January 26, 2010 – Farmers Insurance Company of Arizono v. Xian Chen, No. 28,859

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1 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

2\| Opinion Number:

3]| Filing Date: January 26, 2010
4! NO. 28,859

|| FARMERS INSURANCE COMPANY
6] OF ARIZONA,

7 Plaintiff/Counter- Defendant-A ppellants,

Ol v.

9 XIAN CHEN,

10 Defendant/Counter- Plaintiff-A ppellee.

11] APPEAL FROM THE DISTRICT COURT OF LOS ALAMOS COUNTY
12] James A. Hall, District Judge

13} O’ Bien & Ulibami, P.C.
14} Daniel J. O’ Brien
15] Albuquerque, NM

16] for Appellant

17|| Law Office of James A. Branch, Jr.
18] James A. Branch, Jr.

19} Albuquerque, NM

20)| Law Office of Bian K. Branch
21|| Bnan K. Branch

22) Albuquerque, NM

23]| for Appellee

OPINION	1
VANZI, Judge.	2
{1} 	Farmers Insurance Company of Arizona (Farmers) appeals the district court’s	3
grant of summary judgment in favor of Appellee, Xian Chen (Mr. Chen). Farmers	4
contends that the district court erred when it held that the automobile insurance	5
policies issued by Farmers to Mr. Chen and his wife (the Chens) did not comply with	6
New Mexico regulations regarding uninsured motorist (UM) and/or underinsured	7
motorist (UIM) coverage, and therefore, Mr. Chen was entitled to UM/UIM coverage	8
equal to the liability limits on those policies.	9
{2} 	The district court held that New Mexico law requires insurers to offer UM/UIM	10
coverage up to the liability limits in an automobile insurance policy; that the Chens’	11
selection of a lesser amount of UM/UIM coverage constituted a rejection of UM/UIM	12
coverage equal to the difference between the two types of coverage (UM/UIM and	13
liability); and, because Farmers failed to obtain a valid written rejection of that	14
coverage, UM/UIM coverage equal to the liability limits of the Chens’ policies will	15
be read into those policies. 	We affirm.	16
BACKGROUND	17
{3} 	The facts in this case are not in dispute. Farmers issued two insurance policies	18
to the Chens. Each policy provided liability coverage of $100,000 for each person,	19

2
$300,000 for each occurrence and UM/UIM limits of $30,000 for each person,	1
$60,000 for each occurrence. During the application process, Mr. Chen’s wife signed	2
two “Uninsured Motorist Election” agreements (election agreements), one for each	3
policy. 	The election agreements define UM/UIM coverage and state that the	4
opportunity to purchase UM/UIM coverage in an amount up to the automobile limits	5
was previously provided. 	The election agreements allow the insured to reject	6
UM/UIM coverage entirely or select an amount of coverage less than the liability	7
limits of the policy. The agreements signed by Mr. Chen’s wife indicate a selection	8
of UM/UIM coverage in the amount of $30,000 per person, and $60,000 per	9
occurrence. 	The signed UM/UIM election agreements were not attached to the	10
automobile insurance policies that Farmers issued to the Chens.	11
{4} 	An endorsement titled “Endorsement Reducing Uninsured Motorist Coverage”	12
and labeled “s1655” was attached to each policy. The declarations page of the policy	13
referenced the s1655 form. 	The s1655 form is a generic form that states that “the	14
named insured has selected Uninsured Motorist Coverage limits of Liability that are	15
lower than the Bodily Injury Limit of Liability of this policy.” The s1655 form refers	16
insureds to the declarations page of their policy for the liability limits.	17
{5} 	Mr. Chen’s wife was killed and his son was injured by the negligence of an	18
underinsured motorist. 	Mr. Chen made a demand against his Farmers insurance	19
policies for UM/UIM coverage at the liability limits of his policies, alleging that	20

3
Farmers had failed to obtain a valid written rejection of UM/UIM coverage. Farmers	1
denied Mr. Chen’s claim and asserted it was only responsible for the payment of	2
UM/UIM limits of $30,000 per person on each policy.	3
{6} 	Farmers argues on appeal that the statute and regulation pertaining to the	4
rejection of UM/UIM coverage do not apply to policies containing UM/UIM limits	5
of at least $25,000, and even if the statute and regulation do apply, the policies	6
Farmers issued to the Chens meet the New Mexico statutory and regulatory	7
requirements for rejection of UM/UIM.	8
DISCUSSION	9
Standard of Review	10
{7} 	“Summary judgment is appropriate where there are no genuine issues of	11
material fact and the movant is entitled to judgment as a matter of law.” Self v. United	12
Parcel Serv., Inc., 1998-NMSC-046, ¶ 6, 126 N.M. 396, 970 P.2d 582. “An appeal	13
from the grant of a motion for summary judgment presents a question of law and is	14
reviewed de novo.” Montgomery v. Lomos Altos, Inc., 2007-NMSC-002, ¶ 16, 141	15
N.M. 21, 150 P.3d 971 (filed 2006). “All reasonable inferences are construed in favor	16
of the non-moving party.” Id. (internal quotation marks and citation omitted). New	17
Mexico Law Requires Rejection of UM/UIM Coverage	18
{8} 	Farmers argues that the Chens’ purchase of UM/UIM coverage in an amount	19
less than the liability limits of their policy was not a rejection of UM/UIM coverage	20

4
because New Mexico law only requires minimum UM/UIM coverage of $25,000 and	1
optionally permits insureds to request additional UM/UIM coverage up to the liability	2
limits of their policies. Farmers argues that, because the Chens purchased UM/UIM	3
coverage in excess of the minimum required, they did not reject any amount of	4
UM/UIM coverage. We disagree.	5
{9} 	UM/UIM insurance coverage in New Mexico is regulated by the uninsured	6
motorist statute contained in NMSA 1978, Section 66-5-301 (1983). 	This statute	7
states, in part, that insurers must provide UM coverage in “minimum limits . . . as set	8
forth in 66-5-215 NMSA 1978 and such higher limits as may be desired by the	9
insured, but up to the limits of . . . liability provisions of the insured’s policy[.]”	10
Section 66-5-301(A) (emphasis added).	11
{10} 	In Romero v. Progressive (Romero I) ___-NMCA-___, ¶ 16, ___ N.M. ___,	12
___P.3d ___, (No. 28,720, Oct. 26, 2009), this Court recently interpreted this section	13
of the statute “to place two equally weighted requirements on insurers. First, insurers	14
are required to provide UM/UIM coverage of not less than the minimum statutory	15
requirement. Second, insurers are required to provide UM/UIM coverage up to the	16
limits of the liability coverage contained within a given policy.” Id. We further stated	17
that, based on this interpretation, insurers have an affirmative duty to “offer UM/UIM	18
coverage up to the level of the liability limits of an automobile insurance policy.” Id.	19
¶ 22. 	We held that, because insurers are statutorily required to offer UM/UIM	20

5
coverage up to the liability limits of the policy, a purchase of an amount less than the	1
liability limit by the insured is a rejection of the UM/UIM coverage that is statutorily	2
available to the insured. Id. ¶ 24.	3
{11} 	In the present case, the Chens purchased UM/UIM coverage of $30,000 per	4
person, while purchasing liability coverage of $100,000 per person. Therefore, the	5
Chens rejected $70,000 of the UM/UIM coverage that they were entitled to purchase	6
under the statute.	7
Requirements for a Valid Rejection of UM/UIM Coverage	8
{12} 	Farmers next contends that even if it was required to offer the Chens UM/UIM	9
coverage at the liability limits of the policy and was, therefore, required to obtain a	10
valid rejection of such coverage, when the Chens selected a lesser amount, Farmers	11
has met the UM/UIM regulatory requirements for rejection by informing the Chens	12
of their UM/UIM elections in three separate documents: the declarations pages of the	13
policies, the s1655 forms, and the election agreements.	14
{13} 	Section 66-5-301(C) of the UM/UIM statute permits a policyholder to reject the	15
UM/UIM coverage defined in subsections A and B of that statute. 	The specific	16
requirements for such a rejection are defined in regulations promulgated by the	17
superintendent of insurance. 	Regulation 13.12.3.9 NMAC (11/30/01), states that	18
“[t]he rejection of the provisions covering damage caused by an uninsured or	19
unknown motor vehicle as required in writing by the provisions of Section 66-5-301	20

6
. . . must be endorsed, attached, stamped or otherwise made a part of the policy of	1
bodily injury and property damage insurance.”	2
{14} 	In Romero v. Dairyland Insurance Co. (Romero II), our Supreme Court stated	3
that a valid rejection must clearly and unambiguously call to the attention of the	4
insured the fact that UM/UIM coverage has been rejected and ensure that the insured	5
has affirmative evidence of the rejection sufficient to permit the individual to	6
reconsider the rejection at a later date. 111 N.M. 154, 156, 803 P.2d 243, 245 (1990).	7
{15} 	Most recently, in Marckstadt v. Lockheed Martin Corp., 2010-NMSC-001, ___	8
N.M. ___, ____ P.3d ___ (No. 31,258, Nov. 19, 2009), our Supreme Court reviewed	9
and interpreted the regulation and prior court rulings. In Marckstadt, the Court held	10
that an insurer must meet two requirements in order to comply with statutory and	11
regulatory requirements when excluding UM/UIM coverage in an automobile liability	12
policy. Id. ¶ 26.	13
{16} 	First, the Court held that the insurer must obtain a written rejection of UM/UIM	14
coverage from the insured. Id. The Court stated that, for a rejection to be valid, the	15
insurer must make a meaningful offer of UM/UIM coverage, the insured must	16
knowingly and intelligently act to reject such coverage, and the insured’s rejection	17
must be made in writing. 	Id. ¶¶ 16-17. The Court noted, however, that the written	18
rejection need not be signed or attached to the policy. Id. ¶ 26.	19

7
{17} 	Second, the Court held that evidence of the rejection must be attached to the	1
insured’s 	policy 	and 	that 	such 	evidence 	must 	be 	sufficient 	to 	“clearly 	and	2
unambiguously call to the attention of the insured the fact that such coverage has been	3
waived.” Id. ¶ 25 (internal quotation marks and citation omitted). The Court noted	4
that, while attaching the written rejection itself to the policy would obviously meet the	5
second requirement, “other forms of notification could function equally well” as long	6
as the notification is “made part of the policy by endorsement, attachment, or some	7
other means.” Id. ¶¶ 25-26.	8
{18} 	For the purposes of our discussion, we refer to the two requirements defined by	9
the Court as the “written rejection requirement” and the “attached notification	10
requirement,” respectively.	11
{19} 	Before we begin our analysis, we note that in his dissent, the author has	12
attached three pages as exhibits. 	Exhibits 2 and 3 were part of the multi-paged	13
policies received by the Chens. Exhibit 1 was not a part of those policies. We believe	14
that these pages, taken out of context, present an inaccurate representation of the	15
policies for the purpose of determining whether they meet the requirements defined	16
by the Court in Markstadt.	17
Written Rejection Requirement	18

8
{20} 	We first address whether the declarations pages, the s1655 forms, and the	1
election agreements, together or individually, meet the written rejection requirement	2
defined in Markstadt.	3
{21} 	In Markstadt, the Court stated that for a rejection of UM/UIM to be valid, the	4
insured must knowingly and intelligently reject the coverage. Id. ¶ 16. New Mexico	5
courts have not prescribed the specific information an insurer must provide to its	6
insureds to permit the insureds to make a knowing and intelligent rejection; however,	7
we hold that, at a minimum, insureds must be clearly informed as to: the amount of	8
coverage they are entitled to purchase; the amount of coverage they have in fact	9
purchased; and the fact that they have rejected some amount of coverage.	10
{22} 	Of the three documents in question, no single document contains all the	11
information the Chens would have needed in order to understand what, if any,	12
UM/UIM coverage they had rejected. 	The election agreements list the amount of	13
UM/UIM coverage purchased by the Chens but do not list the amount of UM/UIM	14
coverage the Chens were permitted to purchase or the amount they had rejected by	15
choosing to purchase less coverage. The declarations pages list both the amount of	16
liability coverage and the amount of UM/UIM coverage purchased by the Chens but	17
do not list the amount of UM/UIM coverage rejected or the amount of UM/UIM	18
coverage available for purchase. The s1655 forms are generic forms that do not state	19
the amount of UM/UIM coverage selected, the amount of UM/UIM coverage rejected,	20

9
or the amount of UM/UIM coverage available for purchase. Finally, none of the three	1
documents clearly state that the Chens rejected some amount of UM/UIM coverage.	2
Based on these facts, we find that the documents do not meet the written rejection	3
requirement because they do not provide sufficient information regarding the Chens’	4
UM/UIM coverage to ensure that the Chens knowingly and intelligently rejected that	5
coverage.	6
Attached Notification Requirement	7
{23} 	We next address whether the documents meet the attached notification	8
requirement defined in Marckstadt. We first note that, to meet this requirement, the	9
notification must be attached to the insured’s policy. Marckstadt, 2010-NMSC-001,	10
¶ 25. The election agreements were not attached to the copies of the policies received	11
by the Chens; accordingly, we consider only the declarations pages and the s1655	12
forms for the purposes of determining whether the Chens’ policies met the attached	13
notification requirement.	14
{24} 	In order to meet the requirement, the attached notification must clearly and	15
unambiguously call to the attention of the insured the fact that some amount of	16
UM/UIM coverage has been rejected and provide affirmative evidence of the amount	17
rejected, sufficient to permit the insured to reconsider the rejection at a later date. Id.	18
¶¶ 19, 25; Romero II, 111 N.M. at 156, 803 P.2d at 245. As we noted above, neither	19
the declarations pages nor the s1655 forms contain all the information necessary to	20

10
fully inform the Chens regarding their UM/UIM coverage decisions. 	Neither	1
document specifically states the amount of UM/UIM coverage rejected by the Chens	2
nor the amount of coverage the Chens were permitted to purchase under New Mexico	3
law. Without this specific information, the Chens were not equipped to understand	4
their selections or to reconsider those selections at a later date. We find, therefore,	5
that these documents do not provide sufficient information regarding the rejection of	6
UM/UIM coverage to meet the attached notification requirement.	7
{25} 	In Romero II, our Supreme Court observed that unless rejection is done in a	8
manner consistent with the requirements imposed by the statute and regulations,	9
UM/UIM coverage will be read into the policy “regardless of the intent of the parties.”	10
111 N.M. at 155, 803 P.2d at 244. The Court further stated that the UM/UIM statute	11
embodies a public policy to make uninsured motorist coverage a part of every	12
automobile liability insurance policy issued in New Mexico, and the statute was	13
intended to expand insurance coverage and to protect individual members of the	14
public against the hazard of culpable uninsured motorists. Id. at 156, 803 P.2d at 245.	15
Finally, the Court stated that the statute should be liberally interpreted in order to	16
implement its remedial purpose and that language in the statute that provides for an	17
exception to UM/UIM coverage should be construed strictly to protect the insured.	18
Id.	19

11
{26} 	In light of this guidance and our analysis as discussed above, we find that the	1
Chens’ automobile liability policies do not meet the New Mexico statutory and	2
regulatory requirements for rejection of UM/UIM coverage. Farmers, therefore, did	3
not obtain a valid rejection of UM/UIM coverage from the Chens.	4
{27} 	Where a valid rejection of UM/UIM coverage has not been obtained by the	5
insurer, New Mexico law requires UM/UIM coverage to be read into the policy at the	6
liability limits, regardless of the intent of the parties or the fact that a premium has not	7
been paid. Romero II, 111 N.M. at 155, 803 P.2d at 244. Because Farmers did not	8
obtain a valid rejection of UM/UIM coverage from the Chens, the district court was	9
correct in reading UM coverage at the liability limits into the Chens’ policies.	10
CONCLUSION	11
{28} 	For the reasons set forth above, we affirm the district court’s order granting	12
summary judgment in favor of Mr. Chen.	13
{29} 	IT IS SO ORDERED.	14
__________________________________	15
LINDA M. VANZI, Judge	16
I CONCUR:	17

—

3

MICHAEL D. BUSTAMANTE, Judge

MICHAEL E. VIGIL, Judge (dissenting)

12

13
VIGIL, Judge (dissenting).	1
{30} 	Mr. Chen and his wife (the Insureds) purchased two policies. One was for a	2
1990 Honda Civic, and one was for a 1996 Mercury Villager. 	The forms and	3
coverages for both policies are identical. The Insureds purchased bodily injury limits	4
of liability in the amount of $100,000 per person and $300,000 per occurrence, and	5
UM/UIM coverage in the amount of $30,000 per person and $60,000 per occurrence	6
for each automobile. The majority concludes that the Insured’s rejection of UM/UIM	7
coverage for the full amounts of the bodily injury coverage was invalid. I disagree	8
and therefore dissent.	9
{31} 	In Marckstadt, our Supreme Court summarizes its holding that pursuant to the	10
statute and regulation,	11
the insurer must obtain a written rejection from the insured, but that the	12
written rejection need not be signed or attached to the policy. . . .	13
However, we reiterate our holding in Romero [II] that 13.12.3.9 NMAC	14
requires that some evidence of the insured’s written rejection of	15
UM/UIM coverage must be made part of the policy by endorsement,	16
attachment, or some other means that calls the insured’s attention to the	17
fact that such coverage has been waived.	18
Marckstadt, 2010-NMSC-001, ¶ 26. In my view, Farmers complied with both of these	19
requirements.	20
{32} 	First, Farmers obtained valid written rejections of UM/UIM coverage for less	21
than the limits of the liability coverages. 	When Mr. Chen’s wife applied for the	22
insurance, she signed a form entitled, “UNINSURED MOTORIST ELECTION”	23

14
for each policy. The form is clear and unambiguous in its form and content, and a	1
copy 	is 	attached 	hereto 	as 	Exhibit 	1. 	The 	“UNINSURED 	MOTORIST	2
ELECTION” signed for each policy specifically states, “I have had the coverage of	3
Uninsured Motorist protection explained to me. 	The opportunity to purchase this	4
coverage in an amount up to my automobile limits has been provided.” There is a box	5
to reject uninsured motorist coverage in its entirety and there is a second box whereby	6
the insured selects reduced uninsured motorist coverage. 	The second box was	7
checked, indicating “reduced Uninsured Motorist Coverage limits of 30 per person	8
and 60 per occurrence.” 	No argument has been made that this does not indicate	9
UM/UIM coverage limits of $30,000 per person and $60,00 per occurrence. The form	10
then provides, “In consideration of the reduction of the premium, the Company and	11
I agree that Uninsured Motorist Coverage shall apply according to the terms selected.”	12
This form satisfies the requirement that the insurer offered UM/UIM coverage up to	13
the level of the liability limits of the policy, and it clearly reflects a rejection of the full	14
amount for a lower amount.	15
{33} 	Secondly, 	the 	policies 	that 	were 	delivered 	to 	the 	Insureds 	satisfy 	the	16
requirement of Marckstadt “that some evidence of the insured’s written rejection of	17
UM/UIM coverage must be made part of the policy by endorsement, attachment, or	18
some other means that calls the insured’s attention to the fact that such coverage has	19
been waived.” 	Id. ¶ 26. 	The policies themselves set forth on their respective	20

15
declarations sheets bodily injury limits of liability of $100,000/$300,000 and	1
uninsured motorist coverage of $30,000/$60,000. 	(The declarations sheet clearly	2
states that the coverages entries are in thousands of dollars, and the bodily injury	3
limits of liability are “100 Each Person” and “300 Each Occurrence,” and that the	4
uninsured motorist bodily injury limits are “30 Each Person” and “60 Each	5
Occurrence.”). The declarations sheet also clearly states that various endorsements	6
apply, one of which is identified as the s1655 endorsement. A declarations sheet is	7
attached hereto as Exhibit 2 to show where and how this information was conveyed	8
to the Insureds. Endorsement s1655 is attached to each policy that was delivered to	9
the Insureds and it too is clear and unambiguous in its content and form. A copy is	10
attached hereto as Exhibit 3. The s1655 endorsement is entitled, “ENDORSEMENT	11
REDUCING UNINSURED MOTORIST COVERAGE” and states,	12
In consideration of the reduced premium, the named insured has selected	13
Uninsured Motorist Coverage Limits of Liability that are lower than the	14
Bodily Injury Limit of Liability of this policy. 	The limit of liability	15
chosen for Uninsured Motorist is shown on the Declarations Page.	16
Thus, the endorsement clearly calls attention to the fact that the Insureds selected	17
UM/UIM coverage in an amount lower than the bodily injury limit of liability of the	18
policy and that the amount chosen is shown on the declarations page.	19
{34} 	Finally, I disagree with the majority that the insurance documents must list the	20
actual amount of UM/UIM coverage the Insureds were permitted to purchase or the	21

16
actual amount they had rejected by choosing to purchase less coverage. 	Majority	1
opinion, ¶ 21. Compliance with the statute and regulation has not heretofore required	2
that specific dollar amounts be set forth in the documents. Moreover, the same panel	3
of this Court in Romero I said,	4
In the present case, the Policy contained liability limits of $100,000 but	5
UM/UIM limits of only $50,000. 	Therefore, the [Insureds] rejected	6
$50,000 of the UM/UIM coverage, which they were entitled to purchase	7
under the statute. 	The amount rejected is the difference between the	8
liability limits of the Policy and the [Insureds’] selected UM/UIM	9
coverage.	10
Romero I, ___ NMCA ___, ¶ 26.	11
{35} 	Farmers obtained a valid written rejection for full coverage of UM/UIM	12
coverage, and the policy itself adequately calls attention to this fact as required by	13
Marckstadt. Since the majority disagrees, I dissent. I would reverse and remand with	14
instructions to enter judgment in favor of Farmers.	15
__________________________________	16
MICHAEL E. VIGIL, Judge	17