There are many defenses an insurer can assert when faced with a bad faith lawsuit. In the case I write about today, an insurance company claimed it was immune from a bad faith lawsuit because the homeowner obtained her insurance coverage through a non-profit organization established to assist high-risk homeowners.
In Maes v. Audubon Indemnity Insurance Group, the insured filed a property damage claim with her homeowner’s insurance company, Audubon Indemnity Insurance Group (“Audubon”), after her home was destroyed in a fire. When Audubon denied her claim, the insured sued Audubon for bad faith. Audubon claimed that it was immune from the lawsuit because the insured obtained her policy with Audubon through the New Mexico Fair Access to Insurance Requirements Plan Act (the “Fair Plan Act”). The Fair Plan Act was implemented and is regulated by the New Mexico Property Insurance Program (“NMPIP”), a non-profit underwriting association. The Fair Plan Act:
…authorizes all insurers licensed to write essential property insurance in New Mexico to establish and maintain a FAIR plan to provide…essential property insurance to responsible and qualified applicants unable to obtain insurance on the open market…[the Act] plans are intended to create a means for high-risk property owners to obtain essential property insurance coverage, where they would not otherwise be able to do so on the normal insurance market because their risks would be unprofitable for insurance companies to assume on a voluntary basis.
Audubon argued that the Fair Act Plan includes an immunity provision that prohibited the insured from filing a bad faith lawsuit. The immunity provision in the Fair Plan Act provides:
There shall be no liability on the part of, and no cause of action of any nature shall arise against, any member insurer, the association or its agents or employees, the governing committee or the superintendent or his representative for any action taken by them in the performance of their powers and duties under the FAIR Plan Act.
Although insurance companies such as Audubon function as a “Servicing Insurer” when a homeowner obtains insurance coverage through the Fair Plan Act, the immunity for bad faith lawsuits did not extend to Audubon. In evaluating the Legislature’s intent with regard to whether Servicing Insurers like Audubon had immunity, the Supreme Court of New Mexico noted that Servicing Insurers are not named in the immunity provision. The Court also pointed out that even for those members of the NMPIP that can assert immunity, there are very strict restrictions as to who is immune and the circumstances in which immunity applies. As a result, the Court did not interpret the immunity provision to include Audubon as a Servicing Insurer that would be immune from a bad faith lawsuit.
The Court rejected the proposition that Audubon could be immune from the bad faith lawsuit if it served as an “agent” of the NMPIP:
Audubon misconstrues the NMPIP Bylaws in urging us to find the requisite control… The reasonable construction of these provisions, read in the context of the [NMPIP] Bylaws as a whole, is that the NMPIP has control over certain aspects of the FAIR Plan insurance policies, e.g., whether property is eligible for insurance…and whether to cancel a policy issued under the FAIR Plan…and that the NMPIP Governing Committee has authority over administration and budgeting of the FAIR Plan…However, the reasonable reading of these provisions, and the reading which we adopt, is that the requisite control does not exist nor does any textual basis from which we can imply a principal-agent relationship between the NMPIP and Audubon.
The Court acknowledged that the NMPIP regulates Servicing Insurers like Audubon, but found that the NMPIP does not have the type of control over Audubon that is needed to establish a principal-agent relationship, which could allow Audubon to assert immunity to the bad faith lawsuit.
Please keep in mind that this decision was based on a New Mexico statute and the specific facts before the Court.
