Carolina Casualty Insurance v. Nanodetex Corporation
2013 U.S. App. LEXIS 17181
| 10th Cir. | 2013Background
- New Mexico Supreme Court recognized malicious abuse of process as a unified tort combining malicious prosecution and abuse of process.
- Nanodetex sued Sandia; Schwartz proposed a Nanodetex-Defiant merger and suggested litigation would hinder Defiant; Defiant counterclaims included malicious abuse of process.
- Defiant obtained a $1 million compensatory damages award on malicious abuse of process; nominal damages on tortious interference; $1 million in punitive damages.
- Carolina insured Nanodetex under a management liability policy and denied coverage, relying on a malicious prosecution exclusion in Section IV.D.3.
- District court granted summary judgment for Carolina, denying coverage for the malicious-abuse-of-process damages and the punitive damages; counterclaims largely dismissed.
- On appeal, the Tenth Circuit reversed, holding the exclusion covers only claims with the essential elements of common-law malicious prosecution, so the malicious-abuse-of-process judgment was not excluded; remanded for reconsideration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the malicious-prosecution exclusion apply to malicious abuse of process? | Insureds: exclusion is limited to true malicious-prosecution claims, not the broader malicious abuse of process. | Carolina: exclusion applies to any claim labeled malicious prosecution, including integrated malicious abuse of process. | Exclusion applies only to claims with essential elements of malicious prosecution; not to the malicious-abuse-of-process judgment. |
| Are punitive damages covered or excluded under the policy? | If the underlying judgment rests on a covered theory, punitive damages may be covered. | Punitive damages were awarded for malicious abuse of process, excluded by IV.D.3. | Issue considered moot after ruling on Issue 1. |
| Can bad-faith failure-to-settle evidence support coverage or defeat it on counterclaims? | Insureds argue evidence of bad faith exists; coverage should extend. | District court properly limited liability for bad-faith if noncovered claims predominate. | Remanded for further proceedings on counterclaims due to lack of adequate record on bad faith; summary judgment reversed on that ground. |
Key Cases Cited
- DeVaney v. Thriftway Mktg. Corp., 953 P.2d 277 (N.M. 1997) (merges malicious prosecution and abuse of process into malicious abuse of process)
- Fleetwood Retail Corp. of N.M. v. LeDoux, 164 P.3d 31 (N.M. 2007) (disjunctive proof of misuse of process; two methods established)
- Rummel v. Lexington Ins. Co., 945 P.2d 970 (N.M. 1997) (narrowly construed exclusions; cannot import exceptions by style)
- Safeco Ins. Co. of Am., Inc. v. McKenna, 565 P.2d 1033 (N.M. 1977) (standard contract interpretation in insurance contexts)
- United Nuclear Corp. v. Allstate Ins. Co., 285 P.3d 644 (N.M. 2012) (policy terms interpreted to reflect insurer/insured expectations)