New Mexico Confirms Retroactive Application of Crutcher Decision

The Supreme Court of New Mexico issued a slip opinion in Joshua Smith v. Interinsurance Exchange of the Automobile Club, aka AAA, Case No. S-1-SC-39659. The matter was before the Court on a certification of a single question from the United States District Court District of New Mexico as to the retroactive application of the holding in October 2021 decision of Crutcher v. Liberty Mut. Ins. Co., 2022-NMSC-001, 501 P.3d 433.

The Crutcher case analyzed state minimum limits uninsured and underinsured (“UM/UIM”) coverage in circumstances where an at-fault driver also only has state minimum liability limits. Although the New Mexico Legislature requires insurers to offer minimum UM/UIM limits to its insured, the broader statutory scheme permits offsets of the UM/UIM coverage through liability payments from the at-fault driver’s carrier. So, for example, if an insured is injured by another driver who only has $25,000 in liability coverage, that amount offsets any UIM benefits under the insured’s policy. If the insured only carriers $25,000 in UIM limits, he effectively receives no benefit. The Supreme Court in Crutcher held that it is unreasonable to expect insurance customers to understand that, when they contract for minimum liability UM/UIM coverage, they in essence may receive only minimum UM benefits and cannot claim UIM coverage toward their additional damages. Crutcher, 501 P.3d at 439-440. ¶¶ 26, 30. Crutcher held that minimum liability UIM coverage is illusory and can be sold only with sufficient disclosure. Id. ¶¶ 32-33. Specifically:

“It is the obligation of the insurer to draft an exclusion that clearly and unambiguously excludes coverage.” Battishill v. Farmers Alliance Ins. Co., 2004-NMCA-109, ¶ 12, 136 N.M. 288, 97 P.3d 620 (internal quotation marks omitted) (quoting Computer Corner, Inc., 2002-NMCA-054, ¶ 7, 132 N.M. 264, 46 P.3d 1264), rev'd on other grounds, 2006-NMSC-004, 139 N.M. 24, 127 P.3d 1111. Therefore, hereafter, the insurer shall bear the burden of disclosure to the policyholder that a purchase of the statutory minimum of UM/UIM insurance may come with the counterintuitive exclusion of UIM insurance if the insured is in an accident with a tortfeasor who carries minimum liability insurance. Consistent with the purpose and intent of the UIM statute, this disclosure will allow purchasers to make a fully informed decision when selecting UM/UIM insurance coverage. Id. ¶ 32.

In Smith v. AAA, Plaintiff Joshua Smith, on his own behalf and on behalf of similarly situated individuals, sued Defendant AAA in federal district court alleging that the minimum liability UM/UIM coverage he purchased from Defendant AAA was “illusory and/or misleading.” Plaintiff brought numerous claims against Defendant AAA, including claims for violating the Unfair Insurance Practices Act, NMSA 1978, §§ 59A-16-1 to -30 (1984, as amended through 2023); violating the New Mexico Unfair Practices Act, NMSA 1978, §§ 57-12-1 to -26 (1967, as amended through 2019); negligent misrepresentation; and unjust enrichment. Plaintiff purchased minimum liability UM/UIM coverage, was in the subject accident, and filed the subject litigation prior to the decision in Crutcher. Defendant AAA filed a motion to dismiss Plaintiff’s lawsuit on grounds that Crutcher did not apply. Defendant argued that Crutcher applies only prospectively and that insurers had no pre-Crutcher duty to disclose the effect of the broader statutory scheme on minimum liability UM/UIM coverage. The federal district court certified the question of whether Crutcher applies prospectively or retrospectively.

New Mexico applies a rebuttable presumption of retroactivity to civil cases. The presumption of retroactivity can be rebutted in two ways. First, “by an express declaration, in the case announcing the new rule, that the rule is intended to operate” prospectively. Beavers v. Johnson Controls World Services, Inc., 1994-NMSC-094, ¶ 1, 118 N.M. 391, 392, 881 P.2d 1376, 1377. Second, if the case announcing the new rule does not expressly declare that it should apply prospectively, then the presumption of retroactivity can “be overcome by a sufficiently weighty combination of one or more of the Chevron Oil factors.” Id.; see Chevron Oil Company v. Huson, 404 U.S. 97, 106-07 (1971) (acknowledging that states incorporate the Chevron factors while affirming that “[w]hatever freedom state courts may enjoy to limit the retroactive operation of their own interpretations of state law cannot extend to their interpretations of federal law” (citation omitted)), disapproved of by Harper v. Virginia Department of Taxation, 509 U.S. 86, 89, 100 (1993). The New Mexico Supreme Court recently distilled and restated the Chevron factors as “(1) whether the decision to be applied prospectively establishes a new principle of law, (2) whether retroactive operation will advance or inhibit the operation of the new rule, and (3) whether retroactive application may ‘produce substantial inequitable results.’” Ullman v. Safeway Ins. Co., 2023-NMSC-030, ¶ 44, 539 P.3d 668, 682 (quoting Beavers, 1994-NMSC-094, ¶ 23).

Although AAA pointed to the language in Crutcher directing future conduct of insurers with respect to insurer’s disclosure obligations, the Smith Court held that the language identified by AAA was readily distinguishable from the kinds of express declarative statements used in the past to announce the intention that a rule apply prospectively. Instead, the language in Crutcher merely clarified how rules should be followed and explained how an insurance company could avoid future liability when selling minimum liability UM/UIM coverage. 



With respect to the Chevron analysis, the Smith Court held that the Crutcher decision did not establish a new principle of law because several prior decisions foreshadowed the Crutcher decision. See e.g., Progressive Northwestern Ins. Co. v. Weed Warrior 2010-NMSC-050, ¶ 10, 149 N.M. 157, 245 P.3d 1209 (minimum liability UM/UIM coverage provided “only UM coverage,” and that “the inclusion of ‘UIM’ in the statute [is therefore] superfluous”); Bhasker v. Kemper Cas. Ins. Co., 284 F. Supp. 3d 1191, 1236 (D.N.M. Jan. 10, 2018) (memorandum opinion and order) (stating in 2018 that “the Supreme Court of New Mexico would conclude that the [minimum liability] UM/UIM coverage that [the plaintiff] purchased is illusory”); Bhasker v. Kemper Cas. Ins. Co., 361 F. Supp. 3d 1045, 1146-47 (D.N.M. Feb. 7, 2019) (memorandum opinion and order) (predicting in 2019 that this Court would find minimum liability UM/UIM coverage to be illusory).

The Smith Court also held that Defendant was not entitled to rely on pre-Crutcher authority, and it is not inequitable to apply Crutcher retroactively.

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