New Mexico’s bad faith statute is codified primarily at N.M.S.A. §59A-16. Section 16-20, which defines unfair claims practices, closely follows Section 4 of the Model Unfair Claims Settlement Practices Act. As such, bad faith can include:
E. not attempting in good faith to effectuate prompt, fair and equitable settlements of an insured's claims in which liability has become reasonably clear;
G. compelling insureds to institute litigation to recover amounts due under policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds when such insureds have made claims for amounts reasonably similar to amounts ultimately recovered;
H. attempting to settle a claim by an insured for less than the amount to which a reasonable person would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;
K. making known to insureds or claimants a practice of insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;
M. failing to settle an insured's claims promptly where liability has become apparent under one portion of the policy coverage in order to influence settlement under other portions of the policy coverage.
Both first and third party claims are allowed in New Mexico. In addition, N.M.S.A. §59A-16-30 creates a private cause of action which allows recovery of actual damages and costs, in addition to attorneys’ fees where the insurer is found to have willfully engaged in the violation.
New Mexico recognizes a cause of action for bad faith failure to settle, but it does not recognize the claim of negligent failure to settle. The main distinction is that bad faith typically requires a culpable mental state. As phrased by the New Mexico Supreme Court:
To be entitled to recover for a bad-faith failure to settle, a plaintiff must show that the insurer’s refusal to settle was based on a dishonest judgment. By ‘dishonest judgment,’ we mean that an insurer has failed to honestly and fairly balance its own interests and the interests of the insured. An insurer cannot be partial to its own interests, but rather must give the interests of its insured at least the same consideration or greater.
Incases alleging a bad faith failure to settle, evidence of negligence can be used to show bad faith, but such evidence by itself does not give rise to a cause of action.
The question of punitive damages is unsettled at this time where the claim arises solely under the statutory framework of §59A-16-20; the New Mexico Supreme Court specifically declined to render a formal opinion on the question in 2004and the lower courts have handled the issue on an ad hoc basis since that time. However, if an insurer’s conduct is found to have violated the Unfair Trade Practices Act (which is distinct from the Unfair Claims Settlement Practices Act) then damages may be statutorily trebled. In addition, the Superintendent of Insurance may impose additional penalties against an insurer under its regulatory authority where the insurer commits repeated or egregious misconduct.
Damages in insurance bad faith actions are determined by the judgment rule which does not require the insured to make payment as a precondition to the insurers' liability. A bad faith insurer is liable regardless of whether its insured has paid, can pay or must pay an excess judgment.
 See N.M.S.A. §59A-16-20; State Farm Gen. Ins. Co. v. Clifton, 86 N.M. 757,527 P.2d 798 (1974); Hovet v. Allstate Ins. Co., 135 N.M. 397, 89 P.3d69 (2004).
 Sloanv. State Farm Mut. Auto Ins. Co., 135 N.M. 106, 113, 85 P.2d 230, 237(2004) (citing Ambassador Ins. Co. v. St. Paul Fire & Marine Ins. Co.,102 N.M. 28, 690 P.2d 1022 (1984)).
 Id.at 114.
 Hovet.,135 N.M. at 405 (declining to rule on question of punitive damages due to the “lack of an opportunity for full briefing on this subject.”).
 In Re Dydek, 2012-NMCA-088, 288 P.3d872.
Chartwell Law represents the interests of insurers and employers, as such, we continue to continue to monitor the legal landscape. If you have any questions about issues associated with right of action for bad faith claims, our attorneys are available to help. Please contact your Chartwell Law attorney.