A coverage hole in NM auto insurance
New Mexico state law requires all motorists to carry a minimum level of liability insurance. Then again, it also requires them to obey speed limits and stop on red, even in the first second after the light changes.
The Insurance Information Institute estimates that, nationwide, about 12.6% of motorists are uninsured. In New Mexico, the figure is 21.8%, which doesn’t even make us the worst in the nation. (Thank you, Mississippi!)
When you buy car insurance in New Mexico, you’ll get uninsured motorist coverage unless you specifically decline it.
If the high number of uninsured drivers out there isn’t reason enough for you to pay the premium, remember it can kick in after a hit-and-run collision, too. According to the AAA Foundation for Traffic Safety, about one in nine car crashes fall into that category.
Uninsured motorist insurance does exactly what the name implies, allowing a policyholder to recover if injured by a person who has no insurance, or who doesn’t stop to provide insurance information.
But in New Mexico, it’s always sold in a package with underinsured motorist coverage. What does a policyholder get in return for paying premiums for underinsured motorist coverage?
Answer: less than you might expect, and in some circumstances nothing at all.
Imagine Mary, a careful driver who owns one car. She’s purchased underinsured motorist coverage in the amount of $25,000.
As she enters an Albuquerque intersection on a green light, she’s hit by Bob, who was too drunk to notice the signal had changed. Mary’s car is totaled and an ambulance rushes her to the hospital. Thankfully after three weeks she’s recovered sufficiently to return to work.
Her total monetary damages: $60,000. Bob has liability insurance, but only in the minimum amount allowed by New Mexico’s Financial Responsibility Act, which is $25,000. His insurance company promptly pays the full $25,000 to Mary, leaving her $35,000 short.
You might think that this means Bob was “underinsured” in the amount of $35,000. But that’s not how it works in New Mexico.
In New Mexico, the critical issue isn’t the amount of damages Mary suffered, but the amount of underinsured motorist coverage she purchased. As our Supreme
Court declared in 1985, “the most an insured can receive is the amount of underinsurance purchased for his [or her] benefit.”
Therefore, the $25,000 of underinsured motorist coverage that Mary purchased for herself represents the maximum benefit she’s entitled to receive. Since that sum was paid by Bob’s insurer already, Mary’s own insurance company owes her nothing at all.
That’s what she receives in exchange for faithfully paying her premiums: nothing.
The result would be different, however, if Mary owned three cars and insured each for $25,000. In that case, she could “stack” (that is, combine) her policies, which would give her coverage in the total amount of $75,000, obligating her insurance company to pay her $35,000.
If this makes no sense to you, you get it. It’s an irrational system. But it’s the system our Legislature has imposed on us, as recently confirmed by our state Supreme Court.
The recent decision, known as Crutcher vs. Liberty Mutual, answered a question posed to the court by a federal judge. Often, federal judges are required to apply state law. When state law is unclear, they can “certify” a question to the state’s highest court.
Federal District Judge Judith Herrera did so in this case, way back in January 2019. But, oddly, the Supreme Court’s opinion doesn’t quote the question it answers. Reading the opinion is like hearing only the answers at a press conference.
Although the court sat on the case for 32 months, its opinion shows signs of having been written in haste. The version I downloaded contains a conspicuous typo, suggesting reliance on spellchecker in place of a human proofreader.
The opinion uses two words with long-established technical meanings (“illusory,” a contract law term, and “exclusion,” widely used in insurance policies) in nontechnical ways. Those two words, which used to have definite and wellunderstood meanings in New Mexico law, are now ambiguous.
The job of an appellate court is to clarify the law. This opinion muddies it.
The opinion uses the words “never” and “always,” which lawyers generally avoid because, of course, it’s not possible to foresee every future possibility. By using those words, the opinion ranges far beyond any issue presented, for no purpose.
But for all its sloppiness, the opinion accomplishes one thing: It underscores the need for the Legislature to rewrite its old statute to ensure that New Mexicans finally start to receive value for the premiums they pay for underinsured motorist coverage.