Government Employees Ins. Co. v. Welch

Decision Date21 April 2004
Docket Number No. 28240, No. 28336.
Citation90 P.3d 471,2004 NMSC 14,135 N.M. 452
PartiesGOVERNMENT EMPLOYEES INSURANCE COMPANY, a Maryland corporation, Plaintiff, v. James D. WELCH and Shirley Welch, Defendants. Vicki Perrigo Heckl, as Personal Representative of the Estate of Tyler Heckl, Plaintiff-Appellee, v. State Farm Mutual Automobile Insurance Company, Defendant-Appellant.
CourtNew Mexico Supreme Court

Hatch, Allen & Shepherd, P.A., Daniel W. Lewis, Jennifer M. Rozzoni, Albuquerque, for Plaintiff.

Rothstein. Donatelli, Hughes, Dahlstrom & Schoenburg, LLP, Robert R. Rothstein, John L. Sullivan, Santa Fe, for Defendants.

Atwood, Malone, Turner & Sabin, P.A., Lee M. Rogers, Jr., Roswell, Huffaker & Conway, P.C., Ann. M. Conway, Albuquerque, for Defendant-Appellant.

Word & Bogardus, Terry M. Word, Kristina Bogardus, Albuquerque, for Plaintiff-Appellee.


SERNA, Justice.

{1} Plaintiff Government Employees Insurance Company (GEICO) filed a declaratory action in the United States District Court for the District of New Mexico requesting a declaration that a household exclusion in its personal umbrella liability insurance agreement is valid and enforceable in relation to Defendants James and Shirley Welch under New Mexico law. The court issued a certification order to this Court questioning whether the optional umbrella policy's household exclusion provision violates New Mexico public policy, thus rendering the provision void. See NMSA 1978, § 39-7-4 (1997) ("The supreme court of this state may answer a question of law certified to it by a court of the United States ... if the answer may be determinative of an issue in pending litigation in the certifying court and there is no controlling appellate decision, constitutional provision or statute of this state.").

{2} In a similar, although not identical, case, Plaintiff-Appellee Vicki Heckl filed a complaint for a declaratory judgment in state district court against Defendant-Appellant State Farm Mutual Automobile Insurance Company requesting that the district court declare that the uninsured motorist endorsement to her personal liability umbrella policy cover her claim. State Farm counterclaimed, requesting a declaration that the household exclusion does not allow coverage, and both parties moved for summary judgment. The district court found that the policy was ambiguous with regard to the scope of the uninsured motorist coverage and that the umbrella policy's exclusion was unenforceable as a violation of New Mexico public policy. For these reasons, the district court granted Heckl's motion for summary judgment. State Farm appealed to the Court of Appeals, and the Court of Appeals certified the appeal to this Court because we had already accepted certification in GEICO's federal action.

{3} Because the issues are substantially similar in the two cases, we consolidate them. We conclude that household exclusions in umbrella policies related to liability and uninsured or underinsured automobile coverage are void as against public policy.

Facts and Background

{4} On February 27, 2003, James Welch was involved in an automobile accident while driving in Santa Fe, New Mexico, seriously injuring his wife, Shirley, a passenger. The Welches were insured by GEICO, including a primary automobile policy with a liability limit of $300,000, which is not in dispute, as well as a personal umbrella liability insurance policy with a limit of $1,000,000. The umbrella policy contains a household exclusion which states in part: "We do not cover damages resulting from ... [p]ersonal injury to any insured," and defines "insured" as "[y]ou and your spouse if a resident of your household" as well as "[r]elatives residing in your household." (Emphasis omitted.) GEICO filed a declaratory action and argued that Shirley's claim against the driver, her husband James, is excluded from the umbrella policy by this provision. The Welches filed a motion to dismiss and a motion to certify the question to this Court. Following the issuance of a certification order, this Court accepted certification.

{5} Heckl's daughter was driving Heckl's son to school; she turned in front of an oncoming car, resulting in a collision, and Heckl's son was killed. Heckl was covered by a State Farm primary automobile liability policy, from which State Farm paid the policy limits of $100,000. She owned seven vehicles, each of which carried uninsured motorist coverage of $100,000 per person, and State Farm paid the policy limits for each of those policies, stacked, after subtracting the offset for liability insurance proceeds received by Heckl. Heckl also purchased a personal liability umbrella policy as part of a homeowner's policy that provided liability coverage that was in excess of her homeowner's and automobile liability coverage. An endorsement to the umbrella policy provided additional coverage for injuries caused by owners or operators of uninsured and underinsured motor vehicles; the endorsement defined "uninsured motor vehicles" to exclude vehicles insured under the liability coverage of the umbrella policy, as well as vehicles furnished for the regular use of the insured, designated as the "owned vehicle" exclusion. Heckl argued that her daughter was underinsured and claimed benefits under the uninsured motorist endorsement.


{6} "Appellate courts review matters of law de novo." Hasse Contracting Co. v. KBK Fin., Inc., 1999-NMSC-023, ¶ 9, 127 N.M. 316, 980 P.2d 641. The question of whether an optional umbrella policy's household exclusion provision is valid is a question of first impression in New Mexico.

{7} In 1985, we addressed a household exclusion in a primary automobile liability insurance policy. Estep v. State Farm Mut. Auto. Ins. Co., 103 N.M. 105, 111, 703 P.2d 882, 888 (1985). We held that "the `insured' and `household' exclusions contained in motor vehicle liability policies issued or delivered in New Mexico were and are contrary to public policy and the statutes of this state, and they are therefore invalid exclusions." Id. Later, the Court of Appeals invalidated a family exclusion provision that the insurance company argued should reduce underinsured motorist coverage benefits. Martinez v. Allstate Ins. Co., 1997-NMCA-100, ¶¶ 1, 18, 124 N.M. 36, 946 P.2d 240. Most recently, we have reiterated "that exclusion of coverage [in mandatory automobile liability policies] for insureds and family members violates the requirements of the [New Mexico Mandatory Financial Responsibility Act] NMMFRA as well as our precedent, and that such exclusions are thus contrary to New Mexico public policy." State Farm Mut. Auto. Ins. Co. v. Ballard, 2002-NMSC-030, ¶ 11, 132 N.M. 696, 54 P.3d 537.

{8} We concluded that the family exclusion provision contained in the insured's primary automobile liability coverage was "more than a matter of contract interpretation; we determine[d] that the reduction in coverage for a discrete group of individuals in this context, based solely on their familial relationship to the insured, implicates a fundamental principle of justice." Id. ¶ 10. State Farm is correct when it notes that this conclusion was made in the context of a conflict of laws question, and it is also correct when it argues that this conclusion does not mean that "household exclusions are inherently unjust in all contexts and in all policies." However, regarding motor vehicle accidents, we conclude that family exclusions in liability and uninsured or underinsured motorist coverage offered through umbrella policies implicate a fundamental principle of justice and are contrary to New Mexico public policy.

{9} GEICO and State Farm argue that our precedent was decided in the mandatory liability insurance and uninsured motorist contexts and should not be extended to optional umbrella liability policies. GEICO and State Farm contend that the critical and determinative difference between Ballard and Estep and the present matter is the mandatory nature of auto liability insurance. State Farm and GEICO argue that the present matter instead concerns excess, or optional, umbrella policies which are not mandated or required by law. We disagree that this distinction is determinative; Ballard went beyond the mandatory minimum amount of coverage required by statute.

{10} We rejected in Ballard the insurance company's argument that Estep's invalidation of family exclusion provisions was based solely on the public policy expressed in our statutes. Ballard, 2002-NMSC-030, ¶ 12, 132 N.M. 696, 54 P.3d 537. We recognized that the analysis in Estep "was directed to familial exclusion as contrary to protecting innocent accident victims." Id. "Familial exclusion, whether in relation to insurance contracts, as in Estep, or tort law, as in Maestes[ v. Overton, 87 N.M. 213, 531 P.2d 947 (1975)], is an anachronism, not simply because it conflicts with [our statutes], but because `the reasons for the rule are no longer valid.'" Id. (quoting Flores v. Flores, 84 N.M. 601, 603, 506 P.2d 345, 347 (Ct.App.1973)). In Ballard, we also rejected the insurance company's argument that we should uphold the family exclusion to liability coverage beyond the amount of the statutory minimum, despite the fact that the insured had purchased greater liability coverage. Id. ¶ 14. "Once [the insurance company] sold [the insured] insurance that exceeded the `limits required by law,' this coverage applies equally to all accident victims, whether the victim is a family member or not, as a matter of New Mexico public policy." Id. We conclude that the same reasoning applies to the present case and is a logical, although limited, extension of Ballard. Once an insurance company offers insurance that is in excess of the limits required by law, whether it is primary vehicle coverage beyond that which is required by statute or umbrella policies which include coverage for motor vehicle accidents, the coverage applies equally to the victims of such...

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