Minimum Limits UM/UIM Policies: The Aftermath Of Crutcher v. Liberty Mutual Ins. Co. (New Mexico)

Published date11 October 2022
Subject MatterInsurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Class Actions, Trials & Appeals & Compensation
Law FirmLewis Brisbois Bisgaard & Smith LLP
AuthorMs Jill Collins

(October 2022) - There are two theories of coverage for uninsured/underinsured motorist (UM/UIM) coverage in the U.S.: (1) gap theory and (2) excess theory or floating layer theory. In jurisdictions that have adopted the gap theory, underinsured motorist coverage will compensate an insured up to the amount of UM/UIM protection purchased. In jurisdictions that have adopted the excess theory or floating layer theory, UM/UIM coverage will fully compensate an insured injured driver for the cost of the driver's damages, even where those damages amount to more than what the driver purchased in UM/UIM coverage. New Mexico is a gap theory jurisdiction with a recent twist.

In Crutcher v. Liberty Mutual Ins. Co. et al., 2022-NMSC-001, 501 P.3d 433, the New Mexico Supreme Court held that "minimum limits" in UM/UIM policies are illusory because they mislead the average purchaser with limited knowledge of insurance law to believe they possess minimum limits UIM coverage in addition to the tortfeasor's insurance coverage. The UIM coverage may be completely offset by the tortfeasor-driver's minimum limits liability policy. Id. at ' 18-19; Schmick v. State Farm Mut. Auto. Ins. Co., 1985-NMSC-073, ' 5, 103 N.M. 216, 218, 704 P.2d 1092, 1094 (UIM coverage is "not in addition to that provided by the other vehicle but [is] intended to supplement the amount paid by the underinsured motorist.") In other words, when the injured party's $25,000 in minimum limits UIM coverage is subtracted from the tortfeasor's $25,000 in minimum limits liability coverage, which frequently occurs in New Mexico, there is no available UIM coverage.

The New Mexico Supreme Court continued to allow the sale of these so-called "illusory" minimum limits UM/UIM policies, but only with adequate disclosure of UIM coverage limitations through a prescribed UIM policy exclusion. The unambiguous exclusion must be written for a reasonably intelligent layperson rather than a lawyer, must fully inform the layperson of the benefits and limitations of the UIM coverage, and must disclose that "by choosing to purchase only the statutory minimum amount of UM/UIM insurance, he or she will never receive the benefit of underinsured motorist coverage." Crutcher at ' 29-30. Auto insurers have responded by mailing out Crutcher policy exclusions to their New Mexico insureds starting in late 2021 with the required language.

But the Crutcher state supreme court case was actually a certified question from the United States...

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