Opinion
No. CIV 01-0171 LCS
November 28, 2001
CERTIFICATION ORDER
THIS MATTER came before the Court on Plaintiffs Motion for Summary Judgment on the Eric Ballard Policy, (Doc. 27), filed August 31, 2001; Plaintiffs Motion for Summary Judgment on the Carol Ballard Policy, (Doc. 29), filed August 31, 2001; and Defendants Motion for Partial Summary Judgment as to the Coverage Issues, (Doc. 32), filed September 4, 2001. The United States Magistrate Judge, acting upon consent and designation pursuant 28 U.S.C. § 636(c), and having considered the pleadings, briefs, arguments of counsel, relevant law, and being otherwise fully advised, finds that certification of the following question to the New Mexico Supreme Court is appropriate because the question involves propositions of New Mexico law which are determinative of the case before this federal court, and there are no controlling precedents in decisions of the New Mexico Supreme Court or the New Mexico Court of Appeals. N.M. STAT. ANN. § 39-7-4; N.M. R. ANN. 12-607.
I. QUESTION OF LAW TO BE ANSWERED
Should New Mexico law apply to interpret a step down provision in a Georgia automobile liability insurance policy insurance policy where the non-resident insureds are injured in a one-vehicle accident in New Mexico through no fault of any New Mexico citizen and where the insureds receive significant medical care in New Mexico paid for by the county Indigent Hospital and County Health Care Act, N.M. STAT. ANN. § 27-5-1, et seq.
II. FACTS RELEVANT TO THE QUESTION
On August 11, 1998, Carol Ballard, her three children, and Robert Evans, a family friend, were traveling east on Interstate 10 in Ballards 1991 Toyota van.
The Ballards and Evans were not residents of New Mexico. While driving through Luna County, New Mexico, Evans apparently fell asleep at the wheel, the van swerved and rolled over. Evans and nine-year-old Erika Ballard died as a result of the accident. Eleven-year-old Carla Ballard, thirteen-year-old Chaz Ballard and Carol Ballard were injured. No New Mexico citizen bears any of the fault for the accident.
Carol and Eric Ballard are the parents of Chaz, Carla and Erika Ballard. Before they divorced in March 1998, the Ballards lived in California and had purchased automobile insurance from State Farm since 1985. In the divorce action, both parents were awarded joint legal custody of the children, with Carol Ballard having physical custody.
In April 1998, Carol Ballard moved to Georgia with Carla and Erika, while Chaz remained in California with his father. Once in Georgia, Ms. Ballard obtained employment as a medical transcriptionist, enrolled her daughters in school, obtained a Georgia drivers license, and purchased an automobile insurance policy from a State Farm agent in Georgia. During the summer of 1998, Chaz Ballard told his mother on the telephone that he wanted to move to Georgia and live with her and his sisters. Eric Ballard refused to send him, so Carol Ballard and her two daughters, Carla and Erika, drove to California to get Chaz. Robert Evans, a retiree and friend of Carol Ballard, volunteered to help Carol drive and accompanied the Ballards to California to pick up Chaz and bring him back to Georgia. Carol Ballard, her daughters, and Evans arrived in California in the evening of August 9, 1998 and spent the night in a hotel. The Ballards an Evans picked up Chaz at Eric Ballards house on August 10, 1998.
When he left his fathers house, Chaz brought some clothing and personal belongings with him. At the time he left his fathers house, there were no specific plans as to when Chaz would return to visit his father.
On August 10, 1998, Carol Ballard, the three Ballard children, and Evans began their return trip from California with Carol Ballard driving. After about eight hours, Ms. Ballard stopped at a rest area in Arizona where they slept for about six hours. Evans then drove east on Interstate 10, until he apparently fell asleep at the wheel in Luna County. Evans died in the wreck and Erika was pronounced dead at the hospital. Eleven-year-old Carla was seriously injured and required two-and-a-half months of treatment at Memorial Medical Center in Las Cruces, New Mexico. After her release from the hospital, Carla Ballard received outpatient care in Las Cruces, New Mexico until June 2000. Carla Ballards hospitalization expenses were paid by the Doña Ana county indigent hospital claims fund pursuant to the Indigent Hospital and County Health Care Act, N.M. STAT. ANN. § 27-5-1, et seq. The amounts paid by the county indigent hospital claims fund on behalf of Carla Ballard were substantial.
Thirteen-year-old Chaz Ballard and Carol Ballard were less seriously injured and also received medical treatment in Las Cruces, New Mexico. After the accident, Carol Ballard lived in Las Cruces, New Mexico from August 1998 to June or July 2000, so that Carla Ballard could receive continuous and consistent medical care from Las Cruces healthcare providers. While she lived in Las Cruces, Ms. Ballard worked as a medical transcriptionist for her Georgia employer out of a small apartment. Chaz and Carla attended the Las Cruces Public Schools during this period. At the present time, Carol, Eric, Chaz and Carla Ballard are residents of Georgia.
In order to purchase automobile insurance in Georgia, Carol Ballard called the office of a State Farm agent in Georgia and informed office staff that she had moved from California to Georgia.
Ms. Ballard asked the office secretary to change her policy to Georgia and stated that she wanted the same coverage that she had under her California policy. Carol Ballard testified that she just knew [she] had full coverage. To Ms. Ballard, full coverage meant that we were insured for everything, uninsured, collision, medical, comprehensive, bodily injury, liability . . . Carol Ballards application for insurance listed coverage as $100,000/$ 300,000 for liability and $100,000/$ 300,000 for uninsured motorist. State Farm issued Ms. Ballard a new policy with policy limits of $100,000/$ 300,000 for liability, and $100,000/$ 300,000 for uninsured motorist effective May 11, 1998 to December 4, 1998. The declarations page stated that the policy limits were $100,000/$ 300,000 for liability, and $100,000/$ 300,000 for uninsured motorist coverage. The application was completed and the policy was issued in Georgia. The policy does not contain a choice of law provision.
Carol Ballards State Farm Georgia policy contained the following family exclusion:
THERE IS NO COVERAGE:
. . .
2. FOR ANY BODILY INJURY TO:
c. ANY INSURED OR ANY MEMBER OF AN INSUREDS FAMILY RESIDING ON THE INSUREDS HOUSEHOLD:
(1) IF INTRA-FAMILIAL TORT IMMUNITY APPLIES; OR
(2) TO THE EXTENT THE LIMITS OF LIABILITY OF THIS COVERAGE EXCEED THE LIMITS OF LIABILITY REQUIRED BY LAW IF INTRA-FAMILIAL TORT IMMUNITY DOES NOT APPLY.
State Farm contends that Georgia law applies and that its liability under Carol Ballards policy is limited to $50,000, the amount required under the New Mexico Financial Responsibility Act by operation of the step down provision contained in paragraph (2) of the above-quoted family exclusion.
Defendants assert that New Mexico law applies and that coverage is not limited to $50,000 because the step down provision of the family exclusion is invalid under New Mexico law.
III. STATEMENT OF ACKNOWLEDGMENT
In accordance with N.M. R. ANN. 12-607(C)(4), I hereby acknowledge that the New Mexico Supreme Court may reformulate the question of law at issue.
IV. NAMES AND ADDRESSES OF COUNSEL AND PARTIES APPEARING WITHOUT COUNSEL
For Plaintiff State Farm Ins. Co.:
Rudolph A. Lucero, Esq., Miller, Stratvert Torgerson, P. A., P.O. Box 25687, Albuquerque, NM 87125, (505) 842-1950.
For Defendant Carol Ballard, Individually and as Personal Representative of the Deceased, Erika Ballard, and as Mother, Next Friend and Natural Guardian of Carla and Chaz Ballard, Minors:
Maureen A. Sanders, Esq., Sanders Westbrook, P. C., 102 Granite, N.W. Albuquerque, NM 87102-2310, (505) 243-2243.
For George Evans, Personal Representative of the Estate of Robert L. Evans, Deceased:
George Evans, 2869 Aspen Glade Cove, Cordova, TN 38018, (901) 372-1369.
For Eric C. Ballard, Individually, and as Father, Next Friend and Natural Guardian of Carla and Chaz Ballard:
Angel L. Saenz, Esq., 333 S. Campo Street, Las Cruces, NM 88001, (505) 526-3333, and
Robert N. Pafundi, Esq., 221 E Walnut St. #245, Pasadena, CA 91101-1554, (626) 584-8989, (626) 795-9932.
V. RATIONALE FOR CERTIFICATION
This Court must apply New Mexico choice of law rules in this diversity case. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). New Mexico choice of law rules provide that the rights and liabilities of persons injured in automobile accidents are determined by the laws of the state where the accident occurred, State Farm Ins. Co. v. Ovtiz, 117 N.M. 547, 549, 873 P.2d 979, 981 (1994). In general, the New Mexico choice of law rules interpret contracts according to the laws of the place where the final act necessary to the formation of the contract occurred, also known as lex loci contractus. Shope v. State Farm Ins. Co., 122 N.M. 398, 401, 925 P.2d 515, 518 (1996); State Farm Mutual Insurance Co. v. Conyers, 109 N.M. 243, 247, 784 P.2d 986, 990 (1989); Eichel v. Goode, 101 N.M. 246, 250, 680 P.2d 627, 631 (Ct.App. 1984).However, when the conflict of laws rules lead to the law of a state whose law differs from that of the forum or when the parties have chosen a law different from the forum, the rule is that the forum may decline to apply the out-of-state law if it offends New Mexico public policy. Reagan v. McGee Drilling Corp., 123 N.M. 68, 70 933 P.2d 867, 869 (Ct.App. 1997) (citing United Wholesale Liquor Co. v. Brown-Forman Distillers Corp., 108 N.M. 467, 471, 775 P.2d 233, 237 (1989)).
Alternatively, under the significant relationship analysis, New Mexico courts look to the law of the state which has the most significant connections to the contract. See Stevenson v. Louis Dreyfus Corp., 112 N.M. 97, 99, 811 P.2d 1308, 1310 (1991) (applying principles of RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 196).
The New Mexico Supreme Court has reaffirmed the continuing viability of application of the lex loci contractus rule. Shope, 122 N.M. at 401, 925 P.2d at 518. Only if application of the traditional rule is impractical in the circumstances of the case, or if there is a countervailing interest that is fundamental and separate from general policies of contract interpretation, does New Mexico law consider whether another state has a more significant relationship to the contract, warranting application of the laws of that state. Shope, 122 N.M. at 401, 925 P.2d at 518; Stevenson, 112 N.M. at 99, 811 P.2d at 1310.
In this case, the motor vehicle accident occurred in New Mexico. State Farm issued the automobile liability insurance policy covering Defendants vehicle that was involved in the accident in Georgia. State Farms contingent liability arises solely from its contractual obligations set forth in the policy. If New Mexico's choice of law rule that the law of the place of execution governs the interpretation of a contract were strictly applied, Georgia law would govern the interpretation of the insurance policy.
In order to overcome the rule favoring the place of execution, there must be a countervailing interest that is fundamental to and separate from general policies of contract interpretation. Shope, 122 N.M. at 401, 925 P.2d at 517. In Shope, New Mexico's judicial policy to favor stacking of uninsured motorist coverages was insufficient to overcome the rule favoring the place of execution.
The question is whether there is a sufficient countervailing interest in this case. Carla Ballards hospitalization expenses were paid by the Doña Ana county indigent hospital claims fund pursuant to the Indigent Hospital and County Health Care Act, N.M. STAT. ANN. § 27-5-1, et seq. The indigent hospital claims fund is funded by tax levies in Doña Ana county. N.M. STAT. ANN. § 27-5-9. Because Carla Ballards hospitalization expenses were paid by New Mexico taxpayers, New Mexico may have a sufficiently significant relationship to overcome the lex loci contractus rule. Moreover, the New Mexico Supreme Court has held that exclusions of coverage for insureds and household members violate of the requirements of the New Mexico Financial Responsibility Act and that such exclusions are contrary to New Mexico public policy. Estep v. State Farm Mut. Ins. Co., 103 N.M. 105, 111, 703 P.2d 882, 888 (1985).
The public policy considerations pronounced in Estep may comprise a countervailing interest that is fundamental and separate from general policies of contract interpretation. The choice of law determination is crucial to this case. The step down provision in question has been held to be valid under Georgia law. Cotton States Mut. Ins. Co. v. Coleman, 242 Ga. App. 531, 530 S.E.2d 229 (2000). Under New Mexico law, however, the step down provision may be invalid. The family exclusion provision in Carol Ballards policy limits coverage for any insured or any member of an insureds family residing on the insureds household. This restriction is analogous to the household exclusion in Estep because it segregates persons and limits coverage according to their familial status. See Martinez v. Allstate Ins. Co., 124 N.M. 36, 40, 946 P.2d 240, 244 (Ct. App. 1997) (invalidating household exclusion that attempted to limit under insured motorist coverage to the liability limit required by law). As such, the family exclusion provision in Carol Ballards policy may be invalid under New Mexico law.
Application of the step down clause may also be barred by the doctrine of reasonable expectations under New Mexico law. The New Mexico Supreme Court considers the reasonable expectations of the insured when deciding whether an exclusionary clause is effective to reduce coverage under an insurance policy. Rodriguez v. Windsor Ins. Co., 118 N.M. 127, 130, 879 P.2d 759, 762 (1994). Under New Mexico law, coverage does not depend on how astute the particular insured is. Rodriguez, 118 N.M. at 131, 879 P.2d at 763. [T]he insurer who drafts the policy must reasonably anticipate . . . the effect of the language used upon and untrained mind, or . . . how the language is understood by the ordinary person. Id. (citing 13 John A. Appleman Jean Appleman, Insurance Law Practice, § 7386 at 159 (1976)). In this case, Ms. Ballard requested full coverage. The policy that was issued to her did not fully cover her family injuries. Under the circumstances of this case, Ms. Ballard may have had a reasonable expectation that her family would be covered for a permissive drivers negligence. Therefore, the step down provision may be inapplicable and the liability limits of $100,000/$ 300,000 might apply. For these reasons I find that the question of law at issue must be certified pursuant to N.M. STAT. ANN. § 39-7-4 and N.M. R. ANN. 12-607.