Padilla v. State Farm Mut. Auto. Ins. Co.

Decision Date15 May 2003
Docket NumberNo. 27,258.,27,258.
PartiesFrieda PADILLA, Plaintiff-Respondent, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Petitioner.
CourtNew Mexico Supreme Court

Miller, Stratvert & Torgerson, P.A., Rudolph A. Lucero, Ruth Fuess, Santa Fe, NM, for Petitioner.

Montoya, Murphy & Garcia, LLC, Dennis P. Murphy, Santa Fe, NM, L. Helen Bennett, Albuquerque, NM, for Respondent.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Lisa Mann, Jennifer A. Noya, Albuquerque, NM, for Amicus Curiae New Mexico Defense Lawyers Association.

Michael B. Browde, Albuquerque, NM, for Amicus Curiae New Mexico Trial Lawyers Association.

OPINION

SERNA, Justice.

{1} On respective motions for rehearing by the parties, the opinion previously filed in this matter is hereby withdrawn and the following substituted in its place. The parties' motions for rehearing are otherwise denied, as are the requests filed by amici.

{2} Plaintiff-Respondent Frieda Padilla purchased automobile insurance from Defendant-Petitioner State Farm Mutual Automobile Insurance Company. Padilla was involved in an automobile accident with a third party. Following a settlement with the third party's insurance company for the liability limit of $25,000, Padilla filed a claim against her own insurance company, State Farm, for uninsured motorist coverage under four separate policies, each of which provided for uninsured motorist coverage with limits of $25,000 per person and $50,000 per accident. Padilla's insurance contract with State Farm provided for mandatory arbitration, which would be binding on both parties for any award of damages that does not exceed the limits of the Mandatory Financial Responsibility Act, NMSA 1978, §§ 66-5-201 to -239 (1983, as amended through 2001) (MFRA). For awards over this amount, the contract provided that the arbitration was subject to de novo appeal by either party. Padilla sought a declaratory judgment in district court nullifying the de novo appeal language as contrary to New Mexico law. The district court determined that a case from this Court, Bruch v. CNA Ins. Co., 117 N.M. 211, 870 P.2d 749 (1994), was controlling and ruled in favor of State Farm. The Court of Appeals reversed, determining that the contractual provision of a de novo appeal violates public policy and declaring the contract provision void. Padilla v. State Farm Mut. Auto. Ins. Co., 2002-NMCA-001, ¶ 1, 131 N.M. 419, 38 P.3d 187, cert. granted, No. 27,258, 131 N.M. 564, 40 P.3d 1008 (2002). This Court then granted State Farm's petition for writ of certiorari to the Court of Appeals. We address whether the "escape hatch" arbitration clause that allows either party to the contract a de novo appeal of awards in excess of the limits of the MFRA violates New Mexico public policy. We conclude that the clause is in violation of public policy, but we select a different remedy than the one selected by the Court of Appeals.

I. Bruch and the Court of Appeals' Opinion

{3} In Bruch, the insured filed a claim with her insurance company for uninsured motorist benefits. 117 N.M. at 212,870 P.2d at 750. The insurance contract contained an arbitration provision that mirrors the provision at issue in this case, under which arbitration would be binding for amounts not exceeding the minimum limit provided by law and would be subject to a de novo appeal by either party for any higher amounts. Id. Like Padilla, the insured in Bruch argued "that the insurance clause that allows [the insurance company] to request a trial violates public policy." Id. at 213, 870 P.2d at 751. This Court unequivocally rejected that argument. The Court concluded that "[o]ur [L]egislature has not expressed its intent that an arbitration award should be final in cases in which the parties have provided to the contrary by contract; the [Uniform Arbitration] Act[, NMSA 1978, §§ 44-7-1 to -22 (repealed 2001),] is supportive of the parties' right to contract for arbitration." Id. We further held that the provision is not "repugnant to public policy." Id.

{4} The Court of Appeals concluded that Bruch was distinguishable from the present case because this Court had not considered the specific arguments and specific authority advanced by Padilla. Padilla, 2002-NMCA-001, ¶¶ 1, 9, 131 N.M. 419, 38 P.3d 187. The Court of Appeals stated that in Bruch

[t]he Supreme Court made absolutely no mention of the arguments . . . that an arbitration provision providing for non-binding arbitration where the insured recovers more than the minimum limit of uninsured motorist coverage violates the superintendent's regulations or the Unfair [Insurance] Practices Act[, NMSA 1978, §§ 59A-16-1 to -30 (1984, as amended through 2001)], or is otherwise contrary to the public policy manifested in the uninsured motorist statute[, NMSA 1978, § 66-5-301 (1983)].

Padilla, 2002-NMCA-001, ¶ 9, 131 N.M. 419, 38 P.3d 187.1 The Court of Appeals concluded that Bruch is not authority for propositions not considered and "does not necessarily control the outcome of the present case." Id. ¶ 10. We disagree.

{5} We believe that the principle that cases do not stand for propositions not considered is inapplicable in this context. This principle is intended to dissuade a later court from attributing meaning to an earlier opinion that was not contemplated by its drafters. See Sangre de Cristo Dev. Corp. v. City of Santa Fe, 84 N.M. 343, 347-48, 503 P.2d 323, 327-28 (1972)

("This Court, by mere inference or presumption, cannot logically be considered to have overruled the long line of cases ... which have expressly dealt with the subject of sovereign immunity."). We do not view this principle as applying to the mere citation to new authorities or even to advancing new reasons for reaching a different conclusion on an issue that was actually considered by this Court in the earlier case. See Fernandez v. Farmers Ins. Co., 115 N.M. 622, 627, 857 P.2d 22, 27 (1993) ("The question whether judicial review of questions of law raised by an arbitration award is permitted under the Arbitration Act was not argued or briefed in [two earlier decisions]. Thus, neither of those decisions discussed the issue decided here.") (emphasis added). Instead, we view arguments of this nature as a request to overrule the earlier decision. If the mere citation of new authority or even reliance on a different justification than was presented in a prior case were sufficient to strip a case of precedential value, the doctrine of stare decisis would virtually disappear.

{6} Bruch addressed the question raised in this case: whether an uninsured motorist clause in an insurance contract providing for a de novo appeal from arbitration awards over a specified amount violates public policy in New Mexico. The Court of Appeals did not determine that the present case involves a different issue than Bruch or facts that distinguish this case from the analysis in Bruch. Padilla's argument in this case is that Bruch was wrongly decided. Padilla relies on new cases and new arguments in order to undermine the rationale of Bruch, even devoting an entire section of her brief to an argument that State Farm's escape hatch provision violates the Uniform Arbitration Act. This argument directly contradicts the holding in Bruch that "the [Uniform Arbitration] Act is supportive of the parties' right to contract for arbitration." 117 N.M. at 213, 870 P.2d at 751. Even though the Court of Appeals concluded that Bruch was distinguishable, there is no question that, in order for the Court of Appeals' opinion to stand, the holding in Bruch that contract provisions of this nature do not violate public policy would have to be viewed as overruled. In other words, the holding by the Court of Appeals that this contractual provision violates public policy and cannot preclude an insured from enforcing an arbitration award to the extent of the minimum limits in effect overrules the holding in Bruch that the insurer is entitled to enforce the provision as written. Therefore, because the issue in the present case, whether the contract violated public policy, was addressed by this Court in Bruch, we conclude that Bruch is authority for this considered proposition and, as determined by the district court, is binding precedent in this case. State v. Wilson, 116 N.M. 793, 796, 867 P.2d 1175, 1178 (1994) (stating that "the Court of Appeals . . . remains bound by Supreme Court precedent"). The question we must consider on certiorari, then, is whether Padilla has articulated a sufficient reason to overrule Bruch. Although we disagree with the Court of Appeals that this case is distinguishable from Bruch, we believe that the policy arguments made by Padilla, and adopted by the Court of Appeals, provide a compelling reason to overrule Bruch and conclude that the holding in Bruch is flawed. See Wilson, 116 N.M. at 796,

867 P.2d at 1178 ("[T]his Court encourages the Court of Appeals to express its rationale for any reservations it might harbor over Supreme Court precedent.").

II. Stare Decisis

{7} The principle of stare decisis dictates adherence to precedent. This doctrine "promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process." Payne v. Tennessee, 501 U.S. 808, 827, 111 S.Ct. 2597, 115 L.Ed.2d 720 (1991). Therefore, "the doctrine of stare decisis is of fundamental importance to the rule of law," Welch v. Tex. Dep't of Highways & Pub. Transp., 483 U.S. 468, 494, 107 S.Ct. 2941, 97 L.Ed.2d 389 (1987), and "it lies at the very core of the judicial process of interpreting and announcing law." Trujillo v. City of Albuquerque, 1998-NMSC-031, ¶ 33, 125 N.M. 721, 965 P.2d 305. While "[s]tare decisis is not an inexorable command," Payne, 501 U.S. at 828, 111 S.Ct. 2597, we require a compelling reason to overrule one of our prior cases. Trujillo...

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