Sanchez v. Essentia Ins. Co. (New Mexico)

(May 2021) -  History: In order for a selection or rejection of UM/UIM coverage in New Mexico to be valid, the following requirements must be met:

1. the insurer must offer the insured UM/UIM coverage equal to his or her liability limits;
2. inform the insured about premium costs corresponding to the available levels of coverage;
3. obtain a written rejection of UM/UIM coverage equal to the liability limits; and
4. incorporate that rejection into the policy in a way that affords the insured a fair opportunity to reconsider the decision to reject.

Jordan v Allstate, 2010-NMSC-051 ¶¶ 22, 30. In Jordan, the New Mexico Supreme Court held that "by including premium prices for each available UM/UIM coverage level, insurance carriers meaningfully enable consumers to make a knowing and intelligent purchase or rejection of UM/UIM coverage." Id. ¶ 24.

In a recent opinion, Sanchez v. Essentia Ins. Co., 2020-NMCA-009, the New Mexico Court of Appeals considered circumstances in which an insurer failed to comply with the fourth requirement for a valid selection or rejection of UM/UIM coverage - whether the insured was given a fair opportunity to reconsider his decision to reject.

The Sanchez court noted that in Jordan, the New Mexico Supreme Court recognized that the UM/UIM statute and the Court's historical interpretation of the public policy behind the statute required an insurer to comply with four specific steps in order to obtain a valid selection or rejection of UM/UIM coverage. Noncompliance with any one of the requirements mandates reformation of the policy to provide UM/UIM limits equal to the limits of liability coverage and to include stacked coverage. Arias v. Phoenix Indem. Ins. Co., 2014-NMCA-027. 

In Sanchez, the insured signed a form in which he rejected UM/UIM coverage. The insurer did not mail a copy of the policy and the incorporated notice of rejection until seven months later. The court recognized the long history of decisions leading to the fourth requirement - the requirement to incorporate the rejection into the policy in a way that affords the insured a fair opportunity to reconsider the decision to reject - and concluded that a seven-month delay did not afford an insured a fair opportunity to reconsider the decision to reject UM/UIM coverage. Seven months was deemed to be too long a span of time to expect an insured to remember the initial reasons for rejecting coverage, the available UM/UIM coverage options, and the premium amount for each option.

The Sanchez opinion upheld the guiding principle of cases leading up to and including Jordan. The driving principal in these cases is that because there is a public policy to encourage insureds to purchase UM/UIM coverage, it is mandatory that the inured be given an opportunity to make a knowing and intelligent decision regarding this purchase, as well as an opportunity to reconsider the decision when the policy is delivered.

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