March 22, 2016 – Barbara Sherrill v. Farmers Insurance Exchange, No. 33,859

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number:
Filing Date: 	MARCH 22, 2016
NO. 33,859
BARBARA SHERRILL,
Plaintiff-Appellant,
v.
FARMERS INSURANCE EXCHANGE,
Defendant-Appellee.
APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY
Sheri A. Raphaelson, District Judge
O’Friel and Levy, P.C.
Daniel J. O’Friel
Pierre Levy
Aimee Bevan
Santa Fe, NM
for Appellant
Lewis Roca Rothgerber, LLP
Steven J. Hulsman
Ross L. Crown
Matthew W. Park
Albuquerque, NM
for Appellee

OPINION
ZAMORA, Judge.
{1} 	Plaintiff Barbara Sherrill appeals the district court’s grant of summary judgment
in favor of Defendant Farmers Insurance Exchange (Farmers) on her claim of
retaliatory discharge. The district court determined that neither NMSA 1978, Section
59A-16-20 (1997), nor the implied covenant of good faith and fair dealing, constituted
clearly mandated public policies that could support Sherrill’s claim of retaliatory
discharge. The district court further concluded that Sherrill did not demonstrate the
necessary causal connection between her protected actions and her discharge. We
affirm in part and reverse in part.
I. 	BACKGROUND
{2} 	Sherrill was employed by Farmers as a claims adjuster between 2007 and 2010.
Sherrill’s employment duties included adjusting personal injury and insurance claims
in the first and third party contexts. As part of its liability strategy and standards,
Farmers requires that adjusters make early contact with claimants. Farmers also
requires its adjusters to contact claimants by telephone within twenty-four to forty-
eight hours of receiving a claim, and to set up an early face-to-face meeting with the
claimants. The practice of requiring claims adjusters to meet with claimants is referred
to as the in-person contact program (IPC).

2
{3} 	Another component of Farmers’ liability strategy and standards is the
requirement that a certain percentage of unrepresented bodily injury claims be settled
within sixty days for $1,500 or less. This claims settlement practice is referred to as
early claims settlement (ECS). Farmers provides adjusters with ECS objectives,
advising adjusters that failure to meet those objectives could result in employee
discipline. Sherrill expressed concerns regarding the ECS process to at least one of her
supervisors. In March 2010 Farmers informed Sherrill that her claims settlement
numbers failed to meet the ECS objectives set for her and terminated Sherrill’s
employment.
{4} 	After her termination, Sherrill filed suit against Farmers for retaliatory
discharge and prima facie tort. Sherrill also sought a declaratory judgment that
Farmers violated Section 59A-16-20 of the Trade Practices and Frauds Act (Article
16) of the Insurance Code, and the New Mexico Mandatory Financial Responsibility
Act, NMSA 1978, §§ 66-5-201 to -239 (1978, as amended through 2015). Sherrill
requested damages under NMSA 1978, Section 59A-16-30 (1990) and punitive
damages. The district court granted Farmers’ motion to dismiss Sherrill’s declaratory
judgment claims and claim for damages under Section 59A-16-20, pursuant to Rule
1-012(B)(6) NMRA. The district court also granted Farmers’ motion for summary
judgment on Sherrill’s claim for prima facie tort.

3
{5} 	The parties filed competing summary judgment motions on Sherrill’s remaining
retaliatory discharge claim. Sherrill argued that Farmers terminated her employment
in retaliation for her refusal to carry out unfair and illegal claims practices, including
ECS and IPC, which Sherrill claimed violated New Mexico law and public policy.
Specifically, Sherrill argued that ECS and IPC violated the Release Act, NMSA 1978,
§§ 41-1-1 to -2 (1971), Section 59A-16-20, and the implied covenant of good faith
and fair dealing. Farmers argued that its claims practices did not violate New Mexico
law, nor did they violate any clear mandate of public policy. Farmers further argued
that Sherrill had not expressed any objection to IPC specifically, therefore, IPC could
not have been the basis for retaliatory discharge.
{6} 	The district court granted Farmers’ motion for summary judgment. The
reasoning employed by the district court regarding Sherrill’s claim related to the ECS
program is best discerned from its statements at the conclusion of the motion hearing
it held. Addressing Sherrill’s contention that her discharge resulted from her objection
to and refusal to participate in the ECS program, in violation of New Mexico public
policy, the district court stated:
I can’t find that there is a clear mandate of New Mexico public policy
found in [Section 59A-16-20] or in the covenant of good faith and fair
dealing that has been violated. Even looking at everything most
favorable to the plaintiff . . . if everything she’s saying is true, [it] really
just comes down to the legal question of whether there’s a clear mandate

4
in those two policies that would make it actionable and my conclusion
is there isn’t.
Concerning Sherrill’s claim regarding IPC as the basis for retaliatory discharge, the
district court stated “I don’t see anything, looking at all the evidence in the light most
favorable to her, I don’t see that she ever complained about IPC[,] so there is no way
she could have been fired for that.” The district court entered an order granting
summary judgment in favor of Farmers and dismissing the case with prejudice. This
appeal followed.
II. 	DISCUSSION
{7} 	In this appeal we consider: (1) whether there are clearly mandated public
policies embodied in Section 59A-16-20 and the covenant of good faith and fair
dealing to support a claim for retaliatory discharge, and (2) whether there are
questions of fact precluding summary judgment.
Standard of Review
{8} 	“An appeal from the grant of a motion for summary judgment presents a
question of law and is reviewed de novo.” Montgomery v. Lomos Altos, Inc., 2007-
NMSC-002, ¶ 16, 141 N.M. 21, 150 P.3d 971. “Summary judgment is appropriate
where there are no genuine issues of material fact and the movant is entitled to
judgment as a matter of law.” Id. (internal quotation marks and citation omitted); see
Rule 1-056(C) NMRA. We “view the facts in a light most favorable to the party

5
opposing summary judgment and draw all reasonable inferences in support of a trial
on the merits.” Romero v. Philip Morris Inc., 2010-NMSC-035, ¶ 7, 148 N.M. 713,
242 P.3d 280 (internal quotation marks and citation omitted). “When the district
court’s grant of summary judgment is grounded upon an error of law, however, the
case may be remanded so that the issues may be determined under the correct
principles of law.” Centex/Worthgroup, LLC v. Worthgroup Architects, L.P., 2016-
NMCA-013, ¶ 15, 365 P.3d 037 (alterations, internal quotation marks, and citation
omitted).
Retaliatory Discharge
{9} 	As a general rule, employment at will can be terminated by either the employer
or the employee for any reason, or for no reason at all. See Trujillo v. N. Rio Arriba
Elec. Coop., Inc., 2002-NMSC-004, ¶ 22, 131 N.M. 607, 41 P.3d 333. “A retaliatory
discharge cause of action [is] recognized in New Mexico as a narrow exception to the
terminable at-will rule[.]” Silva v. Albuquerque Assembly & Distribution Freeport
Warehouse Corp., 1987-NMSC-045, ¶ 13, 106 N.M. 19, 738 P.2d 513. Under this
cause of action, an employee must (1) identify a specific expression of public policy
which the discharge violated; (2) demonstrate that he or she acted in furtherance of the
clearly mandated public policy; and (3) show that he or she was terminated as a result
of those acts. See Lihosit v. I & W, Inc., 1996-NMCA-033, ¶ 7, 121 N.M. 455, 913

6
P.2d 262; Maxwell v. Ross Hyden Motors, Inc., 1986-NMCA-061, ¶ 20, 104 N.M.
470, 722 P.2d 1192; Vigil v. Arzola, 1983-NMCA-082, ¶¶ 29-30, 102 N.M. 682, 699
P.2d 613, rev’d in part on other grounds, 1984-NMSC-090, 101 N.M. 687, 687 P.2d
1038, overruled on other grounds by Chavez v. Manville Prods. Corp., 1989-NMSC-
050, ¶ 16, 108 N.M. 643, 777 P.2d 371.
{10} 	In the present case, Sherrill claims that she was discharged in retaliation for her
objection to and her failure to comply with two of Farmers’ claims processing
practices: ECS, which requires adjusters to settle a percentage of unrepresented bodily
injury claims within sixty days for $1,500 or less; and IPC, which requires adjusters
to contact claimants by telephone within forty-eight hours of receiving a claim, and
to set up early face-to-face meetings with the claimants. Because the district court
stated different grounds for its grant of summary judgment on Sherrill’s retaliatory
discharge claim as it pertained to ECS and IPC, we will address Sherrill’s retaliatory
discharge claim as it relates to each practice separately.
Retaliatory Discharge Related to ECS
{11} 	Sherrill contends that the ECS program violated New Mexico’s clear public
policy requiring insurers to act in good faith and deal fairly with insureds and
claimants. Sherrill claims that Farmers’ program targeted unrepresented claimants
from lower economic areas for early claim resolution and limited the settlement

7
amount to $1,500, thereby promoting premature settlements for vulnerable injured
claimants. According to Sherrill, Farmers set unfair and arbitrary ECS quotas, which
forced adjusters to coerce claimants to settle prematurely for unreasonably low
amounts and to put the financial interests of Farmers above the interests of Farmers’
insureds and claimants.
{12} 	Sherrill claims that she was discharged for objecting to and failing to meet the
objectives of Farmers’ ECS program, contrary to: (1) Section 59A-16-20(E), which
defines unfair trade practices to include “not attempting in good faith to effectuate
prompt, fair and equitable settlements of an insured’s claims in which liability has
become reasonably clear”; and (2) the covenant of good faith and fair dealing, which
requires that insurance companies “act honestly and in good faith in the performance
of the contract” giving “equal consideration to its own interests and the interests of the
policyholder.” UJI 13-1701 NMRA. The district court determined, as a matter of law,
that neither Section 59A-16-20 nor the implied covenant of good faith and fair dealing
embodied a clear mandate of public policy on which Sherrill could base her claim for
retaliatory discharge. We disagree.
{13} 	Whether a clear mandate of public policy exists is a question of law, which we
review de novo. See Ponder v. State Farm Mut. Auto. Ins. Co., 2000-NMSC-033, ¶ 6,
129 N.M. 698, 12 P.3d 960 (“[T]he legal consequences flowing from the historical

8
facts will be subject to de novo review if the question involves matters of public
policy with broad precedential value beyond the confines of the particular case.”
(internal quotation marks and citation omitted)).
{14} 	In adopting the retaliatory discharge cause of action, New Mexico has
“followed the theoretical approach of cases such as Palmateer v. International
Harvester Co., [421 N.E.2d 876 (1981)].” Lihosit, 1996-NMCA-033, 121 N.M. at
463, 913 P.2d at 270 (Bustamante, J., dissenting); see Vigil, 1983-NMCA-082, ¶¶ 19,
25-27; see also Garrity v. Overland Sheepskin Co. of Taos, 1996-NMSC-032, ¶ 17,
121 N.M. 710, 917 P.2d 1382; Shovelin v. Cent. N.M. Elec. Co-op., Inc., 1993-
NMSC-015, ¶ 33, 115 N.M. 293, 850 P.2d 996. In Palmateer, the Illinois Supreme
Court discussed the meaning of “clearly mandated public policy”:
There is no precise definition of the term. In general, it can be said that
public policy concerns what is right and just and what affects the citizens
of the [s]tate collectively. . . . Although there is no precise line of
demarcation dividing matters that are the subject of public policies from
matters purely personal, a survey of cases in other [s]tates involving
retaliatory discharges shows that a matter must strike at the heart of a
citizen’s social rights, duties, and responsibilities before the tort will be
allowed.
421 N.E.2d at 878-79 (citation omitted); accord Black’s Law Dictionary 1426 (10th
ed. 2014) (defining “public policy” as “[t]he collective rules, principles, or approaches
to problems that affect the commonwealth or [especially] promote the general good;

9
[specifically], principles and standards regarded by the [L]egislature or by the courts
as being of fundamental concern to the state and the whole of society”).
{15} 	“A clear mandate of public policy sufficient to support a claim of retaliatory
discharge may be gleaned from the enactments of the [L]egislature and the decisions
of the courts and may fall into one of several categories.” Shovelin, 1993-NMSC-015,
¶ 25. A statute may: (1) provide both that an employer may not terminate employees
on particular grounds and a remedy in the event of such termination, (2) prohibit an
employer from firing an employee on specified grounds without providing a specific
remedy for an employee who has been so terminated, or (3) define a public policy that
governs the employee’s conduct, but does not provide the employee with either a right
not to be terminated in violation of that policy, or a remedy for such termination in
which case the employee must seek judicial recognition of both the right and the
remedy. See id. Where no legislative enactment directly addresses the employee’s
conduct, the judiciary may determine that, based on other relevant statutes or an
implicit public policy, both a right and a remedy should be recognized. See id.
{16} 	In the absence of a clearly mandated public policy, the employer retains the
right to terminate workers at will. See Vigil, 1983-NMCA-082, ¶ 29. The Illinois
Supreme Court discussed the importance of requiring retaliatory discharge claims to
rest on well-recognized and clear public policies:

10
Any effort to evaluate the public policy exception with generalized
concepts of fairness and justice will result in an elimination of the at-will
doctrine itself. Further, generalized expressions of public policy fail to
provide essential notice to employers. The phrase ‘clearly mandated
public policy’ implies that the policy will be recognizable simply
because it is clear. An employer should not be exposed to liability where
a public policy standard is too general to provide any specific guidance
or is so vague that it is subject to different interpretations.
Turner v. Mem’l Med. Ctr., 911 N.E.2d 369, 375 (2009) (internal quotation marks and
citations omitted). Similarly, in New Mexico, when an employee is discharged,
contrary to a clear mandate of public policy, that employee has a cause of action for
retaliatory discharge. Chavez, 1989-NMSC-050, ¶ 16; Vigil, 1983-NMCA-082, ¶ 27.
{17} 	In order to succeed on a retaliatory discharge claim in New Mexico, the plaintiff
“must identify a specific expression of public policy which the discharge violated.”
Maxwell, 1986-NMCA-061, ¶ 20; see Vigil, 1983-NMCA-082, ¶ 35 (“A general
allegation that the discharge contravened public policy is insufficient; to state a cause
of action for retaliatory or abusive discharge the employee must identify a specific
expression of public policy.”). Where the asserted public policy is too amorphous, the
employee fails to state a claim of retaliatory discharge. See, e.g., Salazar v. Furr’s,
Inc., 629 F. Supp. 1403, 1409 (D.N.M. 1986) (holding that the employee’s claim that
she was terminated in violation of “the public policies underlying ERISA” was
specific enough to state a claim for retaliatory discharge, whereas her claim that her

11
termination violated “the public policy that encourages ‘family unity and the
maintenance of family discipline’ ” was not).
{18} 	In sum, when evaluating whether an expression of public policy constitutes a
“clear mandate of public policy” for purposes of a retaliatory discharge claim, we
consider: (1) the specificity with which the employee has identified the policy; (2)
whether the identified policy promotes the general good and reflects the principles and
standards regarded by our Legislature and our courts as being of fundamental
importance to the citizens of the state; and (3) whether the policy is well-recognized
and clear in the sense that it provides specific guidance and is not overly vague or
ambiguous.
{19} 	Sherrill has identified two specific expressions of public policy, which form the
bases for her retaliatory discharge claim: (1) Section 59A-16-20(E), which defines
unfair trade practices to include “not attempting in good faith to effectuate prompt,
fair and equitable settlements of an insured’s claims in which liability has become
reasonably clear”; and (2) the covenant of good faith and fair dealing, which requires
that insurance companies “act honestly and in good faith in the performance of the
contract” giving “equal consideration to its own interests and the interests of the
policyholder.” UJI 13-1701. Farmers does not dispute that Sherrill has identified these
policies with enough specificity to state a claim of retaliatory discharge. Instead,

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Farmers contends that the policies themselves are too generalized and do not provide
guidance as to prohibited conduct. We disagree.
Section 59A-16-20 and the Implied Covenant of Good Faith and Fair Dealing
Embody Clear Mandates of Public Policy
Section 59A-16-20
{20} 	The current version of Section 59A-16-20 is part of the Trade Practices and
Frauds Act (Article 16) of the Insurance Code. NMSA 1978, §§ 59A-16-1 to -30
(1984, 	as 	amended 	through 	2013). 	The 	Insurance 	Code 	as 	a 	whole 	is 	a
“comprehensive and public-spirited” legislative effort intended “to protect anyone
injured by unfair insurance practices.” Hovet v. Allstate Ins. Co., 2004-NMSC-010,
¶¶ 18, 19, 135 N.M. 397, 89 P.3d 69. The purpose of Article 16 is “to regulate trade
practices in the insurance business” to further the public interest. Section 59A-16-2;
see 15 U.S.C. § 1011 (1945).
{21} 	The insurers’ statutory duty of good faith is codified in Section 59A-16-20. The
insurers’ statutory duty of good faith reflects principles and standards regarded by our
Legislature and our courts as being of fundamental importance to the citizens of the
state and promotes the general welfare. In adopting the current version of the
Insurance Code in 1984, the Legislature created a private right of action against
insurers that commit the unfair claims practices defined in Article 16. See § 59A-16-
30 (“Any person covered by [Article 16 ] who has suffered damages as a result of a

13
violation of that article by an insurer or agent is granted a right to bring an action in
district court to recover actual damages.”).
{22} 	Section 59A-16-20(E) also defines unfair insurance claims practices to include
“not attempting in good faith to effectuate prompt, fair and equitable settlements of
an insured’s claims in which liability has become reasonably clear[,]” where the
insurer does so “knowingly [and] with such frequency as to indicate a general business
practice.” This language has been included in the New Mexico Insurance Code since
1975; however, prior versions of the statute did not provide a private right of action
for insurers’ bad faith. See NMSA 1978, § 59-11-13(I) (1973) (repealed in 1984);
NMSA 1953, § 58-9-25(I) (1973) (Vol. 8, Repl., Part 2, 1975 Pocket Supp.).
{23} 	In Russell v. Protective Insurance Co., 1988-NMSC-025, ¶ 22, 107 N.M. 9, 751
P.2d 693, superseded by statute as stated in Meyers v. Western Auto, 2002-NMCA-
089, 132 N.M. 675, 54 P.3d 79, and Hovet, 2004-NMSC-010, ¶ 14, our Supreme
Court held that Article 16 should be broadly construed to allow third-party claimants
to bring a private action against an insurer for Article 16 violations, including unfair
practices and bad faith. In Russell, the Court considered whether Section 59A-16-30
allows a private cause of action “against workers’ compensation insurers for bad faith
refusal to pay compensation benefits to workers.” Russell, 1988-NMSC-025, ¶ 1. The
Court rejected the insurer’s argument that only the employer, as the first party insured,

14
could bring a private right of action under Section 59A-16-30, and concluded that the
language of the Legislature intended to expand the notion of insured to “parties other
than those who may have signed a written contract of insurance beneath a blank
reading ‘insured.’ ” Russell, 1988-NMSC-025, ¶ 14.
{24} 	In Hovet, the Court considered whether an automobile accident victim had a
cause of action against an automobile liability insurer for unfair claims practices under
Article 16. Hovet, 2004-NMSC-010, ¶ 9. The Court stated that “the general policy of
the Insurance Code [is] to protect anyone injured by unfair insurance practices.” Id.
¶ 19. The Court outright rejected the insurer’s argument that a third-party claimant
with a direct interest in fair settlement practices may not sue under Article 16. See id.
¶ 18 (“We decline to ascribe such a sterile intent to a legislative effort as
comprehensive and public-spirited as the Insurance Code. Therefore, we conclude that
the Legislature intended both the insured and the third-party claimant to be protected
under Section 59A-16-20.”). The Court explained, “[i]n creating a separate statutory
action [for those injured by an insurer’s unfair claims practices], the Legislature had
a remedial purpose in mind: to encourage ethical claims practices within the insurance
industry.” Hovet, 2004-NMSC-010, ¶ 14. “A private right of action for third-party
claimants enforces [this] policy.” Id. ¶ 17. The Court concluded that the intention of
the Legislature was to protect both the insured and the third-party claimant. Id. ¶ 18.

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{25} 	In 2001, the Legislature broadened the definition of “insurer,” for purposes of
the unfair trade practices section, “to include entities and individuals that are not
within the definition of [the] insurer elsewhere in the Insurance Code.” Martinez v.
Cornejo, 2009-NMCA-011, ¶ 9, 146 N.M. 223, 208 P.3d 443. In Martinez, this Court
held that the amendment in effect broadened the scope of the private right of action
in Section 59A-16-30, such that individual employees of insurance companies could
be held personally liable for violations of the unfair trade practices section. Martinez,
2009-NMCA-011, ¶ 22. We recognized that the result was “entirely consistent with
the express purpose and spirit of the [unfair trade practices section], which is to
promote ethical settlement practices within the insurance industry.” Id. (internal
quotation marks and citation omitted). Just as “the private right of action is one means
toward the end of encouraging ethical claims practices within the insurance industry[,
t]he Legislature’s decision to expand the scope of the private right of action by
broadening the definition of insurer is just one other means toward that same end.” Id.
(alterations, internal quotation marks, and citation omitted).
{26} 	Our Supreme Court has provided the following guidance regarding the
parameters of an insurers’ duty under Section 59A-16-20:
We . . . emphasize that the Insurance Code does not impose a duty to
settle in all instances, nor does it require insurers to settle cases they
reasonably believe to be without merit or overvalued. A violation occurs
for ‘not attempting in good faith to effectuate prompt, fair and equitable

16
settlements of an insured’s claims in which liability has become
reasonably clear[.]’ Section 59A-16-20(E). The insurer’s duty is founded
upon basic principles of fairness. Any insurer that objectively exercises
good faith and fairly attempts to settle its cases on a reasonable basis and
in a timely manner need not fear liability under the Code.
Hovet, 2004-NMSC-010, ¶ 29.
{27} 	In the present case, Farmers contends that because the question of whether an
insurer has violated Section 59A-16-20 must be determined subjectively on a case-by-
case basis, the statute does not express a clear or well-defined public policy. In
support of this argument Farmers relies on this Court’s decisions in Maxwell, and Rist
v. Design Center at Floor Concepts, 2013-NMCA-109, 314 P.3d 681. Farmers’
reliance on these cases is misplaced. At issue in both Maxwell and Rist was the
sufficiency of the employees’ complaints to state a claim for retaliatory discharge. See
Maxwell, 1986-NMCA-061, ¶¶ 2-3.
{28} 	In Maxwell, the employee’s complaint was pending in the district court when
this Court issued its decision in Vigil, recognizing the tort of retaliatory discharge for
the first time. See Maxwell, 1986-NMCA-061, ¶¶ 2-3. We held that Vigil did not apply
retrospectively to provide relief for the employee in Maxwell. Maxwell, 1986-NMCA-
061, ¶ 13. We further held that even if the employee could overcome the prospectivity
hurdle, the employee was not entitled to relief under retaliatory discharge. Id. ¶¶ 23-
24.

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{29} 	The employee’s complaint in that case, which was filed one and one-half years
prior to the final decision in Vigil, alleged that the employee was terminated
“willfully, wrongfully, maliciously, and in bad faith, without just cause and for no
legitimate business reason.” Id. ¶¶ 1, 6 (internal quotation marks omitted). The
employee argued, for the first time on appeal, that the public policy of full
employment expressed in New Mexico’s unemployment compensation statute
reflected the legislative intent “to limit the ability of an employer to discharge an
employee-at-will for no legitimate business reason or without just cause.” Id. ¶ 27
(internal quotation marks omitted). We rejected that argument, explaining that “[t]he
[L]egislature’s recognition of the problems of unemployment and that body’s
commitment to encouraging employers to provide stable employment does not amount
to the specific expression of public policy mandated by Vigil.” Maxwell, 1986-
NMCA-061, ¶ 26. We concluded that the complaint, which did not allege any conduct
on his part that precipitated his termination and did not identify any expression of
public policy, which the termination contravened, was insufficient to state a cause of
action for retaliatory discharge. Id. ¶¶ 23-24.
{30} 	Similarly, in Rist, the employees’ complaint did not allege retaliatory discharge.
2013-NMCA-109, ¶ 1. The employees filed suit under the New Mexico Human Rights
Act (NMHRA), NMSA 1978, §§ 28-1-1 to -15 (1969, as amended through 2007),

18
alleging religious discrimination. 	Rist, 2013-NMCA-109, ¶ 1. On appeal, the
employees argued that “a violation of the NMHRA is a violation of public policy
actionable under Vigil.” Rist, 2013-NMCA-109, ¶ 23. This Court held that this general
assertion could not be the basis for reading a retaliatory discharge claim into the
complaint, where the complaint did not include such a claim. Id. ¶¶ 22-23. The present
case is distinguishable from both Maxwell and Rist, in that the sufficiency of Sherrill’s
complaint and the specificity with which she identified specific expressions of public
policy were not challenged in the district court and are not challenged on appeal.
{31} 	Farmers also cites Shovelin to support its argument that retaliatory discharge
claims must be based on an expression of public policy that defines objectively
unlawful conduct. However, we do not agree that Shovelin stands for the proposition
for which it is cited by Farmers. In Shovelin, our Supreme Court discussed categories
of statutes that may support a retaliatory discharge claim. 1993-NMSC-015, ¶¶ 25, 28.
While the potential sources of clearly mandated public policies included statutes that
clearly identify unlawful conduct, Shovelin does not limit these sources of public
policy to statutes that identify objectively unlawful conduct. Id.
{32} 	To the contrary, Shovelin provides examples of several potential sources of
clearly mandated public policies, not all of which provide an objective standard for
determining prohibited conduct. Our Supreme Court set forth several types of

19
prospective categories from which a sufficiently clear mandate of public policy may
be gleaned from enactments of the Legislature and decisions of the courts:
First, legislation may define public policy and provide a remedy for a
violation of that policy. Second, legislation may provide protection of an
employee without specifying a remedy, in which case an employee
would seek an implied remedy. Third, legislation may define a public
policy without specifying either a right or a remedy, in which case the
employee would seek judicial recognition of both. Finally, there may, in
some instances, be no expression of public policy, and here again the
judiciary would have to imply a right as well as a remedy.
Id. ¶ 25 (alteration, internal quotation marks, and citation omitted).
{33} 	Although analyzing claims under Section 59A-16-20 may require a subjective
case-by-case analysis, the language of the statute and cases applying New Mexico law
illustrate that the statute embodies a strong public policy in favor of protecting the
public from unfair and deceptive insurance claims practices—a policy whose
parameters are not too vague or ambiguous to provide guidance on prohibited
conduct. See Hovet, 2004-NMSC-010, ¶ 22 (holding that by enacting Sections 59A-
16-20 and -30 “[o]ur Legislature created both the right and the remedy” for members
of the public who “are twice made victims, first by actionable negligence of an insured
. . . and then by an insurance company’s intransigence”). We conclude that Section
59A-16-20 embodies a clear mandate of the public policy sufficient to support a claim
of retaliatory discharge.
The Implied Covenant of Good Faith and Fair Dealing

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{34} 	Under the common law, all insurance contracts include “an implied covenant
of good faith and fair dealing that the insurer will not injure its policyholder’s right
to receive the full benefits of the contract.” Dairyland Ins. Co. v. Herman, 1998-
NMSC-005, ¶ 12, 124 N.M. 624, 954 P.2d 56; Ambassador Ins. Co. v. St. Paul Fire
& Marine Ins. Co., 1984-NMSC-107, ¶ 11, 102 N.M. 28, 690 P.2d 1022. The
common law duty of good faith embodied in the implied covenant is distinct from the
statutory duty of good faith imposed by Section 59A-16-20. See Martinez, 2009-
NMCA-011, ¶ 38. “The key principle underlying the covenant of good faith in an
insurance contract is that the insurer treat the interests of the insured equally to its own
interests.” City of Hobbs v. Hartford Fire Ins. Co., 162 F.3d 576, 582 (10th Cir. 1998).
{35} 	Implying a covenant of good faith in an insurance contract serves to enforce the
contractual obligation of the insurer to avoid exposing the insured to personal liability.
See Martinez, 2009-NMCA-011, ¶ 40. The implied covenant is aimed at making
effective the insurer’s obligation under the insurance contract and cannot be applied
to override express provisions addressed by the terms of an integrated, written
contract. Azar v. Prudential Ins. Co. of Am., 2003-NMCA-062, ¶¶ 48-51, 133 N.M.
669, 68 P.3d 909. And “[b]ecause the implied covenant of good faith and fair dealing
depends upon the existence of an underlying contractual relationship,” plaintiffs may

21
not recover for bad faith occurring prior to the existence of the insurance contract. Id.
¶ 53.
{36} 	New Mexico has long recognized an insurer’s common law duty to deal in good
faith with its insured. See Dairyland, 1998-NMSC-005, ¶ 12; State Farm Gen. Ins.
Co. v. Clifton, 1974-NMSC-081, ¶ 8, 86 N.M. 757, 527 P.2d 798; Modisette v. Found.
Reserve Ins. Co., 1967-NMSC-094, ¶¶ 16-17, 77 N.M. 661, 427 P.2d 21; Chavez v.
Chenoweth, 1976-NMCA-076, ¶ 44, 89 N.M. 423, 553 P.2d 703; Lujan v. Gonzales,
1972-NMCA-098, ¶¶ 38-39, 84 N.M. 229, 501 P.2d 673. This duty arises from the
nature of the insurance relationship, which is characterized by elements of adhesion,
public interest, and fiduciary responsibility. See Allsup’s Convenience Stores, Inc. v.
N. River Ins. Co., 1999-NMSC-006, ¶ 37, 127 N.M. 1, 976 P.2d 1; Dellaira v.
Farmers Ins. Exch., 2004-NMCA-132, ¶ 14, 136 N.M. 552, 102 P.3d 111 (stating that
the “relationship between insurer and insured” is recognized as special and unique due
to “the inherent lack of balance in and adhesive nature of the relationship, as well as
the quasi-public nature of insurance and the potential for the insurer to unscrupulously
exert its unequal bargaining power at a time when the insured is particularly
vulnerable” (internal quotation marks and citations omitted)). The common law bad
faith action sounds in both contract and tort. Sloan v. State Farm Mut. Auto. Ins. Co.,
2004-NMSC-004, ¶¶ 13, 23, 135 N.M. 106, 85 P.3d 230. This reflects New Mexico’s

22
public policy in favor of restoring balance to the contractual relationship between the
insurer and the insured, and enforcing insurers’ public obligation.
{37} 	New Mexico cases provide guidance concerning the insurers’ duty under the
implied covenant of good faith and fair dealing in insurance contracts. For example,
in Dairyland, our Supreme Court held that the “implied obligation of good faith and
fair dealing requires the insurer to settle in an appropriate case although the express
terms of the policy do not impose such a duty.” Dairyland, 1998-NMSC-005, ¶ 13
(internal quotation marks and citation omitted). “[W]hen there is a substantial
likelihood of recovery in excess of limits, an insurer’s unwarranted refusal to settle is
a breach of the implied covenant of good faith and fair dealing.” Id. ¶ 15. The Court
explained that “when damages are likely to exceed policy limits, the insurer risks
exposing its insured to even greater liability by going to trial rather than settling.” Id.
The Court concluded, “[t]he courts of this state will not permit insurers to profit by
their own wrongs.” Id. “Should an insurer, in violation of its duty of good faith, refuse
to accept a reasonable settlement offer within policy limits, it will be liable for the
entire judgment against the insured, including the amount in excess of policy limits.”
Id.
{38} 	In Ambassador, our Supreme Court considered whether a common law cause
of action against insurers for negligent failure to settle is recognized in New Mexico.

23
1984-NMSC-107, ¶ 3. The Court determined that negligent failure to settle may
evince an insurer’s breach of the implied covenant of good faith under the insurance
contract, but is not recognized in New Mexico as an independent cause of action. See
id. ¶ 12. In reaching this conclusion, the Court considered that “the insurer has, by its
insurance contract, taken over the duty to defend a case against the insured.” Id. ¶ 11.
{39} 	The Court stated that an insurer’s exercise of this duty should be “accompanied
by considerations of good faith.” Id. (internal quotation marks and citation omitted).
When determining whether to settle a claim, the duty of good faith requires that the
insurer base its decision “upon a knowledge of the facts and circumstances upon
which liability is predicated, and upon a knowledge of the nature and extent of the
injuries so far as they reasonably can be ascertained.” Id. (internal quotation marks
and citation omitted). Thus, the implied covenant of good faith in an insurance
contract requires insurers to properly investigate an insured’s claim. Id. ¶ 12. In this
context, insurer conduct is measured by “basic standards of competency . . . and the
insurer is charged with knowledge of the duty owed to its insured.” Id.
{40} 	Our Supreme Court has also held that the covenant of good faith and fair
dealing can impose upon the insurer an affirmative duty to act where a failure to act
would result in a denial of an insured’s rights under the insurance contract. Allsup’s,
1999-NMSC-006, ¶ 35. In Allsup’s, the insurer and insured agreed to a retrospective

24
premium plan under which the amount of the premium was to be determined at the
end of the policy year based on the actual amount of claims paid. Id. ¶ 3. The Court
determined that since having the premium tied directly to competent claims-handling
was a benefit of the contract, the insurer had a duty under the implied covenant of
good faith to disclose any mishandling of claims to the insured due to its effect on the
insured’s premiums. Id. ¶¶ 33-36.
{41} 	This Court has also recognized that the covenant of good faith and fair dealing
imposes upon an insurer “[a] duty of disclosure[, which] is premised on the principle
of fundamental fairness.” Salas v. Mountain States Mut. Cas. Co., 2009-NMSC-005,
¶ 16, 145 N.M. 542, 202 P.3d 801. The good faith duty to disclose “dictates that an
insurer must notify a known insured of the scope of available insurance coverage and
the terms and conditions governing that coverage.” Id. “Accordingly, if an insurer
fails to disclose to its insured the existence of an exclusionary provision contained in
the insurance contract, then the covenant of good faith and fair dealing precludes the
insurer from relying on the provision to limit or deny the insured’s right to coverage.”
Id. ¶ 13.
{42} 	In the present case, Farmers argues that Melnick v. State Farm Mutual
Automobile Insurance Co., 1988-NMSC-012, 106 N.M. 726, 749 P.2d 1105, and
Kropinak v. ARA Health Services, Inc., 2001-NMCA-081, 131 N.M. 128, 33 P.3d 679,

25
stand for the proposition that the implied covenant of good faith and fair dealing is
decidedly not a clear mandate of public policy sufficient to support a claim for
retaliatory discharge. Farmers’ reliance on Melnick and Kropinak is misplaced and
improperly expands the holdings of those cases beyond their own language.
{43} 	In Melnick, our Supreme Court declined to “recognize a cause of action for
breach of an implied covenant of good faith and fair dealing in an at-will employment
relationship.” 1988-NMSC-012, ¶ 13. This Court has read Melnick to hold “that when
parties have entered into a clear and unambiguous at-will employment agreement, it
is improper to invoke the implied covenant of good faith and fair dealing to vary the
at-will termination provision in the written agreement.” Kropinak, 2001-NMCA-081,
¶ 11. In Kropinak, we reiterated the holding in Melnick, acknowledging that where an
employer discharges an employee in violation of a clear mandate of public policy the
employee may not assert breach of the employment contract, or breach of the implied
covenant of good faith and fair dealing, however, the employee may assert a tort
action for retaliatory discharge. See Kropinak, 2001-NMCA-081, ¶¶ 13-14.
{44} 	These cases are inapposite for two reasons. First, the duty of good faith in an
employment relationship is not analogous to the special relationship between insurer
and insured. See Bourgeous v. Horizon Healthcare Corp., 1994-NMSC-038, ¶ 17, 117
N.M. 434, 872 P.2d 852 (“[T]he employment relationship is not sufficiently similar

26
to that of insurer and insured to warrant judicial extension of the proposed additional
tort remedies in view of the countervailing concerns about economic policy and
stability, the traditional separation of tort and contract law, and finally, the numerous
protections against improper termination already afforded employees.” (internal
quotation marks and citation omitted)). Thus, the public policy served by the implied
covenant of good faith and fair dealing in an employment contract differs significantly
from the policy furthered by the implied covenant in the insurer/insured context.
{45} 	Second, neither Melnick nor Kropinak precluded a retaliatory discharge claim
based on the implied covenant of good faith and fair dealing between employer and
employee. Rather, it appears from the language in Kropinak that the question of
whether the covenant of good faith and fair dealing in an employment contract is a
clear mandate of public policy sufficient to support a claim for retaliatory discharge
is left unanswered by our law. See 2001-NMCA-081, ¶ 14 (“[W]hen the termination
is based on an express, unambiguous, and clear at-will termination right, such conduct
is only actionable to the extent it constitutes the tort of retaliatory discharge[.]”).
{46} 	New Mexico cases analyzing the implied covenant of good faith and fair
dealing in insurance contracts reflect a strong public policy in favor of enforcing
insurers’ public obligation and restoring balance to the contractual relationship
between the insurer and the insured. These cases also help define the parameters of the

27
insurers’ duty of good faith under the contract of insurance and provide guidance for
insurers. We therefore conclude that the implied covenant of good faith and fair
dealing is a clear mandate of public policy sufficient to support a claim of retaliatory
discharge.
Questions of Fact Preclude Summary Judgment on Retaliatory Discharge
Related to ECS
{47} 	Farmers contends that Sherrill has not raised a factual issue concerning whether
she acted in furtherance of public policy. Specifically, Farmers claims that as a matter
of law ECS does not contravene either Section 59A-16-20, or the implied covenant
of good faith and fair dealing, therefore, Sherrill’s objection to and failure to meet the
objectives of the ECS program did not further either policy. Farmers also denies that
Sherrill was terminated because of her objections to the ECS program. However, with
regard to both of these elements of retaliatory discharge the evidence presented at
summary judgment raises factual questions.
{48} 	Attached to her response to Farmers’ motion for summary judgment, Sherrill
produced memoranda she received from her Farmers supervisor, which showed that
Sherrill was formally reprimanded numerous times between July 2009 and March
2010 for failing to meet ECS quotas. Notes from an October 27, 2009, meeting
between Sherrill and a Farmers supervisor indicated that Sherill was “boycotting”
required ECS reporting. Sherill was placed on probation on March 5, 2010, in part for

28
her continued failure to meet ECS quotas. The notice of Sherrill’s termination cited
her failure to show significant improvement in her ECS quotas as one of the reasons
for her termination. This is sufficient to raise a factual issue as to whether Sherrill was
terminated as a result of her opposition to the ECS program.
{49} 	Memoranda from Farmers to Sherrill indicate that in March 2010 Farmers’
expectation was that forty-eight percent of claims would be settled through the ECS
program. In portions of Sherrill’s deposition testimony that were provided with her
response to Farmers’ summary judgment motion, Sherrill testified that she did not
meet Farmers’ ECS expectations, because to do so would have required her to settle
some claims unfairly and in a manner that was not in the best interest of the claimant.
Sherrill testified that there were many claims that she was asked to settle under ECS
for which the ECS guidelines would have resulted in unfair settlements. She gave one
specific example of a claim that she was instructed to settle through ECS for which
she believed ECS would have resulted in a premature, undervalued settlement.
{50} 	Sherrill provided an affidavit of a former Farmers claims supervisor, who
worked for Farmers from July 2007 through June 2010. In that affidavit, the former
Farmers claims supervisor stated that she worked under the same conditions as
Sherrill; when she left Farmers the ECS expectation was to settle fifty-four percent of

29
the claims through ECS. According to the former supervisor, the ECS requirement
forces claims adjusters to try to settle claims prematurely.
{51} 	Sherrill also provided an affidavit of an insurance claims consultant. This
claims consultant worked for Farmers, as a claims employee, from June 1987 to
August 2001. In his affidavit, the insurance consultant stated that setting quotas for
claims to be settled under the guidelines of ECS can result in a conflict between the
interests of the insurer and the interests of the insured. According to the consultant,
claims that are settled prematurely can be hazardous for accident victims. The
consultant stated that when adjusters face pressure to settle a percentage of claims
early and for a fixed sum, it increases the potential for adjusters to use undue influence
over 	claimants 	who 	are 	typically 	financially, 	physically, 	and/or 	emotionally
vulnerable. We conclude that this evidence is sufficient to raise a factual question with
regard to whether Sherrill’s resistance to ECS objectives furthered the policies
embodied in Section 59A-16-20, and the implied covenant of good faith and fair
dealing.
Questions of Fact Do Not Preclude Summary Judgment on Retaliatory Discharge
Related to IPC
{52} 	To establish the causation element necessary to sustain a claim for retaliatory
discharge, the employee must demonstrate the employer had knowledge that the
employee engaged in protected activity. See Lihosit, 1996-NMCA-033, ¶ 17. An

30
employer, “[a]s a matter of logic and of fact, . . . cannot make an adverse, retaliatory
decision based upon information of which [it] is unaware.” Id. (internal quotation
marks and citation omitted).
{53} 	In the present case, Farmers asserts that Sherrill cannot prove retaliatory
discharge based on her opposition to IPC because she did not explicitly complain to
Farmers about the IPC program prior to her termination. Sherrill does not dispute
Farmers’ contention that she did not directly object to IPC prior to her termination.
Rather, she argues that her opposition to the IPC program was implicit in her
complaints about the ECS program and her general objection to the unfair and
inequitable claims practices that Farmers used to obtain ECS settlements. In other
words, Sherrill suggests that her objections concerning Farmers’ ECS requirements
were sufficient to put it on notice of her objections to the IPC program. Sherrill points
to no evidence indicating that Farmers had actual knowledge of her opposition to the
IPC program prior to her termination, and our review of the record discloses none. Id.
¶ 17. “[T]he employer’s motive is a key element[.]” Id. ¶ 12. “[A]n employer cannot
fire an employee in retaliation for actions of which the employer is unaware.” Id.
(internal quotation marks and citation omitted). Because a key consideration in
retaliation cases is the employer’s actual knowledge and motive for the termination,
constructive notice is insufficient to “create actual intent to retaliate.” Id. ¶ 15 (internal

31
quotation marks and citation omitted). Accordingly, we conclude that there is no
factual issue regarding the causal link between Sherrill’s opposition to the IPC
program and her termination.
III. 	CONCLUSION
{54} 	For the foregoing reasons, we affirm the district court’s determination that
Sherrill failed to establish the necessary causal connection between her opposition to
the IPC program and her termination. We reverse the district court’s determination
that Sherrill failed to identify a clearly mandated public policy sufficient to support
a claim of retaliatory discharge and remand for proceedings consistent with this
Opinion.
{55} 	IT IS SO ORDERED.
M. MONICA ZAMORA, Judge
WE CONCUR:
MICHAEL D. BUSTAMANTE, Judge
J. MILES HANISEE, Judge