Bus Insurer Found to Owe Primary UM Coverage Benefits to Passenger for Injuries from Accident with Uninsured Vehicle

UM – EFFECTIVENESS OF VEHICLE INSURER'S CANCELLATION – BUS PASSENGER – PRIORITY OF COVERAGE
Matter of State Farm Mut. Auto. Ins. Co. v. Thomas
(2nd Dept., decided 7/27/2010)

State Farm's insured, Gracy Thomas, was injured when a bus in which she was riding as a passenger was struck by an allegedly uninsured vehicle being driven by Lawrence Dock on the Garden State Parkway in New Jersey.  She made a UM claim to State Farm and demanded arbitration.  State Farm commenced this special proceeding to permanently stay that arbitration, asserting that: (1) respondents had failed to establish that the offending vehicle was uninsured; and (2) because Thomas was a passenger on the bus insured by National Interstate, National Interstate owed primary UM coverage, and State Farm was not liable for such coverage until National Interstate had exhausted its policy limits, and then only to the extent that State Farm's UM coverage limit exceeded the UM coverage limit of the National Interstate policy.

Suffolk County Supreme Court (Cohalan, J.) denied the petition, finding that the evidence established that Dock's vehicle was uninsured at the time of the accident. The court did not determine the merits of State Farm's second argument concerning the priority of the National Interstate (bus) and State Farm (claimant's car) policies. 

In AFFIRMING the order denying and dismissing State Farm's petition, the Appellate Division, Second Department held that under New Jersey law, Dock's New Jersey auto policy with Mercury Insurance Company had been effectively cancelled three days before the accident.  The Second Department also concluded, however, that Supreme Court should have reached and decided the issue of priority of coverage, and because both New Jersey and New York law would resolve this issue on the basis of the language in the applicable policies, there was no conflict of laws on this issue:

A provision of [State Farm']s SUM endorsement in its policy with Thomas pertaining to priority of coverage indicated that, where an insured was entitled to SUM coverage under more than one policy, the order of priority was to be:

"(a) A policy covering a motor vehicle occupied by the injured person at the time of the accident;

(b) A policy covering a motor vehicle not involved in the accident under which the injured person is a named insured; and

(c) A policy covering a motor vehicle not involved in the accident under which the injured person is an insured other than a named insured [emphasis supplied]."

Coverage under a lower priority policy was to apply "only to the extent that it exceeds the coverage of a higher priority policy."  Here, Schoolman's [the bus company's] policy with National Interstate covered the vehicle occupied by Thomas at the time of the accident.  The petitioner's policy with Thomas covered a motor vehicle not involved in the accident under which Thomas was a named insured.  Thus, under the terms of the petitioner's policy, National Interstate's policy was higher in priority than the petitioner's.

Meanwhile, Schoolman's policy with National Interstate contained a provision which stated, in part,

"Other Insurance. With respect to bodily injury to an insured while occupying a motor vehicle not owned by the named insured, the coverage under this UM endorsement shall apply only as excess insurance over any other similar insurance available to such insured and applicable to such motor vehicle as primary insurance, and this UM endorsement shall then apply only in the amount by which the limit of liability for this coverage exceeds the applicable limit of liability of such other insurance. [emphasis supplied]"

 Here, Schoolman, National Interstate's insured, owned the bus in which Thomas was a passenger when it collided with the Dock vehicle.  Thus, this "Other Insurance" policy provision, on which National Interstate relies in support of its contention that the petitioner's policy is higher in priority, was, by its terms, inapplicable to the circumstances presented here (see Matter of Lancer Ins. Co. v Robayo, 28 AD3d 664, 665). 

Accordingly, National Interstate's policy constituted the primary insurance policy for all coverage, and Thomas may resort to the petitioner's policy only in the event that National Interstate's policy is insufficient to fully compensate her, and then "only to the extent that it exceeds the coverage of a higher priority policy." 

Outcome:  Bus insurer owed primary UM coverage and State Farm's policy owed excess UM coverage only to the extent that its UM policy limit exceeded the National Interstate policy's UM policy limit.