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

• Decision Date: 21 February 2013
• Docket Number: No. 33,622.,33,622.
• Citation: 298 P.3d 452
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff–Appellant, v. SAFECO INSURANCE COMPANY, New Mexico Municipal League and New Mexico Self Insurers' Fund, Hallmark Insurance Company, formerly Phoenix Indemnity Insurance Company and Geico General Insurance Company, Defendants–Appellees, and Farmers Insurance Company of Arizona, Defendant–Appellant.
• Court: New Mexico Supreme Court

298 P.3d 452

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff–Appellant,

v. SAFECO INSURANCE COMPANY, New Mexico Municipal League and New Mexico Self Insurers' Fund, Hallmark Insurance Company, formerly Phoenix Indemnity Insurance Company and Geico General Insurance Company, Defendants–Appellees,andFarmers Insurance Company of Arizona, Defendant–Appellant.

No. 33,622.

Supreme Court of New Mexico.

Feb. 21, 2013.

Guebert Bruckner, P.C., Donald George Bruckner, Christopher J. DeLara, Paul Martin Cash, Travis J. White, Albuquerque, NM, for Appellant State Farm Mutual Automobile Insurance Company.

Montgomery & Andrews, P.A., Kevin M. Sexton, Albuquerque, NM, Andrew S. Montgomery, Jaime R. Kennedy, Santa Fe, NM, for Appellee Safeco Insurance Company.

Hale & Dixon, P.C., Timothy S. Hale, Albuquerque, NM, for Appellees The New Mexico Municipal League and The New Mexico Self Insurers' Fund.

The Law Offices of Bruce S. McDonald, Bruce S. McDonald, Daniel P. Ulibarri, Albuquerque, NM, for Appellee Hallmark Insurance Company.

Simone, Roberts & Weiss, P.A., David William Frizzell, Albuquerque, NM, for Appellee Geico General Insurance Company.

O'Brien & Padilla, P.C., Daniel J. O'Brien, Albuquerque, NM, Keitha Anne Leonard, Santa Fe, NM, for Defendant–Appellant Farmers Insurance Company of Arizona.

OPINION

CHÁVEZ, Justice.

{1} The questions certified to us by the Court of Appeals pursuant to NMSA 1978, Section 34–5–14(C) (1972), require us to answer whether the primary or the secondary underinsured motorist (UIM) insurer, if either, should be given the statutory offset for the tortfeasor's liability coverage. State Farm Mut. Auto. Ins. Co. v. Safeco Ins. Co., No. 31,161, ¶ 5 (N.M.Ct.App. May 11, 2012) (order of certification to the New Mexico Supreme Court). The following hypothetical is intended to give context to our discussion of the relevant case law and resolution of the issue before us.

{2} A was a passenger in a vehicle driven by B, which was struck by a vehicle negligently driven by C. A sustains $500,000 in damages. C has liability coverage of $100,000. B has $100,000 in UIM coverage with XYZ Insurance Co. Because A was a passenger in the vehicle insured by XYZ, A is a Class II insured under the XYZ policy, and XYZ is the primary insurer because it insured the vehicle involved in the collision—the car closest to the risk. A also has UIM coverage under three other policies, with policy limits of $100,000, $50,000, and $25,000, respectively. A is a Class I insured under the three policies because A is a named insured in each policy. Because these policies did not insure the vehicle involved in the collision, the insurers who issued the policies are considered to be secondary insurers. Therefore, A has $100,000 in primary UIM coverage, plus $175,000 in secondary UIM coverage, for a total of $275,000 in UIM coverage.

{3} The question in this case, as it relates to this hypothetical, is whether XYZ Insurance Co. or the secondary insurers should receive an offset for the $100,000 of liability coverage available from C, the tortfeasor. The Court of Appeals held in State Farm Mutual Automobile Insurance Co. v. Jones, 2006–NMCA–060, ¶ 18, 139 N.M. 558, 135 P.3d 1277, that the primary UIM insurer is entitled to the offset. Applying Jones to the hypothetical, XYZ does not owe UIM benefits to A because the XYZ coverage equals C's liability coverage. This result is difficult to reconcile with our opinion in Tarango v. Farmers Insurance Co. of Arizona, 115 N.M. 225, 227, 849 P.2d 368, 370 (1993), where we held, consistent with the UIM approach we took in Branchal v. Safeco Insurance Co. of America, 106 N.M. 70, 71, 738 P.2d 1315, 1316 (1987), that the UIM insurer who insured the car involved in the accident must pay its UIM policy limits before the secondary UIM insurers must pay. Applying Tarango to our hypothetical, XYZ must pay its $100,000 before the secondary insurers pay.

{4} However, neither Branchal nor Tarango specifically addressed which insurer, if any, was to be given the offset for the tortfeasor's liability coverage. Instead, as we had done in previous cases, we simply used the offset to define the limits of the insured's UIM recovery. Schmick v. State Farm Mut. Auto. Ins. Co., 103 N.M. 216, 223, 704 P.2d 1092, 1099 (1985). The recovery is limited to the lesser of the insured's total damages or the insured's total stacked UIM coverage, minus the tortfeasor's liability coverage. Id. at 219, 704 P.2d at 1095. Applying Schmick to our hypothetical, A has available to her $175,000 in UIM benefits once C's $100,000 in liability coverage has been deducted from the total stackable UIM coverage of $275,000. We hold, consistent with Tarango and its progeny, that once the limits of the insured's UIM recovery are identified, the primary insurer must pay up to its policy limits before secondary UIM insurers are required to pay in proportion to their respective policy limits. Therefore, under our hypothetical, XYZ Insurance Co. pays the first $100,000 in UIM benefits, and the secondary insurers pay the remaining $75,000 in UIM benefits in proportion to their policy limits. Thus, the short answer to the certified question is that neither the primary nor the secondary insurers are directly awarded the offset because, as we will explain, under existing case law, the offset is applied before any UIM insurer is required to pay UIM benefits.

BACKGROUND

{5} On June 17, 2010, State Farm filed an action against other insurers seeking a declaratory judgment to clarify how UIM statutory offsets should be applied between primary and secondary insurers under New Mexico case law. In its complaint, State Farm described six car accidents, three in which State Farm was the primary UIM insurer because it insured the vehicle involved in the collision, and three in which it was a secondary UIM insurer because its insured was injured while an occupant in someone else's vehicle. State Farm filed a motion for summary judgment, which prompted cross-motions for summary judgment by the defendant insurance companies. On February 15, 2011, the district court entered a final judgment declaring that the holdings in Tarango and Jones “cannot be reconciled” and “cannot both be valid, current expressions of New Mexico law regarding the application of the statutory offset between primary versus secondary UIM coverages.” However, the district court then proceeded to explain that statutory offsets were not specifically discussed in Tarango, and the question presented in Jones—which insurer gets the offset—was not before the Supreme Court in Tarango. Therefore, the district court concluded that Jones controlled, and the primary insurer was entitled to the statutory offset.

{6} Applying Jones, the district court found against State Farm on Counts I through III, where it was the secondary insurer, and in favor of State Farm on Counts IV through VI, where it was the primary insurer. State Farm appealed to the Court of Appeals, which certified two questions to us. State Farm, No. 31,161, ¶ 5. The first question is whether the Court of Appeals' opinion in Jones conflicts with this Court's opinion in Tarango. State Farm, No. 31,161, ¶ 5. The second is “whether the statutory UIM offset should be applied initially in favor of the primary or secondary insurer.” Id. We now address these questions, applying a de novo standard of review. Salas v. Mountain States Mut. Cas. Co., 2009–NMSC–005, ¶ 12, 145 N.M. 542, 202 P.3d 801 (we review a district court's grant of summary judgment de novo).

DISCUSSION

{7} The New Mexico uninsured motorist statute, NMSA 1978, § 66–5–301 (1983), is implicated when an insured is injured in an accident and the tortfeasor is either uninsured or underinsured. See Schmick, 103 N.M. at 219, 704 P.2d at 1095 (describing the broad objective and limitations of the statute). We are only concerned with underinsured motorists in this case. An “underinsured motorist” is defined as “an operator of a motor vehicle with respect to the ownership, maintenance or use of which the sum of the limits of liability under all bodily injury liability insurance applicable at the time of the accident is less than the limits of liability under the insured's uninsured motorist coverage.” Section 66–5–301(B). The policy reason for enacting UIM legislation is “to put an injured insured in the same position he would have been in had the tortfeasor had liability coverage in an amount equal to the uninsured/underinsured motorist protection purchased for the insured's benefit.” Schmick, 103 N.M. at 219, 704 P.2d at 1095.

{8} Therefore, in evaluating whether an injured insured has a UIM claim, one must determine both the tortfeasor's liability limits and the insured's total UIM coverage, which may include multiple stacked policies. “The term ‘stacking’ refers to an insured's attempt to recover damages in aggregate under more than one policy or one policy covering more than one vehicle until all damages either are satisfied or the total policy limits are exhausted.” Morro v. Farmers Ins. Grp., 106 N.M. 669, 670, 748 P.2d 512, 513 (1988).

{9} Whether multiple policies may be stacked requires an analysis of whether the injured insured is a Class I or a Class II insured under the applicable policies. Class I insureds include “the named insured, the spouse, and those relatives that reside in the household while Class II insureds are insured by virtue of their passenger status in an insured vehicle.” Tarango, 115 N.M. at 226, 849 P.2d. at 369. All UIM coverage for a Class I insured may be stacked. Morro, 106 N.M. at 671, 748 P.2d at 514 (citing Schmick, 103 N.M. at 220, 704 P.2d at 1096). When the injured insured is a Class II insured under a policy insuring the vehicle involved in the accident, the insured may stack that policy with any policy under which he or she is a Class I insured. Morro, 106 N.M. at 672, 748 P.2d at 515. If the total of the stackable...