Thayer v. State Farm Mut. Auto. Ins. Co.

538 P.3d 509

William THAYER, Plaintiff-Appellant,

v.STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee.

No. A-1-CA-37133

Court of Appeals of New Mexico.

Filing Date: September 25, 2023

Law Firm of Daniela Labinoti, P.C., Daniela Labinoti, El Paso, TX, for Appellant

Miller Stratvert P.A., Todd A. Schwarz, Luke A. Salganek, Albuquerque, NM, for Appellee

DUFFY, Judge

{1} Plaintiff William Thayer filed a complaint for breach of contract and bad faith after State Farm denied his claim for underinsured motorist (UIM) benefits. State Farm moved for summary judgment, arguing it was not liable for UIM benefits because Thayer had breached a contract provision requiring him to obtain State Farm's written consent before settling with the tortfeasor. Thayer acknowledged that he had settled without State Farm's permission, but asserted he had notified State Farm of the offer and waited more than a year before ultimately accepting the settlement. The district court granted State Farm's motion and dismissed the case with prejudice.

{2} The factual circumstances of this case are a matter of first impression in New Mexico and we must decide whether Thayer, after properly requesting consent to settle from his insurer, breached the consent-to-settle provision as a matter of law by settling with the tortfeasor before receiving the insurer's decision. The answer depends on whether the insurer acted reasonably to provide or withhold consent to the insured's settlement request. We hold that when an insurer has received notice of a proposed settlement between its insured and a third-party tortfeasor, but fails to notify its insured of the insurer's decision to either grant or withhold consent to settle within a reasonable amount of time, the insurer may have waived its right to rely on a consent-to-settle clause. In such circumstances, the insured's settlement will not preclude recovery of UIM benefits. Because disputed issues of fact exist on these matters, we reverse.

BACKGROUND

{3} In August 2011, Thayer, a New Mexico State Police officer, was directing traffic along Interstate 10 in Doña Ana County when a semi-truck and trailer crashed into the back end of a pickup truck, causing the pickup to ignite and severely injuring its driver. Thayer and another officer were in the path of the crash and quickly ran out of the way, but both were injured in the process.

{4} The driver of the pickup truck filed a complaint for personal injury against the driver of the semi-truck (hereinafter referred to as the tortfeasor) and the tortfeasor's employer, Quality 1st Produce. Thayer and his fellow officer intervened with their own injury claims. Quality 1st was insured by Granite State Insurance and had $1 million in liability coverage available for the three claims.

{5} In August 2012, Thayer attended a mediation with Granite State, during which he was advised that Granite State was tendering $900,000 to the injured driver of the pickup, and that the policy deducted costs and expenses from the amount of the limit. Thayer's fellow officer received $60,000 from the policy, and Granite State offered to settle Thayer's claim for the remainder—approximately $14,000—an amount less than his total damages. Thayer alleges that during the mediation, he called his own insurance company, State Farm, to make an underinsured motorist claim and to request permission to settle.

{6} Thayer's policy with State Farm contained a consent-to-settle provision that required Thayer to inform State Farm of any settlement offer and State Farm to respond in writing. The policy stated:

Consent to Settlement

The Insured must inform us of a settlement offer, if any, proposed by or on behalf of the owner or driver of the uninsured motor vehicle , and the insured must request our written consent to accept such settlement offer.

If we :

1. consent in writing, then the insured may accept such settlement offer.

2. inform the insured in writing that we do not consent, then the insured may not accept such settlement offer and:

a. we will make payment to the insured in an amount equal to such settlement offer. This payment is considered a payment made by or on behalf of the owner or driver of the uninsured motor vehicle ; and

b. any recovery from or on behalf of the owner or driver of the uninsured motor vehicle shall first be used to repay us.

Thayer alleges that during his initial phone call to State Farm during the August 2012 mediation, he informed State Farm of the offer he had received from Granite State, but State Farm neither provided nor denied consent to settle. Thayer asserts that as a result, he was unable to settle his claims against the tortfeasor at the mediation.

{7} Thayer alleged in an affidavit that he tried to contact State Farm multiple times after the mediation without success. About seven months after the mediation, on March 8, 2013, Thayer's attorney sent State Farm a letter requesting consent to settle. The letter described the accident, Thayer's injuries and treatment, and stated that Granite State was offering to settle Thayer's claim for approximately $14,000, which represented the amount remaining under the policy.

{8} State Farm sent a letter in response on April 5, stating that it had called Plaintiff's attorney on March 12 to discuss the claim and had left a voice message. The letter went on to state:

In order to sanction Mr. Thayer[’]s settlement against Granite State Insurance, we will need the following documentation to begin our investigation:

*Total payments to parties involved in this accident.

*The declarations page confirming Liability coverage on the policy.

We look forward to your call. Thank you.

Notably, although the letter indicated that State Farm would need additional information, the letter was unclear as to how the information would be obtained, i.e., whether State Farm would gather the documentation or whether it was asking Thayer to do so. Thayer did not respond.

{9} The following month, on May 16, State Farm sent a reservation of rights letter to Thayer. In addition to various reservation of rights statements, the letter stated, "If you have any information or materials that may aid us in the analysis of your claim for coverage, please provide it to us as soon as possible." As with the previous letter, the May 16 letter did not directly request any specific documentation from Thayer or state that Thayer needed to contact State Farm regarding his claim. Again, Thayer did not respond.

{10} State Farm sent a second reservation of rights letter on June 27, which contained the same general request quoted above and stated that if State Farm did not hear from Thayer within thirty days, State Farm would close the claim. Thayer again did not respond.

{11} Thayer eventually accepted a settlement in the amount of $28,780 from Granite State in January 2014, having never received a written response from State Farm indicating that it was either providing or withholding consent to Thayer's request to settle. Thayer notified State Farm of the settlement by letter in February 2014 and requested that State Farm tender the limits of his UM/UIM insurance. State Farm denied the claim.

{12} Thayer filed suit, asserting claims for breach of contract, bad faith, and violation of the Unfair Insurance Practices Act and Unfair Trade Practices Act. Thayer alleged that State Farm improperly disclaimed coverage and breached the UM/UIM contract. Thayer's extra-contractual claims were based on allegations that State Farm acted in bad faith by failing to honor its contractual and statutory obligations under New Mexico law. Thayer's complaint included as exhibits the police report and two asset investigations—one on the tortfeasor and another on Quality 1st—that had been produced in the underlying lawsuit against the tortfeasor. Those investigations showed that as of mid-2012, the tortfeasor had limited assets and was effectively judgment-proof. Quality 1st had approximately $130,000 in liquid assets but was also subject to five different UCC liens in unspecified amounts that were secured with tangible and intangible assets.

{13} State Farm moved for summary judgment, arguing that Thayer was not entitled to UIM benefits under the policy because he had released the tortfeasor without State Farm's consent, in breach of the policy's consent-to-settle provision. State Farm asserted that it suffered substantial prejudice because the settlement destroyed its subrogation rights against Quality 1st, and as a result, Thayer was not entitled to UIM coverage as a matter of law. State Farm attached as exhibits to its motion Thayer's letters to State Farm, a single page from the policy containing the consent-to-settle provision,¹ and an affidavit from a certified fraud investigator who had completed an asset investigation of the tortfeasor and Quality 1st in April 2014, after Thayer had settled his claims against them. State Farm's investigation showed that Quality 1st still had significant liquid assets but did not list any UCC liens or other encumbrances on Quality 1st's assets.

{14} Thayer responded to the motion by arguing that State Farm had acted with unreasonable delay in responding to his request for consent to settle, and that he had accepted the settlement only after State Farm failed to respond to his request for seventeen months. He also argued that State Farm breached its duty to timely investigate his claim. The exhibits Thayer attached to his response included affidavits from Thayer and his wife stating that they had contacted State Farm to request consent during the August 2012 mediation, the asset investigation conducted on the tortfeasor, and correspondence from State Farm to Thayer's attorney. Thayer contended that fact issues remained as to whether he had waited for a reasonable period of time before accepting the settlement, and whether State Farm had acted reasonably under the circumstances. State Farm responded that it had left one voicemail and sent three letters...