ALBUQUERQUE (LN) — U.S. District Judge Sarah M. Davenport on Wednesday denied in part and granted in part a motion to dismiss, ruling that New Mexico equitable subrogation law limits an insurer’s recovery to the amounts it actually paid, barring claims for punitive damages and treble statutory damages.
The dispute centers on a $31 million jury verdict in a personal injury suit brought by Megan Jade Gonzalez against Maria’s New Mexican Kitchen and Santa Fe Dining, Inc. According to the complaint, Gonzalez suffered serious injuries after tripping on a pothole in the restaurant’s parking lot and sought compensatory and punitive damages.
Navigators Insurance Company, a second-layer excess insurer, settled the case after Hanover Insurance Company, the first-layer excess insurer, refused to pay beyond its $5 million policy limit. Hanover’s parent company, Massachusetts Bay Insurance Company, had provided $1 million in primary coverage. Navigators now seeks to recoup the settlement payout, plus interest, attorney’s fees, punitive damages, and treble damages under the Unfair Practices Act.
Defendants argued that equitable subrogation exists only to make an insurer whole for amounts paid, not to provide a windfall. They cited New Mexico precedent limiting subrogation rights to the extent of actual payments.
Navigators countered that as a subrogee, it stands of the insured and is entitled to all rights and remedies the insured possessed, including punitive and treble damages.
Davenport rejected this argument, finding that New Mexico law does not support a subrogated insurer recovering more than it paid.
The court noted a "dearth of New Mexico authority" squarely addressing whether a subrogated insurer can recover statutory treble damages or punitive damages beyond its actual payments. However, it pointed to a line of cases, including Southwest Steel Coil, Inc. v. Redwood Fire & Cas. Ins. Co. and Quality Chiropractic, PC v. Farmers Ins. Co. of Ariz., that prescribe an insurer may recover only to the extent it has paid the claims of its insured.
While Southwest Steel distinguished between amounts paid by an insurer and those remaining unpaid, it did not grant subrogated insurers the right to recover amounts they never disbursed.
"Navigators does not merely seek to recover what it paid to settle the underlying personal injury action; it seeks to recover amounts it did not pay, specifically 'three times the amount Navigators paid to settle the Gonzalez action' and punitive damages arising case rather than the underlying one," Davenport wrote.
The court declined to address Navigators’ attempt to assert independent statutory claims under the Unfair Practices Act and Unfair Insurance Practices Act, noting that Navigators pled all counts exclusively as an equitable subrogee and did not purport to proceed independently.
The judge also indicated that if Navigators paid pre- and post-judgment interest in the underlying lawsuit, it should be able to recover those amounts. The court denied the motion to dismiss as to the request for attorney’s fees and costs, finding these requests plausible under New Mexico law and statutory fee-shifting provisions.
The case is 1:25-cv-00896-SMD-KK.