A New Mexico federal Magistrate Judge recently recommended denial of a construction company’s motion to dismiss or stay a suit by the construction company’s insurer. The insurance company had sued in New Mexico federal court seeking a declaration that it was not obligated to cover a lawsuit against the construction company in New Mexico state court for personal injuries and property damage.
The state court lawsuit was based on the construction company using the services of an insulation and fireproofing contractor to install Icynene SPF in a custom built home. After the Icynene SPF was installed and homeowners moved in, the homeowners complained that the product was causing noxious and harmful fumes, gases and odors to fill the house. The homeowners submitted a demand letter to the construction company, and its insurance company retained counsel to represent the construction company. The homeowners then sued the Icynene SPF manufacturer, the insulation and fireproofing contractor that had installed it and the construction company in the Thirteenth Judicial District of New Mexico.
A few months later the construction company’s insurer filed a complaint in federal court pursuant to the Declaratory Judgment Act. The insurance company sought a declaration that the allegations in the complaint brought in state court by the homeowners against the construction company were not covered by the construction company’s insurance policy. The homeowners answered the complaint and the construction company moved to dismiss or, in the alternative, to stay proceedings.