mercer’s property that is fifty to one hundred yards wide. This project allegedly diverted the Brown Arroyo's flow onto Mercer LLC's land, resulting in the redirection of floodwaters directly onto its property, rendering sixty acres worthless. Mercer LLC has raised multiple causes of action against BNSF Railway and Gandy Dancer, including trespass, negligence, negligent misrepresentation, misrepresentation, nuisance, unjust enrichment, and prima facie tort.
In subsequent counterclaims, Mercer LLC seeks a declaratory judgment regarding the absence of an easement and modification of the easement by estoppel, asserting additional claims such as negligence per se, unfair trade practices, inverse condemnation, and property value deprivation. Mercer LLC also alleges that BNSF Railway unlawfully eliminated water control structures, causing stormwater to be improperly diverted onto its property without necessary permits or design considerations, which devalued its water rights. Furthermore, Mercer LLC contends that Gandy Dancer's alterations to water control structures led to flooding that damages crops and hinders property use, claiming that Gandy Dancer breached its duty of care and had foreknowledge of the potential harm.
The Gandy Dancer Policies stipulate that the alleged property damages do not constitute an occurrence and therefore are not covered.
The Hartford's coverage is limited to "bodily injury" and "property damage" resulting from an "occurrence," defined as an accident or repeated exposure to similar harmful conditions. The New Mexico Supreme Court interprets "accident" in its ordinary sense when not explicitly defined in the policy, outlining several definitions including unexpected or undesigned events. Couch on Insurance posits that harm resulting from intentional acts of the insured does not qualify as accidental, regardless of whether the outcome was unforeseen.
In this case, the Court determines that Mercer LLC's property damages were not accidental and thus do not constitute an occurrence. Mercer LLC contends that BNSF Railway and Gandy Dancer intentionally modified the water diversion system, directing water onto its property. Prior case law, specifically Knowles v. United Services Automobile Association, supports that damages resulting from intended actions are excluded from coverage. Although the defendants did not expect to flood Mercer LLC’s property, they intended to divert water from the Brown Arroyo to it. The allegations assert a designed diversion rather than a defect in the system, indicating a deliberate action rather than an accident.
Allegations concerning accidental discharge and leakage of water from a plumbing system qualify as an “accident” or “occurrence,” as established in King v. Travelers Ins. Co. The Appellants experienced a loss due to this accidental water discharge, which BNSF Railway likened to damages from a leaky roof affecting a piano. However, unlike cases where a system malfunctioned, the current allegations claim that Gandy Dancer and BNSF Railway's system intentionally directed water onto Mercer LLC’s land. The analogy suggests that if a roofer designed a roof to deliberately pour water onto a piano, it wouldn't constitute an accident.
The Supreme Court of New Mexico's ruling in Vihstadt v. Travelers Ins. Co. clarified that property damage cases require an unexpected event to be classified as an accident. The court rejected the distinction between accidental means and results, stating that an accident must be present throughout. In the current case, Mercer LLC argues that the water diversion system, reconstructed by Gandy Dancer, was engineered to manage floodwater, and the water's direction was intentional, not an untoward event.
Gandy Dancer's argument citing Mechenbier's deposition, which indicated a historical consistency in water direction, is countered by Mechenbier’s assertion that the 2006 reconstruction resulted in water being retained on his property, leading to a loss of use and potential water rights forfeiture. Finally, referencing Albuquerque Gravel Products Co. v. American Employers Ins. Co., the Tenth Circuit determined that if the damage results from a negligent act's normal consequences, it cannot be deemed accidental. In this context, if Gandy Dancer's negligence in constructing the diversion system is established, the resultant flooding would similarly not be considered accidental.
Mercer LLC claims that water diversion from a construction project caused damage to its property, arguing that the resulting water damage is not an accident but a natural consequence of the diversion. Consequently, these damages do not qualify for coverage under the Gandy Dancer Policies. In contrast, Mercer LLC's allegations of negligent misrepresentation related to BNSF Railway's claims of authority to construct on Mercer LLC’s property may constitute an "occurrence" under the same policies, but are excluded from coverage under provision j(5). Mercer LLC contends it suffered property damage due to reliance on BNSF Railway’s misrepresentations, which it only discovered post-project. The Court found no New Mexico cases addressing whether negligent misrepresentation qualifies as an "accident" or "occurrence" for insurance coverage. Legal opinions vary on this issue: some courts view negligent misrepresentation as unintentional and therefore accidental, while others argue that intent to induce reliance or foreseeability of injury suggests it is not accidental. Chief Judge Black indicated that the New Mexico Supreme Court would likely recognize negligent misrepresentation as an accident, citing relevant case law. Under New Mexico law, a claim for negligent misrepresentation requires an untrue statement made without reasonable belief in its truth, intended for reliance, actual reliance by the listener, and resultant harm.
Negligent misrepresentation is categorized as an accident under New Mexico law, as it lacks intent to deceive. The court aligns with Chief Judge Black’s view that an individual who makes a negligent misrepresentation does not intend to harm or mislead. BNSF Railway believed it had the authority under a 1936 Easement to make improvements to a water diversion system. Similarly, in a previous ruling involving Sprintcom, coverage was triggered due to a misrepresentation of authority to assign a lease without proper permission.
However, the court determines that exclusion provision j(5) excludes coverage for negligent misrepresentation claims related to work performed on the property, as clarified by the Tenth Circuit’s findings in Advantage Homebuilding, LLC v. Maryland Cas. Co., which emphasized that such exclusions apply when property damage arises from the insured’s work. BNSF Railway did not contest the applicability of this exclusion.
Additionally, allegations of trespass and nuisance, arising from the construction of the diversion channel on Mercer LLC’s land, are not considered occurrences since BNSF Railway and Gandy Dancer intended both to enter the property and to construct the system. Thus, these actions do not qualify as accidents, although they may be covered under the personal and advertising injury provision.
BNSF Railway and Gandy Dancer argue that trespass and nuisance claims may be covered under the personal-and-advertising-injury provision of their insurance policy, which includes coverage for wrongful eviction, wrongful entry, or invasion of private occupancy. BNSF cites various cases where courts have found this provision applicable to trespass and nuisance claims, including a New Mexico case that interpreted "wrongful eviction" broadly. The Hartford counters that this provision pertains only to landlord/tenant disputes and does not cover Mercer LLC's claims, arguing that the alleged trespass was not conducted on behalf of Mercer LLC, which is the landowner. The Hartford claims the policy's language explicitly limits coverage to actions committed by or on behalf of an owner, landlord, or lessor, and emphasizes that BNSF Railway, as a holder of an easement, qualifies as an owner. It also references a Tenth Circuit ruling that recognized trespass claims as invoking coverage under the personal-injury provision. Other courts have similarly held that wrongful eviction or entry provisions require insurers to defend against trespass and nuisance claims.
Allegations of negligent trespass to property are classified as "wrongful entry," as established in Ins. Co. v. Dwyer. A reasonable person would interpret "wrongful entry" in personal injury coverage to encompass trespass and nuisance claims related to the Old Timer complaint. The Gandy Dancer Policies do not restrict coverage to landlord/tenant scenarios; their language allows for damages resulting from an owner's actions or their representatives. BNSF Railway claims an ownership interest, and The Hartford acknowledges their legal authority to construct a water diversion system on the Brown Arroyo property. The personal-and-advertising provision does not exclude coverage in this context, and a duty to defend arises when the complaint potentially falls within coverage scope.
The Court determines that the allegations of trespass and nuisance are covered under the Gandy Dancer Policies. It asserts that the expected-or-intended exclusion should not apply here, referencing Knowles v. United Services Automobile Ass’n, where similar reasoning was used to uphold coverage for wrongful eviction despite the exclusion. If the exclusion were applied, it would render the coverage for wrongful eviction or entry meaningless. Consequently, Mercer LLC's allegations of trespass and nuisance create a duty to defend, while those related to property damage and negligent misrepresentation do not trigger coverage. The Court partially grants and partially denies the motion for summary judgment (MSJ) and defers any decision on the duty to indemnify, deeming it premature, consistent with New Mexico law that requires clear alignment of allegations with policy provisions for indemnity to be necessary.
The determination of whether an insurer must indemnify the insured hinges on whether the insurer is legally obligated to pay damages for bodily injury or property damage that falls under the policy's coverage. The Tenth Circuit emphasizes that the duty to indemnify depends on the actual liability imposed on the insured for claims within the coverage scope. A judgment regarding the duty to indemnify may be premature, as it should be based on the facts established in the underlying litigation. In this case, since certain allegations in the underlying action trigger a duty to defend, The Hartford may also have a duty to indemnify BNSF Railway and Gandy Dancer, making it premature to determine The Hartford's ultimate liability under the policy.
The court will deny The Hartford's motion for summary judgment (MSJ) regarding its liability on the asserted claims. Additionally, the court will deny the Rule 56(d) discovery motion. Rule 56(d) allows for denial of summary judgment if the nonmoving party has not had an opportunity to gather essential information, but it does not require that discovery be complete before granting summary judgment. To properly invoke Rule 56(d), a party must file an affidavit, identify unavailable facts and their relevance, explain why those facts cannot be presented, and specify how additional time would help oppose summary judgment. The court finds that BNSF Railway's arguments for discovery to establish expectations regarding a reconstruction project and its implications are unnecessary for deciding the MSJ, as the duty to defend is determined by the nature of the allegations in the complaint.
The determination of whether an insurance company has a duty to defend is made by comparing the factual allegations in the complaint with the terms of the insurance policy, as established in Lopez v. N.M. Pub. Sch. Ins. Auth. The court found that no duty to defend was triggered for allegations of property damage and negligent misrepresentation after reviewing the Gandy Dancer Policies and relevant deposition without the need for discovery. The court ruled that it could decide the motions for summary judgment (MSJ) based solely on the pleadings and policy documents, asserting that additional discovery would not affect its determination. The court denied the MSJ concerning the duty to indemnify, stating that the question of ultimate liability remains premature. It confirmed that The Hartford would continue to defend BNSF Railway and Gandy Dancer in state litigation due to the triggering of the duty to defend. Issues of bad faith and estoppel were not considered relevant to the MSJ and thus did not warrant further discovery. Consequently, the court denied the Discovery Motion and granted in part and denied in part The Hartford’s MSJ regarding coverage for claims against BNSF and Gandy Dancer. Gandy Dancer did not dispute the existence of the Gandy Dancer Policies but challenged The Hartford's interpretation of the relevant policy pages.
Gandy Dancer has not specifically disputed the facts asserted by The Hartford, leading the Court to admit those facts as true under D.N.M.LR-Civ. 56.1. Although Gandy Dancer pointed out a citation error regarding the Gandy Dancer Policies, the Court clarified that the 05-06 Gandy Dancer Policy is attached as exhibit 12 (Doc. 37-7) and the 06-07 Gandy Dancer Policy as exhibit 13 (Doc. 37-8). Gandy Dancer contests The Hartford's assertion that only certain undisputed material facts (14, 15, 16, and 17) encompass relevant policy provisions, claiming that The Hartford failed to include the definition of "property damage." However, Gandy Dancer does not challenge the content of The Hartford's asserted facts, which results in the Court deeming those facts admitted. Additionally, since The Hartford did not dispute Gandy Dancer's definition of "property damage" in its reply, this definition is also admitted. The Hartford’s reply fails to address additional facts presented by Gandy Dancer and BNSF Railway, which the Court will accept as undisputed. The Court notes that a berm is defined as a flat strip of land or artificial embankment. Furthermore, The Hartford indicates that Mercer appears to have retracted all allegations in the original Counterclaim, instead asserting claims for declaratory judgment and modification of the easement by estoppel.
Gandy Dancer and BNSF Railway contest certain factual claims in the Mercer Amended State Counterclaim, which incorporates all allegations from the original Mercer State Counterclaim. The local rules mandate that responses to factual assertions must clearly identify disputed facts and reference specific record portions. Both Gandy Dancer and BNSF Railway have specifically rebutted a fact asserted by The Hartford regarding damage to Mercer LLC’s property due to the diversion system's reconstruction. Gandy Dancer cites deposition testimony from Mike Mechenbier, indicating that the counterclaims are based on loss of property use and potential forfeiture of water rights, including areas not impacted by Gandy Dancer's actions. However, the Mercer 2nd Amended State Complaint alleges that BNSF Railway's activities caused damage to Mercer LLC’s property. Consequently, the court will accept The Hartford's assertion regarding damages as admitted, given that Gandy Dancer's supporting information does not contradict this claim, and The Hartford did not dispute it in their reply. The court will consider Gandy Dancer's deposition assertions as factual admissions.
All material facts in the Response are considered undisputed unless contested. The Hartford claims that Mercer LLC abandoned its original counterclaim allegations and instead asserts claims for declaratory judgment and easement modification in its amended counterclaim. Mercer LLC references all elements of its original counterclaim in its response. The "mend the hold" doctrine prohibits a party from altering its interpretation of a contract during ongoing litigation. The Supreme Court of New Mexico allows extrinsic evidence to clarify contract ambiguities. The analysis of negligence includes whether the result was intended or expected, as seen in Knowles v. United Services Automobile Association, which informs coverage determinations. The Hartford did not sufficiently address allegations of negligent misrepresentation, failing to demonstrate a lack of evidence supporting the opposing party's case. The Court will assess whether these allegations trigger coverage, impacting the duty to defend and indemnify. Additionally, the Supreme Court of New Mexico clarified that negligent misrepresentation is distinct from deceit or fraud, and New Mexico law governs it. Some of Mercer LLC's allegations necessitate a defense from The Hartford, so the argument regarding estoppel for denying coverage is unnecessary. The Discovery Motion seeks relief under amended rule 56(d) of the Federal Rules of Civil Procedure. A Tenth Circuit case indicated that an insurer's late reservation of rights does not automatically imply prejudice. The Hartford's initial acceptance of the duty to defend included conditions from its policy, and a formal reservation of rights letter was issued prior to BNSF Railway's lawsuit against Mercer LLC.
