DEMIR V. FARMERS TEXAS COUNTY MUTUAL
INS. CO., 2006-NMCA-091, 140 N.M. 162, 140 P.3d 1111
NUSRET DEMIR,
Plaintiff-Appellant,
v.
FARMERS TEXAS COUNTY
MUTUAL INSURANCE COMPANY,
Defendant-Appellee.
COURT OF APPEALS OF NEW MEXICO
2006-NMCA-091, 140 N.M. 162, 140 P.3d 1111
APPEAL FROM THE DISTRICT COURT OF
BERNALILLO COUNTY, Valerie A. Mackie Huling, District Judge.
Released for Publication August 22,
2006.
Law Offices of Daymon B. Ely, Damon B.
Ely, Albuquerque, NM, Mucci Law, Thomas J. Budd Mucci, Albuquerque, NM, for
Appellant.
O'Brien & Ulibarri, P.C., Daniel J.
O'Brien, Lawrence M. Glenn, Albuquerque, NM, for Appellee.
JAMES J. WECHSLER, Judge. WE CONCUR: LYNN
PICKARD, Judge, MICHAEL E. VIGIL, Judge.
AUTHOR: JAMES J. WECHSLER.
{1} Plaintiff
Nusret Demir appeals from an order granting summary judgment in favor of
Defendant Farmers Texas County Mutual Insurance Company. There are two issues
on appeal. First, Plaintiff contends that the district court erred in applying
Texas law to interpret his insurance contract with Farmers. Second, Plaintiff
argues that even if Texas law applies, New Mexico courts should not enforce
that law because it conflicts with our own public policy. We agree that Texas
law is inapplicable because it contravenes New Mexico's public policy and we
reverse.
{2} Plaintiff is a
resident of Texas, and Farmers is domiciled in Texas. Farmers issued an
insurance contract to Plaintiff in Texas. It is undisputed that Plaintiff was
driving in New Mexico when he swerved to avoid another vehicle, resulting in a
single-car accident. The driver of the other vehicle is unknown and no physical
contact between the two vehicles occurred.
{3} Farmers denied
Plaintiff's claim for uninsured motorist benefits because a provision in the
policy and Texas law require physical contact between the covered vehicle and
the unknown vehicle. Plaintiff brought this suit in New Mexico district court
seeking to recover under his policy on two theories. First, Plaintiff argued
that New Mexico law determined his right to recover under the policy. Second,
Plaintiff argued that even if Texas law would normally apply, it did not apply
because it was contrary to New Mexico's public policy of protecting drivers.
Farmers moved for summary judgment. The district court found that Texas law
applied, that Texas law permitted a restriction on recovery such as that in
Plaintiff's policy, and that policy of the state of Texas was designed to
prevent fraud. It granted Farmers' motion for summary judgment.
{4} We review the grant
of summary judgment de novo, viewing the evidence in the light most favorable
to Plaintiff.
See Gormley v. Coca-Cola Enters.,
2005-NMSC-003, ¶ 8,
137
N.M. 192,
109 P.3d 280. Summary judgment is proper if there are no genuine
issues of material fact and Farmers is entitled to judgment as a matter of law.
See id.
{5} The parties do not
contest that Texas law would not allow recovery of uninsured motorist benefits
from Farmers. Tex. Ins. Code Ann. art. 5.06-1(2)(d) (Vernon Supp. 2005)
(requiring that "where the owner or operator of any motor vehicle which
causes bodily injury or property damage to the insured is unknown, actual
physical contact must have occurred between the motor vehicle owned or operated
by such unknown person and the person or property of the insured" to allow
recovery under an uninsured motorist policy). The parties also agree that New
Mexico law would invalidate the no-contact clause and allow recovery.
See
NMSA 1978, §
66-5-301 (1983);
Chavez v. State Farm Mut. Auto. Ins. Co.,
87 N.M. 327, 329-30,
533 P.2d 100, 102-03 (1975) ("[T]he only limitations
on [uninsured motorist] protection are those specifically set out in the
statute itself, i.e., that the insured be legally entitled to recover damages
and that the negligent driver be uninsured.");
see also Montoya v.
Dairyland Ins. Co., 394 F. Supp. 1337, 1342 (D.N.M. 1975) (invalidating the
"physical contact" requirement in an uninsured motorist policy in
part "because the New Mexico State Legislature did not intend to allow the
creation of a gap in coverage").
{6} Plaintiff argues,
as he did in the district court, that New Mexico law applies, relying primarily
on
State Farm Automobile Insurance Co. v. Ovitz,
117 N.M. 547,
873 P.2d
979 (1994).
Ovitz involved a New Mexican insured who was injured in an
accident in Hawaii.
Id. at 548-49, 873 P.2d at 980-81. The insured
collected his medical expenses from the owner of the other vehicle, but was
precluded from further recovery under Hawaii's no-fault system.
Id. at
548, 873 P.2d at 980. He sought to recover uninsured motorist benefits under
his New Mexico insurance policy.
Id. at 548-49, 873 P.2d at 980-81. State
Farm filed suit for a declaratory judgment on the ground that the other vehicle
was not uninsured for the purposes of the insurance contract.
Id. at
548, 873 P.2d at 980. Our Supreme Court held that while New Mexico law would
apply to the interpretation of the contract, Hawaii law governed the meaning of
some terms under the contract.
Id. at 549, 873 P.2d at 981.
Specifically, it determined that because the policy only allowed recovery when
the insured is "
legally entitled to collect from the owner or the
driver of an
uninsured motor vehicle," the insured was not entitled
to uninsured motorist benefits because he was not legally entitled to recover
from the other owner under Hawaii law.
Id.
{7} Plaintiff argues
that
Ovitz requires that we apply New Mexico law to determine whether he
is "legally entitled to recover" from Farmers. We agree with
Plaintiff that
Ovitz held that the law of the place of the accident
governs Plaintiff's right to recover from the owner or driver of the vehicle
that ran him off the road. But
Ovitz also held that the law of the place
of the contract, the
lex loci contractus, applies to interpretation of
the terms of the contract.
Id. Ovitz applied Hawaii law only to
determine the rights of parties involved in the accident as to each other.
Id.
It applied New Mexico law to determine the rights of the insured as to his
insurance company.
Id. Applying
Ovitz to this case, New Mexico
law governs whether Plaintiff would be able to recover from the tortfeasor, if
known, and Texas law governs whether Plaintiff may recover from Farmers.
{8} Having determined
that Texas law governs Plaintiff's right to recover from Farmers on his
uninsured motorist coverage, we now reach the second question. Plaintiff also
argues that we should not apply Texas law because it contravenes New Mexico's
public policy. When differences between the law of the forum state and the law
of the state where the contract was executed concern only contract
interpretation, we will apply the law of the state where the parties entered
the contract.
Shope v. State Farm Ins. Co.,
1996-NMSC-052, ¶9,
122 N.M.
398,
925 P.2d 515. "To overcome the rule favoring the place where a
contract is executed, there must be a countervailing interest that is
fundamental and separate from general policies of contract
interpretation."
Id. We will apply New Mexico law if applying the
law of another state would "result in a violation of fundamental
principles of justice" of New Mexico.
State Farm Mut. Auto. Ins. Co. v.
Ballard,
2002-NMSC-030, ¶ 9,
132 N.M. 696,
54 P.3d 537 (internal quotation
marks and citation omitted).
{9} Three cases guide
our analysis. Plaintiff relies on
Ballard and
Sandoval v.
Valdez,
91 N.M. 705,
580 P.2d 131 (Ct. App. 1978). Both cases applied New
Mexico law to contracts issued out of state because applying the
lex locus
contractus would have resulted in a violation of New Mexico's public
policy. Defendant relies primarily on
Shope, which applied Virginia law
to interpret a Virginia contract despite the possibility of a different outcome
under New Mexico law. We address these cases in turn.
{10} In
Ballard,
our Supreme Court applied New Mexico rather than Georgia law despite the fact
that the policy was executed in Georgia.
Ballard,
2002-NMSC-030, ¶¶ 1,
3.
Ballard arose out of a single-vehicle accident in New Mexico that
resulted in the death of the driver and a passenger and serious injury to
another passenger, the daughter of the insured owner.
Id. ¶¶ 2, 5. State
Farm filed an action in New Mexico district court seeking a declaratory
judgment as to the extent of its liability.
Id. & 1. The insurance
policy at issue contained a "step down" provision eliminating
coverage for injury to family members of the insured in excess of the statutory
minimum.
Id. ¶ 4. State Farm argued that because the policy was executed
in Georgia, Georgia law, permitting such provisions, should apply.
Id. ¶
6. The insured argued that the step down provision was invalid under New Mexico
law.
Id. Our Supreme Court held that the step down provision violated
New Mexico's public policy and refused to enforce it.
Id. ¶ 11.
{11} Ballard noted
that the New Mexico Mandatory Financial Responsibility Act, NMSA 1978, §§
66-5-201 to -239 (1978, as amended through 2003), did not allow exclusion of
coverage for family members.
Ballard,
2002-NMSC-030, ¶ 11. It relied on
Estep
v. State Farm Mutual Automobile Insurance Co.,
103 N.M. 105,
703 P.2d 882
(1985), for the proposition that step down provisions are not merely prohibited
but also constitute "a repudiation of New Mexico's public policy."
Ballard,
2002-NMSC-030, & 11 (internal quotation marks and citation omitted).
Ballard
considered step down provisions to be unenforceable because they are
"contrary to protecting innocent accident victims" and because
"the reasons for [step down provisions] are no longer valid."
Id.
¶ 12 (internal quotation marks and citation omitted).
{12} Farmers argues that
Ballard
does not mandate reversal in this case for two reasons. First, Farmers contends
that the insured in
Ballard reasonably expected that her coverage
applied to all passengers, while in this case Plaintiff reasonably expected
that Texas law would apply.
See Ballard,
2002-NMSC-030, ¶ 3 (noting that
the insured purchased insurance "stating that she wanted the same coverage
which she had in California"). But
Ballard did not rely on the
insured's expectation. Rather,
Ballard held that "[o]nce [State
Farm] sold [the insured] insurance that exceeded the `limits required by law,'
this coverage applies equally to all accident victims, whether the victim is a
family member or not, as a matter of New Mexico public policy."
Id.
¶ 14. Second, Farmers argues that
Ballard involved liability coverage,
which is mandatory, rather than uninsured motorist coverage, which may be
rejected.
Id. & 1;
see § 66-5-301(C). We find this argument
unpersuasive because
Ballard also involved coverage purchased by the
insured in excess of that required by law.
Ballard,
2002-NMSC-030, ¶ 14.
{13} We do note, however,
that
Ballard addressed not only protection of innocent accident victims,
but also discrimination against a discrete group: family members of the
insured.
Id. ¶ 10. Plaintiff argues that this distinction is irrelevant,
but language in
Ballard indicates otherwise. Specifically, for the
proposition that the policy's step down provision violated fundamental
principles of justice,
Ballard relied in part on New Mexico's rejection
of interspousal immunity in several different contexts.
Id. ¶ 12
("Familial exclusion, whether in relation to insurance contracts . . . or
tort law, . . . is an anachronism . . . ."). We are therefore not
persuaded that the contact requirement in this case implicates such a
fundamental principle of justice as that invalidating the step down provision
in
Ballard.
{14} Nonetheless,
Ballard
is highly instructive to our analysis. Our Supreme Court in
Ballard used
New Mexico's public policy to invalidate a Georgia provision because it
violated New Mexico insurance statutes and our common law policies and because
it was not justified by other policy concerns.
Id. ¶¶ 11-14. The Court
rejected State Farm's argument that the contract provision at issue should be
enforced because it was designed to protect insurance companies from fraud.
Id.
¶¶ 13-14. The Court also rejected the argument that the provision should be
enforced because of our policy favoring freedom of contract.
Id. ¶ 13.
{15} As Plaintiff notes,
our policy reason for disallowing exclusions from uninsured motorist coverage
is the same as one of the policies at stake in
Ballard: protecting
innocent accident victims.
See id. ¶¶ 13-14. As did our Supreme Court
in
Ballard, here we do not accept the proposition that protecting
insurance companies from fraudulent claims justifies enforcing an exclusion
from coverage purchased in another state.
Id. Texas may have a policy of
protecting insurance companies, but, in the context of uninsured motorist
coverage, New Mexico has chosen to protect accident victims.
See, e.g.,
Sandoval,
91 N.M. at 708, 580 P.2d at 134 ("[T]he uninsured or unknown motorist
statutes are designed to protect the injured party from the uninsured or
unknown motorist. The statutes are not designed to protect the insurance
company from the injured party.") (internal quotation marks and citation
omitted).
{16} We also do not agree
with Farmers that we should balance our policy of protecting accident victims
against our strong policy favoring freedom of contract.
See, e.g.,
McMillan v. Allstate Indem. Co.,
2004-NMSC-002, ¶ 10,
135 N.M. 17,
84 P.3d
65 ("New Mexico public policy favors freedom to contract and enforces
contracts that do not violate law or public policy."). Freedom of contract
is not an issue in this case. Plaintiff could not have chosen to enter into an
insurance contract that did not have an exclusion for uninsured motorist
coverage when no physical contact occurs. Texas law required such a provision
be included in his contract.
See art. 5.06-1(2).
{17} The only meaningful
distinction we see between this case and
Ballard is the source of the
public policy that would invalidate the contract provision. In
Ballard,
that source was not merely statutory.
Ballard,
2002-NMSC-030, ¶ 12. In
this case, Plaintiff has not pointed to any fundamental public policy other
than that expressed in our uninsured motorist statutes. Nonetheless, Plaintiff
argues that such a policy is not required because no such policy was discussed
in
Sandoval. We agree.
{18} Sandoval
applied New Mexico law to invalidate a provision in a Colorado insurance
contract that limited the insured's time in which to bring a lawsuit.
Sandoval,
91 N.M. at 707, 580 P.2d at 133.
Sandoval found that our uninsured
motorist statute embodied the public policy of protecting injured accident
victims.
Id. at 708, 580 P.2d at 134. We held that New Mexico law
applied because Colorado law might conflict with that policy.
Id. at
707-08, 580 P.2d at 133-34. We determined that the provision in the insurance
contract was "void [because it] place[d] a limitation upon or conflict[ed]
with a statute granting uninsured motorist coverage."
Id. at 708,
580 P.2d at 134.
{19} Farmers argues that
Sandoval
applied New Mexico law only because Colorado law was not clear. We agree that
Sandoval
indicated that it did not find Colorado case law addressing the issue.
Id.
at 707, 580 P.2d at 133. But
Sandoval did not apply New Mexico law
for that reason. Rather, it held the time limitation provision invalid because
any other result would conflict with the policy of New Mexico's uninsured
motorist statute.
Id. at 708, 580 P.2d at 134.
{20} Unlike
Ballard,
Sandoval did not consider whether a public policy other than that
embodied in our statutes would be violated by application of the
lex locus
contractus. Rather,
Sandoval held that our uninsured motorist
statutes required application of our law if it conflicted with the
lex locus
contractus because New Mexico's uninsured motorist statutes embody our
public policy of protecting accident victims.
Sandoval, 91 N.M. at
707-08, 580 P.2d at 133-34. Application of
Sandoval to this case
requires reversal. It is clear that Texas law violates New Mexico's public
policy as expressed in our uninsured motorist statutes.
{21} Farmers argues,
relying on
Shope, that Texas law should apply because any differences
between New Mexico and Texas law concern mere contract interpretation. We do
not agree. In
Shope, our Supreme Court applied Virginia law that allowed
stacking of insurance unless "clear and unambiguous language in the policy
prevents it."
Shope,
1996-NMSC-052, ¶¶ 1, 6. The plaintiff in
Shope
purchased two insurance policies in Virginia for his Virginia automobiles.
Id.
¶ 3. He and his family then moved to New Mexico without transferring the
policies.
Id. ¶ 4. The plaintiff's son was killed less than two weeks
later by an uninsured vehicle and the plaintiff sought to stack his uninsured
motorist benefits.
Id. Our Supreme Court held that New Mexico's policy
favoring stacking of uninsured motorist policies "does not rise to the
level of a fundamental principle of justice."
Id. ¶¶ 7, 9.
Shope
went on to note that New Mexico might enforce a "
truly unambiguous
antistacking clause" despite our policy if enforcement is fair to the
insured.
Id. ¶ 10 (internal quotation marks and citation omitted).
{22} Farmers' reliance on
Shope is misplaced. New Mexico's public policy preventing exclusions
from uninsured motorist coverage is not merely a matter of contract
interpretation. Our courts will not enforce even an unambiguous provision
excluding coverage for accidents involving uninsured motorists when no physical
contact between the covered and the uninsured vehicle takes place.
See
Chavez, 87 N.M. at 329-30, 533 P.2d at 102-03. Certainly our public policy
preventing exclusions from coverage is more important than our policy that
merely favors stacking.
Shope is inapplicable to this case because the
difference between the New Mexico public policy prohibiting enforcement of an
exclusion to uninsured motorist coverage and the Texas policy requiring such an
exclusion is not an issue of contract interpretation.
{23} Thus, although we
agree with Farmers that the public policy at issue in this case may not rise to
the level of a fundamental principle of justice, we do not believe that the
language used is the issue. Regardless of the label,
Ballard and
Sandoval
indicate that a substantial public policy is implicated, and that policy
mandates reversal in this case. We agree with Plaintiff that the exclusion of
uninsured motorist coverage for accidents not involving physical contact with
the uninsured vehicle violates New Mexico's public policy and cannot be
enforced in courts of this state.
See Chavez, 87 N.M. at 329-30, 533
P.2d at 102-03. Plaintiff seeks compensatory damages, which are designed to
"protect innocent accident victims consistent with the fundamental public
policy purpose" of our uninsured motorist statute.
Ballard,
2002-NMSC-030, ¶ 16 (internal quotation marks and citation omitted). Plaintiff
has purchased uninsured motorist coverage. We will not apply exclusions to his
coverage that are prohibited by our statutes and by our public policy.
{24} We reverse the
district court's grant of summary judgment and remand for further proceedings
consistent with this opinion.