New Mexico Federal Court Declines to Enforce Insurance Policy Provision Limiting Time to Bring Claim for Underinsured Motorist Coverage to Three Years from the Date of the Accident

Typically contracts are enforced as per their terms.  In a case decided by the U.S. District Court for the District of New Mexico, the court held that an insurance policy provision limiting a plaintiff’s time to bring an action to three years from the date of her New Mexico vehicle accident was unenforceable.  At issue was a claim under an insurance policy issued by an Ohio insurance agent to a driver who lived in Ohio at the time the policy was issued to her.  A few months later the driver was involved in a car accident in Taos, New Mexico.  She settled with the insurer of the driver of the other car involved in the accident and then submitted a claim for underinsured motorist coverage to her insurer.  Based on a provision of the insurance policy, her insurer took the position the claim was untimely because it had been brought more than three years after the date of the accident with respect to which insurance benefits were claimed.

The driver then sued her insurer in New Mexico state court, bringing a complaint for declaratory judgment, breach of contract and negligence.  The defendant insurance company removed the insured plaintiff’s action to federal court.  The parties filed cross motions for declaratory judgment, which the court construed as motions for summary judgment on the plaintiff’s claim for declaratory judgment.

The plaintiff’s chief argument was that the three year time to sue provision for UM claims in the insurance contract violated New Mexico public policy, thereby precluding application of Ohio law and rendering the provision invalid and unenforceable.  She sought application of New Mexico’s six year statute of limitations for asserting UM claims.  The defendant sought application of the three year limit under Ohio law, arguing it did not violate New Mexico public policy.

The court explained that New Mexico law allows parties to chose the law to be applied to particular disputes through a contractual choice-of-law provision.  The court further explained that it could apply New Mexico law if application of the law of the foreign jurisdiction, in this case Ohio, would offend New Mexico public policy.  The court concluded, confronted as it was by a New Mexico state law issue, that the New Mexico Supreme Court would invalidate the provision that the insurance company was relying on and instead apply New Mexico law if it was deciding the case.  Under New Mexico law there is a six year statute of limitations for UM claims, running from the breach of the insurance contract.  This, in and of itself, was not dispositive.  The court looked to a New Mexico Supreme Court case holding an exclusionary policy based solely on the date of the accident, that did not take into consideration the actual accrual of the right to make a UM/UIM claim, was unreasonable as a matter of law.  Though that ruling was in the context of an insurance contract governed by New Mexico law, the court concluded it was indicative of how the New Mexico Supreme Court would view exclusionary provisions tied to the date of an accident.  The court also reasoned that the time bar was fundamentally unfair.

The court held that the exclusionary provision was invalid and unenforceable, and that the plaintiff insured timely sued within 6 years of her insurance company denying coverage.  The court therefore did not dismiss the case.

If you or a loved one has been in a car accident, there may be grounds for recovery against sources including insurance companies.  In some cases, punitive damages are available in addition to compensatory damages.  To understand more about your case and make an informed decision about your options for maximizing your recovery, call New Mexico insurance bad faith lawyer Matthew Vance at the Law Office of Matthew Vance, P.C.  We provide a free consultation and can be reached at (505) 242-6267 or online.

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