DELGADO V. COSTELLO, 1978-NMCA-058, 91
N.M. 732, 580 P.2d 500 (Ct. App. 1978)
Margaret O. DELGADO,
Plaintiff-Appellant,
vs.
Vincent A. COSTELLO, the Insurance Center, Inc., and
Security Insurance Company, Defendants-Appellees.
COURT OF APPEALS OF NEW MEXICO
1978-NMCA-058, 91 N.M. 732, 580 P.2d 500
Robert C. Resta, Albuquerque, for
appellant.
H. Perry Ryon and Alan C. Torgerson,
Shaffer, Butt, Jones, Thornton & Dines, P. C., Albuquerque, for appellee
Security Ins. Co.
Kenneth R. Brandt, Rodey, Dickason,
Sloan, Akin & Robb, P. A., Albuquerque, Ranne B. Miller, Keleher &
McLeod, Albuquerque, for appellees Vincent A. Costello & The Insurance
Center, Inc.
WOOD C.J., wrote the opinion. HENDLEY and
HERNANDEZ, JJ., concur.
{*734} WOOD, Chief
Judge.
{1} Plaintiff's appeal
involves the sufficiency of the amended complaint. The trial court granted
defendants' motions to dismiss on the ground the amended complaint "fails
to state a claim upon which relief can be granted as a matter of law".
There are four claims -- fraud, constructive fraud, negligent
misrepresentation, and reformation of an insurance policy. All claims involve
the coinsurance clause of a fire insurance policy. We discuss: (1) allegation
of fraud; (2) duty of disclosure; and (3) pleading a claim under the doctrine
of reasonable expectations. Dismissal was under Rule of Civ. Proc. 12(b)(6).
Dismissal under this rule is proper only if it appears that plaintiff cannot
recover under any state of facts provable under the claims made.
Villegas v.
American Smelting & Refining Co., 89 N.M. 387,
552 P.2d 1235 (Ct.
App.1976) and cases therein cited.
{2} The amended complaint
alleges: 1) that Costello was acting within the scope of his employment with
The Insurance Center, Inc. and that The Insurance Center, Inc. was acting
within the scope of its agency for Security Insurance Company; 2) on or about
January 1, 1974 plaintiff obtained a standard fire insurance policy through
Costello and The Insurance Center, Inc., and that the policy was written by
Security Insurance Company; 3) that the policy was issued in the amount of
$25,000 for a commercial building and contained an 80 percent coinsurance
clause; 4) that a fire loss occurred in January, 1977 resulting in damages of
approximately $16,000; 5) that only $7,643.07 was paid because of the
coinsurance provision, and plaintiff has been damaged in the amount of $10,000.
{3} There is some argument
that the policy provisions are ambiguous, but this argument is without merit.
The 80 percent coinsurance is identified on the face of the policy. The policy
recites:
[I]t is expressly stipulated and made a condition of this
contract that the Insured shall at all times maintain contributing insurance on
each item of property covered by this policy to the extent of at least the
percentage specified on the first page of this policy or endorsed hereon of the
actual cash value at the time of the loss, and that failing to do so, the
Insured shall to the extent of such deficit bear his, her or their proportions
of any loss.
This explanation was not "hidden" in the policy; it
does not involve a series of negatives or exceptions. See Pribble v. Aetna
Life Insurance Company, 84 N.M. 211, 501 P.2d 255 (1972). This explanation
cannot be held ambiguous as a matter of law. See Wiseman v. Arrow
Freightways, Inc., 89 N.M. 392, 552 P.2d 1240 (Ct. App.1976).
{4} Plaintiff's claims are
based on the allegation that she "did not know or understand the nature of
the coinsurance clause and would not have purchased the policy as written had
she understood the nature of the clause, but would have purchased additional
insurance in order to be fully protected under the coinsurance clause."
{5} Claiming fraud, plaintiff
alleged that Costello "knew the relevance of the 80% coinsurance clause,
but in order to effect the sale [of the fire insurance policy], knowingly and
willfully failed to disclose the meaning of said provision to the plaintiff.
The plaintiff relied upon the advice of... Costello, in the purchase of said
insurance".
{6} One of the elements of
fraud is that the representation made "was made with intent to deceive and
for the purpose of inducing the other party to act upon it".
Sauter v.
St. Michael's College,
70 N.M. 380,
374 P.2d 134 (1962). Defendants assert
the claim of fraud is insufficient "[b]ecause of the omission of the
crucial allegation of fraudulent inducement".
{7} Rule of Civ. Proc. 9(b)
requires allegations of fraud to be stated with particularity. A pleading of
fraud is sufficient if the facts alleged are facts from which fraud will
necessarily be implied; in addition, the allegations should leave no doubt in
defendants' minds as to the claim asserted.
Stead {*735}
man v. Turner,
84 N.M. 738,
507 P.2d 799 (Ct. App.1973). The allegation
that Costello knowingly failed to disclose the meaning of the coinsurance
clause "in order to effect the sale" was a sufficient allegation of
the inducement element of fraud; it left no doubt as to the basis for the fraud
claim.
{8} A duty of disclosure is
implicit in the fraud claim and specifically pleaded in the claims of
constructive fraud and negligent misrepresentation. This asserted duty is the
duty "to disclose the nature of the coinsurance clause to the
plaintiff". Defendants assert that dismissal of the fraud, constructive
fraud and negligent misrepresentation claims was proper because of absence of
law to support them. See
C & H Constr. & Pav. Inc. v. Foundation
Reserve Ins. Co., 85 N.M. 374,
512 P.2d 947 (1973). The contention is that
Costello had no duty to disclose the nature of the coinsurance clause to
plaintiff. In support of this contention, defendants argue that the existence
of such a duty was a question of law to be determined by the trial court.
{9} We agree that these
claims depend on a duty on the part of defendants. As to "duty" in
the fraud claims, see
Krupiak v. Payton,
90 N.M. 252,
561 P.2d 1345
(1977) and
Snell v. Cornehl,
81 N.M. 248,
466 P.2d 94 (1970). As to
"duty" in the claim of negligent misrepresentation,
"negligence" encompasses the duty to use ordinary care. See
Latimer
v. City of Clovis,
83 N.M. 610,
495 P.2d 788 (Ct. App.1972).Plaintiff is
relying on a duty of disclosure; if no such duty exists, the claims were
properly dismissed.
{10} We also agree that the
trial court is to determine whether such a duty exists. See
Southern Union
Gas Co. v. Briner Rust Proofing Co., 65 N.M. 32,
331 P.2d 531 (1958).
{11} We do not agree,
however, that the trial court could determine the absence of a duty to disclose
on the basis of the amended complaint.
Thompson v. Occidental Life Ins. Co.
of Cal., 90 N.M. 620,
567 P.2d 62 (1977) held that the selling agent had no
duty to advise the purchaser of the policy concerning the refund of premiums.
The holding in
Thompson, supra, was based on the circumstances; the
circumstances were a motion for summary judgment based on affidavits and
answers to interrogatories.
Southern Union Gas Co. v. Briner Rust Proofing
Co., supra, also decided the "duty" question after considering
the circumstances of the case, but the circumstances involved a motion for
summary judgment based on depositions. Here, the "duty" question has
been decided solely on the basis of a pleading -- the allegations in the
amended complaint. Such was an insufficient basis.
{12} As to the fraud claims,
Krupiak
v. Payton, supra, states:
A duty to disclose may arise if there is knowledge that the
other party to a contemplated transaction is acting under a mistaken belief. A
duty to disclose may also arise if one has superior knowledge that is not
within the reach of the other party or could not have been discovered by the
exercise of reasonable diligence.
Without factual information, the trial court could not
determine whether there was a duty to disclose.
{13} As to the claim of
negligent misrepresentation, absent information as to the circumstances (it
should not be overlooked that plaintiff alleged she was relying on Costello's
advice), the trial court could not determine whether there was a duty to
disclose.
Thompson v. Occidental Life Ins. Co. of Cal., supra. Whether a
duty to disclose exists depends on the facts, and the facts have not been
developed. Compare the factual basis for a duty to deal in good faith in
Chavez
v. Chenoweth,
89 N.M. 423,
553 P.2d 703 (Ct. App.1976).
{14} The amended complaint
did not provide sufficient information to determine there was no duty of
disclosure. The fraud and constructive fraud claims, based on a duty of
disclosure, state claims for relief because a duty of disclosure is provable
under those claims.
Krupiak v. Payton, supra. The negligent
misrepresentation
{*736} claim, based on
a duty of disclosure, states a claim for relief because a duty of disclosure is
provable under this claim in order to establish the asserted negligence. See
Maxey
v. Quintana,
84 N.M. 38,
499 P.2d 356 (Ct. App.1972); compare the
negligence claim, held to be sufficient, in
Veale v. Eavenson,
52 N.M.
102,
192 P.2d 312 (1948).
{15} The trial court erred in
holding the fraud, constructive fraud and negligent misrepresentation claims
failed to state a claim upon which relief could be granted.
Pleading a Claim Under the Doctrine of Reasonable
Expectations
{16} Plaintiff's alternative
claim is that the insurance policy should be reformed to conform to the
reasonable expectations of plaintiff. Defendants do not contend that a claim
for reformation, based on the doctrine of reasonable expectations, is not a
basis on which relief can be granted. As to reformation, see
Kimberly, Inc.
v. Hays,
88 N.M. 140,
537 P.2d 1402 (1975); as to the doctrine of
reasonable expectations, see
Pribble v. Aetna Life Insurance Company,
supra.
{17} Defendants' contention
is that the pleading is deficient.
Pribble, supra, states:
We will not simply mechanically charge Mr. Pribble with the
duty of reading and understanding the policy and certificate and then bar him
from recovery by a literal application of its terms and provisions. Rather,
based on the facts before us, we hold that Mr. Pribble, himself or through his
authorized representatives was only bound to make such examination of such
documents as would be reasonable for him to do under the circumstances; that he
will only be held to that which he would be thereby alerted; and if the
language is such that a laymen [sic] [layman] would not understand its full
impact were he to attempt to plow through it, the documents will yield the
maximum protection consistent with their language and the reasonable
expectation of Mr. Pribble.
{18} Defendants state the
amended complaint fails to allege that plaintiff "made
any attempt
at
any time to examine the insurance contract, or that the insurance
contract contained
any language, which if read by a layman, would not be
understood." No authority is cited that plaintiff was required to so
plead.
{19} Rule of Civ. Proc.
8(a)(2) requires only "a short and plain statement of the claim showing
that the pleader is entitled to relief". The amended complaint makes such
a statement; it asserts that Costello failed to disclose the meaning of the
coinsurance clause in order to effect the sale of the fire insurance policy,
that plaintiff relied on Costello's advice, that plaintiff would have taken
other action if she had understood the nature of the coinsurance clause, and
that the policy should be reformed to meet her reasonable expectations.
{20} "The office of the
pleadings is to give the parties fair notice of both claims and defenses and
the grounds upon which they rest."
Seasons, Inc. v. Atwell,
86 N.M.
751,
527 P.2d 792 (1974). One of the purposes of the rules of civil procedure
is to simplify litigation procedures and avoid technical claims, such as the
defendants' contention under this issue.
Maxey v. Quintana, supra. The
amended complaint gave defendants notice of plaintiff's "reasonable
expectations" claim; the trial court erred in holding this claim failed to
state a claim upon which relief could be granted.
{21} The order of the trial
court dismissing the amended complaint with prejudice is reversed. Plaintiff is
to recover her appellate costs; defendants are jointly and severally liable for
such costs.
HENDLEY and HERNANDEZ, JJ., concur.