## Facts

- State Farm issued Carol Ballard an automobile liability policy in Georgia with limits of $100,000 per person and $300,000 per accident and no choice-of-law clause.
- The policy contained a family-exclusion “step-down” provision that reduced liability coverage for bodily injury to certain family members to the minimum limits required by the applicable state’s financial-responsibility law when intra-family immunity did not bar the claim.
- On August 11, 1998, a single-vehicle accident occurred in Luna County, New Mexico; the driver, Robert Evans, and Erika Ballard were killed, and Carol Ballard and two minor children were injured.
- All individuals involved were nonresidents of New Mexico.
- One child’s injuries required extended treatment at a New Mexico hospital, and Luna County paid substantial medical costs under New Mexico’s indigent health-care scheme.
- State Farm conceded New Mexico does not recognize intra-family tort immunity, but invoked the step-down clause and treated liability coverage as capped at $50,000 (New Mexico’s statutory minimum).
- State Farm filed a declaratory-judgment action in federal court seeking a ruling that the step-down provision validly limited coverage; the federal court certified questions to the New Mexico Supreme Court on governing law and validity of the provision.

## Issues

1. Whether New Mexico law applies to interpret and assess the enforceability of a family-exclusion step-down provision in a Georgia-issued auto policy when the accident occurred in New Mexico and New Mexico indigent funds paid substantial medical costs.
2. If New Mexico law applies, whether a family-exclusion step-down provision reducing coverage for family members to statutory minimum limits is enforceable or void as contrary to New Mexico public policy under the Mandatory Financial Responsibility Act.

## Decision

- The New Mexico Supreme Court held that New Mexico law governs the interpretation and enforceability of the step-down provision for this New Mexico accident.
- The Court held the family-exclusion step-down provision is void and unenforceable under New Mexico law as contrary to public policy embodied in compulsory financial responsibility requirements.
- The Court answered the certified questions accordingly and returned the matter to federal court for application of those answers in the declaratory-judgment action.

## Legal Principles

- In insurance-contract choice-of-law disputes without an effective contractual selection, New Mexico considers the state’s relationship to the occurrence and the parties, including the place of the accident, the location of the risk at the time of loss, and New Mexico’s regulatory and public-policy interests.
- New Mexico has a strong public policy, reflected in the Mandatory Financial Responsibility Act, to protect persons injured on New Mexico highways through compulsory liability coverage.
- Policy provisions that functionally exclude or reduce coverage for a protected class of injured persons in a manner inconsistent with the MFRA are invalid as against New Mexico public policy.
- New Mexico’s rejection of intra-family tort immunity prevents insurers from achieving similar results through family or household exclusion devices, including step-down mechanisms.
- New Mexico may apply its law to prevent shifting accident-related medical costs to public funds when the state’s compulsory insurance policy is implicated.

## Conclusion

For a nonresident insured’s crash occurring in New Mexico, the court applied New Mexico law and invalidated a Georgia policy’s family step-down provision, holding it contrary to New Mexico’s compulsory insurance policy under the MFRA and related public interests, including protection of public medical funds.


State Farm Mut. Auto. Ins. Co. v. Ballard, 54 P.3d 537 (N.M. 2002)