Dairyland Insurance Co. v. Herman12/18/1997
Opinion Number: 1998-NMSC-005
{1} This case comes to us from the United States Court of Appeals for the Tenth Circuit, in accordance with its rule providing "for certification by a federal court of questions arising under the laws of that state which may control the outcome of a case" (10th Cir. R. 27.1), and our own certification statute, NMSA 1978, 34-2-8 (repealed 1997) (relating to questions certified to the New Mexico Supreme Court). The following question regarding New Mexico law was submitted for our determination:
Does an insurer satisfy its duty to treat its interests and the interests of its insured equally, as a matter of law, when it requires a release of all claims, including subrogation claims, against its insured as a condition precedent to a policy limits settlement when there is a substantial likelihood of recovery in excess of policy limits?
The answer to this question is "No."
I. FACTS AND PROCEEDINGS
{2} On August 3, 1989, Ivan Fragua, debilitated by a blood alcohol level of .21 as he drove a car owned by his passenger, Paula Suazo, abruptly swerved into the opposite lane head-on into another car and killed himself, Suazo, and Susie Herman, the driver of the other car, and severely injured Susie Herman's nine-year-old son Andrew who suffered two broken legs and a concussion and was trapped in the car beside his dead mother for two hours, and who thereafter was hospitalized for thirty-three days while his father, Ronald Herman, contended with the injuries to his son and the death of his wife. Fragua was unquestionably at fault.
{3} Fragua, as a permissive driver of Suazo's vehicle, was insured by Dairyland Insurance Co., a Wisconsin corporation. The liability limits of the policy were $25,000 per person and $50,000 per occurrence. Fragua's estate was insolvent. There is no question that the Dairyland policy limits were inadequate to satisfy the claims of those harmed by Fragua's tortious conduct. Dairyland eventually settled with Suazo's estate for $16,667, one-third of the $50,000 policy limit.
{4} Andrew incurred $33,580.22 in medical expenses. These were paid by Health-Plus of New Mexico, Inc., his father's health insurer. Ronald Herman, shortly after Andrew's release from the hospital, notified Health-Plus that it would receive no reimbursement for its payment of Andrew's medical expenses from the proceeds of any settlement with the estate of Fragua. However, Herman's refusal to pay did not foreclose all the potential sources of reimbursement available to Health-Plus. Under the equitable remedy of subrogation, Health-Plus, having paid Andrew's medical expenses, did have the right to seek compensation for the medical payments directly from Fragua, the person who caused the harm in the first place.
{5} Herman, on behalf of himself, and as personal representative of his wife's estate, and as guardian of his son Andrew, sought compensation from Fragua's estate and from Dairyland as Fragua's insurer. Both Herman and Dairyland profess to have made the first overture to settle these claims and each blames the other for obstructing any settlement. Each party points to its own numerous offers to settle. The record is discrepant as to the exact sequence of events. It appears that both parties initially agreed that Herman would accept a settlement of $33,333.33. This amount was the remainder, after the Suazo settlement, of the total $50,000 policy limit.
{6} Dairyland, however, consistently demanded that Herman release all claims against Fragua as well as his agents, insurers, heirs, and assigns, including any liens, indemnity agreements, or subrogated interests. Dairyland wanted it
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