Salas v. Mountain States Mut. Cas. Co.

• Decision Date: 10 October 2007
• Docket Number: No. 26,385.,26,385.
• Citation: 173 P.3d 35,2007 NMCA 161
• Parties: Mary SALAS, Plaintiff-Appellant, v. MOUNTAIN STATES MUTUAL CASUALTY COMPANY, Defendant-Appellee.
• Court: Court of Appeals of New Mexico

173 P.3d 35

2007 NMCA 161

Mary SALAS, Plaintiff-Appellant, v. MOUNTAIN STATES MUTUAL CASUALTY COMPANY, Defendant-Appellee.

No. 26,385.

Court of Appeals of New Mexico.

October 10, 2007.

Certiorari Granted, No. 30,735, December 4, 2007.

Schneider-Cook Law Firm, P.C., Angie Schneider-Cook, Ruidoso, NM, for Appellant.

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

OPINION

BUSTAMANTE, Judge.

{1} Plaintiff Mary Salas filed a complaint for breach of contract after Mountain States Mutual refused to provide her underinsured motorist coverage under a policy Mountain States had issued to Plaintiff's son and daughter-in-law. Mountain States requested summary judgment arguing that Plaintiff had failed to comply with the consent-to-settle provisions of the policy. The district court apparently agreed, granted summary judgment in favor of Mountain States and dismissed the complaint. Plaintiff appeals and we reverse.

A. BACKGROUND

{2} On March 2, 2000, Plaintiff was a passenger in her daughter-in-law's car and injured when an underinsured motorist rear-ended them. The underinsured motorist was insured under a liability policy issued by Farmers Insurance Company of Arizona (Farmers) with a $30,000 limit. The vehicle Plaintiff occupied was insured with both medical pay and UIM coverage by Mountain States Mutual Casualty Company (Mountain States). Because she was a passenger in the Mountain States insured vehicle, Plaintiff became an insured and was entitled to both coverages.

{3} Plaintiff made a claim on June 2, 2000, through the local insurance agency where the Mountain States policy was purchased for payment of some of her medical bills. The insurance agency prepared an Automobile Loss Notice to Mountain States describing the accident. On June 29, 2000, Mountain States issued Plaintiff a check for the limits of its medical pay coverage of $5000. When the payment was made, Mountain States knew that Plaintiff's bills to date were $7000 and that she was continuing treatment. In making this payment, Mountain States became entitled to subrogation under the following provision of its policy:

OUR RIGHT TO RECOVER PAYMENT:

A. If we make a payment under this policy and the person to or for whom payment was made has a right to recover damages from another, we shall be subrogated to that right. That person shall do:

1. Whatever is necessary to enable us to exercise our rights; and

2. Nothing after loss to prejudice them.

Mountain States notified Farmers on June 30, 2000, of its subrogation claim, and contacted Farmers at various times in 2000, 2001, and 2002, in pursuit of its subrogation claim, each time learning that Plaintiff's claims with Farmers and its insured had not been resolved.

{4} Through counsel, Plaintiff filed a personal injury suit against the driver of the car that rear-ended her and against Farmers on August 26, 2002. On March 4, 2003, without the knowledge or consent of Mountain States, Plaintiff settled the personal injury case and executed a Release in favor of Farmers and its insured in exchange for the Farmers' policy limits of $30,000. The settlement brought the consent-to-settle exclusion in the Mountain States UIM policy into play. This exclusion provides:

EXCLUSIONS

A. We do not provide Uninsured Motorist Coverage sustained by any person:

. . . .

2. If that person or the legal representative settles the bodily injury claim without our consent.

In addition, another section of the policy provides:

PART E — DUTIES AFTER AN ACCIDENT OR LOSS

. . . .

B. A person seeking any coverage must:

1. Cooperate with us in the investigation, settlement or defense of any claim or suit.

{5} Farmers issued the settlement check payable to Plaintiff, Mountain States, and GMAC Insurance, and forwarded it to Plaintiff's attorney. Plaintiff's attorney wrote to Mountain States on March 14, 2003, stating he was surprised that Mountain States was included as a payee on the check, and that he had learned of Mountain States' subrogation claim after speaking to the attorney who represented Farmers' insured in the personal injury case. He requested a fee of $1750 (35% of $5000) for recovering the subrogation claim. Mountain States ultimately agreed, and endorsed the Farmers check. This letter of March 14, 2003, was the first notice or indication from any source to Mountain States that Plaintiff had entered into, or was entering into, a settlement with Farmers or its insured in relation to the March 2, 2000, accident.

{6} On July 7, 2003, after Plaintiff settled the personal injury case with Farmers and its insured and after Mountain States endorsed the Farmers' $30,000 settlement check, Plaintiff's attorney wrote Mountain States, stating he had recently learned that Mountain States provided UIM coverage on the vehicle Plaintiff had occupied, and demanded UIM compensation. Mountain States denied the claim, asserting that Plaintiff breached the consent-to-settle provision of the policy. Plaintiff sued, asserting claims for breach of contract and unfair claims practices.

{7} The district court granted Mountain States summary judgment. Plaintiff appeals. We conclude: (1) Plaintiff violated the insurance policy when she settled her personal injury action without obtaining consent from Mountain States, (2) Plaintiff's breach resulted in presumed prejudice to Mountain States, (3) Plaintiff failed to rebut the presumed prejudice to Mountain States, and (4) Mountain States failed to put Plaintiff on notice of the provisions of the policy and should be estopped from enforcing its exclusionary provisions. We therefore reverse.

B. DISCUSSION

{8} Our review in this case is de novo for two reasons: the parties have no dispute about the material facts, but they do dispute the legal effect of those facts; and in determining the legal effect of the undisputed material facts, we must interpret and give effect to the insurance contract. See Rehders v. Allstate Ins. Co., 2006-NMCA-058, ¶ 12, 139 N.M. 536, 135 P.3d 237, cert. granted, 2006-NMCERT-005, 139 N.M. 568, 136 P.3d 569 ("Where the material facts are undisputed, leaving only legal questions, our review of the district court order granting summary judgment is de novo."); Battishill v. Farmers Alliance Ins. Co., 2006-NMSC-004, ¶ 6, 139 N.M. 24, 127 P.3d 1111 (stating that the interpretation of an insurance contract is a matter of law).

1. Plaintiff Violated the Insurance Policy When She Settled Her Personal Injury Action Without Obtaining Consent From Mountain States

{9} The plain language of the insurance policy required Plaintiff to obtain Mountain States' consent to the settlement of her personal injury suit against Farmers and its insured to be entitled to UIM benefits. In addition, the policy clearly and unambiguously required Plaintiff to cooperate with Mountain States in the settlement of that suit, and it required that Plaintiff not do anything to prejudice subrogation rights of Mountain States. See Gamboa v. Allstate Ins. Co., 104 N.M. 756, 758, 726 P.2d 1386, 1388 (1986) (stating that when reviewing policy coverage, the language of the policy must be given its natural and ordinary meaning unless the language is ambiguous).

{10} The parties do not dispute that Mountain States was not aware of the settlement negotiations, it was not a party to the negotiations, and the settlement was made without the consent of Mountain States. We therefore conclude that Plaintiff violated the insurance policy when she settled her personal injury suit without obtaining consent from Mountain States.

2. Plaintiff's Breach in Settling the Personal Injury Action Without Obtaining Consent From Mountain States Resulted in Presumed Prejudice to Mountain States

{11} Plaintiff is not a named insured in the Mountain States UIM policy. She became an insured because she was an occupant of the insured vehicle when the accident occurred and she was injured. That is to say, she was a Class 2 insured. See Konnick v. Farmers Ins. Co. of Ariz., 103 N.M. 112, 114-15, 703 P.2d 889, 891-92 (1985) (recognizing two classes of insureds: Class 1, consisting of the named insured as stated in the policy and, while residents of the same household, the spouse of that named insured and relatives of either; and Class 2, consisting of any other person while occupying an insured vehicle).

{12} We begin our analysis with March v. Mountain States Mutual Casualty Co., 101 N.M. 689, 687 P.2d 1040 (1984). The plaintiff (March) was a Class 1 insured under a policy issued by Mountain States that included UIM coverage. Id. at 690, 687 P.2d at 1041. The policy contained express consent, right to subrogation, and duty to cooperate provisions that are in all material respects identical to those in this case. Id. at 691, 687 P.2d at 1042. After being in an accident, March settled his claim with the other driver and its insurer for policy limits, and released the other driver and his insurer from any further liability for personal injury or property damage. Id. at 690, 687 P.2d at 1041. The settlement was without notice to or the consent of Mountain States. Id. March then submitted an underinsurance claim to Mountain States, and Mountain States rejected the claim. Id. The Supreme Court acknowledged a clear line of New Mexico precedent, which establishes that the settlement or release of a tortfeasor by an insured in violation of express policy provisions destroys the subrogation rights of the insurer. Id. at 692, 687 P.2d at 1043. Since "[t]he purpose of a consent-to-settle clause is to protect the insurer's subrogation rights[,]" the Supreme Court rejected March's argument that the consent and subrogation provisions of the policy should not apply to UIM claims. Id. The Supreme Court concluded, "the well established contractual nature of subrogation rights in New Mexico logically justifies the use of protective consent provisions, even though our uninsured motorist sta...