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Teague-Strebeck Motors Inc. v. Chrysler Insurance Co.3/8/1999
{1} This is another in a seemingly endless stream of cases in which an insurance agent has promised more coverage than is provided in the policy. The insurance at issue in this case was for an automobile dealership about to be purchased from a bankrupt corporation. A fire destroyed dealership property and some customer vehicles on the premises. One matter not contested on this appeal is whether the insurer, Chrysler Insurance Company (Chrysler), is bound by the representations of its agent. But there remains a good deal to argue about. On appeal Chrysler contends that (1) the district court erred in adding Mills-Strebeck Autoplex, Inc. (Mills-Strebeck), as a plaintiff after expiration of the limitations period set forth in the insurance contract, (2) the district court erred in awarding damages for bad faith handling of the insurance claim, (3) Mills-Strebeck did not have an insurable interest in the destroyed property, and (4) the award was excessive because it did not take into account the economic interests of third parties in the property. In addition, the Plaintiffs, Teague- Strebeck Motors, Inc. (Teague-Strebeck), and Mills-Strebeck, have cross- appealed. They contend that the district court erred (1) in awarding damages based on the actual cash value of the destroyed property rather than the replacement cost; (2) in setting an inadequate post-judgment interest rate; (3) in not awarding treble damages under the Unfair Practices Act, NMSA 1978, §§ 57-12-1 to -22 (1967, as amended through 1995); and (4) in not awarding punitive damages. We affirm, except in two respects. We remand to determine whether Mills-Strebeck had an insurable interest in the dealership property and, if so, the extent of that interest. Also, we agree with Plaintiffs that a higher post- judgment interest rate should be provided for bad-faith damages.
I. BACKGROUND
{2} On May 4, 1993, Tucumcari Chevrolet-Geo, Inc., filed for protection under Chapter 11 of the United States Bankruptcy Code. In late June 1993 the president of the corporation negotiated two agreements with Sidney Strebeck, who had interests in several New Mexico automobile dealerships. Under a purchase agreement (the Purchase Agreement) Strebeck agreed to acquire the dealership "free and clear of all liens and encumbrances" for $50,000. Under a management agreement (the Management Agreement) Strebeck agreed to operate the dealership prior to closing of the Purchase Agreement. Strebeck and Steve Mills began operating the dealership at the beginning of July. They organized Mills-Strebeck to own the dealership, with Strebeck owning 75% of the stock and Mills owning 25%. Strebeck assigned to Mills-Strebeck his rights under the Purchase Agreement and the Management Agreement.
{3} On July 15, 1993, a fire destroyed almost all the structures and inventory of the dealership, except new car inventory. At that time neither Mills-Strebeck nor Strebeck personally had paid anything to Tucumcari Chevrolet-Geo. Also, no pleadings had been filed in bankruptcy court to obtain authorization of the sale of assets outside the ordinary course of business, as required by the Bankruptcy Code, 11 U.S.C. § 363 (1994). A motion to authorize the sale was not filed until July 30, 1993, two weeks after the fire. An unsecured creditor and the United States Trustee filed objections to the motion. The bankruptcy court never held a hearing on the motion nor acted upon it. Instead, the court ordered that the case be converted to a Chapter 7 proceeding, and it appointed an estate trustee. On April 25, 1994, the estate trustee filed a Report of No Distribution and Notice of Abandonment of Assets, which included the statement: "I have neither received any property nor paid
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