         IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Opinion Number: 2010-NMSC-029

Filing Date: June 17, 2010

Docket No. 32,032

VAL JOLLEY, personal representative of the
Estate of JOHN EVERETT STAPLETON, deceased,

       Plaintiff,
v.

ASSOCIATED ELECTRIC & GAS INSURANCE
SERVICES LIMITED (AEGIS), a foreign insurer,
and JOHN DOES 1-5,

       Defendants.

CERTIFICATION FROM THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW MEXICO
James A. Parker, U.S. District Court Judge

Guebert Bruckner P.C.
Terry R. Guebert
Donald George Bruckner, Jr.
Albuquerque, NM

for Plaintiff
Conklin, Woodcock & Ziegler, P.C.
Robert C. Conklin
Jacqueline M. Woodcock
Albuquerque, NM

Brickley, Sears & Sorett, P.A.
Henry P. Sorett
Boston, MA

for Defendants

                                    OPINION

DANIELS, Chief Justice.

                                       1
{1}     This case comes to us on certification from the United States District Court for the
District of New Mexico to determine whether the third-party bad faith cause of action
against a compulsory automobile liability insurance carrier, for failure to settle an underlying
lawsuit, which we recognized in Hovet v. Allstate Insurance Co., 2004-NMSC-010, 135
N.M. 397, 89 P.3d 69, should be extended to bad faith claims by third parties against carriers
providing nonmandatory excess liability insurance coverage. We conclude that neither the
holding nor the doctrinal underpinnings of Hovet support such an extension, and we answer
the certified question in the negative.

I.     FACTUAL AND PROCEDURAL HISTORY

{2}     Plaintiff Val Jolley is the personal representative of the estate of John E. Stapleton,
who died at the age of nineteen in an accident that occurred in 2002. See Jolley v. Energen
Res. Corp., 2008-NMCA-164, ¶¶ 1-2, 145 N.M. 350, 198 P.3d 376. On the day of the
accident, Stapleton, Cody Amezcua, and other young people visited the Glade Run
Recreation Area located on federal land outside Farmington, New Mexico. Stapleton drove
backward into an unprotected natural gas wellhead operated by Energen Resources
Corporation (Energen), breaking the steel gas line and causing a release of natural gas that
ignited. Stapleton and Amezcua died as a result of the explosion and fire caused by the
collision, and their estates filed wrongful death suits against Energen.

{3}     At the time of the accident, Energen had an excess reimbursement insurance policy
with Defendant, Associated Electric and Gas Insurance Services Limited (AEGIS), in the
amount of $35,000,000. Under the policy, AEGIS contractually agreed to reimburse
Energen for incurred damages and defense costs exceeding Energen’s self-insured retention
of $500,000. Before Plaintiff’s wrongful death suit resulted in pretrial settlement
discussions, Energen had exhausted its retention by payment of defense costs and claims
associated with this accident. As a result, any settlement offer or trial judgment in favor of
Plaintiff or the Amezcua estate would have been subject to full reimbursement by AEGIS
pursuant to the insurance contract between Energen and AEGIS.

{4}     The parties did not settle Plaintiff’s suit before trial, despite a voluntary mediation
and a subsequent court-ordered settlement conference among Plaintiff, Energen, and AEGIS.
Outside the context of a mediation or settlement conference, Plaintiff made a written
settlement demand in the amount of $2,000,000. Energen rejected Plaintiff’s offer without
making a counteroffer, but settled with the Amezcua estate for $2,000,000. AEGIS
reimbursed that sum to Energen.

{5}    Plaintiff’s wrongful death suit went to trial, and a jury returned a verdict finding that
Energen was negligent and 65 percent at fault and that Stapleton was also negligent and 35
percent at fault. The jury found compensatory damages of $2,957,000, which were reduced
by Stapleton’s negligence to $1,922,050. The jury also awarded $13,000,000 in punitive
damages against Energen. The New Mexico Court of Appeals affirmed the verdict on

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September 22, 2008. Jolley, 2008-NMCA-164, ¶ 1. Energen filed petitions for writ of
certiorari in this Court and the United States Supreme Court, but both were denied. Having
exhausted all avenues of appeal, Energen paid a total of $20,610,413 on Plaintiff’s verdict
and was fully reimbursed by AEGIS.

{6}     Plaintiff then brought suit in the First Judicial District Court against AEGIS, pursuant
to the Trade Practices and Frauds article (Article 16) of the New Mexico Insurance Code,
NMSA 1978, Sections 59A-16-1 to -30 (1984, as amended through 2009), alleging that
AEGIS failed to make a good faith effort to settle Plaintiff’s wrongful death lawsuit. AEGIS
removed the matter to the United States District Court for the District of New Mexico and
filed a motion to dismiss.

{7}    Senior United States District Judge James A. Parker certified two questions to this
Court under the procedures in NMSA 1978, Section 39-7-4 (1997), and Rule 12-607 NMRA.
Pursuant to NMSA 1978, Section 39-7-5 (1997), we reformulate the certified questions as
follows:

       (1) Whether Plaintiff, a third-party claimant, has a statutory bad faith cause
       of action against AEGIS, an excess liability insurer, for failure to settle an
       underlying lawsuit, pursuant to the New Mexico Insurance Code and as
       recognized by this Court in Hovet, where the excess liability insurance policy
       between AEGIS and the insured was not mandated by any state law.
       (2) If such a cause of action exists, whether the third party can recover as
       damages the costs and contingency attorney’s fees incurred by the third party
       in an underlying action where the third party was awarded at trial an amount
       far in excess of the third party’s highest pretrial settlement offer.

We accepted certification and now answer the first question in the negative. Having done
so, we find it unnecessary to reach the second question.

II.    STANDARD OF REVIEW

{8}    “Statutory interpretation is a question of law, which we review de novo.” Hovet,
2004-NMSC-010, ¶ 10. “Our primary goal is to ascertain and give effect to the intent of the
Legislature.” State v. Nick R., 2009-NMSC-050, ¶ 11, 147 N.M. 182, 218 P.3d 868. “To
determine legislative intent, we look not only to the language used in the statute, but also to
the purpose to be achieved and the wrong to be remedied.” Hovet, 2004-NMSC-010, ¶ 10.

III.   DISCUSSION

{9}     The issue before this Court is whether Plaintiff has stated an actionable claim under
Article 16 of our Insurance Code. This case involves the intersection of two provisions of
Article 16, one granting insureds a right to be treated fairly by their insurers, and the other
creating a statutory remedy for a violation of that right. Plaintiff alleges that AEGIS violated

                                               3
Section 59A-16-20(E), which requires insurers to “attempt[] in good faith to effectuate
prompt, fair and equitable settlements of an insured’s claims in which liability has become
reasonably clear.” To remedy the alleged violation of Section 59A-16-20(E), Plaintiff relies
on Section 59A-16-30, which provides in relevant part that “[a]ny person . . . who has
suffered damages as a result of a violation of [Article 16] by an insurer or agent is granted
a right to bring an action in district court to recover actual damages.” The tension in this
case is the discrepancy between the language in Section 59A-16-20(E), requiring insurers
to “attempt[] in good faith to effectuate prompt, fair and equitable settlements of an insured’s
claims,” and Section 59A-16-30, granting an express statutory cause of action to “[a]ny
person covered by [Article 16] who has suffered damages as a result of a violation of that
article . . . .” (Emphasis added.) There is no question that Plaintiff is not an “insured,” but
the question before us is whether Plaintiff is a “person” who is granted a bad faith cause of
action under Section 59A-16-30.

{10} On two previous occasions, this Court has recognized that a third-party plaintiff who
is an intended beneficiary of statutorily mandated insurance has a private right of action
under Section 59A-16-30 to remedy an insurer’s breach of the duty of fair settlement
practices established by Article 16. See Hovet, 2004-NMSC-010, ¶¶ 20, 23 (explaining that
“[t]hird parties, having claims against drivers who are insured under compulsory automobile
liability policies, are intended beneficiaries of those insurance policies” and can “sue the
insurer for unfair settlement practices under the Insurance Code”); Russell v. Protective Ins.
Co., 107 N.M. 9, 13-14, 751 P.2d 693, 697-98 (1988) (allowing an injured worker to sue an
insurer for bad faith refusal to pay workers’ compensation benefits because the worker “was
an intended beneficiary of the contract between his employer and the insurer”), superseded
by statute as stated in Meyers v. Western Auto, 2002-NMCA-089, ¶ 16, 132 N.M. 675, 54
P.3d 79.

{11} Although our precedents recognize that third-party claimants may have a private
action against insurers under Article 16 in certain circumstances, that right of action has been
found only where specific legislation indicated that our Legislature contemplated classes of
persons to be protected under the Insurance Code. In Russell, this Court rejected the
insurer’s argument that only the employer, as an “insured,” could bring a statutory cause of
action under the Insurance Code. 107 N.M. at 13, 751 P.2d at 697. Russell explained that,
in the context of the Workers’ Compensation Act, “the legislature did not intend to limit
Article Sixteen simply to the traditional notion of ‘insured’” and that the right of the worker
“to recover against the insurer is consistent with the policy of the law authorizing causes of
action under Article Sixteen.” Id. Because the Workers’ Compensation Act made Russell
an intended beneficiary, he was a “person covered by [Article 16] who has suffered damages
as a result of a violation of that article by an insurer” as defined in Section 59A-16-30 and
could therefore assert a private right of action against the insurer.

{12} Two years later, our Legislature codified the validity of third-party suits by workers
against insurers by adding a provision to the Workers’ Compensation Act that allows
workers to bring claims “alleging unfair claim-processing practices or bad faith by an

                                               4
employer, insurer or claim-processing representative relating to any aspect of the Workers’
Compensation Act.” NMSA 1978, § 52-1-28.1(A) (1990). The Insurance Code was
amended that same year to provide “that the Workers’ Compensation Act . . . provide[s]
exclusive remedies.” Section 59A-16-30.

{13} In Hovet, 2004-NMSC-010, ¶ 9, this Court applied the reasoning in Russell to hold
that, in the context of “statutorily mandated automobile liability insurance, . . . the
Legislature intended to provide a statutory cause of action under the Insurance Code to third-
party claimants.” Although many jurisdictions deny third parties standing to sue insurers for
violations of unfair claims practices statutes, the Hovet Court recognized that the express
private right of action established by our Legislature in Section 59A-16-30, combined with
the policies embodied in the New Mexico Mandatory Financial Responsibility Act (MFRA),
NMSA 1978, Sections 66-5-201 to -239 (1978, as amended through 2009), demonstrated our
Legislature’s intent to allow third-party rights of action. Hovet, 2004-NMSC-010, ¶¶ 11-12,
19.

{14} The express legislative purpose of the MFRA is to mitigate the “catastrophic
financial hardship” that can result from automobile accidents by “requir[ing] residents of
New Mexico who own and operate motor vehicles upon the highways of the state either to
have the ability to respond in damages to accidents arising out of the use and operation of
a motor vehicle or to obtain a motor vehicle insurance policy.” Section 66-5-201.1 (1998).
Owners or operators of automobiles in New Mexico are required to pay MFRA premiums,
not so much for their own protection, but for the protection and benefit of injured third
parties. See Hovet, 2004-NMSC-010, ¶ 19 (“‘[A]n insurance policy procured by force of
legislative enactment inures to the benefit of any injured member of the public.’” (quoting
Breeden v. Wilson, 58 N.M. 517, 524, 273 P.2d 376, 380 (1954))).

{15} The policy and purpose of the MFRA have long driven New Mexico’s insurance law
jurisprudence, ensuring broad protection for innocent accident victims. For example, in
Estep v. State Farm Mutual Automobile Insurance Co., 103 N.M. 105, 703 P.2d 882 (1985),
this Court held that an insurance contract excluding family or household members of the
insured from the class of beneficiaries violated “[t]he fundamental purpose for the enactment
of financial responsibility laws—namely, protecting innocent accident victims from financial
hardship,” id. at 110, 703 P.2d at 887, and as a result held that such exclusions “were and
are contrary to public policy and the statutes of this state.” Id. at 111, 703 P.2d at 888.

{16} Similarly, in State Farm Mutual Automobile Insurance Co. v. Ballard, 2002-NMSC-
030, ¶¶ 1, 4, 132 N.M. 696, 54 P.3d 537, this Court held unenforceable a provision in a
Georgia insurance policy that excluded any coverage for household and family members
beyond the minimum required by law. Although “[t]he policy of New Mexico is to interpret
insurance contracts according to the law of the place where the contract was executed,” id.
¶ 7 (internal quotation marks and citation omitted), this Court held that applying Georgia law
to validate the provision in connection with an accident that had occurred in New Mexico
would be inconsistent with the principles and goals of New Mexico’s financial responsibility

                                              5
laws and would “violate public policy and fundamental principles of justice.” Id. ¶¶ 15, 19.

{17} In Raskob v. Sanchez, 1998-NMSC-045, ¶ 6, 126 N.M. 394, 970 P.2d 580, this Court
held that it was proper for a third-party plaintiff to join a liability carrier as a party defendant
in a negligence action. “The general rule is that there is no privity between an injured party
and the insurer of the negligent defendant in the absence of a contractual provision or statute
or ordinance to the contrary . . . .” Id. ¶ 3. However, where insurance coverage is mandated
by law for the benefit of the public, joinder of the insurer is permissible unless the law
expresses legislative intent to the contrary. Id. Raskob held that the MFRA implicitly
allowed direct actions against insurers. Id. ¶¶ 6-7; see also Martinez v. Reid, 2002-NMSC-
015, ¶ 11, 132 N.M. 237, 46 P.3d 1237 (“The fact that the Act mandates liability insurance
for the benefit of the public creates a strong inference that the legislature intended to allow
joinder of the insurance company in a negligence suit.”).

{18} Just as the MFRA allows permissive joinder of an insurer in a negligence suit, Hovet
held that injured third-party claimants who are the statutory beneficiaries of automobile
liability insurance policies mandated by the MFRA “may sue the insurer for unfair
settlement practices under the Insurance Code.” 2004-NMSC-010, ¶ 23.

{19} Hovet reflected a combination of the Insurance Code’s policy of promoting “ethical
settlement practices within the insurance industry,” id. ¶ 17, and the MFRA’s policy of
providing a “benefit [to] the public generally, innocent victims of automobile accidents,
[and] the insured.” Id. ¶ 19 (internal quotation marks and citation omitted). This Court was
careful to explain in Hovet that our holding was closely tied to the public policies established
by the Legislature in the MFRA: “[C]ompulsory automobile liability insurance under the
MFRA has its own strong public policy and judicial precedent that affords third-party
claimants a special, if not unique, place in our jurisprudence.” Id. ¶ 24. Accordingly, we
cautioned against reading our holding too broadly: “[O]ur holding today addresses only
automobile liability insurance required for the benefit of the public by the MFRA; we do not
pass upon potential claims by putative beneficiaries of other kinds of mandatory liability
insurance.” Id.

{20} With that caution in mind, we examine the potential application of Hovet to the kind
of insurance policy involved in this case. This case had nothing to do with Energen’s
operation of an automobile. Not only is the excess liability policy in this case not mandated
by the MFRA, it is not a policy required by any New Mexico law. The purpose of excess
coverage insurance, like the indemnification policy in this case that provided reimbursement
to the insured for claims expenses incurred in excess of half a million dollars, is different
from that of compulsory automobile liability insurance. It is intended for the financial
protection of the insured, not the protection of members of the public who may be injured
by the insured’s operation of an automobile. While the insurance policy here ultimately may
be of some benefit to an injured plaintiff, the fact remains that the benefit is not one
mandated by New Mexico legislative policy.


                                                 6
{21} As we noted in Hovet, the vast majority of states deny non-policyholder third parties
standing to sue carriers for violation of unfair claims practices statutes. Id. ¶ 12. Although
we have recognized carefully-drawn exceptions in Hovet and Russell, where statutory
mandates required insurance coverage for the primary benefit of those whose standing to sue
was recognized, we have never recognized such a general right to sue by a stranger to the
insurance contract in the absence of such mandatory coverage. Indeed, in Hovet we noted
a number of categories of mandatory insurance that might not be subject to the Hovet
exception to the general preclusion of third-party suits. Id. ¶ 23 n.4. While we are not faced
here with any issue concerning Hovet’s application to other types of mandatory insurance,
we can see no principled reason for extending Hovet’s reach so far beyond its carefully
limited justifications to encompass the kind of nonmandatory excess policy involved in this
case. Cf. State v. Rowell, 2008-NMSC-041, ¶ 23, 144 N.M. 371, 188 P.3d 95 (“When lines
need to be drawn in creating rules, they should be drawn thoughtfully along the logical
contours of the rationales giving rise to the rules, and not as artificial lines drawn elsewhere
that are unrelated to those rationales.”)

{22} We conclude that the precedent and public policy considerations that dictated our
result in Hovet neither compel nor support a private right of action for Plaintiff in this case.
Although AEGIS owed Energen an Article 16 duty to engage in fair claims practices, neither
the Insurance Code nor any other statute imposed any such obligation on AEGIS with regard
to Plaintiff. We find nothing indicating that our Legislature intended to extend a private
action to claimants who are neither parties to the insurance contract nor special beneficiaries
of a statutory scheme requiring mandatory insurance for the benefit of third parties.

{23} In light of our resolution of the first certified question that there is no direct cause of
action against the insurer, the second certified question, regarding the measure of damages
in such a suit, is moot.

IV.    CONCLUSION

{24} We accordingly answer the questions certified to this Court as follows: (1) Plaintiff
does not have a right to bring a statutory cause of action under Section 59A-16-30 against
AEGIS, an excess liability insurer; and (2) the second certified question is not addressed on
grounds of mootness.

{25}   IT IS SO ORDERED.

                                               ____________________________________
                                               CHARLES W. DANIELS, Chief Justice

WE CONCUR:

____________________________________
PATRICIO M. SERNA, Justice

                                               7
____________________________________
PETRA JIMENEZ MAES, Justice

____________________________________
RICHARD C. BOSSON, Justice

____________________________________
EDWARD L. CHÁVEZ, Justice

Topic Index for Jolley v. Associated Electric & Gas Ins. Servs. Ltd., Docket No.
32,032

AE                   APPEAL AND ERROR
AE-CT                Certification

IN                   INSURANCE
IN-BF                Bad Faith
IN-IY                Indemnity
IN-IP                Insurance Carrier as Party
IN-ID                Insurance Code
IN-MV                Motor Vehicle Insurance
IN-RX                Reinsurance or Excess Insurance
IN-SE                Settlement

MS                   MISCELLANEOUS STATUTES
MS-TP                Trade Practices and Fraud Act

ST                   STATUTES
ST-AP                Applicability
ST-IP                Interpretation
ST-LI                Legislative Intent
ST-RC                Rules of Construction




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