Quynh Truong v. Allstate Ins. Co.

Citation227 P.3d 73,2010 NMSC 009
Decision Date04 March 2010
Docket NumberNo. 31,013.,31,013.
PartiesQUYNH TRUONG, Armie Sy, Miranda Daniele, Warren Hopper, Sandra Martinez, and Michael Martinez, Plaintiffs-Petitioners, v. ALLSTATE INSURANCE COMPANY, a foreign corporation, Susan Cary, and John Does 1-500, Defendants-Respondents, and Computer Sciences Corporation, Intervenor.
CourtSupreme Court of New Mexico

Morgan & Macy, Attorneys, Ltd., Ron Morgan, Edwin E. Macy, Whitney Buchanan, P.C., Whitney Buchanan, Albuquerque, NM, Parry, Deering, Futscher & Sparks, P.S.C. Ron Parry, Covington, KY, for Petitioners.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Lisa Mann, Jennifer A. Noya, Albuquerque, NM, Steptoe & Johnson L.L.P., Jon T. Neumann, Bennett Evan Cooper, Floyd P. Bienstock, Phoenix, NM, for Respondents.

Sutin, Thayer & Browne, Jay D. Hertz, Albuquerque, NM for Intervenor.

Sanders & Westbrook, P.C., Maureen A. Sanders, Albuquerque, NM, for Amicus Curiae, Insurance Division of New Mexico Public Regulation Commission.

Miller Stratvert, P.A., Ruth Fuess, Kelsey D. Green, Albuquerque, NM, for Amicus Curiae, Property Casualty Insurers Association of America.

Gary K. King, Attorney General, Karen J. Meyers, Assistant Attorney General, Stephen Vigil, Assistant Attorney General, Nanette E. Erdman, Assistant Attorney General, Santa Fe, NM, for Amicus Curiae, Attorney General of New Mexico.

OPINION

DANIELS, Justice.

{1} In this class action case, we are asked to determine the applicability of an exemption to the Unfair Practices Act (UPA), NMSA 1978, Sections 57-12-1 to -22 (1967, as amended through 1999), that bars UPA suits based on "actions or transactions expressly permitted under laws administered by a regulatory body of New Mexico." Section 57-12-7 (emphasis added).

{2} Plaintiffs, a certified class of Allstate insureds, alleged in their complaint that Allstate had violated the UPA by using claims processing computer programs (hereinafter collectively referred to as "Colossus") that were programmed to underestimate and underpay their insurance claims below their true value. The district court agreed with Allstate's defense that the UPA claim was barred because the New Mexico Public Regulation Commission's (NMPRC) Superintendent of Insurance had "expressly permitted" its use of Colossus by adopting an independent market conduct examination (MCE) that spot-checked and noted no objections to Allstate's general claims handling practices within the historical period in which the class members' claims had arisen.

{3} We hold that the MCE did not create the kind of express permission that would exempt Allstate's challenged conduct from UPA scrutiny. We therefore reverse the district court's partial judgment barring Plaintiffs' claims.

I. FACTUAL AND PROCEDURAL BACKGROUND

{4} Plaintiffs filed a class action suit against Allstate in April 1999, alleging that Allstate's use of Colossus systematically devalued and underpaid their claims. The district court defined the class as "Allstate vehicular policy beneficiaries who made claims in New Mexico from 1995 forward, after the implementation and use of [Allstate's Claims Core Process Redesign (CCPR)]." Colossus was an integral part of CCPR as a claim evaluation tool. The district court ordered that the class should proceed under one common issue of liability: "Did Allstate breach its duty to their first party insured by delegating adjustment to [Colossus]?" The Court of Appeals exercised its discretion under Rule 1-023(F) NMRA to deny Allstate's application for interlocutory appellate review of the class certification order, and this Court denied certiorari. Truong v. Allstate, 2004-NMCERT-001, 135 N.M. 160, 85 P.3d 802.

{5} Four months after Plaintiffs' complaint was filed and unbeknownst to Plaintiffs, their counsel, or the district court, the Superintendent initiated an MCE to analyze Allstate's general claims handling processes in cases that had been processed from 1997 through 1999. The MCE process is one of the statutory tools the Superintendent uses to oversee the conduct of insurance companies For the purpose of determining financial condition, fulfillment of contractual obligations, methods of doing business, treatment accorded policyholders, and compliance with law, the superintendent shall, as often as he deems advisable, examine or investigate the affairs, transactions, accounts, records and assets of each authorized insurer.... Except as expressly otherwise provided, the superintendent shall so examine each domestic insurer not less frequently than every five years.

NMSA 1978, § 59A-4-5 (1993).

{6} The MCE applied two standards relevant to our inquiry in the process of assessing Allstate's conduct. The first standard was G6, employed to review whether "[c]laims are properly handled in accordance with policy provisions and applicable statutes, rules and regulations." The second standard was G13, reviewing claims handling practices to detect whether they "compel claimants to institute litigation, in cases of clear liability and coverage, to recover amounts due under policies by offering substantially less than is due under the policy." The MCE detected nothing objectionable in Allstate's claims handling, including with respect to the G6 and G13 standards. The observations relating to the G6 and G13 standards were:

Observations [on G6]: Random samples of Closed Paid Claims, Claims Open as [of] 12/21/99, and Litigated Claims were selected and reviewed. All appropriate factors appear to have been handled. No exceptions were noted.

. . . .

Observations [on G13]: All Litigated Claim files sampled were reviewed under this standard. There were no cases where claimants appeared to be compelled to institute litigation in order to recover amounts due under policies because the Company was offering substantially less than is due under the policy. Demand amounts were compared with claim results and no trends were noted to suggest inappropriate settlement tactics.

{7} Although the MCE never specifically mentioned the Colossus program or its manner of use, the reviewed samples included at least forty-eight claims that had involved Colossus calculations as a part of the claims handling process. In December 2002, over three years after this suit began, the Superintendent ultimately adopted the MCE by signing a certificate which stated in its entirety:

I, Eric P. Serna, Superintendent of Insurance of the State of New Mexico, do hereby certify that the attached Market Conduct Examination report for the period ending May 31, 2000 on:

                            Allstate Insurance Company
                            Allstate Indemnity Company
                            Allstate Property & Casualty
                                 Insurance Company
                

Was recently completed by Donald P. Koch, Examiner In Charge with the Insurance Division.

Due consideration has been given to the comments of the Examiner regarding the business affairs as reflected in this report.

The report as of this date is hereby adopted, filed and made an official record of the Division.

{8} After the MCE had been conducted, Allstate disclosed to Plaintiffs' counsel and the district court that it had occurred and filed a motion for summary judgment. In essence, Allstate argued that because the MCE detected no objectionable claims handling processes in the sample of cases reviewed, including a number of files in which Colossus had in fact been used by Allstate, the Superintendent thereby "expressly permitted" the use of Colossus. The district court initially denied Allstate's summary judgment motion, finding disputed factual issues regarding the scope of the MCE and any approval or permission by the Superintendent.

{9} In contemplation of an interlocutory appeal from the denial of summary judgment, Allstate filed a motion entitled, "Allstate Insurance Company's Acceptance of the Court's Offer of an Evidentiary Hearing on Defendant Allstate Insurance Company's Motion for Summary Judgment and Request for Modification of the Court's July 23, 2003 Order." Plaintiffs objected on the ground the "evidentiary hearing would [have] invade[d] the rights ... to a jury trial." Not receiving a ruling on the motion, Allstate submitted an application for interlocutory appeal, which was denied.

{10} Allstate then renewed its motion for a hearing, to which Plaintiffs again objected. Plaintiffs argued that Allstate was trying to "repeat its effort at obtaining summary judgment by crafting a phase of litigation that would involve" a hearing with factfinding and that such a "hearing [would be] antithetical to an entitlement to summary judgment." Allstate explained to the district court that it was not requesting a reconsideration of summary judgment but instead was merely attempting to "create a complete and proper record ... [for the] Court of Appeals" and "to provide clear guidance to the parties regarding the issues that need to be addressed at trial."

{11} The district court ultimately decided to hold an evidentiary hearing to resolve issues about "what the superintendent did or didn't authorize," which the court characterized as "issues that I think are legal and should be decided by the Court." The court accordingly conducted a three-day evidentiary hearing, at which it considered numerous documents and expert witnesses. In addition to live testimony, the court considered the deposition testimony of Donald Koch, the outside contractor who had supervised the MCE and authored the report ultimately adopted by the Superintendent. Both parties have pointed to different statements by Mr. Koch in support of their positions in this litigation.

{12} The district court had previously been presented with Mr. Koch's affidavit asserting that the MCE report prepared by him did not "exonerate" Allstate's use of Colossus and that "whether the right amount was paid on any claim was not tested and this process is left to the court system." In response to questioning by Plaintiffs, Mr. Koch further testified that he did not know...

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