Federated Service Insurance Co v. Martinez , 529 F. App'x 954 ( 2013 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
TENTH CIRCUIT July 19, 2013
Elisabeth A. Shumaker
Clerk of Court
FEDERATED SERVICE INSURANCE
COMPANY, a Minnesota corporation,
Plaintiff-Counter-Defendant–
Appellee, No. 11-2183
(D.C. No. 1:06-CV-00638-JAP-WDS)
v.
(D.N.M.)
DANNY MARTINEZ,
Defendant-Counter-Claimant–
Appellant.
ORDER AND JUDGMENT*
Before LUCERO, HOLMES, Circuit Judges, and BRIMMER,** District Judge.
On May 11, 2005, Danny Martinez was working on the premises of his employer,
Capitol Motor Company (“Capitol”), when he was struck by a car driven by an uninsured
motorist. He and Capitol’s insurer, Federated Service Insurance Company (“Federated”),
dispute whether Federated is required to pay uninsured/underinsured motorist
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. This court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 32.1.
**
Honorable Philip A. Brimmer, U.S. District Judge, District of Colorado, sitting
by designation.
(“UM/UIM”) benefits to Martinez under Capitol’s insurance policy.
In this case’s prior appearance before this court, we reversed a grant of summary
judgment in favor of Federated, concluding that Capitol had not validly rejected
UM/UIM insurance for non-management employees like Martinez. Federated Serv. Ins.
Co. v. Martinez, 385 F. App’x 845, 846-47 (10th Cir. 2010) (unpublished). On remand,
the district court granted summary judgment in favor of Federated after determining that
Martinez was covered for UM/UIM purposes only if occupying a vehicle covered by the
policy at the time of the accident; Martinez admits he was not. Martinez appeals for a
second time. Exercising jurisdiction under 28 U.S.C. § 1291, we reverse and remand.
I
Under the “Garage Coverage” section of Capitol’s policy in effect at the time of
Martinez’s May 2005 accident, Federated agreed to pay “all sums an ‘insured’ legally
must pay as damages because of ‘bodily injury’ or ‘property damage’ to which this
insurance applies caused by an ‘accident’ and resulting from ‘garage operations’ other
than the ownership, maintenance or use of covered ‘autos.’” Under the header “Who Is
An Insured,” the policy provides that “employees . . . while acting within the scope of
their duties” are “‘insureds’ for ‘garage operations’ other than covered ‘autos.’”
The policy initially provided UM/UIM coverage to any person who qualified as an
insured. However, an endorsement with an effective date of March 1, 2005 rejects
UM/UIM coverage for insureds other than officers, directors, partners, or owners of
Capitol and their family members. A related endorsement, also with an effective date of
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March 1, 2005, sets forth the terms of UM/UIM coverage. It states that “the provisions
of the Coverage Form apply unless modified by the endorsement.” The endorsement
provides that “[a]nyone other than a Class 1 ‘insured’” is covered “while ‘occupying’ a
covered ‘auto.’” Employees are included within the definition of “[a]nyone other than a
Class 1 ‘insured.’”
After his accident, Martinez asserted a claim under the policy. Federated denied
the claim and filed a declaratory judgment action to determine whether it was required to
pay UM/UIM benefits to Martinez. In its complaint, Federated alleged that UM/UIM
“coverage was declined or rejected for employees of Capitol Motor Company as set
forth” in the UM/UIM “Limit of Insurance” endorsement. Federated also claimed
generally that “[o]ther provisions and conditions of the Federated policy may [] preclude
uninsured or underinsured coverage for Mr. Martinez.”
Both parties filed motions for summary judgment on the issue of whether Capitol
had validly rejected UM/UIM coverage for non-management employees. Concluding
that coverage had been validly rejected, the district court granted summary judgment to
Federated. Martinez appealed to this court. We certified the following question to the
New Mexico Supreme Court: “For a valid rejection of UM/UIM coverage under New
Mexico law, must that rejection be written, signed by the insured, and attached to the
policy?” Federated Serv. Ins. Co. v. Martinez, 300 F. App’x 618, 618-19 (10th Cir.
2008) (unpublished).
In response, the New Mexico Supreme Court concluded that “an insurer must
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obtain a written rejection of UM/UIM coverage from the insured in order to exclude it
from an automobile liability insurance policy.” Marckstadt v. Lockheed Martin Corp.,
228 P.3d 462, 464 (N.M. 2009). In Martinez’s case, the court noted that “it appears
undisputed that the policy provided some liability coverage for the injured employee,”
and that it was “uncontested that Capitol intended to reject [UM/UIM] coverage.” Id. at
466. However, the state court ruled that “the question of the intent to include or not to
include the third-party beneficiaries in UM/UIM coverage is irrelevant because the issue
is whether the rejection, if any, conformed with the requirements of the statute and the
regulation.” Id. at 472.
Because the March 1, 2005 endorsement did not fulfill statutory requirements for
rejection, we held that Capitol had not validly rejected UM/UIM insurance. Martinez,
385 F. App’x at 846-47. We accordingly reversed the grant of summary judgment in
favor of Federated and remanded for proceedings not inconsistent with our order and
judgment. Id. at 849-50.
On remand, the district court granted partial summary judgment to Martinez.
Federated moved for reconsideration, contending the prior proceedings established only
that Capitol did not effectively reject UM/UIM coverage for non-management
employees, but did not decide whether Martinez’s injuries were eligible for UM/UIM
coverage, whether and how Martinez might be entitled to stack coverage, or the extent of
Martinez’s damages. The district court granted Federated’s motion for reconsideration.
After further briefing, the district court granted summary judgment in favor of
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Federated. It concluded that Martinez, as an employee of Capitol, was covered for
UM/UIM purposes only if he was occupying a vehicle covered by the policy. Because
Martinez was not occupying a covered vehicle at the time of his injury, the district court
concluded he was not entitled to UM/UIM insurance. Martinez timely appealed.
II
Under Federal Rule of Civil Procedure 56, a court “shall grant summary judgment
if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A decision
granting summary judgment presents a question of law that we review de novo. See
Wallace v. Microsoft Corp., 596 F.3d 703, 707 (10th Cir. 2010).
The parties agree that New Mexico law governs this dispute. If a state’s highest
court has not addressed a dispositive legal issue, a federal court “must determine what
decision the state court would make if faced with the same facts and issues” by
considering state intermediate appellate court decisions, “decisions of other states, federal
decisions, and the general weight and trend of authority.” Armijo v. Ex Cam, Inc., 843
F.2d 406, 407 (10th Cir. 1988). “[W]e review the district court’s determination of state
law de novo . . . .” Butler v. Union Pac. R.R. Co., 68 F.3d 378, 379 (10th Cir. 1995)
(italics omitted).
A
By statute, every New Mexico automobile liability insurance policy is required to
insure against damages from uninsured or underinsured motorists unless such coverage is
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rejected in writing by the insured. See N.M. Stat. § 66-5-301; N.M. Admin. Code
§ 13.12.3.9. “Section 66-5-301[] embodies a public policy of New Mexico to make
uninsured motorist coverage a part of every automobile liability insurance policy issued
in this state, with certain limited exceptions.” Romero v. Dairyland Ins. Co., 803 P.2d
243, 245 (N.M. 1990); accord Marckstadt, 228 P.3d at 468-69 (“Section 66-5-301 and
[N.M. Admin. Code § 13.12.3.9] were designed to expand insurance coverage to protect
the public from damage or injury caused by other motorists who were not insured and
could not make the impaired party whole.” (quotation omitted)).
In a pair of recent cases, Progressive Northwestern Insurance Co. v. Weed Warrior
Services, 245 P.3d 1209 (N.M. 2010), and Jordan v. Allstate Insurance Co., 245 P.3d
1214 (N.M. 2010), the New Mexico Supreme Court emphasized that insurers must
include UM/UIM coverage in all policies unless it is explicitly rejected. The court noted
that in interpreting § 66-5-301, New Mexico courts have “long applied a qualitatively
different analysis than [they] use when construing many other types of statutes and
insurance policies.” Jordan, 245 P.3d at 1219. The statute “must be construed liberally”
because it is remedial in nature. Weed Warrior, 245 P.3d at 1213. In both cases, the
New Mexico Supreme Court interpreted § 66-5-301 expansively, clarifying that it
“requires an insurer to offer UM/UIM coverage in an amount equal to the liability limits
of the policy,” Weed Warrior, 245 P.3d at 1214, and “[t]he provision of the maximum
possible amount of UM/UIM coverage in every insurance policy is the default rule, and
any exception to that rule must be construed strictly to protect the insured,” Jordan, 245
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P.3d at 1219 (quotation omitted). In particular, the court held “that the choice of the
insured to purchase any lower amount [of UM/UIM coverage] functions as a rejection of
that maximum amount of coverage statutorily possible,” Weed Warrior, 245 P.3d at
1214, and thus such choices must comply with the stringent requirements for a valid
rejection.
Similarly, in the prior appeal of this case, the New Mexico Supreme Court
answered our certified question by concluding that UM/UIM coverage will be read into a
policy unless the requirements for rejecting UM/UIM coverage are “strictly met.”
Marckstadt, 228 P.3d at 468. The court rejected the insurers’ assertion that the intent of
the parties was dispositive, distinguishing a prior case, Jaramillo v. Providence
Washington Insurance Co., 871 P.2d 1343 (N.M. 1994). In Jaramillo, the New Mexico
Supreme Court held that “if the premium-paying insured and insurer agree that [a] third
party was not intended to be included under the provision allowing stacking, their
understanding should control.” Marckstadt, 228 P.3d at 472 (citing Jaramillo, 871 P.2d at
1348). The Marckstadt opinion explained:
The case before us is distinguishable from Jaramillo. Here, there is no
dispute that Appellants were the intended beneficiaries of liability coverage
under their employers’ policies. The only dispute is whether this coverage
included UM/UIM coverage. Unlike the availability of policy stacking in
Jaramillo, the question of the presence of UM/UIM coverage under an
automobile liability policy is not a question of intent. Section 66-5-301 and
[N.M. Admin. Code § 13.12.3.9] provide that automobile liability policies
shall contain UM/UIM coverage in the absence of an appropriate rejection,
irrespective of the parties’ intent. Appellants recognize this principle and
argue that rejection was ineffective, and therefore, as a matter of law, their
coverage includes UM/UIM coverage. Unlike Jaramillo, in which the
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central question of the case had to be settled by referring to the parties’
intent in signing the contract, here, the question of the intent to include or
not to include the third-party beneficiaries in UM/UIM coverage is
irrelevant because the issue is whether the rejection, if any, conformed with
the requirements of the statute and the regulation.
Marckstadt, 228 P.3d at 472 (citation omitted).
B
In determining that the policy at issue provided UM/UIM coverage only when
occupying a covered auto, the district court relied on an endorsement restricting the scope
of UM/UIM coverage. We conclude that this was error.
As the prior proceedings in this case established, Federated failed to obtain an
effective rejection of UM/UIM coverage from Capitol. Federated Serv. Ins. Co., 385 F.
App’x at 849 (“[W]e conclude that Capitol Motor did not reject UM coverage for non-
management employees.”). Under these circumstances, New Mexico law requires that
we “reform the polic[y] to provide UM/UIM coverage equal to the liability limits.”
Jordan, 245 P.3d at 1217. In reforming the policy, we look to the liability coverage
portion of the policy to determine the scope of UM/UIM coverage.
Under the “Garage Coverage” section of the policy,1 Federated covers “all sums
an ‘insured’ legally must pay as damages because of ‘bodily injury’ or ‘property damage’
1
Garage coverage “has a dual character,” providing insurance for both
“automobile liability risk” as well as “non-automobile risk” occurring at the “garage
location.” 2-11 Law of Liability Insurance § 11.02. Federated conceded before the
district court that the Garage Coverage portion of the policy “sets out the terms of the
liability coverage available to Capitol Motor.”
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to which this insurance applies caused by an ‘accident’ and resulting from ‘garage
operations’ other than the ownership, maintenance or use of covered ‘autos.’” And the
policy states that “employees” are “insureds” for “‘garage operations’ other than covered
‘autos’” while they are “acting within the scope of their duties.” Accordingly, Martinez
would have liability coverage under the policy for the accident at issue: he was an
employee acting within the scope of his duties when an accident occurred, and the
accident resulted from “‘garage operations’ other than the ownership, maintenance or use
of covered ‘autos.’” The New Mexico Supreme Court acknowledged that “there is no
dispute that Appellants were the intended beneficiaries of liability coverage under their
employers’ policies.” Marckstadt, 228 P.3d at 472.
Because Martinez was an insured for liability purposes under the circumstances
presented, and because Federated did not obtain a valid rejection of UM/UIM coverage,
the policy must be reformed to provide UM/UIM coverage “equal to the liability limits.”
Jordan, 245 P.3d at 1217. We construe this rule as requiring UM/UIM coverage for
accidents in which an insured would have been covered for liability purposes. As the
New Mexico Supreme Court has held, “[t]he provision of the maximum possible amount
of UM/UIM coverage in every insurance policy is the default rule, and any exception to
that rule must be construed strictly to protect the insured.” Id. at 1219 (quotation
omitted). Accordingly, “the requirements for a valid rejection found in [N.M. Admin.
Code § 13.12.3.9] must be complied with when an insured purchases some UM/UIM
coverage but rejects UM/UIM coverage equal to the liability limits, because any other
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outcome would create an unprincipled anomaly in the fabric of our law.” Id. at 1220.
Looking to the liability portion of a policy to determine the extent of UM/UIM
coverage most often occurs with respect to coverage limits. In both Jordan and Weed
Warrior, the issue was whether an insurance policy should be reformed such that an
insured recovered the same amount under the liability and UM/UIM provisions; it was
not disputed that the plaintiffs in those cases were insured for UM/UIM purposes. See
Jordan 245 P.3d at 1217-18; Weed Warrior, 245 P.3d at 1210, 1214. In contrast, this
appeal concerns the scope of risk Federated agreed to insure under the UM/UIM
provision, not the UM/UIM liability limits.
However, we read the broad language of Jordan and Weed Warrior as applying
beyond the question of coverage limits. See Jordan, 245 P.3d at 1219 (New Mexico
courts have “liberally interpreted” the UM/UIM provisions to afford “the maximum
possible amount of UM/UIM coverage in every insurance policy”); Weed Warrior, 245
P.3d at 1213 (New Mexico’s UM/UIM statute must be “construed liberally”); cf.
Marckstadt, 228 P.3d at 468-69. Similarly, in State Farm Mutual Automobile Insurance
Co. v. Marquez, 28 P.3d 1132 (N.M. Ct. App. 2001), the New Mexico Court of Appeals
reformed UM/UIM coverage in a manner that did not involve the amount recoverable
under the policy. In Marquez, the court held that a territorial restriction on UM/UIM
coverage was invalid, and read into the policy the broader territorial coverage contained
in the liability portion of the policy. Id. at 1134. The court concluded that “the
legislature intended for uninsured motorist coverage to apply in the same amounts and in
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the same territory as a particular policy provides for liability coverage.” Id.
Given that the purpose of Section 66-5-301 is to protect an insured as if the
uninsured motorist had liability coverage, and that the amount of uninsured
motorist coverage depends on the amount of liability coverage, we
conclude that the legislature also intended that the geographical scope of
uninsured motorist coverage depends on and must be equal to the scope of
liability coverage.
Marquez, 28 P.3d at 1134 (citation omitted). A federal district court decision reads
Marquez as “firmly establishing that liability coverage sets the parameters of UM
coverage.” Farm Bureau Mut. Ins. Co. v. Jameson, 472 F. Supp. 2d 1272, 1282 (D.N.M.
2006) (cited favorably by Weed Warrior, 245 P.3d at 1211). We agree with this reading.
Additionally, other states have construed statutes similar to New Mexico’s
UM/UIM law as defining the class of persons to whom UM/UIM motorist coverage
extends or must be offered. See, e.g., Georgeson v. Fid. & Guar. Ins. Co., 48 F. Supp. 2d
1262, 1265 (D. Mont. 1998) (noting that under Montana’s uninsured motorist coverage
statute, an automobile insurer must offer uninsured motorist coverage to a class of
insureds that is coextensive with the class covered by policy’s liability provision); Aetna
Cas. & Sur. Co. v. McMichael, 906 P.2d 92, 96 (Colo. 1995) (holding that Colorado’s
UM/UIM motorist statute requires insurers “to offer UM/UIM coverage to a class as
extensive as the class covered under the liability provision of an automobile insurance
policy”); Allied Mut. Ins. Co. v. Action Elec. Co., 593 N.W.2d 275, 280 (Neb. 1999)
(concluding that under Nebraska law, an insurer must provide UM/UIM coverage to any
person or class of persons with liability coverage). Like the statutes at issue in those
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cases, the New Mexico statute mandates that UM/UIM coverage be provided “for the
protection of persons insured” under a “motor vehicle or automobile liability policy,”
N.M. Stat. § 66-5-301, subject in New Mexico’s case to written rejection by the insured,
Marckstadt, 228 P.3d at 468-69. This language further supports our conclusion that a
policy should be reformed to include those covered for liability purposes in the absence
of a valid UM/UIM rejection.
In this case, the district court cited to Rehders v. Allstate Ins. Co., 135 P.3d 237(N.M. Ct. App. 2006), as support for its reliance on the UM/UIM endorsement. But
Rehders did not concern an ineffective rejection of UM/UIM coverage, and the injured
plaintiff was not an insured under either the UM/UIM endorsement or the liability
provision of the policy. See id. at 239-40. Because Martinez qualifies as an insured
under the Garage Coverage portion of the policy “for ‘garage operations’ other than
covered ‘autos,’” the policy must be reformed to provide him UM/UIM coverage for this
accident.
Federated argues that extending UM/UIM coverage to Martinez is unwarranted
because neither Federated nor Capitol intended to provide such coverage. However, the
New Mexico Supreme Court has expressly concluded that “the question of the presence
of UM/UIM coverage under an automobile liability policy is not a question of intent.”
Marckstadt, 228 P.3d at 472. Federated also contends that the policy should not be
reformed because the New Mexico statute does not require UM/UIM coverage for
employees of a named insured. But the New Mexico courts have consistently rejected
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the theory that UM/UIM coverage is read into a policy only to the extent minimally
required by statute. See Weed Warrior, 245 P.3d at 1212 (concluding that insurers must
offer “the maximum amount of UM/UIM coverage permitted by the statute, e.g., the
liability limits of the policy” rather than “the minimum amount”); Romero v. Progressive
Nw. Ins. Co., 230 P.3d 844, 849 (N.M. Ct. App. 2009) (“The lack of a requirement that a
policy contain UM/UIM coverage in a specific amount does not obviate the statute’s
unambiguous requirement that insurers must offer UM/UIM coverage and that they must
offer such coverage at a level equal to the liability limits of the policy.”); see also Jordan,
245 P.3d at 1220 (“[T]he requirements for a valid rejection found in [N.M. Admin. Code
§ 13.12.3.9] must be complied with when an insured purchases some UM/UIM coverage
but rejects UM/UIM coverage equal to the liability limits, because any other outcome
would create an unprincipled anomaly in the fabric of our law.”). Given the lack of a
valid rejection, Martinez must be provided UM/UIM coverage “equal to the liability
limits.” Jordan, 245 P.3d at 1217.2
III
For the foregoing reasons, we REVERSE the district court’s order granting
2
On appeal, Martinez also contends that the district court committed reversible
error by allowing Federated to raise new theories and arguments on remand. Because we
conclude that the district court erred in determining that Martinez was not entitled to
UM/UIM coverage, we need not review the district court’s decision to allow Federated to
raise new arguments. Although we express no opinion on this issue, we remind the
parties of their weighty responsibility to argue in the alternative and safeguard court
resources.
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summary judgment in favor of Federated and REMAND for additional proceedings not
inconsistent with this order and judgment.
Entered for the Court
Carlos F. Lucero
Circuit Judge
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