Insurance Bad Faith Demand Letter - New Mexico

INSURANCE BAD FAITH DEMAND LETTER

State of New Mexico

[LAW FIRM LETTERHEAD]

SETTLEMENT COMMUNICATION — FOR RESOLUTION PURPOSES ONLY
ADMISSIBILITY GOVERNED BY NMRA 11-408 AND, IF APPLICABLE, FED. R. EVID. 408

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED — ARTICLE NO. [TRACKING_NUMBER]
AND VIA EMAIL TO: [ADJUSTER_EMAIL]
AND VIA EMAIL TO: [CARRIER_LEGAL_DEPARTMENT_EMAIL]

Date: [__/__/____]

[INSURANCE_COMPANY_NAME]
[CLAIMS_DEPARTMENT_ADDRESS]
[CITY], [STATE] [ZIP]

Attention: [ADJUSTER_NAME], [ADJUSTER_TITLE]
AND: [CLAIMS_MANAGER_NAME], [CLAIMS_MANAGER_TITLE]
NM Adjuster License No.: [ADJUSTER_LICENSE_NUMBER]

Re: FORMAL INSURANCE CLAIM AND BAD-FAITH DEMAND — NEW MEXICO LAW

Dear [ADJUSTER_NAME] and [CLAIMS_MANAGER_NAME]:

I. INTRODUCTION AND SCOPE OF DEMAND

This firm represents [CLIENT_NAME] ("our client") concerning the above-referenced insurance claim under Policy No. [POLICY_NUMBER] issued by [INSURANCE_COMPANY_NAME] ("[CARRIER_SHORT_NAME]"). This letter demands [CHOOSE AND DESCRIBE: payment of covered first-party benefits / a good-faith liability settlement / correction of specified claim handling] based on the policy language, claim record, and facts identified below.

Our client contends that [CARRIER_SHORT_NAME] [denied / delayed / undervalued / failed to settle] the claim without an adequate basis. Depending on the verified facts, that conduct may breach the policy, support a common-law claim, or implicate one or more provisions of NMSA 1978 § 59A-16-20 if the statute's knowledge-or-frequency threshold is met. NMSA 1978 § 59A-16-30 supplies a private district-court action for actual damages caused by an Article 16 violation.

This proposed settlement demand expires at 5:00 p.m. Mountain Time on [__/__/____]. It is not a statutory cure notice and does not extend or toll any policy deadline, suit-limitation clause, or statute of limitations.

II. NEW MEXICO INSURANCE LAW — CONTROLLING FRAMEWORK

A. Select the Applicable Claim Theory

This template covers distinct theories. Counsel should delete every inapplicable branch:

• First-party failure to pay or delay: The insured seeks benefits owed directly under the policy.
• Liability insurer's failure to settle: The insured alleges that the insurer exposed the insured to liability by dishonestly or unfairly balancing settlement interests.
• Statutory unfair claims practice: The claimant identifies a specific subsection of § 59A-16-20, proves the statute's threshold, and proves damages caused by the violation.
• Unfair Practices Act claim: The claimant separately identifies and proves a practice within § 57-12-2; an insurance dispute alone does not establish a UPA claim.

B. Common-Law Bad Faith — Sloan v. State Farm

For a first-party failure-to-pay claim, Sloan v. State Farm Mut. Auto. Ins. Co., 2004-NMSC-004, ¶ 18, 135 N.M. 106, 85 P.3d 230, describes bad faith as a frivolous or unfounded denial or delay—an arbitrary or baseless refusal lacking arguable support in the policy wording or claim circumstances. "Unfounded" does not merely mean erroneous or incorrect.

Sloan also explains that an unreasonable investigation or evaluation may support compensatory damages without necessarily establishing the frivolous-or-unfounded showing associated with punitive damages. Id. ¶ 19. State the policy language, investigation facts, and claim evidence supporting each asserted mental state; do not treat an unsuccessful coverage position as automatic bad faith.

For a liability insurer's alleged failure to settle within limits, Sloan requires proof that the refusal was based on dishonest judgment—failure to honestly and fairly balance the insurer's interests and the insured's interests. Id. ¶ 20. Delete this branch unless the policy, demand, liability evidence, damages evidence, limits, response record, and insured's exposure are documented.

C. Statutory Unfair Claims Practices — NMSA 1978 § 59A-16-20

Section 59A-16-20 defines the listed practices as unfair and deceptive when, with respect to claims, they are knowingly committed or performed with such frequency as to indicate a general business practice. Potentially relevant provisions include:

Subsections Q and R address travel insurance. Effective June 20, 2025, subsection P applies only when the inquiry facts are not covered by the policy, the insurer makes no payment to or for the insured, and the matter does not involve deceptive practices by the insured. See § 59A-16-20(P) and NM OSI Bulletin 2025-010.

D. Private Right of Action — NMSA 1978 § 59A-16-30

A person covered by Article 16 who suffers damages from an insurer's or agent's violation may bring a district-court action to recover actual damages. Costs are allowed to the prevailing party unless the court directs otherwise. The court may award attorney fees to the prevailing party if:

• the party complaining of the violation brought an action that the party knew was groundless; or
• the party charged with the violation willfully engaged in the violation.

The statutory remedy is additional to otherwise available common-law and state-law remedies, subject to the workers' compensation exclusivity language in § 59A-16-30.

E. New Mexico Unfair Practices Act — NMSA 1978 §§ 57-12-2 and 57-12-10

A UPA theory requires a separately identified act meeting § 57-12-2's definitions, such as a knowing false or misleading representation made in the regular course of trade or commerce. Denial, delay, or underpayment alone does not establish the claim.

If the statutory elements and causation are proven, § 57-12-10 permits injunctive relief, actual or minimum statutory damages, a discretionary award up to three times actual damages for a willful practice, and fees and costs for a prevailing complainant. Do not present trebling as automatic or as a remedy for an Article 16 violation standing alone.

F. Unpaid-Claim, Contract, and Judgment Interest

NMSA 1978 § 59A-16-21(B) applies when an insurer fails for 45 days after required proof of loss is furnished to pay an amount justly due. Interest begins on day 46 at one and one-half times the prime lending rate for New Mexico banks. Subsection C excludes claims in arbitration or litigation.

Any separate contract-interest theory must be calculated under the policy and § 56-8-3 rather than treated as a generic bad-faith penalty. Section 56-8-4(B) permits discretionary prejudgment interest up to 10% from service of the complaint after consideration of delay and settlement conduct. Section 56-8-4(A) governs postjudgment interest.

G. Limited Disclosure Duty — Salas v. Mountain States Mutual

Salas v. Mountain States Mut. Cas. Co., 2009-NMSC-005, 145 N.M. 542, 202 P.3d 801, addresses an insurer's disclosure duty to insureds who sustained injuries allegedly compensable under the policy and of whom the insurer had actual knowledge. For a class-two insured, the duty is triggered only when the insurer actually knows the identity of that insured and the allegedly compensable claim; the insurer need not seek out unidentified class-two insureds.

In Salas, actual knowledge of the injured passenger's status and allegedly compensable claim required disclosure of available coverage and the governing terms and conditions, including the consent-to-settle provision. Use this theory only when materially comparable facts are documented. Do not describe Salas as a universal duty to identify every possible claimant or disclose every policy provision.

H. Limitation Periods

I. Compromise-Evidence Rules

Rule 11-408 NMRA and, when applicable, Federal Rule of Evidence 408 restrict specified uses of compromise offers and negotiations concerning a disputed claim. They include exceptions and do not by themselves make this letter privileged, confidential, or inadmissible for every purpose.

III. POLICY, PARTY STATUS, AND CLAIM INFORMATION

A. Policy Details

B. Controlling Policy Language

Quote and attach the complete provisions on which this demand depends:

C. Coverage and Liability Position

Our client contends that [DESCRIBE COVERAGE OR SETTLEMENT OBLIGATION] because [CONNECT THE QUOTED POLICY LANGUAGE TO THE VERIFIED FACTS].

[CARRIER_SHORT_NAME]'s stated position is: [QUOTE OR ACCURATELY SUMMARIZE DENIAL, RESERVATION, OFFER, OR FAILURE TO RESPOND].

The position is disputed because: [IDENTIFY THE POLICY TEXT, EVIDENCE, INVESTIGATION OMISSION, OR LIABILITY/DAMAGES MATERIAL].

IV. FACTUAL BACKGROUND AND CLAIM HISTORY

A. Underlying Loss or Liability Claim

On [__/__/____], [DESCRIBE THE EVENT, LOCATION, PERSONS INVOLVED, CAUSATION FACTS, INJURIES, PROPERTY DAMAGE, AND OTHER LOSS].

[DESCRIBE THE INSURED'S OR CLAIMANT'S STATUS UNDER THE POLICY AND THE DATE THE CARRIER LEARNED THAT IDENTITY AND CLAIM, IF A SALAS THEORY IS ASSERTED.]

B. Chronology

Elapsed time since required proof of loss, if applicable: [____] days
Amount paid or offered: $[AMOUNT_PAID_OR_OFFERED]
Amount claimed or demanded: $[AMOUNT_CLAIMED]
Disputed difference: $[DISPUTED_AMOUNT]

V. FACT-SPECIFIC CLAIM-HANDLING ALLEGATIONS

Check only allegations supported by evidence. For every asserted § 59A-16-20 subsection, separately state facts supporting the statute's knowledge-or-frequency threshold.

A. Misrepresentation — § 59A-16-20(A)

☐ On [__/__/____], [PERSON] stated: "[QUOTE]." The statement concerned [PERTINENT FACT / POLICY PROVISION] and is disputed by [POLICY SECTION / DOCUMENT / EVIDENCE].

B. Communications — § 59A-16-20(B)

☐ [CARRIER_SHORT_NAME] received [IDENTIFY COMMUNICATIONS] on [DATES] but did not acknowledge or act on them until [DATE], a delay of [____] days. The record supporting knowledge or frequency is [DESCRIBE].

C. Investigation Standards — § 59A-16-20(C)

☐ The carrier failed to [INTERVIEW WITNESS / INSPECT DAMAGE / REVIEW RECORD / OBTAIN RELEVANT MATERIAL / REASSESS AFTER NEW EVIDENCE]. The omitted step mattered because [EXPLAIN]. The record supporting knowledge or frequency is [DESCRIBE].

D. Coverage Decision After Proof of Loss — § 59A-16-20(D)

☐ The policy's completed proof-of-loss requirements were submitted on [DATE]. [CARRIER_SHORT_NAME] did not affirm or deny coverage until [DATE / HAS NOT DONE SO]. Identify the completed requirements and attach proof of submission.

E. Settlement When Liability Became Reasonably Clear — § 59A-16-20(E)

☐ Liability became reasonably clear on [DATE] because [IDENTIFY EVIDENCE]. Nevertheless, [CARRIER_SHORT_NAME] [DESCRIBE FAILURE TO ATTEMPT A PROMPT, FAIR, AND EQUITABLE SETTLEMENT]. State why the amount requested follows from the evidence and policy.

F. Catastrophic Claim — § 59A-16-20(F)

☐ Include only if applicable. A catastrophic loss was declared, Catastrophic Claim No. [____] was assigned on [DATE], and the 90-day period expired on [DATE] without settlement. Attach the declaration and assignment record.

G. Litigation-Recovery Comparison — § 59A-16-20(G)

☐ Ordinarily reserve until an action produces an ultimate recovery. Subsection G compares an insurer's offer with amounts ultimately recovered in an action on a reasonably similar claim. A pre-suit estimate or demand difference alone does not establish this subsection.

H. Advertising-Material Comparison — § 59A-16-20(H)

☐ The carrier attempted to settle by reference to the following written or printed advertising material that accompanied or formed part of the application: [IDENTIFY AND ATTACH]. Delete this allegation if no such material exists.

I. Explanation of Denial or Compromise — § 59A-16-20(N)

☐ The [DENIAL / COMPROMISE OFFER] dated [DATE] did not promptly provide a reasonable explanation based on the policy in relation to the facts or applicable law. Specifically, it omitted or misstated [IDENTIFY].

J. Inquiry Treated as Claim — § 59A-16-20(P)

☐ On [DATE], the carrier treated an inquiry as a claim even though the inquiry facts were not covered by the policy, the insurer made no payment to or for the insured, and the matter did not involve deceptive practices by the insured. Attach the inquiry and any database or claim record.

K. Limited Salas Disclosure Theory

☐ On [DATE], [CARRIER_SHORT_NAME] actually knew the identity of [CLIENT_NAME] as an insured with an allegedly compensable claim under [COVERAGE]. It did not disclose [AVAILABLE COVERAGE / GOVERNING TERM OR CONDITION] before [PREJUDICIAL EVENT]. Explain why the facts fit Salas and identify the resulting harm.

L. Common-Law First-Party Bad Faith

☐ The denial or delay lacked arguable support in the policy or claim circumstances because [QUOTE POLICY AND IDENTIFY FACTS]. The investigation or evaluation was unreasonable because [DESCRIBE]. Distinguish an allegedly arbitrary or baseless refusal from a merely mistaken position.

M. Common-Law Liability Failure to Settle

☐ The carrier failed honestly and fairly to balance its interests and the insured's interests because [DESCRIBE EVIDENCE]. Attach the within-limits demand, liability proof, damages proof, deadline, response, policy limits, and evidence of actual or threatened excess exposure.

VI. CLAIMED LOSS AND POTENTIAL REMEDIES

A. Unpaid Benefits or Settlement Component

B. Actual Damages Under § 59A-16-30

Section 59A-16-30 authorizes actual damages caused by a proven Article 16 violation. Identify each claimed item, its legal basis, causation, and proof. Do not assume that every consequential, emotional-distress, litigation, or fee item is recoverable merely because Article 16 is invoked.

C. Punitive Damages on an Applicable Common-Law Theory

If supported by the governing cause of action and evidence, counsel may preserve a punitive-damages claim. Under Sloan ¶¶ 18-19, an arbitrary or baseless first-party refusal lacking arguable support can reflect reckless disregard, while an unreasonable investigation supporting compensatory damages does not necessarily justify a punitive instruction. State the specific evidence and do not assert a guaranteed award or an unsupported cap rule.

Evidence asserted to support the required culpable mental state: [________________________________]

D. UPA Remedies

☐ A separate UPA practice under § 57-12-2 is alleged: [IDENTIFY PRECISE PRACTICE].
☐ Causation and loss are supported by: [IDENTIFY].
☐ If willfulness is alleged for discretionary enhancement under § 57-12-10(B), the supporting evidence is: [IDENTIFY].

E. Interest

F. Costs and Attorney Fees

For an Article 16 action, costs follow § 59A-16-30's prevailing-party rule unless the court otherwise directs. Attorney fees are discretionary only when one of that section's known-groundlessness or willful-violation conditions is established. UPA fees and costs require a separately proven UPA claim and a prevailing complainant under § 57-12-10(C).

VII. FORMAL SETTLEMENT DEMAND

A. Monetary Terms

Our client proposes resolution for $[TOTAL_SETTLEMENT_DEMAND], allocated as follows:

This is a compromise proposal. The allocation does not concede that any disputed category is independently recoverable in litigation.

B. Proposed Non-Monetary Terms

☐ Written payment and accounting identifying each coverage and deduction
☐ [FULL / LIMITED / MUTUAL] release drafted consistently with the agreed claim scope
☐ Written correction of specifically identified inaccurate information reported to [CLUE / ISO CLAIMSEARCH / OTHER DATABASE]
☐ No settlement term purporting to prevent a lawful communication with a regulator
☐ Confidentiality only if separately negotiated and legally permissible
☐ Other: [________________________________]

C. Acceptance Method and Deadline

Acceptance must be received in writing by 5:00 p.m. Mountain Time on [__/__/____] at [EMAIL / ADDRESS]. State whether acceptance requires [SIGNATURE / TENDER / EXECUTED RELEASE] and avoid ambiguity about material terms.

If the demand is not accepted, our client may pursue legally available contract, common-law, statutory, regulatory, or other remedies supported by the evidence. No remedy or award is guaranteed by this letter.

VIII. REGULATORY OPTION

Our client reserves the right to submit a complaint and supporting documents to the New Mexico Office of Superintendent of Insurance:

New Mexico Office of Superintendent of Insurance
Consumer Assistance / Complaints
Online: osi.state.nm.us/en/complaints
Phone: 855-427-5674

A regulatory complaint does not replace counsel's independent review of filing deadlines, policy conditions, or judicial remedies.

IX. PRESERVATION REQUEST

Because litigation is reasonably anticipated, please preserve potentially relevant documents and electronically stored information within [CARRIER_SHORT_NAME]'s possession, custody, or control, including:

☐ Complete claim file, versions, drafts, notes, diaries, and activity logs
☐ Communications concerning coverage, investigation, valuation, reserves, settlement, or denial
☐ Policy forms, endorsements, declarations, application materials, and advertising material relevant to any § 59A-16-20(H) theory
☐ Proof-of-loss submissions and transmission records
☐ Investigation materials, photographs, recordings, expert reports, and underlying data
☐ Claim-handling standards, manuals, and training material actually applicable to this claim
☐ Supervisor, committee, audit, and quality-review material relating to this claim
☐ Database inquiry and reporting records concerning this claim or insured
☐ Materials identifying the date and substance of any knowledge relevant to a Salas theory
☐ Other specifically relevant material: [________________________________]

Please suspend routine deletion or overwriting practices for responsive material and confirm the preservation steps taken. Any later preservation dispute will be addressed under the procedural law and orders governing the resulting proceeding.

X. RESERVATION OF RIGHTS

Except for any rights expressly resolved in a signed agreement, our client reserves all rights under the policy and applicable law, including rights arising from additional claim-handling conduct after this letter. This reservation does not create a right or remedy that applicable law or the policy does not otherwise provide.

XI. CONCLUSION

The attached policy language, claim record, and evidence support our client's demand for [DESCRIBE RELIEF]. We request a written, policy-based response addressing each disputed item and each enclosed supporting document by the deadline above.

Please direct communications to the undersigned.

Respectfully submitted,

[LAW_FIRM_NAME]

By: ___________________________________
[ATTORNEY_NAME]
New Mexico Bar No. [BAR_NUMBER]
[STREET_ADDRESS]
[CITY], NM [ZIP]
Tel: ([____]) [____]-[________]
Email: [________________________________]

Counsel for [CLIENT_NAME]

ENCLOSURES:

1. Policy declarations, forms, and relevant endorsements
2. Claim chronology and correspondence
3. Proof-of-loss submission and delivery evidence, if applicable
4. Coverage, liability, and damages evidence
5. Carrier denial, reservation, estimates, payments, and offers
6. Expert reports and supporting data
7. Evidence supporting claimed additional damages
8. Settlement demand and response history, if applicable
9. Other: [________________________________]

CC:

• [CLIENT_NAME] (file copy)
• [CARRIER_SHORT_NAME] Legal Department / General Counsel

NEW MEXICO INSURANCE BAD-FAITH QUICK REFERENCE

SOURCES AND REFERENCES

• Current NMSA Chapter 59A (§§ 59A-16-20, -21, -30): https://nmonesource.com/nmos/nmsa/en/item/4438/index.do
• Current NMSA Chapter 57 (§§ 57-12-2 and -10): https://nmonesource.com/nmos/nmsa/en/item/4423/index.do
• Current NMSA Chapter 56 (§§ 56-8-3 and -4): https://nmonesource.com/nmos/nmsa/en/item/4418/index.do
• Current NMSA Chapter 37 (§§ 37-1-3 and -4): https://nmonesource.com/nmos/nmsa/en/item/4366/index.do
• Current Rule Set 11 NMRA (Rule 11-408): https://nmonesource.com/nmos/nmra-unanno/en/item/18481/index.do
• Sloan v. State Farm Mut. Auto. Ins. Co., 2004-NMSC-004: https://nmonesource.com/nmos/nmsc/en/item/390594/index.do
• Salas v. Mountain States Mut. Cas. Co., 2009-NMSC-005: https://nmonesource.com/nmos/nmsc/en/item/391194/index.do
• Martinez v. Cornejo, 2009-NMCA-011: https://nmonesource.com/nmos/nmca/en/item/377396/index.do
• Current Federal Rules of Evidence (Rule 408): https://www.uscourts.gov/sites/default/files/document/federal-rules-of-evidence.pdf
• NM OSI Bulletin 2025-010: https://www.osi.state.nm.us/en/news/bulletin-2025-010/
• NM OSI complaint page: https://www.osi.state.nm.us/en/complaints/