Truong v. Allstate Insurance Co., 26,329.

Citation2008 NMCA 051,182 P.3d 814
Decision Date25 February 2008
Docket NumberNo. 26,329.,26,329.
PartiesQuynh TRUONG, Armie Sy, Miranda Daniele, Warren Hopper, Sandra Martinez, And Michael Martinez, Plaintiffs-Appellants/Cross-Appellees, v. ALLSTATE INSURANCE COMPANY, a foreign corporation, Defendant-Appellee/Cross-Appellant, and Computer Sciences Corporation, Intervenor.
CourtCourt of Appeals of New Mexico


{1} Appellant's motion for rehearing is granted. The opinion filed in this case on November 30, 2007, is withdrawn and this opinion is substituted in its place.

{2} This is a class action case in which Plaintiffs allege, inter alia, that Defendant Allstate Insurance Company's (Allstate) use of a computer program called "Colossus" in its claim handling procedures violates the Unfair Practices Act (UPA), NMSA 1978, {{57-12-1 to -24 (1967, as amended through 2005). Allstate asserts that the UPA does not apply to its use of Colossus under Section 57-12-7, which exempts "actions or transactions expressly permitted under laws administered by a regulatory body of New Mexico." The district court held a three-day bench trial on the regulatory exemption issue and found in Allstate's favor. The district court found that the New Mexico Superintendent of Insurance (SI) ordered a Market Conduct Examination (MCE) of Allstate's claim handling practices in New Mexico, which included consideration of Allstate's use of Colossus in a statistically valid, random sample of claim files. The district court concluded that the SI expressly permitted Allstate's use of Colossus by adopting the final MCE report, which indicated that Allstate's claim handling practices complied with Allstate's policy obligations and with New Mexico law.

{3} The questions presented in this case are: (1) whether Plaintiffs waived their right to a jury trial on the exemption issue, and (2) whether the district court erred in concluding that Allstate's use of Colossus was expressly permitted within the meaning of Section 57-12-7. We affirm and take the opportunity to clarify the analysis under Section 57-12-7 for the "targeted exam" class of regulatory exemption cases.


{4} Plaintiffs filed suit against Allstate and others on April 8, 1999, alleging, inter alia, that Allstate made false and/or misleading representations to Plaintiffs regarding the adjustment of their claims in violation of the UPA. More specifically, Plaintiffs asserted that Allstate implemented its Claim Core Process Redesign (CCPR), which included its use of a computer program called "Colossus," in order to pay less on bodily injury claims. The district court certified a class of Allstate automobile policy beneficiaries who made claims for bodily injury in New Mexico from 1995 forward, after Allstate implemented CCPR. The district court defined the class liability issue as: "Did Allstate breach its duty to [its] first party insured by delegating adjustment to a mechanized evaluation system . . .?"

{5} Following the district court's certification of the class, Allstate filed a motion for summary judgment on the ground that the UPA's regulatory exemption barred the class UPA claim. The district court denied Allstate's motion. However, the district court eventually decided to hold an evidentiary hearing—to which the parties also refer as a bench trial—in order to resolve whether the regulatory exemption applied to Allstate's use of Colossus. This hearing was to be the first part of a three-phase process the district court proposed to resolve the case. Although Plaintiffs had previously filed a jury demand, they eventually agreed to the district court's proposed method of deciding the regulatory exemption issue in the first phase. The district court held the evidentiary hearing over three days and concluded that the MCE report expressly permitted Allstate's use of Colossus, thus barring Plaintiffs' class claim under Section 57-12-7. More specifically, the district court found the following relevant facts:

5. Allstate uses the Colossus software program to assist claim adjusters with the evaluation of certain first- and third-party bodily injury claims. From information that an adjuster gathers during the investigation of the claim and inputs into the system, the Colossus software generates a recommended range of general damages. The adjuster and the Evaluation Consultant then use their judgment, together with the amount of reasonable and necessary medical expenses and other valid special damages and values generated by Colossus (including any increases or decrease to the range based on their independent judgment and factors that they know Colossus does not consider) to determine the value of the claim (the "Evaluated Amount").

6. On August 19, 1999, the Acting [SI] in New Mexico ordered that a targeted [MCE] of Allstate's claim handling practices in New Mexico be conducted to determine whether Allstate's claims handling practices fulfilled Allstate's contractual obligations to Allstate insured[s] and complied with New Mexico law including, but not limited to, New Mexico's Unfair Insurance Practices Act [UIPA].

7. The [SI's] Order required the [MCE] to be conducted pursuant to the New Mexico Market Conduct Examiner's Handbook, which is based on the National Association of Insurance Commissioners' ("NAIC") Market Conduct Examiner's Handbook.

8. The NAIC Guidelines . . . require that a company's claim handling policies and procedures be tested under the "G Standards," which are claim handling standards tied to the Uniform Unfair Claim Settlement Practices Act adopted in New Mexico as part of the [UIPA].

9. In testing Allstate's CCPR claim handling practices under the G standards, the examiners obtained and reviewed the written claim handling policies and procedures, including the Colossus 4.20 Instructor's Manual, the Colossus 4.30 Manual and the 4.3F Release Training Notes manual, and the CCPR Implementation Training Manual, and tested a statistically valid random sample of various types of claim files.

10. Claim Standard G6 tests whether "[c]laims are properly handled in accordance with policy provisions and applicable statutes, rules and regulations." The G6 standard tests for compliance with the insurer's policy provisions as well as all of New Mexico's insurance statutes and regulations, including all of the subsections of the [UIPA].

11. In conducting a statistically valid [random] sample testing for standard G6, the market conduct examiners reviewed and tested at least 48 claim files on which Colossus had been used — 21 "open" files, 27 "litigated" files, and an additional unknown number of "closed" files.

12. The market conduct examiners examined Colossus sufficiently to understand how Allstate used it and to determine that Allstate's use of Colossus complied with [Allstate's] policy provisions and New Mexico law.

13. All [of Allstate's] claim files tested under standard G6 passed — for a 100% pass rate. No violation of any policy provision or New Mexico law, including the [UIPA], was found in the CCPR or Colossus manuals or in any of the claim files tested.

. . . .

15. The market conduct examiners also tested Allstate's claim handling practices under standard G13. That standard tests whether Allstate's claim handling practices "compel claimants to institute litigation, in cases of clear liability and coverage, to recover amounts due under policies by offering substantially less than is due under the policy." Standard G13 objectively tests the reasonableness of Allstate's settlement offers by comparing the pre-litigation offers made by Allstate to settle claims with the amount for which the claim was ultimately resolved after the claimant instituted litigation, by settlement, verdict, or arbitration award. Under standard G13 a statistically valid random sample of litigated files were also tested.

. . . .

17. All litigated files the examiners tested under standard G13 passed with a 100% pass rate. The examiners determined that Allstate's claim valuations under CCPR, including claim valuations made on files in which Colossus was used as a tool, complied with policy provisions and New Mexico law.

. . . . 19. By passing Allstate on all of the claim handling standards tested in the [MCE], the market conduct examiners determined that Allstate's CCPR claim handling practices, including its use of Colossus . . ., fulfilled Allstate's contractual obligations to its policyholders and complied with New Mexico's insurance laws, including the [UPA].

20. [SI] Eric Serna adopted and issued the Final [MCE] Report and made it an official record of the Insurance Division of the New Mexico Public Regulation Commission on December 11, 2002.

The district court's relevant legal conclusions were as follows:

3. The [SI] is vested by the New Mexico Legislature with the authority to regulate Allstate's claim handling practices in New Mexico.

. . . .

5. The [SI]'s actions in adopting, issuing and filing the Final MCE Report . . . permits Allstate to continue using its CCPR [c]laim handling processes including Colossus in New Mexico as set forth in Allstate's CCPR and Colossus manuals and as used in the claim files that were examined in which Colossus was used.

6. The New Mexico [UPA] exemption provision states: "Nothing in the [UPA] shall apply to actions or transactions expressly permitted under the laws administered by a regulatory body of New Mexico[.]"


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