Bad Faith Penalties in New Mexico

Do You Know the Rule?

In New Mexico, employers and carriers may find themselves on the hook for payments beyond the workers’ compensation benefits they owe if a claimant shows they engaged in "bad faith."

What is the penalty for bad faith?

If unfair claim processing or bad faith has occurred in the handling of a particular claim, the claimant will be awarded, in addition to any benefits due and owing, a penalty of up to 25 percent of the benefit amount ordered to be paid in the workers' compensation claim. WCA Section 52-1-28.1.

What is bad faith?

Bad faith means conduct by the claimant, insurer, or employer in the handling of a claim that amounts to fraud, malice, oppression or willful, wanton or reckless disregard of the rights of the worker or employer.

What is the purpose of the penalty?

The purpose of the penalty is to secure benefits for the employee and penalize the employer or insurer. Although the penalty may not be much when the amount of the claim is small, it is meant to deter insurers and employers from denying benefits in bad faith.

Who is subject to bad faith claims?

Claimants may file bad faith claims against:

1. An employer;
2. An insurer; or 
3. A claim-processing representative.

Note that the director may also investigate allegations of unfair claim processing or bad faith on his own initiative.

Looking for info on bad faith in your state? Look to Simply Research

What if an employer repeatedly engages in bad faith?

If an employer, insurer or claim-processing representative has a history or pattern of repeated unfair claim-processing practices or bad faith, the director or a workers' compensation judge may impose a civil penalty of up to $1,000 for each violation. The civil penalty will be deposited in the workers' compensation administration fund.

Who pays the claimant’s legal fees in a bad faith claim?

The party found to have acted in bad faith pays 100 percent of the additional fees awarded for representation of the prevailing party in a bad faith action.

Is the workers’ compensation act the only way claimants can seek relief for bad faith?

Yes. In New Mexico, the Workers' Compensation Act provides the exclusive remedy for bad-faith claims. In Russell v. Protective Insurance Company, 107 N.M. 9, 12, 751 P.2d 693, 696 (1988), the legislature amended the WCA, bringing bad-faith actions within the Act’s exclusivity provision

What are some case examples?

Section 52-1-28.1 provides an adequate remedy for bad faith. Further, the exclusivity provision bars an independent lawsuit for bad-faith refusal to make medical payments. Cruz v. Liberty Mutal Ins. Co., 889 P.2d 1223 (N.M. Sup. Ct. 01/25/95).

A truck driver injured when her driver partner rolled their semi-truck failed to establish that a bad faith penalty was too low. The employer repeatedly denied medical benefits, including those mandated by previous orders. She sought a higher penalty based on benefits ordered in earlier compensation orders. However, she did not demonstrate that any of the unfair claim processing at issue in her current appeal related to benefits awarded in those earlier compensation orders. Lay v. CC Trucking, No. A-1-CA-42057 (N.M. Ct. App. 06/25/25).

The court rejected a patient transporter’s claim that the bad faith sanctions imposed against his employer were inadequate. In the underlying case, the WCJ found that the insurer had willfully disregarded the worker’s rights and violated the WCJ's orders and that Insurer knew that there was no reasonable basis for its conduct. The WCJ ordered Insurer to pay Worker $864.76 in PPD benefits, plus a benefit penalty of $216.19, for a total award of $1,080.95. Romero v. Laidlaw Transit Servs., No. 33,032 (N.M. Ct. App. 06/25/25).

An employee fell and injured himself while using a buffer to clean the inside of a moving truck. An ALJ didn’t err by only awarding two benefit penalties to the employee, one for bad faith and one for unfair claim processing. The employee argued, in part, that the WCJ erred in assessing only two benefit penalties, and by failing to consider violations of common law and statutory duties as a basis for additional bad faith or unfair claim processing penalties. Sanchez v. Uhaul, No. A-1-CA-41123 (N.M. Ct. App. 06/25/25, unpublished).

Share This Article: