                                                                        F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit

                                                                          SEP 9 1999
                    UNITED STATES COURT OF APPEALS

                           FOR THE TENTH CIRCUIT                    PATRICK FISHER
                                                                             Clerk


    WILLARD WESLEY WINTERS, JR.,
    also known as Wes Winters, Jr.;
    KAY PAULETTE WINTERS, also
    known as Kay Winters Goffena, doing
    business as Wes Winters Resort Park,              No. 98-2000
    individually and as debtors in         (D.C. No. CIV. 96-1604-RLP/WWD)
    possession of the Wes Winters Resort               (D. N.M.)
    Park; JAMES E. BURKE,

               Plaintiffs-Appellants,

    v.

    TRANSAMERICA INSURANCE
    COMPANY, a foreign insurance
    corporation,

               Defendant-Appellee.




                           ORDER AND JUDGMENT           *




Before BRORBY, McKAY, and BRISCOE , Circuit Judges.




*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of

this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1.9(G). The case is

therefore ordered submitted without oral argument.

      Plaintiffs appeal from the district court’s grant of summary judgment in

favor of defendant Transamerica Insurance Company (Transamerica); denial of

their motion for partial summary judgment; and denial of their motion to alter,

amend, or reconsider. Because we conclude Transamerica breached its duty to

defend its insured in the underlying action, but did not violate state statute or the

duty of good faith, we affirm in part and reverse in part the summary judgment

granted in the insurer’s favor, affirm the denial of plaintiff’s motions, and remand

the case for further proceedings.



                                    I. Background

      Plaintiffs Willard Wesley Winters, Jr. and Kay Paulette Winters owned and

operated the Wes Winters Resort Park (Resort Park), a mobile home park insured

by Transamerica. The Resort Park opened in January 1987, advertised as an

“adult” residential community. Resort Park tenants Judy and Clyde Mercer, and

Susan and Steven Anderson, purchased mobile homes from plaintiffs in 1987 and

1988, respectively. After the Fair Housing Amendments Act of 1988 was


                                          -2-
enacted, plaintiffs began advertising the Resort Park as a “retirement community.”

Thereafter, when the Mercers and Andersons attempted to sell their mobile

homes, Mr. Winters informed them that he would not approve rental of the lot to

persons under the age of 55 or to anyone with small children. He also made

statements indicating a preference for tenants who were not Hispanic or Jewish.

      The Mercers and the Andersons filed complaints with the Department of

Housing and Urban Development (HUD), alleging violations of the Fair Housing

Act. In retaliation, Mr. Winters and his agents began a campaign of harassment

against the Mercers and Andersons. This harassment included entering the

tenants’ homes without their consent; shining spotlights and headlights into their

homes late at night; slamming car doors in front of their homes at night;

tampering with their mail; sitting in cars outside their homes for extended

periods; following them around the park; throwing newspapers on their roofs;

agitating their dogs with silent whistles; and refusing to maintain their lots.

      HUD brought an administrative action against Mr. Winters, alleging

housing discrimination and retaliation. When he tendered the administrative

complaint to Transamerica, however, the insurer advised him that the charge did

not create a duty to defend or indemnify under the policy. HUD then brought a

successful federal action against Mr. Winters, obtaining a judgment for

$142,397.63 in compensatory and punitive damages. Plaintiffs, as owners of the


                                          -3-
Resort Park, have filed bankruptcy. Plaintiff James Burke is the Chapter 7 trustee

in the bankruptcy proceeding.

      On October 16, 1990, plaintiffs brought this action against Transamerica,

seeking more than two million dollars in damages caused by the insurer’s alleged

breach of contract, breach of its duty of good faith and fair dealing, and violations

of the New Mexico Unfair Practices Act and the New Mexico Unfair Insurance

Practices Act. The district court granted summary judgment in favor of

Transamerica, finding the insurer had no duty to defend or indemnify Winters

because the HUD allegations clearly fell outside the policy’s coverage. This

appeal followed.

      Plaintiffs argue the district court erred in granting summary judgment in

favor of Transamerica because HUD’s allegations implicated both the advertising

injury (disparagement, right to privacy, infringement of title) and personal injury

(right of private occupancy) policy coverages. They argue further that the court

erred in denying their motion for partial summary judgment, because they were

entitled to judgment as a matter of law on their claims that the insurer breached

the contract, breached its duty of good faith and fair dealing, and violated the

New Mexico Unfair Insurance Practices Act and the Unfair Practices Act.




                                         -4-
                                       II. Analysis

       We review summary judgment rulings de novo, applying the same standard

as the district court. See Kidd v. Taos Ski Valley, Inc., 88 F.3d 848, 851 (10th

Cir. 1996). Summary judgment is proper when “the pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits, if

any, show that there is no genuine issue as to any material fact and that the

moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c).

We view the evidence and all reasonable inferences therefrom in the light most

favorable to the nonmoving party.


                           A. Duty to Defend and Indemnify

       Because this is a diversity case, we apply the substantive law of the forum

state. See Novell, Inc. v. Federal Ins. Co.    , 141 F.3d 983, 985 (10th Cir. 1998).

Under New Mexico law, an insurer’s duty to defend arises when the allegations in

the complaint, together with any other factual information known to the insurer,

bring the claim within the arguable or potential coverage of the policy.      See

Bernalillo County Deputy Sheriffs Ass’n v. County of Bernalillo        , 845 P.2d 789,

791 (N.M. 1992); Marshall v. Providence Wash. Ins. Co.        , 951 P.2d 76, 78 (N.M.

Ct. App. 1997). This duty arises even if the complaint “fails to state facts with

sufficient clarity so that it may be determined from its face whether or not the

action is within the coverage of the policy, provided the alleged facts tend to

                                              -5-
show an occurrence within the coverage.”      Foundation Reserve Ins. Co. v.

Mullenix , 642 P.2d 604, 605-06 (N.M. 1982) (quotation omitted).

      An insurer may justifiably refuse to defend only when the allegations take

the claim completely outside the policy,    see Marshall , 951 P.2d at 78, and “any

doubt about whether the allegations are within the policy coverage is resolved in

the insured’s favor,” State Farm Fire & Cas. Co. v. Price   , 684 P.2d 524, 528

(N.M. Ct. App. 1984), overruled on other grounds , Ellingwood v. N.N. Investors

Life Ins. Co. , 805 P.2d 70, 76 (N.M. 1991). If there is a question regarding

coverage, the insurer must tender a defense until relieved of this duty by the court

in which the action is proceeding.    See Lopez v. New Mexico Pub. Sch. Ins.

Auth. , 870 P.2d 745, 749 (N.M. 1994);     Mullenix , 642 P.2d at 606.

      Here, the HUD charge alleged the following conduct: (1) discrimination

against the public in the provision of housing; (2) discrimination against the

tenants in the terms and conditions of their lot rental; (3) discrimination against

the tenants by restricting the sale of their mobile homes; and (4) retaliation

against the tenants for filing the discrimination claims. The retaliation claim

alleged that Winters “harassed complainants in various ways,” and that these acts

of “unlawfully harassing complainants” violated the Fair Housing Act by

“coercing, intimidating, threatening or interfering with the exercise or enjoyment

of rights,” and that such conduct caused the tenants to suffer “emotional distress.”


                                           -6-
Appellant’s App. at 98-99. Because we conclude this claim implicated the

policy’s coverage for invasions of the right of private occupancy, there is no

reason to discuss in detail whether the charge also raised claims under the

advertising injury coverage.   1



       Section I(B) of the policy provides coverage for “personal injury” liability,

which is defined in section V(10)(c) to include injuries arising from the

“wrongful eviction from, wrongful entry into, or invasion of the right of private

occupancy of a room, dwelling or premises that a person occupies by or on behalf

of its owner, landlord or lessor.”   2
                                         Id. at 148. We note that the scope of coverage


1
        Although we do not discuss this issue in detail, we agree with the district
court that HUD’s allegations did not implicate the advertising coverages for
violating a person’s privacy, disparaging a person’s goods, or infringing a title.
Although we agree that plaintiffs’ advertisement of the Resort Park as a
retirement community was a “publication,” it did not disparage tenants’ goods or
infringe their title, as those terms are reasonably construed. There are no other
facts alleged showing a publication.    See Western Commerce Bank v. Reliance
Ins. Co. , 732 P.2d 873, 875-76 (N.M. 1987) (holding allegations did not state
claim within policy coverage absent claim of “publication” and court would not
imply claim from facts alleged). In addition, the facts alleged do not support
plaintiffs’ inferences regarding the tenants’ right to privacy. Therefore,
Transamerica’s denial of a defense and indemnity under these coverages neither
breached the contract nor violated the insurer’s duty of good faith and fair
dealing.
2
        When plaintiffs first purchased insurance in January 1987, the commercial
liability policy did not contain this language. However, the policy was amended
in 1988 to include coverage for invasions of the right of private occupancy. As
the alleged discrimination and retaliation took place in 1989, see Appellant’s
App. at 98, 349, we conclude this provision was in effect when the underlying
events occurred.

                                              -7-
provided by this section is unclear, as the qualifier “by or on behalf of its owner,

landlord or lessor” could modify either the term “invasion” or the term “room,

dwelling or premises.” Several courts have disagreed whether this lack of clarity

renders the phrase ambiguous.     Compare United States Fidelity & Guar. Co. v.

Goodwin , 950 F. Supp. 24, 27 (D. Me. 1996) (holding policy unambiguously

required that wrongful acts be committed by or on behalf of property’s owner,

landlord or lessor) and TerraMatrix, Inc. v. United States Fire Ins. Co.   , 939 P.2d

483, 489 (Colo. Ct. App. 1997) (same)      with Blackhawk-Central City Sanitation

Dist. v. American Guar. & Liab. Ins. Co.    , 856 F. Supp. 584, 590 (D. Colo. 1994)

(finding ambiguity in whether phrase modified “premises” or “invasion” and

construing policy in favor of coverage). We need not determine whether the

provision is ambiguous, as we conclude the only reasonable construction of its

coverage includes acts taken by plaintiffs, as the Resort Park’s owners, landlords,

or lessors, against their tenants’ occupancy rights.

      Here, HUD alleged acts taken by Mr. Winters, as a landlord, against his

tenants, which harassed, coerced, intimidated and threatened the tenants, causing

them emotional distress. We think these allegations potentially raise a claim that

the tenants’ right to private occupancy was invaded, or at a minimum, that such

coverage was not definitively precluded.     See Price , 684 P.2d at 528 (“Only where

the allegations are completely outside policy coverage may the insurer justifiably


                                            -8-
refuse to defend[, and] any doubt about whether the allegations are within policy

coverage is resolved in the insured's favor.”). This is especially so given the

broad range of interpretations given to the term “right of private occupancy.”

Compare Lime Tree Village Community Club Ass’n v. State Farm Gen. Ins. Co.            ,

980 F.2d 1402, 1403-05, 1407 (11th Cir. 1993) (holding, under similar facts, that

insurer had duty to defend potential invasion of right to occupancy);    Titan

Holdings Syndicate, Inc. v. City of Keene    , 898 F.2d 265, 273 (1st Cir. 1990)

(holding invasions of the right of private occupancy included interference with

use and enjoyment of property by noxious odors, light, and noise);      with Columbia

Nat’l Ins. v. Pacesetter Homes, Inc.   , 532 N.W.2d 1, 9 (Neb. 1995) (holding “the

right of private occupancy is the legal right to occupy premises, not the right to

enjoy occupying those premises”). Transamerica, therefore, was required to

defend plaintiffs until it took the appropriate steps to be relieved of that duty.

See, e.g. , Valley Improvement Ass’n v. United States Fidelity & Guar. Corp.       , 129

F.3d 1108, 1116 (10th Cir. 1997) (finding insurer breached duty to defend when

complaint did not definitively foreclose coverage).

       Under New Mexico law, an insurer who breaches the duty to defend is

liable not only for defense costs, but also for indemnification of the insured, even

if such liability would otherwise have been excluded by the policy.      See id. at

1125-26 (holding, under New Mexico law, an insurer who unjustifiably fails to


                                            -9-
defend is liable for the resulting judgment or settlement, regardless of any

coverage defenses); American Gen. Fire & Cas. Co v. Progressive Cas. Co.         , 799

P.2d 1113, 1117 (N.M. 1990) (“An insurer suffers serious consequences upon its

unjustified failure to defend after demand, including . . . liability for a judgment

entered against the insured.”);   Price , 684 P.2d at 531 (holding even though

underlying claim was outside of policy coverage, insurer who breached duty to

defend was liable on the judgment, and noting that one consequence to an insurer

who unjustifiably fails to defend is that “it becomes liable for a judgment entered

against the insured”). Because we conclude that Transamerica breached its duty

to defend Mr. Winters, the insurer is liable for both his legal defense costs and

indemnification on the judgment.


                                      B. Bad Faith

       We conclude, however, that Transamerica is not liable for tort damages,

because its decision did not amount to a bad faith refusal to defend as a matter of

law. An insurer’s incorrect decision regarding coverage, without more, does not

establish bad faith.   See United Nuclear Corp. v. Allendale Mut. Ins. Co.   , 709

P.2d 649, 654 (N.M. 1985) (reversing bad faith finding when, although insurer

wrongly withheld payment, there were legitimate reasons to question amount of

damages); Price , 684 P.2d at 532 (implying failure to defend alone does not show

bad faith). To show bad faith, there must be no reasonable basis for denying the

                                           -10-
claim. See United Nuclear Corp. , 709 P.2d at 654; Mitchell v. Intermountain Cas.

Co. , 364 P.2d 856, 858-59 (N.M. 1961);      see also Jessen v. National Excess Ins.

Co. , 776 P.2d 1244, 1246 (N.M. 1989) (noting jury instruction defining bad faith

as refusal to pay or delay in paying claim for frivolous or unfounded reasons),

overruled on other grounds by      Paiz v. State Farm Fire & Cas. Co.     , 880 P.2d 300,

307-08 (N.M. 1994). Bad faith may also be shown when an insurer acts to injure

its insured’s right to receive the benefit of the contract by placing its interests

over those of the insured.    See Dairyland Ins. Co. v. Herman , 954 P.2d 56, 60-61

(N.M. 1997); Lujan v. Gonzales , 501 P.2d 673, 680-81 (N.M. Ct. App. 1972).

       Here, the coverage issues were difficult and debatable. The HUD

complaint alleged primarily discrimination claims, which are not covered by the

policy. See, e.g. , United States v. Security Management Co.      , 96 F.3d 260, 264-66

(7th Cir. 1996) (holding discrimination against potential tenants not covered by

policy because they had no enforceable “right” of occupancy);           Bernstein v.

North E. Ins. Co. , 19 F.3d 1456, 1458 (D.C. Cir. 1994) (same);         Boston Hous.

Auth. v. Atlanta Int’l Ins. Co.   , 781 F. Supp. 80, 84 (D. Mass. 1992) (holding

discrimination claim did not allege invasion of the tenants’ right of private

occupancy because it was not a trespassory act).

       The only claim implicating the policy--that Mr. Winters retaliated against

the tenants by harassing them--did not contain facts placing the claim squarely


                                            -11-
within the policy’s coverage. Nor did Transamerica’s recorded interview with

Mr. Winters elicit these facts. After carefully considering the HUD allegations,

the district court agreed with the insurer that there was no coverage. Although we

reach a different conclusion, finding that HUD’s allegations raise an inference

that Mr. Winters’ harassment of his tenants potentially invaded their right to

private occupancy, the issue is certainly debatable.     See TPLC, Inc. v. United

Nat’l Ins. Co. , 44 F.3d 1484, 1496 (10th Cir. 1995) (affirming summary judgment

in favor of insurer on bad faith claim because law unsettled, and authority from

other jurisdictions supported insurer’s position);     Suggs v. State Farm Fire & Cas.

Co. , 833 F.2d 883, 890-91 (10th Cir. 1987) (reversing denial of insurer’s motion

for judgment as a matter of law when insurer had a good faith basis for

withholding payment).

       In their motion for summary judgment, plaintiffs relied on the insurer’s

failure to investigate the HUD allegations to show bad faith. Transamerica had

no duty to investigate, however, because this is a third-party insurance case.      See

Valley Improvement Assoc. , 129 F.3d at 1121-23 (holding New Mexico does not

impose a duty to investigate in third-party claims). Instead, the duty to defend

must be determined simply by comparing the complaint to the policy, without

regard to what an independent investigation would show.         See id. ; Mullenix , 642

P.2d at 606 (holding duty to defend arose from ambiguous allegations in


                                            -12-
complaint, even though insurer’s investigation revealed there was no coverage).

For these reasons, we affirm the summary judgment in favor of Transamerica on

the claim that it violated its duty of good faith and fair dealing.


                                 C. Statutory Claims

      We also affirm the judgment in favor of Transamerica on the claims that it

violated New Mexico statute. Given that coverage was debatable, plaintiffs have

not shown a triable issue whether the insurer’s denial of coverage was a knowing

misrepresentation, as required by New Mexico statute § 59A-16-20, and the

insurer’s request to be notified if a lawsuit were to be filed did not misrepresent

whether the HUD administrative charge was a suit. Further, the insurer’s denial

letter, denying coverage based on several identified sections, was sufficiently

prompt and reasonable to satisfy the statute. For the same reasons, the insurer’s

alleged misrepresentations did not raise a triable issue regarding the use of unfair,

deceptive, or unconscionable trade practices under New Mexico statute

§§ 57-12-2(D) & (E).

      The judgment of the district court is AFFIRMED in part and REVERSED

in part, and the case is REMANDED for further proceedings to calculate the

damages caused by Transamerica’s breach of its duty to defend.



                                                      Entered for the Court

                                          -13-
       Mary Beck Briscoe
       Circuit Judge




-14-
No. 98-2000, Winters v. Transamerica Insurance Company

BRORBY , Circuit Judge, dissenting.

      I agree with the majority Transamerica had no duty to defend or indemnify

claims under the advertising injury coverage, Transamerica did not refuse to

defend in bad faith, and Transamerica did not violate New Mexico statute. I

disagree, however, with the majority’s conclusion the retaliation claim against

Mr. Winters implicated policy coverage for invasions of the right of private

occupancy. Accordingly, I dissent from that portion of the majority opinion.



      The policy at issue provided “personal injury” liability coverage for injuries

arising from “wrongful eviction from, wrongful entry into, or invasion of the right

of private occupancy of a room, dwelling or premises that a person occupies by or

on behalf of its owner, landlord or lessor.” While I agree it is reasonable to

construe the “personal injury” provision to cover those acts taken by the Winters,

as owners, landlords or lessors, against their tenants, I strongly disagree that

HUD’s allegations raised the possibility of liability coverage for invasion of right

of private occupancy under that provision. New Mexico law states, “an insurer’s

duty to defend ... is determined ... by the allegations of the injured party’s

complaint.” State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 985 (10th Cir.

1994). The facts need not be so clear as to determine from the face of the

complaint whether the action is within the policy’s coverage; however, “abstract
and completely unsubstantiated allegations will not do.” Id. (citing Foundation

Reserve Ins. Co. v. Mullenix, 642 P.2d 604, 605 (N.M. 1982)). Our examination

is thus limited to the four corners of the complaint, which must state facts tending

to show an occurrence within the policy’s coverage. Stated differently, we must

determine whether an insurer has a duty to defend “by comparing the factual

allegations in the complaint with the insurance policy.” Lopez v. New Mexico

Pub. Schls. Ins. Auth., 870 P.2d 745, 747 (N.M. 1994).



      As the majority acknowledges, the HUD complaint alleged primarily

discrimination claims, which undisputably lie outside policy coverage. With

regard to retaliation, the only facts alleged were that Mr. Winters “harassed

complainants in various ways,” and that this act of “unlawfully harassing

complainants” violated the Fair Housing Act by “coercing, intimidating,

threatening or interfering with the exercise or enjoyment of rights ... granted

under the Act,” causing the tenants emotional distress. Comparing the language

of the “personal injury” provision to the complaint, I simply cannot conclude

HUD’s general allegations of harassment in violation of the Fair Housing Act

raise an inference or tend to show that Mr. Winters invaded his tenants’ right to

private occupancy, thus implicating coverage under the Transamerica policy. I

therefore would affirm the district court as to all issues.


                                          -2-
