Crutcher v. Liberty Mutual Ins. Co. (New Mexico)

Published date06 November 2021
Subject MatterInsurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation, Personal Injury
Law FirmLewis Brisbois Bisgaard & Smith LLP
AuthorMs Jill Collins

(November 2021) - Insurers selling "minimum limits" uninsured/underinsured motorist (UM/UIM) auto policies in New Mexico must now provide adequate disclosure to their customers in the form of a policy exclusion describing the "illusory" nature of UIM coverage if they wish to continue to charge a premium for minimum limits UM/UIM coverage.

In the slip opinion Crutcher v. Liberty Mutual Ins. Co. et al., No. S-1-SC-37478 (filed October 4, 2021), the New Mexico Supreme Court addressed: (1) whether minimum UM/UIM coverage with limits of $25,000 per person/$50,000 per accident is illusory where the insured suffers more than $25,000 in damages caused by another minimally-insured driver, and if so; (2) whether insurance companies may charge premiums for such a policy.

New Mexico law requires every motorist to carry general liability insurance coverage 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 carry. See Progressive Nw. Ins. Co. v. Weed Warrior Servs., 2010-NMSC-050, ' 8, 149 N.M. 157, 160, 245 P.3d 1209, 1212.

UIM coverage is designed to protect drivers who collide with a tortfeasor who does not have enough auto insurance to cover the cost of the driver's injuries and damages. See ' 66-5-301(B); Crutcher at ' 5. In the U.S., UIM coverage statutes follow one of two policy theories: gap theory or excess theory (also known as floating layer theory). Under gap theory statutes, UIM coverage compensates an injured driver up to the amount of UIM coverage they have purchased. Under excess theory, underinsurance fully compensates the injured driver, even if the total compensation is more than the coverage the driver has purchased. New Mexico UIM statutes follow gap theory. And in many "gap" states, the insurer may offset amounts paid to their insured by the tortfeasor's liability insurance. New Mexico courts call this legal standard the Schmick offset rule after the state supreme court case that established it. Schmick v. State Farm Mut. Auto. Ins. Co., 1985-NMSC-073, ' 30, 103 N.M. 216, 224, 704 P.2d 1092, 1100. In Schmick, following New Mexico's gap theory UIM statutes, the court found that UIM coverage is "not in addition to that provided by the other vehicle but [is] intended to supplement the...

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