Morro v. Farmers Ins. Group

• Decision Date: 19 January 1988
• Docket Number: No. 17129,17129
• Citation: 106 N.M. 669,748 P.2d 512,1988 NMSC 6
• Parties: Caroline MORRO, Plaintiff-Appellee, v. FARMERS INSURANCE GROUP, d/b/a Farmers Insurance of Arizona, Defendant, and Foundation Reserve Insurance Company, Defendant-Appellant.
• Court: New Mexico Supreme Court

Page 512

748 P.2d 512

106 N.M. 669

Caroline MORRO, Plaintiff-Appellee, v. FARMERS INSURANCE GROUP, d/b/a Farmers Insurance of Arizona, Defendant, and Foundation Reserve Insurance Company, Defendant-Appellant.

No. 17129.

Supreme Court of New Mexico.

Jan. 19, 1988.

Hinkle, Cox, Eaton, Coffield & Hensley, Richard E. Olson, Rebecca Nichols Johnson, Roswell, for defendant-appellant.

Wilson and Martin, Kenneth B. Wilson, Roswell, for plaintiff-appellee.

OPINION

WALTERS, Justice.

On January 16, 1987, as plaintiff Caroline Morro was loading groceries into the trunk of her daughter's automobile, a third party struck her and caused serious injuries. The third party had liability insurance coverage with Farmer's Insurance of Arizona. Morro's daughter had insurance coverage with the defendant Foundation Reserve. In addition, Morro had two policies with Farmer's Insurance on cars not involved in the accident. All policies had a $25,000 limit.

Farmer's Insurance and Morro settled, and she sought recovery from Foundation Reserve under the underinsured provision of the policy covering her daughter's vehicle. Both parties agreed that Morro was a class two insured under the Foundation policy. Morro's status as an occupant of her daughter's vehicle is not an issue on appeal. The trial court granted summary judgment in Morro's favor, holding that she was entitled to stack the underinsured motorist benefits of the Foundation policy with the two Farmer's Insurance underinsured motorist benefits she carried when determining her entitlement to uninsured coverage. This appeal followed.

New Mexico has mandated statutorily that insurance companies shall include underinsured motorist coverage with uninsured motorist coverage in all automobile liability policies sold in the state. See NMSA 1978, Sec. 66-5-301 B (Repl.Pamp.1984). The statute defines "underinsured motorist" as an "operator of a motor vehicle with respect to ownership, maintenance or use of which the sum of the limits of liability under all bodily injury liability insurance applicable at the time of the accident is less than the limits of liability under the insured's uninsured motorist coverage." Id. Morro claims that the sum of the limits of all of her available uninsured motorist coverage is $75,000 (her two policies with Farmer's and her daughter's policy with Foundation). She argues, therefore, that the third party is an underinsured motorist pursuant to the statutory definition and that she is entitled to recover from Foundation. Foundation contends that Morro may not aggregate or "stack" her two underinsured policies, under which she was a class one insured, with Foundation's underinsurance policy, under which she was a class two insured, to determine her underinsured status. Foundation claims that it is not liable for underinsurance coverage because the limits of the tortfeasor's liability insurance is not less than but equals the maximum limits of its uninsured motorist coverage ($25,000). Asserting that the trial court incorrectly determined the third party's status as an underinsured motorist with respect to its policy, Foundation claims that the trial court erred in allowing Morro to recover under its policy.

We have never had occasion to decide whether an insured may stack his class one coverage with coverage under which he is a class two insured. We have stated, however, that in expanding uninsured motorist protection to include underinsured coverage, the legislature intended to compensate victims of inadequately insured drivers. Konnick v. Farmers Ins. Co. of Ariz., 103 N.M. 112, 114, 703 P.2d 889, 891 (1985). Similarly, in considering underinsured motorist coverage, we held that the "intent of the Legislature was to put an injured insured in the same position he would have been in had the tortfeasor had liability coverage in an amount equal to the uninsured/underinsured motorist protection purchased for the insured's benefit." Schmick v. State Farm Mut. Auto. Ins. Co., 103 N.M. 216, 219, 704 P.2d 1092, 1095 (1985). (Emphasis added.)

For the purpose of "stacking," the Konnick court equated underinsured motorist coverage with uninsured motorist coverage, Konnick, 103 N.M. at 114 n. 1, 703 P.2d at 891 n. 1, and observed that similar policy considerations apply for both types of coverage. Id. at 114, 703 P.2d at 891. The term "stacking" refers to an insured's attempt to recover damages in aggregate under more than one policy or one policy covering more than one vehicle until all damages either are satisfied or the total policy limits are exhausted. Gamboa v. Allstate Ins. Co., 104 N.M. 756, 757, 726 P.2d 1386, 1387 (1986); Lopez v. Foundation Reserve Ins. Co., Inc., 98 N.M. 166, 168, 646 P.2d 1230, 1232 (1982). In addition, the term "class one insured" generally encompasses those persons who are named insureds under a policy, i.e., the owner, the spouse, and any relatives living in the household; and the term "class two insured" pertains to any person occupying the insured motor vehicle at the time of the accident. Konnick, 103 N.M. at 115, 703 P.2d at 892. First class insureds generally "are covered by policies no matter where they are or in what circumstances they may be; coverage is not limited to a particular vehicle." Gamboa, 104 N.M. at 758, 726 P.2d at 1388. "[S]econd class insureds are covered only because they occupy an insured vehicle." Id. Class one insureds "may stack all uninsured/underinsured motorist policies purchased by the named insured since the policies were obtained specifically to benefit the named insured and members of his family." Schmick, 103 N.M. at 220, 704 P.2d at 1096. Class two insureds, however, "are restricted to recovering under the policy on the car in which they rode because the purchaser of the policy only intended occupants to benefit from that particular policy." Id.

We have upheld the practice of stacking coverages under various insurance policies. For example, in Sloan v. Dairyland Insurance Co., 86 N.M. 65, 519 P.2d 301 (1974), we declared that interpolicy stacking was valid to allow recovery on more than one uninsured motorist policy. In Sloan, the court disapproved of an insurance company's attempt to avoid coverage for which it had received premiums, and permitted the decedent's estate to recover damages from a policy covering the vehicle involved in the accident and from a separate policy covering another of the decedent's automobiles not involved in the accident. Id. at 66, 519 P.2d at 303. In short, the Sloan court allowed the stacking of two policies covering a class one insured.

In Lopez, we approved of intrapolicy stacking, allowing a class one insured to aggregate coverages for two or more vehicles insured under one uninsured motorist policy. In permitting the insured to combine the coverage for which he had paid separate premiums, the Lopez court reasoned that intrapolicy stacking fulfilled the reasonable expectations of the insured. Lopez, 98 N.M. at 170-71, 646 P.2d at 1234. The court refused, however, to allow recovery by a class two insured passenger from a policy covering a class one insured driver's second car that had not been involved in the accident. Id. at 172, 646 P.2d at 1236. Similarly, in Gamboa, we held that the estate of the occupant of an insured vehicle owned by the occupant's father was not entitled to recover from a policy covering the automobile owned by the driver's father that was not involved in the accident. The court permitted the estate of the class two insured--the occupant--to recover under the policy covering the vehicle in which he was an occupant in the accident,...