Safeco Ins. Co. of America v. U.S. Fidelity & Guar. Co.

• Decision Date: 10 April 1984
• Docket Number: No. 14643,14643
• Citation: Safeco Ins. Co. of America v. U.S. Fidelity & Guar. Co., 679 P.2d 816, 101 N.M. 148, 1984 NMSC 45 (N.M. 1984)
• Parties: SAFECO INSURANCE COMPANY OF AMERICA, a foreign corporation, Petitioner, v. UNITED STATES FIDELITY & GUARANTY COMPANY, a Maryland corporation, Respondent.
• Court: New Mexico Supreme Court

Page 816

679 P.2d 816

101 N.M. 148

SAFECO INSURANCE COMPANY OF AMERICA, a foreign corporation Petitioner, v. UNITED STATES FIDELITY & GUARANTY COMPANY, a Maryland corporation, Respondent.

No. 14643.

Supreme Court of New Mexico.

April 10, 1984.

J.E. Casados, Gallagher & Casados, Albuquerque, for petitioner.

John E. Farrow, Fairfield, Farrow, Hunt, Reecer & Strotz, Albuquerque, for respondent.

OPINION

WALTERS, Justice.

This action arose when Kim Taylor's automobile collided with an automobile driven by Nicholas Calomino and an automobile driven by Richard Vigil and owned by Eugene Vigil. Taylor was insured by USF & G, Calomino was insured by Safeco, and the Vigils were uninsured. After USF & G paid the bulk of Taylor's damages, it sued Calomino, Safeco, and the Vigils on a subrogation theory, and named Taylor an involuntary plaintiff to the extent of her $100 deductible. The trial court dismissed the claim against Safeco. Citing Sellman v. Haddock, 62 N.M. 391, 310 P.2d 1045 (1957), Maurer v. Thorpe, 95 N.M. 286, 621 P.2d 503 (1980), and Campbell v. Benson, 97 N.M. 147, 637 P.2d 578 (Ct.App.1981), the court of appeals reversed and held that due process requires Safeco to be joined as a party defendant. We granted certiorari to clarify the law regarding joinder and naming insurance companies as parties, and regarding the introduction of evidence of a party's insured status.

We reverse the result reached by the court of appeals and remand the matter to the trial court for additional proceedings.

I.

In New Mexico, an insurer who pays the claim of its insured under an automobile insurance policy is deemed to be subrogated by operation of law to recovery of its payments against the person who caused the loss. In 1957, under Sellman, this Court held that when the insurer pays its insured any amount of the loss, it is deemed to be a necessary and an indispensible party in any later action by its insured against the person responsible for the loss. Sellman, 62 N.M. at 403, 310 P.2d at 1053. This holding had the effect of requiring plaintiff's insurer to join in the action while disallowing any mention of defendant's insurer. In 1980, this Court attempted in Maurer to alleviate a portion of the Sellman problem. Maurer, 95 N.M. at 287, 621 P.2d at 504. Later, in Campbell, the court of appeals re-emphasized the Maurer rule and held that when a plaintiff is compelled to join the insurance company as a party, the element of fairness embodied in due process requires joinder of a defendant's insurance company as well.

Although the Sellman joinder doctrine was to some extent improved, it remains critically flawed as evidenced by the questions posed in the instant case. Here, USF & G is bringing suit against Calamino and his insurer Safeco, and against the Vigils who, because they are uninsured, have no insurer to be joined. The existing joinder doctrine, in attempting to balance the positions of insured plaintiffs and defendants, fails to anticipate the prejudice which might occur when both insured and uninsured parties are named in the same suit. Here, the fact that Vigils are the only parties to the action not represented by an insurance company could create the impression that the parties are financially unequal. It may be perceived that Taylor and USF & G are bringing suit against an uninsured defendant who would not have the means to satisfy any judgment entered against him. In contrast, a jury might infer that insured parties, such as Taylor and Calomino, have access to "deep pockets" and it could return a verdict accordingly. Other jurors might even tend to find against a party out of fear that any judgments against an insured or insurer party could contribute to an increase in their costs of liability insurance.

The inquiries attending the questions of which parties must be named or which parties must be joined to permit the just and proper maintenance of a lawsuit have been formalized in logically discrete rules of procedure. See NMSA 1978, Civ.P.R. 17, 19, and 21 (Repl.Pamp.1980). We acknowledge, however, that previous New Mexico decisions have unnecessarily confused these inquiries with the fear that any disclosure of insurance at trial will prejudice an insured party or an insurer party. See Maurer, 95 N.M. at 287, 621 P.2d at 504; Campbell, at 97 N.M. at 150, 637 P.2d at 581; and compare the assessment of Sellman in Comment, Insurance: Joinder of Defendant's Insurer, A Resolution of the "Sellman" Problem, 1 N.M.L.Rev. 375, 377-381 (1971). This fear of prejudice is most apparent in cases decided prior to our adoption of NMSA 1978, Evid.R. 411 (Repl.Pamp.1983) (adopted April 26, 1973, and made effective July 1, 1973). See, e.g., Fort v. Neal, 79 N.M. 479, 444 P.2d 990 (1968); Faulkner v. Martin, 74 N.M. 159, 391 P.2d 660 (1964); and Garcia v. Sanchez, 68 N.M. 394, 362 P.2d 779 (1961).

Maurer sought to reconcile this perceived potential for prejudice with the unfairness apparent in Sellman's required joinder of a plaintiff's subrogated insurer. Today, we reject Maurer's attempted reconciliation as being unnecessary in view of the procedure we direct to be followed in cases of this nature, and our clarification of Evid.R. 411.

II.

As necessitated by our ensuing resolution of this case, we hereby overrule Sellman, Maurer, and Campbell, to any extent that they are inconsistent with the approach we adopt in this Opinion. Trial courts are instructed to disregard these cases as authority for any joinder issues concerning insurers or insureds.

In future, when subrogated insurers are required by Civ.P.R. 17 to be joined as a party, and the case is to be tried to a jury, the fact of the insurer's joinder is not to be disclosed to the jury. Instead, the insured party shall assert his claim for all damages recoverable from the one who allegedly caused the harm, including any amount for which his insurer would be entitled to subrogation against the defendant or counter-defendant. If it is the insured who has been joined, as in the instant case, the requirement shall be the same. If the injured party or parties should recover damages, the insurer shall then be permitted to prove its subrogation claim to the trial court and, from the proceeds of any recovery, the court shall apportion the recovery between the insured and his insurer according to their respective entitlements.

The procedure outlined above has, as a practical matter, been the manner of proceeding that has been followed by agreement of the parties in many districts of New Mexico for decades. Our adoption of this method hereafter as a required procedure in Sellman -type cases will obviate any unfair effects visited upon either a plaintiff or defendant, as recognized in Maurer, if either or both of them are insured, and will, at the same time, safeguard the interests of all insurers to the extent of their subrogated rights.

III.

Despite our resolution of the joinder question in cases of this nature, the potential for juror awareness of insurance coverage in some instances will be made possible by the applicable rules of evidence adopted by this Court. See NMSA 1978, Evid.R. 101, 105, 401, 402, 411, and 1101 (Repl.Pamp.1983); Ammerman v. Hubbard Broadcasting, Inc., 89 N.M. 307, 551 P.2d 1354 (1976) (Supreme Court's power to regulate practice in, and promulgate rules of evidence for, inferior courts is rooted in N.M. Const. art. III, Section 1 and art. VI, Section 3), cert. denied, 436 U.S. 906, 98 S.Ct. 2237, 56 L.Ed.2d 404 (1978).

Of these evidentiary rules, Rule 411 has particular impact:

Evidence that a person was or was not insured against liability is not admissible upon the issue whether he acted negligently or otherwise wrongfully. This rule does not require the exclusion of evidence of insurance against liability when offered for another purpose, such as proof of agency, ownership or control, or bias or prejudice of a witness.

NMSA 1978, Evid.R. 411 (Repl.Pamp.1983) (emphasis added). While the joinder principles of Sellman, Maurer, and Campbell perpetuated concern for the prejudicial effects of compelling the joinder of an insurer, the decisions of this Court and the Court of Appeals of New Mexico which apply Rule 411 recognize that an evidentiary disclosure of insurance coverage is not completely forbidden. See, e.g. Mac Tyres, Inc. v. Vigil, 92 N.M. 446, 589 P.2d 1037 (1979) (impeachment evidence revealing insurance coverage was admissible); Martinez v. Teague, 96 N.M. 446, 631 P.2d 1314 (Ct.App.1981) (evidence of insurance admitted to rebut discrediting effect of prior misleading testimony); Bloom v. Lewis, 97 N.M. 435, 640 P.2d 935 (Ct.App.1980) (insurance coverage admissible to show applicability of family purpose doctrine), rev'd on other grounds, 96 N.M. 63, 628 P.2d 308 (1981); and Grammer v. Kohlhaas Tank and Equipment Co., 93 N.M. 685, 604 P.2d 823 (Ct.App.1979) (disclosure of insurance coverage allowed where such testimony went to impeachment of and an admission by opposing party's witnesses), cert. denied, 94 N.M. 628, 614 P.2d 545 (1980).

Clearly, New Mexico has rejected any blanket rule barring the introduction of any evidence of a party's insured status. Teague, 96 N.M. at 448-49, 631 P.2d at 1316-17. In addition to the particular instances listed in Rule 411 as examples of permissible use of evidence of insurance, the rule expressly permits the introduction of such evidence for any purpose other than those specifically proscribed. See Teague, 96 N.M. at 449, 631 P.2d at 1317; Grammer, 93 N.M. at 691, 604 P.2d at 829. We are in accord with at least two federal circuits applying the verbatim equivalent of our Rule 411 which have indicated that evidence of liability insurance can be introduced to bear upon some other relevant and material issue in addition to agency, ownership, control, or bias or prejudice of a witness. Savoie v. Otto Candies, Inc., 692 F.2d 363 (5th Cir.1982) (letters from defendant's insurer to plainti...