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Statute of Limitations on Underinsured Motorist Claims

The law on uninsured and underinsured motorist coverage seems to be constantly evolving in New Mexico.  A recent case from the New Mexico Supreme Court, Whelan v. State Farm, offers a good discussion of the evolution of the law in this area.

Most pertinent for this discussion, the case addresses the statute of limitations issues on these claims.

Public Policy Favors Underinsured Coverage 

There is a strong public policy in New Mexico to protect insured drivers against uninsured or underinsured motorist.  As such, any restrictions on underinsured motorist coverage have, over the years, been construed strictly against the insurance company.

The result has been that protections for insured drivers have been expanding with numerous New Mexico Court of Appeals and New Mexico Supreme Court decisions.

Statute of Limitations on Underinsured Claims 

The statute of limitations on these claims is important.  As with all other coverage issues, the insurance industry will and has tried to limit the statute of limitations.

In the Whelan v. State Farm case, the New Mexico Supreme Court was faced with an attempt by the insurance company to contractually limit the statute of limitations.  The insurance company in that case attempted to enforce a policy provision that would set the statute of limitations at 6 years from the date of the accident.

The New Mexico Supreme Court rejected such a limitation on the statute of limitations.

Discovery Rule and Statute of Limitations 

The discovery rule is generally followed in New Mexico on statute of limitations issues in the absence of express statutory authority to the contrary.  Use of the discovery rule means that the statute of limitations will not begin to run until the injured party knows or should know that a claim has arisen.

In the case of underinsured motorist coverage, the injured person cannot know of the accrual of an underinsured motorist claim until the driver has learned that the other driver is uninsured or underinsured.

This can take years because insurance companies very often will not disclose the limits on the at-fault driver’s policy to the injured person.  In fact, it is often necessary to file suit and obtain this information through discovery.

This means that the injured party does not know that an underinsured claim will be necessary for recovery for his or her injuries and other damages. Likewise, the injured party will likely not make a claim until such time.

Statute of Limitations Begins to Run on the Date of Denial of the Underinsured Claim 

To protect insured parties against what would otherwise be a very arbitrary and harmful limitation on suit, contrary to the public policy of protecting New Mexicans from uninsured and underinsured drivers, the New Mexico Supreme Court has stated that the statute of limitations will not begin to run until the insurance company has denied the underinsured claim.

The statute of limitations on written contracts is 6 years.  The statute of limitations on contracts does not begin to run until the breach of the contract.  In case of underinsured insurance policies, this breach would not occur until a claim is made by the insured and denied by the insurer.

In Conclusion: The Law on Underinsured Insurance Will Continue to Evolve 

Again, the public policy is to protect New Mexicans from uninsured and underinsured drivers.  A contractual provision that would have the statute of limitations begin to run before an insured party even knows of the need for such a claim is clearly contrary to this policy.

Therefore, any such contractual provision will be void.  The statute of limitations will begin to run at the time that the underinsured motorist claim is denied by the insurance company and not on the date of the accident.

Rest assured, insurance companies will try to evade this requirement as well and as mentioned in the opening, the New Mexico law on underinsured motorist coverage will continue to evolve as the courts are forced to address the attempts at evasion of financial responsibility by the insurance industry.