Demir v. Farmers Texas County Mutual Insurance Company

• Decision Date: 28 June 2006
• Docket Number: No. 26,040.,26,040.
• Citation: 140 P.3d 1111,2006 NMCA 091
• Parties: Nusret DEMIR, Plaintiff-Appellant, v. FARMERS TEXAS COUNTY MUTUAL INSURANCE COMPANY, Defendant-Appellee.
• Court: Court of Appeals of New Mexico

140 P.3d 1111

2006 NMCA 091

Nusret DEMIR, Plaintiff-Appellant, v. FARMERS TEXAS COUNTY MUTUAL INSURANCE COMPANY, Defendant-Appellee.

No. 26,040.

Court of Appeals of New Mexico.

June 28, 2006.

Damon B. Ely, Law Offices of Daymon B. Ely, Thomas J. Budd Mucci, Mucci Law, Albuquerque, NM, for Appellant.

Daniel J. O'Brien, Lawrence M. Glenn, O'Brien & Ulibarri, P.C., Albuquerque, NM, for Appellee.

OPINION

WECHSLER, Judge.

{1} Plaintiff Nusret Demir appeals from an order granting summary judgment in favor of Defendant Farmers Texas County Mutual Insurance Company. There are two issues on appeal. First, Plaintiff contends that the district court erred in applying Texas law to interpret his insurance contract with Farmers. Second, Plaintiff argues that even if Texas law applies, New Mexico courts should not enforce that law because it conflicts with our own public policy. We agree that Texas law is inapplicable because it contravenes New Mexico's public policy and we reverse.

BACKGROUND

{2} Plaintiff is a resident of Texas, and Farmers is domiciled in Texas. Farmers issued an insurance contract to Plaintiff in Texas. It is undisputed that Plaintiff was driving in New Mexico when he swerved to avoid another vehicle, resulting in a single-car accident. The driver of the other vehicle is unknown and no physical contact between the two vehicles occurred.

{3} Farmers denied Plaintiff's claim for uninsured motorist benefits because a provision in the policy and Texas law require physical contact between the covered vehicle and the unknown vehicle. Plaintiff brought this suit in New Mexico district court seeking to recover under his policy on two theories. First, Plaintiff argued that New Mexico law determined his right to recover under the policy. Second, Plaintiff argued that even if Texas law would normally apply, it did not apply because it was contrary to New Mexico's public policy of protecting drivers. Farmers moved for summary judgment. The district court found that Texas law applied, that Texas law permitted a restriction on recovery such as that in Plaintiff's policy and that policy of the state of Texas was designed to prevent fraud. It granted Farmers' motion for summary judgment.

STANDARD OF REVIEW

{4} We review the grant of summary judgment de novo, viewing the evidence in the light most favorable to Plaintiff. See Gormley v. Coca-Cola Enters., 2005-NMSC-003, ¶ 8, 137 N.M. 192, 109 P.3d 280. Summary judgment is proper if there are no genuine issues of material fact and Farmers is entitled to judgment as a matter of law. See id.

CHOICE OF LAW

{5} The parties do not contest that Texas law would not allow recovery of uninsured motorist benefits from Farmers. Tex. Ins. Code Ann. art. 5.06-1(2)(d) (Vernon Supp. 2005) (requiring that "where the owner or operator of any motor vehicle which causes bodily injury or property damage to the insured is unknown, actual physical contact must have occurred between the motor vehicle owned or operated by such unknown person and the person or property of the insured" to allow recovery under an uninsured motorist policy). The parties also agree that New Mexico law would invalidate the no-contact clause and allow recovery. See NMSA 1978, § 66-5-301 (1983); Chavez v. State Farm Mut. Auto. Ins. Co., 87 N.M. 327, 329-30, 533 P.2d 100, 102-03 (1975) ("[T]he only limitations on [uninsured motorist] protection are those specifically set out in the statute itself, i.e., that the insured be legally entitled to recover damages and that the negligent driver be uninsured."); see also Montoya v. Dairyland Ins. Co., 394 F.Supp. 1337, 1342 (D.N.M.1975) (invalidating the "physical contact" requirement in an uninsured motorist policy in part "because the New Mexico State Legislature did not intend to allow the creation of a gap in coverage").

{6} Plaintiff argues, as he did in the district court, that New Mexico law applies, relying primarily on State Farm Automobile Insurance Co. v. Ovitz, 117 N.M. 547, 873 P.2d 979 (1994). Ovitz involved a New Mexican insured who was injured in an accident in Hawaii. Id. at 548-49, 873 P.2d at 980-81. The insured collected his medical expenses from the owner of the other vehicle, but was precluded from further recovery under Hawaii's no-fault system. Id. at 548, 873 P.2d at 980. He sought to recover uninsured motorist benefits under his New Mexico insurance policy. Id. at 548-49, 873 P.2d at 980-81. State Farm filed suit for a declaratory judgment on the ground that the other vehicle was not uninsured for the purposes of the insurance contract. Id. at 548, 873 P.2d at 980. Our Supreme Court held that while New Mexico law would apply to the interpretation of the contract, Hawaii law governed the meaning of some terms under the contract. Id. at 549, 873 P.2d at 981. Specifically, it determined that because the policy only allowed recovery when the insured is "legally entitled to collect from the owner or the driver of an uninsured motor vehicle," the insured was not entitled to uninsured motorist benefits because he was not legally entitled to recover from the other owner under Hawaii law. Id.

{7} Plaintiff argues that Ovitz requires that we apply New Mexico law to determine whether he is "legally entitled to recover" from Farmers. We agree with Plaintiff that Ovitz held that the law of the place of the accident governs Plaintiff's right to recover from the owner or driver of the vehicle that ran him off the road. But Ovitz also held that the law of the place of the contract, the lex loci contractus, applies to interpretation of the terms of the contract. Id. Ovitz applied Hawaii law only to determine the rights of parties involved in the accident as to each other. Id. It applied New Mexico law to determine the rights of the insured as to his insurance company. Id. Applying Ovitz to this case, New Mexico law governs whether Plaintiff would be able to recover from the tortfeasor, if known, and Texas law governs whether Plaintiff may recover from Farmers.

PUBLIC POLICY EXCEPTION

{8} Having determined that Texas law governs Plaintiff's right to recover from Farmers on his uninsured motorist coverage, we now reach the second question. Plaintiff also argues that we should not apply Texas law because it contravenes New Mexico's public policy. When differences between the law of the forum state and the law of the state where the contract was executed concern only contract interpretation, we will apply the law of the state where the parties entered the contract. Shope v. State Farm Ins. Co., 1996-NMSC-052, ¶ 9, 122 N.M. 398, 925 P.2d 515. "To overcome the rule favoring the place where a contract is executed, there must be a countervailing interest that is fundamental and separate from general policies of contract interpretation." Id. We will apply New Mexico law if applying the law of another state would "result in a violation of fundamental principles of justice" of New Mexico. State Farm Mut. Auto. Ins. Co. v. Ballard, 2002-NMSC-030, ¶ 9, 132 N.M. 696, 54 P.3d 537 (internal quotation marks and citation omitted).

{9} Three cases guide our analysis. Plaintiff relies on Ballard and Sandoval v. Valdez, 91 N.M. 705, 580 P.2d 131 (Ct.App.1978). Both cases applied New Mexico law to contracts issued out of state because applying the lex locus contractus would have resulted in a violation of New Mexico's public policy. Defendant relies primarily on Shope, which applied Virginia law to interpret a Virginia contract despite the possibility of a different outcome under New Mexico law. We address these cases in turn.

{10} In Ballard, our Supreme Court applied New Mexico rather than Georgia law despite the fact that the policy was executed in Georgia. Ballard, 2002-NMSC-030, ¶ 1, 3, 132 N.M. 696, 54 P.3d 537. Ballard arose out of a single-vehicle accident in New Mexico that resulted in the death of the driver and a passenger and serious injury to another passenger, the daughter of the insured owner. Id. ¶ 2, 5. State Farm filed an action in New Mexico district court seeking a declaratory judgment as to the extent of its liability. Id. ¶ 1. The insurance policy at issue contained a "step down" provision eliminating coverage for injury to family members of the insured in excess of the statutory minimum. Id. ¶ 4. State Farm argued that because the policy was executed in Georgia, Georgia law, permitting such provisions, should apply. Id. ¶ 6. The insured argued that the step down provision was invalid under New Mexico law. Id. Our Supreme Court held that the step down provision violated New Mexico's public policy and refused to enforce it. Id. ¶ 11.

{11} Ballard noted that the New Mexico Mandatory Financial Responsibility Act, NMSA 1978, §§ 66-5-201 to -239 (1978, as amended through 2003), did not allow exclusion of coverage for family members. Ballard, 2002-NMSC-030, ¶ 11, 132 N.M. 696, 54 P.3d 537. It relied on Estep v. State Farm Mutual Automobile Insurance Co., 103 N.M. 105, 703 P.2d 882 (1985), for the proposition that step down provisions are not merely prohibited but also constitute "a repudiation of New Mexico's public policy." Ballard, 2002-NMSC-030, ¶ 11, 132 N.M. 696, 54 P.3d 537 (internal quotation marks and citation omitted). Ballard considered step down provisions to be unenforceable because they are "contrary to protecting innocent accident victims" and because "the reasons for [step down provisions] are no longer valid." Id. ¶ 12 (internal quotation marks and citation omitted).

{12} Farmers argues that Ballard does not mandate reversal in this case for two reasons. First, Farmers contends that the insured in Ballard reasonably expected that her coverage applied to all passengers, while in this case Plaintiff reasonably expected that Texas law would apply. See Ballard, 2002-NMSC-030, ¶ 3, 132 N.M. 696, 54 P.3d 537 (noting that the insured purchased insurance "stating that she wanted the same coverage which she had in California"). But Ballard...