{1} Thе issues we resolve in this case are whether the plaintiff stated a cause of action for professional negligence 1 or indemnity and when that action, however characterized, accrued for the purpose of commencing the applicable statute of limitation. Plaintiff New Mexico Public Schools Insurance Authority (the Authority) contends that its cause of action against Defendants Arthur J. Gallagher & Co., Arthur J. Gallagher & Co. (U.K.) Limited, and International Special Risk Services, Inc. (collectively “Gallagher”) was one for indemnification because its claim against Gallagher was derivative of an underlying lawsuit against it. The Authority also asserts that because the underlying lawsuit established the amount of the Authority’s loss, as well as facts demonstrating that Gallagher was allegedly the cause of its loss, it did not have an actionable claim against Gallagher until the underlying lawsuit was resolved. Gallagher contends that the Authority has not successfully pled a cause of action for indemnification and that no matter how the Authority’s claim is characterized, it is barred by the statute of limitation. We hold that the Authority’s cause of action was one for professional negligence (i.e., malpractice) and that it did not accrue for the purpose of commencing the statute of limitation, as a matter of law, until the Authority suffered an adverse arbitration judgment in the underlying lawsuit.
I. BACKGROUND
{2} The Authority is a state agency that operates under the Public School Insurance Authority Act (the Act), NMSA 1978, Sections 22-29-1 to -12 (1986, as amended
{3} Between 1986 and 1991 the Authority insured Moriarty pursuant to policies written and brokered by Gallagher and underwritten by Lloyd’s of London (the London policies). According to an agreement between Gallagher and the Authority, Gallagher was required to draft the London policies according to agreed-upon terms. The London policies set forth the conditions under which the Authority was required to provide coverage to Moriarty, as well as the extent of the Authority’s obligations.
{4} In 1994 (approximately three years after the London policies expired), Moriarty discovered that one of its employees had embezzled approximately $610,453 from the school district between 1986 and 1994. Moriarty sought indemnity from the Authority for the crime losses that occurred between 1986 and 1991, the years the London policies were in effect. 2 Believing that the terms of the London policies did not require coverage, the Authority did not pay Moriarty anything for the crime losses it suffered from 1986 to 1991. A dispute subsequently arose between Moriarty and the Authority, and Moriarty sued the Authority in 1996 to recover those losses (the Moriarty arbitration). The parties in the Moriarty arbitration disputed whether the London policies provided coverage only for claims made within twelve months of the expiration of those policies or if they provided coverage for crimes that occurred while the policies were in effect, no matter when they were discovered. Gallagher was never a party to the Moriarty arbitration.
{5} The Moriarty arbitration was ultimately resolved in February 2004 in a written decision by an arbitrator who ruled in Moriarty’s favor. The arbitrator found that although the policies did include a twelvemonth “claims made” limitation for crime losses, an addendum to the policy did not incorporate, and therefore negated, the “claims made” limitation and subjected the Authority to liability. The Authority was therefore required to pay Moriarty for the crime losses it suffered due to the employee’s embezzlement while the London policies were in effect, as well as for Moriarty’s attorneys’ fees and prejudgment interest, an amount totaling over $900,000.
{6} In January 2005 — almost nine years after the commencement of the Moriarty arbitration but less than one year after its resolution — the Authority brought suit against Gallagher, alleging professional negligence and seeking reimbursement for the entire amount it was required to pay Moriarty. The district court dismissed the Authority’s professional negligence claim as barred by the statute of limitation. However, it granted the Authority leave to amend its complaint to state another claim against Gallagher. The Authority amended its complaint, again seeking reimbursement from Gallagher, but this time on indemnity theories. Both the original and amended complaints alleged that Gallagher was liable to the Authority for the amounts it paid Moriarty on essentially the same facts: that as аn insurance broker, Gallagher erroneously drafted and sold the London policies to the Authority, contrary to their agreement, thereby causing the adverse arbitration award against it in the Moriarty arbitration. In effect, the Authority alleged that Gallagher failed to provide the coverage that the Authority, Lloyds, and Gallagher had agreed upon, and as a result, claimed that Gallagher should reimburse the Authority for the amount it paid Moriarty under the London policies.
{7} Gallagher moved to dismiss the Authority’s amended complaint pursuant to Rule 1-012(B)(6) NMRA, arguing that the Authority failed to allege facts that would support a claim for indemnity, that the Authority’s amended complaint simply reiterated a claim for professional negligence against
{8} The focus of the Court of Appeals’ opinion was whether the Authority stated a claim for indemnification or professional negligence. Id. ¶ 9. After an analysis of indemnification principles, the Court of Appeals held that the Authority’s claim could not be considered a claim for indemnification. Id. ¶¶ 10-17. Therefore, as a claim for professional negligence, it was barred by the statute of limitation. Id. ¶ 18. The Authority petitioned this Court for a writ of certiorari, which we granted to determine (1) whether the Authority stated a claim for professional negligence or indemnification, and (2) when that claim, however characterized, accrued for the purpose of commencing the applicable statute of limitation. N.M. Pub. Sch. Ins. Auth. v. Arthur J. Gallagher & Co.,
{9} We agree with the Court of Appeals’ conclusion that the Authority’s claim does not fit within indemnification principles and that its amended complaint stated a claim for professional negligence. However, we hold that the Authority’s action for professional negligence against Gallagher accrued when the arbitrator determined that the Authority was liable to Moriarty under the terms of the London policies as drafted by Gallagher. We therefore reverse the Court of Appeals and remand the case to the district court.
II. DISCUSSION
{10} Although the Authority raised five separate issues in its petition for writ of certiorari, it essentially raises the following three questions for our consideration:
1.Has the Authority alleged a cause of action for professional negligence or indemnification?
2. When did the Authority’s cause of action — whether for professional negligence or indemnification — accrue for the purpose of commencing the applicable statute of limitation?
3. Is a Rule 1-014(A) NMRA motion to implead a third-party defendant for indemnification compulsory or permissive?
Because we hold that the Authority’s claim is one for professional negligence, we do not address the Rule 14 impleader issue. Therefore, we consider only whether the Authority stated a claim for professional negligence or indemnification and when that claim accrued.
A. STANDARD OF REVIEW
{11} “A district court’s decision to dismiss a case for failure to state a claim under Rule 1-012(B)(6) is reviewed de novo.” Valdez v. State,
{12} In cases where the facts relevant to a statute of limitation issue are not in dispute, the standard of review is whether the district court correctly applied the law to the undisputed facts. See State v. Kerby,
B. THE AUTHORITY’S CLAIM IS FOR PROFESSIONAL NEGLIGENCE
{13} This case first asks us to decide what type of claim a client may bring against a professional, when the professional’s breach of contract or breach of duty сauses the client to suffer an injury to a third party to whom the professional is not liable. The Authority contends that even though Gallagher did not injure Moriarty, it may nonetheless seek indemnity from Gallagher for the amount the Authority paid Moriarty that was allegedly Gallagher’s fault. Gallagher contends that the Authority is restricted to either a breach of contract or a professional negligence claim. We agree with Gallagher.
{14} The arguments of both the Authority and Gallagher are motivated by the application of the statute of limitation to these types of claims. If the claim is for indemnity, the Authority argues that the statute of limitation did not begin running until it paid the arbitration award to Moriarty in December 2004, and thus its claim is not barred. The Authority’s fallback position, in case its indemnity claim fails, is that its negligence action did not accrue until the Moriarty arbitration was resolved. Gallagher argues that if the claim is malpractice, the statute of limitation accrued at the latest when Moriarty filed suit against the Authority in 1996, and therefore it is now barred. Gallagher also argues that no matter how the Authority labels its claim, it is barred by the statute of limitation for malpractice actions. To the extent that this argument asks us to clarify the differenee(s), if any, between statutes of limitation for indemnity and professional negligence claims, we need not and do not address it because we hold that the Authority’s claim is for professional negligence.
{15} Set against the backdrop of the statute of limitation, the particular facts of this case demonstrate the difficulty in determining whether the Authority’s claim should be one for indemnity or negligеnce. On the one hand, the Authority seeks reimbursement for losses it paid to Moriarty that were allegedly caused by Gallagher. Therefore, it may not be appropriate to require the Authority to have brought an action to recover those losses before its legal obligation to Moriarty was imposed, that is, before the issuance of the arbitrator’s decision. On the other hand, the Authority’s complaint demonstrates that its action is founded on the breach of Gallagher’s duty or contract, and therefore should conceivably be brought in accordance with the statutes of limitation applicable to those claims. To resolve this dispute, we must determine when the Authority suffered harm and to whom that harm is allegedly attributable.
{16} The Authority argues that it has stated a claim for indemnity on theоries of express contract, implied warranty, and derivative liability. Under each theory, the Authority claims that Gallagher should reimburse it for the entire amount it paid Moriarty as a result of Gallagher’s alleged negligence that was not attributable to any fault on the Authority’s part. We address each argument in turn.
1. THE AUTHORITY’S CLAIM FOR INDEMNITY BASED ON EXPRESS OR IMPLIED CONTRACT
{17} Actions for indemnity may arise from an express or implied contract to indemnify. In re Consol. Vista Hills Retaining Wall Litig.,
{18} In the absence of an express or implied agreement to indemnify, the Authority asserts that its agreement with Gallagher included an implied warranty on Gallagher’s part to indemnify it against losses arising from the London policies. We take the Authority’s argument to mean that Gallagher’s warranty to use reasonable skill, a warranty implicit in all professional services contracts, includes a warranty for indemnification. We disagree.
{19} When professional services provided pursuant to a contract are substandard, a plaintiff may bring а cause of action for malpractice or for breach of contract arising from the breach of the implied warranty to use reasonable skill. Adobe Masters, Inc. v. Downey,
{20} We are aware, however, that New Mexico case law allows a party to recover all damages resulting from an agent’s or broker’s erroneous failure to procure coverage that he or she undertook to provide. See, e.g., Sanchez v. Martinez,
3. THE AUTHORITY’S CLAIM FOR EQUITABLE INDEMNITY BASED ON DERIVATIVE LIABILITY
{21} The Authority’s chief argument is that because its claim was contingent upon the outcome of the Moriarty arbitration, it has stated a claim for equitable indemnity based on Gallagher’s derivative liability to it. In other words, the Authority argues that until the arbitrator determined that the London policies, as allegedly negligently drafted by Gallagher, subjected the Authority to liability to Moriarty, the Authority had no viable cause of action against Gallagher. As a result, according to the Authority, its claim for indemnification from Gallagher for the losses it paid to Moriarty should be allowed because Gallagher’s liability to the Authority was derivative of the outcome of the Moriarty arbitration.
{22} Actions for indemnity may arise without agreement and by operation of law to prevent an unjust, unsatisfactory, or inequitable result. Vista Hills,
{24} New Mexico courts recognize actions for traditional equitable indemnification only when the indemnitor and the indemnitee have a pre-existing legal relationship apart from the joint duty they owe the injured party. Id. at 545-46,
{25} Another requirement to bring an action for traditional equitable indemnification is that both the indemnitee and the indemnitor must be liable to the injured party. See, e.g., Vista Hills,
{26} Gallagher points to this critical flaw in the Authority’s complaint — that it has not alleged that Gallagher was also liable to Moriarty — as evidence that it has not stated a claim for indemnification. We agree. The Authority has not alleged that Gallagher is solely or jointly liable to Moriarty for any injury arising from the London policies. In fact, the complaint demonstrates that Gallagher’s alleged negligence actually benefitted Moriarty by requiring the Authority to pay Moriarty for its crime losses instead of denying coverage under the London policies. Further, the Authority has not alleged that Gallagher and the Authority owed a joint duty to Moriarty to provide the allegedly agreed-upon coverage. Therefore, despite its pre-existing legal relationship with Gallagher, the Authority has not stated a claim for equitable indemnity basеd on Gallagher’s derivative liability to it because the purported indemnitee (the Authority) and the indemnitor (Gallagher) are not both liable to Moriarty for its injury.
{27} Nevertheless, relying on language in Vista Hills, the Authority claims that equitable indemnity actions are appropriate when (1) the indemnitor and the indemnitee have an express or implied contractual relationship of any kind; (2) the indemnitee is not at fault for the injury; and (3) allowing an indemnity claim would prevent the unjust enrichment of the indemnitor. However, the Authority reads Vista Hills too broadly and appears to ignore the distinction between claims for indemnification based on a contract to indemnify and those based in equity.
{29} In a recent case with facts analogous to those before us, a federal district court judge applied Virginia law and dismissed an equitable indemnity action for failure to state a claim because the complaint had not alleged that the defendant had caused any harm to the injured party. Canal Ins. Co. v. Lebanon Ins. Agency, Inc.,
{30} The district court concluded that “[a]n indemnity claim does not seek recovery for any direct harm caused by the defendant to the plaintiff — it is clearly distinct from a direct cause of action.” Id. at 117. Rather, “a properly pled indemnity claim must allege that the defendant caused some direct harm to a third party and that the plaintiff discharged the resulting liability from this harm.” Id. (emphasis added). The district court held that (1) the insurance company’s injury (paying $500,000 instead of $50,000 to the insured) was caused directly by the agent’s alleged negligence, and (2) the insurance agent had not harmed the third-party insured, because (3) the insured’s injury was caused by the motor vehicle accident. Id. at 117-18. The district court further noted that “[i]t is apparent that [the insurance company] has asserted these indemnity claims at least in part in order to avoid the bar of the statute of limitations that might otherwise be applicable to a direct claim against [the insurance agent].” Id. at 117. Although not expressly a part of the district court’s decision, we note that the agent’s alleged negligence actually benefitted the insured by providing more coverage than he otherwise would have received under a correctly submitted application.
{31} On the facts before us as pled by the Authority, the Authority was injured when it was required to pay Moriarty more benefits than otherwise would have bеen required under correctly drafted policies. Like the injury to the insurer in Canal Insurance, the Authority’s injury was caused directly by Gallagher’s alleged negligence. It is also apparent that Moriarty’s injury was caused not by Gallagher, but by the criminal acts of its employee when she embezzled funds from the school district. Therefore, because the Authority’s injury was directly caused by Gallagher’s alleged negligence and because Gallagher did not directly harm Moriarty, an equitable indemnity claim is inappropriate.
{32} Finally, we understand that the Authority has alleged that Gallagher’s negligence will cause it to continue to face potential liability, perhaps indefinitely, for crime losses that may yet be discovered. In other words, Gallagher’s alleged negligence in drafting the London policies may further еxpose the Authority to future, as yet undiscovered liability for crime losses that occurred during the period in which the London policies
{33} For the reasons stated above, we hold that the district court was correct in dismissing the Authority’s claim for indemnification on theories of negligence, breach of contract, implied warranty, and derivative liability because its claim was, in fact, one for professional negligence.
C. THE AUTHORITY’S PROFESSIONAL NEGLIGENCE CLAIM IS NOT BARRED BY THE STATUTE OF LIMITATION
{34} Having decided that the Authority’s claim against Gallagher is for professional negligence and not for indemnity, we must determine if the district court was correct in dismissing that claim as barred by the statute of limitation. Gallagher concedes, and the Authority apparently agrees, that the statute of limitation for the Authority’s professional negligence action is four years under Section 37-1-4. We accept this view without deciding it.
{35} Gallagher argues that no matter how the Authority characterizes its claim, our holding in Sharts v. Natelson,
{36} It is well settled that there can be no cause of action for negligence unless and until there has been a resulting injury. See, e.g., Spurlin v. Paul Brown Agency, Inc.,
{37} In Sharts, we established a two-prong test to determine when a legal malpractice claim accrues and held that “the limitations period for legal malpractice commences when (1) the client sustains actual injury and (2) the client discovers, or through reasonable diligence should discover, the facts essential to the cause of action.”
{38} We define the “actual injury” that a client must suffer before he or she may state a malpractice claim as “the loss of a right, remedy or interest, or the imposition of a liability.” Sharts,
{39} New Mexico courts have had the оpportunity to address statute of limitation issues in a variety of “negligently drafted document” cases and have held in some situations that the client is “actually injured” when those documents became effective. For example, a purported beneficiary of a negligently drafted will suffered an actual injury when the will took effect, which happened upon the testator’s death. Jaramillo v. Hood,
{40} Our courts, however, have not treated all negligently drafted document cases alike. For example, in the case of negligently prepared federal income tax returns (accountant malpractice), New Mexico has abandoned the Sharts two-prong test in favor of a bright-line rule that combines the actual injury and discovery elements into one ascertainable event that commences the limitation period: when the IRS issued its written assessment of tax deficiency. Wiste,
{41} Similarly, we have also recognized that a cause of action for negligently failing to procure insurance arises when the insured suffers a liability that the requested insurance, if procured, would have assumed. Spurlin,
{42} The rules from Wiste and Spurlin stand in contrast to our holdings in our legal malpractice cases, including Sharts. The injury in both accountant malpractice and failure to procure insurance cases occurs when liability to a third party is imposed, and not when the client lost his or her legal right, as is the case with legal malpractice. The Authority’s claim more closely resembles cases of accountant malpractice and failure to procure insurance than legal malpractice because the Authority was injured only when its liability to Moriarty was imposed. Thus, this case is governed by New Mexico case law that establishes the time of the plaintiffs actual injury as the time that the liability was imposed. Because the Authority’s liability was imposed when the arbitrator issued his decision in the Moriarty arbitration, the statute of limitation for its malpractice action began running on that date.
{44} Nevertheless, Gallagher encourages us to adopt a rule in this case, and possibly all eases of negligently drafted documents, following the principle that “[a] client may suffer injury through loss of a legal right or harm to a legal interest even though the client has not yet ascertained the amount of his or her damages[.]” Sharts,
{45} Gallagher’s argument fails to recognize that the only harm the Authority suffered was its additional liability to Moriarty under the London policies. In other words, if the Authority prevailed in the Moriarty suit, it could not have brought a negligence action against Gallagher because it would not have suffered any injury. The time when the allegedly negligently drafted documents became effective is irrelevant, because had Moriarty never made a claim under the London policies or had the Authority prevailed in the Moriarty arbitration, Gallagher’s аlleged error in drafting those policies would have been immaterial. Therefore, in cases where a professional’s negligence in drafting a document results only in the imposition of a liability to a third party, the client is not injured until that liability is imposed, and the statute of limitation begins to run at that time.
{46} We note that Gallagher also appears to argue that the Authority “suffered legal injury as a result of being sued” and was “actually injured” at the time the Authority had to defend itself in the Moriarty arbitration. We take Gallagher’s argument to be that the Authority could have brought a malpractice action against Gallagher based on our decision in Sharts, seeking as damages its attorney fees and other litigation expenses incurred in the Moriarty arbitration. In other words, Gallagher argues that the Authority was injured when it was forced to defend against Moriarty’s claim for coverage. However, Gallagher does not cite to any authority for the proposition that it is liable for the Authority’s litigation expenses in the Moriarty arbitration, and in our research we could not find any New Mexico case standing for that proposition.
{47} Our conclusion that the Authority’s claim did not accrue, as a matter of law, until the arbitrator issued his written decision is supported by our policy discouraging premature litigation. To hold that the Authority must have brought its claim against Gallagher prior to the arbitrator’s decision in 2004 would require that the Authority have filed a claim against Gallagher in anticipation that Gallagher might have caused it harm solely to satisfy the limitation period and preserve the mere possibility of a claim. Encouraging the commencement of litigation only to preserve a potentially groundless claim is unsound policy and should be discouraged. See Wiste,
{48} Furthermore, despite Gallagher’s arguments to the contrary, our holding does not unfairly prejudice Gallagher in any substantial way. Because the Authority had not suffered any harm until the Moriarty arbitration was finalized, had it brought its malpractice claim against Gallagher before the arbitrator issued his decision, the malpractice claim would likely have been dismissed as not
{49} For these reasons, we hold that in cases of malpractice where the professional’s alleged negligence has caused the plaintiff to be liable to a third party, the plaintiffs claim accrues when that liability is imposed. The Authority’s cause of action accrued, аs a matter of law, when its liability to Moriarty was determined in the Moriarty arbitration. Because the arbitrator’s written decision was made on February 20, 2004 and the Authority’s original complaint was filed on January II, 2005, the claim was brought within the statute of limitation.
III. CONCLUSION
{50} For the foregoing reasons, we affirm the district court’s determination that the Authority stated a claim for professional negligence, reverse the Court of Appeals’ dismissal of that claim as barred by the statute of limitation, and remand this case to the district court with instructions to reinstate it on the court’s docket for proceedings consistent with this opinion.
{51} IT IS SO ORDERED.