The New Mexico Supreme Court issued a pair of opinions on October 18, 2010, which focused on the requirements for securing valid rejections of uninsured/underinsured motorist ("UM/UIM") coverage under the New Mexico law. See Progressive Northwestern Ins. Co. v. Weed Warrior Servs., 2010- NMSC-050; Jordan v. Allstate Ins. Co., 2010-NMSC-051.1 The most startling aspect of these decisions was not the Court's announcement of new requirements related to securing rejections of UM/UIM coverage, including providing premium quotes to the insured for UM/UIM coverage, it was the Court's retroactive application of these new requirements. Since its issuance, the Jordan decision has resulted in numerous class action suits alleging insurers have failed to secure valid rejections and has sent insurers scrambling to adjust to the new requirements. This article examines both cases, but focuses primarily on the Jordan decision, a case which clearly demonstrates that the New Mexico Supreme Court has a very high standard for insurers in obtaining rejections of UM/UIM coverage and has a very low tolerance for insurers failing to meet its expectations in obtaining those rejections.
I. Progressive Northwestern Ins. Co. v. Weed Warrior Servs.
In Weed Warrior, the New Mexico Supreme Court considered the duty imposed on insurers to offer UM/UIM coverage under the applicable state statute.2 More specifically, the Court considered whether the election of UM/UIM coverage for less than the policy's liability limits constituted a rejection of UM/UIM coverage under the statute. The Court rejected outright any suggestion that the statute placed a burden on the insured to request UM/UIM coverage.3 Instead, the Court held that the insurer must offer UM/UIM coverage and the offer must include coverage equal to the policy's liability limits in order to effectuate the policy of the Legislature.4 The Court held that the insurer may not exclude UM/UIM coverage equal to the policy's liability limits unless it has offered it to the insured and the insured has exercised the right to reject the coverage through some positive act.5 Finally, the Court held that the choice of the insured to purchase UM/UIM coverage in an amount less than the policy's liability limits functions as a rejection of the maximum amount of UM/UIM coverage.6 Standing alone, the Weed Warrior decision is a beneficial clarification of the law related to securing rejections of UM/UIM coverage in New Mexico, because insurers now may point to and rely on the insured's selection of UM/UIM coverage in a lesser amount as evidence of the insured's rejection of the maximum amount of UM/UIM coverage.
II. Jordan v. Allstate Ins. Co.
In the three consolidated cases of Jordan, the Court felt compelled to revisit the requirements for insurers in obtaining valid rejections of UM/UIM coverage under the New Mexico law. Clearly frustrated by the cases being considered in Jordan, the Court observed that "[d]espite this Court's repeated pronouncements that an insured's decision to reject UM/UIM coverage must be knowing and intelligent in order to effectuate New Mexico's public policy, these consolidated cases indicate that insurers continue to offer UM/UIM coverage in ways that are not conducive to allowing the insured to make a realistically informed choice."7
Based on this frustration, the Court found it "necessary to prescribe workable requirements for a valid and meaningful rejection of UM/UIM coverage in amounts authorized by statute."8 The "workable requirements" announced by the Court require that when issuing an insurance policy, an insurer must inform the insured that he or she is entitled to purchase UM/UIM coverage in an amount equal to the policy's liability limits and must also provide the corresponding premium charge for that maximum amount of UM/UIM coverage.9 In addition, the premium cost for the minimum amount of UM/UIM coverage allowed by Section 66-5-301(A) must also be provided, as well as the relative costs for any other levels of UM/UIM coverage offered to the insured. Furthermore, the insured must be informed that he or she has a right to reject UM/UIM coverage altogether. The Court's rationale for these various notifications was that by providing the insured with a menu of coverage options and the corresponding premium costs the insurer will enable the insured to make an informed decision about the level of UM/UIM coverage he or she wants to purchase and can afford. The Court optimistically stated that these notifications will minimize uncertainty and litigation with regard to the coverage that the insured has obtained.10
The Court further delineated these requirements by providing a four-part test for securing rejections of uninsured motorist coverage. The test requires an insurer to: (1) offer the insured UM/UIM coverage equal to his or her liability limits; (2) inform the insured about premium costs corresponding to the available levels of coverage; (3) obtain a written rejection of UM/UIM coverage equal to the liability limits; and (4) incorporate that rejection into the policy in a way that affords the insured a fair opportunity to reconsider the decision to reject.11 To ensure compliance with this newly announced test, the Court held that if an insurer does not meet the four-part test for securing rejections of UM/UIM coverage, the policy will be reformed to provide UM/UIM coverage equal to the liability limits.12
A. Decisions of Consolidated Cases
In the case of Jordan v. Allstate, the Court concluded that Allstate had offered the insured UM/UIM coverage equal to the liability limits in the insured's policies based upon the UM/UIM Selection/Rejection forms which included a menu of coverage options ranging from the statutory minimum up to $2 million.13 In that case, the insureds had signed Allstate's forms that rejected UM/UIM coverage, and the UM/UIM rejection forms also included a statement informing the insureds that they could only purchase UM coverage for bodily injury up to the bodily injury liability limits. In addition, the declarations page sent to the insureds listed the amounts of liability and UM/UIM coverages provided by the policies, but did not contain specific references to the insured's rejection of UM/UIM coverage.
The Court held that the rejections secured by Allstate were insufficient as a matter of law, because the UM/UIM selection/rejection forms did not provide the premium costs for each available coverage option and the rejections were not made a part of the policies delivered to the insureds.14 The Court reasoned that had Allstate clearly stated on the declarations page that UM/UIM coverage equal to the policies' liability limits had been rejected, that would have constituted a valid incorporation of the rejection. In support of this conclusion the Court cited to case law,15 which held that a rejection was made part of the policy because the declarations page included the statements "UNINSURED MOTORISTS COVS REJECTED" and "UNINSURED MOTORISTS COVERAGES HAVE BEEN REJECTED".16
In the case of Romero v. Progressive, the Court held that although the declarations pages delivered to the insureds listed the amounts of liability and UM/UIM coverage provided by the policy, Progressive should have expressly stated in the policy that higher levels of UM/UIM coverage had been rejected.17 The Court held that that none of the requirements in its four-part test for a valid rejection of UM/UIM coverage were met, and it cited to the fact that there was no evidence that: (1) Progressive offered the insured UM/UIM coverage equal to his liability limits; (2) Progressive informed the insured how much UM/UIM coverage would cost; or (3) the insured rejected UM/UIM coverage in writing.
For the case of Lucero v. Trujillo, the insured used Progressive Halcyon's website to purchase insurance. The insurer's website offered UM/UIM coverage equal to the liability limits by setting the default amount of UM/UIM coverage equal to the amount of liability coverage, and the website had pull-down menus which provided price quotations for each available coverage option.18 As a part of its web-based purchasing model, Progressive included a short paragraph in its policy, which "expressly integrated" the insured's application and declarations pages into the policy.19
Upon review the Court recognized that the insured had rejected coverage in writing when the Court acknowledged that in the twenty-first century actively selecting an amount of UM/UIM coverage on an insurance website constitutes a "writing." The Court held, however, that incorporating an on-line application into an insurance policy through "buried language toward the end of a generic forty-nine page policy does not allow for meaningful reconsideration of the decision to reject coverage."20 In addition, the Court noted that there was no evidence that the insurer actually delivered the policy and declarations pages to the insured. The Court determined that the rejection was never made a part of insured's written policy and that nothing in the application, declarations pages, or policy provided the insured evidence of her rejection for later reference or reflection. The Court held that the insurer should have delivered a policy that expressly alerted the insured to the fact that she had rejected a portion of the UM/UIM coverage to which she was entitled.
B. Retroactive Application of Court's Holding
The most striking aspect of the Jordan decision was the Court's decision to not limit the holding to a prospective application, but instead to allow the decision to apply to policies that were issued before the date of the opinion. In making this determination, the Court noted that New Mexico follows the general presumption that a new rule adopted by a judicial decision in a civil case will operate retroactively.21 In a case announcing a new rule this presumption of retroactive application can be overcome, however, by an express declaration that the rule is intended to operate with selective prospectivity or pure prospectivity.
In determining whether the presumption of full retroactive application had been overcome in the cases before it, the Court used a three-factor test.22 Under the first factor, the Court considered whether the decision established a new principle of law, either by overruling clear past precedent on which litigants may have relied, or by deciding an issue of first impression whose resolution was not clearly foreshadowed. The Court concluded that the first factor weighed against limiting the holding to a prospective application, because there was no reliance and no precedent was overruled. While the Court recognized that the requirement to provide premium costs for each available coverage level had not been required previously, the Court went on to rely on what it termed the settled principles of UM/UIM jurisprudence that rejections must be knowingly and intelligently made.
For the second factor, the Court weighed the merits in each case by looking to the prior history of the rule in question, its purpose and effect, and whether retrospective operation would further or retard its operation.23 The Court held that retroactive application would provide meaningful enforcement of the statutory and regulatory requirements, ensuring that every insured has been afforded his or her statutory right to either obtain UM/UIM insurance coverage equal to the liability limits of the policy or to make a knowing and intelligent rejection of part or all of that coverage.
In examining the third factor, the Court considered the inequity imposed by retroactive application and whether the decision would produce substantial inequitable results if applied retroactively. The Court stated that there is ample basis in New Mexico case law for avoiding 'injustice or hardship' by a holding of nonretroactivity.24 In balancing the relative equities, the Court held that on balance it was more equitable to let the financial detriments be borne by insurers, who "were in a better position to ensure meaningful compliance with the law, than to let the burdens fall on non-expert insureds, who are the Legislature's intended beneficiaries."25 As such, the Court clearly had very little sympathy for the argument that insurers would be forced to pay claims for which premiums had not been collected.
By allowing the retroactive application of its decision, the Court opened the door to future claims against insurers for an undetermined period of time. The retroactive application raised the question of just how far back in time insurers will be exposed to liability based on their alleged failure to meet the requirements articulated in Jordan. Under New Mexico law, three potential statutes of limitations may be implicated by the retroactivity of the Court's ruling. These statutes of limitations are: (1) for contract disputes the statute of limitations is six years;26 (2) for personal injury actions the statutes of limitations is three years;27 and (3) for all other actions not otherwise specified the statute of limitations is four years.28 Which of these statutes of limitations will apply is an open question.
With the issuance of Jordan and the Court's retroactive application of the new requirements for valid rejections, the New Mexico Supreme Court opened the door to numerous class action suits alleging that insurers failed secure valid rejections UM/UIM coverage. Needless to say, the Court's announcement of the new requirements has insurers scrambling to adjust their business models and exploring potential legislative and regulatory fixes. These potential legislative and regulatory fixes may become more needed as the class action suits and other UM/UIM jurisprudence progress in the wake of the Jordan and Weed Warrior decisions.