Friday, July 25, 2008

UM Arbitration Award of No Serious Injury Upheld

Matter of the Arbitration Between Reyes v. Liberty Mut. Ins. Co.
(App. Term, 2nd Dept., decided 7/10/2008)

Petitioners were involved in a motor vehicle accident with an uninsured vehicle owned and operated by Anthony Manuele. They commenced a personal injury action against Mr. Manuele and, upon his default, an inquest was conducted and default judgments were entered in their favor against Mr. Manuele. Petitioners then served Liberty Mutual with a demand for arbitration of their claims for uninsured motorist (UM) coverage. An arbitration hearing was held, and petitioners argued that the arbitrator was bound by the amount of the default judgments rendered in the personal injury action, and was obligated to render an award in the same amount of the judgments therein. Liberty argued that the arbitrator was not so bound, and offered a copy of the insurance policy which stated that any judgment for damages arising out of a lawsuit brought without its written consent was not binding upon the insurer. It was conceded that Liberty had not been aware of the default judgments rendered in the personal injury action until the date of the arbitration hearing. The arbitrator found that Liberty was not bound by the default judgments, and rendered an award in favor of Liberty, dismissing petitioners' claims based upon their failure to demonstrate that they sustained a serious injury within the meaning of Insurance Law § 5102 (d).

Petitioners then commenced this special proceeding to vacate the arbitrator's award pursuant to CPLR § 7511(b), arguing that it was irrational and that the arbitrator "exceeded his power". Although petitioners were unable to produce the UM or SUM endorsements under which they sought coverage, they claimed that their policy did not contain the language contained in the policy produced by Liberty. Petitioners argued that that it was irrational for the arbitrator to include such language as a provision in their policy. Moreover, even if such language was included in the applicable endorsement, the arbitrator exceeded his authority by determining an issue involving policy coverage rather than limiting himself solely to the issues of liability and damages. In opposition, Liberty argued that there were no grounds for vacatur of the award, since said provision was included in the policy. The arbitrator's award was neither irrational, nor did the arbitrator exceed his authority in determining petitioners' entitlement to benefits.

In AFFIRMING Queens Civil Court's denial of the petition to vacate the arbitrator's award, the Appellate Term held that the arbitrator did not exceed his authority in determining whether petitioners were entitled to benefits under their policy with Liberty, and that petitioners had failed to meet their burden of showing that the arbitrator's award was irrational or that it had no evidentiary support or was arbitrary and capricious.

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