FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS January 20, 2016
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
COREY CHRISTY,
Plaintiff - Appellant,
v. No. 14-2168
TRAVELERS INDEMNITY COMPANY
OF AMERICA,
Defendant - Appellee.
_________________________________
Appeal from the United States District Court
for the District of New Mexico
(D.C. No. 1:13-CV-00281-WJ-CG)
_________________________________
Clayton E. Crowley, Crowley & Gribble, P.C., Albuquerque, New Mexico, for Plaintiff-
Appellant.
Jennifer A. Noya (Tiffany Roach Martin, with her on the brief), Modrall, Sperling, Roehl,
Harris & Sisk, P.A., Albuquerque, New Mexico, for Defendant-Appellee.
_________________________________
Before BRISCOE, McKAY, and McHUGH, Circuit Judges.
_________________________________
McHUGH, Circuit Judge.
_________________________________
Plaintiff-Appellant Corey Christy purchased a commercial general-liability
insurance policy (the CGL Policy) from Travelers in the name of his sole
proprietorship, K&D Oilfield Supply (K&D). Subsequently, Mr. Christy registered
his business as a corporation under the name K&D Oilfield Supply, Inc. (K&D, Inc.).
Mr. Christy renewed his CGL Policy annually, but did not notify Travelers that he
had incorporated his business. After Mr. Christy formed K&D, Inc., he was in an
accident and made a claim under the CGL Policy. Travelers denied coverage based
on Mr. Christy’s failure to inform it of the change in business form, and Mr. Christy
brought suit. On cross motions for summary judgment, the district court found in
favor of Travelers. We affirm in part, reverse in part, and remand for further
proceedings.
I. BACKGROUND
Mr. Christy purchased the CGL Policy from Travelers in 2007. The Policy
designated K&D as the named insured and listed the “Form of Business” as
“Individual,” indicating K&D was a sole proprietorship. The CGL Policy insured a
truck used for K&D’s business as a “covered auto” and included uninsured motorist
(UM) coverage in the amount of $1,000,000. In addition to the CGL Policy, the
Christys also purchased an auto insurance policy through Travelers on their personal
vehicle (the Personal Policy).
Subsequently, an attorney advised Ms. Christy that K&D should be
incorporated to protect the family’s assets from liability incurred by the business. The
Christys incorporated K&D, Inc. in April 2008, but did not notify Travelers of the
change.
Each year at the renewal of the CGL Policy, the Christys’ insurance agent sent
a cover letter stating, “Please review your policy for accuracy and advise me if any
2
changes or additional coverage are needed.” Additionally, the Christys’ insurance
agent met with them annually to advise them about their coverage. The Christys did
not inform Travelers of the formation of K&D, Inc. during any of these annual
meetings.
On July 28, 2010, Mr. Christy was seriously injured when a vehicle operated
by an underinsured motorist struck him while he was riding his bicycle. Mr. Christy
recovered the underinsured motorist’s policy limits of $25,000. He received an
additional $100,000 from the UM coverage on the Personal Policy with Travelers.
Relevant to this appeal, Mr. Christy also sought to recover under the UM provision of
the CGL Policy,1 but Travelers denied the claim.
Mr. Christy brought suit, arguing he was entitled to UM benefits under the
CGL Policy. Specifically, he pointed to the CGL Policy’s identification of K&D as
the “Named Insured” and the “Form of Business” as “Individual.”2 He also relied on
the CGL Policy’s definition of an “Insured” as “any person or organization
qualifying as an insured in the Who Is An Insured provision of the applicable
coverage.” That provision of the CGL Policy states:
If the Named Insured is designated in the Declarations as:
1. An individual, then the following are “insureds”:
a. The Named Insured and any “family members”.
1
The CGL Policy, and in particular the UM Endorsement, includes both
uninsured and underinsured motor vehicles within the definition of “uninsured motor
vehicle.”
2
All references to the terms of the Policy reflect the version of the Policy in
effect at the time of Mr. Christy’s accident.
3
b. Anyone else “occupying” a covered “auto” or a temporary
substitute for a covered “auto”. The covered “auto” must
be out of service because of its breakdown, repair,
servicing, “loss” or destruction.
c. Anyone for damages he or she is entitled to recover
because of “bodily injury” sustained by another “insured”.
2. A partnership, limited liability company, corporation, or any
other form of organization, then the following are “insureds”:
a. Anyone “occupying” a covered “auto” or a temporary
substitute for a covered “auto”. The covered “auto” must
be out of service because of its breakdown, repair,
servicing, “loss” or destruction.
b. Anyone for damages he or she is entitled to recover
because of “bodily injury” sustained by another “insured”.
c. The Named Insured for “property damage” only.
The UM endorsement further provides that Travelers will pay “all sums the ‘insured’
is legally entitled to recover as damages from the owner or driver of an ‘uninsured
motor vehicle’ because of . . . ‘[b]odily injury’ sustained by an ‘insured’ and caused
by an ‘accident.’” The CGL Policy broadly defines “Accident” to include
“continuous or repeated exposure to the same conditions resulting in ‘bodily injury’
or ‘property damage.’”
Based on this language, Mr. Christy claimed he was entitled to recover UM
benefits as an “insured” under the CGL Policy. Specifically, Mr. Christy argued that
although K&D was designated as the named insured on the CGL Policy, Mr. Christy
was the true named insured as the sole proprietor of K&D, which was simply a name
under which Mr. Christy did business. According to Mr. Christy’s reading of the
CGL Policy, the named insured was an individual—Mr. Christy—and therefore UM
coverage was available for any accident, not only accidents occurring while the
4
insured was occupying a covered auto. As such, Mr. Christy argued the CGL Policy
provides coverage for the accident that occurred while he was riding his bicycle.
Travelers contended the incorporation of K&D effectively changed the named
insured to K&D, Inc. And, according to Travelers, where the named insured is a
corporation, the CGL Policy covers only persons occupying an insured vehicle at the
time of the accident. Thus, Travelers asserts Mr. Christy’s bicycle accident is not
covered by the CGL Policy.
Following discovery, the parties filed cross-motions for summary judgment,
advancing their competing positions on whether Mr. Christy was entitled to UM
coverage under the CGL Policy. The district court granted summary judgment in
favor of Travelers. The district court found, first, that Mr. Christy had a duty to
notify Travelers he had changed the form of his business from a sole proprietorship
to a corporation. Second, the district court found that Mr. Christy’s failure to update
Travelers about the change in his business structure constituted a material
misrepresentation that had induced Travelers to renew the CGL Policy in 2008, 2009,
and 2010. The district court therefore reformed the CGL Policy to reflect K&D, Inc.
as the named insured from 2008 through 2010 and held that, as reformed, the CGL
Policy did not cover Mr. Christy’s bicycle accident.
Mr. Christy appeals. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we
reverse in part, affirm in part, and remand for additional proceedings.
5
II. DISCUSSION
Because this case comes before the panel from a grant of summary judgment,
we review the district court’s ruling de novo, applying the same legal standard as the
district court. Holub v. Gdowski, 802 F.3d 1149, 1154 (10th Cir. 2015), petition for
cert. filed, -- U.S.L.W. --- (U.S. Dec. 30, 2015) (No. 15-839). “Summary judgment is
appropriate when ‘the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.’ We view the
facts and evidence submitted by the parties in the light most favorable to the non-
moving party.” Id. (citation omitted) (quoting Fed. R. Civ. P. 56(a)).3 A factual
dispute is material only if it might affect the outcome of the case. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986).
On appeal, Mr. Christy argues the district court erred when it determined he
had an affirmative duty to notify Travelers of the formation of K&D, Inc. He also
alleges his failure to inform Travelers about the incorporation did not constitute a
material misrepresentation and, therefore, reformation was inappropriate. Finally,
Mr. Christy contends the district court erred in granting summary judgment on his
claim for breach of the implied covenant of good faith and fair dealing.
3
Both parties filed motions for summary judgment before the district court. In
such cases, “[c]ross-motions for summary judgment are to be treated separately.”
Buell Cabinet Co. v. Sudduth, 608 F.2d 431, 433 (10th Cir. 1979). Because Mr.
Christy appeals the district court’s grant of summary judgment in Travelers’ favor,
we treat Travelers’ motion independently and consider Mr. Christy the non-moving
party for purposes of this appeal.
6
Because we cannot determine as a matter of law that Mr. Christy had an
affirmative duty to inform Travelers of the formation of K&D, Inc., summary
judgment was inappropriate on this issue. In addition, Mr. Christy raised genuine
issues of fact that preclude a determination at this stage of the proceedings of
whether the failure to inform Travelers was a material misrepresentation. As such,
the district court erred in reforming the policy on that ground.4 We therefore reverse
4
Before the district court, Travelers also asserted theories of mutual and
unilateral mistake and breach of contract. Because the district court found Mr.
Christy made a material misrepresentation by not informing Travelers of the
incorporation of K&D, Inc., it did not address Travelers’ additional arguments. On
appeal, Travelers has not renewed its breach of contract argument as an alternate
ground to affirm the district court’s grant of summary judgment. And Travelers
addresses its theories of unilateral and mutual mistake only in passing in two
footnotes in its brief. As such, they are not properly presented to this court as
alternate grounds to affirm the grant of summary judgment.
But even if Travelers had properly presented these arguments as alternate
grounds to affirm, we would nevertheless be precluded from doing so because either
theory requires factual determinations better made by the district court in the first
instance. For unilateral mistake, reformation is appropriate under New Mexico law
only if the mistake is accompanied by fraud or other inequitable conduct on the part
of the nonmistaken party. See Chromo Mountain Ranch P’ship v. Gonzales, 681 P.2d
724, 725 (N.M. 1984). The district court has not made a finding that Mr. Christy
acted fraudulently by not updating Travelers about the incorporation of his business.
See Prudential Ins. Co. of Am. v. Anaya, 428 P.2d 640, 643 (N.M. 1967) (holding a
finding of fraud is not required when determining whether a party engaged in a
material misrepresentation). We therefore leave the consideration of this issue for
remand.
As to mutual mistake, New Mexico law allows for reformation of a contract
“where there has been a meeting of the minds, an agreement actually entered into, but
the contract, deed, settlement, or other instrument, in its written form, does not
express what was really intended by the parties thereto.” C.R. Anthony Co. v. Loretto
Mall Partners, 817 P.2d 238, 245 (N.M. 1991) (internal quotation marks omitted).
Before the court can reform a writing, the party seeking reformation must show
“clearly and beyond doubt that there has been a mistake . . . [and must] also be able
to show with equal clearness and certainty the exact and precise form and import that
the instrument ought to be made to assume, in order that it may express and
7
the grant of summary judgment in favor of Travelers and remand for further
proceedings. But we affirm the grant of summary judgment as to Mr. Christy’s claim
for breach of the implied covenant of good faith and fair dealing.
A. Duty to Inform
We begin our analysis with the question of whether—based on the undisputed
facts—Mr. Christy had an affirmative obligation to inform Travelers that he had
incorporated K&D, Inc. The district court found Mr. Christy was obligated to inform
Travelers of the change in the form of his business for two reasons: (1) the provisions
of the CGL Policy created a contractual duty to inform and (2) public policy supports
imposition of such a duty. We disagree.
1. CGL Policy Provisions
Under New Mexico law, parties are free to structure their contractual
obligations as they wish, so long as they do not clearly contravene public policy. See
First Baptist Church of Roswell v. Yates Petroleum Corp., 345 P.3d 310, 313–14
(N.M. 2015); Nearburg v. Yates Petroleum Corp., 943 P.2d 560, 571 (N.M. Ct. App.
1997) (“Parties to a contract agree to be bound by its provisions and must accept the
burdens of the contract along with the benefits.”). Recognizing this general principle,
New Mexico courts interpret contractual provisions to effectuate the intent of the
parties. See WXI/Z Sw. Malls v. Mueller, 110 P.3d 1080, 1083 (N.M. Ct. App. 2005).
effectuate what was really intended by the parties.” Twin Forks Ranch, Inc. v.
Brooks, 964 P.2d 838, 841 (N.M. Ct. App. 1998) (internal quotation marks omitted).
But the question of the parties’ true intent is a factual matter, best decided by the
district court after a full evidentiary hearing. C.R. Anthony, 817 P.2d at 246. Again,
the district court should consider this question in the first instance on remand.
8
“[A]nd absent any ambiguity, the court may not alter or fabricate a new agreement
for the parties.” Id. (internal quotation marks omitted).
Travelers argues the express language of the Policy imposed an obligation on
Mr. Christy to inform Travelers he had incorporated his business. To begin, Travelers
relies on a provision in the Policy that reads: “This policy contains all the agreements
between you and us concerning the insurance afforded.” According to Travelers, this
language created an affirmative obligation requiring Mr. Christy to notify Travelers
of any changes to his business structure. The district court agreed with Travelers,
characterizing this language as a “catch-all” provision that required Mr. Christy to
inform Travelers of any changed circumstances.
We do not agree with this reading. Nothing in the express language of the
provision imposes any obligation on either Mr. Christy or Travelers. Rather, the
provision is a standard integration clause, which merges any prior or
contemporaneous agreements into the final written contract. See Nakashima v. State
Farm Mut. Auto. Ins. Co., 153 P.3d 664, 668 (N.M. Ct. App. 2007); see also 2 David
Frisch, Lawrence’s Anderson on the Uniform Commercial Code § 2-202:48 (3d ed.)
(“An integration clause is indicative that the parties intended the writing to be the
exclusive statement of the parties’ agreement, and will usually be given that effect.”).
The sole and unambiguous effect of this provision is to limit the parties’ agreement to
the final written contract. There is no obligation-creating language in the clause, and
9
we will not read into the CGL Policy duties not clearly contemplated by the parties.5
See Cont’l Potash, Inc. v. Freeport-McMoran, Inc., 858 P.2d 66, 80 (N.M. 1993)
(“Thus, implied covenants are not favored in law, especially when a written
agreement between the parties is apparently complete.”). To the extent the integration
clause is relevant to the issue of Mr. Christy’s duty, it dictates that any obligation to
notify Travelers about the formation of K&D, Inc. must be expressly stated in the
Policy.
Travelers argues that such an obligation can be found in the provision stating
that the Policy is void if an insured commits fraud or “intentionally conceal[s] or
misrepresent[s] a material fact.” Travelers argues this language created an affirmative
duty for Mr. Christy to inform Travelers of the change in business form. Again, we
disagree. This provision states that the CGL Policy is void in the event of fraud or if
an insured “intentionally conceal[s] or misrepresent[s] a material fact.” By its plain
language, it does not impose a duty requiring Mr. Christy to inform Travelers of
changes to his business. It does not expressly impose affirmative obligations on
either party. Under this provision, the CGL Policy could be rendered void if Mr.
Christy made a material misrepresentation to Travelers. But, as explained below, we
5
In fact, had Mr. Christy wanted to change the Policy to reflect K&D, Inc. as
the named insured, this provision would have required him to do so in writing
through a suitable endorsement. See Koehlke v. City Street Inn, Inc., No. 2002-A-
0108, 2003 WL 22290888, at *2–3 (Ohio Ct. App. Sept. 30, 2003) (interpreting
identical language to require insured to notify insurer in writing of change from sole
proprietorship to corporation if she wished to bring a claim under a theory of liability
only available to her if policy was issued to a corporation). That is, the integration
clause would have precluded Mr. Christy from unilaterally altering the terms of the
Policy simply by forming K&D, Inc.
10
cannot determine at this stage of the proceedings whether Mr. Christy made such a
material misrepresentation. As a result, it is uncertain whether this provision of the
CGL Policy is implicated. See discussion infra.
The district court therefore erred in concluding the language of the CGL Policy
imposed an ongoing obligation on Mr. Christy to update Travelers about any changed
circumstances related to his business.
2. Public Policy
Alternatively, the district court concluded Mr. Christy’s duty to inform
Travelers of the incorporation of K&D, Inc. arose as a matter of public policy.
According to the district court, such an obligation should be imposed as a matter of
public policy even in the absence of an express provision in the CGL Policy requiring
Mr. Christy to keep Travelers informed of any changes in K&D’s business structure.
We depart from the district court’s analysis on this issue for two reasons. First,
the district court reached the conclusion that it was required to consider public policy
based on the application of tort duty analysis. Although the imposition of a legal duty
in the tort context is based, in part, on public policy, see, e.g., Calkins v. Cox Estates,
792 P.2d 36, 39 (N.M. 1990) (stating in the negligence context, “The existence of a
duty is a question of policy to be determined with reference to legal precedent,
statutes, and other principles comprising the law”), the same analytical framework
does not govern cases, like this, which sound in contract. Neither the district court
nor the parties have cited any authority supporting the idea that New Mexico courts,
in an attempt to conform the agreement to public policy, will impose on parties to a
11
contract affirmative obligations other than the few well-recognized covenants implied
by law. See, e.g., Paiz v. State Farm Fire & Cas. Co., 880 P.2d 300, 309–10 (N.M.
1994) (recognizing that every contract in New Mexico contains an implied covenant
of good faith and fair dealing). Indeed, doing so would be contrary to the New
Mexico courts’ admonition against imposing contractual obligations not clearly
contemplated by the parties.6 See WXI/Z, 110 P.3d at 1083. Thus, New Mexico law
does not support the conclusion that public policy alone can form the basis for
imposing affirmative disclosure obligations on Mr. Christy that are not set forth in
the CGL Policy.
Second, the district court’s analysis was based on its conclusion that, in the
absence of a duty to notify Travelers of the change in business structure, Mr. Christy
“would be rewarded for making a material misrepresentation, in turn incentivizing
others like [Mr. Christy] to withhold information from insurers to derive greater
benefits which honest disclosure would not have permitted.” But the district court’s
6
In New Mexico, express contractual provisions may be rendered
unenforceable based on public policy. See, e.g., Yedidag v. Roswell Clinic Corp., 346
P.3d 1136, 1150 (N.M. 2015) (acknowledging that parties are ordinarily allowed to
negotiate the terms of their agreements and agree to any terms not prohibited by
public policy); State ex rel. King v. B & B Inv. Grp., Inc., 329 P.3d 658, 670 (N.M.
2014) (explaining that public policy “allows courts to render unenforceable an
agreement that is unreasonably favorable to one party while precluding a meaningful
choice of the other party” (internal quotation marks omitted)); see also 5 Williston on
Contracts § 12:1 (4th ed.) (explaining that some bargains are rendered unenforceable
because enforcement is against public policy); Restatement (Second) of Contracts
§ 178 (explaining that certain terms of a contract may be unenforceable on public
policy grounds). But none of these authorities allows a court to impose affirmative
contractual obligations not bargained for by the parties based solely on public policy.
12
assumption that Mr. Christy made a material misrepresentation was improper because
the facts are disputed on this point.7
B. Material Misrepresentation
In addition to arguing that Mr. Christy breached a contractual and public
policy duty to notify Travelers about the incorporation of K&G, Inc., Travelers also
maintains that Mr. Christy may not recover UM benefits under the CGL Policy
because his failure to inform was a material misrepresentation.
Under New Mexico law, a misrepresentation can be the basis for a party’s
avoidance of contractual obligations through rescission or reformation when “the
contract is based in material part” on that misrepresentation. State ex rel. State
Highway & Transp. Dep’t, 806 P.2d 32, 37 (N.M. 1991). “In order for this to occur,
the recipient of the misrepresentation must show that (1) there was a
misrepresentation that was (2) material or fraudulent and which (3) induced the
recipient to enter into the agreement and that (4) the recipient’s reliance on the
misrepresentation was justified.” Sisneros v. Citadel Broad. Co., 142 P.3d 34, 40
(N.M. Ct. App. 2006). The parties do not seriously dispute the third or fourth prongs
of the test. As such, our analysis focuses on whether Mr. Christy’s silence on the
issue of the formation of K&D, Inc. constituted a material misrepresentation under
7
The district court found the existence of a legal duty to inform Travelers of
the incorporation of K&D, Inc. based in part on its conclusion that Mr. Christy
engaged in a material misrepresentation. But, as explained below, Mr. Christy’s
silence on the status of his business organization constitutes a material
misrepresentation only if we first conclude he had a duty to inform Travelers of the
change in business structure.
13
the facts of this case. The district court assumed Mr. Christy’s silence on the changed
form of his business was a misrepresentation under New Mexico law. Then, having
assumed the existence of a misrepresentation, the district court considered whether it
was material. But on these facts, we cannot conclude as a matter of law that Mr.
Christy’s silence rose to the level of a misrepresentation or that it was material.
1. Material Misrepresentation Standard
“A misrepresentation is an assertion that is not in accord with the facts.”8
Restatement (Second) of Contracts § 159. When Mr. Christy first purchased the CGL
Policy, K&D was a sole proprietorship, and Travelers drafted the CGL Policy to
reflect that status. Thus, Mr. Christy’s original representation as to the form of his
business was in accord with the facts. The issue here then is whether, during the
subsequent renewal periods, Mr. Christy’s silence about the change in his business
structure qualified as “an assertion that is not in accord with the facts.” See
Restatement (Second) of Contracts § 159.
As explained below, to determine whether silence rises to the level of a
misrepresentation, we must first analyze materiality. If information is not material, an
insured has no duty to disclose in the absence of a specific inquiry. And if the insured
has no duty to disclose, mere nondisclosure will not be considered an affirmative
8
New Mexico courts have adopted the Restatement’s formulation of law
related to material misrepresentations. See Sisneros, 142 P.3d at 38. Accordingly, in
the absence of New Mexico authority to the contrary, our discussion similarly relies
on the Restatement, as well as decisions from the New Mexico courts.
14
representation. Thus, the question before us is: When does an insured have a duty to
disclose changes in circumstances that occur after issuance of a policy?
The Restatement distinguishes between an affirmative misrepresentation, an
act of concealment that rises to the level of an affirmative misrepresentation, and
mere nondisclosure, which may be the equivalent of an affirmative misrepresentation
under certain circumstances. Id. §§ 159–61. In cases like this involving a mere
nondisclosure, the party failing to disclose must know or have reason to know that
the undisclosed fact will influence the decisionmaking of the other party before the
nondisclosure will be treated as an affirmative misrepresentation. Id. § 161; see also
id. § 161 cmt. b (“In order to make the contract voidable . . . the non-disclosure must
be either fraudulent or material. . . . [O]ne is expected to disclose only such facts as
he knows or has reason to know will influence the other in determining his course of
action.”).
A leading treatise on insurance contracts similarly distinguishes between an
affirmative misrepresentation, concealment, and mere failure to disclose:
In the law of insurance, “concealment” is the designed and intentional
withholding of any fact material to the risk which the insured in honesty
and good faith ought to communicate to the insurer but which the
insured designedly and intentionally withholds. Mere silence, however,
is not concealment, at least in the absence of a specific inquiry, for it is
the context of the surrounding circumstances which determines the legal
significance of such silence.
6 Couch on Insurance § 81:21 (emphasis added). “A party applying for insurance is
bound to answer truthfully all questions concerning facts material to the risk but
generally has no duty where the application makes no specific inquiries.” Id. § 84:2.
15
And although the materiality of a particular fact is a factor in deciding whether the
insured should have disclosed it, “a prospective insured has no duty to inform an
insurer even with respect to a material factor unless the insured has been asked about
it or otherwise made to know that it is a material basis for issuance of the policy.” Id.
§ 84:6. “Also, because the insured normally is a lay individual and not particularly
knowledgeable in the field of insurance risks, it is unreasonable to impose on the
insured a continuing duty to notify the insurer of any change which would materially
affect the acceptance or continuation of the risk.” Id. § 84:9.
For Mr. Christy’s mere silence on the change in his business structure to rise
to the level of an affirmative misrepresentation, Travelers must have made a specific
inquiry or Mr. Christy must have known or should have known the structure of his
business was material to Travelers’ decision to renew the CGL Policy. Under the
Restatement and Couch, the insurer has the obligation to inquire about those facts it
considers material to its risk, rather than placing the burden on the untrained insured
to disclose any and all changed circumstances that his insurer may consider
significant. New Mexico’s general adherence to the Restatement convinces us that its
courts would place the onus of inquiry on Travelers as the insurer, rather than
expecting Mr. Christy as the lay insured to divine which facts might be material to
Travelers’ decision to issue or renew a policy. That is, unless Mr. Christy had
knowledge that the information was material to Travelers.
The Massachusetts Court of Appeals reached a similar conclusion in Quincy
Mutual Fire Insurance Co. v. Quisset Properties, Inc., 866 N.E.2d 966 (Mass. App.
16
Ct. 2007). In Quincy, the insured purchased a commercial auto insurance policy
through his corporation. Id. at 968–69. At the time the insured purchased the policy,
the application accurately reflected all material facts. Id. at 969. The insured renewed
the policy for the next nine years, but at no time did the insurer require the insured to
complete a renewal application or questionnaire. Id. At the renewal period, the
insurer sent the insured a copy of the new policy and a letter that stated “in the event
of a loss or if there is any change in conditions existing at the time this policy was
written, please notify our office.” Id. Six years after purchasing the initial policy, the
insured’s corporation was dissolved. Id. But the insured did not notify the insurer of
the dissolution. Id. at 969–70. Subsequently, the insured made a claim on the
commercial policy, which was denied for failure to notify the insurer of the
dissolution of the company.
The Massachusetts Court of Appeals reviewed “whether [the insured’s] failure
to notify [the insurer] of [the company’s] dissolution represents a material
misrepresentation that increased the risk of loss to the insurer.” Id. at 970. It
answered that question in the negative, concluding that an insurer has a duty to
inquire into facts and circumstances it deems material to its coverage decisions. Id. at
971–74. The court explained:
Insureds are not in a position to recognize risk-enhancing circumstances
as readily as the insurer, who can more easily identify and evaluate
circumstances that are material to the decision to underwrite and insure
the risk. Information not asked for is presumably deemed immaterial.
Moreover, imposing the burden of inquiry on the insurer poses no undue
burden and reduces, if not eliminates, the difficult determination of
17
what is, or is not, material to the risk of loss from the perspective of an
insurer.
Id. at 973 (citation omitted).
We conclude that the Quincy court’s analysis is consistent with the
Restatement and most likely to reflect New Mexico’s views on this issue.
Furthermore, the cases Travelers cites as support for its argument that New Mexico
would place the burden on the insured are inapposite. For example, Travelers relies
on Rael v. American Estate Life Insurance Co., 444 P.2d 290 (N.M. 1968), for the
proposition that a failure to disclose material information constitutes a
misrepresentation. But in Rael, the insurer’s application specifically asked whether
any family member had undergone any “medical or surgical advice or treatment or
operations in the past 5 years.” Id. at 291 (internal quotation marks omitted). Despite
the fact that, during the five-year period, the insured’s wife and daughter had both
received medical treatment, including surgeries, the insured answered “No.” Id. at
291–92. Not surprisingly, the New Mexico Supreme Court held that an insurer is
entitled to true and complete answers to the questions it asks before issuing a policy.
Id. at 292. But Rael did not address a situation, like the present, in which the insured
truthfully answers the application questions, circumstances later change, and the
insurer arguably does not make further inquiry. Because Rael addressed only an
insured’s obligation not to lie in response to a direct question from the insurer, it is
not controlling here.
18
Travelers’ reliance on Rehders v. Allstate Insurance Co., 135 P.3d 237 (N.M.
Ct. App. 2006), is similarly misplaced. Travelers argues Rehders stands for the
proposition that an insured is presumed to know and understand the insurance
significance of changing his business from a sole proprietorship to a corporation. But
Rehders cannot be read so broadly. Rehders involved a commercial insurance policy
issued in the name of a sole proprietorship from 1983 until 2001. Id. at 239–40. In
September 2001, the sole proprietors notified Allstate that they had changed their
business from a sole proprietorship to a corporation and requested that their policy be
modified to reflect that change. Id. at 240. Allstate issued a new policy in the name of
the corporation. Id. Subsequently, the proprietors’ son was injured in an accident
with an uninsured driver. Id. Under the prior policy, the son was arguably covered
under the provisions relating to sole proprietorships. Id. But under the new policy
issued to the corporation, Allstate denied coverage, asserting the son was not an
insured. Id. The New Mexico Court of Appeals agreed with Allstate, holding the
proprietors could not have reasonably expected that coverage for their son would
remain the same after changing their business organization and obtaining a new
policy. Id. at 247.
Travelers relies on Rehders to argue that insureds are always presumed to
understand a change in business form will have insurance implications. But the
Rehders court’s holding is limited by the facts at issue there. Specifically, the
insureds changed their business organization, obtained a new insurance policy that
unambiguously did not provide coverage for the subsequent accident, and then
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attempted to negate the change they had requested to obtain more favorable coverage
after an accident. The Rehders court did not consider a situation like this case, where
the same policy is in place but there has been a change in the business form of the
insured. As a result, it is not controlling.
In sum, the CGL Policy may only be reformed or rendered void if Mr. Christy
made a material misrepresentation by failing to disclose the change to his business
form. Mr. Christy’s nondisclosure will only be considered a misrepresentation if he
had a duty to inform Travelers of the change. And Mr. Christy only had such a duty if
the incorporation of his business was material. A finding of materiality depends on
whether Mr. Christy knew or should have known that changing his business form
would affect Travelers’ decision to renew. Accordingly, we now consider whether the
evidence presented of Mr. Christy’s knowledge on this point was undisputed or
instead created a material issue of fact which precludes summary judgment.
2. Evidence
Mr. Christy averred by affidavit that he was never informed that changing his
business form could affect Travelers’ decision to renew his insurance coverage.
According to Mr. Christy, the annual discussions with his insurance agent focused on
the number of employees and the types of vehicles used by the business. And the
insurance agent testified by deposition that, although he asked Mr. Christy whether
there had been any changes in the business’s “operations,” he never expressly asked
whether the business form had changed. But Travelers points to the cover letter sent
with the annual renewal notice, which states, “Please review your policy for accuracy
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and advise . . . if any changes or additional coverages are needed.” According to
Travelers, this letter was sufficient to notify Mr. Christy that he should inform
Travelers of any changed circumstances that might warrant a corresponding revision
of the CGL Policy. It was precisely this type of generic inquiry that the Quincy court
rejected as insufficient to place the burden on the insured to determine which specific
changes might be material to his insurer. See Quincy Mut. Fire Ins. Co., 866 N.E.2d
at 973. And to hold otherwise would turn the Restatement approach on its head by
placing the burden on Mr. Christy, the lay insured, to divine what new circumstances
might necessitate “changes or additional coverages” under the existing CGL Policy.
In short, viewing all facts and taking all reasonable inferences in the light most
favorable to Mr. Christy—as we must—we hold there are material facts in dispute as
to whether Mr. Christy knew or should have known Travelers would consider the
change in his business form material to its decisions to renew the CGL Policy.
Although the undisputed facts show Travelers never specifically asked Mr. Christy
about changes to his business form, the trier of fact could reasonably conclude that
the annual cover letter, together with Mr. Christy’s annual discussions with his
insurance agent, were sufficient to place him on notice that such information would
be material to Travelers. But on the summary judgment record presented to the
district court, we cannot conclude as a matter of law that Mr. Christy knew of the
material nature of the change in his business structure. As such, we also cannot
conclude that he owed a duty to inform Travelers and, in turn, that his failure to
speak in light of such a duty constituted a material misrepresentation. Accordingly,
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the district court erred in concluding on summary judgment that Mr. Christy engaged
in a material misrepresentation and in reforming the Policy on that basis. We
therefore reverse the grant of summary judgment in Travelers’ favor and remand for
further proceedings.
C. Breach of the Implied Covenant of Good Faith and Fair Dealing
Finally, Mr. Christy argues the district court erred in granting summary
judgment on his claim for breach of the covenant of good faith and fair dealing. New
Mexico law recognizes that every contract imposes an implied duty of good faith and
fair dealing on the parties. Sanders v. FedEx Ground Package Sys., Inc., 188 P.3d
1200, 1203 (N.M. 2008). “The breach of this covenant requires a showing of bad
faith or that one party wrongfully and intentionally used the contract to the detriment
of the other party.” Id. (internal quotation marks omitted).
Mr. Christy argues the district court erred in granting summary judgment on
this claim because of the inherently factual analysis necessary for a finding of bad
faith. But Mr. Christy has not satisfied his burden in opposing summary judgment on
this claim. A party opposing summary judgment must do more than assert allegations
constituting a claim. See Travis v. Park City Mun. Corp., 565 F.3d 1252, 1257–58
(10th Cir. 2009). To survive summary judgment, a nonmoving party “must set forth
specific facts showing that there is a genuine issue for trial as to those dispositive
matters for which he carries the burden of proof.” Id. (internal quotation marks and
brackets omitted). Mr. Christy has made no effort to set forth any facts demonstrating
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bad faith on the part of Travelers. Mr. Christy has made no effort to set forth any
facts demonstrating bad faith on the part of Travelers.
Although Mr. Christy asserts a reversal of the district court’s decision
“necessarily requires the reinstatement of the entirety” of his complaint, Mr. Christy
has failed to meet his burden in opposing summary judgment on his bad faith claim.
We therefore affirm the district court’s grant of summary judgment as to this claim
but reverse and remand for consideration of Mr. Christy’s remaining claims.
III. CONCLUSION
Because there is a material factual dispute as to whether Mr. Christy knew or
should have known Travelers would have considered the formation of K&D, Inc.
material to its decision to renew the Policy, summary judgment based on Mr.
Christy’s legal duty to speak was inappropriate. And because the existence of a legal
duty governs whether Mr. Christy engaged in a material misrepresentation by not
informing Travelers he had formed K&D, Inc., we hold the district court erred in
reforming the Policy on that basis at this stage of the proceedings. Accordingly, we
reverse the district court’s grant of summary judgment and remand for further
proceedings consistent with this decision. But because Mr. Christy has not met his
burden to come forward with evidence in support of his claim for breach of the
implied covenant of good faith and fair dealing, we affirm the district court’s grant of
summary judgment on that claim.
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