Opinion ID: 1131746
Heading Depth: 1
Heading Rank: 1

Heading: the exclusion for punitive damages

Text: [P]ublic policy encourages freedom between competent parties of the right to contract, and requires the enforcement of contracts, unless they clearly contravene some positive law or rule of public morals. General Elec. Credit Corp. v. Tidenberg, 78 N.M. 59, 62, 428 P.2d 33, 36 (1967). The contract for insurance between Mr. Stinbrink and Farmers excluded coverage for punitive damages against uninsured motorists. Mr. Stinbrink argues that this clause contravenes statutory law and is therefore void. NMSA 1978, Section 66-5-301(A) (Repl. Pamp. 1989) requires that an insurance policy contain uninsured motorist coverage for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury    death    or destruction of property. (Emphasis added.) Those damages that a victim of an uninsured tort-feasor might be legally entitled to recover undoubtedly include punitives; but are they contemplated by this statute? Punitive damages are not specified in the statute. Did the legislature intend that punitive damages be included in the term legally entitled to recover found in the mandated coverage of this section? If punitive damages are covered by the statute then their exclusion in an insurance contract would conflict with statutory law. In Stewart v. State Farm Mutual Automobile Insurance Co., 104 N.M. 744, 746, 726 P.2d 1374, 1376 (1986), we determined that the legislative purpose behind enacting compulsory uninsured motorist coverage is `to protect the insured against the financially unresponsible motorist, not to protect the insurance company.'    [T]he only condition to protection under the provision is that `the injured person must be legally entitled to recover damages from the uninsured motorist.' Id. at 746, 726 P.2d at 1376 (quoting Gantt v. L & G Air Conditioning, 101 N.M. 208, 213, 680 P.2d 348, 353 (Ct.App. 1983)). The court in Stewart accordingly concluded that under the New Mexico statute, uninsured motorist coverage includes coverage for punitive damages. Stewart, 104 N.M. at 746, 726 P.2d at 1376 (emphasis added). We have thus determined that punitive damages are as much a part of the potential award under the uninsured motorist statute as damages for bodily injury, and therefore they cannot be contracted away. Stewart contains dicta that appear contradictory. The court in Stewart determined that the statute includes coverage for punitives but then awarded punitives based on the language within the policy that exactly mirrored the statutory language. It continued that absent an express exclusion in the policy it would impose liability for punitives on the insurer. This contradiction must be clarified. If the statute is interpreted to include punitive damages within the context of uninsured motorist coverage, an express exclusion in the insurance policy is necessarily void. The dicta in Stewart conflict with the law as articulated in that case and is specifically disavowed. Stewart states: State Farm    was on notice that such an exclusionary clause might be a determining factor of coverage. State Farm might have attempted to limit its liability for punitive damages in its policy language; it did not make that effort. Id. at 747, 726 P.2d at 1377. Any effort to exclude coverage required by statute by contracting it away is void. `[E]xclusionary [provisions] in insurance contracts shall be enforced so long as their meaning is clear and they do not conflict with statutory law. ' Chavez v. State Farm Mut. Auto. Ins. Co., 87 N.M. 327, 329, 533 P.2d 100, 102 (1975) (quoting Willey v. Farmers Ins. Group, 86 N.M. 325, 326, 523 P.2d 1351, 1352 (1974)); see also Jimenez v. Foundation Reserve Ins. Co., 107 N.M. 322, 757 P.2d 792 (1988).