Crutcher v. Liberty Mut. Ins. Co.

Citation501 P.3d 433
Decision Date04 October 2021
Docket NumberNo. S-1-SC-37478,S-1-SC-37478
Parties Gregory CRUTCHER, individually and on behalf of other similarly situated individuals, Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY, Liberty Personal Insurance Company, First National Insurance Company of America, Safeco Insurance Company of America, and Safeco National Insurance Company, Defendants.
CourtSupreme Court of New Mexico

Law Office of Kedar Bhasker, Kedar Bhasker, Albuquerque, NM, Corbin Hildebrandt, P.C., Corbin P. Hildebrandt, Albuquerque, NM, Law Offices of Geoffrey R. Romero, Geoffrey R. Romero, Albuquerque, NM, Freedman Boyd Hollander Goldberg, Urias & Ward, P.A., David Alan Freedman, Albuquerque, NM, for Plaintiff

Allen Law Firm, P.C., Meena H. Allen, Albuquerque, NM, Baker & Hostetler LLP, Rodger L. Eckelberry, Columbus, OH, for Defendants

Allen, Shepherd, Lewis & Syra, P.A., Brant L. Lillywhite, Albuquerque, NM, for Amici Curiae American Property and Casualty Insurance Association and National Association of Mutual Insurance Companies

THOMSON, Justice

I. INTRODUCTION

{1} This case comes to us on certification from the United States District Court for the District of New Mexico. It requires us to determine whether the underinsured motorist (UIM) coverage on a policy that provides minimum uninsured/underinsured motorist (UM/UIM) limits of $25,000 per person/$50,000 per accident is illusory for an insured who sustains more than $25,000 in damages caused by a minimally insured tortfeasor. If so, then we must decide whether insurance companies may charge premiums for such a policy. While the allegations contained within the Class Action Complaint are broader, this opinion addresses only the certified question.

{2} We conclude that this type of policy is illusory in that it may mislead minimum UM/UIM policyholders to believe that they will receive underinsured motorist benefits, when in reality they may never receive such a benefit. We therefore hold that an insurer must adequately disclose the limitations of minimum UM/UIM coverage—namely, that under the policies described in this case, a policyholder may never receive underinsurance motorist coverage. Without this disclosure, an insurer may not charge a premium for minimum underinsurance coverage.

II. BACKGROUND

{3} In 2006, Defendant First National Insurance Company of America ("First National") issued a minimum limits automobile insurance policy to Gregory Crutcher. The policy provided Mr. Crutcher with the statutory minimum of both liability insurance and uninsured/underinsured motorist insurance, or coverage up to $25,000 per person and $50,000 per occurrence.

{4} In 2008, the policy was transferred from First National to Defendant Safeco Insurance Company of America ("Safeco"). Every month for twelve years (2006-2018), Mr. Crutcher paid two premiums towards his auto insurance policy: one for liability insurance and one for UM/UIM insurance. Safeco renewed Mr. Crutcher's policy annually through 2018.

{5} Uninsured motorist (UM) insurance coverage protects drivers who are damaged by a tortfeasor who does not have automobile insurance. See NMSA 1978, § 66-5-301(A) (1983). UIM insurance coverage protects drivers who are hit by a tortfeasor who does not have enough auto insurance to cover the cost of the driver's injuries and damages. See § 66-5-301(B). Pursuant to the statute, a policyholder is underinsured when there is a difference between the injured driver's uninsured/underinsured motorist insurance and the tortfeasor's liability insurance. See id . Although seemingly straightforward, these statutory provisions are more complicated than they appear.

{6} New Mexico law requires every driver to carry auto liability insurance of at least $25,000 per person and $50,000 per occurrence and UM/UIM insurance coverage of at least the same amount. See NMSA 1978, § 66-5-215(A)(1)-(2) (1983) ; § 66-5-301(A). This is described as a "minimum limits" policy because it is the absolute minimum amount of insurance that a driver is legally required to carry. See Progressive Nw. Ins. Co. v. Weed Warrior Servs. , 2010-NMSC-050, ¶ 8, 149 N.M. 157, 245 P.3d 1209. A driver pays one premium for UM and UIM coverage.

{7} In 2017, Mr. Crutcher was involved in a car accident when another driver (tortfeaser) failed to stop at a traffic signal and crashed into his car. As a result of the collision, Mr. Crutcher sustained injuries, including a broken collarbone. Like Mr. Crutcher, the tortfeasor had purchased only a minimum limits automobile insurance policy. That is, he carried auto liability insurance of $25,000 per person and $50,000 per occurrence. Damages resulting from Mr. Crutcher's injuries exceeded $50,000.

{8} Following the accident, Mr. Crutcher filed a claim with the tortfeasor's insurance company (USAA). In response to his claim, USAA paid Mr. Crutcher $25,000, or the full amount of the tortfeasor's liability policy which covered some of the expenses incurred by the accident. After receiving the $25,000 liability coverage limit from the tortfeasor's insurance company, Mr. Crutcher filed a claim with his own insurance company, assuming he would receive at least $25,000 through his uninsured/underinsured motorist benefits to recover the balance of his damages. However, Safeco denied the claim, giving rise to this dispute.

{9} Mr. Crutcher and Safeco present alternate reasoning for the denial of the claim. In denying his claim, Mr. Crutcher inferred that Safeco applied the offset rule we announced in Schmick v. State Farm Mutual Automobile Insurance Co., 1985-NMSC-073, 103 N.M. 216, 704 P.2d 1092. As we will explain in more detail, the Schmick offset rule allows an accident victim's insurance company to subtract whatever the driver receives from the tortfeasor's insurance company from the payment due to its own policyholder. Id. ¶ 24. Mr. Crutcher reasoned that Safeco applied Schmick and deducted what he received from USAA ($25,000) from what he was eligible to receive through his Safeco policy's UM/UIM coverage ($25,000), and the resulting benefit was zero.

{10} Although Safeco agreed that the application of the Schmick offset rule would have resulted in no UIM payment, its denial of Mr. Crutcher's claim was not based on this rule. Rather, Safeco concluded that the tortfeaser did not meet the definition of an uninsured motorist pursuant to the statute because the total limits of liability insurance were equal to Mr. Crutcher's UM/UIM coverage limits. See § 66-5-301(B). Regardless of the reason for Safeco's denial of Mr. Crutcher's claim, we must determine whether it may charge a premium for a policy that cannot be fulfilled.

{11} Following Safeco's denial of his claim, Mr. Crutcher filed a class action lawsuit in the Second Judicial District Court against Safeco, Liberty Mutual Insurance Company, Liberty Personal Insurance Company, and Safeco National Insurance Company. Mr. Crutcher sought class certification for insured persons who find themselves with no UIM coverage, despite having paid regular premiums for it. On behalf of the class of plaintiffs, Mr. Crutcher alleged that Defendants failed to meaningfully explain to their policyholders how the Schmick offset rule works to cancel out UIM benefits that policyholders like Mr. Crutcher expected to receive. Mr. Crutcher alleged that the UIM coverage sold by Defendants to class members was "illusory" because UIM premiums sold on minimum limits policies are valueless if the policyholder is in an accident with a tortfeasor who carries liability coverage equal to the policyholder's UM/UIM coverage.

{12} Mr. Crutcher and the class members alleged seven violations under New Mexico common law and consumer protection statutes. Defendants removed the action to federal court under the Class Action Fairness Act, 28 U.S.C. § 1332(d) (2018). Plaintiff and Defendants then cross-moved the United States District Court for the District of New Mexico to certify a controlling question of law to the New Mexico Supreme Court. The federal district court granted the motions and submitted a certification order to this Court on the issue of whether underinsured motorist coverage at the minimum level is illusory, and, if so, whether insurers can charge a premium for it.1 The federal district court stayed the matter pending this Court's answer to the certified question. We do so now.

III. DISCUSSION

{13} Our task is to determine (1) whether underinsurance motorist coverage on a policy that offers minimum uninsured/underinsured motorist limits is illusory for an insured person who sustains more than $25,000 in damages caused by a minimally insured tortfeasor, and (2) if this type of coverage is illusory, whether an insurance company may charge premiums for such a policy. This analysis requires us to interpret New Mexico's statute governing underinsurance motorist coverage. See § 66-5-301 ("Insurance against uninsured and unknown motorists; rejection of coverage by the insured.").

{14} "Statutory interpretation is a question of law, which we review de novo." Hovet v. Allstate Ins. Co. , 2004-NMSC-010, ¶ 10, 135 N.M. 397, 89 P.3d 69. "When this Court construes statutes, our charge is to determine and give effect to the Legislature's intent." Moongate Water Co., Inc. v. City of Las Cruces , 2013-NMSC-018, ¶ 6, 302 P.3d 405 (internal quotation marks and citation omitted). "To determine legislative intent, [this Court] look[s] not only to the language used in the statute, but also to the purpose to be achieved and the wrong to be remedied." Hovet , 2004-NMSC-010, ¶ 10, 135 N.M. 397, 89 P.3d 69 ; see also NMSA 1978, § 12-2A-18(A)(1) (1997) ("A statute or rule is construed, if possible, to[ ] give effect to its objective and purpose[.]").

A. New Mexico's UM/UIM Statutory Provisions

{15} The Mandatory Financial Responsibility Act requires all motorists to carry minimum insurance liability limits of $25,000 per person, $50,000 per occurrence. See § 66-5-215(A)(1)-(2). The statute governing uninsured and...

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