Republished with permission, originally published in the September 19, 2019 issue of the DRI Life, Health, and Disability Committee News.
What’s a New Mexico business to do if one of its key employees is absent from work due to a non-work-related injury? A pair of cases, one from the United States Court of Appeals for the Tenth Circuit, and another recently issued by the New Mexico Court of Appeals underscore and illustrate, for both New Mexico insurers and employers why keyperson insurance is important for New Mexico employers. These cases clarify the limits of other kinds of insurance and tort claims in the employment context.
In 1991, the Tenth Circuit Court of Appeals was called upon to decide if New Mexico law permits an employer to recover under an uninsured-motorist policy for economic damages the employer incurred when the corporation’s president was physically injured in an accident by an uninsured motorist. Cont’l Cas. Co. v. P.D.C., Inc., 931 F.2d 1429, 1430 (10th Cir. 1991). The language of the insurance policy at issue provided that the insurer would pay for:
all sums the insured is legally entitled to recover as damages from the owner or driver of an uninsured motor vehicle. The damages must result from bodily injury sustained by the insured, or property damage, caused by an accident.
Id. (emphasis from the original quoted policy document).
Reviewing the district court’s order of summary judgment in favor of the insurance company, which sought declaratory judgment based on the policy, the Tenth Circuit observed that “[i]t is difficult to equate the corporation’s alleged loss of profits with a claim for bodily injury.” Id. The court noted that it was “clear and undisputed that . . . the injured president/employee . . . was fully and amply compensated for his injuries through the limits of the tortfeasor’s insurance policy and through a sizable arbitration award under the uninsured motorist provisions of defendant corporation’s policy.”
In forecasting how the New Mexico Courts would treat this issue as a matter of New Mexico state law, the Tenth Circuit relied on a California Supreme Court case finding an employer’s claim for economic losses against a party injuring its employee against public policy, and noted that Back to Contents Life, Health and Disability News | Volume 30, Issue 3 4 Life, Health and Disability Committee court’s holding that the employer “was peculiarly able to calculate the risk of services of a key employee and to protect itself against such a loss by securing key employee insurance.” Id. at 1430-31 (citing I.J. Weinrot & Son, Inc. v. Jackson, 40 Cal. 3d 327, 708 P.2d 682, 690, 220 Cal. Rptr. 103 (1985)). Relying on this case, the Tenth Circuit found the employer’s argument that its claim was similar to a “key man type policy” or “key man insurance situation” to be unpersuasive, since the “corporation was peculiarly able to calculate the risk of services of a key employee and to protect itself against such a loss by securing key employee insurance.” Id. at 1431 (internal quotations omitted).
In addition, the Tenth Circuit held that the employer’s claim could only prevail if the common-law principle of per quod servitium amisit applied. Id. Per quod servitium amisit, Latin for “whereby the services of the servant were lost,” is a common-law claim permitting an employer to maintain a separate claim in its own right against a party injuring its employee. However, the Tenth Circuit held that such a principle “would not be wise” and that “the trial court correctly decided that New Mexico would stand with a majority of jurisdictions who have refused to do so in similar situations.” Id.
The Tenth Circuit’s decision in Continental Casualty stood as the only persuasive precedent on this point of New Mexico law for nearly 25 years, until the New Mexico Court of Appeals specifically assessed the per quod servitium amisit cause of action at common law under New Mexico law. Nat’l Roofing, Inc. v. Alstate Steel, Inc. is the only time the doctrine has been addressed in a New Mexico state court opinion. In that case, the New Mexico Court of Appeals rejected a claim by an employer against tortfeasors injuring its employees for economic loss due to physical injuries to its employees. Nat’l Roofing, Inc. v. Alstate Steel, Inc., 2016-NMCA-020, ¶ 2, 366 P.3d 276, 277. The Court recognized that quod servitium amisit has fallen out of favor in a society that now recognizes that “servants” are not personal property. Id. at ¶ 10, 366 P.3d at 280. Examining the duty element as a matter of public policy, the Court of Appeals held that in the absence of physical injury or property damage to the employer, there is no duty from a tortfeasor to an employer relating to injury to the employer’s employees. Id. at ¶¶ 11–17, 366 P.3d at 280–82. As such, the Court explained, a tortfeasor incurs no liability, unless there are facts to suggest another type of cognizable third-party claim (e.g., interference with contract, loss of consortium, or subrogation).
The New Mexico Court of Appeals’ opinion in National Roofing ratified the Tenth Circuit’s forecast on how New Mexico courts would rule on the common law principle of per quod servitium amisit as a matter of New Mexico state law.
The lesson for insurers and employers is clear: to shift the risks of economic loss resulting from injury, incapacity, or disability of a key employee, New Mexico employers should obtain key person insurance. Employers cannot shift the losses stemming from a key employees’ loss of services to either third-party tortfeasors or to insurers by means of tort claims or other kinds of insurance policies. Consequently, these cases provide clarity for New Mexico insurers and employers as they consider whether and how to limit or mitigate risks associated with economic losses arising from the injury, incapacity, or disability of a key employee.
