Salas v. Mountain States Mutual Casualty Co.

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Opinion Number: 2009-NMSC-005

Filing Date: February 4, 2009

Docket No. 30,735

MARY SALAS,

Plaintiff-Respondent,

v.

MOUNTAIN STATES MUTUAL
CASUALTY COMPANY,

Defendant-Petitioner.

ORIGINAL PROCEEDINGS ON CERTIORARI
Karen L. Parsons, District Judge

Atwood, Malone, Turner & Sabin, P.A.
Cord D. Borner
Robert E. Sabin
Roswell, NM

for Petitioner

Bryant, Schneider-Cook Law Firm, P.A.
Angie Schneider-Cook
Daniel A. Bryant
Ruidoso, NM

for Respondent
OPINION

MAES, Justice.

{1} The dispositive issue in this appeal is whether an insurer may deny or limit insurance
coverage to a known class-two insured in reliance on an undisclosed consent-to-settle
exclusionary provision. We conclude that Mountain States Mutual Casualty Company
(Defendant) had actual knowledge that Mary Salas (Plaintiff) was a class-two insured who
had suffered a compensable injury in an insured motor vehicle and, therefore, had an
affirmative duty to disclose to Plaintiff the insurance coverage available to her and its terms

1
and conditions. Because Defendant failed to inform Plaintiff of her rights and
responsibilities under the insurance policy, we conclude that Defendant breached its duty of
disclosure. Accordingly, Defendant is equitably estopped from enforcing the consent-to-
settle exclusionary provision to deny or limit Plaintiff’s entitlement to underinsured motorist
(UIM) benefits.

I. FACTS AND PROCEDURAL HISTORY

{2} The record reflects the following undisputed facts. On March 2, 2000, Plaintiff was
a passenger in a vehicle driven by her daughter-in-law, Teresa Salas, when that vehicle was
rear-ended by Nancy Virden. Salas’ vehicle was insured by Defendant, while Virden’s
vehicle was insured by Farmers Insurance Company of Arizona (Farmers). Under Salas’
insurance policy (the Mountain States policy), Plaintiff was a class-two insured entitled to
medical payments and UIM coverage because she was a passenger in the insured motor
vehicle at the time of the collision. In early June 2000, Plaintiff, who had sustained physical
injuries in the collision, submitted to Defendant a claim for medical payments in the
approximate amount of $7,000. On June 29, 2000, Defendant issued Plaintiff a check in the
amount of $5,000, the limit for medical payments available to Plaintiff under the Mountain
States policy.

{3} At some point in June 2000, Plaintiff hired an attorney and, in August 2002, she filed
a personal injury action against Virden and Farmers, seeking compensatory damages for her
physical injuries. Neither Plaintiff nor her attorney either requested or received a copy of
the Mountain States policy from Defendant and, therefore, they were unaware of the
availability of UIM coverage and the consent-to-settle exclusionary provision. Indeed,
Plaintiff’s attorney believed Salas’ vehicle to be uninsured because a police report
erroneously indicated that Salas had no insurance at the time of the collision

{4} In the meantime, Defendant submitted a subrogation demand to Farmers, seeking
reimbursement of the $5,000 that it had paid Plaintiff for medical payments under the
Mountain States policy. Between June 2000 and March 2003, Defendant contacted Farmers
periodically to inquire about the status of its subrogation claim. At some point in the course
of these communications, Defendant apparently learned that Plaintiff had filed an action
against Farmers, but that Farmers had “not yet settled [the] case with [its] insured.”

{5} On March 4, 2003, Plaintiff, Farmers, and Virden entered into a settlement
agreement, whereby Plaintiff executed a release of liability in favor of Farmers and Virden
in exchange for the limit of Virden’s liability insurance policy, $30,000. When Plaintiff’s
attorney received the settlement check, he “was surprised to see that [Defendant] was listed
as a payee.” Upon further inquiry, Plaintiff’s attorney discovered that Plaintiff was a class-
two insured under the Mountain States policy, that Plaintiff previously had received $5,000
in medical payments from Defendant, and that Defendant had filed a subrogation claim
against Farmers. On April 22, 2003, Plaintiff’s attorney forwarded the settlement check to

2
 Defendant, which endorsed the check and received $3,250 in full satisfaction of its
subrogation claim ($5,000 minus 35% in attorney’s fees).

{6} On July 10, 2003, Plaintiff submitted to Defendant a claim for UIM benefits under
the Mountain States policy. In support of her claim, Plaintiff provided Defendant with
medical bills totaling slightly less than $27,000 and medical reports indicating that she has
a “lifelong condition.” Defendant denied Plaintiff’s claim, alleging that she was not entitled
to UIM benefits because she had breached the consent-to-settle exclusionary provision of
the Mountain States policy by settling her personal injury action against Farmers and Virden
without Defendant’s consent.1

{7} On August 13, 2003, Plaintiff filed a complaint against Defendant in district court
alleging (1) breach of insurance contract, and (2) unfair claims practices, contrary to NMSA
1978, Section 59A-16-20 (1984, as amended through 1997). Following discovery, Defendant
moved and Plaintiff cross-moved for summary judgment as a matter of law. After extensive
briefing and oral argument, the district court rendered summary judgment in favor of
Defendant. The district court reasoned that “Defendant has shown that the tortfeasor was
unlikely to be judgment proof; and therefore, that it has been substantially prejudiced by the
fact that . . . Plaintiff settled with the tortfeasor.” The district court further reasoned that

there is no duty on the part of an insurer under the facts of this case to
provide the additional insured with information prior to any request . . . to do
so. In this case, the burden should be on the additional insured to investigate
whether a known policy includes coverage for whatever purpose.

{8} The Court of Appeals reversed the judgment of the district court. Salas v. Mountain
States Mut. Cas. Co., 2007-NMCA-161, ¶ 48, 143 N.M. 113, 173 P.3d 35. The Court
concluded that, although Plaintiff had breached the consent-to-settle exclusionary provision,
which resulted in presumed prejudice to Defendant, Defendant nonetheless had “failed to
put Plaintiff on notice of the provisions of the policy and should be estopped from enforcing
its exclusionary provisions.” Id. ¶ 7. The Court did not address Plaintiff’s claim regarding
Defendant’s alleged bad-faith and unfair claims practices, even though that claim properly
had been raised, briefed, and argued on appeal.

{9} In reversing the judgment of the district court, the Court of Appeals recognized that
a tension exists between the insurer’s duty “to put its insureds on notice as to the provisions
of its policy[,]” id. ¶¶ 34, 38, and the insured’s responsibility to investigate the scope of
available insurance coverage. Id. ¶ 35. The Court resolved this tension in favor of Plaintiff,
holding that “insurers such as [Defendant] have a primary responsibility to provide their
insureds reasonable notice of the contents of their policy by providing a copy of the policy

1
The consent-to-settle exclusionary provision provides in relevant part: “We do not provide
Uninsured Motorist Coverage sustained by any person . . . [i]f that person or the legal representative
settles the bodily injury claim without our consent.”

3
or some other documentation of its terms.” Id. ¶ 38 (internal quotation marks and citation
omitted). The Court reasoned that the Plaintiff’s status as a class-two insured, rather than
a class-one insured

does not change the principle that the insured must be put on notice of
provisions in the policy that the insurer wants to enforce against him or her.
The simplest way to provide notice is by giving the [c]lass[-two] insured a
copy of the policy–or its UIM provisions at the least. This is not an onerous
responsibility in that it would only apply to [c]lass[-two] insureds of whom
the insurance company is aware. Surely, it is routine practice for insurers to
identify all occupants in covered vehicles involved in collisions reported to
them. Failure to do so should prevent the insurer’s reliance on exclusionary
provisions such as those we consider here.

Id. ¶ 46. “Given that there is no question on this record that Plaintiff was not aware of the
consent-to-settle provision,” the Court concluded that Defendant “may not use it to deny
coverage.” Id. ¶ 47.

{10} The dissenting opinion disagreed that Defendant had “an affirmative obligation . .
. to provide [Plaintiff] with notice of the terms of the underinsurance policy[,]” noting that
“[t]his asserted duty has no basis in tort, contract, or public policy.” Id. ¶ 50 (Vigil, J.,
dissenting). Instead, the dissenting opinion concluded that “[t]he real question presented by
this case is whether Plaintiff’s failure to comply with the [consent-to-settle] provision of the
underinsurance policy is excused.” Id. ¶ 54. It determined that “Plaintiff’s failure to learn
of the existence of the terms of the underinsurance coverage that was available to her was
unreasonable and unjustified in light of the undisputed material facts.” Id. ¶ 55.

{11} We granted Defendant’s petition for writ of certiorari to resolve whether (1)
Defendant is estopped from enforcing the consent-to-settle exclusionary provision because
it breached its duty to disclose to Plaintiff, a known class-two insured, the terms and
conditions governing coverage under the Mountain States policy; and (2) the Court of
Appeals should have addressed Plaintiff’s claim for bad-faith and unfair claims practices.
Salas v. Mountain States Mut. Cas. Co., 2007-NMCERT-012, 143 N.M. 213, 175 P. 3d 307.

II. STANDARD OF REVIEW

{12} “Our review on a grant of summary judgment is de novo.” Garcia v. Underwriters
at Lloyd’s, London, 2008-NMSC-018, ¶ 12, 143 N.M. 732, 182 P.3d 113. “Summary
judgment is only appropriate where there are no genuine issues of material fact and the
movant is entitled to judgment as a matter of law. All reasonable inferences from the record
are construed in favor of the non-moving party.” Id. (internal quotation marks and citation
omitted). Moreover, the existence of a duty is a question of law, which we review de novo.
See, e.g., Azar v. Prudential Ins. Co. of Am., 2003-NMCA-062, ¶ 43, 133 N.M. 669, 68 P.3d
909 (“The existence of a duty . . . remains a question of law for the trial court to determine

4
and is answered by reference to legal precedent, statutes, and other principles comprising the
law.”).

III. DISCUSSION

A. Whether Defendant had a duty to disclose to Plaintiff the terms and conditions
governing coverage under the Mountain States policy

{13} “Whether express or not, every contract imposes upon the parties a duty of good faith
and fair dealing in its performance and enforcement. Broadly stated, the covenant requires
that neither party do anything which will deprive the other of the benefits of the agreement.”
Watson Truck & Supply Co. v. Males, 111 N.M. 57, 60, 801 P.2d 639, 642 (1990) (internal
quotation marks and citations omitted).

Thus, with insurance contracts, as with every contract, there is an implied
covenant of good faith and fair dealing that the insurer will not injure its
policyholder's right to receive the full benefits of the contract. More
specifically, this means that an insurer cannot be partial to its own interests,
but must give its interests and the interests of its insured equal consideration.

Dairyland Ins. Co. v. Herman, 1998-NMSC-005, ¶ 12, 124 N.M. 624, 954 P.2d 56 (internal
quotation marks and citations omitted). Accordingly, if an insurer fails to disclose to its
insured the existence of an exclusionary provision contained in the insurance contract, then
the covenant of good faith and fair dealing precludes the insurer from relying on the
provision to limit or deny the insured’s right to coverage. See Homestead Invs., Inc. v.
Found. Reserve Ins. Co., 83 N.M. 242, 245, 490 P.2d 959, 962 (1971) (“[T]he insured should
be able to rely upon the provisions of his policy or memorandum of insurance to inform him
of all his rights and duties under his insurance contract.”); Willey v. United Mercantile Life
Ins. Co., 1999-NMCA-137, ¶¶ 1, 13-19, 128 N.M. 98, 990 P.2d 211 (holding that the insured
established a prima facie case of estoppel barring the insurer’s statute of limitations defense
because the insurer failed to “deliver the Policy to [the insured] before expiration of the
limitations period”); see also Young v. Seven Bar Flying Serv., Inc., 101 N.M. 545, 548, 685
P.2d 953, 956 (1984) (holding that an insurer’s failure to disclose exclusionary provisions
will preclude it from relying on those provisions to limit or deny insurance coverage only
when the “insurer gives the impression that all of the material provisions of an insurance
contract are contained in a document furnished to the insured by the insurer”); cf. Ramirez
v. USAA Cas. Ins. Co., 285 Cal. Rptr. 757, 761 (Ct. App. 1991) (“One important facet of the
[covenant of good faith and fair dealing] is the duty reasonably to inform an insured of the
insured’s rights and obligations under the insurance policy. In particular, in situations in
which an insured’s lack of knowledge may potentially result in a loss of benefits or a
forfeiture of rights, an insurer has been required to bring to the insured’s attention relevant
information so as to enable the insured to take action to secure rights afforded by the policy.”
(internal quotation marks and citation omitted)); Thomas M. Fleming, Annotation, Insurer’s
Duty, and Effect of its Failure, to Provide Insured or Payee With Copy of Policy or Other
Adequate Documentation of its Terms, 78 A.L.R. 4th 9, § 2(a) (1990) (“A number of courts
5
have recognized that insurers as a whole, or particular insurers, have a general duty to
provide the named insured, payee, or other protected party with a copy of the policy or other
adequate documentation of its terms.”).

{14} In the context of uninsured/underinsured motorist coverage, there are three distinct
classes of insureds: (1) the named insureds and members of a named insured’s household
[(class-one insureds)], (2) persons who are injured while occupying an insured vehicle
[(class-two insureds)], and (3) persons who sustain consequential damages as a result of
personal injuries sustained by persons who are [class-one] or [class-two] insureds. Robert
E. Keeton & Alan I. Widiss, Insurance Law § 4.9(e), at 400 (1988); see also Konnick v.
Farmers Ins. Co., 103 N.M. 112, 115, 703 P.2d 889, 892 (1985) (defining class-one insured
as the named insured as stated in the policy, the spouse, and relatives residing in the
household and class-two insured as any person while occupying an insured motor vehicle).

Phoenix Indem. Ins. Co. v. Pulis, 2000-NMSC-023, ¶ 7, 129 N.M. 395, 9 P.3d 639 (internal
quotation marks omitted). In the present case, Plaintiff was a class-two insured under the
Mountain States policy because she was a passenger in the insured motor vehicle at the time
of the collision.

{15} Defendant does not dispute that it had a duty to disclose the terms and conditions
governing coverage under the Mountain States policy to its class-one insureds (i.e., the
named insured and family members who reside in the named insured’s household).
Defendant argues, however, that this duty did not extend to Plaintiff, a class-two insured,
because Plaintiff was a third-party beneficiary to the insurance contract, and “[t]here is no
requirement that a third-party beneficiary assent to the terms of the contract” before those
terms may be enforced.

{16} The duty of disclosure is premised on the principle of fundamental fairness, which
dictates that an insurer must notify a known insured of the scope of available insurance
coverage and the terms and conditions governing that coverage regardless of whether the
insured is a party to the insurance contract or a third-party beneficiary thereof. See, e.g.,
Ramirez, 285 Cal. Rptr. at 762-63 (holding that the insured may amend its complaint to
allege that the insurer breached its duty of good faith and fair dealing because it allegedly
failed to disclose the existence of UIM coverage to a known class-two insured); Palombo
v. Broussard, 370 So. 2d 216, 220 (La. Ct. App. 1979) (holding that insurer breached its duty
of good faith and fair dealing because it “knew the extent of injuries suffered by the parties,
. . . had a good estimate of the amount of compensation required[,] . . . knew the amount of
coverage it had available to each individual, [and] yet it did not convey to its [class-two]
insured this information”). As the Court of Appeals of Michigan observed in Gardner v.
League Life Insurance Company, 210 N.W.2d 897 (Mich. Ct. App. 1973), a case wherein
the insurer failed to inform a known third-party insured of the terms and conditions
governing death and disability coverage:

The equity conscience of this Court, having been aroused, finds that
it is beyond question that the borrower subjected to eligibility requirements
6
 be given notice thereof. The fact that the present insurance scheme, with
premiums being paid by the credit union, places each member borrower in
the status of a third-party beneficiary and that each borrower under the group
policy has no individual identity cannot change this basic tenet of fairness.
. . . The injustice of informing a disabled borrower at the time the claim is
filed that he has no insurance protection is obvious and the need for notice
is beyond peradventure.

Id. at 898.

{17} Consistent with the principle of fundamental fairness, we conclude that the duty of
disclosure is not limited to class-one insureds, but rather extends to all insureds who have
sustained compensable injuries under the terms and conditions of the insurance policy and
of whom the insurer has actual knowledge. Because the duty of disclosure owed to class-
two insureds is triggered only when the insurer receives actual knowledge of the identity of
a class-two insured with an allegedly compensable claim, this duty does not require the
insurer to seek out the identity of class-two insureds. To the extent that the Court of
Appeals’ opinion may be construed to impose on insurers an affirmative duty to investigate
the identity of all passengers in covered vehicles involved in collisions reported to them, we
disagree. See Salas, 2007-NMCA-161, ¶ 46. We do agree with the Court of Appeals,
however, that the duty of disclosure is not an “onerous responsibility” because it extends
only to those class-two insureds of whom the insurance company has actual knowledge and
it may be fulfilled simply by providing the known class-two insured with a “copy of the
policy or some other documentation of its terms.” Id. ¶¶ 38, 46 (internal quotation marks and
citation omitted).

{18} In the present case, Plaintiff was a class-two insured who had sustained a
compensable injury while a passenger in the insured motor vehicle. After the collision,
Plaintiff promptly filed a claim with Defendant seeking medical payment benefits under the
Mountain States policy. At this point, Defendant had actual knowledge of Plaintiff’s status
as a class-two insured.2 This knowledge triggered Defendant’s duty to disclose to Plaintiff
the benefits to which she might be entitled under the Mountain States policy, and the actions
she must take, or not take, as the case may be, to secure her entitlement to these benefits.
To conclude otherwise would permit an insurer passively to rely on a known class-two
insured’s ignorance of her rights and responsibilities under the insurance policy as an excuse
to limit or deny coverage. Such a trap for the unwary insured violates the covenant of good
faith and fair dealing. See Alan I. Widiss, Obligating Insurers to Inform Insureds About the
Existence of Rights and Duties Regarding Coverage for Losses, 1 Conn. Ins. L.J. 67, 70
(1995) (“Following notification of an occurrence, I believe an insurer is obligated to disclose
all applicable benefits, or to clearly inform insureds about the existence of rights and duties

2
For the purpose of this appeal, we need not define with particularity what constitutes actual
knowledge. It is apparent to us, however, that at the very least, an insurer has actual knowledge of
the identity of a class-two insured when that insured files a claim with the insurer seeking benefits
for an allegedly compensable injury.
7
 regarding all coverages, or to explain why the insurance benefits will not be paid in order
to (a) fulfill the insurer’s contractual commitment, (b) comply with the obligation—implied
as a matter of law in all contracts—to deal fairly and in good faith, (c) protect the insured’s
reasonable expectations, and (d) avoid omissions that could constitute fraudulent
misrepresentation.”). Because Defendant failed to inform Plaintiff of the availability of UIM
coverage, or of the existence of the consent-to-settle exclusionary provision, we conclude
that Defendant breached its duty of disclosure.3

{19} Furthermore, under the unique circumstances of the present case, not only did
Defendant have actual knowledge of Plaintiff’s status as a class-two insured with a
compensable claim, but Defendant also had actual knowledge of Plaintiff’s personal injury
action against Virden and Farmers, which Defendant knew was reasonably likely to end in
a settlement. Additionally, Defendant knew that Plaintiff was required to procure
Defendant’s consent prior to settlement to preserve her entitlement to UIM benefits, but that
Plaintiff likely was unaware of this requirement because she had neither requested nor
received a copy of the Mountain States policy from Defendant. These facts further buttress
and support our conclusion that Defendant’s silence in the face of Plaintiff’s apparent
ignorance was inequitable, unfair, and inconsistent with the covenant of good faith and fair
dealing.

{20} Our conclusion is supported by the public policy principles that animate the UIM
statute, NMSA 1978, Section 66-5-301 (1978, as amended through 1983). As we previously
have observed, “[t]he object of compulsory uninsured motorist insurance is . . . to protect
persons injured in automobile accidents from losses which, because of the tortfeasor’s lack
of liability coverage, would otherwise go uncompensated.” Chavez v. State Farm Mut. Auto.
Ins. Co., 87 N.M. 327, 329, 533 P.2d 100, 102 (1975) (internal quotation marks and citation
omitted). “The statute was intended to expand insurance coverage and to protect individual
members of the public against the hazard of culpable uninsured motorists.” Romero v.
Dairyland Ins. Co., 111 N.M. 154, 156, 803 P.2d 243, 245 (1990). These purposes would
be frustrated if insurers were permitted to rely on exclusionary provisions of which known
class-two insureds had no prior notice to limit or deny UIM coverage. See Widiss, supra,
at 86-87 (“When a coverage is provided as a result of a statutory mandate, if an insurer does
not inform an insured about benefits that are available following receipt of notification that
any injury has occurred, it frustrates the public policy manifested by the statutes mandating
coverage. Accordingly, the public’s interest in assuring indemnification for persons injured
in motor vehicle accidents provides substantial support for the proposition that the standard
of conduct for an insurer’s employees and agents is heightened when such statutory
mandates have been adopted for a particular type of insurance coverage.” (footnotes
omitted)).

3
We caution that nothing in this opinion should be construed to relieve the class-two insured
or the class-two insured’s attorney of the duty reasonably to investigate the availability and scope
of insurance coverage.
8
{21} We recognize that our “[UIM] statute was specifically designed to protect [class-one]
insureds,” not class-two insureds. Mountain States Mut. Cas. Co. v. Martinez, 115 N.M.
141, 143, 848 P.2d 527, 529 (1993). Nonetheless, under the circumstances of the present
case, Plaintiff was, by policy and regulatory definition, an “insured” for the purpose of UIM
coverage. See 13.12.3.14(A)(2) NMAC. As such, Defendant had a duty to treat Plaintiff
with the same fairness and in the same good faith as a class-one insured. For the reasons
previously explained, this duty included an affirmative obligation to inform Plaintiff of the
terms and conditions governing coverage under the Mountain States policy.

{22} Defendant claims that the duty of disclosure to known class-two insureds should be
limited to those situations in which (1) the insurer is aware of the class-two insured’s rights,
or unreasonably fails to recognize those rights; (2) the class-two insured has not retained a
professional advisor and, therefore, is reliant on the insurer to inform her of her rights; and
(3) the insurer is on notice that the class-two insured is ignorant of her rights. See William
T. Barker and Donna J. Vobornik, The Scope of the Emerging Duty of First-Party Insurers
to Inform Their Insureds of Rights Under the Policy, 25 Tort & Ins. L.J. 749, 758 (1990).
Under this standard, Defendant claims that it did not owe Plaintiff a duty of disclosure
because (1) it was not aware of Plaintiff’s UIM claim; (2) Plaintiff was not reliant on
Defendant to inform her of her rights because she had retained an attorney; and (3) it did not
know that Plaintiff was ignorant of her rights. We are not persuaded.

{23} First, we recognize that “[n]otice of one type of claim does not of itself give notice
of another type of claim[,]” Salas, 2007-NMCA-161, ¶ 18, and, therefore, notice of
Plaintiff’s medical payments claim did not give Defendant notice of Plaintiff’s UIM claim.
Id. ¶ 24. It did, however, provide Defendant with notice of Plaintiff’s status as a class-two
insured who had suffered an injury compensable under the Mountain States policy while a
passenger in the insured motor vehicle. Defendant, therefore, had actual knowledge of
Plaintiff’s identity and entitlement to benefits under the Mountain States policy, which, in
turn, triggered its duty of disclosure.

{24} Second, we conclude that Plaintiff’s retention of an attorney did not relieve
Defendant of its duty of disclosure. As a prominent scholarly commentator has observed,

[t]he proposition that an insurer is not obligated to provide
information about insurance benefits when an insured is represented by a
professional advisor, such as an attorney, is a limitation without a sound
foundation in regard to first-party insurance coverages (such as accident
insurance, disability insurance, life insurance, medical payments insurance,
and uninsured/underinsured motorist insurance). By making disclosures of
the possible existence of coverage, rights that are collateral to the coverage,
and conditions that must be complied with to preserve the right to
indemnification, insurance companies are doing no more than (1) fulfilling
the contractual obligations owed to insureds, (2) complying with the duty to
deal fairly and in good faith with the insureds, (3) protecting the reasonable
expectations of the insureds, and (4) avoiding the commission of a
9
 misrepresentation on the insureds. The involvement of an attorney on behalf
of an insured does not, and should not, affect those responsibilities of an
insurance company.

Widiss, supra, at 90 (footnote omitted); see also Ramirez, 285 Cal. Rptr. at 762 (rejecting
the insurer’s claim that the class-two insured’s retention of an attorney relieved the insurer
of its duty of disclosure).

{25} Third, we reject Defendant’s claim that an insurer’s actual knowledge of a known
class-two insured’s ignorance of her rights is a condition precedent to the imposition of a
duty of disclosure. “[T]he duty of good faith does not permit the insurer passively to assume
that its insured is aware of his rights under the policy. The insurer must instead take
affirmative steps to make sure that the insured is informed of his remedial rights.” Sarchett
v. Blue Shield of Cal., 233 Cal. Rptr. 76, 85 (1987) (footnote and citation omitted).

Once an insurer has received notice of an occurrence, there is no
reason to restrict the obligation to disclose relevant information about the
insured’s rights and duties. If the insurer’s employees or claims
representatives process the claim without additional input from the claimants,
full responsibility rests on those individuals. If additional actions by
claimants or beneficiaries are necessary, the insurer should be obligated to
provide complete information about the coverages that may provide benefits,
what has to be done to initiate a claim for the insurance benefit, the period
within which those actions must be done, and all ancillary rights. Anything
less falls short of the insurer’s contractual obligations.

Widiss, supra, at 89.
{26} Because Defendant breached its duty of disclosure, we conclude that Defendant is
equitably estopped from enforcing the consent-to-settle exclusionary provision to limit or
deny Plaintiff’s entitlement to UIM benefits under the Mountain States policy. See, e.g.,
Homestead Invs., Inc., 83 N.M. at 245 (holding that the insurer was equitably estopped from
enforcing an exclusionary provision to deny coverage because it failed to disclose the
provision to its insured). Therefore, the district court improperly rendered summary
judgment in favor of Defendant.

B. Whether the Court of Appeals improperly failed to address Plaintiff’s claim for
bad faith and unfair claims practices

{27} Defendant next claims that the Court of Appeals improperly failed to address the
propriety of the district court’s entry of summary judgment in favor of Defendant with
respect to Plaintiff’s claim for bad-faith and unfair claims practices. Our review of the Court
of Appeals’ opinion reveals that it contains no discussion of Plaintiff’s claim for bad faith
and unfair claims practice. See Salas, 2007-NMCA-161. Additionally, our review of the
record reveals that this claim was properly preserved in the trial court and properly presented
to the Court of Appeals on direct appeal. Accordingly, we conclude that the Court of
10
Appeals should have addressed the merits of this claim and, therefore, we remand the present
case to the Court of Appeals for resolution of this issue. See, e.g., McMinn v. MBF
Operating Acquisition Corp., 2007-NMSC-040, ¶ 54, 142 N.M. 160, 164 P.3d 41
(remanding case to the Court of Appeals with instruction to resolve the remaining issues).

IV. CONCLUSION

{28} Because Defendant had actual knowledge of Plaintiff’s status as a class-two insured
who had suffered an injury that is compensable under the Mountain States policy while a
passenger in the insured motor vehicle, we conclude that Defendant had an affirmative duty
to disclose to Plaintiff the availability of insurance coverage and the terms and conditions
governing that coverage. Defendant failed to disclose this information to Plaintiff and,
therefore, breached its duty of disclosure. Thus, Defendant is equitably estopped from
enforcing the consent-to-settle exclusionary provision to limit or deny Plaintiff’s entitlement
to UIM benefits. We remand the present case to the Court of Appeals for consideration of
Plaintiff’s claim for bad faith and unfair claims practices.

{29} IT IS SO ORDERED.

____________________________________
PETRA JIMENEZ MAES, Justice

WE CONCUR:

EDWARD L. CHÁVEZ, Chief Justice

PATRICIO M. SERNA, Justice

RICHARD C. BOSSON, Justice

CHARLES W. DANIELS, Justice

Topic Index for Salas v. Mountain States Mutual Casualty Co., No. 30, 735

CP CIVIL PROCEDURE
CP-SJ Summary Judgment

IN INSURANCE
IN-EC Exclusion Clause
11
IN-GF Good Faith
IN-UM Uninsured or Underinsured Motorist

12