                                                 I attest to the accuracy and
                                                  integrity of this document
                                                    New Mexico Compilation
                                                  Commission, Santa Fe, NM
                                                 '00'04- 14:13:09 2015.04.07
Certiorari Granted, March 23, 2015, No. 35,130

       IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: 2015-NMCA-031

Filing Date: January 21, 2015

Docket No. 32,171

PROGRESSIVE CASUALTY
INSURANCE COMPANY,

       Plaintiff-Appellant,

v.

NANCY COLLEEN VIGIL and
MARTIN VIGIL,

       Defendants-Appellees.

APPEAL FROM THE DISTRICT COURT OF BERNALILLO COUNTY
Alan M. Malott, District Judge

O’Brien & Padilla, P.C.
Daniel J. O’Brien
Albuquerque, NM

Horvitz & Levy LLP
Lisa Perrochet
Andrea M. Gauthier
Encino, CA

for Appellant

Santillanes & Neidhardt, P.C.
Janet Santillanes
Olivia Neidhardt
James T. Roach
Albuquerque, NM

for Appellees


                                        1
                                         OPINION

GARCIA, Judge.

{1}     Plaintiff, Progressive Casualty Insurance Company (Progressive), appeals from the
judgment entered in favor of Defendants, Nancy Colleen Vigil (Colleen) and her son, Martin
Vigil (Martin), (collectively, the Vigils) following a jury trial. Progressive filed this
declaratory judgment action against the Vigils, asking the district court to determine that the
Vigils had no coverage on the day that Martin was involved in an accident, and the Vigils
counterclaimed for bad faith. The jury found that the Vigils had coverage on the day of the
accident and that Progressive acted in bad faith in not providing coverage. The jury awarded
the Vigils $37,000 in compensatory damages and $11.7 million in punitive damages for their
bad faith claim. The district court then awarded the Vigils about $1.4 million in attorney fees
and $35,000 in costs under NMSA 1978, Section 39-2-1 (1977).

{2}     Because we conclude that the district court erred when it excluded certain evidence
from being admitted at trial, we reverse the judgment as to the bad faith claim. We vacate
the $37,000 compensatory damages award, the $11.7 million punitive damages award, the
$1.4 million attorney fees award, the $35,000 costs award, and we remand to the district
court for a new trial on the issue of bad faith. We affirm the verdict in favor of the Vigils
regarding insurance coverage under the policy.

BACKGROUND

{3}     In the fall of 2002, Colleen and Martin were insured under a Progressive automobile
insurance policy. In late September 2002, Colleen called Progressive to add a car to the
policy. Believing the policy premium was due on October 3, 2002, Colleen called
Progressive to pay the premium over the telephone. During this call, Progressive told
Colleen that the premium was not due until October 15, 2002. She paid the premium on
October 3 anyway. She received a notice in the mail from Progressive showing that the
payment she made on October 3 was due on October 15. She later received another notice
from Progressive stating that her policy would renew on November 3. Colleen testified that
she called Progressive because “[t]he date was confusing” and the automated system told her
that her next premium was due on November 15. She did not pay the premium by November
3.

{4}     On November 4, Martin got into a car accident in which one passenger was killed
and another seriously injured. Colleen testified that on November 4, after the accident, she
called Progressive’s billing department to check on her coverage and Progressive told her
that she was covered through November 15. She paid the policy premium over the telephone
during that call and then she reported Martin’s accident to Progressive’s claims department.
About two weeks later, Progressive determined that the Vigils did not have coverage on the
date of the accident because the policy had lapsed on November 3. The Vigils disagreed and
much of the litigation between the parties has involved this dispute.

                                              2
{5}     In December 2002, Progressive filed this action in the district court seeking a
declaration that the Vigils did not have insurance coverage on the date of the accident. The
Vigils filed a counterclaim against Progressive alleging bad faith, among other claims. While
the action was pending, Progressive settled the personal injury and wrongful death claims
that the injured passenger and the deceased passenger’s family brought against the Vigils,
paying $100,000 to each of them, subject to a reservation of rights. Progressive then
amended its complaint to seek reimbursement from the Vigils for this $200,000 in the event
that the factfinder determined that the Vigils did not have insurance coverage on the date of
the accident.

{6}     After about two years of discovery between the parties and cross motions for
summary judgment, the district court granted partial summary judgment in favor of
Progressive on the coverage issue. It concluded as a matter of law that the Vigils did not
have coverage on the date of the accident. After three more years of discovery and numerous
motions and other filings by both the Vigils and Progressive, a jury trial was held on
Progressive’s $200,000 reimbursement claim. The jury found that Progressive was entitled
to reimbursement from the Vigils, and the district court entered final judgment in favor of
Progressive. The Vigils appealed. In 2009 we reversed the district court’s grant of partial
summary judgment because the issue of whether the Vigils had coverage involved disputed
material facts. Progressive Cas. Ins. Co. v. Vigil, Nos. 28,023, 28,393, memo. op. at 5 (N.M.
Ct. App. Aug. 18, 2009) (non-precedential). In Progressive, we declined to consider the
Vigils’ argument regarding Progressive’s reimbursement claim because we noted the claim
would be moot if the jury found that the Vigils had coverage. Id. at 6. We remanded the case
to the district court for further proceedings and a new trial on the coverage and
reimbursement claims. Id. at 13.

{7}      While the appeal was pending, the case was reassigned to a different district court
judge. After we remanded the case, the Vigils moved for summary judgment on the
reimbursement issue. The district court granted summary judgment, concluding as a matter
of law that Progressive did not have a right to seek reimbursement for the payments it made
to settle the third-party claims, even if the Vigils did not have insurance coverage on the date
of the accident.

{8}      Prior to re-trial, the Vigils moved to exclude from evidence the fact that the district
court had previously concluded there was no coverage. At the hearing on this motion, the
district court stated that any evidence of the previous judge’s ruling would be excluded
because it was not relevant. The court then entered an order that prohibited Progressive
“from introducing evidence, or making any reference before the jury in testimony, exhibits,
voir dire[,] or argument, about what any prior [j]udge said, decided[,] or ruled about the
facts, evidence or issues here or that a prior [j]udge ruled in a certain way in this case.”

{9}    Separate from its decision that the district court’s previous rulings would be
inadmissible at trial, the district court held another pre-trial conference to address whether
Progressive’s actions in settling the third party claims against the Vigils would be admitted

                                               3
into evidence. It ruled that, “as a limine matter, . . . issues concerning the payment . . . should
not go to the jury.” Progressive’s counsel asked the district court whether it was “saying that
the jury will not be allowed to know that Progressive . . . settled those claims for $100,000
each[.]” The district court replied, “I don’t think it’s relevant to the issues of whether there
was coverage. No, I think that’s part of the reimbursement claim [that was disposed of on
summary judgment]. No.” Progressive’s counsel explained that given such a ruling, it could
be anticipated that the Vigils were “going to say [Progressive] should have paid these claims
and [Progressive] acted in bad faith and [it] left [the Vigils] hanging out there like that.” The
district court nonetheless entered an order prohibiting “all witnesses and attorneys . . . from
mentioning . . . [that Progressive] . . . paid $200,000 to settle [the third-party] liability
claims.”

{10} The second jury trial was held in 2011. During her closing argument, the Vigils’
counsel emphasized, among other things, that “[t]his case ha[d] been going on for nine
years” and that, during that time, Progressive “wouldn’t even pay for [Martin’s] truck, let
alone all the other coverages they should have provided under this policy.” (Emphasis
added.)

{11} The jury found that the Vigils had coverage on the date of the accident and
Progressive acted in bad faith regarding the resulting coverage claims. In addition to the
award of about $40,000 in contract damages under the policy, the jury awarded the Vigils
$37,000 in compensatory damages and $11.7 million in punitive damages for their bad faith
claim. The district court later awarded the Vigils about $1.4 million in attorney fees and
$35,000 in costs under Section 39-2-1.

DISCUSSION

A.      Evidence of the Previous Ruling

{12} Progressive argues that the district court erred in prohibiting Progressive from
admitting any evidence about the previous judge’s ruling that the Vigils were not covered
under the policy on the date of the accident. Progressive argues that even though this ruling
was reversed on appeal because it involved a disputed factual issue, the fact of the ruling
“indicate[s] that Progressive did not act in bad faith, and certainly that it should not be liable
for punitive damages.” We agree.

{13} “We review the admission or exclusion of evidence for abuse of discretion.” Kilgore
v. Fuji Heavy Indus. Ltd., 2009-NMCA-078, ¶ 39, 146 N.M. 698, 213 P.3d 1127. Generally,
relevant evidence is admissible and irrelevant evidence is inadmissible. See Rule 11-402
NMRA. “Evidence is relevant if . . . it has any tendency to make a fact more or less probable
than it would be without the evidence, and . . . the fact is of consequence in determining the
action.” Rule 11-401 NMRA; see Coates v. Wal-Mart Stores, Inc., 1999-NMSC-013, ¶ 37,
127 N.M. 47, 976 P.2d 999. We will reverse a judgment based on the erroneous exclusion
of evidence only if “the complaining party on appeal . . . show[s] the erroneous . . . exclusion

                                                4
of evidence was prejudicial.” Id. (alteration, internal quotations marks, and citation omitted).

{14} In New Mexico, an insurer “acts in bad faith when it refuses to pay a claim of the
policyholder for reasons which are frivolous or unfounded.” UJI 13-1702 NMRA; see Am.
Nat’l Prop. & Cas. Co. v. Cleveland, 2013-NMCA-013, ¶ 11, 293 P.3d 954. An insurer
“does not act in bad faith by denying a claim for reasons which are reasonable under the
terms of the policy.” UJI 13-1702; see also Cleveland, 2013-NMCA-013, ¶ 13 ( “[A]n
insurer has a right to refuse a claim without exposure to a bad faith claim if it has reasonable
grounds to deny coverage.”). “Where payment of policy proceeds depends on an issue of law
or fact that is ‘fairly debatable[,]’ the insurer is entitled to debate that issue.” UJI 13-1702
comm. cmt. (citing United Nuclear Corp. v. Allendale Mut. Ins. Co., 1985-NMSC-090, ¶
54, 103 N.M. 480, 709 P.2d 649 (Bivins, J., specially concurring)).

{15} We conclude that, in this case, exclusion of the evidence of the previous judge’s
ruling that there was no coverage was an abuse of discretion, see Kilgore, 2009-NMCA-078,
¶ 39, because that evidence was relevant to the factual issue of whether it was reasonable for
Progressive to question the Vigils’ insurance coverage. We reach this conclusion for five
reasons.

{16} First, whether Progressive acted reasonably in disputing the issue of coverage is a
“fact . . . of consequence in determining the action” of bad faith. Rule 11-401(B); UJI 13-
1702.

{17} Second, the fact that the previous judge, as a matter of law, concluded that there was
no coverage, albeit mistakenly, “tend[s] to make [the] fact [that Progressive acted
reasonably] more . . . probable than it would be without the evidence[.]” See Rule 11-
401(A). It makes this fact more probable because it supports the notion that the issue of
coverage was “fairly debatable.” See UJI 13-1702 comm. cmt. If the fact of coverage is fairly
debatable, then there can be no bad faith because insurers are “entitled to debate” such facts.
Id.

{18} Third, cases from other jurisdictions demonstrate that a district court’s previous
rulings on coverage, even where they were later reversed, are not only relevant to the issue
of whether an insurer acted reasonably in disputing coverage, but in some cases are
dispositive of that issue. See, e.g., Lennar Corp. v. Transamerica Ins. Co., 256 P.3d 635, 641
(Ariz. Ct. App. 2011) (concluding that a trial court “may decide to admit relevant extrinsic
evidence such as [separate] judicial decisions interpreting the policy language” and
recognizing that such evidence “may bear on whether these insurers acted reasonably in
disputing coverage[]”); see also Karen Kane Inc. v. Reliance Ins. Co., 202 F.3d 1180, 1190
(9th Cir. 2000) (recognizing that the insurer’s interpretation of coverage was “a reasonable
one [for good faith and fair dealing purposes], noting that the district court [had previously]
found in [the insurer’s] favor” despite partially reversing the summary judgment
interpretation of the policy on appeal and remanding back to the district court for further
proceedings); Morris v. Paul Revere Life Ins. Co., 135 Cal.Rptr.2d 718, 726 (Cal. Ct. App.

                                               5
2003) (rejecting the insured’s argument that “any court opinion issued after the insurance
company made its initial decision to deny coverage could not be considered in determining
whether the decision was reasonable” because “the fact that a [different] court had
interpreted the law in the same manner as did the insurer, whether before or after, is
certainly probative of the reasonableness, if not necessarily the ultimate correctness, of its
position” (emphasis added)); but see EOTT Energy Operating Ltd. P’Ship v. Certain
Underwriters at Lloyd’s of London, 59 F. Supp. 2d 1072, 1078-80 (D. Mont. 1999) (granting
the plaintiff’s motion in limine to preclude the insurer from presenting the court’s previous
decision on coverage, which was later reversed, as evidence of the insurer’s reasonableness
because “it is clear that, in Montana, the issue whether an insurer had a reasonable basis for
denying a claim may not be decided as a matter of law, no matter that the trial court found
there was no coverage[,]” and because the language of Montana’s unfair trade practices
statute required a showing that the insurer had a reasonable basis to deny the claim at the
time it denied the claim — not after).1

{19} Fourth, exclusion of this evidence prejudiced Progressive because it concealed an
important part of the picture from the jury’s view—that Progressive’s decision to persist
with its coverage position may have been reasonably influenced by the fact that a neutral
decision maker had validated this position. See 14 Lee R. Russ & Thomas F. Segalla, Couch
on Insurance, § 204:124 (3d ed. 2005) (“The reasonable person test requires a consideration
of all the circumstances of the case which have any significance or probative value in
determining whether the insurer has acted properly or not. All of the circumstances of the
case when considered in aggregate [can] make it clear that the insurer has not been guilty of
any vexatious refusal to pay.” (footnotes omitted)).

{20} Fifth, the Vigils do not argue on appeal that any exceptions to the general
rule—relevant evidence is admissible—should apply in this case. See Rule 11-402
(providing that relevant evidence is admissible unless “the United States or New Mexico
constitution, a statute, these rules, or other rules prescribed by the Court” provide otherwise).
Because the district court’s ruling is relevant to the Vigils’ bad faith claim against
Progressive, we do not address any exceptions to the admissibility of the relevant coverage
evidence. See State v. Bent, 2013-NMCA-108, ¶ 27, 328 P.3d 677 (noting that the appellate
courts generally do not address issues that have not been raised on appeal), cert. denied,
2013-NMCERT-012, 321 P.3d 126.


        1
         We conclude that the reasoning used in EOTT Energy Operating Ltd. P’Ship should
not be controlling in this case for two reasons. First, the issue of whether an insurer acted
reasonably in denying coverage may not be decided as a matter of law in Montana. Second,
the Vigils have not pointed to any language in New Mexico statutes or case law that requires
the factfinder to exclusively consider the reasonableness of the insurer’s behavior at the time
it first decided to file suit challenging coverage and to ignore all of the subsequent
circumstances that may have influenced its decision to continue pursuing any challenge to
coverage.

                                               6
{21} By concluding that evidence of the previous ruling was relevant and admissible to
support Progressive’s position that it did not act in bad faith, we are not further concluding
that the previous ruling in Progressive’s favor means Progressive’s conduct was reasonable
as a matter of law. As with all other evidence admitted at trial, it is within the jury’s purview
to determine how much weight to assign that fact. See State v. Hudson, 1967-NMSC-164,
¶ 7, 78 N.M. 228, 430 P.2d 386 (“[T]he jury [members] are the judges of the weight and
credibility of evidence.”). The Vigils are free to argue that the ruling was reversed and is not
dispositive of the question. See Martinez v. N.M. Dep’t of Transp., 2011-NMCA-082, ¶ 29,
150 N.M. 204, 258 P.3d 483 (noting that parties are “free to argue the weight of the
evidence”), rev’d on other grounds, 2013-NMSC-005, 296 P.3d 468. We emphasize that our
decision regarding the admissibility of the previous ruling is only relevant to the issue of
Progressive’s reasonableness under the bad faith claim and has no application to the jury’s
prior determination of coverage.

B.      Evidence That Progressive Paid Third-Party Claims

{22} Progressive argues that the district court erred when it concluded on summary
judgment that Progressive was not entitled to be reimbursed for payments it made to the
injured third parties in the event the jury found that there was no coverage. They raise this
error because they argue that it led the district court to erroneously prohibit Progressive from
introducing evidence or otherwise telling the jury that Progressive made two $100,000
payments on behalf of the Vigils to the injured passenger and the deceased passenger’s
family under a reservation of rights.

{23} Before we address the evidentiary issue, we conclude that it is unnecessary to decide
the issue of whether Progressive was entitled to reimbursement in the event there was no
insurance coverage. The jury found that there was coverage and Progressive does not
challenge this jury verdict regarding insurance coverage. Therefore, we affirm the verdict
on the issue of insurance coverage. As a result, the issue of whether Progressive would be
entitled to reimbursement under any reservation of rights is also moot. Progressive does not
argue that any exceptions should be applied regarding our inability to address issues that are
moot. See Bernalillo Cnty. Health Care Corp. v. N.M. Pub. Regulation Comm’n, 2014-
NMSC-008, ¶ 13, 319 P.3d 1284 (noting that an appellate court “does not address moot
issues that will have no practical impact on the parties before [it unless the] issues [are] of
substantial public interest or . . . are capable of repetition, yet evading review”).

{24} The evidentiary relevancy of Progressive’s $200,000 in settlement payments to cover
third-party claims against the Vigils is a different matter. We agree with Progressive’s
argument that the district court abused its discretion when it excluded evidence that
Progressive had settled these claims brought against the Vigils. We conclude that such
evidence was relevant to the Vigils’ bad faith claim.

{25} The fact that Progressive paid a total of $200,000 to the injured passenger and the
deceased passenger’s family under a reservation of rights is relevant because it tends to make

                                               7
it less probable that Progressive acted in bad faith over the course of the coverage dispute.
See Rule 11-401(A). In making these payments, Progressive both compensated the third-
party claimants and prevented the Vigils from having to defend themselves against personal
injury and wrongful death claims at the same time that they were litigating the coverage
issue with Progressive. The exclusion of this evidence deprived the jury of the whole picture
in determining whether Progressive acted in bad faith. See Russ & Segalla, Couch on
Insurance, supra, § 204:124. Progressive also apprised the district court of the material
nature of this defense evidence and the potential abuse that the Vigils would make of its
absence. This warning came to fruition when the Vigils took advantage of this exclusionary
ruling during closing arguments and gave the jury the false impression that Progressive had
failed to pay anyone during the long nine-year time period that it had taken to litigate the
insurance coverage issue. We conclude that it was unfair and an abuse of discretion to
exclude evidence that was relevant to rebut the Vigils’ claim that Progressive acted
unreasonably over the long course of the coverage dispute, especially where this exclusion
presented the jury with an incomplete and one-sided picture of Progressive’s actions. Cf.
State v. Alberico, 1993-NMSC-047, ¶ 37, 116 N.M. 156, 861 P.2d 192 (recognizing that it
is error to exclude expert testimony where “excluding that evidence vitiates the most basic
function of a jury to arbitrate the weight and credibility of evidence”); see generally United
States v. Orr, No. 92-50235, slip. op. at 2 (9th Cir. 1992) (non-precedential) (holding that
the district court erred when it excluded evidence that was “highly relevant” to material
issues in the case). On the basis of these erroneous evidentiary rulings, we reverse and
remand to the district court for a new trial on the Vigils’ bad faith claim.

{26} We also vacate the award of attorney fees and costs because that statute awards
reasonable attorney fees only upon a finding that the insurer acted “unreasonably” in failing
to pay the claim. § 39-2-1 (“In any action where an insured prevails against an insurer who
has not paid a claim on any type of first-party coverage, the insured person may be awarded
reasonable attorney’s fees and costs of the action upon a finding by the court that the insurer
acted unreasonably in failing to pay the claim.”). Because the reasonableness of
Progressive’s actions in addressing the insurance coverage issue and pursuing a declaratory
judgment decision remains to be resolved under the bad faith claim that is now remanded for
a new trial, the award of attorney fees and cost under Section 39-2-1 must also be
redetermined after the bad faith proceedings are resolved.

C.     Other Issues

{27} Because we reverse the judgment and awards concerning the bad faith claim and
remand for another trial on that claim, we need not address the other issues that Progressive
argues should result in reversal. See Yeager v. St. Vincent Hosp., 1999-NMCA-020, ¶ 6, 126
N.M. 598, 973 P.2d 850.

CONCLUSION

{28}   We affirm the judgment in favor of the Vigils as to the issue of insurance coverage

                                              8
and the award of compensatory damages on that issue. We reverse the judgment on the bad
faith claim and the compensatory and punitive damages awarded on that claim. We also
vacate the award of attorney fees and costs under Section 39-2-1. We remand this case to the
district court for a new trial on the bad faith claim and any award of attorney fees and costs
under Section 39-2-1.

{29}   IT IS SO ORDERED.

                                              ____________________________________
                                              TIMOTHY L. GARCIA, Judge

WE CONCUR:

____________________________________
RODERICK T. KENNEDY, Chief Judge

____________________________________
J. MILES HANISEE, Judge




                                              9
