Opinion ID: 3062173
Heading Depth: 2
Heading Rank: 2

Heading: Coverage for Malicious Abuse of Process

Text: We begin with the text of the Carolina Policy itself. The clause at issue is found in Part IV, which is titled “Exclusions.” J. App., Vol. I at 44. Part IV provides that “[t]he Insurer shall not be liable to make any payment for Loss in connection with a Claim made against any Insured” arising from a number of specified circumstances. Id. Section D.3 lists the following claims among those excluded from coverage: “invasion of privacy, wrongful entry, eviction, false arrest, false imprisonment, malicious prosecution, libel, slander, mental anguish, humiliation, emotional distress, oral or written publication of defamatory or disparaging material.” Id. at 45 (emphasis added). The policy’s definitions section does not define these terms. Also worth noting is that the policy’s coverage is not restricted to liability for conduct occurring in New Mexico; the “Coverage Territory” provision of the policy states that it “applies to a Wrongful Act . . . taking place anywhere in the world.” Id. at 49. Nor does anything in the policy restrict coverage to suits in New Mexico courts. The policy contains no -8- choice-of-law provision, except to say that when certain conditions are met, coverage for noncompensatory damages will be determined under the law of the jurisdiction most favorable to coverage. New Mexico law treats an insurance policy as an ordinary contract to be construed according to customary principles of contract interpretation. See Rummel v. Lexington Ins. Co., 945 P.2d 970, 976 (N.M. 1997). Thus, a policy “must be construed as intended to be a complete and harmonious instrument designed to accomplish a reasonable end.” Safeco Ins. Co. of Am., Inc. v. McKenna, 565 P.2d 1033, 1037 (N.M. 1977). When policy terms “have a common and ordinary meaning, that meaning controls in determining the intent of the parties.” United Nuclear Corp. v. Allstate Ins. Co., 285 P.3d 644, 647 (N.M. 2012) (internal quotation marks omitted). Although the focus should be on the expectations that the policy language would create in the mind of a reasonable insured who has only a “limited knowledge of insurance law,” Battishill v. Farmers Alliance Ins. Co., 127 P.3d 1111, 1114 (N.M. 2006) (internal quotation marks omitted), the meaning of legal terms of art that are not part of common speech is best determined by using legal sources, see Hinkle v. State Farm Fire & Cas. Co., No. 31,707, slip op. at –16 (N.M. Ct. App. June 3, 2013) (the terms malicious prosecution and abuse of process, when listed as covered claims in a liability policy, unambiguously conveyed their legal definitions); cf. United Nuclear, 285 P.3d at 650–52 (consulting Black’s Law Dictionary as aid in -9- construing insurance policy). After all, a reasonable insured who saw a clearly “legal” term in a policy would expect its meaning to be what lawyers make of it. At the same time, however, clauses excluding coverage must be narrowly construed. “If the insurer urges an exclusion to coverage that the policy does not clearly express, the courts will not write an exception into it by construction, for the purpose of exempting the insurer from liability.” Rummel, 945 P.2d at 982 (internal quotation marks omitted). The term malicious prosecution in Section IV.D.3 of the Carolina Policy is obvious legal jargon, a term that would rarely be heard in everyday speech. We therefore look to its meaning in legal sources. That task is complicated, however, by the New Mexico Supreme Court’s abandonment of the term eight years before the Carolina Policy became effective. See DeVaney v. Thriftway Mktg. Corp., 953 P.2d 277 (N.M. 1997), overruled on other grounds by Durham v. Guest, 204 P.3d 19, 26 (N.M. 2009). The question addressed by the DeVaney court was whether the trial court had erred in granting summary judgment to the defendant on two separate claims under New Mexico law: one for malicious prosecution and the other for abuse of process. See 953 P.2d at 280–81. The supreme court held that the two causes of action should be restated as a new tort that encompassed both. It began by reviewing the traditional elements of each claim. Malicious prosecution, it explained, historically had consisted of “(1) the institution of civil proceedings by the defendant; (2) malice; (3) a lack of probable cause; (4) -10- termination of such proceedings in plaintiff’s favor; and (5) damages.” Id. at 282. In contrast, abuse of process had consisted of “(1) the existence of an ulterior motive; (2) an act using process other than that which would be proper in the regular prosecution of the charge; and (3) damages.” Id. at 281–82. The court remarked that the two torts had “[s]teadily . . . become less distinguishable,” largely because of “a commonality in their purpose and their elements.” Id. at 282. In particular, it observed that “malicious prosecution probably is better understood as a specific application of the more general tort of abuse of process.” Id. at 283. And it noted that recent developments had “further obscured the differences between these two torts.” Id. It concluded: Based on these similarities, we believe that there is no longer a principled reason for characterizing these two forms of misuse of process as separate causes of action. As a result, we conclude that these torts should be restated as a single cause of action, which shall be known as “malicious abuse of process,” and which shall be defined by the following elements: (1) the initiation of judicial proceedings against the plaintiff by the defendant; (2) an act by the defendant in the use of process other than such as would be proper in the regular prosecution of the claim; (3) a primary motive by the defendant in misusing the process to accomplish an illegitimate end; and (4) damages. In short, there must be both a misuse of the power of the judiciary by a litigant and a malicious motive. Id. (citations omitted). DeVaney elaborated on the requirements for proving the new tort. It explained that the second element, which it termed “misuse of process,” could be established through one of “two independent means.” Id. at 285. The first would -11- be to show that the defendant had filed an action against the plaintiff without probable cause, historically an element of malicious prosecution. See id. at 285–86. The second means would be to show that the plaintiff had committed “some irregularity or impropriety suggesting extortion, delay, or harassment, conduct formerly actionable under the tort of abuse of process.” Id. at 287. The court applied the label “[p]rocedural [i]mpropriety” to this second method of proof. Id. All the examples of procedural impropriety it cited came from authorities addressing abuse of process. See id. (citing Simon v. Navon, 71 F.3d 9, 15 (1st Cir. 1995); Richardson v. Rutherford, 787 P.2d 414, 421–22 (N.M. 1990); Farmers Gin Co. v. Ward, 389 P.2d 9, 11 (N.M. 1964); Restatement (Second) of Torts § 682 cmt. b (1977)). A later New Mexico Supreme Court decision reaffirmed that the two methods of proving misuse of process are disjunctive: a plaintiff need not satisfy both to prevail on a malicious-abuse-ofprocess claim. See Fleetwood Retail Corp. of N.M. v. LeDoux, 164 P.3d 31, 36 (N.M. 2007). Not surprisingly, the parties have relied on DeVaney in offering diametrically opposed views of how to interpret the Carolina Policy’s exclusion for claims of “malicious prosecution.” J. App., Vol. I at 45. The Insureds argue that “malicious prosecution” in Section IV.D.3 cannot refer to a claim for malicious abuse of process because “New Mexico law recognizes significant and meaningful distinctions among three different torts: malicious prosecution, abuse -12- of process, and malicious abuse of process.” Aplt. Br. at 16 (emphasis added). They point out that Section IV.D.3 lists 12 excluded claims, among which malicious prosecution appears but malicious abuse of process does not. Invoking the interpretative canon of expressio unius est exclusio alterius, they reason that the policy did not exclude coverage of Defiant’s damages because malicious abuse of process is not listed as an excluded claim. Carolina disagrees with the idea that malicious prosecution and malicious abuse of process can be understood as separate torts in New Mexico after DeVaney. Instead, it contends that “[u]nder New Mexico law as expressed in DeVaney and its progeny, there is no distinction between the terms ‘malicious prosecution’ and ‘malicious abuse of process.’” Aplee. Br. at 21 (emphasis added). Thus, it argues, “[b]y including the term ‘malicious prosecution’ in [Section IV.D.3], Carolina has, in effect, also included the term ‘malicious abuse of process’ under New Mexico law.” Id. at 21–22. We disagree with both parties. Both go unreasonably far—in opposite directions— in applying the malicious-prosecution exclusion to the present context. Although it is clear that the common-law cause of action for malicious prosecution is encompassed by malicious abuse of process, see Fleetwood, 164 P.3d at 35 (“In DeVaney, we created the tort of malicious abuse of process by merging the formerly separate torts of malicious prosecution and abuse of process.”), the Insureds think that because malicious prosecution and malicious -13- abuse of process are not identical, an exclusion for malicious prosecution has no effect in a jurisdiction that recognizes the broader tort. Carolina draws the contrary inference, suggesting that since malicious prosecution is a type of malicious abuse of process, an exclusion for the former has now expanded into an exclusion for the latter. Each approach exalts nomenclature over substance. If a jurisdiction were to decide to treat all common-law intentional torts under the rubric of “intentional infliction of harm,” presumably the Insureds would argue that no exclusion for a common-law intentional tort would have any further effect in that jurisdiction; and presumably Carolina would argue that all intentional torts are excluded in that jurisdiction so long as at least one is listed in an exclusion provision. Neither argument gives a sensible meaning to the exclusion in the Carolina Policy. It is worth keeping in mind that the Carolina Policy has a national scope. It covers wrongful acts and lawsuits throughout the United States (and perhaps beyond). If labels rather than substance were the governing interpretative principle, then the term malicious prosecution would have no application in those states that use a different term to describe essentially the same tort. See, e.g., Somers v. Chan, 955 A.2d 667, 686–87 (Conn. App. Ct. 2008) (“vexatious litigation”); One Thousand Fleet Ltd. P’ship v. Guerriero, 694 A.2d 952, 955–56 (Md. 1997) (“malicious use of process”); LoBiondo v. Schwartz, 970 A.2d 1007, 1022–23 (N.J. 2009) (“malicious use of process”); Gilbert v. Ince, 981 P.2d 841, -14- 845–46 (Utah 1999) (“wrongful use of civil proceedings”); Restatement (Second) of Torts § 674 (1977) (“wrongful civil proceedings”); W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 120 (5th ed. 1984) (“Wrongful Civil Proceedings”). We think it clear that the term malicious prosecution in the Carolina Policy is a legal term of art that refers to a claim based on substantially the same elements as the traditional tort, regardless of the particular label under which the claim is pleaded. Such an interpretation works in a consistent manner in all jurisdictions in which the policy may operate and preserves the substance of the insurer/insured relationship without regard to semantic distinctions that have no relevance to the protection sought and offered through an insurance policy. Accordingly, the Carolina Policy’s exclusion for claims of malicious prosecution applies only to a claim that requires proof of essentially the elements required to prove common-law malicious prosecution. Those elements are wellunderstood. Black’s Law Dictionary states them as “(1) the initiation or continuation of a lawsuit; (2) lack of probable cause; (3) malice; and (4) favorable termination of the lawsuit.” Black’s Law Dictionary 977 (8th ed. 2004). The Restatement defines wrongful use of civil proceedings as (1) “the initiation, continuation, or procurement of civil proceedings against another,” (2) lack of probable cause, (3) a primary purpose “other than that of securing the proper adjudication of the claim in which the proceedings are based,” and (4) termination -15- of the proceedings “in favor of the person against whom they are brought.” Restatement (Second) of Torts § 674. And the description of malicious prosecution in DeVaney is similar. See 953 P.2d at 282. If the judgment against the Insureds on the malicious-abuse-of-process claim did not require proof of essentially these elements, then the exclusion does not apply. Determining the basis of an underlying claim for purposes of liabilityinsurance coverage can be challenging. Normally, when a liability insurer seeks to show that all or part of the underlying judgment against the insured was based on a noncovered claim, the analysis must focus on “the factual and legal grounds on which the prior judgment was entered.” 2 Allan D. Windt, Insurance Claims and Disputes: Representation of Insurance Companies and Insureds § 6:26, at 6-221 (5th ed. 2007). The inquiry may be a matter of looking at the jury instructions, see, e.g., Magnum Foods, Inc. v. Cont’l Cas. Co., 36 F.3d 1491, 1499 (10th Cir. 1994), or perhaps other materials such as pleadings, written opinions, and trial transcripts, see 2 Windt, supra, § 6:26, at 6-222. Here, however, our task is simple. The matter is resolved by a prior decision of this court in the underlying litigation. When the Insureds appealed the Defiant judgment, they challenged whether the evidence was sufficient to satisfy the second element of malicious abuse of process—that is, misuse of process. See Nanodetex Corp., 349 F. App’x at 317. In an unpublished disposition, we noted that misuse of process could be satisfied by proving either -16- that the Insureds had filed a complaint without probable cause or that they had committed some “irregularity or impropriety suggesting extortion, delay, or harassment.” Id. (internal quotation marks omitted). After observing that Defiant had “proceeded on both of these misuse theories before the jury,” id. at 317, we affirmed on the ground that the evidence had been sufficient to support the second theory, procedural impropriety, see id. at 318–19. 1 Thus, the only reason the Insureds had to pay the judgment against them is that we held that the judgment could be sustained by a jury finding that the second theory had been proved. Because proof of lack of probable cause—an essential element of malicious prosecution—was not necessary for our decision, the exclusion in the Carolina Policy does not apply. To be sure, our prior decision did not rule out the possibility that the jury’s verdict was also based on Nanodetex’s claim that the complaint was filed without probable cause—a traditional malicious-prosecution claim. An award based on 1 Carolina suggests that the opinion also addressed probable cause. It cites our statement that “Nanodetex did not take care with the allegations in its complaint, alleging that Defiant had entered into an agreement with Sandia concerning the commercial exploitation of MicroChemLab technology when it had not.” Nanodetex Corp. v. Defiant Techs., 349 F. App’x 312, 319 (10th Cir. 2009). But Carolina takes this statement out of context. We were discussing not whether Nanodetex had filed its complaint with probable cause, but whether its conduct amounted to a procedural impropriety. Indeed, our very next sentence was: “On this view of the facts, Nanodetex’s actions reflect the sort of ‘extortive’ use of legal process proscribed in [New Mexico case law]—an illicit use of process not for its intended purpose, but as a means to secure an ulterior end.” Id. Probable cause was never analyzed in our order and judgment. -17- such a claim would be excluded under the Carolina Policy. Ordinarily, when a damages award could be based on both a covered theory of liability and an excluded theory, the court must allocate the damages between the two theories (or rule against the party with the burden of persuasion on the issue when apportionment is impossible). See 2 Windt, supra, § 6:26, at 6-224 to -225; id. § 6:27, at 6-227 to -232. For example, in an action by a woman who, along with her husband, was a victim of an automobile accident, the extent of coverage may depend on how much of the general verdict for the woman was for wrongful death of her husband, how much for her personal injuries, and how much for property damage. See Morris v. W. States Mut. Auto. Ins. Co., 268 F.2d 790 (7th Cir. 1959). Such apportionment is not necessary or appropriate, however, in the circumstances of this case. Although there were two theories of liability, they were based on a single injury, the litigation against Defiant, and our prior decision affirmed the award of all the damages against the Insureds on the covered theory of this claim. Any damages awarded under an excluded malicious-prosecution theory of liability would therefore have to have been totally duplicative; it would have been for all or a part of the same damages. Because no element of the damages award could have been solely attributable to the excluded theory of liability, coverage must be extended to the full amount of the damages, and no burden of allocation exists. See In re Feature Realty Litig., -18- 634 F. Supp. 2d 1163, 1173 (E.D. Wash. 2007) (“As it has not been demonstrated that any element of damage is solely attributable to the non-covered cause of action, there is no reasonable basis for allocation.”); see also U.S. Steel Corp. v. Hartford Accident & Indem. Co., 511 F.2d 96, 99 (7th Cir. 1975) (“[W]here the facts are such that an insured’s liability exists on one theory as well as another and one of them brings the liability within coverage, we think the insured may avail himself of the insurance protection.” (footnote omitted)); Aetna Cas. & Sur. Co. v. Lumbermens Mut. Cas. Co., 136 A.D.2d 246, 248 (N.Y. App. Div. 1988) (same). We are confident that the New Mexico Supreme Court would adopt that same view. Accordingly, we hold that the district court should have awarded partial summary judgment to the Insureds on Carolina’s claim that the policy excluded coverage of the malicious-abuse-of-process judgment.