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Vol. 6, Iss. 5
May 17, 2017

Maybe The Best Example Ever Of The Breadth Of The Duty To Defend

The duty to defend is broad. We all know that. But it’s one thing to state that principle in the abstract. And quite another to see it in action. Dove v. State Farm, No. 34,932 (N.M. Ct. App. Mar. 28, 2017) may be the best example ever of the breadth of the duty to defend.

Betsy Joyce owned a property that consisted of two rental units: a front main house and a studio unit in back that was rented by Jenny Dove. Each unit had a private yard separated by a fence and there was also a common yard in the front that contained large trees and planting beds. Joyce lived in California and utilized the services of several third parties to manage and maintain the property in her absence.

David Tapia, an employee of Public Service Company of New Mexico, was reading the electrical meter at the Joyce property. He was injured by Dove’s 150-pound Bullmastiff. At the time Tapia was injured, Dove had been in the common yard watering the plants. On a prior visit, Joyce had asked her to do this.

Tapia sued Joyce and Dove. Joyce had a rental dwelling policy with State Farm. Dove sought a defense under Joyce’s State Farm policy. Not surprisingly, State Farm denied a defense to Dove because she was not an insured under Joyce’s policy. Tapia and Dove entered into a settlement for $107,000 and Dove assigned to Tapia and of her rights under the State Farm policy – which seem like nothing. In a suit against State Farm, the court ruled that Dove, a tenant, was not an insured.

But the New Mexico Court of Appeals reversed. As the court saw it, Dove could have been an insured on the basis of being a real estate manager for Joyce. The policy conferred insured status on an insured’s real estate manager. Real estate manager? Huh? Dove was watering some plants as a favor for Joyce. She was just being a nice person -- to both Joyce and the plants. How does that make her a real estate manager?

The court was not unmindful that this seemed like a dubious proposition. However, the court pointed out that “at the time of the incident, Dove was not in her private yard—she was watering in the common yard. Dove stated that she was not watering on her own initiative—in which case she might be less characterizable as a real estate manager than as a conscientious tenant—but had been asked by Joyce to water the common area in order to ‘make sure things stayed alive.’ Considered in sum, the asserted facts suggest that Dove could very well have been acting as Joyce’s real estate manager when Tapia was injured.”

The key to the case is not whether Dove was in fact a real estate manager for Joyce. Rather, since the issue was whether a duty to defend was owed, the question to be answered was simply whether Dove was “potentially” a real estate manager for Joyce. This is the New Mexico standard for determining if an insurer is obligated to defend its insured: “an insurance company is obligated to defend when the complaint filed by the claimant alleges facts potentially within the coverage of the policy.”

Here is where the trial court got it wrong according to the appeals court: “Here, the district court addressed the underlying merits of the question of coverage—i.e., whether Dove was a ‘real estate manager’ and thus covered by the policy—rather than the less exacting question on which declaratory judgment was sought. This difference is not analytically trivial because Defendant’s duty to defend depended not on whether Dove was actually covered but rather on whether she was potentially covered.” (emphasis in original).

And the appeals court concluded that Dove was potentially Joyce’s real estate manager: “[E]ven if the complaint itself was devoid of specificity regarding facts that tend to give rise to Defendant’s duty to defend, unpleaded facts later revealed during the course of discovery—or that Defendant could have discovered through reasonable investigation, which it was required to undertake—further establish Dove’s potential coverage under the policy. Indeed, deposition testimony taken shortly after Defendant refused Dove's request for a tender of defense demonstrated the following facts: (1) Joyce lived in California and was not involved in the day-to-day management of the property; (2) Nathan, one of the people with certain real estate management responsibilities for the property, had no involvement in gardening or maintaining the landscaping at the property; (3) Joyce hired a gardener to maintain the common yard in front, including watering; (4) sometime during the summer of 2007, Joyce visited the property, observed that one of the trees in the common yard was not getting enough water, and asked Dove to water the tree and flowerbeds; (5) Dove had a private yard adjacent to her back unit, which was separated from the common yard by a fence; (6) Dove did not typically spend time in the common yard because the main house's windows faced the common yard and Dove wanted to respect the privacy of the main house's tenants; and (7) at the time Tapia was injured by Dove's Bullmastiff, Dove was watering in the common yard per Joyce’s request. These alleged or discoverable facts all tend to suggest that Dove was arguably, if not definitively, acting as Joyce’s real estate manager (even if but one of several) at the time of the incident and, therefore, covered as an ‘insured’ under the policy.”

You are probably thinking that it takes a lot more than a tenant watering some flowers to make them even potentially a “real estate manager.” And the court addressed this: “While things such as professional qualifications, prior management experience, a contract for services, one’s title or self-identified profession, and compensation may be evidence that one is a real estate manager, the absence of any or all of these indicators is not dispositive of the question of whether one is acting as a real estate manager at a given time. The policy itself does not limit construction of the term ‘real estate manager’ to only those who have a ‘legal relationship’ with a property owner, receive compensation, or are professional property managers. And if Defendant had wished to so limit the policy’s coverage by defining ‘real estate manager’ more narrowly, it could have done so. Because it did not, we construe the term against Defendant and hold that the facts tended to show that Dove was at the very least potentially acting as Joyce’s real estate manager at the time of Tapia’s injury and was therefore arguably within the policy’s coverage.”

Yep, the duty to defend is broad.

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