Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-02047/USCOURTS-ca10-90-02047-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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PUBLISH FILED 

United Staten Court of Appeals 

Tl;>,.t,h P.i':"C'1~it 

UNITED STATES COURT OF APPEALS JUN 2 1 1991 

ROBERT L. HOECKER 

Clerk 

TENTH CIRCUIT 

CELSO ZAMORA, Jr.; AARON ZAMORA; 

FRANK NELLANS, 

v. 

Plaintiffs-Appellants and 

Cross-Appellees, 

PREMATIC SERVICE CORPORATION, 

Defendant-Appellee and 

Cross-Appellant, 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

FARMERS INSURANCE COMPANY OF ARIZONA; ) 

FARMERS GROUP, INC.; and LESTER COWDREY,) 

Defendants. 

) 

) 

Nos. 90-2047 & 

90-2068 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF NEW MEXICO 

(D.C. No. CV 87-0899BB) 

Frederick H. Sherman of Sherman & Sherman, Deming, New Mexico 

(Paul L. Biderman, Santa Fe, New Mexico, with h~ on the briefs), 

for plaintiffs-appellants and cross-appellees. 

Roberto C. Armijo of Civerolo, Hansen & Wolf, P.A., Albuquerque, 

New Mexico, for defendant-appellee and cross-appellant. 

Before MOORE and BRORBY, Circuit Judges, and VAN BEBBER,* District 

Judge. 

BRORBY, Circuit Judge. 

* The Honorable G. Thomas Van Bebber, United States District 

Judge for the District of Kansas, sitting by designation. 

Appellate Case: 90-2047 Document: 01019297133 Date Filed: 06/21/1991 Page: 1 
In this diversity case Celso Zamora, Jr. ("Zamora") sued 

Prematic Service Corporation ("Prematic") for breach of contract 

and received a favorable jury verdict. Zamora appeals asserting 

the trial judge improperly limited damages. Prematic also appeals 

asserting it has no liability. 

Zamora purchased an automobile liability insurance policy in 

June 1979. The liability limit of this policy was $15,000. 

Zamora and Prematic entered into a written agreement. The gist of 

this agreement was that Zamora would pay a deposit equal to two 

monthly premium payments and one month's Prematic service charge. 

Thereafter Zamora was to make a monthly payment equal to the 

premium due the insurance carrier plus Prematic's monthly service 

charge. Prematic then agreed to make the monthly payment to the 

insurer. Zamora paid $144 and was told by the insurance agent he 

had no further payment obligations until he received a bill from 

Prematic. Zamora did not receive the actual policy until three 

months later. The policy upon its face stated it would expire in 

December 1979. 

In June 1980, Zamora's brother, who would have been insured 

under the policy, injured Nellans while driving the pickup. When 

Zamora reported the accident to his insurance agent, he learned 

the liability policy had been canceled for nonpayment. In 

February 1981, Nellans sued both Zamoras, and a judgment of 

approximately $321,000 was entered solely against Zamora's brother 

in August 1983. Zamora sued the insurer in 1984. The trial court 

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Appellate Case: 90-2047 Document: 01019297133 Date Filed: 06/21/1991 Page: 2 
held the insurer had fulfilled its obligations to provide notice 

of the policy's lapse, as the policy stated on its face that it 

expired in December 1979. Summary judgment was granted in favor 

of the insurer. 

The Zamoras assigned their rights against Prematic to 

Nellans, and in July 1987 this action was commenced against 

Prematic, the insurer, and the insurance agent. The complaint 

alleged the defendants violated several New Mexico statutes and 

also alleged a breach of the covenant of good faith. The trial 

court held all claims except one were barred by the applicable 

statute of limitations. The court stated, "[t]he only claim not 

barred by the statute of limitations is the contract claim against 

Prematic Service[] Corporation for failure to indemnify pursuant 

to a financing agreement." Prematic unsuccessfully argued this 

claim was barred by the statute of limitations. The case was 

tried to a jury with Zamora submitting evidence showing Prematic 

failed to bill and Prematic submitting evidence showing it had 

billed. The trial court instructed the jury Zamora's damages 

could not exceed $15,000, which was the liability limit of the 

policy purchased by Zamora, plus attorney's fees and damages to 

Zamora's auto that would have been included under the policy. The 

jury found in favor of Zamora. 

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Appellate Case: 90-2047 Document: 01019297133 Date Filed: 06/21/1991 Page: 3 
I 

Statute of Limitations 

As the jurisdiction of the district court was based upon 

diversity of citizenship, we apply the law of the forum, which in 

this case is New Mexico. The applicable New Mexico statute, N.M. 

Stat. Ann. §§ 37-1-1, 37-1-3 (1978), provides that an action upon 

a written contract must be filed no later than six years "after 

their causes accrue." 

The district court held Zamora's claim accrued on August 2, 

1983, which was the date Nellans's judgment against Zamora's 

brother was entered. The trial court reasoned this was the date 

of the injury. Prematic contends the latest accrual date was the 

date Nellans filed his action against the Zamoras, which was 

February 1981. We agree. 

In Spurlin v. Paul Brown Agency, Inc., 80 N.M. 306, 454 P.2d 

963 (1969), the Supreme Court of New Mexico held that a cause of 

action against an insurance agent for negligently failing to 

obtain coverage accrued when suit was brought against the 

prospective insured. 454 P.2d at 964. The competing theories of 

accrual under the negligence statute of limitations were the date 

of the accident and the date suit was commenced or, at the latest, 

the date on which the prospective insured learned he was not 

insured. Id. In deciding this issue, the court stated: 

Liability insurance does not purport to provide 

compensation for injuries, but only to protect the 

insured against legal liability .... The cause of action 

arising out of the negligent failure to obtain liability 

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Appellate Case: 90-2047 Document: 01019297133 Date Filed: 06/21/1991 Page: 4 
coverage could only accrue when legal liability 

materialized ... when the ... suit was filed, and this 

only because a policy of insurance would have 

provided for the insurance company to furnish a defense. 

Otherwise the loss would have accrued only after 

judgment had been entered .... 

Id. (citations omitted). In the case before us the policy would 

have provided a defense to the Nellans suit. Zamora learned his 

insurance coverage had been terminated when he called to report 

the accident in June 1980. Both Zamora and his brother knew they 

were exposed to legal liability when Nellans filed his complaint 

in February 1981. Both Zamora and his brother knew the insurer 

would not defend. Both then knew Prematic had breached its 

contract and that they were injured as a result of Prematic's 

breach. 

Zamora argues that the amount of damage arising from 

Prematic's breach of contract was not known and could not be 

determined until the Nellans judgment was final. Zamora cites 

Torrez v. State Farm Mut. Auto. Ins. Co., 705 F.2d 1192 (lOth Cir. 

1982), wherein we held, under New Mexico law, that a cause of 

action for a bad faith claim against an insurer did not accrue 

until the judgment was final. "Only then could [the tortfeasor's] 

right against [the insurer] for ... excess liability be perfected 

It was only then that the excess liability was established." 

Id. at 1202. Zamora argues the same circumstances exist here. 

We distinguish Torrez as it involved a claim against an 

insurer for a bad faith refusal to settle a claim for the policy 

limits, which resulted in a judgment against the insured above the 

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Appellate Case: 90-2047 Document: 01019297133 Date Filed: 06/21/1991 Page: 5 
policy limits. Id. at 1194. The insured would not have known 

that insurer's actions were wrong and that liability existed for 

the excess until the jury rendered its verdict. Torrez did not 

turn on the issue of ascertainment of damages but rather upon 

ascertainment of liability in excess of policy limits. Id. at 

1202. 

We have reviewed the New Mexico cases cited by the parties 

concerning the various New Mexico statutes of limitations. The 

common thread running through these decisions is that a cause of 

action accrues, for the purpose of the statutes of limitations, 

from the injury rather than the wrongful act. Cf. Roybal v. 

White, 72 N.M. 285, 383 P.2d 250 (1963). See Spurlin, 454 P.2d at 

964 (policy which defendant failed to furnish would have provided 

for defense of suit; therefore, cause of action arose when suit 

filed not when accident occurred); Chisholm v. Scott, 86 N.M. 

707, 526 P.2d 1300 (N.M. Ct. App. 1974) (cause of action against 

an accountant for negligent preparation of a tax return was held 

to accrue only after the receipt of deficiency assessment from the 

IRS). 

The parties have cited no New Mexico cases or other law 

dealing with the effect the non-ascertainment of damages may play 

with the running of the statute of limitations. Zamora argues 

that Chisholm stands for the proposition that a cause of action 

does not accrue until the amount of liability has been determined. 

In Chisholm the New Mexico court grounded its decision on the 

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Appellate Case: 90-2047 Document: 01019297133 Date Filed: 06/21/1991 Page: 6 
ascertainment of an injury which was the IRS assessment. 526 P.2d 

at 1302. Chisholm does not turn upon knowing the extent of the 

injury but only upon ascertaining the fact of injury. 

It is axiomatic in contract actions that a cause of action 

accrues at the time of the breach. Smith v. Galio, 95 N.M. 4, 617 

P.2d 1325, 1327 (N.M. Ct. App. 1980). New Mexico has refined this 

rule by holding the cause of action accrues at the time of injury. 

We do not believe the New Mexico courts would further refine this 

rule by requiring not only the fact of the injury but also 

knowledge of the specific and final amount of damages. Zamora has 

cited no cases wherein a court has specifically required absolute 

knowledge of damages being necessary to commence the operation of 

a statute of limitations. Where a contract of indemnity contains 

a promise to make specified payments, an immediate right of action 

accrues upon the failure of the indemnitor to perform, regardless 

of whether actual damages have been sustained. We believe New 

Mexico would follow this rule. 

In the case before us Prematic breached the contract in 1979 

when it failed to bill the insurance premiums. Zamora had 

knowledge of this breach when it learned from the insurer that the 

auto liability policy had been cancelled and the insurer would 

neither defend nor indemnify against loss or pay for the damages 

to Zamora's policy. Zamora learned of this breach on the date of 

the accident, June 8, 1980. Zamora also knew his pickup had been 

damaged on the day of the accident, which gave to Zamora knowledge 

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Appellate Case: 90-2047 Document: 01019297133 Date Filed: 06/21/1991 Page: 7 
that he was injured. Zamora hired an attorney after learning of 

Prematic's breach, and this attorney also defended the Nellans 

suit. Zamora therefore knew, no later than the commencement of 

the Nellans suit on February 17, 1981, that Prematic had breached 

its contract and that he would suffer additional injury as a 

result although he did not then know the full extent of the injury 

he would suffer. This occurrence was the latest that would have 

commenced the running of the six-year contract statute of 

limitations. Therefore, Zamora had to commence his breach of 

contract action against Prematic no later than February 17, 1987. 

Zamora commenced this action on July 16, 1987. This action was 

therefore barred by the New Mexico statute of limitations. 

II 

Zamora argues that the New Mexico statutes (Unfair Practices 

Act, Premium Financing Act, and Unfair Insurance Practices Act) 

and the covenant of good faith, were all incorporated into the 

contract by law and "therefore should have been considered along 

with [Zamora's] other breach of contract claims." Our holding 

makes disposition of this claim unnecessary. We will note these 

claims were contained as separate counts in Zamora's complaint. 

The trial court ruled these claims barred for various reasons in 

addition to the statute 

partial summary judgment. 

we do not address it. 

of limitations in an order granting 

Zamora has not appealed this ruling and 

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Appellate Case: 90-2047 Document: 01019297133 Date Filed: 06/21/1991 Page: 8 
The judgment of the district court is REVERSED. This matter 

is remanded to the district court for the purpose of vacating the 

judgment entered herein and for such other purposes as may be 

consistent with this opinion. 

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