This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.
Facts
The Defendant was injured in a car accident caused by a tortfeasor who carried a $25,000 liability insurance policy. The Defendant held three $25,000 underinsured motorist policies with the Plaintiff, which could be stacked to provide $75,000 in coverage. The Defendant settled with the tortfeasor's insurer for $25,000 without obtaining the Plaintiff's written consent, breaching the consent-to-settle provision in the insurance policy (paras 3-4).
Procedural History
- District Court: Granted summary judgment in favor of the Plaintiff, holding that the Defendant's breach of the consent-to-settle provision precluded recovery of underinsured motorist benefits.
Parties' Submissions
- Defendant-Appellant: Argued that the Plaintiff must demonstrate substantial prejudice resulting from the breach of the consent-to-settle provision before denying underinsured motorist benefits. Cited developments in New Mexico insurance law supporting this requirement (para 1).
- Plaintiff-Appellee: Maintained that the Defendant's breach of the consent-to-settle provision barred recovery of underinsured motorist benefits and that the presumption of substantial prejudice arising from the breach was not rebutted (paras 1, 14-15).
Legal Issues
- Must an insurer demonstrate substantial prejudice resulting from an insured's breach of a consent-to-settle provision before denying underinsured motorist benefits?
- Did the Defendant rebut the presumption of substantial prejudice arising from the breach of the consent-to-settle provision?
Disposition
- The Supreme Court of New Mexico affirmed the summary judgment in favor of the Plaintiff (para 17).
Reasons
Per Chávez J. (Bosson C.J., Minzner, Serna, and Maes JJ. concurring):
The Court held that an insurer must demonstrate substantial prejudice resulting from an insured's breach of a consent-to-settle provision before denying underinsured motorist benefits. This requirement aligns with prior New Mexico case law, including Roberts Oil Co. v. Transamerica Ins. Co. and Eldin v. Farmers Alliance Mut. Co., which applied the substantial prejudice rule to other insurance policy provisions (paras 2, 5-7).
The Court reasoned that the purpose of underinsured motorist coverage is to protect insured individuals from financially irresponsible motorists, and denying coverage without substantial prejudice would frustrate this purpose. However, the consent-to-settle provision serves to protect the insurer's subrogation rights and prevent collusion, necessitating a balance between these interests (paras 8-10).
The Court clarified that a presumption of substantial prejudice arises when an insured breaches a consent-to-settle provision. This presumption can be rebutted by evidence showing the insurer was not substantially prejudiced. In this case, the Defendant failed to rebut the presumption, as the evidence presented did not establish that the tortfeasor was judgment-proof or that the Plaintiff's subrogation rights were otherwise impaired (paras 13-15).
The Court modified its earlier decision in March v. Mountain States Mutual Casualty Co. to require a showing of substantial prejudice in cases involving breaches of consent-to-settle provisions, consistent with the substantial prejudice rule applied in other contexts (paras 6-7, 17).