Opinion ID: 891657
Heading Depth: 5
Heading Rank: 2

Heading: Liability flows to the Plan.

Text: {54} We are not persuaded that it should make any difference whether the benefits from the insurer flow to the Plan or directly to Kirby, the intended beneficiary. Below, Kirby argued by analogy that the Policy was similar to a liability insurance policy, which undoubtedly can be garnished by a judgment creditor. The Court of Appeals rejected this argument, noting a fundamental difference between liability policies and ERISA disability policies. Kirby II, 2008-NMCA-154, ¶ 8, 145 N.M. 264, 196 P.3d 965. The Court went on to explain that, regardless of Guardian's obligation under the Policy, the Policy requires payment of benefits directly to the beneficiaries on behalf of the Plan. Id. ¶ 10. Since the Plan is not entitled to a direct payment under the Policy, the Court of Appeals reasoned, there is nothing to garnish. Id. {55} The problem with the Court of Appeals analysis is that it focuses on the flow of payments under the Policy, instead of focusing on the rights of action that exist for nonpayment. Here, the Plan remains liable to Kirby, notwithstanding Guardian's contractual obligation to pay benefits upon a judicial determination of eligibility. Thus, the Plan's right of action is one resulting from Guardian's breach of the Policy. Instead of focusing on the flow of payments, the Court of Appeals should have focused on the flow of contractual obligations under the Policy, because any garnishable right of action arises out of those obligations. {56} The same analysis applies in every garnishment action. For instance, garnishment of wages by a third party is nothing more than garnishment of the employee's right of action against the employer for payment of these wages under the employment contract. Under a garnishment statute similar to our own, the Colorado Supreme Court observed that [f]uture earnings are contingent because they depend upon future performance. The employee cannot sue his employer for wages due before the employee has fulfilled his employment contract. Olson v. Stone (In re Stone), 194 Colo.394, 573 P.2d 98, 100 (1977) (en banc) (Groves, J., concurring in result, Carrigan, J., not participating). Similarly in the liability insurance context, [4] if a liability insurer does not pay an injured third party in accordance with the terms of its insurance policy with the insured, the third party can obtain a judgment directly against the insured, at which point the insured would have a right of action against his insurer for breach of the policy. The injured third party can garnish that right of action in a suit against the insurer. See 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 232:199 (3d ed. 2000) (Distinct from the liability of the insurer on its contract of insurance is the liability which may arise by virtue of its breach of that contract, the insured's claim against the insurer for such breach being subject to attachment.). {57} The default judgment against the Plan was specifically for wrongful denial of benefits, triggering Guardian's obligation to pay benefits under the terms of the Policy. Guardian's continuing refusal to comply with the terms of the Policy is entirely responsible for the Plan's remaining liability to Kirby.