Liberty Mutual Safeco 6.5M Settlement Over Illusory New Mexico UIM Coverage

Liberty Mutual and its Safeco affiliate agreed to a $6.5 million class action settlement stemming from how underinsured motorist (UIM) coverage worked for many New Mexico drivers between October 2010 and March 2022. UIM coverage is meant to fill the gap when the at-fault driver’s liability insurance isn’t enough to cover injuries, and New Mexico auto policies commonly pair it with the state’s minimum limits. But under a New Mexico damages-calculation rule known as the “Schmick offset,” insurers could subtract the at-fault driver’s liability payment from the UIM limit—so when both drivers carried the common $25,000 minimum, the subtraction often reduced UIM benefits to $0, even though the policyholder had paid premiums for that coverage. The lawsuit, Crutcher v. Liberty Mutual Insurance Co. et al. (D.N.M.), alleged that Liberty Mutual/Safeco sold and collected premiums on “illusory” UIM coverage—coverage that a reasonable consumer would expect to provide meaningful protection but that frequently could not pay in the very scenario many drivers face. The New Mexico Supreme Court’s characterization of this kind of minimum-limit UIM as misleading/illusory gave the claims added weight, and the settlement is significant because it provides two forms of relief: up to $25,000 for people whose UIM claims were reduced by an offset (with a claim deadline of April 30, 2026) and automatic pro-rata premium refunds for other affected policyholders, while the insurers deny wrongdoing but pay to resolve the dispute. More broadly, the case highlights a recurring issue in auto insurance nationwide: “gap-filling” coverages (UIM, UM, medical payments) can be heavily shaped by state statutes, court decisions, and policy language that consumers rarely see until after a crash. New Mexico’s UM/UIM framework and the judiciary’s scrutiny of offsets put pressure on insurers to ensure disclosures match real-world benefit calculations, and it echoes similar disputes in other states over whether offsets, stacking limitations, or minimum-limit designs effectively nullify promised protection and therefore trigger consumer-protection and insurance-regulation concerns.