Christy v. Travelers Indemnity Co. of America, 2016 U.S. App. LEXIS 891

Background

Corey Christy bought a Travelers commercial general-liability (CGL) policy in 2007 naming K&D (a sole proprietorship) as the named insured and listing the form of business as “Individual.” The policy included $1,000,000 UM coverage for a covered auto.
In April 2008 Christy incorporated the business as K&D Oilfield Supply, Inc., but did not notify Travelers; he renewed the CGL policy annually without informing the insurer of the change.
In July 2010 Christy was injured while bicycling by an underinsured motorist; he recovered limits from the tortfeasor and $100,000 from his personal auto UM policy, then sought UM benefits under the CGL policy. Travelers denied coverage based on the incorporation.
Travelers argued the incorporation changed the named insured to a corporation, limiting who qualifies as an insured under the policy; Christy argued the policy identified an individual named insured (him) and therefore UM coverage should apply to his bicycle accident.
The district court granted summary judgment for Travelers, finding Christy had an affirmative duty to notify Travelers and that his nondisclosure was a material misrepresentation; it reformed the policy to name K&D, Inc., and denied coverage.
The Tenth Circuit affirmed in part and reversed in part: it held summary judgment was improper on the duty-to-inform and material-misrepresentation grounds (reformation inappropriate at summary judgment), but affirmed dismissal of Christy’s bad-faith claim for lack of factual showing.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the CGL policy imposed an affirmative contractual duty on Christy to inform Travelers of incorporation	Christy: policy did not create an ongoing duty; integration clause is not an affirmative notice requirement	Travelers: policy language (integration clause and fraud/concealment clause) and renewal communications created a duty to disclose changes	Held: No duty can be found as a matter of law from the policy language; the integration clause is not an obligation-creating provision — issue of duty is factual and remanded
Whether public policy imposed an affirmative duty to notify insurer of the corporate conversion	Christy: public policy does not authorize courts to impose unbargained affirmative contractual duties	Travelers: public policy supports requiring disclosure to prevent abuse	Held: Court rejected imposing duties by public policy absent contract language; New Mexico law disfavors creating affirmative contractual obligations not bargained for
Whether Christy’s silence constituted a material misrepresentation justifying reformation/rescission	Christy: he did not know incorporation was material; insurer had the obligation to inquire	Travelers: nondisclosure was a material misrepresentation that induced renewal	Held: Materiality and whether nondisclosure equates to misrepresentation are factual questions (insurer must usually inquire unless insured knew fact was material); summary judgment on misrepresentation was improper and remanded
Whether summary judgment on Christy’s implied covenant (bad faith) claim was improper	Christy: bad-faith inquiry is factual and should survive summary judgment	Travelers: no factual evidence of bad faith; summary judgment proper	Held: Affirmed district court — Christy failed to produce specific evidence of bad faith to defeat summary judgment

Key Cases Cited

Holub v. Gdowski, 802 F.3d 1149 (10th Cir. 2015) (standard of review for summary judgment)
Anderson v. Liberty Lobby, 477 U.S. 242 (U.S. 1986) (materiality standard for summary judgment)
First Baptist Church of Roswell v. Yates Petroleum Corp., 345 P.3d 310 (N.M. 2015) (contract interpretation and enforcement of agreed terms)
C.R. Anthony Co. v. Loretto Mall Partners, 817 P.2d 238 (N.M. 1991) (reformation requires factual determination of parties’ intent)
Quincy Mut. Fire Ins. Co. v. Quisset Properties, Inc., 866 N.E.2d 966 (Mass. App. Ct. 2007) (insurer has duty to inquire; nondisclosure without inquiry not automatically material)
Sisneros v. Citadel Broad. Co., 142 P.3d 34 (N.M. Ct. App. 2006) (adoption of Restatement standard for misrepresentation)
Rehders v. Allstate Ins. Co., 135 P.3d 237 (N.M. Ct. App. 2006) (distinguishing cases where insured requested and received new coverage)
Rael v. Am. Estate Life Ins. Co., 444 P.2d 290 (N.M. 1968) (insurer entitled to truthful answers to specific application questions)
Travis v. Park City Mun. Corp., 565 F.3d 1252 (10th Cir. 2009) (nonmoving party must present specific facts to survive summary judgment)