McHUGH, Circuit Judge.
Plaintiff-Appellant Corey Christy purchased a commercial general-liability insurance policy (the CGL Policy) from Travelers in the name of his sole proprietorship, K & D Oilfield Supply (K & D). Subsequently, Mr. Christy registered his business as a corporation under the name K & D Oilfield Supply, Inc. (K & D, Inc.). Mr. Christy renewed his CGL Policy annually, but did not notify Travelers that he had incorporated his business. After Mr. Christy formed K & D, Inc., he was in an accident and made a claim under the CGL Policy. Travelers denied coverage based on Mr. Christy's failure to inform it of the change in business form, and Mr. Christy brought suit. On cross motions for summary judgment, the district court found in favor of Travelers. We affirm in part, reverse in part, and remand for further proceedings.
Mr. Christy purchased the CGL Policy from Travelers in 2007. The Policy designated K & D as the named insured and listed the "Form of Business" as "Individual," indicating K & D was a sole proprietorship. The CGL Policy insured a truck used for K & D's business as a "covered auto" and included uninsured motorist (UM) coverage in the amount of $1,000,000. In addition to the CGL Policy, the Christys also purchased an auto insurance policy through Travelers on their personal vehicle (the Personal Policy).
Subsequently, an attorney advised Ms. Christy that K & D should be incorporated to protect the family's assets from liability incurred by the business. The Christys incorporated K & D, Inc. in April 2008, but did not notify Travelers of the change.
Each year at the renewal of the CGL Policy, the Christys' insurance agent sent a cover letter stating, "Please review your policy for accuracy and advise me if any changes or additional coverage are needed." Additionally, the Christys' insurance agent met with them annually to advise them about their coverage. The Christys did not inform Travelers of the formation of K & D, Inc. during any of these annual meetings.
On July 28, 2010, Mr. Christy was seriously injured when a vehicle operated by an underinsured motorist struck him while he was riding his bicycle. Mr. Christy recovered the underinsured motorist's policy limits of $25,000. He received an additional $100,000 from the UM coverage on the Personal Policy with Travelers. Relevant to this appeal, Mr. Christy also sought to recover under the UM provision
Mr. Christy brought suit, arguing he was entitled to UM benefits under the CGL Policy. Specifically, he pointed to the CGL Policy's identification of K & D as the "Named Insured" and the "Form of Business" as "Individual."
The UM endorsement further provides that Travelers will pay "all sums the `insured' is legally entitled to recover as damages from the owner or driver of an `uninsured motor vehicle' because of ... `[b]odily injury' sustained by an `insured' and caused by an `accident.'" The CGL Policy broadly defines "Accident" to include "continuous or repeated exposure to the same conditions resulting in `bodily injury' or `property damage.'"
Based on this language, Mr. Christy claimed he was entitled to recover UM benefits as an "insured" under the CGL Policy. Specifically, Mr. Christy argued that although K & D was designated as the named insured on the CGL Policy, Mr. Christy was the true named insured as the sole proprietor of K & D, which was simply a name under which Mr. Christy did business. According to Mr. Christy's reading of the CGL Policy, the named insured was an individual — Mr. Christy — and therefore UM coverage was available for any accident, not only accidents occurring while the insured was occupying a covered auto. As such, Mr. Christy argued the CGL Policy provides coverage for the accident that occurred while he was riding his bicycle.
Travelers contended the incorporation of K & D effectively changed the named insured to K & D, Inc. And, according to Travelers, where the named insured is a corporation, the CGL Policy covers only
Following discovery, the parties filed cross-motions for summary judgment, advancing their competing positions on whether Mr. Christy was entitled to UM coverage under the CGL Policy. The district court granted summary judgment in favor of Travelers. The district court found, first, that Mr. Christy had a duty to notify Travelers he had changed the form of his business from a sole proprietorship to a corporation. Second, the district court found that Mr. Christy's failure to update Travelers about the change in his business structure constituted a material misrepresentation that had induced Travelers to renew the CGL Policy in 2008, 2009, and 2010. The district court therefore reformed the CGL Policy to reflect K & D, Inc. as the named insured from 2008 through 2010 and held that, as reformed, the CGL Policy did not cover Mr. Christy's bicycle accident.
Mr. Christy appeals. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we reverse in part, affirm in part, and remand for additional proceedings.
Because this case comes before the panel from a grant of summary judgment, we review the district court's ruling de novo, applying the same legal standard as the district court. Holub v. Gdowski, 802 F.3d 1149, 1154 (10th Cir.2015), petition for cert. filed, ___ U.S.L.W. ___ (U.S. Dec. 30, 2015) (No. 15-839). "Summary judgment is appropriate when `the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.' We view the facts and evidence submitted by the parties in the light most favorable to the nonmoving party." Id. (citation omitted) (quoting Fed.R.Civ.P. 56(a)).
On appeal, Mr. Christy argues the district court erred when it determined he had an affirmative duty to notify Travelers of the formation of K & D, Inc. He also alleges his failure to inform Travelers about the incorporation did not constitute a material misrepresentation and, therefore, reformation was inappropriate. Finally, Mr. Christy contends the district court erred in granting summary judgment on his claim for breach of the implied covenant of good faith and fair dealing.
Because we cannot determine as a matter of law that Mr. Christy had an affirmative duty to inform Travelers of the formation of K & D, Inc., summary judgment was inappropriate on this issue. In addition, Mr. Christy raised genuine issues of fact that preclude a determination at this stage of the proceedings of whether the failure to inform Travelers was a material misrepresentation. As such, the district court erred in reforming the policy on that ground.
We begin our analysis with the question of whether — based on the undisputed facts — Mr. Christy had an affirmative obligation to inform Travelers that he had incorporated K & D, Inc. The district court found Mr. Christy was obligated to inform Travelers of the change in the form of his business for two reasons: (1) the provisions of the CGL Policy created a contractual duty to inform and (2) public policy supports imposition of such a duty. We disagree.
Under New Mexico law, parties are free to structure their contractual obligations as they wish, so long as they do not clearly contravene public policy. See First Baptist Church of Roswell v. Yates Petroleum Corp., 345 P.3d 310, 313-14 (N.M.2015); Nearburg v. Yates Petroleum Corp., 123 N.M. 526, 943 P.2d 560, 571 (App.1997) ("Parties to a contract agree to be bound by its provisions and must accept the burdens of the contract along with the benefits."). Recognizing this general principle, New Mexico courts interpret contractual provisions to effectuate the intent of the parties. See WXI/Z Sw. Malls v. Mueller, 137 N.M. 343, 110 P.3d 1080, 1083 (App.2005). "[A]nd absent any ambiguity, the court may not alter or fabricate a new agreement for the parties." Id. (internal quotation marks omitted).
We do not agree with this reading. Nothing in the express language of the provision imposes any obligation on either Mr. Christy or Travelers. Rather, the provision is a standard integration clause, which merges any prior or contemporaneous agreements into the final written contract. See Nakashima v. State Farm Mut. Auto. Ins. Co., 141 N.M. 239, 153 P.3d 664, 668 (App.2007); see also 2 David Frisch, Lawrence's Anderson on the Uniform Commercial Code § 2-202:48 (3d ed.) ("An integration clause is indicative that the parties intended the writing to be the exclusive statement of the parties' agreement, and will usually be given that effect."). The sole and unambiguous effect of this provision is to limit the parties' agreement to the final written contract. There is no obligation-creating language in the clause, and we will not read into the CGL Policy duties not clearly contemplated by the parties.
Travelers argues that such an obligation can be found in the provision stating that the Policy is void if an insured commits fraud or "intentionally conceal[s] or misrepresent[s] a material fact." Travelers argues this language created an affirmative duty for Mr. Christy to inform Travelers of the change in business form. Again, we disagree. This provision states that the CGL Policy is void in the event of fraud or if an insured "intentionally conceal[s] or misrepresent[s] a material fact." By its plain language, it does not impose a duty requiring Mr. Christy to inform Travelers of changes to his business. It does not expressly impose affirmative obligations on either party. Under this provision, the CGL Policy could be rendered void if Mr. Christy made a material misrepresentation to Travelers. But, as explained below, we cannot determine at this stage of the proceedings whether Mr. Christy made such a material misrepresentation. As a result, it is uncertain whether this provision of the CGL Policy is implicated. See discussion infra.
The district court therefore erred in concluding the language of the CGL Policy imposed an ongoing obligation on Mr.
Alternatively, the district court concluded Mr. Christy's duty to inform Travelers of the incorporation of K & D, Inc. arose as a matter of public policy. According to the district court, such an obligation should be imposed as a matter of public policy even in the absence of an express provision in the CGL Policy requiring Mr. Christy to keep Travelers informed of any changes in K & D's business structure.
We depart from the district court's analysis on this issue for two reasons. First, the district court reached the conclusion that it was required to consider public policy based on the application of tort duty analysis. Although the imposition of a legal duty in the tort context is based, in part, on public policy, see, e.g., Calkins v. Cox Estates, 110 N.M. 59, 792 P.2d 36, 39 (1990) (stating in the negligence context, "The existence of a duty is a question of policy to be determined with reference to legal precedent, statutes, and other principles comprising the law"), the same analytical framework does not govern cases, like this, which sound in contract. Neither the district court nor the parties have cited any authority supporting the idea that New Mexico courts, in an attempt to conform the agreement to public policy, will impose on parties to a contract affirmative obligations other than the few well-recognized covenants implied by law. See, e.g., Paiz v. State Farm Fire & Cas. Co., 118 N.M. 203, 880 P.2d 300, 309-10 (1994) (recognizing that every contract in New Mexico contains an implied covenant of good faith and fair dealing). Indeed, doing so would be contrary to the New Mexico courts' admonition against imposing contractual obligations not clearly contemplated by the parties.
Second, the district court's analysis was based on its conclusion that, in the absence of a duty to notify Travelers of the change in business structure, Mr. Christy "would be rewarded for making a material misrepresentation, in turn incentivizing others like [Mr. Christy] to withhold information from insurers to derive greater benefits which honest disclosure would not have permitted." But the district court's assumption that Mr. Christy made a material misrepresentation was improper because the facts are disputed on this point.
In addition to arguing that Mr. Christy breached a contractual and public policy duty to notify Travelers about the incorporation of K & G, Inc., Travelers also maintains that Mr. Christy may not recover UM benefits under the CGL Policy because his failure to inform was a material misrepresentation.
Under New Mexico law, a misrepresentation can be the basis for a party's avoidance of contractual obligations through rescission or reformation when "the contract is based in material part" on that misrepresentation. State ex rel. State Highway & Transp. Dep't, 111 N.M. 383, 806 P.2d 32, 37 (1991). "In order for this to occur, the recipient of the misrepresentation must show that (1) there was a misrepresentation that was (2) material or fraudulent and which (3) induced the recipient to enter into the agreement and that (4) the recipient's reliance on the misrepresentation was justified." Sisneros v. Citadel Broad. Co., 140 N.M. 266, 142 P.3d 34, 40 (App.2006). The parties do not seriously dispute the third or fourth prongs of the test. As such, our analysis focuses on whether Mr. Christy's silence on the issue of the formation of K & D, Inc. constituted a material misrepresentation under the facts of this case. The district court assumed Mr. Christy's silence on the changed form of his business was a misrepresentation under New Mexico law. Then, having assumed the existence of a misrepresentation, the district court considered whether it was material. But on these facts, we cannot conclude as a matter of law that Mr. Christy's silence rose to the level of a misrepresentation or that it was material.
"A misrepresentation is an assertion that is not in accord with the facts."
As explained below, to determine whether silence rises to the level of a misrepresentation, we must first analyze materiality. If information is not material, an insured has no duty to disclose in the absence of a specific inquiry. And if the insured has no duty to disclose, mere nondisclosure will not be considered an affirmative representation. Thus, the question before us is: When does an insured have a duty to disclose changes in circumstances that occur after issuance of a policy?
The Restatement distinguishes between an affirmative misrepresentation, an act of concealment that rises to the level of an affirmative misrepresentation, and mere
A leading treatise on insurance contracts similarly distinguishes between an affirmative misrepresentation, concealment, and mere failure to disclose:
6 Couch on Insurance § 81:21 (emphasis added). "A party applying for insurance is bound to answer truthfully all questions concerning facts material to the risk but generally has no duty where the application makes no specific inquiries." Id. § 84:2. And although the materiality of a particular fact is a factor in deciding whether the insured should have disclosed it, "a prospective insured has no duty to inform an insurer even with respect to a material factor unless the insured has been asked about it or otherwise made to know that it is a material basis for issuance of the policy." Id. § 84:6. "Also, because the insured normally is a lay individual and not particularly knowledgeable in the field of insurance risks, it is unreasonable to impose on the insured a continuing duty to notify the insurer of any change which would materially affect the acceptance or continuation of the risk." Id. § 84:9.
For Mr. Christy's mere silence on the change in his business structure to rise to the level of an affirmative misrepresentation, Travelers must have made a specific inquiry or Mr. Christy must have known or should have known the structure of his business was material to Travelers' decision to renew the CGL Policy. Under the Restatement and Couch, the insurer has the obligation to inquire about those facts it considers material to its risk, rather than placing the burden on the untrained insured to disclose any and all changed circumstances that his insurer may consider significant. New Mexico's general adherence to the Restatement convinces us that its courts would place the onus of inquiry on Travelers as the insurer, rather than expecting Mr. Christy as the lay insured to divine which facts might be material to Travelers' decision to issue or renew a policy. That is, unless Mr. Christy had knowledge that the information was material to Travelers.
The Massachusetts Court of Appeals reached a similar conclusion in Quincy Mutual Fire Insurance Co. v. Quisset Properties, Inc., 69 Mass.App.Ct. 147, 866 N.E.2d 966 (2007). In Quincy, the insured purchased a commercial auto insurance policy through his corporation. Id. at 968-69. At the time the insured purchased the policy, the application accurately reflected all material facts. Id. at 969. The insured renewed the policy for the next nine years, but at no time did the insurer require the insured to complete a renewal application
The Massachusetts Court of Appeals reviewed "whether [the insured's] failure to notify [the insurer] of [the company's] dissolution represents a material misrepresentation that increased the risk of loss to the insurer." Id. at 970. It answered that question in the negative, concluding that an insurer has a duty to inquire into facts and circumstances it deems material to its coverage decisions. Id. at 971-74. The court explained:
Id. at 973 (citation omitted).
We conclude that the Quincy court's analysis is consistent with the Restatement and most likely to reflect New Mexico's views on this issue. Furthermore, the cases Travelers cites as support for its argument that New Mexico would place the burden on the insured are inapposite. For example, Travelers relies on Rael v. American Estate Life Insurance Co., 79 N.M. 379, 444 P.2d 290 (1968), for the proposition that a failure to disclose material information constitutes a misrepresentation. But in Rael, the insurer's application specifically asked whether any family member had undergone any "medical or surgical advice or treatment or operations in the past 5 years." Id. at 291 (internal quotation marks omitted). Despite the fact that, during the five-year period, the insured's wife and daughter had both received medical treatment, including surgeries, the insured answered "No." Id. at 291-92. Not surprisingly, the New Mexico Supreme Court held that an insurer is entitled to true and complete answers to the questions it asks before issuing a policy. Id. at 292. But Rael did not address a situation, like the present, in which the insured truthfully answers the application questions, circumstances later change, and the insurer arguably does not make further inquiry. Because Rael addressed only an insured's obligation not to lie in response to a direct question from the insurer, it is not controlling here.
Travelers' reliance on Rehders v. Allstate Insurance Co., 139 N.M. 536, 135 P.3d 237 (App.2006), is similarly misplaced. Travelers argues Rehders stands for the proposition that an insured is presumed to know and understand the insurance significance of changing his business from a sole proprietorship to a corporation. But Rehders cannot be read so broadly. Rehders involved a commercial insurance policy issued in the name of a sole proprietorship from 1983 until 2001. Id. at 239-40. In September 2001, the sole proprietors notified Allstate that they had changed their business from a sole proprietorship to a corporation and requested that their policy be modified to reflect that change. Id. at
Travelers relies on Rehders to argue that insureds are always presumed to understand a change in business form will have insurance implications. But the Rehders court's holding is limited by the facts at issue there. Specifically, the insureds changed their business organization, obtained a new insurance policy that unambiguously did not provide coverage for the subsequent accident, and then attempted to negate the change they had requested to obtain more favorable coverage after an accident. The Rehders court did not consider a situation like this case, where the same policy is in place but there has been a change in the business form of the insured. As a result, it is not controlling.
In sum, the CGL Policy may only be reformed or rendered void if Mr. Christy made a material misrepresentation by failing to disclose the change to his business form. Mr. Christy's nondisclosure will only be considered a misrepresentation if he had a duty to inform Travelers of the change. And Mr. Christy only had such a duty if the incorporation of his business was material. A finding of materiality depends on whether Mr. Christy knew or should have known that changing his business form would affect Travelers' decision to renew. Accordingly, we now consider whether the evidence presented of Mr. Christy's knowledge on this point was undisputed or instead created a material issue of fact which precludes summary judgment.
Mr. Christy averred by affidavit that he was never informed that changing his business form could affect Travelers' decision to renew his insurance coverage. According to Mr. Christy, the annual discussions with his insurance agent focused on the number of employees and the types of vehicles used by the business. And the insurance agent testified by deposition that, although he asked Mr. Christy whether there had been any changes in the business's "operations," he never expressly asked whether the business form had changed. But Travelers points to the cover letter sent with the annual renewal notice, which states, "Please review your policy for accuracy and advise ... if any changes or additional coverages are needed." According to Travelers, this letter was sufficient to notify Mr. Christy that he should inform Travelers of any changed circumstances that might warrant a corresponding revision of the CGL Policy. It was precisely this type of generic inquiry that the Quincy court rejected as insufficient to place the burden on the insured to determine which specific changes might be material to his insurer. See Quincy Mut. Fire Ins. Co., 866 N.E.2d at 973. And to hold otherwise would turn the Restatement approach on its head by placing the burden on Mr. Christy, the lay insured, to divine what new circumstances might necessitate "changes or additional coverages" under the existing CGL Policy.
In short, viewing all facts and taking all reasonable inferences in the light most favorable to Mr. Christy — as we
Finally, Mr. Christy argues the district court erred in granting summary judgment on his claim for breach of the covenant of good faith and fair dealing. New Mexico law recognizes that every contract imposes an implied duty of good faith and fair dealing on the parties. Sanders v. FedEx Ground Package Sys., Inc., 144 N.M. 449, 188 P.3d 1200, 1203 (2008). "The breach of this covenant requires a showing of bad faith or that one party wrongfully and intentionally used the contract to the detriment of the other party." Id. (internal quotation marks omitted).
Mr. Christy argues the district court erred in granting summary judgment on this claim because of the inherently factual analysis necessary for a finding of bad faith. But Mr. Christy has not satisfied his burden in opposing summary judgment on this claim. A party opposing summary judgment must do more than assert allegations constituting a claim. See Travis v. Park City Mun. Corp., 565 F.3d 1252, 1257-58 (10th Cir.2009). To survive summary judgment, a nonmoving party "must set forth specific facts showing that there is a genuine issue for trial as to those dispositive matters for which he carries the burden of proof." Id. (internal quotation marks and brackets omitted). Mr. Christy has made no effort to set forth any facts demonstrating bad faith on the part of Travelers. Mr. Christy has made no effort to set forth any facts demonstrating bad faith on the part of Travelers.
Although Mr. Christy asserts a reversal of the district court's decision "necessarily requires the reinstatement of the entirety" of his complaint, Mr. Christy has failed to meet his burden in opposing summary judgment on his bad faith claim. We therefore affirm the district court's grant of summary judgment as to this claim but reverse and remand for consideration of Mr. Christy's remaining claims.
Because there is a material factual dispute as to whether Mr. Christy knew or should have known Travelers would have considered the formation of K & D, Inc. material to its decision to renew the Policy, summary judgment based on Mr. Christy's legal duty to speak was inappropriate. And because the existence of a legal duty governs whether Mr. Christy engaged in a material misrepresentation by not informing
But even if Travelers had properly presented these arguments as alternate grounds to affirm, we would nevertheless be precluded from doing so because either theory requires factual determinations better made by the district court in the first instance. For unilateral mistake, reformation is appropriate under New Mexico law only if the mistake is accompanied by fraud or other inequitable conduct on the part of the nonmistaken party. See Chromo Mountain Ranch P'ship v. Gonzales, 101 N.M. 298, 681 P.2d 724, 725 (1984). The district court has not made a finding that Mr. Christy acted fraudulently by not updating Travelers about the incorporation of his business. See Prudential Ins. Co. of Am. v. Anaya, 78 N.M. 101, 428 P.2d 640, 643 (1967) (holding a finding of fraud is not required when determining whether a party engaged in a material misrepresentation). We therefore leave the consideration of this issue for remand.
As to mutual mistake, New Mexico law allows for reformation of a contract "where there has been a meeting of the minds, an agreement actually entered into, but the contract, deed, settlement, or other instrument, in its written form, does not express what was really intended by the parties thereto." C.R. Anthony Co. v. Loretto Mall Partners, 112 N.M. 504, 817 P.2d 238, 245 (1991) (internal quotation marks omitted). Before the court can reform a writing, the party seeking reformation must show "clearly and beyond doubt that there has been a mistake ... [and must] also be able to show with equal clearness and certainty the exact and precise form and import that the instrument ought to be made to assume, in order that it may express and effectuate what was really intended by the parties." Twin Forks Ranch, Inc. v. Brooks, 125 N.M. 674, 964 P.2d 838, 841 (App.1998) (internal quotation marks omitted). But the question of the parties' true intent is a factual matter, best decided by the district court after a full evidentiary hearing. C.R. Anthony, 817 P.2d at 246. Again, the district court should consider this question in the first instance on remand.
