PADILLA V. DAIRYLAND INS. CO., 1990-NMSC-025,
109 N.M. 555, 787 P.2d 835 (S. Ct. 1990)
HENRY PADILLA, VIRGINIA PADILLA,
individually and as next
friend of Christina Padilla, a minor,
Plaintiffs-Appellees,
vs.
DAIRYLAND INSURANCE COMPANY, Defendant-Appellant
SUPREME COURT OF NEW MEXICO
1990-NMSC-025, 109 N.M. 555, 787 P.2d 835
Appeal from the District Court of
Valencia County, Mayo T. Boucher, District Judge.
Butt, Thornton, & Baehr, P.C., David
M. Bhouliston, John A. Klecan, Albuquerque, New Mexico, for Appellant.
Thomas C. Esquibel and William A.
Sanchez, Los Lunas, New Mexico, for Appellees.
William H. Carpenter, Michael B. Browde,
Albuquerque, New Mexico, for amicus curiae, NM Trial Lawyers Association.
{1} Defendant-appellant,
Dairyland Insurance Company (Dairyland) appeals a summary judgment granted to
plaintiffs-appellees, Henry and Virginia Padilla who had filed suit
individually and as next friend of Christina Padilla, their daughter and member
of their household. Christina was injured to the extent of more than $100,000
in a one-car automobile accident. The vehicle involved was owned by Henry
Padilla and driven by Christina's sister, Florence, who was killed in the
accident. Henry Padilla was the named insured of an insurance policy sold to
him by Dairyland covering the accident vehicle up to $25,000 for bodily injury
liability, and up to an additional $25,000 for uninsured/underinsured motorist
protection. Florence was a named insured under the liability provision of the
policy and was also a member of the Padilla household. Christina, as a
passenger and member of the household, was insured under the
uninsured/underinsured motorist provision of the policy. Henry Padilla
similarly had insured two other vehicles he
{*556}
owned. All three vehicles were covered by a single Dairyland policy.
{2} Dairyland conceded it
owed Henry Padilla $25,000 under the liability coverage, but denied that it owed
him anything under the uninsured/underinsured motorist coverage. The Padillas
filed suit, seeking to stack the benefits under the uninsured/underinsured
motorist coverage for all three cars, arguing that the negligent driver,
Florence, was underinsured. The trial court agreed with the Padillas. It
permitted them to stack their coverage, deducted $25,000 for the liability
payment Dairyland had already made, and awarded the Padillas $50,000. On
appeal, Dairyland argues that the trial court in effect used the
uninsured/underinsured motorist provisions of the policy to increase the
liability limit on the accident vehicle to $75,000, thereby ignoring the
contract entered into between the parties. Dairyland also points to an
exclusion in the policy which reads as follows: "A motor vehicle owned by
[Mr. Padilla] or furnished for [Mr. Padilla's] regular use isn't an uninsured
motor vehicle [under the policy]."
{3} The Padillas argue that
under our prior holdings on stacking of uninsured/underinsured coverage, the
exclusionary language in the policy should be invalidated as contrary to public
policy. We frame the issue before us as a tripartite question: (1) Does the
uninsured/underinsured motorist coverage on a vehicle owned by the named
insured entitle an insured family member to recover for an accident involving
the insured vehicle, as opposed to a vehicle owned by a third party, when the
insurance policy attempts to exclude coverage for any vehicle owned by the
named insured? (2) If the insured family member is otherwise entitled to
recover, may she recover when the negligent driver was also an insured family
member? (3) If the answer to the first two questions is yes, may the named
insured stack benefits available to him under the uninsured/underinsured motorist
coverage for two other vehicles covered by the same policy?
{4} This is not an issue of
first impression. Rather, it is an issue with which we were once presented but
failed to resolve. In
Estep v. State Farm Mut. Auto. Ins. Co., 103 N.M.
105,
703 P.2d 882 (1985), we were faced with a similar factual situation.
Appellant was injured in an automobile accident in which her husband was the
driver and owner of the accident vehicle and which was caused by the husband's
negligence. One of the issues raised on appeal was whether appellant could
recover under the insurance policy's uninsured motorist coverage. In reversing
a summary judgment for the insurance company on other grounds, we stated, as to
the issue of possible benefits under the uninsured motorist coverage of the
policy:
We need not at this time decide [appellant's] alternative
argument that... in some instances a plaintiff in the circumstances of
[appellant] might be able to claim coverage for damages under the
"uninsured motorist" provisions of her husband's policy. Suffice it
to say that the legislature clearly expressed its purpose in [NMSA 1978,
Section 66-5-201.1]:
The legislature is aware that motor vehicle accidents in the
state of New Mexico can result in catastrophic financial hardship. The purpose
of the Mandatory Financial Responsibility Act [NMSA 1978, Sections 66-5-201 to
-239] is to require and encourage residents of the state of New Mexico who own
and operate motor vehicles upon the highways of the state to have the ability
to respond in damages to accidents arising out of the use and operation of a
motor vehicle. It is the intent that the risks and financial burdens of motor
vehicle accidents be equitably distributed among all owners and operators of
motor vehicles within the state.
The courts are obliged to accede to the legislative purpose
in applying the statutory law governing mandatory insurance.
Id. at 111, 703 P.2d at 888. We note that the quoted
statute is identical to NMSA 1978, Section 66-5-201.1 (Repl. Pamp. 1989), the law
presently in effect.
{5} We need not make an
exhaustive review of our holdings in this area of the law. Instead, a brief
summary of the direction in
{*557} which
those holdings have evolved will suffice. In
Chavez v. State Farm Mut. Auto.
Ins. Co., 87 N.M. 327,
533 P.2d 100 (1975), we held that the uninsured
motorist statute must be liberally construed to implement its purpose of
compensating those injured through no fault of their own. We invalidated an
insurance policy's exclusionary clause that we found to be in conflict with the
statute's purpose.
{6} We are mindful here of
our holding in
State Farm Auto. Ins. Co. v. Kiehne, 97 N.M. 470,
641
P.2d 501 (1982), wherein we held valid an unambiguous exclusionary clause
stating that uninsured motorist benefits were not available for damage
sustained while any motor vehicle was being driven by the named insured. The
distinction between
Kiehne and
Chavez lies in the nature of the
exclusions in each case. In the former, the insurer excluded
all
coverage if Mr. Kiehne were the driver, while in the latter the insurer
provided coverage to Mr. Chavez and then limited it. Thus
Kiehne and
Chavez
stand for the proposition that an insurer's decision not to contract at all
with a given person is allowable, while an insurer's contract entered into with
a given person cannot be limited except where permitted by statute or
regulation.
{7} In
Lopez v. Foundation
Reserve Ins. Co., 98 N.M. 166,
646 P.2d 1230 (1982), we held that an
insured must be permitted to stack uninsured motorist coverages for separately
owned vehicles where an insurance company charges a full premium for each
vehicle. In
Konnick v. Farmers Ins. Co. of Arizona, 103 N.M. 112,
703
P.2d 889 (1985), we extended our ruling in
Lopez to underinsured
motorist protection and clarified the classes of insureds who may be covered
under uninsured motorized provisions. Class I insureds (household members) are
entitled to stack benefits under such policies, while Class II insured
(third-party passengers) are not. In
Schmick v. State Farm Mut. Auto. Ins.
Co., 103 N.M. 216,
704 P.2d 1092 (1985), we held invalid an ambiguous
exclusionary clause in an insurance policy that would have prevented the
insured from stacking two policies providing underinsured motorist coverage. We
held that:
[T]he only limitations on protection are those specifically
set out in the statute itself: that the insured be legally entitled to recover
damages and that the negligent driver be uninsured * * * * In the context of
underinsured motorist protection, a subcategory of uninsured motorist coverage,
the requirements are that the insured be legally entitled to recover damages
and that the negligent driver be inadequately insured.
Id. at 219, 704 P.2d at 1096.
In Jimenez v. Foundation Reserve Ins. Co., 107 N.M.
322, 757 P.2d 792 (1988), we extended our ruling in Schmick to an
exclusionary clause that was not ambiguous, holding that:
Even though [the insurer's] liability limitation clause is
unambiguous, that is not determinative.
[W]hen public policy embraces the stacking concept, policy
language limiting recovery to one vehicle's coverage (although premiums have
been paid on more than one vehicle) shall be struck as null and void no matter
how clear and unambiguous the limiting language.
The trial court correctly determined that [the insured] could
stack his policies to establish whether the negligent driver was underinsured.
Because [the insured] had $50,000 in underinsured/uninsured motorists coverage
and the negligent driver had only $25,000, the driver was underinsured to the
extent of $25,000. [The insured] was entitled to recover $25,000 from [the
insurer].
107 N.M. at 324-326, 757 P.2d at 794-796.
{8} We note that the facts of
coverage in
Jimenez are the same as in the case before us, except that
in the instant case the "negligent driver" is from the same family as
the injured insured and was driving a vehicle owned by the named insured. The
driver in the case at bar was likewise underinsured.
{9} In
Sanchez v. Herrera,
109 N.M. 155,
783 P.2d 465 (1989), we considered a case
{*558}
involving stacking of payments under the medical coverage provision of an
automobile insurance policy. We agreed with the insurance company that the
stacking of uninsured motorist benefits is "distinguishable from the
[stacking of medical payments] because the legislature mandated uninsured
motorist coverage in NMSA 1978, Section
66-5-301(B) [Repl. Pamp. 1989], whereas
medical coverage exists only by virtue of contracts freely entered into between
the insured and [the insurer]."
Id. at 158, 783 P.2d at 468. In
Sanchez,
because the important public policy issues raised by the uninsured motorist
statute were not involved, we "resort[ed] to traditional methods of
contract interpretation to assist our resolution of [the issue of
stacking]."
Id. In doing so, we upheld the insurance policy's
exclusionary clause as binding and prohibitive of stacking.
{10} The case at bar,
however, is of a different species than
Sanchez. It falls within the
parameters of our holdings in
Jimenez and its predecessors cited above,
rather than within the parameters of rulings based on "traditional methods
of contract interpretation" referred to in
Sanchez. It is clear
that cases involving uninsured motorist coverage must be given a qualitatively
different analysis by this court than cases which do not involve such coverage.
With that in mind, we now analyze the case before us, as argued by the parties
on appeal.
{11} We turn first to the
authority cited by Dairyland. In
Myers v. State Farm Mut. Auto. Ins. Co.,
336 N.W.2d 288 (Minn. 1983), plaintiff-appellant had brought suit against the
insurer seeking underinsurance benefits following a one-car accident in which
the fatally injured person was a guest passenger and the accident vehicle was
both owned and driven by someone not related to him. Further, unlike the
situation in the case before us, the injured person was not a listed insured
under the policy covering the accident vehicle. The policy endorsement for
underinsured motorist coverage provided that any person occupying the covered
vehicle was entitled to recover benefits under the underinsured motorist
provision of the policy. At the same time, however, the policy excluded
coverage for any vehicle owned by or furnished for the regular use of the owner
or driver of the accident vehicle, and thus served to exclude the accident
vehicle as a covered vehicle.
{12} Appellant argued that
underinsurance coverage follows the person and not the car, and sought benefits
under the policy. The court affirmed judgment for the insurer, holding:
The purpose of underinsured coverage is to protect the named
insured and other additional insureds from suffering an inadequately
compensated injury caused by an accident with an inadequately insured
automobile. Ordinarily, a passenger injured in a one-car accident involving someone
else's car, such as here, would be able to recover underinsured motorist
benefits under his or her own underinsured motorist coverage. Decedent Myers,
however, did not own a car and consequently had no coverage. But * * * [the]
insurance policy [of the person who owned the accident vehicle] is not designed
to compensate [the owner of the accident vehicle] or his additional insureds
from [his] failure to purchase sufficient liability insurance.
We hold, therefore, that the policy definition of
"underinsured motor vehicle," which excludes a vehicle owned by or
furnished or made available for the regular use of the named insured is valid.
Id. at 291-92 (emphasis added).
{13} A similar conclusion was
reached by the Supreme Court of Iowa in a factual situation equivalent to the
Minnesota case just cited. In
Poehls v. Guaranty Nat'l Ins. Co., 436
N.W.2d 62 (Iowa 1989), the court ruled: "[T]o allow [the insured party] to
recover for [the driver's] negligence * * * would in effect amount to a
duplicate payment of liability benefits."
Id. at 64.
{14} The Iowa court relied on
Millers Casualty Ins. Co. v. Briggs, 100 Wash. 2d 1, 665 P.2d 891
(1983). In that case, again based on a one-car accident involving an injured
party neither related to the insured driver
{*559}
nor listed as an insured in the policy covering the accident vehicle, a
policy exclusion similar to the one in
Myers was in effect. Interpreting
the Washington statute which requires automobile insurers to offer potential
clients the option of purchasing underinsured motorist coverage, the court
rejected the injured party's claim that since the statute did not expressly
permit an insurer to exclude a vehicle owned by the named insured from
underinsured motorist coverage, the exclusion was invalid. The court also
rejected the injured party's public policy argument, in which it was asserted
that the state's policy of providing compensation to innocent victims of
automobile accidents required an invalidation of the exclusion. The court noted
that the injured party in such a situation as the one before it (1) has not
paid a premium to the insurer, (2) because of benefits available under
liability coverage on the accident vehicle is not without compensation, and (3)
can recover under underinsured motorist provisions of any policy he or she may
own.
{15} The Supreme Court of
Alabama has adhered to the reasoning of the courts in the three cases just
reviewed. In
Sullivan v. State Farm Mut. Auto Ins. Co., 513 So. 2d 992
(Ala. 1987), the court approved a policy exclusion similar to the ones in the
cases reviewed above and similar as well to the one in the case before us. The
court upheld a judgment denying coverage for a guest passenger who had sought
benefits under the underinsured motorist provision of the driver's policy. In
so holding, the Alabama court relied on
Millers Casualty and on an
Arizona case that, in its factual setting, is on all fours with the case at bar:
Preferred Risk Mut. Ins. Co. v. Tank, 146 Ariz. 33, 703 P.2d 580 (Ct.
App. 1985).
{16} The latter case differs
from the other cases we have discussed in that it involved injured parties who
were
named insureds under the policy covering the accident vehicle. The injured
parties were also related to the negligent driver. The Arizona court upheld the
validity of an exclusion clause similar to the one before us now. The court
found the clause consistent with a statute requiring insurers to offer
underinsured motorist coverage to the public. The court reasoned:
When operation of the insured vehicle causes an injury,
liability coverage is available to the injured party. By refusing to pay
underinsured motorist benefits in addition, that type of coverage is limited to
the situation for which it was created -- compensation for injuries caused by other
motorists who are underinsured. Thus, although the statute lacks specific terms
permitting the exclusion, we find it consistent with the legislative purpose.
Id. at 36, 703 P.2d at 583 (emphasis added).
{17} The crucial distinction
between the Arizona case, on the one hand, and the cases from Minnesota, Iowa,
Washington and Alabama, respectively, on the other hand, is that in the latter
each injured party attempted to recover under someone else's underinsured
motorist coverage, while in the former, as in the case at bar, the injured
party, is attempting to recover under her
own underinsured motorist
coverage.
{18} Because of the
classification system we have erected in prior holdings, Christina Padilla
falls into the category of Class I insureds, rather than Class II insured.
[Class I] insureds generally "are covered by policies no
matter where they are or in what circumstances they may be; coverage is
not limited to a particular vehicle." [Gamboa v. Allstate Ins. 104
N.M. 756, 758, 726 P.2d 1386, 1388 (1986)]. "[S]econd class insureds are
covered only because they occupy an insured vehicle." Id. Class one
insureds "may stack all uninsured/underinsured motorist policies purchased
by the named insured since the policies were obtained specifically to benefit
the name insured and members of his family." Schmick, 103 N.M. at
220, 704 P.2d at 1096. Class two insureds, however, "are restricted to
recovering under the policy on the car in which they rode because the purchaser
of the policy only intended occupants to benefit from that particular
policy." Id.
{*560} {19} The Padillas argue that the distinction between,
on the one hand, a guest passenger who has neither paid a premium to the
insurer nor who is an insured under the policy at issue, and, on the other
hand, an actual insured under the policy, should be determinative. The crucial
difference, the Padillas argue, is that in the latter case the injured party
has a contractual relationship with the insured along with an attendant
reasonable expectation of coverage. See Wolgemuth v. Hurleysville Mut. Ins.
Co., 370 Pa. Super.51, 535 A.2d 1145, 1149-50 (1988). The Padillas assert
that the result reached in Tank is illogical and contrary to the public
policy of New Mexico. And since Christina Padilla should be allowed to recover,
the Padillas argue, she should also be allowed to stack coverage for the other
two insured vehicles. See Lopez, Schmick, Morro.
{20} The first question we
must answer, therefore, is whether Dairyland's exclusion clause is invalid as
violative of public policy. In deciding this question, we are faced with our
holding in Willey v. Farmers Ins. Group, 86 N.M. 325, 523 P.2d 1351
(1974). In that case the insurance policy contained an exclusion clause
virtually identical to the one before us. We held that the clause was clear and
unambiguous in excluding the insured's car from uninsured motorist coverage. In
rejecting the insured's public policy argument, we looked to NMSA 1953, Section
64-24-105 (1972), then equivalent to the present NMSA 1978, Section 66-5-301
(Repl. Pamp. 1989). We ruled:
It appears to us that this statute neither authorizes nor
forbids the exclusion contained in the policy sued upon, nor does it define
"uninsured motor vehicles." However, the statute does provide that
the superintendent of insurance may promulgate rules and regulations which
govern uninsured motorists. Acting under this statutory authorization, the
superintendent of insurance has published rules that cover the subject * * *
[which provide] that the term "uninsured motor vehicle" shall not
include a "motor vehicle owned by * * * [the insured] * * * *"
Id., at 326-27, 523 P.2d at 1352-53.
{21} Present law still
contains language pertaining to the role of the superintendent of insurance in
carrying out the purpose of the legislature in enacting the statute on
uninsured motorist coverage. See NMSA 1978, § 66-5-301(A). And the
present regulations of the New Mexico Department of Insurance provide that the
term "insured motor vehicle," for purposes of determining benefits
under uninsured motorist coverage, "shall not include * * * a motor
vehicle owned by the [insured] or by any resident of the same household of such
insured * * * or a motor vehicle furnished for the regular use of the [insured]
or any resident of the same household." N.M. Ins. Dep't Reg., Art. 5, Ch.
66, Rule 1, § 5-1-2, at 266 (Rev. 1989).
{22} Were Willey still
good law, we would of necessity have to rule that the exclusion here should be
enforced as written. Very recently, however, in Foundation Reserve Ins. Co.
v. Marin, 109 N.M. 533, 787 P.2d 452 (1990) we explicitly overruled Willey.
In doing so, we have concluded the better course to follow is that laid out by Chavez
and its progeny rather than the policy implications underlying our decision in Willey.
We disavow Willey notwithstanding any regulation promulgated by the New
Mexico Department of Insurance. Accordingly, the rule in Willey having
been abolished, we hold that the exclusion before us is void as violative of
public policy. Further, we agree with the Padillas that the Arizona Court of
Appeals' ruling in Tank is not applicable in New Mexico, because our
reading of public policy as mandated by our legislature requires a different
result than reached by the court in Tank.
{23} We thus answer the
tripartite question raised by the parties on appeal as follows: (1) An insured
family member is entitled to recover for an accident involving the insured
vehicle, as opposed to a vehicle owned by a third party, even though the
insurance policy attempts to exclude coverage for any vehicle owned by the named
{*561} insured; (2) the insured, injured
family member is entitled to recover even though the negligent driver was also
an insured family member; (3) the named insured may stack benefits available to
him/her under the uninsured/underinsured motorist coverage for other vehicles
covered by the same policy. We thus affirm the judgment of the trial court in
its entirety.
MONTGOMERY, J., concurs in result only.