Salas v. Mountain States Mut. Cas. Co.

• Decision Date: 04 February 2009
• Docket Number: No. 30,735.,30,735.
• Parties: Mary SALAS, Plaintiff-Respondent, v. MOUNTAIN STATES MUTUAL CASUALTY COMPANY, Defendant-Petitioner.
• Court: New Mexico Supreme Court

202 P.3d 801

2009 NMSC 005

Mary SALAS, Plaintiff-Respondent, v. MOUNTAIN STATES MUTUAL CASUALTY COMPANY, Defendant-Petitioner.

No. 30,735.

Supreme Court of New Mexico.

February 4, 2009.

Atwood, Malone, Turner & Sabin, P.A., Cord D. Borner, Robert E. Sabin, Roswell, NM, for Petitioner.

Bryant, Schneider-Cook Law Firm, P.A., Angie Schneider-Cook, Daniel A. Bryant, Ruidoso, NM, for Respondent.

OPINION

MAES, Justice.

{1} The dispositive issue in this appeal is whether an insurer may deny or limit insurance coverage to a known class-two insured in reliance on an undisclosed consent-to-settle exclusionary provision. We conclude that Mountain States Mutual Casualty Company (Defendant) had actual knowledge that Mary Salas (Plaintiff) was a class-two insured who had suffered a compensable injury in an insured motor vehicle and, therefore, had an affirmative duty to disclose to Plaintiff the insurance coverage available to her and its terms and conditions. Because Defendant failed to inform Plaintiff of her rights and responsibilities under the insurance policy, we conclude that Defendant breached its duty of disclosure. Accordingly, Defendant is equitably estopped from enforcing the consent-to-settle exclusionary provision to deny or limit Plaintiff's entitlement to underinsured motorist (UIM) benefits.

I. FACTS AND PROCEDURAL HISTORY

{2} The record reflects the following undisputed facts. On March 2, 2000, Plaintiff was a passenger in a vehicle driven by her daughter-in-law, Teresa Salas, when that vehicle was rear-ended by Nancy Virden. Salas' vehicle was insured by Defendant, while Virden's vehicle was insured by Farmers Insurance Company of Arizona (Farmers). Under Salas' insurance policy (the Mountain States policy), Plaintiff was a class-two insured entitled to medical payments and UIM coverage because she was a passenger in the insured motor vehicle at the time of the collision. In early June 2000, Plaintiff, who had sustained physical injuries in the collision, submitted to Defendant a claim for medical payments in the approximate amount of $7,000. On June 29, 2000, Defendant issued Plaintiff a check in the amount of $5,000, the limit for medical payments available to Plaintiff under the Mountain States policy.

{3} At some point in June 2000, Plaintiff hired an attorney and, in August 2002, she filed a personal injury action against Virden and Farmers, seeking compensatory damages for her physical injuries. Neither Plaintiff nor her attorney either requested or received a copy of the Mountain States policy from Defendant and, therefore, they were unaware of the availability of UIM coverage and the consent-to-settle exclusionary provision. Indeed, Plaintiff's attorney believed Salas' vehicle to be uninsured because a police report erroneously indicated that Salas had no insurance at the time of the collision.

{4} In the meantime, Defendant submitted a subrogation demand to Farmers, seeking reimbursement of the $5,000 that it had paid Plaintiff for medical payments under the Mountain States policy. Between June 2000 and March 2003, Defendant contacted Farmers periodically to inquire about the status of its subrogation claim. At some point in the course of these communications, Defendant apparently learned that Plaintiff had filed an action against Farmers, but that Farmers had "not yet settled [the] case with [its] insured."

{5} On March 4, 2003, Plaintiff, Farmers, and Virden entered into a settlement agreement, whereby Plaintiff executed a release of liability in favor of Farmers and Virden in exchange for the limit of Virden's liability insurance policy, $30,000. When Plaintiff's attorney received the settlement check, he "was surprised to see that [Defendant] was listed as a payee." Upon further inquiry, Plaintiff's attorney discovered that Plaintiff was a class-two insured under the Mountain States policy, that Plaintiff previously had received $5,000 in medical payments from Defendant, and that Defendant had filed a subrogation claim against Farmers. On April 22, 2003, Plaintiff's attorney forwarded the settlement check to Defendant, which endorsed the check and received $3,250 in full satisfaction of its subrogation claim ($5,000 minus 35% in attorney's fees).

{6} On July 10, 2003, Plaintiff submitted to Defendant a claim for UIM benefits under the Mountain States policy. In support of her claim, Plaintiff provided Defendant with medical bills totaling slightly less than $27,000 and medical reports indicating that she has a "lifelong condition." Defendant denied Plaintiff's claim, alleging that she was not entitled to UIM benefits because she had breached the consent-to-settle exclusionary provision of the Mountain States policy by settling her personal injury action against Farmers and Virden without Defendant's consent.¹

{7} On August 13, 2003, Plaintiff filed a complaint against Defendant in district court alleging (1) breach of insurance contract, and (2) unfair claims practices, contrary to NMSA 1978, Section 59A-16-20 (1984, as amended through 1997). Following discovery, Defendant moved and Plaintiff cross-moved for summary judgment as a matter of law. After extensive briefing and oral argument, the district court rendered summary judgment in favor of Defendant. The district court reasoned that "Defendant has shown that the tortfeasor was unlikely to be judgment proof; and therefore, that it has been substantially prejudiced by the fact that . . . Plaintiff settled with the tortfeasor." The district court further reasoned that

there is no duty on the part of an insurer under the facts of this case to provide the additional insured with information prior to any request . . . to do so. In this case, the burden should be on the additional insured to investigate whether a known policy includes coverage for whatever purpose.

{8} The Court of Appeals reversed the judgment of the district court. Salas v. Mountain States Mut. Cas. Co., 2007-NMCA-161, ¶ 48, 143 N.M. 113, 173 P.3d 35. The Court concluded that, although Plaintiff had breached the consent-to-settle exclusionary provision, which resulted in presumed prejudice to Defendant, Defendant nonetheless had "failed to put Plaintiff on notice of the provisions of the policy and should be estopped from enforcing its exclusionary provisions." Id. ¶ 7. The Court did not address Plaintiff's claim regarding Defendant's alleged bad-faith and unfair claims practices, even though that claim properly had been raised, briefed, and argued on appeal.

{9} In reversing the judgment of the district court, the Court of Appeals recognized that a tension exists between the insurer's duty "to put its insureds on notice as to the provisions of its policy[,]" id. ¶¶ 34, 38, and the insured's responsibility to investigate the scope of available insurance coverage. Id. ¶ 35. The Court resolved this tension in favor of Plaintiff, holding that "insurers such as [Defendant] have a primary responsibility to provide their insureds reasonable notice of the contents of their policy by providing a copy of the policy or some other documentation of its terms." Id. ¶ 38 (internal quotation marks and citation omitted). The Court reasoned that the Plaintiff's status as a class-two insured, rather than a class-one insured

does not change the principle that the insured must be put on notice of provisions in the policy that the insurer wants to enforce against him or her. The simplest way to provide notice is by giving the [c]lass[-two] insured a copy of the policy— or its UIM provisions at the least. This is not an onerous responsibility in that it would only apply to [c]lass[-two] insureds of whom the insurance company is aware. Surely, it is routine practice for insurers to identify all occupants in covered vehicles involved in collisions reported to them. Failure to do so should prevent the insurer's reliance on exclusionary provisions such as those we consider here.

Id. ¶ 46. "Given that there is no question on this record that Plaintiff was not aware of the consent-to-settle provision," the Court concluded that Defendant "may not use it to deny coverage." Id. ¶ 47.

{10} The dissenting opinion disagreed that Defendant had "an affirmative obligation . . . to provide [Plaintiff] with notice of the terms of the underinsurance policy[,]" noting that "[t]his asserted duty has no basis in tort, contract, or public policy." Id. ¶ 50 (Vigil, J., dissenting). Instead, the dissenting opinion concluded that "[t]he real question presented by this case is whether Plaintiff's failure to comply with the [consent-to-settle] provision of the underinsurance policy is excused." Id. ¶ 54. It determined that "Plaintiff's failure to learn of the existence of the terms of the underinsurance coverage that was available to her was unreasonable and unjustified in light of the undisputed material facts." Id. ¶ 55.

{11} We granted Defendant's petition for writ of certiorari to resolve whether (1) Defendant is estopped from enforcing the consent-to-settle exclusionary provision because it breached its duty to disclose to Plaintiff, a known class-two insured, the terms and conditions governing coverage under the Mountain States policy; and (2) the Court of Appeals should have addressed Plaintiff's claim for bad-faith and unfair claims practices. Salas v. Mountain States Mut. Cas. Co., 2007-NMCERT-012, 143 N.M. 213, 175 P.3d 307.

II. STANDARD OF REVIEW

{12} "Our review on a grant of summary judgment is de novo." Garcia v. Underwriters at Lloyd's, London, 2008-NMSC-018, ¶ 12, 143 N.M. 732, 182 P.3d 113. "Summary judgment is only appropriate where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. All reasonable inferences from the record are construed in favor of the non-moving party." Id. (internal quotation marks and citation omitted). Moreover, the existence of a duty is a question of law, which we review de novo. See, e.g., Azar v....