ROBERT H. JACOBVITZ, United States Bankruptcy Judge.
The United Tort Claimants ("UTC") and Quorum Health Resources, LLC ("QHR") jointly asked the Court to determine whether QHR is entitled to an offset of the amounts QHR or its insurer(s) paid on behalf of QHR to UTC in partial settlement against any damages the Court may ultimately award to UTC on their negligence claims against QHR.
Otero County Hospital Association, Inc. ("Debtor") filed a voluntary petition under Chapter 11 of the Bankruptcy Code on August 16, 2011. See Case No. 11-13686-j11—Docket No. 1. UTC commenced these adversary proceedings by removing to this Court between June 18, 2012 and September 12, 2012 forty-seven actions originally commenced in state court before the Debtor
The parties also agreed in the Term. Sheet to "enter into a more complete agreement documenting this settlement[.]" Id. at ¶ 12.
On August 7, 2012, Debtor confirmed its Third Amended Chapter 11 Plan of Reorganization dated June 20, 2012 for Otero County Hospital Association, Inc. See Order Confirming the Third Amended Chapter 11 Plan of Reorganization dated June 20, 2012 for Otero County Hospital Association, Inc. ("Confirmation Order"), Case No. 11-11-13686-JA — Docket No. 712. The Confirmation Order approved the Settlement Agreement that the parties to the Term Sheet entered into as contemplated by the Term Sheet. The Settlement Agreement confirms that the provisions in the Term Sheet are included as part of the parties' agreement. See Exhibit 1 — Settlement Agreement, ¶ H.9 ("This Settlement Agreement supersedes any and all prior or contemporaneous discussions, negotiations, correspondence and/or drafts, except the Term. Sheet and Waiver of Defense Conditions attached hereto and the Plan Confirmation Order, which are material hereto and which are incorporated herein for all purposes.") (emphasis added).
The Settlement Agreement includes the following recitals:
The Settlement Agreement defines the "Unreleased Claims Against QHR" as follows:
The Settlement Agreement provides for the following payments:
In exchange, UTC released QHR from the following:
The UTC agreed to enforce any judgment against QHR on any of the Unreleased Claims Against QHR "against the available insurance only, and not against the assets of QHR . . ." Settlement Agreement, p. 7, ¶ C.4.
QHR has three insurers that issued policies that cover or may cover claims asserted by UTC in these adversary proceedings and similar state court litigation not removed to this Court: Nautilus, Lexington Insurance Company ("Lexington"), and Ironshore Insurance Company ("Ironshore"). The insurance policies issued by Nautilus, Lexington and Ironshore are the first, second and third tiers of insurance coverage, respectively. Neither Lexington nor Ironshore participated in the mediation sessions. Ironshore later settled with UTC. Litigation concerning insurance coverage issues involving Lexington remains pending in state court in Tennessee (the "Coverage Litigation").
Following the partial settlement, UTC amended its complaints in these adversary proceedings to eliminate all defendants other than QHR, and to eliminate all claims other than its negligence claims.
In phase 1, the Court determined that QHR owed a duty to UTC, and breached its duty in two respects.
QHR asserts that it is entitled to an offset or credit of the amounts QHR or Nautilus paid on behalf of QHR under the Settlement Agreement against any damages amount the Court may ultimately award UTC on their negligence claims. QHR relies on New Mexico's rule against double recovery of damages for a plaintiff's injuries. See Hood v. Fulkerson, 102 N.M. 677, 680, 699 P.2d 608, 611 (1985) ("Duplication of damages or double recovery for injuries received is not permissible.") (citations omitted). See also, Hale v. Basin Motor Co., 110 N.M. 314, 320, 795 P.2d 1006, 1012 (1990) (stating that "New Mexico does not allow duplication of damages or double recovery for injuries received.") (citations omitted). Under this rule, plaintiffs generally "may not collect more than the damages awarded to them, or, put another way, they may not receive compensation twice for the same injury." Sunnyland Farms, Inc. v. Central New Mexico Electric Cooperative, Inc., 2013-NMSC-017, ¶ 47, 301 P.3d. 387, 400 (2013) (citing Hale, 795 P.2d at 1012). This rule applies even when there are multiple theories of recovery for a single injury, provided the relief requested is the same. As explained in Fulkerson, "[w]here there are different theories of recovery and liability is found on each, but the relief requested was the same, namely compensatory damages, the injured party is entitled to only one compensatory damage award." Fulkerson, 102 N.M. at 680, 699 P.2d at 611 (citing Clappier v. Flynn, 605 F.2d 519 (10th Cir. 1979)). Cf. Sanchez v. Clayton, 117 N.M. 761, 765, 877 P.2d 567, 571 (1994) ("To the extent a judgment for damages is paid by one or more of the judgment debtors, we agree that a claim for the same damages against any other person is extinguished regardless of the theories upon which the respective claims for relief are based.") (emphasis in original).
Because a settlement agreement is a form of contract, the Court applies general principles of contract interpretation under state law to determine the meaning of a settlement agreement.
The terms of the Settlement Agreement and the Term Sheet at issue here concern payments of the settlement amounts, releases, and unreleased claims. Under the Term Sheet and the Settlement Agreement, QHR was required to make a direct payment of $5.05 million to UTC. See Term Sheet, ¶ 1; Settlement Agreement, ¶ 1.a. In addition, Nautilus was required to pay $8.45 million, of which $6 million was to be paid solely on behalf of QHR. Settlement Agreement, ¶¶ A.1 and A.1.a. In exchange for QHR's payment of the settlement amount, the Term Sheet provides that UTC will agree to enforce any judgment ultimately obtained against QHR "against the available insurance only, and not against the assets of QHR." Term Sheet, ¶ 8. See also, Settlement Agreement, ¶ C.4 ("should any of the UTC recover a judgment or judgments against QHR on any of the Unreleased Claims Against QHR, the UTC will enforce any and all such judgments against the available insurance only, and not against the assets of QHR . . .").
UTC agreed to release "all claims, however captioned, for liability on the Personal Injury Claims in excess of QHR's insurance." Term Sheet, ¶ 8. Similarly, the released claims under the Settlement Agreement are defined as the "Personal Injury Claims on any theory in excess of QHR's insurance." Settlement Agreement, ¶ C.3. See also, Settlement Agreement, pp. 2-3 (reciting QHR's and UTC's intent "to resolve all claims the UTC has or could have alleged against QHR . . . but only to the extent any such claims are in excess of any and all available insurance policies . . ."). The claims retained by UTC under the Settlement Agreement, defined as "Unreleased Claims Against QHR," are claims and damages
Given the context in which the settlement was reached, it is clear that the parties intended to maximize the possible recovery for UTC under all available insurance policies while at the same time extinguishing any other liability of QHR to UTC. Thus, the intended meaning of the language used in the Settlement Agreement and the Term Sheet regarding released claims (i.e., claims "in excess" of available insurance) versus unreleased claims (i.e., claims and damages "within" available insurance) is clear: claims are released if not covered by and to the extent damages are not payable under any available insurance; unreleased claims are claims that are covered by available insurance to the extent the type of damages that may be awarded on the claims are the type of damages payable under insurance.
UTC direct the Court's attention to Rummel v. Lexington Ins. Co., 123 N.M. 752, 945 P.2d 970 (1997). In Rummel, plaintiff obtained an $11,000,000 judgment against Circle K, which included both compensatory and punitive damages, for personal injuries Rummel sustained on the job as a clerk at a Circle K convenience store. The insured had several personal injury insurance policies, which were "stacked" so that each layer of insurance provided coverage after the lower layers were expended. Rummel, 945 P.2d at 973. One of the policies covered both compensatory and punitive damages, while another
A large part of Rummel involved the court's interpretation of the insurance policies. Interpreting the insurance policy, the Rummel court determined that nothing in the insurance policy precluded the parties from allocating settlement monies to damages not covered by the policy. Rummel, 945 P.2d at 982. That allocation resulted in a greater amount recoverable against the Lexington policy. This Court does not have the insurance policies before it, nor is it appropriate for the Court to resolve insurance coverage issues. Insurance coverage issues are part of the Coverage Litigation. In addition, Rummel discussed potential bad faith claims against an insurer who allegedly refused to participate in the settlement negotiations. See Rummel, 945 P.2d at 983-985. UTC contend in their brief that, similar to Rummel, Lexington has acted in bad faith by failing to participate in the mediation sessions that resulted in the Settlement Agreement. And, because UTC have agreed under the Settlement Agreement to enforce any judgment only against the available insurance, UTC cast Lexington—the entity that will ultimately be called upon to pay any judgment UTC may obtain against QHR—as the "real party in interest." The Court need not address these arguments. Lexington is not a party to these adversary proceedings. The Court can, however, apply the principles of Rummel and Fulkerson to conclude that the parties may allocate the settlement payments in such a way as to maximize the potential recovery from the insurance policies, provided the allocation is consistent with the terms of the insurance policies, and provided, further, that such payments do not compensate UTC more than once for the same damages resulting from the injuries that form the basis of UTC's remaining negligence claims against QHR.
Whether the Settlement Payments in Exchange for UTC's Release of Claims "in excess of QHR's insurance" Must be Credited Against any Judgment the UTC Ultimately May Obtain Against QHR
There are two payment components set forth in the Settlement Agreement that may require a credit against any judgment UTC may obtain against QHR: 1) QHR's $5.05 direct payment to UTC; and 2) Nautilus's $6 million payment made "solely on behalf of QHR."
The Settlement Agreement obligates QHR itself to pay $5.05 million to UTC. See Settlement Agreement, ¶ A.1.a. Because the Settlement Agreement releases QHR from claims "in excess" of its insurance policies, QHR's payment of $5.05 million necessarily settles the claims to the extent not covered by or payable under
Otherwise, QHR's $5.05 million payment does not represent an impermissible double recovery or duplication of damages. In exchange for its payment, QHR received the UTC's agreement not to enforce any judgment it ultimately may obtain against QHR's assets. See Settlement Agreement, ¶ C.4. ("UTC will enforce any and all such judgments against the available insurance only, and not against the assets of QHR . . .").
The Settlement Agreement here is unlike the agreement in Summit Properties v. Public Service Co. of New Mexico, 138 N.M. 208, 118 P.3d 716, 731 (Ct. App. 2005). In Summit, the parties attempted to allocate a settlement payment to attorney's fees otherwise not recoverable as a matter of law. See, Summit, 118 P.3d at 731 (stating that "[t]he agreement . . . provided compensation to Summit that it was not otherwise entitled to receive."). The Summit court concluded that the parties' attempt to "characterize the settlement as payment for attorney fees, where there was no legal right to those fees, appear[ed] to be an effort to circumvent this rule" requiring the credit "against the obligation of other joint obligors." Id. The Summit court observed further that "allowing Summit to avoid crediting a joint obligor for the amount of the settlement by characterizing the settlement as attorney fees Summit was not entitled to recover in the lawsuit for breach of contract would violate the rule against double recovery of damages and the principles underlying the theory of joint obligations." Id. (citing Fulkerson, 699 P.2d at 611). Here QHR's payment under the Settlement Agreement settled claims not covered by its insurance, but there is no indication that those additional claims are the types of claims for which the UTC are not entitled to recover as a matter of law. The released claims included claims for fraud and claims for willful or reckless hiring, training, supervision and credentialing. QHR's settlement payment does not, therefore, constitute an impermissible duplication of damages.
Whether the Settlement Payments used to Satisfy SIR(s) Must be Credited Against any Judgment the UTC Ultimately May Obtain Against QHR
The Settlement Agreement provides that "Nautilus shall pay $6 million toward settlement with the UTC solely on behalf of QHR" and that such payment "is
Such payments would duplicate the compensatory damages the UTC may ultimately be awarded on its remaining negligence claims against QHR. This conclusion depends, however, on the language of the insurance policies — if the policies do not expressly limit the types of payments necessary to satisfy the SIR, QHR may not be entitled to a credit. Cf. Rummel v. Lexington Ins. Co., 123 N.M. 752, 945 P.2d 970 (1997) (SIR satisfied by unsecured bankruptcy claim against underlying insurer's bankruptcy estate).
The holding of Sunnyland, 2013-NMSC-017, 301 P.3d 387 (2013) is inapplicable here. In Sunnyland, the defendant settled with the plaintiff's insurer and acquired the insurer's subrogation rights as part of the settlement. Sunnyland, 301 P.3d at 391. Defendant then sought an offset of $3.2 million for the subrogation rights it obtained in the settlement. Id. at 400. The New Mexico Supreme Court held that the defendant was not entitled to an offset, notwithstanding the settlement, because offset would violate the collateral source rule and public policy. Id. The Sunnyland court reasoned that subrogation is not "truly a right" but, rather, an "equitable remedy," and that equitable principles do not permit a defendant to "assert a right of subrogation that it acquires from the plaintiff's insurer." Id. at 402. Nautilus is QHR's insurer. Nautilus's payment "solely on behalf of QHR" is not a payment from a collateral source. Nor is QHR seeking to exercise a subrogation right it acquired from the UTC's insurer through a settlement.
Whether Ironshore's Payments Must be Credited Against Any Judgment the UTC Ultimately May Obtain Against QHR
Ironshore settled with UTC on the eve of the first phase of the trial. The terms of the settlement among UTC, QHR and Ironshore are not before the Court. As a result, the Court makes no determination at this time regarding whether or to what extent QHR is entitled to a credit for amounts Ironshore paid in settlement.
The law favors settlements. See Navajo Tribe of Indians v. Hanosh Chevrolet-Buick, Inc., 106 N.M. 705, 707, 749 P.2d 90, 92 (1988) (stating that "[i]t is the policy of the law and of the State of New Mexico to favor settlement agreements") (citations omitted). See also, Sunnyland, 301 P.3d at 401 (recognizing New Mexico's general "policy of encouraging settlements.")