AAA $4.15M Settlement Over Underinsured Motorist Offsets in New Mexico Policies

AAA’s $4.15 million class action settlement centers on how underinsured motorist (UIM) coverage works in New Mexico—coverage many drivers buy to protect themselves when the at-fault driver doesn’t have enough liability insurance to fully cover injuries and damages. The dispute involves an “offset,” meaning the insurer reduces what it pays in UIM benefits by the amount the policyholder already received from the at-fault driver’s insurer. According to the lawsuit, AAA (Interinsurance Exchange of the Automobile Club) didn’t adequately disclose in its New Mexico auto policies that it would apply these offsets, affecting people who bought UM/UIM coverage and, more directly, those whose UIM claims were reduced for accidents between Jan. 1, 2010, and May 4, 2022. The case was filed because the plaintiff alleged AAA’s disclosures and policy handling violated New Mexico law and the insurance contract, and also amounted to unfair or deceptive conduct—claims that commonly appear in insurance class actions, including allegations of bad faith, negligent misrepresentation, unjust enrichment, and violations of the New Mexico Unfair Trade Practices Act and Unfair Insurance Practices Act. The settlement’s significance is that it creates two forms of relief tied to those alleged disclosure failures: cash payments (up to $25,000, pro rata) for eligible drivers whose UIM benefits were offset, and premium refunds for certain policyholders who purchased UM/UIM coverage during the class period even if they never made a claim—paired with deadlines to opt out (March 30, 2026) or submit a reduced-claim claim form (April 29, 2026). More broadly, the dispute reflects a recurring tension in auto insurance regulation: states often permit certain offsets, but require that limitations on coverage be clearly disclosed and consistent with statutory minimums and public policy goals behind UM/UIM laws. Similar cases around the country have challenged insurers over UIM “setoffs,” “reductions,” and policy language that consumers say is confusing or insufficiently conspicuous, especially when marketing materials suggest broader protection than the fine print delivers. For insurers, these cases underscore the compliance importance of plain-language policy drafting, clear declarations and endorsements, and claims practices aligned with state insurance codes and consumer-protection statutes—because even when an offset is legally allowed, inadequate disclosure can still trigger costly, high-exposure litigation and regulatory scrutiny