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

Decision Date06 September 2002
Docket NumberNo. 27,252.,27,252.
PartiesSTATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff, v. Carol BALLARD, individually and as personal representative of the deceased, Erika Ballard, and as mother, next friend, and natural guardian of Carla and Chaz Ballard, minors; George Evans, personal representative of the Estate of Robert L. Evans, deceased; and Eric C. Ballard, individually and as father, next friend and natural guardian of Carla and Chaz Ballard, Defendants.
CourtNew Mexico Supreme Court

Sanders & Westbrook, P.C., Maureen A. Sanders, Albuquerque, NM, for Defendants.

Miller, Stratvert & Torgerson, P.A., Ruth Fuess, Rudolph A. Lucero, Albuquerque, NM, for Plaintiff.

Michael B. Browde, Carpenter & Chavez, William H. Carpenter, Albuquerque, NM, for Amicus Curiae New Mexico Trial Lawyers Association.


SERNA, Chief Justice.

{1} This case involves a single vehicle accident that occurred within New Mexico. Plaintiff State Farm Insurance Company seeks a declaration in the United States District Court for the District of New Mexico that the Georgia policy it issued to Defendant Carol Ballard limits liability coverage to $50,000. This Court accepted certification from Judge Leslie C. Smith on the question of whether

New Mexico law appl[ies] to interpret a step down provision in a Georgia automobile liability insurance policy ... where the non-resident insureds are injured in a one-vehicle accident in New Mexico through no fault of any New Mexico citizen and where the insureds receive significant medical care in New Mexico paid for by the county Indigent Hospital and County Health Care Act.

See NMSA 1978, § 39-7-4 (1997) ("The supreme court of this state may answer a question of law certified to it by a court of the United States ... if the answer may be determinative of an issue in pending litigation in the certifying court and there is no controlling appellate decision, constitutional provision or statute of this state."). We conclude that New Mexico law applies in this case and that, under New Mexico law, the family exclusion step down provision contained in the Georgia policy is invalid.

I. Facts and Background

{2} Carol Ballard and two of her children, Carla and Chaz, were injured in a single vehicle accident on August 11, 1998, in Luna County, New Mexico. Her third child, Erika Ballard, and the driver, Robert Evans, a family friend, died as a result of this accident. These individuals were not residents of this state, and no New Mexicans were involved in the accident.

{3} Carol and Eric Ballard, the parents of the three children, divorced in March of 1998 in California. Prior to the divorce, they purchased automobile insurance from State Farm. About one month after the divorce, Carol Ballard moved to Georgia with her two daughters while her son remained with Eric Ballard. She purchased automobile insurance from a State Farm agent in Georgia, stating that she wanted the same coverage which she had in California.

{4} The Georgia policy contained limits of $100,000/300,000 for liability and $100,000/300,000 for uninsured motorist coverage. The policy does not include a choice of law provision. The policy contains a family exclusion step down provision:


{5} The Ballards' son expressed his desire to join his mother in Georgia a few months later; as a result, Carol Ballard, her two daughters, and Robert Evans drove to California to bring the child to Georgia. While returning to Georgia, the accident occurred. Carla Ballard was seriously injured and required treatment for several months at a hospital in Las Cruces, New Mexico, as well as outpatient care until June of 2000. The hospital costs were apparently paid by the Dona Ana County indigent funds. Carol Ballard lived in Las Cruces from August 1998 until July 2000 for her daughter's care, while working as a medical transcriptionist for her Georgia employer. Plaintiff State Farm paid her approximately $17,000 for medical benefits as well as liability coverage of $50,000.

{6} Plaintiff argues that Georgia law applies and that its liability under the policy is limited to the $50,000 amount required under the New Mexico Mandatory Financial Responsibility Act, NMSA 1978, §§ 66-5-201 to -239 (1983, as amended through 2001) (NMMFRA), by operation of the step down provision contained in the policy exclusion. Defendants argue that New Mexico law applies and that coverage is not limited to $50,000 because the familial exclusion provision is invalid under New Mexico law.

II. Discussion

{7} "[T]he rights and liabilities of persons injured in automobile accidents are determined under the laws of the state where the accident happened." State Farm Auto. Ins. Co. v. Ovitz, 117 N.M. 547, 549, 873 P.2d 979, 981 (1994). The parties agree that New Mexico law therefore applies to the issues of tort liability and damages. Plaintiff recognizes that intra-familial tort immunity is invalid in New Mexico and thus argues that, under the step down provision, the coverage limits of $100,000/300,000 "should be reduced so as not to `exceed the limits of liability required by law,'" or $25,000/50,000 of the NMMFRA. Defendants argue that the step down provision is unenforceable. "[T]he policy of New Mexico is to interpret insurance contracts according to the law of the place where the contract was executed," which is referred to as lex loci contractus. Shope v. State Farm Ins. Co., 1996-NMSC-052, ¶ 9, 122 N.M. 398, 925 P.2d 515; accord Ovitz, 117 N.M. at 549,

873 P.2d at 981. Under the facts of this case, applying the lex loci contractus rule, we would rely on Georgia law to interpret the policy.

{8} Defendants argue that Georgia law would not support enforcement of the provision based upon ambiguities in the policy and Carol Ballard's reasonable expectations. We disagree. Georgia appellate courts have held that step down provisions similar to the one at issue in this case are valid. E.g., Cotton States Mut. Ins. Co. v. Coleman, 242 Ga.App. 531, 530 S.E.2d 229, 230-31 (2000)

; Ga. Farm Bureau Mut. Ins. Co. v. Burch, 222 Ga.App. 749, 476 S.E.2d 62, 63 (1996). However, our recognition of Georgia law regarding familial exclusion does not end the inquiry. Defendants argue that application of Georgia's law, which would limit their recovery under the step down provision, is precluded by New Mexico law.

{9} "To overcome the rule favoring the place where a contract is executed, there must be a countervailing interest that is fundamental and separate from general policies of contract interpretation." Shope, 1996-NMSC-052, ¶ 9, 122 N.M. 398, 925 P.2d 515. Application of the rule must result in a violation of "fundamental principles of justice" in order to apply New Mexico law rather than the law of the jurisdiction where the contract was signed. Shope, 1996-NMSC-052, ¶ 7, 122 N.M. 398, 925 P.2d 515; see Reagan v. McGee Drilling Corp., 1997-NMCA-014, ¶ 9, 123 N.M. 68, 933 P.2d 867 ("The threshold... is whether giving effect to another state's policies would `violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal' of the forum state.") (quoted authority omitted).

{10} In Shope, this Court addressed stacking of insurance coverage, which was specifically precluded under the insurance contract in accordance with Virginia law, where the policy was purchased. 1996-NMSC-052, ¶¶ 3, 6, 122 N.M. 398, 925 P.2d 515. We explained that, "[w]hile New Mexico public policy does favor the stacking of coverage in underinsured motorist cases, our rationale in establishing this policy did not concern fundamental principles of justice, but focused on the expectations of the insured." Id. ¶ 7 (citation omitted). We concluded that, "[w]hile we interpret New Mexico insurance contracts to avoid repugnancy in clauses that prohibit stacking of coverages for which separate premiums have been paid, this rule is one of contract interpretation that does not rise to the level of a fundamental principle of justice." Id. ¶ 9. Thus, in the present case, we address whether giving effect to Plaintiff's step down provision limiting Defendants' recovery by applying Georgia's familial exclusion law violates fundamental principles of justice, warranting application of New Mexico law despite the fact that the contract at issue was executed in Georgia. In contrast to the issue presented in Shope, Plaintiff's step down provision is more than a matter of contract interpretation; we determine that the reduction in coverage for a discrete group of individuals in this context, based solely on their familial relationship to the insured, implicates a fundamental principle of justice.

{11} This Court has held that exclusion of coverage for insureds and family members violates the requirements of the NMMFRA as well as our precedent, and that such exclusions are thus contrary to New Mexico public policy. Estep v. State Farm Mut. Auto. Ins. Co., 103 N.M. 105, 107-11, 703 P.2d 882, 884-88 (1985). In Estep, we reiterated the abandonment of the common law rule of interspousal immunity: "New Mexico has established that interspousal immunity is an `archaic precept' out of tune with and contrary to public policy. Maestas v. Overton, 87 N.M. 213, 531 P.2d 947 (1975)." Id. at 108, 703 P.2d at 885.

Since a wife in this jurisdiction has a cause of action for injuries suffered because of her husband's negligence, it is difficult to discern how a fundamental public policy purpose of the Financial Responsibility Acti.e., to provide financial protection to those who sustain injury

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