SUM Coverage Affirmed for Mechanic's Use of Insured's Temporary Substitute Car

SUM  – TEMPORARY SUBSTITUTE CAR – LOANER VEHICLE
Matter of State Farm Mut. Auto. Ins. Co. v. O'Brien
(2nd Dept., decided 9/19/2014)

State Farm's policy defined "Temporary Substitute Car" as "a car that is in the lawful possession of the person operating it and that: 1. replaces your car for a short time while your car is out of use due to its: a. breakdown; b. servicing; c. repair; d. loss; or e. destruction; and 2. neither you nor the person operating it own or have registered."

State Farm's insured, Auletta, had his car in for servicing or repair at Massapequa Auto Repair.  While his vehicle was at the shop, Auletta was given a loaner car to use.  When his vehicle was done, Auletta asked O'Brien, an employee of  repair shop, to return the shop's loaner car to the shop.  While doing so, the loaner car was struck in the rear by a vehicle insured by GEICO and O'Brien sustained injuries.  O'Brien sued GEICO's insured and GEICO paid its policy's $25,000 to settle that lawsuit.  State Farm consented to the settlement, but denied SUM coverage to O'Brien based on its position that the loaner car did not meet the policy's definition of an "uninsured motor vehicle".

O'Brien demanded arbitration and O'Brien commenced this special proceeding to stay that arbitration permanently.  Supreme Court denied the petition and State Farm appealed.

in AFFIRMING the order appealed from the Appellate Division, Second Department, held that O'Brien was entitled to SUM coverage under Auletta's policy with State Farm because the loaner car constituted a "temporary substitute car" under the policy, and a temporary substitute car carried the same coverages as Auletta's regular auto:

This Court has held that the purpose of a provision relating to a "temporary substitute" vehicle "is to afford continuous coverage to the insured during the period that a vehicle scheduled under the policy is out of commission, and at the same time limit the risk to the insurer to one operating vehicle at a time for a single, fair premium. Coverage for a substitute vehicle ceases when the insured vehicle is repaired and returned to its owner" (Lancer Ins. Co. v Republic Franklin Ins. Co., 304 AD2d 794, 797 [internal quotation marks and citation omitted]). Here, the SUM endorsement fails to articulate any exclusion for a "temporary substitute car." Therefore, the Supreme Court properly denied State Farm's petition to permanently stay arbitration and directed the parties to proceed to arbitration.