The Santa Fe Intersection and Competing Policy-Limits Demands
On June 12, a two-vehicle crash at an intersection in Santa Fe injured two people in the other car. Your insured, driving a delivery van, ran a red light. The other driver, Ms. Lane, was traveling 18 mph over the posted limit and had been texting. Her passenger, Mr. Cho, was not wearing a seat belt. The insured's auto policy has bodily injury limits of $25,000 per person and $50,000 per accident. Ms. Lane's medical bills are $80,000 and lost wages $15,000. Mr. Cho's bills are $20,000 and lost wages $5,000. Both claimants demand policy limits immediately. Liability investigation is incomplete; the police report supports the red-light violation but also notes Lane's speed and phone use. New Mexico follows pure comparative fault. Defense counsel advises that a jury could assign Lane 30% fault.
1. Evaluate the insured's exposure given the per-person and per-accident limits and comparative fault.
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Lane's damages are $80,000 + $15,000 = $95,000. If a jury assigns her 30% fault, her recoverable damages are $95,000 × 70% = $66,500. That still exceeds the $25,000 per-person limit. Cho's damages are $20,000 + $5,000 = $25,000, which equals the per-person limit. The per-accident limit is $50,000. If the insurer paid $25,000 to Lane and $25,000 to Cho, the per-accident limit would be exhausted. But Lane's comparative fault does not reduce the policy limit; it reduces her tort recovery, and her claim still exceeds $25,000. The adjuster should not simply pay Lane $25,000 and ignore Cho, because that creates a bad-faith and multiple-claimant problem. The insurer should evaluate liability, complete the damages investigation, and consider a global settlement or interpleader if the claimants cannot agree. The insured also needs written notice that the demand may exceed limits.
2. What claim-handling steps should the adjuster take before responding to the policy-limits demands?
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Before responding, the adjuster should complete the liability investigation: police report, witness statements, scene data, phone records, and the insured's statement. Then verify both claimants' medical bills, wage loss, and future treatment with records and employer verification. The comparative-fault analysis should be documented claim by claim; Lane's speed and texting support a fault allocation, but the adjuster should not assume a specific percentage without counsel's input. The adjuster should notify the insured of the policy-limits demand and the potential excess exposure, assign defense counsel, and set reserves. Any settlement should obtain a release from both claimants and address the per-person and per-accident limits. A policy-limits demand with a short deadline does not require an immediate payment, but it does require a prompt, documented evaluation. The file should show that the insurer considered all claimants and did not prefer one arbitrarily.