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 Plaintiff was injured in a car accident caused by the negligent driving of the Defendant, who rear-ended her vehicle. The Plaintiff suffered severe physical injuries, property damage, medical expenses, lost wages, and other damages. The Defendant's vehicle was insured by Allstate Insurance Company, which allegedly failed to make a good faith effort to settle the Plaintiff's claims despite the Defendant admitting liability (paras 2-3, 9).
Procedural History
- District Court, March 19, 2001: The trial court dismissed the Plaintiff's claims against Allstate, holding that New Mexico does not recognize a common-law cause of action by a third party for bad faith or failure to settle and that the Plaintiff was not a third-party beneficiary under the insurance policy (para 6).
Parties' Submissions
- Plaintiff-Appellant: Argued that Allstate breached its duty of good faith and fair dealing under the New Mexico Insurance Code by refusing to settle her claims in good faith. She also contended that she was a third-party beneficiary of the insurance policy and that Allstate's actions violated public policy (paras 4, 9, 24-25).
- Defendant-Appellee (Allstate Insurance Company): Asserted that the duty of good faith and fair dealing applies only between the insurer and the insured, not to third-party claimants. Allstate also argued that the New Mexico Insurance Code does not provide a private right of action for third-party claimants and that public policy does not impose a duty to settle on insurers (para 6, 22-23).
Legal Issues
- Does New Mexico recognize a common-law cause of action by a third party against an insurer for bad faith refusal to settle?
- Does the New Mexico Mandatory Financial Responsibility Act (NMMFRA) create a third-party beneficiary relationship between an injured party and the tortfeasor's liability insurer?
- Does the New Mexico Insurance Code provide a private right of action for third-party claimants against insurers for unfair claims practices?
Disposition
- The Court of Appeals affirmed the trial court's ruling that New Mexico does not recognize a common-law cause of action for bad faith refusal to settle and that the NMMFRA does not create a third-party beneficiary relationship (para 27).
- The Court of Appeals reversed the trial court's dismissal of the Plaintiff's claim under the New Mexico Insurance Code, holding that the Plaintiff stated a valid claim under Section 59A-16-20 (para 27).
Reasons
Per A. Joseph Alarid J. (Wechsler CJ and Bustamante J. concurring):
Common-Law Cause of Action: The Court held that New Mexico does not recognize a common-law cause of action for bad faith refusal to settle by a third party. The insurer's duty of good faith and fair dealing is owed to the insured, not to third-party claimants. The adversarial nature of the common-law fault-based system does not impose a duty to settle on insurers (paras 12-18).
NMMFRA: The Court found that the NMMFRA does not alter the common-law adversarial relationships between insurers, insureds, and third-party claimants. The Act does not impose a duty on insurers to consider the interests of third parties in settlement negotiations (paras 14-18).
Insurance Code: The Court applied the reasoning in Russell v. Protective Ins. Co. and held that the Plaintiff, as a third-party claimant, could bring a claim under Section 59A-16-20 of the Insurance Code. The Court emphasized that the Insurance Code's provisions on unfair claims practices are not limited to insureds and extend to third-party claimants in certain circumstances (paras 20-26).
Conclusion: The Court affirmed the dismissal of the Plaintiff's common-law claims and claims under the NMMFRA but reinstated her claim under the Insurance Code, remanding the case for further proceedings (para 27).