Court Opinion

ID: 9851364
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:11:26.080049+00
Date Added: 2024-06-11T09:20:54.567716
License: Public Domain

OPINION RIORDAN, Justice. Plaintiff United Nuclear Corporation (UNC) brought suit under two different policies of insurance against defendants Allendale Mutual Insurance Company (Allen-dale) and its subsidiary, Appalachian Insurance Company (Appalachian). Each insurer provided different coverage to UNC. UNC sought reimbursement for business interruption and property damage losses that occurred when a tailings embankment failed at UNC’s Churchrock uranimum mill site. Both Allendale and Appalachian denied coverage. The trial court, finding coverage under Allendale’s policy, awarded judgment to UNC for losses and damages, including attorney’s fees, prejudgment interest and punitive damages. The trial court found in favor of Appalachian. Allendale appeals. We affirm in part and reverse in part. The issues on appeal are: I. Whether the trial court erroneously construed an exclusionary provision in Allendale’s policy of insurance. II. Whether the punitive damage award against Allendale is unlawful and unconstitutional. III. Whether the award of attorney’s fees against Allendale was unreasonable and an abuse of discretion. IV. Whether the trial court’s award of compensatory damages is supported by substantial evidence. V. Whether the award of prejudgment interest against Allendale is error. I. Policy Coverage. On July 16, 1979, the earthen tailings dam at UNC’s Churchrock uranium mill failed, releasing 94 million gallons of tailings and causing the mill to be shut down. At the time of the dam failure, the Allen-dale insurance policy issued to UNC provided coverage for: Collapse of buildings, structures or a material part thereof in excess of $25,000 for each occurrence, except that there shall be no liability for loss or damage caused by or resulting from flood, earthquake, landslide, subsidence or any other earth movement. Collapse shall not mean settling, cracking, shrinking, bulging, or expansion of pavements, foundations, walls, floors, ceilings or roofs. (Emphasis added.) Allendale’s refusal to honor UNC’s claim for coverage was based in part on the ground that the dam failure was excluded under the “subsidence or any other earth movement” exception. Allendale also disputed the amount of damages claimed by UNC under various other provisions of the policy. All parties agree that the “collapse” was caused by “differential settlement.” Allen-dale argues that differential settlement is a kind of “subsidence” and cites four dictionary definitions which, by various interrelated words, draw a connection between the two terms. We would agree that there is similarity between the events described by “settlement” and by “subsidence,” but the terms are not necessarily synonymous. Indeed, during argument on a motion for directed verdict, Allendale’s counsel stated that he understood the terms to mean different things. One of Allendale’s experts expressed an “explicit difference” in that one event was a “cause” and the other an “effect.” As UNC points out, the language used in the policy and the manner of expression indicate a distinction between “settlement” and “subsidence.” The collapse provision explains that “[c]ollapse shall not mean settling * * * of pavements, foundations, walls, floors, ceilings or roofs.” In its own “Collapse Guidelines for Adjustors,” an exhibit at trial, Allendale advised its adjustors that “settling,” unless accompanied by “significant physical deformation (falling) of the component and material impairment of the structural integrity of the structure,” does not mean “collapse.” UNC argues that this language demonstrates that minor settlement resulting in cosmetic damage is excluded from policy coverage but Allendale’s guidelines acknowledge that, even though “settling” is specifically excluded, in some cases of settlement when it is accompanied by or results in physical deterioration and material impairment of the structure, there is coverage under the policy.  UNO's analysis is in accord with previous interpretations of similar clauses. Morton v. Great American Ins. Co., 77 N.M. 35, 419 P.2d 239 (1966), held that “settling” that impaired the structural integrity of the building constituted “collapse.” In Barash v. Ins. Co. of North America, 114 Misc.2d 325, 451 N.Y.S.2d 603 (1982), the court said that “settling, shrinking or expansion” meant normal wear and tear only. Thus, we determine that the trial court did not err in finding that the “differential settlement” that caused the collapse at the Churchrock uranium mill site was not a form of “subsidence” that would have been excluded under the Allendale policy. Alternatively, Allendale argues that if coverage is not excluded under the “subsidence” exception, loss by “differential settlement” must be excluded as “any other earth movement.” Allendale construes this phrase to cover all earth movement, and relies on Kolner v. Director, Federal Emergency Management Agency, Ins. Law Rep. (CCH), 1983 Fire and Casualty Cases, p. 1129 (N.D.Ill.1983), for the assertion that “earth movement” is unambiguous. However, in Kolner all the experts agreed that the direct cause of the damage was “earth movement.” The issue there was whether that exclusion applied when the earth movement itself was caused by flood — a covered peril. The question in Kolner did not concern the definition of the term of “earth movement.” However, in the instant case the scope of the term “earth movement” was at issue. The trial court construed the term to cover only “other naturally occurring phenomenon” in addition to “flood, earthquake, landslide, [and] subsidence.” In construing the term “earth movement” to cover only naturally occurring phenomenon, the trial court applied the doctrine of ejusdem generis. Numerous other cases have applied the doctrine to the term “earth movement.” See e.g. Peach State Uniform Service, Inc. v. American Ins. Co., 507 F.2d 996 (5th Cir.1975); Gullett v. St. Paul Fire & Marine Ins. Co., 446 F.2d 1100 (7th Cir.1971); Wyatt v. Northwestern Mutual Ins. Co. of Seattle, 304 F.Supp. 781 (D.Minn.1969); Wisconsin Builders, Inc. v. General Ins. Co. of America, 65 Wis.2d 91, 221 N.W.2d 832 (1974); Government Employees Ins. Co. v. DeJames, 256 Md. 717, 261 A.2d 747 (Md.App.1970); Anderson v. Indiana Lumbermens Mutual Ins. Co. of Indianapolis, Indiana, 127 So.2d 304 (La.App.1961). Indeed, one of Allendale’s own internal communications discussed the Wyatt case and its holding and acknowledged that the term “earth movement” would most likely be construed to apply to naturally occurring phenomenon. The general rule of construction for insurance contracts is as follows: Terms used in a policy which have by prior judicial decisions been given a definite meaning, will be regarded as being used in view of such established construction and be governed thereby; and if the insurer continues to issue, without change, policies, clauses of which have been judicially construed, it will be considered as issuing them with that construction placed on them, even though such construction violates the literal sense of the words used. Patterson v. United States, 233 F.Supp. 447, 449 (E.D.Tenn.1964) (quoting 44 C.J.S. Insurance § 293 (1945)). Allendale issued its policy of insurance to UNC in July, 1977. All of the cases interpreting “earth movement” to apply only to naturally occurring phenomenon (cited above) were decided prior to issuance of the policy here in question. Thus, Allendale is considered to have issued its policy to UNC with the prior judicial interpretations given to the term “earth movement.” Further, New Mexico recognizes this general rule of construction. See Lopez v. Townsend, 42 N.M. 601, 82 P.2d 921 (1938).  Therefore, we determine that the trial court did not err in applying the doctrine of ejusdem generis to the term “earth movement” and thereby finding that the exclusion in the Allendale insurance policy did not apply to the tailings dam spill at UNC’s Churchrock uranium mill site. II. Punitive Damages Award. The trial court found Allendale’s conduct in handling and denying UNC’s claim for coverage to be “willful, wanton, malicious and in reckless disregard of the rights of its insured.” Based primarily on that finding, punitive damages of $25 million were assessed against Allendale. Allendale claims that the award of punitive damages is unlawful and unconstitutional because Allendale had a reasonable basis for denying coverage to UNC and questioning the amount of UNO's claimed losses. Allen-dale further argues that the standard of proof to determine punitive damages should be a clear and convincing standard; Allendale also argues that an award of $25 million in punitive damages is excessive. We will address Allendale’s standard of proof argument first. New Mexico has never declared the standard of proof required to establish a justification for punitive damages. Allendale urges this Court to follow the lead of Indiana, Wisconsin and other jurisdictions in adopting a requirement of “clear and convincing” evidence. See e.g., Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349 (Ind.1982); Wangen v. Ford Motor Co., 97 Wis.2d 260, 294 N.W.2d 437 (1980). In support of this higher evidentiary test, Allendale emphasizes that parties “against whom punitive damages are sought stand accused of highly opprobrious, morally reprehensible behavior.” Because they must face society’s scorn as well as the monetary assessment, Allendale argues that defendants who are held liable in punitive damages are denied due process, the opportunity to present their side of the case, and to their fair day in court unless the standard of clear and convincing evidence is imposed on the trier of facts. We are not convinced that due process is offended when morally reprehensible conduct is shown by substantial evidence which preponderates in favor of the finding. Allendale correctly notes that the “clear and convincing” test has been applied in this jurisdiction for determining compensatory liability in cases where defendant was accused of libelous or fraudulent wrongdoing, citing e.g., Hummer v. Betenbough, 75 N.M. 274, 404 P.2d 110 (1965) (undue influence); Mason v. Salomon, 62 N.M. 425, 311 P.2d 652 (1957) (fraud); Terrel v. Duke City Lumber Co., 86 N.M. 405, 524 P.2d 1021 (Ct.App.1974), rev'd in part on other grounds, Duke City Lumber Co. v. Terrel, 88 N.M. 299, 540 P.2d 229 (1975), (economic compulsion “like fraud”). However, we do not read Hummer to require the higher degree of proof; we note, however, that other New Mexico cases cited and those which we have researched all deal with allegations of fraud or are concerned with the “clear and convincing” burden established by statute—usually in connection with termination or deprivation of licenses or basic and inherent individual rights {e.g., termination of parental rights).  It is the general rule, not only in New Mexico but elsewhere, that issues of fact in civil cases are to be determined according to the preponderance of the evidence. See NMSA 1978, UJI Civ. 3.6 (Repl. Pamp.1980). As demonstrated by our adopted civil jury instructions and by New Mexico case law (e.g., Campbell v. Campbell, 62 N.M. 330, 310 P.2d 266 (1957)), the requirement of clear and convincing proof to sustain an issue claimed is the exception rather than the rule. We are not disposed to enlarge the areas of the exception’s application. We note that in Whitehead v. Allen, 63 N.M. 63, 313 P.2d 335 (1957), decided more than a quarter of a century ago, it was said that the jury’s finding of breach of contract, “wanton in character and maliciously intentional,” and the accompanying award of punitive damages, were “based upon substantial evidence.” Clearly, Allendale knew at the commencement of trial what degree of proof UNC would be required to produce, and also knew what the evidence would be on the issues of wrongful denial and wilful and reckless disregard of UNC’s rights. We are not convinced that the degree of proof should be changed in punitive damage areas. We now address the issue of whether the punitive damage award was erroneous.  It has been held in New Mexico that: Punitive or exemplanary damages may be awarded only when the conduct of the wrongdoer may be said to be maliciously intentional, fraudulent, oppressive, or committed recklessly or with a wanton disregard of the plaintiffs’ rights. Loucks v. Albuquerque National Bank, 76 N.M. 735, 747, 418 P.2d 191, 199 (1966) (emphasis added.) To assess punitive damages for breach of an insurance policy there must be evidence of bad faith or malice in the insurer’s refusal to pay the claim. Anderson v. Dairyland Ins. Co., 97 N.M. 155, 158, 637 P.2d 837, 840 (1981); Curtiss v. Aetna Life Ins. Co., 90 N.M. 105, 108, 560 P.2d 169, 172 (Ct.App.), cert. denied, 90 N.M. 7, 558 P.2d 619 (1976). “Bad faith” has been defined as meaning “any frivolous or unfounded refusal to pay * * State Farm General Ins. Co. v. Clifton, 86 N.M. 757, 759, 527 P.2d 798, 800 (1974) (emphasis added).  ? the instant case, although the questions of coverage were the major reasons given by Allendale for not paying UNC’s claim, they were not the only reasons. There remained questions regarding the amount of damages available to UNC under its insurance policy with Allendale. UNC’s amended complaint sought $30,032,-152 in compensatory damages. The trial court judgment for UNC was for $24,670,-724 in compensatory damages, a difference of $5,361,428. These are very substantial differences in the amount claimed and the amount awarded. It cannot reasonably be argued that Allendale did not have a legitimate reason to question, in a court of law, the amount of damages claimed by UNC. There existed legitimate issues under various policy provisions regarding UNC’s claim for lost net operating profits, extraordinary costs, carrying costs and costs of repair. Therefore, since there were legitimate questions regarding the amount of UNC’s claimed damages, as is evidenced in the trial court’s judgment awarding substantially different amounts than those claimed by UNC, we cannot say that Allen-dale’s failure to pay UNC’s claim was malicious or in bad faith (i.e., an unfounded refusal to pay). Thus, we determine that the trial court’s award of $25 million in punitive damages was erroneous and therefore reverse on that issue. III. Attorney’s Fees. The trial court awarded UNC attorney’s fees and costs in the amount of $3,210,759 by authority of NMSA 1978, Section 39-2-1, which reads: In any action where an insured prevails against an insurer who has not paid a claim on any type of first party coverage, the insured person may be awarded reasonable attorney’s fees and costs of the action upon a finding by the court that the insurer acted unreasonably in failing to pay the claim. In arriving at the attorney fee award of $3,210,759, the trial court determined a “lodestar” figure by using the number of hours worked by UNC’s legal counsel and multiplying that number by the attorneys’ hourly billing rate. This “lodestar” figure was then increased by a multiplier of three which represented, in the trial court’s view, a proper enhancement for the exceptional success of UNC’s attorneys in prosecution of the suit and for the advancement of public policy in litigated insurance claims, as shown by the punitive damage award.  Although it can be argued that Allendale was unreasonable in failing to at least acknowledge coverage to UNC due to Allendale’s mistaken interpretation of the various exclusions contained in the policy, it does not follow that Allendale was unreasonable in failing to pay UNC’s claim since as we previously determined, Allendale had a reasonable basis for questioning the amount of UNC’s claimed damages under the various policy provisions. We cannot say that Allendale was unreasonable in failing to pay UNC’s claimed damages under the policy. C.f Urania Enterprises, Inc. v. Travelers Indem. Co., 335 So.2d 757 (La.App.1976) (insurer entitled to present breach of policy condition as defense to liability and therefore should not be charged with penalty or fee for failure to pay the claim). Thus, we determine that the trial court’s award of attorney’s fees to UNC was error and therefore reverse.  Further, although unnecessary to our determination of the issue, we feel the “lodestar” method used to determine the amount of attorney fees and the multiplier allowed by the trial court are inappropriate in this type of case. The “lodestar” and multiplier have generally been applied in civil rights cases and class action suits. Compare, McKinnon v. City of Berwyn, 750 F.2d 1383 (7th Cir.1984) (civil rights action); Laffey v. Northwest Airlines, Inc., 746 F.2d 4 (D.C.1984) (civil rights action); City of Detroit v. Grinnell Corp., 495 F.2d 448 (2nd Cir.1974) (private antitrust national class action); In re Fine Paper Antitrust Litigation, 98 F.R.D. 48 (E.D.Pa.1983) (class certified antitrust action). IV. Compensatory Damages Supported by Substantial Evidence.  Allendale attacks the award of $24,-670,724 in compensatory damages as being unsupported by substantial evidence. While objecting to “numerous other problems and errors” in the court’s calculations and decision, Allendale makes three specific challenges to the award.  Allendale first claims error in the trial court’s refusal to consider certain receipts by UNC from the sale of borrowed yellowcake. It contends the profit from those sales should have been offset against the business interruption losses caused by the dam failure, thus reflecting no loss of net profits by UNC. The trial court found, on evidence produced by UNC, that the borrowings and sales relied on by Allendale to support its argument were normal business practices of UNC and would have occurred even in the absence of the dam collapse. Consequently, that income would have had no bearing on lost income from UNC’s own production. Additionally, the argument of Allendale gives no recognition to UNC’s obligation to repay the borrowings. At the time of trial, there was evidence that sales on borrowed uranium had no impact whatever on UNC’s losses from the shut-down of production; there also was testimony that the sales of borrowed uranium created no profits for UNC over its liability for repayment, or over the profit ordinarily to be anticipated by UNC in its engagement in this type of business practice common to the industry. UNC makes a further point in refutation of Allendale’s contention: The Allendale policy covers “loss of production,” not “loss of sales.” In its Adjuster Manual, Allendale rejects the argument it now makes, and instructs its adjusters that with respect to business interruption claims, “[t]he insured should never be given the impression that our policy covers loss of sales[;] it covers loss of production. The insureds do not have to prove a loss of sales.” If UNC would have made sales on borrowed supplies whether or not its own production had been interrupted, that income is irrelevant to a determination of the covered loss of production. The court’s findings regarding UNC’s lost net operating profits, resulting from interruption of its own production and its consequent inability to accept bids from willing purchasers, is supported in the evidence and will not be disturbed on appeal. Howard v. Howard, 100 N.M. 105, 666 P.2d 1252 (1983).  Allendale next objects to the trial court’s finding that UNC could not have made up its loss of production within a one-year period following repair of the damaged property, which Allendale delineates as the “reasonable time” required by the policy. Without citation to any authority, Allendale argues that the policy provision requiring its insured to make up lost production “through the use of any property * * * obtainable from other sources” obligated UNC to buy yellowcake on the open market. Again, Allendale misreads its own policy. It is “production” which is to be made up, not “sales.” The argument advanced by Allendale was specifically rejected in Gordon Chem. Co. v. Aetna Casualty & Surety Co., 358 Mass. 632, 266 N.E.2d 653 (1971). We decline to hold that a mineral producer must buy the refined product from other sources to satisfy the “make-up of lost production” requirement of its business interruption coverage. Finally, Allendale disagrees with the trial court’s conclusion that only one day of the long delay in UNC’s getting back to full operating capacity was because of government regulation of construction or repair. Any increases in business losses resulting from compliance with “law and ordinance” requirements are excluded from the policy coverage. There was significant and substantial evidence presented by UNC on the various causes of delay, including the need to investigate the cause of the collapse, development of repair designs, acquisition and testing of repair materials, and inability to repair the dam during the winter months.  Although there was some evidence UNC might have restructured portions of the tailings area to permit earlier resumption of milling, there was also evidence that UNC partially resumed operations as early as October, 1979 with modified facilities. But the overall repair delay was complicated by conflicts among the engineers regarding making repairs before design, engineering and construction plans had been fully examined and proven. If those delays occasioned by principles of engineering prudency overlapped the same delay period imposed by standards of a regulatory body that had to be met before production could be restarted, it cannot be said that delay was due only to the “law and ordinance” regulation of reconstruction and repairs. The trial court’s determination regarding the effect of governmental regulation does not fail for lack of substantial evidence. In its generalized attack on the amount of the compensatory damage award, aside from the specific objections addressed above, Allendale contends that the trial court made an error of $519,724 in the award for extraordinary losses. We note that UNC requested a finding of $4,566,902 for that item of damages and of $2,203,719 for carrying costs, based upon exhibits it submitted at trial; Allendale requested a finding of no extraordinary losses or carrying costs; and the trial court awarded damages to UNC of $3,464,240 and $1,859,591, repsectively. Allendale’s argument is that UNC referred in a footnote in its post-trial brief to a figure of $2,944,516 as the amount of extraordinary expenses, not compensated under the Appalachian policy, to partially make up for lost production or to reduce loss. Allendale says the difference between the amount awarded and the amount discussed in UNC’s brief shows the trial court’s “superficial” consideration of the damage issues.  The trial court obviously rejected $1,102,662 of UNC's request for a finding of extraordinary loss damages of $4,566,-902, and disallowed $344,128 of its requested finding of $2,203,719 for carrying costs and for fixed, ongoing administrative and overhead expenses. Since the evidence could have supported a larger amount of damages in each category of loss and UNC has not appealed the court’s reduction of the amounts claimed, we do not see how Allendale has been injured. The footnote reference relied upon by Allendale obviously conflicts with other evidence of loss that was introduced at trial. Precise mathematical certainty of computation is not required when the evidence encompasses the monetary amount allowed. Acme Cigarette Services, Inc. v. Gallegos, 91 N.M. 577, 577 P.2d 885 (Ct.App.1978). The trial court’s award of compensatory damages within the range shown by the evidence is affirmed. See Jackson v. Goad, 73 N.M. 19, 385 P.2d 279 (1963); Wirth v. Commercial Resources, Inc., 96 N.M. 340, 630 P.2d 292 (Ct.App.), cert. denied, 96 N.M. 543, 632 P.2d 1181 (1981). V. Prejudgment Interest.  As its last point of error on appeal Allendale argues that the trial court erred in awarding prejudgment interest of 6% from March 21, 1980, (the date of Allen-dale’s denial of UNC’s claim), to date of judgment. Allendale argues that prejudgment interest was not allowable because the compensatory damage amount was neither liquidated nor ascertainable as of the date of denial, citing O’Meara v. Commercial Ins. Co., 71 N.M. 145, 376 P.2d 486 (1962). Contract damage awards against one who fails to perform should fully compensate the injured party for all damages naturally flowing from such breach. Shaeffer v. Kelton, 95 N.M. 182, 619 P.2d 1226 (1980). Prejudgment interest is meant to compensate a plaintiff for injury resulting from deprivation of the promised performance and for loss of the use and earning power of plaintiff’s own funds that have been expended as a result of a defendant’s failure to pay. Id. The allowance of prejudgment interest is governed by NMSA 1978, Section 56-8-3, which at the time of trial and judgment provided: The rate of interest, in the absence of a written contract fixing a different rate, shall be six percent per annum, in the following cases: A. on money due by contract * * *. Where the amount in question is fixed or liquidated, prejudgment interest should be awarded as a matter of right. Shaeffer v. Kelton, 95 N.M. at 188, 619 P.2d at 1232. Where the amount is ascertainable, prejudgment interest may be awarded at the judge’s discretion. Id.; O’Meara v. Commercial Ins. Co.  ? the instant case, the amount payable to UNC under Allendale’s policy was not finally settled until judgment. Because UNC claimed several different amounts between the filing of the complaint and the time of trial, Allendale argues that an award of prejudgment interest is precluded. However, in a leading case on the allowance of prejudgment interest in this state, this Court adopted Wisconsin’s theory that: [Mere] difference of opinion as to amount is * * * no more reason to excuse [defendant] from interest than difference of opinion whether he legally ought to pay at all, which has never been held an excuse. State Trust & Savings Bank v. Hermosa Land & Cattle Co., 30 N.M. 566, 597, 240 P.469, 481 (1925) (quoting Laycock v. Parker, 103 Wis. 161, 79 N.W. 327 (1899)). Since the amount of UNC’s damages was ascertainable and the award of prejudgment interest was within the trial court’s discretion, and since neither a claim nor proof of abuse of discretion has been made or shown by Allendale, we affirm that portion of the judgment as well. The judgment of the trial court is affirmed in part and reversed in part. IT IS SO ORDERED. STOWERS, J., concurs. BIVINS, Judge (concurs in part, specially concurs in part). SOSA, Senior Justice, and WALTERS, J. (concur in part, dissent in part).