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May 17, 2010 – Volume 49, No. 20
From the New Mexico Court of Appeals (Cert. Granted) 2010-NMCA-031, No. 32,243: Farmers Ins. Co. of Arizona v. Chen
This is another UM/UIM “equalization” case where the District Court granted summary judgment that Mr. Chen’s UM/UIM would be increased to equal his BI limits. Mr. Chen’s wife had signed “election agreements” selecting UM/UIM coverage of 30/60, but these agreements were not attached to the policies Farmers issued to the Chens. Citing the recent Supreme Court decision in Marckstadt, the Court analyzed election of UM/UIM limits less than BI limits as a form of rejection of UM/UIM coverage, and stated that to be valid, an insurer must obtain an written rejection, and must also notify the insured of the rejection in some manner by attachment of notice of rejection to the policy - which the Court called the “attached notification” requirement. The Court said the “written rejection” requirement is subject to the further requirement that it must constitute a knowing and intelligent rejection of coverage, which must at a minimum inform the insured of: 1) the amount of coverage they were entitled to purchase; 2) the amount they have in fact purchased; and 3) the fact that they have rejected some amount of coverage. Noting that none of the three documents used by Farmers alone met the requirements of a knowing and intelligent rejection, and that none stated the Chens had rejected some amount of UM/UIM coverage, the Court held that Farmers did not meet the knowing and intelligent requirement. The Court next said that to meet the “attached notification” requirement, that whatever is attached to the policy must clearly and unambiguously call to the attention of the insured the fact that some amount of UM/UIM coverage has been rejected, provide evidence of the amount rejected sufficient to permit the insured to reconsider the decision at a later date. The Court then held that the Declarations Page an Endorsement that was attached to the policy did not meet these requirements.
*NOTE: The Supreme Court has granted review of this case, so the Court of Appeals opinion is not necessarily the final word.