Maes v. Audubon Indemnity Ins. Group

• Decision Date: 15 June 2007
• Docket Number: No. 29,624.,29,624.
• Citation: 164 P.3d 934,2007 NMSC 046
• Parties: Cora MAES, Plaintiff-Petitioner, v. AUDUBON INDEMNITY INSURANCE GROUP, Defendant-Respondent.
• Court: New Mexico Supreme Court

164 P.3d 934

2007 NMSC 046

Cora MAES, Plaintiff-Petitioner, v. AUDUBON INDEMNITY INSURANCE GROUP, Defendant-Respondent.

No. 29,624.

Supreme Court of New Mexico.

June 15, 2007.

Rehearing Denied July 11, 2007.

Sanders & Westbrook, P.C., Maureen A. Sanders, Albuquerque, NM, Dennis T. Sanchez, Taos, NM, for Petitioner.

Miller Stratvert, P.A., Ann Maloney Conway, Deron Bradley Knoner, Albuquerque, NM, for Respondent.

Felker, Ish, Ritchie & Geer, P.A., Carol J. Ritchie, Mark L. Ish, Santa Fe, NM, for Amicus Curiae New Mexico Property and Casualty Insurance Guaranty Association.

OPINION

SERNA, Justice.

{1} Cora Maes ("Maes") sued her property insurer, Audubon Indemnity Insurance Group ("Audubon"), after it originally denied her insurance claim for destroyed property. Audubon asserted immunity from suit on the basis that Maes obtained her insurance with Audubon through the New Mexico Fair Access to Insurance Requirements Plan Act ("FAIR Plan Act" or "the Act"), NMSA 1978, §§ 59A-29-1 to -9 (1985, as amended through 1999), which provides statutory immunity from suit for certain parties with respect to certain actions taken pursuant to the FAIR Plan Act. Section 59A-29-7 (or "immunity provision"). We issued a writ of certiorari to the Court of Appeals to review its opinion, which held that Audubon was statutorily immune from suit. Maes v. Audubon Indem. Ins. Group, 2006-NMCA-021, 139 N.M. 39, 127 P.3d 1126. For the reasons discussed below, we hold that the FAIR Plan Act's immunity provision does not apply to Audubon; and, therefore, Audubon is not immune from Maes's suit. Accordingly, we reverse the Court of Appeals and remand to the district court.

I. BACKGROUND

A. Statewide Plans to Assure Fair Access to Insurance Requirements

{2} The Legislature passed the New Mexico FAIR Plan Act in 1985 under the framework of the federal Urban Property Protection and Reinsurance Act of 1968 ("UPPRA"), see 12 U.S.C. §§ 1749bbb to 1749bbb-21 (1970) (repealed 1985-1996), which Congress promulgated following inner city rioting in the late 1960s. 1 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 4:6 (3d ed.2005). The UPPRA provided for federal reinsurance against riot and civil unrest losses to insurance companies. 12 U.S.C. § 1749bbb to § 1749bbb-21; see Russ & Segalla, supra, § 4:6. To be eligible for such reinsurance, the UPPRA required insurers to cooperate with their state insurance authorities to establish fair access to insurance requirements ("FAIR") plans "designed to make essential property insurance more readily available." 12 U.S.C. § 1749bbb-3(a) to (b). FAIR plans are intended to create a means for high-risk property owners to obtain essential property insurance coverage, where they would not otherwise be able to do so on the normal insurance market because their risks would be unprofitable for insurance companies to assume on a voluntary basis. See Russ & Segalla, supra, §§ 1:27; 4:6.

B. The New Mexico FAIR Plan Act

{3} The New Mexico FAIR Plan Act authorizes all insurers licensed to write essential property insurance in New Mexico to establish and maintain a FAIR plan to provide essential property insurance to responsible and qualified applicants unable to obtain insurance on the open market. Section 59A-29-2; NMPIP Bylaws, introduction, at 1, http://w ww.nmprc.state.nm.us/insurance/pdf/nmfairplanbylaws.pdf [hereinafter NMPIP Bylaws]. The Act further authorizes insurers to form the non-profit underwriting association known as the New Mexico Property Insurance Program ("NMPIP"). Id. In order to transact property insurance business in New Mexico, all insurers licensed to write essential property insurance in the state are required to become and remain members of the FAIR Plan and the NMPIP and to subscribe to the NMPIP Articles of Association. Section 59A-29-3.

{4} The NMPIP is not itself an insurance company. NMPIP Bylaws, introduction, at 1. However, the Act authorizes the NMPIP, "on behalf of its members[,] to cause to be issued property insurance policies." Section 59A-29-4. The program operates as follows. Applicants or their representatives or insurance agents apply directly to the NMPIP for coverage. NMPIP Bylaws, introduction, at 1. If the NMPIP decides the property is eligible for insurance, it forwards the application to a "Servicing Insurer." Id. § IV.1, at 3. Audubon is a Servicing Insurer for the NMPIP, which means that it has contracted with the NMPIP "to issue and service policies on risks referred to it by the [NMPIP]." Id. § III.8, at 2. The Servicing Insurer then issues and delivers the actual policy directly to the applicant and services the policy, remitting the premium to the NMPIP. Id. § V.1, at 3. The NMPIP is authorized to provide reimbursement for all of the Servicing Insurer's costs and expenses. NMPIP Bylaws, § XII.6, at 8.

{5} The FAIR Plan Act also provides a remedy for aggrieved insureds. They may appeal the actions and decisions of the FAIR Plan administrators, the NMPIP, or any insurer as a result of its participation in the FAIR Plan and the NMPIP to the New Mexico Superintendent of Insurance. Section 59A-29-6(A). Thereafter, all final orders and decisions of the Superintendent of Insurance are subject to review in district court. Section 59A-29-6(B).

{6} Finally, the Act provides immunity to certain parties for certain actions taken with respect to the FAIR Plan:

There shall be no liability on the part of, and no cause of action of any nature shall arise against, any member insurer, the association or its agents or employees, the governing committee or the superintendent or his representative for any action taken by them in the performance of their powers and duties under the FAIR Plan Act.

Section 59A-29-7.

{7} The NMPIP reinsures all insurance policies issued by the Servicing Insurer pursuant to the FAIR Plan. Section 59A-29-4 (authorizing the NMPIP "to reinsure in whole or in part any such policies and to cede any such reinsurance"); NMPIP Bylaws, § VI.1, at 4. Reinsurance refers to:

the ceding by one insurance company to another of all or a portion of its risks for a stipulated portion of the premium. In a true reinsurance transaction, the liability of the reinsurer is solely to the reinsured, which retains all contact with the original insured, and handles all matters prior to and subsequent to loss.

14 Eric Mills Holmes & L. Anthony Sutin, Holmes' Appleman on Insurance, § 102.1 (2d Ed.2000) (quoted authority omitted). We adopted an almost identical definition of reinsurance in 1973. Sierra Life Ins. Co. v. First Nat'l Life Ins. Co., 85 N.M. 409, 412, 512 P.2d 1245, 1248 (N.M.1973) (quoting similar section from an earlier edition of Appleman Insurance Law and Practice). Reinsurance essentially "operates to shift part of the risk of loss under an insurance policy from the original insurer to the reinsurer, with the original insurer remaining in privity with the insured." Holmes & Sutin, supra, § 102.1 (internal quotation marks omitted). Indeed, one of the fundamental principles of reinsurance is that "the reinsurer ordinarily has no liability to the policyholder of the ceding insurer." Id. § 106.7. Our reinsurance statute reflects this principle: "No person shall have any rights against the reinsurer which are not expressly stated in the reinsurance contract or in a written agreement between such person and the reinsurer." NMSA 1978, § 59A-7-11(G) (1993).

II. FACTUAL AND PROCEDURAL HISTORY

{8} Maes's Arroyo Seco property was completely destroyed by fire on May 2, 2000. The property was insured by Audubon through the New Mexico FAIR Plan, under a policy effective March 20, 2000 to March 20, 2001. Maes filed a claim under her policy on May 3, 2000. Audubon denied liability for the loss on August 3, 2000. Maes then appealed to the New Mexico Superintendent of Insurance pursuant to the mechanism provided for in the New Mexico FAIR Plan Act. Section 59A-29-6(A). On October 19, 2001, the Superintendent of Insurance ruled in favor of Maes, finding that she was entitled to recover under her Audubon policy for the fire damage to her property. Audubon appealed the decision in district court, pursuant to the FAIR Plan Act, and the district court affirmed the Superintendent's decision on February 13, 2003. On March 6, 2003, Audubon paid Maes the policy limits of $150,000 for her loss.

{9} Thereafter, in an initial Complaint on September 17, 2003, and a Second Amended Complaint on February 5, 2004, Maes sued Audubon in district court for (i) pre- and post-judgment interest on the $150,000 judgment; (ii) breach of the implied covenant of good faith and fair dealing; and (iii) bad faith insurance practices. On June 14, 2004, Audubon moved to dismiss Maes's claims on the ground that Audubon had statutory immunity from suit because it issued the policy as Servicing Insurer of the NMPIP. See § 59A-29-7. The district court denied the Motion to Dismiss on October 1, 2004.

{10} Audubon appealed to the Court of Appeals, which, in a split decision, reversed the district court, concluding that Audubon was statutorily immune from suit. Maes, 2006-NMCA-021, ¶¶ 1, 7, 139 N.M. 39, 127 P.3d 1126. The Court of Appeals declared the immunity provision "clear and unambiguous" and held that Audubon is an agent of the NMPIP because of its status as the NMPIP's Servicing Insurer and is thus immune from suit. See Maes, 2006-NMCA-021, ¶¶ 11, 16, 139 N.M. 39, 127 P.3d 1126. Audubon urges the same reading on appeal. Maes, however, contends that Audubon's action in insuring her property was not taken as an agent of the NMPIP and that such an interpretation would produce results wholly incongruous to the legislative purpose of the FAIR Plan Act.

III. SECTION 59A-29-7 DOES NOT APPLY TO AUDUBON

A. Standard of Review and Rules of Statutory Construction

{11} In this case, we must decide whether the immunity provision of the New Mexico FAIR Plan Act, Section 59A-29-7, shields Audubon, in its...