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 case involves an injured passenger who sought underinsured motorist (UIM) benefits after a car accident caused by a third-party driver. The third-party driver, fully at fault, had liability insurance of $100,000, which was paid to the passenger. The passenger was covered under two UIM policies: $100,000 from the vehicle's insurer (primary) and $500,000 from her own insurer (secondary). The passenger's damages exceeded the combined UIM coverage of $600,000 (paras 2-3).
Procedural History
- District Court of Bernalillo County: Held that the passenger was covered under the primary insurer's policy but ruled that the primary insurer's liability was reduced to zero due to a contractual offset for the $100,000 liability payment received from the tortfeasor (para 3).
Parties' Submissions
- Plaintiff-Appellee (State Farm): Argued that its policy did not cover the passenger's claim because the tortfeasor's vehicle did not qualify as underinsured under the policy. Alternatively, it claimed entitlement to a contractual offset for the $100,000 liability payment, reducing its liability to zero (para 3).
- Defendant-Appellant (Passenger): Contended that the primary insurer's contractual offset violated public policy and that the statutory offset should apply to the primary insurer, not the secondary insurer (paras 3-4).
Legal Issues
- Whether the primary insurer is entitled to a contractual offset for the liability payment received by the injured passenger.
- How the statutory offset for liability payments should be applied when stacking primary and secondary UIM coverage (para 4).
Disposition
- The Court of Appeals affirmed the district court's decision that the primary insurer's liability was reduced to zero but held that the primary insurer was not entitled to a contractual offset. Instead, the statutory offset applied to the primary insurer (paras 4, 30).
Reasons
Per Bustamante CJ. (Robinson and Vigil JJ. concurring):
The Court clarified the application of statutory and contractual offsets in UIM coverage cases:
Statutory Offset: The Court held that the primary insurer, as the insurer closest to the risk, is entitled to the full statutory offset for the $100,000 liability payment received by the passenger. This approach aligns with the legislative intent to ensure full compensation for injured insureds and avoids unfair outcomes (paras 14-20).
Contractual Offset: The Court rejected the primary insurer's claim for a contractual offset, finding that such an offset would violate public policy. Allowing both a contractual and statutory offset would result in the passenger receiving less than the total UIM coverage purchased for her benefit, contrary to the purpose of UIM statutes (paras 22-29).
Public Policy Considerations: The Court emphasized that UIM coverage is intended to protect injured insureds and ensure they receive the full benefit of the coverage purchased. Allowing a contractual offset in this case would lead to an anomalous result where the passenger would recover less than if the tortfeasor had been uninsured (paras 28-29).
The Court concluded that the primary insurer's liability was reduced to zero due to the statutory offset, and the secondary insurer was responsible for the remaining $500,000 in UIM benefits, ensuring the passenger received the full $600,000 in coverage (paras 19-20, 30).