Crutcher v. Liberty Mutual Ins. Co. (New Mexico) – Litigation, Mediation & Arbitration

(November 2021) – Insurers who sell ‘minimum limits’ auto policies for uninsured / underinsured (UM / UIM) motorists in New Mexico must now provide adequate disclosure to their clients in the form of a policy disclaimer describing the nature “Illusory” of UIM coverage if they wish to continue charging a premium for the minimum UM / UIM coverage limits.

In the slip notice Crutcher v. Liberty Mutual Ins. Co. et al., # S-1-SC-37478 (filed Oct. 4, 2021), the New Mexico Supreme Court considered: (1) whether a minimum UM / UIM coverage with limits of $ 25,000 per person / 50,000 $ per accident is illusory when the insured suffers more than $ 25,000 in damage caused by another driver with minimum insurance, and if applicable; (2) whether insurance companies can charge premiums for such a policy.

New Mexico law requires every motorist to carry liability insurance of at least $ 25,000 per person / $ 50,000 per accident and UM / UIM insurance coverage of at least the same amount. See NMSA 1978, § 66-5-215 (A) (1) – (2) (1983); § 66-5-301 (A) (1983). This is described as a “minimum limits” policy because it is the absolute minimum amount of insurance that a driver is legally required to purchase. See Progressive nw. Ins. Co. v. Weed Warrior Servs., 2010-NMSC-050, 8, 149 NM 157, 160, 245 P.3d 1209, 1212.

UIM coverage is designed to protect drivers who collide with an offender who does not have enough auto insurance to cover the cost of driver injury and damage. See § 66-5-301 (B); Crusher at ¶ 5. In the United States, UIM coverage statutes follow one of two political theories: the gap theory or the excess theory (also known as the floating layer theory). Under Gap Theory Laws, UIM coverage compensates an injured driver up to the amount of UIM coverage purchased. According to the deductible theory, underinsurance fully compensates the injured driver, even if the total compensation is more than the coverage the driver has purchased. The New Mexico UIM statutes follow the gap theory. And in many “empty” states, the insurer can offset amounts paid to its insured by the tort liability insurance. Courts in New Mexico call this legal standard the Schmick compensation rule after the case of the State Supreme Court that established it. Schmick v. State Farm Mut. Auto. Ins. Co., 1985-NMSC-073, 30, 103 NM 216, 224, 704 P.2d 1092, 1100. In Schmick, following the UIM Statutes of New Mexico Gap Theory, the court concluded that UIM coverage “does not not in addition to that provided by the other vehicle but [is] intended to supplement the amount paid by the underinsured motorist. Identifier. at numbers 5, 218, 1094.

Crusher specifically addresses the common problem that arises in the context of Schmick compensation rule when a minimum insurance driver collides with another minimum insurance driver, causing more than $ 25,000 in injuries and damages. The minimum UIM coverage of $ 25,000 is always offset by the liability coverage of the other driver. Thus, the benefit of UIM coverage is canceled and canceled. Crutcher’s plaintiff alleged in a class action lawsuit that insurers were thus routinely collecting premiums for illusory and “minimum limit” coverage of underinsured motorists.

The New Mexico Supreme Court has ruled that the minimum limits for UM / UIM policies are illusory, but not as the term is normally defined in contract law. The policies are illusory because they mislead the average buyer with limited knowledge of insurance law into believing that they have minimum limit UIM coverage in addition to the originator’s insurance coverage. offense. Instead, counterintuitively, they only provide one component of UM / UIM coverage – UM coverage. In the court’s view, an average buyer cannot make an informed decision about how much coverage they should purchase without receiving additional information from the insurer.

The Crusher The court ruled before prohibiting the sale of UM / UIM minimum limit policies because the policies follow the requirements of the gap theory legislative scheme enacted by the New Mexico legislature. Identifier. at ¶ 28. Instead, the court remedy was to impose a new burden on insurers, namely: to impose adequate disclosure of the limits of UIM coverage through a UIM policy exclusion. The unambiguous exclusion should be written for a reasonably intelligent layman rather than a lawyer, should fully inform the layman of the benefits and limitations of UIM coverage, and should disclose that “by choosing to purchase only the minimum amount legal UM / UIM insurance, he will never benefit from underinsured motorist coverage. ” Identifier. to 29-30.

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